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This weeks show tackles a range of topics starting with deciding between working for yourself and working for others. No matter who you work for pricing is a tricky subject we all need to tackle. And after you’ve make enough money to have some to invest, where should you put it all?

Show Notes

Inventor vs. Entrepreneur

Two questions:

1. I have an idea for a product I am trying to get to market. I work in 3d design and have a concept. However from there I’m having trouble on where to proceed. Even ignoring the fact of trying to afford a patent.
   Where does a person even begin in marketing an idea. Spend money to advertise for something you have no current way of manufacturing, or take out loans and spend money you don’t have on mass production for something that may not sell? The product can’t really be made on a one to one basis, as it’s going to have to be a plastic product.
2. If the first idea falls through we’ve been looking into starting a franchise of some kind. There are several ideas available that would work well in our area. However, a similar problem applies. Most franchises (and by most, I guess I mean most that will work for our area) are in the range of $200k-400k to startup.
   Even if a bank would consider a loan, would it seem crazy to start something that far in debt. Is there any way to do this, or are we just out of luck? I’ve always heard it takes money to make money. Tell me there’s some loophole here. Thanks.

–Aaron Melton

Well, these are pretty difficult questions, because the nature of being either an inventor or an entrepreneur are both risky.

On one hand, you have an idea for a product that essentially needs to be designed, built, and marketed from scratch. My advice would depend on how deeply world-changing this product is. If you believe it is a $10 Million product, then it may be worth pursuing it with all of your heart and soul. If it’s a $500k product, then it might be something you should pursue on a part time basis.

Either way, you should never, ever mass produce something you don’t have proof you can sell. A just-in-time delivery model is a very important operational strategy for any sort of manufacturer, so first market it, then make it. The only exception is that you are going to at least need a prototype.

As far as creating a prototype is concerned, I understand that one off manufacturing is not the way to go, but I believe you can find someone with a 3D printer, like the Dimension models, and have them create your design fairly cost effectively.

If trust is a problem, you might have to buy a small one yourself, which will run you about $15k. Another alternative would be to find a machine shop with a 3D milling machine and have them mill your part for you. You only need a few prototypes to talk to investors or buyers about, so don’t go hog wild here.

If none of this is going right for you, then buying a franchise could indeed be another way to go. And there are certainly a lot of options in this arena. I’m less opposed to taking out a loan to support the operation of a proven franchise, because they tend to have support, historicals, and incentive to ensure that you achieve. Often franchises will be able to help with financing as well.

Besides, doctors, lawyers and other professions often go into debt to get started. It’s ok as long as you understand that you’re going to be paying it off for quite a while.

Choosing Companies to Invest In

@WealthNation I always buy gadgets. I always think to myself I should be investing in these companies. –@Macbrebonicks

I know what you mean! GeekBrief.TV has me buying so many gadgets that I don’t know where to put them! Some of which are absolutely fantastic! But investing in any company is a very risky maneuver and not something one should do simply because they love the product.

I’m personally invested in probably 2,000 companies. And I don’t even know which ones. That’s because a lot more goes into truly evaluating an organization to determine if it is a worthy investment than simply looking at the product lines.

Investment firms literally have teams of people they send into businesses to give them a full evaluation before they will put any of their client’s money in them. These folks are trained to read balance sheets, evaluate management, and make educated guesses about the long term prospects for a business.

My advice to you is, keep your investing and your gadget lust separate. Buy gadgets with your heart, but invest with your head!

Pricing Software As A Service

My company is going to be focused on selling software to colleges and universities. We are following the Software as a Service model so schools will just pay as a yearly fee for the products they buy.  Without saying too much about the company the products are administrative in nature and would be used by staff and students. We’ll host everything ourselves and we are doing all the development work in house so we don’t have a lot of start up costs.

My question is how do we set a price for our products? One of our products has no competitors so there is nothing to compare it to. The other product has competitors, but its not like their pricing is publicly available; we’d need to be a school to get a quote!

I’ve been in contact with two prospective clients who are interested in the products we are developing. Do we just flat out ask them how much they would pay? Do we start high and see if they choke on the price? My fear is that we set the price too low and have a hard time turning a profit. – Anonymous (can’t be on air)

Even though there might not be a direct competitor, for your type of service, there are going to be other services for your industry which can help you gauge what people are accustomed to paying service providers in general. For example, a company called 37Signals offers several services for business including:

• Basecamp – Project management
• Highrise – Contact management
• Campfire – Group collaboration
• Backpack – File sharing

Getting Real

There are also service providers like Salesforce.com for CRM and Live Person for online chat.

So, while your service may be unique, businesses are accustomed to buying from service providers and what you need to do is try and figure out how closely your service matches in terms of the value it provides and then use some similar value pricing as a basis to start.

I’d also be more worried about guessing too low than too high. It’s easier to give discounts and promotions to attract business than it is to increase prices after you’ve started.

Thanks to Sam Fox for the beautiful coin image above.

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