Caldwell says startups often charge far below what their product could command, sometimes one tenth or even one hundredth of the appropriate price. He says YC often advises founders to raise prices substantially as soon as possible.
Most Startups Are Undercharging
Speaker
Dalton Caldwell of Y Combinator discusses why startups often undercharge and how pricing can reveal whether a product solves a real problem.
Competing mainly by being cheaper can obscure whether a product is genuinely useful or merely attracts customers seeking the lowest price. Caldwell says relying on a large discount as the main customer acquisition strategy is a warning sign.
Caldwell says successful products often charge more than competitors because they solve an important problem well enough that customers accept the premium. He treats willingness to pay more as a positive signal that people want the product.
Caldwell names Instacart, DoorDash, Airbnb, and Dropbox as expensive offerings, and says they did not pitch themselves as equivalent products at a fraction of competitors’ prices. He also contrasts paid Zapier with free IFTTT, which he describes as a close substitute.
Takeaways
- Test whether customers will pay for the problem your product solves, not only whether they like a low price.
- If a steep discount is your main way to win customers, investigate whether the product has enough value on its own.
- Consider raising prices early to learn how much customers value the product.
- Look for markets where customers accept a premium because the product solves a substantial problem.
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What was claimed 2
- metricIFTTT: Did not charge money
“IFTTT did not”
YouTube Unverified1 source· Talk
- metric
Zapier: Charged money“Zapier charged money”
YouTube Unverified1 source· Talk
