How to think about pricing for your startup?

Pricing: This one word makes even the most experienced founders wobble. "How did you come up with your pricing?". This is something we ask our founders a lot. Can you explain to us the physics behind why X and why not Y? Some founders replicate replacement cost, some replicate peer pricing, some price for value, and so on...

However, what is the right way to do this?

Even we do not know!

But the more we think about pricing, the more clarity we get. There are three major schools of thought when it comes to pricing in our opinion. And these are what startups should pursue: Maximization, Penetration, and Skimming. All the three are different in a way because they prioritize growth, market share, and profit maximization differently.

How? Let's take a look:


This just means revenue growth in the short run. How can you maximize the revenue growth of the company in a short period of time, and what do you need to do it? Startups usually do this when there is no clear differentiation in the customers' willingness to pay, the customer segment is homogenous, and there is no difference between optimal short and long-term pricing. Most health-tech companies, and software companies at a certain maturity level do this in order to grow rapidly and get to scale. We have seen many companies prioritize maximization at any cost to fail spectacularly because they perineally operate at negative unit economics to focus on growth.


This means to quickly gain dominant market share by deliberately pricing low. This is what Jio did to penetrate into the Indian telecom ecosystem. Low prices minimize friction of adoption, help you grow quickly, and help you move up the chain once you have a decent scale. We have seen many companies say we will deliberately price low to capture a dominant market share, to only quickly shut shop. Any penetration strategy requires a product with immense value, coupled with a very strong balance sheet.


This means to maximize profits. Expand profits first, revenue will follow. This works in the case of product companies like Apple or Tesla. Products are deliberately priced in a way to maximize profits. They only want diehard customers who are ready to pay any price. They play the mindset of the customers that have the ability and willingness to pay a certain price as early adopters. Again, as with penetration, skimming can only be successful if you have a product with a strong fan base. Otherwise, you are just expensive

Startup pricing is not very easy. These strategies should be explicit for the startup and its employees to align their effort and expectations. Everyone right from the product, engineering, marketing, sales, and finance should be on the same page when it comes to the pricing strategy. And this is where the true strength of a company lies.

How to make productive reference calls?


Every founder who has progressed onto our due diligence knows that we love making reference calls. We like to talk to co-founders, key employees, at least five customers, a handful of business partners or stakeholders, other investors, and even college professors! For us, a reference call is as sacrosanct as a term sheet!

Over the years, we have learned a good deal from our failures, and successes. Knowledge gained is winning half a battle, knowledge shared is winning the world! Being true to our words, we want to share our experience with the world.

How can you make productive reference calls?

1. The more the merrier

The good, the bad, and the ugly: With more emphasis on the bad and the ugly. Why? Because we know differences of opinion will always remain, but it takes strong principles to still be connected to someone who is a negative reference, and even more courage to connect them for a reference call

2. Lookout for lavish feedback

The moment you put the phone down, another call will go directly to the candidate telling them everything we spoke about in detail. And this is not necessarily bad. All questions go back to the source!

3. Drill down on specifics

Everyone can say "Oh they are a delight to work with", but the devil lies in the detail. Can they share an example? Or three? This helps understand a pattern.

4. Seek discomfort

This is especially with the bad and the ugly references. You can start with "I have heard glowing references for a couple of people, however, some also said X..." And then wait for the ball to drop, or not. You need to go with the assumption that the candidate or the founder is great, however you do not want to be blindsided by something.

5. Always a scope for improvement

Accept it. Do not fuss over it. Focus on areas of improvement.

6. Lead calls with examples

After a couple of calls, you will understand a pattern, and you can lead calls with that pattern. You can say "Some people said THIS about him, what is your opinion on how it can be improved?" You are not letting them say No, he is not like that. You are asking them to elicit an opinion. This also helps you understand the depth of the relationship and the quality of the reference.

7. Seek more

Some of the brilliance in reference calls is getting "other" references. Someone who is not a directly listed reference. Someone who might have nothing to win or lose, and is more likely to be honest. End the call with asking "Hey thank you so much for this call, do did mention X worked with you in a team of 4. Can you please help me speak to someone else in that team as well?". Get ahead of the agenda. Dig deeper. We have found that LinkedIn also helps.

8. Team up

Many times asking difficult questions that reach back to the source can lead to starting off the relationship in a tricky way. One way to get past this is to have someone trusted on your team do some of the dirty work. Many sophisticated investors or recruiters completely outsource this as well. But we prefer to keep it in our network.

9. Keep your mind open

Yes, you are trying to seek discomforting evidence. But do not base your interpretation of the calls based on that one piece of evidence. There are two sides to every coin. Your job is to get reasonable clarifications.

10. You will learn on the job

You will not learn via these tips. The best way to learn is on the job. So go ahead and start making these calls.

Why innovation takes a backseat in growing startups?

Finding product-market fit is a milestone event for every startup. You've done the hard work. You have a good team in place. Your small set of customers are very happy with your product, and the channel that you use to acquire customers is working excellently! You now raise a Series A to essentially grow in multiples. And that is where product-related innovation will start taking a backseat.


The past 18-24 months that you worked so diligently to ship code in a week is gone. Today, your product team has a lot more complications to deal with, a lot more integrations to navigate, a lot more customers to cater to.

Let's dive into some of the common reasons why this happens:

1. Technical issues

The days of an idea to installation in under X days is over. Today, you have architectural issues that you did not have to deal with in the past. You do not have just one customer or an isolated use case to divert all attention to. Today's customer base is growing, is a lot more complex. Today you can not ship code quickly before assessing the ramifications of an error company-wide. You need to do it perfectly, seamlessly, without causing any outages. Easier said than done. And this takes time.

2. Changing focus

Gone are the days when the founder has just one thing to do- create. Today the founder has to carefully assess her time. She is dealing with hiring, fundraising, investor relations, board meetings, compliances, and whatnot. Most likely, the time spent earlier on finding product-market fit, understanding customer needs, and creating a roadmap is now going into the activities that previously did not exist.

3. Resistance

As you grow your customer base, you cant move at the same quick speed you used to operate at earlier. This is because of the time and effort required in customer education with every change. Even a minor tweak in the UI can lead to a massive influx of customer queries which cost a reasonable bandwidth of the team to solve.
While most of these issues can not be countered easily, startups can focus on these areas by doing the following:
a) Promise an assurance of quality and stick to it
b) Help build transition plans for existing customers
c) Get someone or some time to run product full-time
No problem is unsolvable in today's world, just requires innovative ways to tackle it. Maybe you can find your lost mojo of innovation back in the front seat!

What can Startups learn from the Aviation Industry

The fallacy of autopilot

Whenever we think about autopilot, we assume that the system calculates the fastest and safest way from Point A to Point B and then sticks to it to give us the best possible route. How much of the time is the plane sticking to the best route create for it? Maybe 90% or 80%? The correct answer is never! Why you ask? Because every second, the system gets data from its receptors to give the best possible route from that point forward. Hence, every second, the system corrects the direction of the plane to give it the best possible route. The best possible route changes from the time the plane takes off to the time it lands. You have to count the effect of turbulence, bad weather, crosswinds, and whatnot.

Even at a more micro level, as our cells divide, they keep retroactively correcting copying errors, failing which we would die of cancer after hours of conception. Even diseases and bacteria are constantly evolving so the body finds different ways to mutate and fight them.

Adapt or die

We all make mistakes. We all fail. We are in a business where 90% of the time, we will fail. If we are used to failure, then why are we reluctant to taking corrective measures? Is it because we interpret every corrective action as a flaw in our plan? Are we so hell-bent on being right that we are okay risking death in order to satisfy our fragile egos?

Plans are nothing

Every pitch we receive is accompanied by a business plan. Detailed, intricate plans by week, month, quarter, and year that all leads to long term value creation, starting today. Sound familiar? Best possible route from Point A to Point B.

What if we tell you that 99% of the plans we've seen have not worked out in real life? If even 10% of the plans investors see work out exactly as planned, every investor would be as rich as Warren Buffet, and if we're being ambitious, richer than Mansa Musa!

But it does not happen. Because a business is constantly subjected to economic turbulence, bad economic weather, headwinds, and whatnot. And the best possible route keeps constantly changing every second.

Does that mean we do not plan?

Planning is everything

A plan is critical because it is the foundation to project objectives and achieve goals. A plan is extremely important to do 2 things:

a) Focus on key variables that matter

b) Measure what matters

A plan makes use of the data from above to understand where are you right now, and where do you need to be. In the long run, where you need to be i.e. your destination never changes. That's the endpoint. However, your starting point keeps changing i.e. where are you right now. And the variance between your forecast route and the actual route is essential to understand what went wrong in order to take corrective actions.

If you do not measure what is wrong, how can you right that wrong?

Black box thinking

Continuing the example of airlines and planes. The British de Havilland Comet 1 was the world's first commercially produced jet. However, the jet met with so many accidents where planes broke midair killing everyone on board instantly. Upon conducting post mortems of these jets, researchers identified the reasons - hairline cracks formed at the corners of the square windows due to pressure build-up that led to spreading the cracks across. This is the reason why we have oval-shaped windows today. Effectively, those many people had to die in order to make air travel safer for decades to come.

These crashes led to the installation of the indestructible in-flight recorder called the 'black box' in every single jet. The idea was to learn from the failures to not commit the same mistake again. The black box collects thousands of pieces of data per second to make it easier to determine the exact cause of a crash.

Think about it, the airline industry is the only industry in the world that takes mistakes so seriously. Capital Sullenberger, the hero of the Huson River landing wrote "Everything we know in aviation, every rule in the book, every procedure we have, we know because someone somewhere died". Effectively every crash makes air travel safer.

Walk the talk

If we replace a crashed jet with a failed startup and lost lives with lost resources or jobs, will we make sense? Absolutely! But where is the person to mandate us to install a black box in our startup? If we do not capture the reasons for failure, how will we make the next startup, the jobs and livelihoods of future employees and stakeholders safer? We won't. If you do not capture and measure what matters, and what went wrong, how will you right that wrong?

We are strong believers in documenting the journey of your startup and sharing your learnings with others via a blog or podcasr. When founders share their journey, their successes, their failures, their learnings with others, they effectively make the learning curve of others in the ecosystem more short and steep. And the steeper your learning curve, the more exponential your growth! Black boxes of the startup ecosystem will definitely make it a safer future.

In the end, it's up to the founders of today to lay the foundation of tomorrow. We can only be the enabler, you have to be the doer!


End of FY21: The checklist for startups

As we come closer to the end of the financial year 2021 or FY21 - a year marred by COVID shutdowns, increased spends, lowering cash balances, shorter runways, mass layoffs, existential crisis, down rounds, and what not; this is a critical time to take stock of the year and hold 'end of year board meetings'. These board meetings will be the most important meetings of the year. And more often than not, a lot of these end of year board meetings will be strategic than tactical in nature. These end of year board meetings will set the tone for the upcoming year for your startup.

We've sourced a checklist of top 5 things that we've seen founders do, and things we like founders do. These things will set the company up for success in the coming year.

What is the perfect end of year checklist for startups?

1. Annual post-mortem

Try to answer questions like:

  • What did you learn in the past year?
  • What did you accomplish in the past year?
  • What did you do right?
  • What could you have done better?
  • What were your mistakes?

This post-mortem is created by the top-level management including founders to share their inputs to explain the position of the company from the inputs of the entire company. After collating the details and views from all parties concerned, the most successful founders share this with every employee in the team to be transparent.


2. Team evaluation

Call it what you want- team evaluation, performance evaluation, 360-degree review- anything. But at the end of the year, the team evaluation is important, and annual reviews are essential to honest cultures in startups. This is the best time to evaluate the performance of the team versus targets, reward the top performers, give a pep talk to the slackers, and set compensation for the coming year. The best founders share ones who share reviews transparently with their board.


3. Setting OKRs

We are strong believers in OKRs (Objectives & Key Results), a model where the management sets up the top 3 measurable, quantitative goals for the company, and strongly encourages each business line, team, and individual to do the same. It can flow both top-down and bottom-up in the organizational hierarchy. These OKRs are publicly shared in the company, measured at specific intervals, changed or altered over a period of time in accordance with the direction of the company. OKRs align the interest of all efforts of the company towards the common goal.


4. Key issues that need to be solved

This is the most important part of the checklist. The board, founders, management, and employees have different issues that they are concerned about. But is it possible that they are worried about the same issues? If that is the case, directing a common effort to find common ground and prioritize communication and solution is the best thing the company can do to succeed.


5. Financial plan for the coming year

Every review should end with the planning for the next one. Where were you, where have you reached, and where do you want to go. End of year board meetings are also held to approve the direction and budget for the coming year. This includes the business lines, P&L, action plan for sales, hiring plan, cash flows, runway, and planning for the next fundraise when necessary. This will help with scenario planning, goal setting, and team measurement.


For founders, investors, startups, this is a very good time to introspect, evaluate and communicate. We urge all our portfolio companies to do the same which can help them become more productive. The end of the year is about 11 weeks out, and starting early will help companies be more productive. As always, request the founders to share board meeting materials a couple of weeks in advance so the board can be better prepared, and have intelligent discussions.

Traction can get you the Action

What is the best way to overcome investor concerns regarding our team and our ability?


There have been times where we were part of pitch events where not everyone was paying a whole lot of attention. As you might understand, many pitches are a carbon copy of others, with deck designs, revolutionary technology promising the moon, an ivy league team, a large market, and so on. However, I've seen investors perking up, having a twinkle in their eyes the moment the founder says "We did 10 lacs in MRR last month and are growing 40% WoW"

A lot of founders we've interacted with believed that angels will happily sign a cheque at the end of the first meeting in a coffee shop after you've explained your 'idea' to them. No. Most angels will not invest in just ideas. Angels have limited capital, and do a handful of deals a year. Angels will go through the idea, team, market, technology, and opportunity. However, the most successful pitches would be the ones that can demonstrate the ability and willingness of customers to pay money to get your product! It is no secret that Malpani Ventures participates in opportunities that are revenue-generating. The likelihood of a pitch succeeding and the time we spend on diligence will be proportional to the amount of revenue being generated.

So we will never be considered for funding if we dont have enough revenue?

If your startup has significant revenue coming in for the stage you are operating in, you may have one foot in the door. You should most likely make your revenue numbers the highlight of your pitch deck! We highly encourage founders to figure out their revenue generation before they think about raising funds.

However, we understand that not every company will be able to generate revenues before raising. And that's okay. There are other ways of showing traction than just revenue. Yes! Revenue is the best indicator, but others also work. There are other indicators that provide validation about the value, usage, and success of your product.

What are the best ways of showing traction?

Recurring revenue: Yes, this comes first. Even if you have a handful of loyal customers, we want to see that loyalty. We want to see if customers purchase your products once or multiple times. We want to see if customers liked a product during the trial and fell in love with it to continue using, and purchasing!

Purchase orders: Large purchase orders demonstrates firm commitment of the customer to buy large volume of your product. This can be almost as good as revenue.

LOIs: Letters of Intent are a way of showing the excitement of customers to use your product. LOIs enable the customer to deeply engage in evaluation and diligence in order to ensure your product can be used seamlessly by them. LOIs from end-users matter the most, followed by distributors and manufacturers. Because the more layers between you and the customer, the lower the impact.

Grants: Grants form a significant portion of expense funders when making a highly technical product. Investors love the nondilutive aspect of a grant, and the credibility of getting funded by a large organization that typically signs cheques for these grants is akin to due diligence.

There are also other modes like Awards, participation in Accelerators & Incubators that also add immense credibility. However, nothing really tops good old revenue!

Dear Founder: Go Fund Yourself!


For decades, the largest companies in the world have been obsessing over their cash flows, trying to analyze every minute detail to become more efficient, better free cash flowing machines! The more cash you generate, the more cash at your disposal to self-fund your initiatives.

This is such an important area in the world of finance that there are institutions that exist to help you manage your cash, and help you out in times of need - banks!

However, cashflow management is completely unheard of in early-stage startups. All the chatter is just around venture capital and equity infusion. And they bring with themselves the beast of dilution, valuation, investor consent, and whatnot. Almost nobody pays attention to the importance of working capital management, some companies do not even have the hang of working capital on a monthly basis.

What the hell is working capital?

While working capital seems like a complicated term, it is simply the amount of capital you need to run your business on a daily basis! It is the combination of these things:

1. The cash you get in bank by selling your product/service

2. The cash that goes out of your bank in order to exits (rent, salaries, purchases)

3. The cash that sits in your warehouse as finished product i.e. inventory

It is essentially a cycle that goes like this:

Buy raw material > convert to finished product (i.e. inventory) > sell the product > collect funds from sale > use the funds to pay bills > make a profit > buy more raw material > repeat

Did you notice that venture capital does not feature in the above?

So when do you require venture capital?

Venture capital is only required if you have operations that can fill the gaps in the above cycle.

What are these situations?

  • High upfront costs - Machinery, a tech team to build a product. These require initial investment where you do not have a choice but to raise capital
  • Negative unit economics - In the working capital cycle that we shared above, the sale proceeds do not make enough returns for you to cover the cost of goods or fixed expenses. And you're okay losing money per sale with a view of turning profitable at a later date

A lot of people scale in a lean manner, testing their hypothesis quickly with the hope to earn profits as soon as possible. And if you are one such founder building a sustainable venture, you need to stop wasting your time on venture capital, pitching, wooing investors, drawing valuations, and surrendering your rights to some random investor!

You need to focus on fixing your working capital cycle so that you do not have to rely on outside captial.

How can you go fund yourself?

Its simple, but may not be easy. If you remember the cycle that we shared above, there are three core activities of your business:

  1. Make payments
  2. Collect payments
  3. Manage inventory

While traditional businesses used to purchase a large amount of raw material to turn into a finished product that they sold, and then collect payments at a later date, it need not be the same way today!

With new-age digital products, and software this cycle can be turned around. How?

  • Collect cash upfront via Pre-sales: Pre-sell your product before launch so you can collect payments upfront by providing a small discount. You incentivize the customer to save if they buy ahead of time. This discount will be far less than the amount of equity you diluted or interest you paid if you'd taken a loan!
  • Delay payments as much as possible: This does not mean you not pay your workers or vendors. This means to use the liberty of paying as late as possible. For example, a founder we know used to max out his credit card every month to save working capital for his company, essentially turning an upfront payment into a 45 day credit. If you work with B2B vendors, negotiate if you can pay in 90 days instead of upfront, most will agree. Try to pay as late as possible.
  • Keep minimum inventory: The last thing you want while building your business is to have all your cash tied up into inventory. Try to keep your inventory as low as possible. Sure, buying in bulk is tempting because of the discounts, but are the discounts worth anything if you do not have the cash to turn the raw material into finished product, or pay salaries? If you are building software, its always a good thing to ship weekly, monthly updates rather than annual ones so that customers pay you on a regular basis rather than one time.

All of this will help you keep holding onto your cash a little longer. And as founders, we believe you know the importance of having cash is akin to oxygen.

If you get this right, you will not need outside capital and might just be able to go fund yourself!

Great pitches come from customers

At the heart of every startup, there is a story, not about the product or the team, but one about its customer. Gone are the days when leaders told the self-centered narrative via mission, vision, and positioning:

"Disrupting _______"

"Revolutionizing _______"

"Changing the way people ________"

And invariably when these founders pitch to investors, they start with the same premise. "We are revolutionizing the way people do XYZ". However, the sentence has no meaning to investors. At times, we've had to ask the founders, "Can you please tell me exactly what it is that you do?" and "Why is your service essential to the customer's operations?".

At Malpani Ventures, as a part of our due diligence, we speak to clients, vendors, existing investors among other people from the industry. And believe it or not, we will ask the customers why your service is essential to their operations! The words of your customers hold more weight than yours.

There have been times when a founder said their customers can not function without their service to be met with a thumping no from the customer. And there have been times when a founder said we may wind an adjacency down only to have customers being hooked onto few products in that adjacency. In both cases, the founders end up looking naive.

So, how do you avoid that? How do you get the true knowledge of your customers affinity towards your product? And how do you use that to craft a compelling narrative about your business?

The answers lie in questions. We always nudge our portfolio companies to keep interacting and engaging with their customers. Because the day will come when an investor will want to speak to one. And you and your customer need to be on the same page. As a part of our due diligence, we speak to a minimum of four customers to understand the lay of the land.

While there are numerous questions we ask, these are the top three questions that are the most effective:

1. How has the startup changed your life?

This is a great opener because this does not talk about the customer's problems or the company's solutions. Instead, it focuses on the things that matter to the customer. This helps structure the rest of the conversation because the answers to this question are invaluable. One pet peeve is to keep asking more questions? If we hear "X helps me reduce costs", we follow up with "what did you use before?" and we usually keep repeating this until we have information that isn't generic.

2. What is different about your life before and after using their services?

This is to understand the distinct change that has happened because of services used. Different from the question above that highlights how has their life changed, this question highlights the exact difference in their life. This is a better second question because once the customer indicates the benefits they derive, a great follow up is to ask what exactly is different before and after. This helps you pinpoint the exact workflow that has been impacted by your offering.

3. Why will you keep using their services?

Some services are transaction-based, some are relationship-based. You want to hit for the latter. Transaction-based services are those where customers may switch the moment they derive lesser value than they're paying for. However, relationship-based services are long-lasting and provide an incentive to the customer to stay put. The main difference between transaction-based services and relationship-based services is the lower cost of customer acquisition and retention. The longer the customer stays with you, the more profits you earn.

Customers are the greatest anchors

For a recently concluded deal, we interviewed several large corporate customers of the company we were evaluating. We spoke to 6 customers, all from different sectors to get the lay of the land. As a rule of thumb, we ask the same questions over and over until we get divergent views and then pursue that divergence until we are satisfied. The hallmark of our successful customer interviews was that irrespective of different sectors, use cases, and sizes of these companies, nearly every large theme pursued was met with a consistent theme and response.

We may not have been fully convinced about the deal, but the fantastic conversations with customers made our weak conviction strong! That was the day we truly realized that great pitches come from customers!


Recent Posts