Starting Up #14 - Turn Every 'No' Into Your Competitive Advantage

Speaker A: Starting a business is hard. Betting on yourself is hard. Do you know what else is hard? Working for someone else and jobs that you hate for incremental wages while hanging on to the hope that by age 65 you're going to be able to retire and do all the things that you wanted to do while you spend the best years of your life making someone else rich. That's hard. Welcome to Starting up the podcast where we're choosing the hard that gets us where we want to go faster so we can live life on our terms. I'm your host Jay Sensei. I am a non technical founder who bootstrapped the software company from idea to multi million dollar ARR, sold it to private equity in an eight figure exit and retired at 40. All without a coding background, without outside capital, and without leaving my day job. Each episode I'm going to be sharing the real story behind how I did it. The wins, the mistakes and the playbook that you can use to start, grow and sell a company of your own. This is starting up. Let's get into it. It's the word every entrepreneur fears the most hates to hear. No. Nope. We're not interested. Nope. We wouldn't buy that. No. I just don't see the value. But what if I told you that no is the most important word in your entire business toolkit? That every single rejection carries a lesson that can be beneficial to your product, Your pricing or your positioning can make all those things dramatically better. Today on starting up the exact playbook for turning your no into your competitive advantage. Last episode we talked about the gap between what people say and what they do and how to calibrate your expectations accordingly. Today we're going to get tactical. I'm going to give you the exact framework that I used to handle market rejection during my market research phase. Three specific NO scenarios, the follow up questions for each one and what you'll hope to learn from the answers. This is the episode where rejection stops being scary and starts being strategic. Through dozens and dozens of conversations with college housing professionals, I identified a lot, but usually three primary categories of no. And each one, in my opinion, requires a slightly different follow up strategy. The first scenario is this just isn't something that I think would be useful. And this one might be the toughest no. Because to hear a rejection because of the idea itself, that can hurt. Not the price, not the timing, the concept itself, the thing you've been pouring all of your energy into. And so I uh, think initial instinct might be to be defensive. You might want to argue the point to explain why they're wrong, to try to go all out and try to convince them, don't do that. Instead, ask a couple follow up questions. Right? Because these follow up questions will be more beneficial to you than trying to win them over. Because you won't. First question I would ask is what would make it useful that it doesn't currently do or have? All right. This particular question accomplishes something that I think is really powerful. It shifts the conversation from your idea sucks to here's how your idea could be better. You know, the prospect is kind of now helping you improve rather than just rejecting you off the bat. I would also ask, you know, is there a specific feature or attribute that you know, if the product had it, you would find it useful enough to consider purchasing? This question is kind of a direct path to trying to understand what your product is missing. Maybe the core concept is great, but you're lacking specific integrations or data visualization or workflows or features that might just be critical to their operation. Without it, they just couldn't say yes. And then another question I think I would ask for this particular no, uh, response is kind of like the magic wand question. You know, if you could wave a magic wand and redesign this product to be better or meet your needs or solve important problems for you, how would you design it? This one is probably the most open ended question, but it often yields the most surprising insights. You're kind of like having this person consult or hiring this person as a free product designer. Remember, they do the work every day. They know what will and will not be beneficial and valuable to them. And if you are nice enough about it and you get to the right people, you can get this information for free. And quite frankly, because they've already said no, they don't really have anything to lose by being honest. Right? The hard part is over. They said no, they let you down, whatever. If you can keep them on the phone and get them talking about this, you're going to learn so much. And I think some of the things that you learn from this particular scenario are going to be the strength of your core idea. Any feature gaps that could maybe convert a no into a yes and maybe some specific items that you put on your development roadmap. Uh, the second no scenario I would use is kind of the competitor bucket. You know, you got to know, because we already have a tool or a process or a vendor that does something similar. This was probably one of the most common responses that I've gotten over the last 12, 13 years. Across three different software products for higher ed. And this particular response taught me probably more about the competitive landscape than any amount of online research could have. Because when somebody tells you that they already have a solution, your follow up questions are this. Do you mind telling me more about your current tool or the process that you're using today? This is just going to give you direct intelligence on your competition. What products are in the market? Maybe some are surprises, maybe some you already know about. Who are the players? What does their solution look like from the customer perspective? And then I would capitalize on that by saying or asking are there things you wish your current processor vendor did that it doesn't currently do? This is going to give you the gaps in your competitors offerings and those gaps, those are your opportunities. If a couple different prospects are frustrated with the same missing feature or the same way that that product works, boy oh boy, you just found your competitive advantage. In later episodes I'm m going to talk about how uh, I springboarded from my college roomie into a product called Guardian, which was a case management solution for education and those types of questions and what the users of some other competitive tools told me about what they didn't like or didn't have but wanted in those competitive products were a game changer for me because quite frankly I just went and developed that and it was easy but was mopping the floor with the competitors. So make sure you ask those questions. And then I would also probably ask what would need to happen or be available for you to consider switching to a different solution. This is what I would call the switching question. And the answer tells you exactly what it would take for you to win a customer away from an incumbent or a competitor. Is it price? Is it feature set? Is it uh, integration capability? Is it security? Is it contract timing? The things that you learn from this scenario are going to be critical to understand the competitive landscape, your potential competitive advantages and maybe even triggers that would cause a customer to switch all of those things incredibly important. And then the third bucket of no's that I would put uh, responses together in is the pricing bucket. Uh, kind of the I don't think we could afford it with our current budget or we don't have the budget or it's too expensive or whatever. This one I think is encouraging. It's kind of, you know, maybe it's the most encouraging no you can get because it kind of implies that the prospect sees value, right? If they didn't tell you the product sucks or I wouldn't use it or I wouldn't get value or we got a competitor, you know, we've got an existing tool that's better. If they've gotten to the point where they could have given you those answers, but instead they land on the price aspect. It almost kind of implies that they see some value, right? That they don't, they don't, they see a path to using it, they just maybe don't see a path to paying for it. Follow up questions for this type of no is you want to get to the point where you want to understand at what price point it makes sense for them. So I would ask something like, you know, in your opinion or based on what you know about your budgets, what price would this product have to be or what range would it have to be in to fit within your budget and make it something that is valuable enough for you to make a purchase? This is kind of like a direct line to market pricing. Not what you think they should pay, not what you want to charge. What can they actually afford and what would be the number or range that they could pay and justify it because they feel that they're getting enough value? I'd also probably ask, you know, is, um, is price a greater decision making factor than the value of the product would provide? This question probably helps you understand, uh, the mindset of the buyer a bit more. You know, some buyers are probably purely price driven. They will always buy the cheapest option. Regardless of the old saying, you get what you pay for. Some are just going to buy the cheapest, all right. Others though are value driven. They will pay more for a better solution. So I think it's important to try to figure out, uh, which type you're dealing with because that's going to shape your entire sales approach. I would also probably ask what other problems would this product need to solve in order for you to make the price justifiable? This question I love because it opens doors, it's open ended and it asks your prospect to expand on your value proposition. They're basically telling you what else you could do to make the math work or to make the product more compelling. Maybe it's adding a couple more features and it really jacks up the perceived value and makes the price work within their budget. Maybe it allows you to charge more. So the things that you learn from this particular scenario are probably realistic market pricing. Uh, you probably get to tap into the buyer psychology a bit, your budget cycles and maybe pain points that you can potentially solve now or later across all three scenarios. I think there's a universal framework for handling rejection. STEP 1. Respect and appreciate the honesty. Don't get defensive. You know, your immediate response to any no should always be something along the lines of, you know, I appreciate and respect your honesty. Would you mind sharing the reasons that led to that answer? Could I ask you a couple follow up questions to help, you know, help myself? And I think this does two things. I think it, it makes the prospect feel heard and respected, which opens the door for deeper conversations. And it also opens, keeps the door open for maybe turning that no into a yes later on. And I think it also normalizes the no. You know, you're not hurt, you're not offended, you've taken it on the chin, but you're still genuinely curious. You know, people who've already said no, they did the hard part. Once they let you down, they usually feel a little bit more comfortable explaining why or answering some of your follow up questions. Then you get into the follow up questions. I would use some type of variation of the questions that I mentioned earlier. You know, outline them based on your type of product. Um, choose your questions based on the type of no or, or nos that you've received. And you don't have to ask all of them. Right? Read the room, right? Ask the ones that you feel are most natural in that particular conversation. And then document, document, document, document everything that you possibly can. If they let you record the conversation, beautiful. If not, just write stuff down. Write down the exact words that they use if you can. Specific frustrations, competitor names, price points, pain points, the features that are on their wish list. This is primarily market research, right? And it's more valuable than any third party report that you can find. Then look for patterns. After you've had, I don't know, 10, 20, 30 of these conversations, trends and patterns are going to emerge for sure. If 7 out of 10 people mention the same competitor, that competitor is probably strong, right? They're probably your primary threat. If six out of 10 people wish for the same missing feature, it's a big opportunity. And if 8 out of 10 say your price is too high, you probably have to reconsider your pricing model. The fifth step is using the data to sharpen your product, your product pricing and your position. This is where the rejection becomes your competitive advantage. Because every single pattern that you identify is kind of like a strategic lever that you can pull on. You're not guessing anymore. You are talking to the people that care about their work, that care about doing it more efficiently, that make the decisions. Right? You're making data driven decisions based on Direct customer feedback. You know, I think about, um, you know, here's how I think about it. Every no with a reason attached is kind of like free consulting from a potential customer. You know, you're, you're getting paid in insights instead of money. But if you use those insights right, those insights are, uh, what will eventually convert prospects into paying customers. I'm going to tell you exactly how this played out in my business because the impact was dramatic. When I started my market research calls for my college roomie, I quickly learned about a category of software that I didn't even know existed at the time. Housing Management Solutions, or HMS for short. There were three major players in the marketplace, and between them, they had about 80% of the schools in my target market as clients already. So I learned about these companies not from Google searches or industry reports. I learned about them from prospects telling me no specifically because, quote, they would say, we already have a system that handles roommate matching. That single insight reshaped my entire strategy. You know, I went from thinking that I was entering a market with very little competition to very quickly understanding that probably around 80% of my prospects already had something, not something great. The roommate matching functionality in these housing platforms was basic and very underwhelming, but it was still something, all right. And something is often good enough for a buyer who maybe is risk averse or doesn't have a lot of budget. So this transformed my product positioning. I was no longer selling a new solution. I had to sell a better option, a premium option that had to be so superior to the existing functionality that schools would justify paying extra money for it. My product became a luxury. All right, if, uh, I'm very big into cars, I love cars, you can hear me talk about cars. And so I'm going to use a car, um, simile or metaphor here. You know, if, if roommate matching was a car, 80% of my target schools already had a Toyota. It got them from point A to point B. Maybe it didn't have a lot of bells and whistles, but it worked. I was now selling the Ferrari. Same destination, but a dramatically different ride experience. I needed to find the schools that wanted and could afford the upgrade. The realization came entirely from hearing no and asking why. I also had to adjust my pricing based on the budget response going into it, thinking I was going to get $20 to $25 a student, I thought that was reasonable. Way too high for most schools. The follow up conversations that I had really helped me understand what the market could actually bear. And unfortunately I adjusted accordingly. My pricing dropped probably by sometimes 70, 80% from that hopeful pricing model. And the, uh, you know, not so useful responses kind of helped me identify features that would differentiate my product. Things that the housing management solution platforms didn't offer and maybe they could or couldn't easily replicate. But those particular features became some of my core competitive advantages. But the point is, none of this would have happened if I had run away from the no, if I had just hung up and said thank you for your time and not ask the follow up questions. All of this learning and all of this domino effect of what I did with the product happened because I leaned into that. I leaned into the nose with genuine curiosity. So here's what I want you to build this week. Create a simple spreadsheet. Three columns. Column number one, the prospect's name and the no that they gave you. All right, of those three categories, column two, the specific reasons that they shared when you asked follow up questions. And then column three, the actionable insight. What can you do with this information if you haven't done market research yet, make the spreadsheet anyway. You, you fill it out when you have the conversations. And after you've had maybe, I don't know, 10 or 15 or 20 of these conversations, look at the spreadsheet. Look for patterns. What reasons keep coming up, what competitors keep getting mentioned, what price points are most common? What are the features that everybody wants? Those patterns and those trends are your strategy. They will tell you exactly what to build, how to price it, how to position it, and who to target. And here's your mindset shift. The next time somebody tells you no, don't retreat. Don't get defensive. Don't take it personally. Lean in. Get curious. Ask. Would you mind sharing why? Would you mind telling me more? That question is where real learning starts to happen. Next episode on Starting up, the Ferrari versus the Toyota. We're going to talk about what happens when 80% of your market already has a solution and how to find the buyers who want something better. If you're getting value from starting up, please subscribe. Like share. Our goal here is to reach as many founders and aspiring founders as possible. New episodes are going to drop weekly and my book Starting up will go deeper into everything that we discuss on the podcast. When it's getting ready to launch, subscribers will get early access. That's it for today. And as usual, I'm Jay Scentsy. Keep Starting Up.