The other magic beans
A few weeks back, a friend (you know who you are Matthew) published an excellent piece on the European Commission’s Digital Operational Resilience Act (DORA).
As I’ve said already: ask vendors to explain their pricing. Really explain it.
It said, in short, that the work ahead is complicated and you will be offered magic beans by many a vendor and… and this is important… you shouldn’t take them. When you are offered the magic beans, don’t take them. They are not real.
For the avoidance of doubt, and although this isn’t a DORA piece: Matthew is right, those offering magic beans are wrong and the only way to become and remain DORA compliant is to do the work, find your gaps and be honest about what closing them looks like in terms of your value-chain risk management, vendor selection and management, and a whole host of other things that I am sure I will talk about again, but will not talk about today.
Because today I want to talk about magic beans.
Because I have promised you a pricing trilogy and a pricing trilogy you shall receive.
There’s a famous Oscar Wilde quote that goes, “A cynic is someone who knows the price of everything and the value of nothing.”
You probably know that one, right?
Do you know the rest of the quote?
It goes on to say, “A sentimentalist is someone who sees an absurd value in everything and doesn’t know the market price of any single thing.”
So, today’s question is… do you know the market value of a single thing? Not the price. But the value. Of one thing. Specifically one single thing you already know the price of and should know the market value of. Your own product.
See what I did there?
You probably will once you get over the outrage of me paraphrasing Wilde… I know there are some things we shouldn’t mess with. I know.
But once you get over that, you will have to agree that the pricing saga wouldn’t be complete without a nod to magic beans and those who peddle them believing they are real.
The world of fintech in the purest sense (tech serving FS, not start-ups necessarily) is replete with people who drink their own Kool-Aid and put the words World Domination in investor decks, non-ironically, like it’s 1999.
And although, no, your app is not going to be the lynchpin of a dystopian future with you as its benevolent overlord… the folks who believe in their own sales pitch despite all evidence to the contrary clog the industry at every turn. And they are often the very same folks who didn’t do the work I outlined for you last week when working out how to price their product. Because they already knew, you know.
So, they set the price they know this thing costs and away they go.
Sometimes they are convincing enough to get venture capital. Occasionally they are convincing enough to get a lot of it.
In the spirit of ‘fake it till you make it’, they sell you the other magic beans, the ones that really work, honest. And maybe they will. Even a broken clock is right twice a day and it’s still broken. The people selling the beans believe they’ll work. And maybe you will too. And maybe the magic will see you both straight. And maybe not.
But the reality is 95% of start-ups fail and I would argue most of them have not done their pricing work convinced that 1) it can wait till after they have product market fit and/or 2) they already know what it costs.
To both of that I say: nice try. But no.
1) If you don’t have pricing market fit, you don’t have product market fit. Even if you can demonstrate early sales traction.
Having something people want isn’t where the sentence ends. Your product needs to be something people want enough to pay for it a little more than it costs you to produce and market it.
If you don’t have that kind of market fit and (as is often the case) don’t know what it costs you to produce and market your product, go back to your room, eat your vegetables and do your homework.
And…
2) People who say they know and therefore don’t need to do all the work I outlined in my last piece mean one of two things. Either ‘I used to work for a competitor’ or ‘I used to be a buyer’.
So let’s unpack those because they both mean you are in Oscar Wilde territory, as either a cynic or a sentimentalist, and he would call you that if he had the chance to spend any time with you (and I am not entirely sure he would relish that, truth be told).
If you think you know what your product can charge because you used to work for a competitor and you don’t use that knowledge as a data point while working out your cost to serve and yada yada, as per my last piece, but treat it as a number you can also gamely go for then, I am afraid to say, it all means you are dangerously naïve. A sentimentalist, if you like.
If you take the number and transpose it (which is what most start-ups do, I’m afraid to say) without allowing for what makes you you, what it costs you to be you and all the other good stuff that make you this business and not that one, then your knowledge is magic beans of the worst kind: even if they were magic once, they’ve already been wished upon or whatever it is magic beans do and now they are just information. If they sprout a shoot, it is more luck than judgment.
And that’s bad enough, but there is more.
If you think you know what your product can go for because you used to work for a buyer, then you are a hasty cynic.
Because you know the horse trading that will come in (OpEx, CapEx and service credits flying around like so many swearwords in a soccer match) and you know that the actual ‘price’ doesn’t matter beyond setting a ballpark. And you are right. And you are wrong. Because the horse trading will happen in every room, but the ballpark is your ticket to the ball because it determines which room you end up in. And that matters. Get it wrong and you don’t make it to the ball, so you don’t get to horse trade, and all your knowledge comes to nought.
So what you paid for your last vendor means nothing here because you are not them, with all the good things and the bad things that may be (yes Barb, this is definitely the most random song reference just for you).
Oh, and there is a third type. Another sentimentalist. Of a different kind.
The type that thinks they can undercut the market ‘like by sooooo much’ because they are so convinced they will achieve scale and change the world… and then dominate it. Or the other way round, I can never remember. But they are busy with that so they almost don’t care what they charge because hypergrowth will make the numbers come out in the wash. Only… making the numbers dance and building a sustainable business seldom occur concurrently and the magic beans stay alive and well.
And look.
These three types are very different and rarely like each other. But the cynic and the two sentimentalists all start from a place of conviction, eschew the place of learning and feed on their passion instead of doing the work. And I am trying to bring myself to say that at least the passion is commendable. Only it isn’t.
It is cynical or naïve or sentimental and it is inaccurate and unhelpful and it ends up in so many magic beans.
The other kind. The kind that works. Apparently.
And if you believe that, then maybe you will pay what they ask for and, in that case, more bully them and more fool you.
So… as I said already: ask vendors to explain their pricing. Really explain it.
Ask, and wait for a proper answer. And take it into account.
And if you still feel like buying magic beans, then at least do it knowingly.
Oh.
And if you do… drop me a line.
I have a golden-egg-laying goose I want to chat to you about.
#LedaWrites
Leda Glyptis is FinTech Futures’ resident thought provocateur – she leads, writes on, lives and breathes transformation and digital disruption.
She is a recovering banker, lapsed academic and long-term resident of the banking ecosystem.
Leda is also a published author – her first book, Bankers Like Us: Dispatches from an Industry in Transition, is available to order here.
All opinions are her own. You can’t have them – but you are welcome to debate and comment!
Follow Leda on X @LedaGlyptis and LinkedIn.
