Entrepreneur Ideas And Business Lessons For Determining Your Marketplace Value
Published DateAuthorDan Sullivan and Shannon Waller
What are your time and skill worth to somebody else? The issue of pricing is the biggest hurdle to people thinking about becoming entrepreneurs because most people live their lives with someone else doing their pricing for them. In this episode, business coaches Dan Sullivan and Shannon Waller explain the best way for entrepreneurs to determine what to charge.
Here's some of what you'll learn in this episode:
How an entrepreneur can switch mindsets from being the seller to being the buyer.
Why entrepreneurs should actually stay away from competitive pricing.
Why the fastest way to your biggest future is The Strategic Coach® Program.
The question that will take your clients into the future, and you with them.
Why you shouldn’t negotiate unless what you’re offering is unique.
The importance of being attuned to your clients’ futures.
Most people don’t like negotiating what their value is with someone else.
If you’re applying for a job, it’s generally predetermined what the value is of doing that job.
For entrepreneurs, the combination of time and talent determines the price that needs to be negotiated.
There’s no right price for anything because all pricing is psychological.
If your client doesn’t have a big future, your price is a cost. If they have a big future, your price is an investment.
If you focus on your uniqueness, you aren’t in competition with anyone.
The toughest obstacle to being a successful entrepreneur is getting to where you feel proud and confident about the ways you've priced your value in the marketplace.
Many people don’t have a proper appreciation of their own value, and so they don’t like negotiating.
Some entrepreneurs spend too much time worrying about people who aren’t check writers.
Pricing is a lot easier if you have no competitors.
Shannon Waller: Hi, Shannon Waller here and welcome to Inside Strategic Coach with Dan Sullivan. Dan, it's great to see you again. You said something in a 10x Connection Call that just had everyone kind of riveted and created a bunch of breakthroughs that I thought would be super fun to talk about in today's podcast episode. And that is that all of your pricing lies in the aspirational future of your clients, and that is not how most people think about pricing. And given that pricing is one of those somewhat angst filled questions for a lot of entrepreneurs and their companies in terms of their products and services and experiences, let's dive into pricing. Let's talk about your different take on pricing.
Dan Sullivan: Yeah. Well, we've just released a book on capitalism, and I've broken capitalism down. It's a five-part method that has been around forever, so it's not recent human history. This has always been at work as I think probably as soon as humans were humans, pricing came into their activity. And that is, what is your time worth? What is your skill worth to somebody else, okay? But when marketplaces got created and products and services were sold, then it became really crucial if you were going to be successful in the capitalist venture and the five-part process is Five Ps. So, the first is pricing, and then the next one is property, that your achievement as an entrepreneur—I’ll focus on entrepreneur because it's our main, our only business is entrepreneurs, is that how you create value is actually a form of property. It can be structured, it can have a process to it and everything.
In today's world, you can actually get patents on the way that you go about creating your value. So, it's property. And the third one is productivity, getting things done faster, easier, cheaper, producing a bigger result. Fourth one is profitability. You keep more of what you take in. And number five is prosperity, which means that how your business success affects everything around you, but everyone around you that they share in your success. So, pricing, property, productivity, profitability, and prosperity. But the real hurdle for people who are thinking about becoming entrepreneurs is actually the first one, pricing, because most people live their lives where somebody else does their pricing for them. And what I mean by that is, most other people work for someone else and they're offered a certain price, a certain salary, and that's already predetermined before you go in and you're in competition generally with other people.
So, you have to say, if I turn down the offer, then it's going to go to someone else. So, there's a tendency on most people not to get into any kind of negotiation regarding that. And throughout their career, they don't want to think about raises and anything like that because they don't like the activity of actually having to negotiate what their value is to someone else, who in this case is writing the check. You can tell I was born a long time ago that I still use the word check. I'm not sure if people get checks anymore, but...
Shannon Waller: Paycheck is still in the vernacular. You're okay with that.
Dan Sullivan: I think paycheck is still on.
Shannon Waller: It might be a pay stub, but it still represents a paycheck.
Dan Sullivan: The pay electron, it goes into your bank account. But anyway, pricing for entrepreneurs is where you decide that you can be independent in the marketplace independent of employment, you won't be employed, but nevertheless, you have to be paid. Then the question is how are you going to price your time and how are you going to price your talent?
Shannon Waller: Great.
Dan Sullivan: And it's the combination of time and talent that determines what needs to be negotiated. Okay. So, that's really the central issue here is pricing. And the goal that I want all the entrepreneurs in Strategic Coach to have is that they're not competitive pricing. So, they're not pricing themselves because they're in competition with many, many other people offering more or less the same deal to a buyer. As a matter of fact, what we want to do is we want to turn around the relationship of who the buyer is and who the seller is.
The great speaker that I saw, at Genius Network a couple of months ago, Peter Worrell, is a M&A expert merger and acquisition expert. And he takes the part of the person selling something, a company in this case, a company, and he's got two strategies that are very, very powerful. The first one is that if you're the seller, then the strategy is to actually become the buyer, which means that you're entertaining competitive bids on the part of other people. And the second thing is to recognize that all pricing is psychological. There's no right price for anything, okay? All pricing in the marketplace gets negotiated. It gets negotiated. And then we add a third element to that in Strategic Coach where we say that actually you're not pricing it against competitors in the marketplace, you're pricing in relationship to how big the future is of the person that you're talking to, okay?
Because in their mind, if they don't have a big future, then your price is a cost. If they have a really big future and what you're offering is really crucial, then your price is an investment. It's not a cost. So, this is why I have a preference for really ambitious, successful, talented entrepreneurs who are hearing about us and approaching us and engaging with us because they've heard that the fastest way to your biggest future is really by being in Strategic Coach.
Shannon Waller: This is so powerful, Dan. Now, how easy, or hard is it for people to shift from that much more competitive mindset into this? I need to be making sure that I'm talking to people with really big futures, so that they see they're working with me as an investment as opposed to a cost and pricing it accordingly. You've coached thousands and thousands of entrepreneurs, it makes me think of Four Cs. There's commitment and courage involved in doing this. How tough is it to make that shift?
Dan Sullivan: Well, I think it's the toughest obstacle, one, to become an entrepreneur in the first place, but I think it's the toughest obstacle to actually being a successful entrepreneur where you feel very proud and confident about the way that you've priced your value in the marketplace.
Shannon Waller: Interesting. One of the things that you talked about before we started recording was that people often have outmoded models for how they're pricing themselves. Do they get kind of trapped sometimes in their past?
Dan Sullivan: Yeah, and it's a topic that a lot of people just don't like talking about. They don't like negotiating, and it's because they don't really have a proper appreciation of their own value. First of all, don't negotiate with in any situation where what you're offering is not unique.
Shannon Waller: Right. Good rule.
Dan Sullivan: Okay. So, we've really attracted, going back 30 years or more, really top-notch entrepreneurs, but I think the reason why we've attracted them is that we're offering something unique in their experience, a structure that supports their biggest ambitions.
Shannon Waller: Uh-huh. Uh-huh.
Dan Sullivan: Well, right off the bat, that would not be true for most so-called coaching companies. They wouldn't be supporting. They'd be, from our experience, and we know a bit about this because we do a lot of comparison between our intellectual property and what else is out in the marketplace, and there aren't that many coaches in the world. I think in the entrepreneurial universe, I don't think there's that many coaches who actually create very, very unique thinking tools. We have these marvelously powerful thinking tools that have been our regular offering. I was just looking at that. This is the 134th quarter that I'm coaching a Strategic Coach workshop. So, this started in 1989, so we're halfway through our 34th year, and every quarter for 134 quarters, we've created new thinking tools.
Shannon Waller: That's true.
Dan Sullivan: At least one. And in some cases, two or three every quarter over those 33 plus years. So, part of it is that those tools come from engaging with really successful entrepreneurs' biggest futures. So, our whole approach, the only research we do, we're not looking at general trends in the marketplace. We're just looking at the very special trend that consists of a particular entrepreneur's biggest ambitions for themselves, both as entrepreneur, but also as all around person. You know what they're trying to achieve in their whole life. And that's where we're drawing all of our information to create our new tools, and therefore, we're in a realm of our own. We simply have no competition. Well, pricing's a lot easier if you have no competitors.
Shannon Waller: True words, Dan. True words. Yeah, that's a great point.
Dan Sullivan: How do you make pricing easy? Just don't have competitors that'll make your pricing really easy.
Shannon Waller: Well, and to that point, that means that there almost needs to be a hyper focus on Unique Ability, on understanding really what your very individual audience requires. Being very tuned into what we've talked about, their vision for their future, their dangers, their opportunities, and their strengths, and really honing your value creation based on your and your company's Unique Ability to create value that way. Then you can have to bring back a term. They grant you a value creation monopoly, which is very powerful.
Dan Sullivan: And that's what you are striving for that in terms of your relationship with them. I keep track of this, but we now have more than 40 entrepreneurs in Strategic Coach who have seen us every quarter for more than 30 years.
Shannon Waller: Mm-hmm.
Dan Sullivan: So, what they've granted us is a value creation monopoly in a crucial part of their life, just the growth of their entrepreneurial business. And I really pay attention. I mean, I don't pay attention to everything, but I really pay attention to what they're saying about new things that they're encountering that they don't quite know how to think through.
Shannon Waller: Yes.
Dan Sullivan: Okay. And that's the raw material of our uniqueness in the marketplace is that I'm paying attention to dangers that they don't know how to think about, opportunities that they don't know how to capture, and strengths that they have that they're not utilizing in a way that they feel they should be. And then I think about it, and we, as the designers of the Program, what we're thinking about is, "Okay, so what's a thinking tool we can create so that they can actually engage with their future?"
Shannon Waller: So, you really pay attention to those people that have granted you already that value creation monopoly and just stay very, very tuned to what their challenges are, what their experiences are, and then use your ability to help create phenomenal thinking tools to help address that need. And then that cascades down to the rest of the program as well.
Dan Sullivan: Yeah, and I think we're unique in the world, and we're going through a process of turning our major tools into actual patents. And we've got a very extraordinary IP law firm, one of our lead clients in the Free Zone program, Keegan Caldwell, and his partner Katie Moreno. And they say that their analysis is that at the level that we're coaching and who we're coaching with, we have zero competition in the world as far as the concentration of new thinking tools, that there's nobody else out there. There's no one else who is showing up in the form of copyrights and trademarks and patents in the whole world besides the Strategic Coach. And that's evidence of the fact that we have a monopoly in terms of being seen as valuable to talented, successful entrepreneurs who now have much bigger ambitions and want a particular support structure, a systematic support structure that allows them to grow and grow and grow and enjoy the journey.
Shannon Waller: Yes, because before they meet Coach, sometimes it's not enjoyable. Just going back to the whole process with Keegan, one of the things that has been really interesting throughout the conversations, because I've been a part of some of them, is just how little original thought is actually out there. And this is not the first person we've heard that from, that so many other ideas are derivatives often from Dan. People take the ideas, hopefully not illegally, but there's a lot of derivative thinking, but not a lot of thinking. And I think that a part of that is because, as you said earlier, we're not looking sideways. We're not looking to see who else is running the race with us. We're running our own. And there's something to be said for that. And that's kind of what I mean by leaning into uniqueness. You're not distracted by what someone who is in the "lane" beside you, and you've really focusing on your uniqueness, and you coach our clients a lot to take their uniqueness seriously.
Dan Sullivan: I mean, what we've achieved for ourselves, we want clients to achieve that in their own realm. This having value creation monopolies in the marketplace because then they can dispense with the cost and time and money of competing with other people's offerings. And that just totally differentiates yourself from anyone else who's doing anything, just zero in. And the biggest problem here isn't so much the pricing. The biggest problem is that people are not thinking in terms of the check writer.
Shannon Waller: So, say more about that. They're not focused enough on the check writer.
Dan Sullivan: Well, first of all, it's going to be about them or it's going to be about you. And I would say most entrepreneurs, it's about them. The entrepreneur is that they're thinking in terms of how they're better than their competition. And from my standpoint, they spend a disproportionate amount of time worrying about people who aren't writing them checks, people who are taking checks away from them. And I said, "Well, I don't want to spend my time doing that. I just want to spend my time finding out what's the unique thing that people will write almost any size check for."
Shannon Waller: That's very interesting. I'm writing this down, will write almost any size check for.
Dan Sullivan: Yeah, well, depending on the size of their ambitions.
Shannon Waller: Mm-hmm.
Dan Sullivan: Mm-hmm, yeah.
Shannon Waller: So, Dan, someone's going to put this into practical action after listening to this conversation, especially if they're feeling a little bit trapped or stuck in older models or older thinking of their pricing. And please share your pricing formula, which is amazing. So, what would be your coaching to someone who goes, "Oh, my gosh, I haven't thought about this. I'm uncomfortable negotiating. I have been paying attention to my competitors. I could focus more on my clientele the size of their futures. Or maybe the people they're working with, their futures are too small." What coaching would you give in this instance?
Dan Sullivan: Yeah. Well, I think the first one is not so much what you offer, but who are four or five existing or potential future check writers that you can just have a conversation with where you ask them the question. And we have a very powerful question. If at some point in the future, and let's name it. Let's say it's three years out and we're having the discussion about what's happened, and you're looking back over the three years from today, what has to happen for you to feel happy with your progress both professionally and personally, okay? And that's the ease with which you can ask that question is really the key to your pricing because you're not making it about you, you're making it about them, but you're creating a framework for them that they've never experienced with anyone else in their life. No one has asked them this question.
Because you're taking them into the future and you're also taking yourself into the future with them. Because the question is, three years from now we're having the discussion. If they accept that they just bought the relationship, and then we're coming back to the present. And then what has to happen both professionally and personally for you to feel happy with your progress. I'm not asking them what the progress is. I'm asking them what progress will make them happy, which is a totally different thing. So, I'm selling a relationship, I'm selling the future, and I'm selling happiness. I mean, those are differentiating qualities.
Shannon Waller: They sure are. I'm sure.
Dan Sullivan: And I haven't said anything about what it is that I do or what I can do, but they're giving a full experience of what it's like to actually work with me.
Shannon Waller: Right, yeah.
Dan Sullivan: So, I'm giving them the experience of what it's going to be like if you have a relationship with me going into the future.
Shannon Waller: Because it's about that person, not about you.
Dan Sullivan: Yes. It's not about me. So, the way I make it not about me is simply by being me.
Shannon Waller: I love it.
Dan Sullivan: Because I love talking to people about their futures. Yeah.
Shannon Waller: Mm-hmm. Cool. And will you please share the Dan Sullivan formula for pricing, which has always been a fun way.
Dan Sullivan: And I have a certain point you are marinating them with their own future here, and what it's going to be like. And you can ask them very specific questions. Well, how would you measure that progress? What are three or four key measurements of what progress you would be happy with over the next three years? And you make it very specific, today's date, three years down the road. So, their brain really zeroes in on the specific nature of their future, and they haven't thought this through themselves, and they don't have anyone else that they can talk with in their life about this type of very personal, it's very personal, ambition’s a very personal thing. But here it's an easy conversation and the thing I'm trying to sell them on here is their own future. I'm just trying to get them engaged with a future measured three years down the road that's a lot bigger than what they're achieving right now.
And then it comes back and there's a conversation about how the process works of helping. And in our case, you come to our Program in the old days, first 15 years is that they were working directly with me one-on-one, and I had a structure, and I had a process. Then they said, "Well, how much is that going to be?" And I had the experience that if I had named them a price that was twice, they would've gone for it, but I was too cautious and I was too reluctant to put it out there. So, I came up with a pricing formula that the price I'm going to say to the person asking scares me. And then you add 20% to whatever it is. There's confidence that goes along with naming your price. It's hard the first time you do it, but if you get away with it two or three times in a row, then you become confident about it, which simply shows that it's all psychological, okay? It's worth to them what the value is to their future.
Shannon Waller: Great. Dan, as having that, the sole reference point is incredibly powerful.
Dan Sullivan: Yeah. Because it's either a cost and it isn't because the number that you've mentioned is too much is that their future isn't big enough for them to see it as an investment. They're still seeing the amount of money as a cost. Well, now I become the buyer because I don't want to work with someone whose future is so small in their own mind that they would have a problem with my price. So, I'm sitting there, and I say, "Well, I don't think I'm the person that you should work with. I think you need someone whose skills are as modest as your goals."
Shannon Waller: What a lovely brush off that is.
Dan Sullivan: You need someone. Yeah, a modest person.
Shannon Waller: Oh my gosh. I love it. Dan, this is such a great mindset shift.
Dan Sullivan: Why don't you get out of this? I mean-
Shannon Waller: Oh, I...
Dan Sullivan: I mean, I think we've put together a lot of different pieces that have been said.
Shannon Waller: We have.
Dan Sullivan: Different ways, at different times. But this is very, very much, and I have to thank Peter Worrell because he's got this down and what he's discovered, he's got a great book out called Enterprise Value, and he's very, very clear. But what he does is that he gets his clients to have a really big ambition of what lies on the other side of their sale of the company. They have many, many assets that they're not even clear about. But because he's been doing this for more than 40 years, he's got a real sense of all the different aspects of a very successful business. And that would in some cases, double, easily double the price that the person had in their mind of about what their company was worth.
And then he puts it out to the world, and he starts getting bids. And he said, in really successful sales, the bids are sort of on a chart, you know little dot for each bid, and then you have a pricing range. And he says, "The goal is to get 10 or more bids on the sale." And he said, "You could have as much as a hundred percent difference in the value." Some cases the highest bid is two and a half times the smallest bid, and the person who is writing the biggest check feels really good about the sale and the other people just drop off. But it has to do with the ambitions of the buyer. They have to see a future for themselves with this new company asset that they're going to buy, that it fits into a much bigger future that they want. But it's all psychological, things are worth what people have plans for.
Shannon Waller: And I think that's the powerful mindset shift, Dan, is it's not an absolute out there to some extent, it's not even objective. It's based on the size of that person's future and whether or not they see that investment as being part of it. And when we bring that to ourselves, we're like, "Oh, am I unique? Am I focused on the future of my value creation monopoly clients? And have I updated my pricing recently?” What's the price that scares you now and add 20%, guarantee it's going to be different than it was five, 10, 15, 20 years ago, which is sometimes the last time people have revisited the pricing. It's just so thought-provoking. It's so interesting. I love the freedom that this conversation gives people.
Dan Sullivan: Yeah, it might have been five years ago, there was a baseball player's contract that was signed. It was Mike Trout from the Los Angeles Angels. It was 13 years for $430 million, which is more than 30 million a year. And I remember going into one of my workshops and the topic of this contract that the player had signed came up and they said, "No baseball player's worth $430 million." And I said, "Well, of course, they are. Somebody just agreed to it." And he says, "Yeah, but..." I said, "Well, first of all, the person who agreed to pay that much to this ball player is a billionaire. So, I got a feeling that they have some judgment about what constitutes a good deal or a bad deal that got them to a billion dollars in net worth." But it's very, very interesting that as big as the salaries are today, baseball season just started as we are doing the interview here.
But the payroll of baseball club is really, it's in the stratosphere, and yet there's a ratio of the total amount of money paid for the players compared with the market value of the baseball team. And the ratio is exactly the same here in the 2020s as it was in the 1950s.
Shannon Waller: Wow.
Dan Sullivan: There's no difference in the ratio between amount of money paid for the players and the market value of the baseball team. And they've got a ratio and they operate within their ratio.
Shannon Waller: Uh-huh. More zeros, but same ratio.
Dan Sullivan: Yeah, and 1950, 100,000 would be fantastic. I think I remember the first player who got $100,000 contract, and it was probably in the early 1950s, I think it was Stan Musial of the St. Louis Cardinals Hall of Fame. Great, great player. So, Mike Trout, after his first three seasons, you knew he was going to be in the Hall of Fame.
He is just one of the greatest hitters in the last 25 or 30 years. He draws in another five to 10,000 fans per game just because he's on the field. And that's factored into his value. Also, they're tying him up for 13 years. If he had a three-year contract, then they're back negotiating again three years from now. And the owner who bought it is just saying, "This person has gold for good as he's going to be a great player forever and we're going to lock him up." So, both sides did it, but it was entirely psychological. Yeah, he could have a serious injury and his career's over, and he's got a lot of that money, guaranteed.
Shannon Waller: Wait. And the other thing is, from the owner's standpoint, they never have to play against him. So, it looks like a really good deal.
Dan Sullivan: And these are psychological factors, so the more that entrepreneurs can understand, just to wrap up our conversation here, is there's no right price for anything. There's only the price that's appropriate for the unique value that you're providing to someone's unique future. That's the only consideration here.
Shannon Waller: Brilliantly summed up, Dan. Thank you so much.