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Startup Moneyball for Coaches

Pricing early-stage coaching

written by ASH MAURYA

I often get asked by coaches about how to price early-stage coaching services.

The thinking goes that since early-stage founders have no money, there is no market there. This couldn’t be further from the truth.

Without massive market opportunities, accelerators like YC and Techstars wouldn’t invest $125k in exchange for 7% equity. For-equity accelerators employ a multi-sided business model where they trade equity for future portfolio payouts later.

In this issue, I’ll focus on how to value fee-based early-stage coaching. To make this even more concrete, I’ll share the thinking behind how we price our popular 120-Day Startup program that helps founders go from idea to paying customers (Problem/Solution Fit).

How to value early-stage coaching services

Pricing is a value conversation. The pitfall many fall into is cost-based pricing. Customers don’t care about your cost structure. That’s your problem.

I recommend setting fair pricing that your customers could bear and then evaluating various value delivery options to make your cost structure work.

Fair pricing should ideally be anchored against the cost of other existing alternatives (at the low end) and the value derived by the customer (at the high end).

Let’s start with the cost of other existing alternatives.

For early-stage founders, the main costs are primarily time, a.k.a. sweat equity.

Therein lies the first challenge. Most first-time early-stage founders undervalue their time. But sweat equity is anything but free.

How to correctly value founder sweat equity

If we value sweat equity as opportunity cost at an hourly rate, assuming a founder could make $150/yr working a job, they should value their time at $75/hr.

That’s a start, but it’s still not the right way to value sweat equity. The startup math needs to also adjust for risk and payback time.

The opportunity cost math assumes a high certainty of getting paid. You need to adjust for that when that isn’t the case, such as when working on a startup. Using startups' commonly used 10% success rate, sweat equity value goes from $75/hr to $75/hr ÷ 0.10 = $750/hr.

Then, there’s the payback time. In a typical job, you get paid bi-weekly or monthly. In a startup, founders might forgo a full salary for a year or two or longer…Adjusting for that raises sweat equity closer to $1,000/hr and probably even higher.

When working on a startup, founder time is worth $1,000/hr.

If we use the math above to value the cost of existing alternatives for a 120-Day startup like cohort,

  • 120 Days = 4 months:
  • Founder market-rate value: $50k (solo-founder) - $100k (2 founders)
  • Risk-adjusted value: $500k-$1m

Even if you just focused on the market-value rate, that’s not insignificant.

The true value of time is not a commonly held founder belief, so we do two things here to remap their beliefs.

  1. Share it with founders as part of mindset-building

Our mindset content and tools (like Traction Roadmap) elevate time as the scarcest resource because it’s true.

Here’s an example:

Running Lean Mastery

The True Value of Your Time

When I share this quote with others, they appear to get it, but their actions prove otherwise. Most people still value money more than time and make decisions based on the present value of money vs. the future value of their money investment (ROI). This is, not limited to, but is quite prevalent with early-stage entrepreneurs who mistakenly equate bootst…

Read more

a year ago · 12 likes · Ash Maurya

And another:

  1. Target triggered founders

At the outset of any project, most founders have a probability bias. They know startup success rates are dismal, but they hope they’ll dodge the bullet — until they don’t.

Your ideal early adopter is more about when than who.

It’s not surprising that most of our 120-Day Startup cohort comprises either serial founders who already value “speed of learning” or first-time founders who get stuck shortly after getting started.

You can’t appreciate waste unless you’ve been wasteful.

In both cases, there isn’t just a realization of wasted sweat equity but true sunk costs reflected in mis-hires and often time, money, and effort spent building a product that no one wanted - racking up to tens of thousands of dollars.

What drives further urgency is what’s at stake: giving up on their idea as their startup death clock continues ticking.

Let’s move on to the value side of the story.

How to value early-stage milestones

A startup's most significant first milestone is achieving Problem/Solution fit. This is doable in ~ 3 months and what we use to anchor the value of the 120-Day Startup program.

So, what’s the value of problem/solution fit? The answer depends on the startup’s goal (minimum success criteria).

Let’s use a venture-backable idea for illustration.

Here are some typical investment criteria used by prominent Angel investors:

Funding round: Pre-seed (Problem/Solution Fit)

  • Typical monthly recurring revenue: $25k
  • Valuation range: $2m-$5m
  • Investment amount: $250k-500k

Funding Round: Seed (Solution/Customer Fit)

  • Typical monthly recurring revenue: $50-100k
  • Typical valuation: $5m-$10m
  • Typical funding: $1m-2m

Mapping these investor milestones against the continuous innovation stages:

Here’s a slide from Jason Calacanis where I’ve overlaid the first two stages:

As 120DS aims for Problem/Solution Fit as the goal, the ballpark value we aim to build for the startup is $5m. Assuming the default $1m valuation placed on ideas at the starting gate, that’s a 5x value improvement.

Follow-on programs that target Solution/Customer fit push this value up to $10m.

Putting it together

So, on the cost-side of existing alternatives, we have:

  • Founder market-rate value: $50k (solo-founder) - $100k (2 founders)
  • Risk-adjusted value: $500k-$1m

And on the value side, we have a potential upside:

  • $2-5m valuation

If these feel like funny math numbers, let’s visit the YC standard deal: 7% equity + $125k per startup that gets accepted. Remember that startups are paying here, not in cash, but equity.

When YC gets a startup to Problem/Solution Fit, the startup effectively pays them: (7% x $5m) - $125k = $225k

YC mostly takes on startups that already have an MVP and some paying customers, so if they instead get the startup to Solution/Customer Fit, the startup effectively paid them: (7% x $10m) - $125k = $575k

As this is a multi-sided model, they have to risk-adjust these values. Again, assuming a 1 in 10 success rate, these fees adjust to $22.5k and $57.5k.

What about 120DS pricing?

Our audience varies with 120DS (and the goal is Problem/Solution Fit), so we employ tier-based pricing.

We charge venture-backable and corporate teams ~$20k in line with the math above and support a ~$10k plan for others. These are both high-touch coaching programs that combine playbooks + tools + coaching.

To reach a wider audience of earlier-stage founders, we price a DIY option (without coaching) at $3-5k. As it’s completely platform-driven, there are no marginal costs of delivery, and teams there often opt for coaching down the road.

I hope this teardown was helpful.

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