Are you a hot dog stand or a hotel?

During a recent conversation with one of our partners, I wanted to illustrate a point about pricing. So I asked a simple question: "are you a hot dog stand or a hotel?" You can imagine that they had no idea what I was talking about. Allow me to explain.

When it comes to pricing, there are two basic models:

1) A hot dog stand: You sell hot dogs at a set price. People line up to buy your hot dogs, and the first person pays the same amount as the last person on the line. When you want to make a pricing change, you make the pricing change for all customers. To drive your top line revenue higher, you must sell more hot dogs (or additional products, like soda and chips).

2) A hotel: Pricing is determined based on demand. On July 4th weekend, prices are very high. During the winter, prices can fall substantially. A guest staying in one room might pay a totally different price that the guest staying in the next room. You employ financial wizards to help you determine the best price to offer based on demand. You can manipulate your top-line revenue based on how you price the rooms.

There are a number of businesses that act like hotels. The most obvious one is the airlines. They have complicated financial models that help price each seat on an airplane, and whole departments that work to maximize profitability. It's unlikely that you paid the same amount as the person sitting next to you. We all accept this, and it's the norm.

Imagine if hot dog stands started offering their prices like a hotel! The price of the hot dog would depend on how many people are in line that day. Someone sitting next to you eating his hot dog may have paid twice the amount that you paid. You might choose to eat dogs based on which days the line was likely to be the shortest. It seems outlandish, doesn't it?

And yet, there are numerous examples of businesses that have been turned upside down by alternate pricing. Airlines have tried pricing all seats equally, and on-line retailers have tested pricing the same product differently based on customer behavior. Even car companies like GM (Saturn) made their mark with revolutionary, no-haggle pricing. If you think it's impossible to change an existing pricing model, ask GroupOn or LivingSocial how demand aggregation is working for them!

I believe that there are still many business opportunities in the general area of pricing models. As you conduct commerce over the next week, observe whether the product or service you buy is priced like a hot dog stand or a hotel. Can you imagine it the opposite way? Why or why not? What would have to change in the market or industry to have customers accept the new pricing?

SWAMI SAYS: It might seem obvious, but make sure you know what kind of business you're starting and think carefully about your pricing in that context. Then, imagine your product priced the other way. What can you learn about how customers think of your product or service? How can you innovate in your market with pricing?

Show me the money!

During my weekend blog reading, I came across a post on TechCrunch with the headline "David Hornick: Why Real Entrepreneurs Aren't in it for the Money." (part of the TechCrunch TV series). In the interview, David speaks about what motivates entrepreneurs. In the video he claims that real entrepreneurs aren't in it for the money.  He says (paraphrased) "Entrepreneurship, if it's successful, then everybody gets rich -- and it turns out that is true. That's a beautiful byproduct of entrepreneurship but the people that you wanna work with that's not their motivation."

I call bullshit.

This is one of the things that VC's say about successful entrepreneurs *after* they've been successful. "Oh, he's trying to change the world -- money was never a motivation." I don't believe it for a second. It's easy to use Mark Zuckerberg (Facebook), Jack Dorsey (Twitter), or Reed Hastings (Netflix) as poster boys for people who are trying to change the world. But don't let anyone fool you -- in the early days, these guys were partially motivated by money.

If you're a VC or a serial entrepreneur, it's easy to weave a tale about how you want to work with people who aren't motivated by the money. That's because you and your examples already have enough money to be financially independent. If you haven't made it yet, money is -- and always will be -- a very important motivator for REAL entrepreneurs.

I've never shied away from the primary reason I started a company: I want to be financially independent. I'm not ashamed to say that I want to make a lot of money, and I want to help others (employees and shareholders) also make a bunch of money in the process. I chose to create a start-up in an industry that I thought would be lucrative, and I work everyday to try and maximize revenue and profitability. So this makes me not a "real" entrepreneur? Hogwash.

I grew up in a middle-class family in New York, with five brothers (yes, we were six boys total). We ate spaghetti way too often, and I always wore hand-me-downs. I worked jobs as I went to high-school and college, and I still have tens of thousands of dollars in loans to pay back. I understand what life can be like when money is tight, and I've been fortunate to see how money can enhance your life too. So yes: I want to be financially rich and have the ability to choose how I work for the rest of my life. Pardon me, but I think I'm a real entrepreneur.

The reality is that most entrepreneurs are HIGHLY motivated by money. Why? Because money buys independence, and most entrepreneurs are fiercely independent. From what I've seen, most "real" entrepreneurs are passionately motivated to work for themselves. They realize that financial independence gives them the ability to choose what they do for work, when they work, and how they work. Many of my colleagues have shared the same vision with me -- they never want to sit in a cubicle again.

That's not to say that I'm not very passionate about the business I'm building. Quite the contrary. Spend time talking to me about the strategy of how to attack the market, or my viewpoints on how to position our product to succeed and you'll quickly hear that I'm motivated by the business. But I believe that ultimately the strategy and tactics will lead to a positive financial outcome that will change my work life -- and personal life forever.

SWAMI SAYS: If you're an entrepreneur, and you're motivated by money, that's ok. Embrace it. Tell people you're in it to become financially independent for the rest of your life. Tell people you're a real entrepreneur, motivated by financial success. Say it with me, just like Jerry McGuire...

"Show me the money!"