We explore the benefits of becoming a subscription-based business with the world expert on subscription pricing and membership models, Robbie Kellman Baxter.
Around the world, everyone is adjusting to an unexpected “new normal”: sheltering in place, worrying about the elderly and immunocompromised among us, trying to overcome anxiety and stress, and helping students embrace new distance-learning protocols.
Most people, except those on the front lines and in essential businesses, are working from home. And business owners are leading through this crisis, trying to hang onto customers when seemingly all forces are working against them.
Subscription-based businesses appear to be the most resilient during this time of crisis. With predictable recurring revenue, they have greater flexibility to withstand the storm. They also build what we consider a “forever transaction.”
How can startup entrepreneurs build a forever transaction model with customers?
In a forever transaction, the customer trusts the organization to solve a problem or achieve an objective “forever.” The customer thus transforms into more of a “member” and stops looking for alternatives. Often, the customer signs up for automatic subscription pricing — the holy grail for many businesses.
The forever transaction lies at the heart of successful businesses in the Membership Economy — a term I coined to describe a massive transformation in every kind of organization, from nonprofits and associations to the most profitable of companies. It’s about a move from ownership to access, from anonymous transactions to known, formal relationships and from one-way messaging to two-way communications between the organization and its members.
Using this model, organizations of any size can achieve consistent revenues, a more robust market presence and higher valuations. However, implementing a forever transaction model is not a trivial task. You’ll need to call on all of your existing leadership and business acumen, supplemented with new approaches for sustaining long-term revenue streams and building lasting relationships with the people you serve. It requires a different way of doing everything in your organization — from how you design products to how you take care of the customer post-transaction to how you market and sell.
It will also require a forever promise that you make to the people you serve, that will serve as your North Star. This promise tells them how you’re going to help them achieve their goal or solve their problem on an ongoing basis, and helps refocus you from being product-centric to being member-centric.
For example, if you have a nail salon, step back and think about what customers wish you would do for them forever — perhaps it’s “make sure their hands are always well-groomed.” The ultimate goal isn’t a manicure — a manicure is simply the way the value is packaged. Maybe people would prefer a subscription that promised to keep your nails always looking great — so if you walk out of the salon and chip a nail, you can get it fixed without incurring an additional fee.
Same thing for car washes. We don’t want a car wash — we want a clean car. Most car washes have already begun offering subscriptions for unlimited washes. Still, they could take it a step further by, for example, having valets pick up cars at office parking lots, driving them to the car wash and then bringing them back to the parking lot.
You build a forever transaction by focusing on the long-term need, rather than the short-term “product” or “service.”
What are the most significant challenges entrepreneurs (and INTRApreneurs) face in launching a subscription-based business?
Whether you are an entrepreneur launching your own business, or an INTRApreneur building a new business inside a larger company, expect to face some of the following organizational and skills-based challenges.
If you and your team haven’t built a subscription business before, you may be missing essential skills. Every role is going to be just different enough to cause challenges.
• Product teams need to optimize features that attract purchase but also features that engage customers and drive ongoing usage and loyalty.
• Sales teams need to be more like farmers, nurturing and growing relationships and less like hunters, who capture prey and bring it home for others to process.
• Marketing teams need to communicate as much after the moment of transaction to drive usage, as before to drive acquisition.
• IT needs to be way more sophisticated than in most traditional businesses, to support new metrics and track behavior.
Significant analytical horsepower has to be applied to reinvent everything from the metrics to progress-tracking to processes to team roles and functional expertise.
In addition, businesses considering launching a forever transaction should beware:
• Dealing with a middleman, which may alienate partners.
• Cannibalization concerns if the transformation doesn’t work.
• Technology setbacks and the potential for unexpected technology hurdles.
• Unexpected leadership priorities that may slow down or speed up your process.
• Disappointing early results, which merit thorough exploration before conceding defeat.
What steps should I take to build a disruption-proof business model?
Know your forever promise. Consider the bigger promise you’re making to your best customers. What problem are you going to solve for them, or what goal are you going to help them achieve, forever? Step back from your products and services and just think about the situation the customer faces and how you can help them to succeed in meeting their objectives.
Determine who your best members are, and more importantly, who they aren’t. Be very specific about who you serve and why.
Focus on customer success, not customer support. Make sure your subscribers are delighted, not just that they aren’t having a problem. That way, they won’t have a reason to look for alternatives. And if you don’t hear from customers for a while, and engagement is dropping — take it as a red flag that cancellation might be around the corner.
Don’t wait until customers cancel to try to win them back. Focus on not losing them in the first place.
Find a way to have the customer “in all rooms” where decisions are being made, both in structured and unstructured meetings. You want to feel as if your customers are watching you, eager to see how you are leading, and hoping you’re worthy of their trust. Amazon leaves an “empty seat for the customer” in meetings to ensure customer-aware decisions. Maybe you should, too.
Periodically take a step back. Consider the biggest challenges that are preventing your best customers from achieving that goal you promised to help them with. If you were launching your business today, to solve the same problem and help the same people, how might you serve them differently?
Some businesses offer great free trials — is that a good strategy? What is the role of “free” in a crisis?
In normal times, I advise subscription business leaders to make sure to consider the role of “free” in their business model, in a deliberate way. They should ask themself what the ROI of free might be.
A free trial can be useful if one of your big challenges is that prospects either don’t understand your value proposition or don’t believe your promise.
With a free trial, you don’t want to provide too much or to fully solve the problem.
In contrast, freemium provides ongoing value for free. You might use freemium for one of three reasons:
• To change behavior.
• Because the free members are the product.
• Because free subscribers are an acquisition channel for paying subscribers.
In normal times, these are the only reasons to justify giving something away (other than philanthropy).
But in extraordinary times — such as the current COVID-19 pandemic when people face dire, unexpected challenges — these rules can be adjusted. In such situations, consider providing even more free value to take care of your members, establish and build relationships with tomorrow’s members, and to take care of your community.
Be deliberate about what you give away and what the rationale is, even in times of crisis. If you’re trying to help people who have been laid off, then only make your offer to people who have been laid off. If you’re trying to help the elderly, be specific and explicit. The biggest risk is that you give away too indiscriminately. This can result in both a reduced perception of the value you provide and a lack of revenue that drives you out of business.
Innovation comes during hardship. What business trends do you think will emerge from the COVID-19 crisis?
Companies have already had to innovate to continue providing the benefits their customers expected. Restaurants have figured out how to do takeout and delivery, and have upped their sanitary processes. Teachers are finally taking distance learning seriously.
We’ve seen clothing and vacuum manufacturers make hospital equipment, and perfumiers and breweries make hand sanitizer.
We talk about being agile and able to change, but until recently, many organizations had never been tested in this kind of extreme, time-sensitive, and life-or-death way. I think this crisis will leave a lasting sense of can-do and confidence with our generation, and a new spirit of possibility.
The Entrepreneurs’ Organization is committed to providing virtual learning and ongoing support for its members throughout this COVID-19 crisis.
Why Forever Transactions Are Uniquely Positioned to Weather a Crisis was originally published in Startup Grind on Medium, where people are continuing the conversation by highlighting and responding to this story.
Jeremy Webb Startup Grind - Medium https://medium.com/startup-grind/why-forever-transactions-are-uniquely-positioned-to-weather-a-crisis-df5174cfe661