Join the club

If you’re looking for a great business model, look no further than to the subscription model. The idea of having a customer pay for your product or service on a recurring basis over and over again for all eternity is mouthwatering. Of course customers seldom stick around for that long, but I am sure you get my point; the subscription business model is where you want to land in terms of both profitability, predictability and viability.

But the subscription business model also has its huge risks. And the primary one at that is the obvious risk that some day your customer will wake up and for whatever reason decide that she doesn’t want your product anymore – and then she cancels her subscription and leave. Gone is the ongoing revenue, the nice profit margins, the predictability of your business growth and the viability of your business model. You’re left with wondering what went wrong, a challenge to replace the customer with a new one – and cost you won’t get covered in the short term.

Nevertheless the subscription model works. It has mechanics that works like clockwork; smaller customers love the ability to stay on one month at a time and have the flexibility to say yes and no, when they need to access your product. Bigger customers love the ability to sign longer term deals, so they don’t have to spend time on handling the expense every thirty days. There are winning scenarios for all.

The question thus becomes if there is another way of looking at the subscription model from another angle than one of pure financial mechanics and convenience? Potentially one that lets you work with the model in the context of your startup and enable you to build an offering around your subscription model that will add rocket fuel to the value of the offering, while significantly reducing the risk of customer churn?

It can be little surprise that I think there is. And basically it has to do with framing the model in a slightly different context; moving it from a pure business model to a strategy about creating a sense of belonging with customers.

If you want you could call it a club. I have always been fascinated with clubs and their ability to get people from different walks of life together in supporting the same cause or team. I am especially fascinated when that sense of belonging to and supporting something endures during times of hardship. Times where you might have every reason to walk away, but you decide to stay because you are addament or perhaps just hopeful that better times and success are just around the corner.

Those dynamics have power and real merit, and I think it could make sense to try and work on transforming those into a startup context; i.e. how can you create your own ‘club’ and a sense of belonging with customers, where they will stay with you almost no matter what because what you’re delivering to them is above and beyond the product or service as it is right now.

In order to become a club, you need to define a mission and a sense of purpose that customers will want to buy into. While I realize that most startups – and other companies for that matter – have vision and mission statements ad nauseam, this is different.

This is no afterthought. This is absolutely core. This is what you and your customers need to believe can become true at some point in time that is not too distant out in the future. Where do you plan to take your customer? What’s the promise, you deliver to them? How does ‘the promised land’ look and feel once you get there? Is the attraction, benefits and value of it enough so that customers will buy into it, because they can already sense it now?

Next up you need to figure out what the perks of belonging to this club are, as you embark on your journey together. Just as with any other form of endeavor, you cannot succeed without gas on the engine, so what is your gas? How are you going to keep the engine running and provide your customers something that is more than enough to keep them engaged and believing in the ultimate destination? And, importantly, what is the cost of keeping them happy along the way? Is it at all tenable, and if not what can you do to ensure it becomes so?

It is about creating fans of what you do. Kevin Kelly described the 1000 true fans theory years ago that basically says that if you can find 1000 true fans, who will buy whatever it is, you produce, you’re set. At least as an indenpendent provider. But there is no reason why that shouldn’t be scalable to a startup scenario; consistently building a following that is passionate enough about the quest you’re on that they will be buying into everything you do the path towards the end goal.

When you manage to do that you not only delight fans and retain them for the onward journey. You also have the potential to look into decreasing price sensitivity, aka you can start working with your pricing. Fans are not necessarily that picky – they will support you a long, long way before they start being concerned – and most of them will (at least if you operate in the B2B space) be deploying other peoples money. For them the price concern will be even less important – provided of course that you stay the course and stay loyal to what keeps you together.

That in turn will enable you to get to predictable growth. You will start being able to pretty accurately model the potential of adding new things to the mix and as a part of that also figure out when the timing is right to adjust the price in return for added benefits from the ‘club’ membership. I am not suggesting it becomes easier as such, as these things are still very complex to get right. But I am suggesting that it should be much more fun, since you have got the mechanics of the model working on your behalf.

So with all the above things being said, what do you need to create a ‘club’ feeling around your product or services and give customers the sense of belonging and wanting to belong to your cause? The answer, of course, is the right mix of talent and the financial means to get there.

To address the finances first, I am pretty bullish that if you can come up with a model where you can show investors the predictability, reliability and viability of your model from a financial perspective, they will be keen to support it. Investors are always looking for growth opportunities, and if those come in tandem with manageable risk at an acceptable level, it starts getting interesting for them. So that will most likely not be the biggest challenge.

The bigger challenge is likely going to be to find and attract the talent that will make the model work for you. Because it takes some special skills both within storytelling but especially within customer success and support. Furthermore it also takes a mindset that gives above and beyond the short term optimization one. If you are looking to making this model work and base your startups growth and future success on it, you need to be clear with both the team and your investors that you’re in it for the long term.

That’s what it takes to create a real movement that is above normal considerations for retention and will deliver the predictable growth and bottom line year after year; a club people will feel passionate about.

(Photo by David Jackson on Unsplash)

The satisfaction trap

With the end of free money being upon us, we will undoubtedly start to wonder more about how we spend our money. That will also manifest itself to the digital products and services we use, where we will be more keen to ensure that we feel, we get real value for our money.

But not only will we do that. We will also insist more on trying things out for free to get a sense of the value at hand, before we decide to commit our money towards a given service.

This poses both an opportunity and a threat to startups.

While the idea of offering something for free and then convert to a paying customer is by no means foreign to startups – it’s called the ‘freemium model’ for a reason – startups need to be very aware that they are not being lured into the trap of having to offer too much for free with slim prospects of ever making the conversion happen.

The nightmare scenario to avoid is one where the startup will need to deliver the full experience and go above and beyond to prove it’s worth to a potential customer only for that customer to choose something different or just stay with their current solution. That scenario will incur excessive cost on the startup with no prospect of recouping that cost, and it goes without saying that that will not be a viable model going forward.

Getting this right is a delicate balance to be sure. Because while a startup won’t want to be caught in the trap, the broad expectation on the customer side is to be delighted every step of the way when trying out a new product or service to see if it fits the customers business needs.

The most successful startups at striking this balance will be the ones who understand precisely what’s needed in order to delight customers – no more, no less – in order to turn them into paying customers. Furthermore, the best startups will understand the need to develop models of payment for their services that grows with the customers needs, keep them engaged while at the same time ensuring that the underlying business model is viable not only in the long term but also in the shorter term.

This is a delicate balancing act, and in order to get it right it will most probably require deep insights into the customers domain area to understand what’s important drivers of customer delight and what aren’t. This again will force startups to reconsider their hiring practices within customer success in order to make it less about generic skills and more about understanding the customers and what they’re actually looking to achieve within their line of work.

Ultimately the point is that not only is the era of free money and uncaring customers over. The era of ‘one size fits all’ customer success and growth strategies is also over. It will take focus, dedication, experience and insight to delight the right kind of customers going forward;

Those that actually end up paying their bills.

(Photo by bruce mars on Unsplash)

Map your GTM options

When I meet with young startups there is one thing that often springs to mind on the commercial side:

The tendency towards picking a business model on the shelf, often inspired by what others are doing, and settle on that as the model going forward without much further thought than that.

The reasoning seems to be that since others have chosen it (and some perhaps even succeeded with it) it will probably also be good enough for this startup. Plus you get the feeling that you have achieved something and can cross off a to do-item from your long list.

I think this approach is premature and may actually be damaging for the prospects of the startup in the long run.

Because what if the model doesn’t work? Do you just pick another then and repeat the same process? And what if the model, you have chosen, puts investors off because it’s too complex, hard and time consuming to succeed?

Forget about just picking a more or less random business model (I know, it’s not entirely random, but I am sure you get my point, ed.).

Map your go-to-market options out instead, as they relate very closely to a viable business model going forward.

Do a mind map. Put your end user/customer in the center. And then start mapping the various ways you can close a sale with that customer using different models, approaches and value propositions.

Figure out what needs to be true – the key assumptions – for each of the avenues and test the assumptions with customers, experts etc.

With a bit of luck and quite a lot of work you will be able to define the path of least resistance to the customer and notably to the customers wallet.

And that’s exactly what you need. That’s your future business model. Developed and understood by you, so you can effectively go and execute on it. Not something just taken from a shelf that you actually may have very little idea about how to make work for you and your startup.

(Photo by Tom Ramalho on Unsplash)

Beware changing models

Can you start out with one type of business model and then transition to a new one without facing huge challenges?

The question is a valid one. And the answer is probably “No” in most cases. And it is worth exploring a bit further, as it’s often a topic that comes up when I meet with founders.

The issue with wanting to change the business model is that what I need and want as a founder and business owner is not necessarily the same as my customer needs and wants.

Let me a simple example from my own life as a customer:

When I order a case of wine from my preferred ‘wine pusher’, I expect it to be an interesting wine from a wine maker, I would otherwise never have heard of and at a reasonable price. Like I am used to.

I do not expect to get an offer for a wine they have produced themselves together with a chef, I have never heard of (even though it probably says something bad about me that I don’t). As I got the other day. And immediately decided to decline.

Why?

Because it broke the fundamental ‘contract’ I have with my regular supplier: You find regular wines from little known places that I can then get a good offer on. That’s the model, I have signed up for. You DON’T try to introduce your own brands into the mix, because that deviates from our ‘contract’.

Could I be more forgiving here and just try it out? Absolutely. And I fully expect that many of their customers do so. Otherwise they probably wouldn’t do it. But I think it goes to show how challenging it can be to make changes to your fundamental value proposition and business model.

I think you need to be very aware of this. Because while it may be tempting to try to change your business model to introduce new revenue streams, cut costs, increase sales, boost your bottom line or whatever, you won’t succeed in it if you’re out of sync with what your customers are expecting.

Don’t ever take even your loyal customers for granted.

(Photo: Pixabay.com)

Regulation as a business model

One of the most potent business models, you can have, is if the use of your product or service is directly mandated by law. Or, in the absence of the complete model, heavily subsidized by law.

When something becomes a law, it automatically drives decisions; people and organizations are required to do x, y and purchase z – your product – to stay within the law or at least get subsidized by the government (which has roughly the same effect on helping grow your revenues).

What could be better?

Let’s say you’re in HealthTech. You may not necessarily be required by law, but indirectly the laws governing subsidies for specific treatments can materialize into official recommendation for treatments that specifically includes your product or service.

You become a de facto public standard.

If you can make it to this point, you have really got it made.

Getting there, though, is super, super hard. Because if there are things, you don’t control and should have no ambition to even try to control let alone influence heavily, it’s lawmaking and the creation of rules and regulations.

Ok, you could have the ambition to influence it. But the obvious risk is that by choosing that as a focus, you end up spending your time and effort in the wrong way.

Because no matter your best efforts, you have absolutely no guarantee that you will end up being successful in your endeavors. Quite on the contrary; the overwhelming risk is that you will come up short. And then you will have nothing to show for it.

The best thing you can do is therefore to figure out where you can join to apply gentle pressure – trade organizations of any sort, special interest groups – and then show up, when there is an opportunity to do so, speak your case. And then let them do the heavy lifting for you.

That will effectively allow you to have a leg in both camps: On the one hand you’re trying to influence a development that furthers your ambition in the long run, while you’re busy executing on your business plan on the short term.

(Photo: Pixabay.com)

Twitter finally makes a move

The new Super Follower feature from Twitter looks super interesting; the ability for a user to offer special perks to followers, who choose to pay a monthly fee.

One thing, we should immediately be asking ourselves: What took Twitter so long?

Tiered access and perks is nothing new at all. Lots of different services have had it for years. Dating sites is a great example, where it has long been the norm, you couldn’t contact someone and keep a conversation going, unless you were a paying member.

It should be a slam dunk for Twitter.

Unless of course, they blow this too.

There probably isn’t a big service out there, who have botched so many opportunities to develop their product and their business model as Twitter has. Anyone remember Vine which was TikTok before someone in China got that idea. Thought so.

I do however think there is a chance that Twitter will get it right this time. I don’t think you should underestimate the profound change that occurred when Twitter finally decided to kick the former US president to the curb for life.

It was a watershed moment. The lid came off the tube, and Twitter is in a different place now. So they should be able to do this.

For users it will also be interesting. From the looks of it, it will be super easy to create a Super Follower package, set a price and cater to the needs of that special paying audience. When you enable opportunity and make it dead simple for people to take it up for themselves, usage usually follows.

For media it will also be very interesting. Twitter just made it super easy for any user with some insight and expertise in something to create their own personal brand and get compensated for it. At the same time Twitter has a reach built into it that most media companies can only dream of.

I wouldn’t be surprised if this – or something like this – ends up being a preferred go-to-market plan for journalistic talent that would otherwise have chosen the more traditional media route. And that will in itself carry yet another branch to the bonfire of old medias imploding business model.

Interesting times.

PS. Big hattip to Prof G who saw this coming from a mile.

(Photo: Pixabay.com)

Celebrate invalidation

There is one thing we often forget when we talk about validating ideas and business models for startups (or any other entity for that matter);

That it is also an accomplishment to invalidate something.

Usually we have a tendency to see things that didn’t work out as extremely wasteful from which only fractions can be saved for later use. If we’re lucky, that is.

Nothing could be more wrong.

Not only do we get immense learning when something doesn’t go according to plan. Here everything is only lost if we forget to put those learnings to good use the next time we venture into something new.

We also save precious time. Especially if we manage to get to the invalidation of an idea or a business model relatively quickly.

Why?

Because if we conclude that something is not worth doing, it’s better to get to that point sooner rather than later, so you don’t spend to much on something that is going nowhere.

Simple really.

Add to all of the above that one of the hardest things is to work diligently to try to destroy your own idea, before it gets to far, and the picture of invalidation as something to be celebrated every bit as much as successes are become that much clearer.

(Photo: Pixabay.com)

The media circus

A coalition of Danish media companies are out with an open letter trying to yet again put pressure on Danish parliament to regulate Big Tech.

The rationale seems to be that the timing couldn’t be better; the role of Big Tech – especially social media – in recent US events these last few weeks have highlighted that we do indeed have a problem, we need to pay attention to and figure out to do with.

But does it really relate to Danish media subsidy policy? Now that’s a different discussion. So let’s try to break that discussion down a bit.

The first argument, media companies make, is that tech companies such as Facebook and Twitter offers publicity to all kinds of fringe arguments. While that is undoubtedly true, let’s not forget that quite a lot of the content that gets shared actually come from media who have made it part of their core strategy to cater to the clickbait SoMe-mob, if we can call it that.

Media companies are not entirely without a responsibility of their own here, IMHO. It would be nice of them to at least own up to some of it.

Now, a lot of the questionable content comes from alternative news sources whose whole business model is built around creating a stir from fake news and draw attention to themselves. Trying to force Big Tech to compensate legacy media for content will (a) not deter these one bit and (b) probably also mean these alternative sources would have to be compensated.

Unless of course you think, legislation should be skewed towards catering for very special interests. But I digress.

You could in fact argue that some of the arguments being put forward by legacy media sounds an awful lot like how a oligopoly would find it useful to try and divide and conquer the market between them to suit their own purposes however noble or not those might seem to be.

As a follow-up from that let’s just for a second remember that what the media companies are essentially complaining about – near monopoly power with a couple of industry players – is what they essentially had themselves with their printing presses back in the good ol’ pre-internet days.

Those were the days.

So let’s just be clear what this is really about then:

It is about trying to ensure that more subsidies goes from someone with the ability to make money (or print their own, aka the government) to someone with a dwindling ability to make money themselves.

The song is an old one: Big Tech has disrupted the advertising market, and unless someone or something compensates us for the loss we have accrued due to the changing times, new technologies, more efficient opportunities for advertisers etcetera, we could be going away soon. So please: Send more money.

The problem is real. No doubt about it. Many annual reports no matter which company in which market will tell you the same.

But the question is whether it’s the right time to use an attempt at sedition in the US to once again beat the old, limp pony of a failed business model that should be fully compensated for by everyone else but the ones who have so far struggled to find a viable alternative?

Personally I would prefer if the energy was spent entirely (and yes, I know a lot of energy is going into this space) of finding a way to once again be the best option for advertisers, when they need to market their products and services.

Only real product and value innovation can help bring about that change.

Having said that I fully assume media companies to continue their efforts to turn back time to when they were in the very position they now complain Big Tech is in.

(Photo: Pixabay.com)