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)

Viability does matter

The other day I finished “The Cult of We: WeWork, Adam Neumann and the Great Startup Delusion” by Eliot Brown and Maureen Farrell.

It charts in excruciating, painful detail the rise and fall of WeWork, one of the best funded most-hyped US startups ever. And it’s a great read that I highly recommend.

One of the tenants of the book is a marvel at the established idea that for successful startups only top line growth matters, no matter the cost associated with it. The general belief is that if you just get big enough, you can always sort the more mundane business stuff later.

WeWork proved to be the perfect example of why this isn’t the case at all. On the contrary, founder and CEO Adam Neumann and his investors led by Japanese Softbank more than proved that if there’s not really a there there, a crash will be inevitable. It’s just a matter of when the house of cards is going to come crashing down.

The interesting thing about the book and the phenomenon as such is that it’s always there in the open for everybody to see. Yet no-one really does something about it. It’s hard to say whether it’s for fear of looking stupid, fear of reprisals or whatever. But the end result is that even though we can all agree that this was not the way to do it, there is a near 100 % certainty that we will experience more cases like that again in the future.

Does that mean that you should have aspirations to be the next Adam Neumann?

Not if you ask me.

In my view stories such as the one about the WeWork implosion should give every founder pause and lead to the building of viable businesses that doesn’t have a structural expiration date.

It’s perfectly understandable that when the music is playing, you want to dance and dance all night long. But if you’re also just a wee bit into what you’re doing with your startup because you want to make an impact for people or change something out there, you should always, ALWAYS have an eye out for how your startup becomes a viable business in its own right.

(Photo by Charles Koh on Unsplash)

Corona thoughts, part 5

Jeffrey Katzenbergs new mobile streaming service meant for the commute, Quibi, has finally launched. And is getting killed by the reviewers. You can be excused for thinking that the timing couldn’t be worse when no-one is commuting right now, but in general the service seems to be a product looking for a problem, where there is none.

The fate of Quibi might suggest that now is the time for ‘The Great Sanity Check‘; the time where you look hard at what you do and use the opportunity to really ask yourself the hard question: All fanfare forgotten, does what I am trying to build really make any sense at all?

Can you see a path to a real business? Or – perhaps better yet – can you see an accelerated path to becoming a real business utilizing what you now know from the corona outbreak as things to factor into your plan? Can you adjust to life post-corona and come out on top? It is worth spending some serious time thinking about because in all probability it is going to be your reality, whether you want it or not.

(Photo: Pixabay.com)