The Future Is Subscription

Why do you need subscription in your business? How do you start and make a successful subscription? Discover the answers on today’s episode as Jon talks with Adam Levinter, founder and CEO of Scriberbase. Adam’s company helps businesses build subscription e-commerce from scratch. He shares, among other things, the advantages of subscriptions over the traditional business and what to do to make subscription works for you and bring more profit into your business.

“If you don’t pay attention to what happens once the customer enters in the front door, you’re not going to keep them.”

-Adam Levinter

Timestamps:

3:30 - Subscription as a way to build customer loyalty and increase profit

5:33 - How subscription makes company more flexible and up-to-date

11:00 - How Scriberbase helped companies shift to subscription

15:10 - Important key in a successful subscription business

21:00 - What is a hybrid business and two huge takeaways from Amazon Prime

26:19 - The transition of subscription on giving customers flexibility or more options

31:51 - First step to consider when starting your subscription

Resources:

Connect with Adam:

Transcript:

Jon Voigt: Welcome to Agile Living, the entrepreneur's journey. The show dedicated to discovering how entrepreneurs and digital leaders are doing more with less. I'm Jon Voigt, your host and CEO of Agility, and we're on a journey across the country to learn from top digital entrepreneurs on how to live a more agile, adaptable, and fulfilling life. Thank you for joining me today and let's dive in. Hi, there. To celebrate the Agile Living podcast launch, I'm doing a massive giveaway and giving three lucky winners a chance to win some of my favorite things I use frequently. The first step in being agile is your mindset and these prizes all help you with that process.

Jon Voigt: First, a box of Bulletproof InstaMix. These are high octane oils to fuel your day. I add it to my coffee or tea almost daily. Second, a Fitbit Charge 3. I don't even have one of these yet, they're not released and they look pretty cool, so it's coming out soon and that'll be the second price. Third, a microbiome test by Viome. This is a leading test in the US that tests your gut biology and tells you exactly the foods you should be eating. It's pretty cool stuff. I did it about a year ago and saw the results and it was really amazing the things I should and shouldn't be eating. Please note, this contest will only be open to those in Canada and the US. I'm really sorry for anyone internationally.

Jon Voigt: To win, you have to do the following. Subscribe on iTunes to the show. Go to the agilecommunity.com and enter your email so we have a way to contact you, and share the show with a friend who wants to start living a more agile lifestyle on Twitter or Facebook with the tag being more agile. That's it. Pretty simple. Can't wait for you to hear some of the episodes and hopefully you can start living a more agile life.

Jon Voigt: Today we have Adam Levinter. Adam is the founder of ScriberBase, a company that focuses on executing your subscription business. I personally have been running a subscription business myself for over 15 years and I understand the benefits in making both a business and a customer more agile. But I want to dive into Adam's experience in seeing multiple businesses make this transition. Adam, it's great to have you in the show. Perhaps you can start by explaining a bit more about ScriberBase.

Adam Levinter: Thanks John. It's great to be on. So with ScriberBase, our vision is to really help businesses create their own subscription businesses and adapt to this ever evolving subscription economy. So companies want recurring revenue. Customers are increasingly seeking convenience. So our goal is to really help businesses adapt and bring their subscription visions into reality. So what that works or how that works is really about helping brands to start, scale and optimize a subscription business from scratch. We develop concepts and strategies. We develop sites, should that be necessary, fulfillment solutions, third party logistics providers, billing tools, customer service infrastructure and more.

Jon Voigt: Wow. So you really cover a lot of stuff. Obviously you've seen lots of businesses go through this transformation. I guess, how have you seen a business change in terms of success, in terms of its culture, in terms of just improving things for its customer as it switched from a kind of traditional business to a subscription business?

Adam Levinter: Well, in what I'll call the access economy where competition is just very, very strong, we can understand why building customer loyalty is such a focus and moving a traditional business model into subscription really changes the purview for a company. So instead of focusing on transactions or dollars, they're really focusing on building a relationship with a customer.

Jon Voigt: Right.

Adam Levinter: Because when you've got subscribers, these are people that you're building a long term relationship with or that's what you're endeavoring to do. You're really focused on maximizing lifetime value. So it's really a relationship driven focus versus a simple transaction driven one.

Jon Voigt: Right. I think that's the big push. You see a lot more titles, customer success and things like that across the industry, especially in the tech world. I think it's just because that's becoming so important that the customer is successful as well.

Adam Levinter: Yeah, I mean if you look at just, I'll list a bunch of brands for you, so Amazon, Netflix, Spotify, Shopify, some product companies like Ipsy and everyone knows what the Dollar Shave Club story, even more traditional SAS businesses like Adobe and Microsoft and Salesforce, these are all, the commonality between all these companies is subscription. They each are offering obviously different products, different services. They've got different unique abilities, but the underlying commonality is subscription.

Jon Voigt: Yeah, yeah. It's crazy. Even the big companies that you usually feel they're going to be slow at moving that stuff, they've all shifted to that as their primary kind of way of making money now.

Adam Levinter: Yeah.

Jon Voigt: I obviously understand from running a subscription business myself how it's made us more flexible, more adaptable, and kind of allowed us to stay ahead of the curve in many ways. I'd love to hear your take on why a subscription business can be more flexible and move faster than a traditional type of business.

Adam Levinter: So when I think about flexibility, I think about the ability to innovate and innovation is obviously a big buzzword in the C suite. Companies are trying to figure out better ways to innovate or faster ways to innovate.

Jon Voigt: Right.

Adam Levinter: Many of them don't know even how to innovate. So when you've got or when you've moved a core business model from a onetime purchase or transactional driven business model to a subscription or recurring revenue business model, what you have is way more room to innovate because you've got this predictive revenue stream coming in month after month that you can forecast out into the future.

Jon Voigt: Right.

Adam Levinter: So instead of looking at what happened last quarter and building your projections based on what happened last quarter, you can actually way more accurately understand what your next 30, 60, 90, even one year out looks like because of that.

Jon Voigt: Right, right.

Adam Levinter: Given that knowledge, you have way more room to innovate. You've got more room to test different products, different services. So I think that's where the flexibility comes in.

Jon Voigt: Right, right. So they're able to innovate and change on a whim in terms of, "Whoa, this is a new fad that's happening this month and we think it's going to be something big next year." We can quickly pivot a little bit and try that out or dabble in that area without disrupting the whole business and having to deploy a product or a solution or whatnot.

Adam Levinter: Right. You've got a foundation, a strong foundation to build off of. So if you're a B2C subscription business, you understand at any given point or you should understand how many subscribers you have, what their customer lifetime value is, what's your churn looks like, and be able to project out the next two, three, four quarters from that knowledge.

Jon Voigt: Right.

Adam Levinter: Whereas if you're running a traditional business, you can simply forecast based on the behavior that happened last quarter or last year, but you don't necessarily know what's going to happen next quarter.

Jon Voigt: Right.

Adam Levinter: So I think it's so powerful to have that understanding.

Jon Voigt: Right. You kind of said it a little bit at the beginning about the customer success side too. I think the subscription type businesses do have a bit of a closer relationship with their customers generally and therefore they're also more on the forefront of kind of understanding where the market is going or maybe the customer's pivoting really fast and the business needs to follow them. So I think that's the other aspect too, right? Maybe that's innovation too, depending on how you look at it. You're adjusting and following the customer's needs. You're able to follow them so you're able to twist and change before the customer turns a corner and leaves you in the dust.

Adam Levinter: I mean, like I said earlier, this is a very relationship driven approach to running a business.

Jon Voigt: Right, right.

Adam Levinter: You're going to know very quickly how your customers are responding to your brand or to your offering.

Jon Voigt: Right.

Adam Levinter: Because you're billing them month after month and every time you're billing them, it's a subtle reminder that you are taking money out of their wallet and so long as they're happy, that's great. But if they're not, they're certainly going to let you know. So in the traditional sort of retail marketplace for example, so I may go into a retailer and buy a sweater and I'll have bought that sweater once. How my actual experience was in that retailer or with that brand, it's going to be very difficult for the brand to pull that data on me.

Jon Voigt: Right.

Adam Levinter: They'd have to figure out how to contact me. They'd have to get feedback from me. It's difficult to do. When you engage a customer in a subscription program, you're going to know very quickly, and there's a number of metrics to evaluate that, but you're going to know based on how many cycles on average you're billing them, what their customer lifetime value is, what the customer service inquiries are, what the complaints are, what the refund ratios look like, that kind of stuff. So the insight that you get from the customer is way more powerful than in a traditional business.

Jon Voigt: Right, right. Well, I guess on a whim, you can take that insight and make a change as well, right? You can just, "Oh, these customers don't like these payment plans or whatever, we're going to change them." So it's much, much quicker and easier to shift that stuff.

Adam Levinter: Customers will tell you. I mean, I will not, just based on confidentiality, I will not share a client information, but we've done some work with various companies in the food sector who have created these offerings around say mealtime, so breakfast or dinner or whatever. We've had companies change their offering with new products related to their core offering that they had no idea about and it was simply because their customers were asking for it.

Jon Voigt: Right.

Adam Levinter: They would call in or they would write in to the customer service department, "This subscription is great. I really like this about the product or the offering, but I prefer or I really like it if you added that."

Jon Voigt: Yeah, yeah.

Adam Levinter: That's huge.

Jon Voigt: Yeah, yeah. For sure, for sure. So say I'm a traditional business, hard is it to change? Because I think it's more than just your offering, it's also culture and all sorts of different things. So have you helped a lot of businesses shift from a traditional to a subscription business and seen a difficulty in being able to do that and how do people kind of go around doing that?

Adam Levinter: Yes, it's not easy. I mean, we're talking about a fundamental transformation in the nature of how a company might approach their business model and when we're working with larger Fortune 500 brands, it can be very difficult. They've got legacy systems, a legacy culture, a certain infrastructure that they need to navigate. They have certain ways of doing things, certain patterns that are tough to break. So it's not easy. It certainly is not a model that works for everyone.

Jon Voigt: Right.

Adam Levinter: So a lot of retailers, I think are sort of under this illusion that they can take their traditional business and all of a sudden transform it into subscription and it doesn't necessarily work for all services or all product categories, but for a number of them it does. That's what we help these companies to do. So we help them explore opportunities. We develop the concept and the strategy. We identify where there are subscription opportunities, be it on the product side-

Adam Levinter: Where there are subscription opportunities, be it on the product side or the services side. So, it is possible, but it's not easy, and it looks easy on the surface. I'll say that when you look at the front page of a lot of these tech blogs that have written about the subscription economy and they highlight some of these popular names like Birchbox, or Harry's, or the Dollar Shave Club, or Jessica Alba's The Honest Company. These names are popular in the space, and to an extent, they're pioneers.

Adam Levinter: But what they've done behind the scenes is actually very difficult. There's a number of pitfalls with respect to billing and pricing and integration, and customer service infrastructure and customer acquisition and all of the analytics behind it. I mean, it looks very easy to just take a couple of skews and create this sort of recurring billing plan around it. There's way more behind the scenes that goes on.

Jon Voigt: Yeah, yeah, and I definitely have talked to some people that, when they made the switch, they actually lost some flexibility and innovation initially, because when you sell a product, let's say you sell it for $12,000 and switch over to a subscription business and sell it for $1,000 a month or something, you've just lost a huge amount of cashflow. So, during the transition, people kind of underestimate that cashflow when they make that switch, and without that cashflow, it's really hard to innovate, it's really hard to do R&D, it's really hard to do some of the things you used to do in terms of marketing. So, I've seen businesses make a switch and be like, well, we underestimated how the cash would change in the business through that whole process.

Adam Levinter: 100%, and specifically, I think you're alluding to the SAS industry, which, for a long time, was just really built on ... Well, software specifically was built on just licensing, building software and then licensing the product out for, say, $12,000 like you described. Then, because the economy, the customer sort of demanded it, they made the switch. So, like you say, they take a cashflow hit upfront, but they get way more customers in the door because the barrier to entry is much lower from a pricing perspective or from a cost perspective. They make it up on the long tail through the increased customer lifetime value of having somebody license it, say, at $1,000 a month versus paying that big upfront ticket.

Jon Voigt: Right, right. I know for subscription businesses one of the big metrics is retention and churn, and are you keeping your customers. How tied together do you see the innovation stuff you talked about in terms of these businesses really innovating. How important is that for retention, and is that the key point in terms of ... Or, the key thing a customer looks at, will I stay with this platform, because they're innovating? Is that why these businesses that have really, really good retention exist as subscription businesses, or do you attribute something else to that?

Adam Levinter: Customer retention specifically I think is the most important piece of the subscription puzzle. So, companies are so focused on customer acquisition, so how are they going to get more people to sign up or more people to subscribe, right, the front end of the funnel. There's so much focus and so much of the marketing budget being dedicated to that part of the model, whereas the most important, the most critical part is really what you're doing to retain the customer once they're in. It's way more expensive to acquire a customer than it is to retain them, yet many companies, many, many, many ...

Adam Levinter: There's a number of test cases for this that show that if you don't pay attention to what happens once the customers enter in the front door, you're not going to keep them and you're going to end up in a very difficult place down the road. One of the legacy stories which listeners will be familiar with who ... I mean, one of the first pioneers in the space around music was Columbia House, way before Spotify.

Jon Voigt: For sure.

Adam Levinter: Columbia House ran a massive, massive business built on a real heavy focus on driving customer acquisition through all kinds of interesting strategies, incentives to hook people in, the penny CD concept, pay for 12 CDs for a penny or whatever, everyone did it. I mean, we all felt prey to it, but they got into huge trouble, which ultimately led them into sort of class action lawsuit territory and ultimately bankruptcy was because once customers were in, they had absolutely no idea how to reach the company to ask questions about their billing statement, to ask questions about switching this CD out for that CD. There was really no attention being paid to the customer, so the retention was very poor, and that killed the business.

Jon Voigt: Yeah, I kind of like this kind of twist in the story here, because I'm talking about how a subscription business can make you more flexible, make you adapt with your customer, but really, it didn't in this case, right. So, they lost connection with their customer, they stopped innovating, they stopped coming up with things that would support their customers, so I think a subscription business alone isn't really the key to making your business more flexible. I think a successful subscription business kind of needs that customer satisfaction, that customer connection and that innovation, as you mentioned, and if you're not doing those things, then it's not going to be a very agile and flexible business in itself.

Adam Levinter: 100%, and just to double down on that and what I just said, instead of the first conversation being around how we're going to get subscribers or which channels they're going to funnel in from, be it social media or otherwise, the focus should really be on what is the customer experience going to look like? How are we going to service the customer? What is the actual customer service department going to look like? Is it just going to be a remote email, online chat, 24/7? Is it going to be an omni channel sort of customer experience where a customer can reach you by chat or email, or even talk to you live on the phone? Should they want to call you? Those are the questions that need to be asked first versus how are we going to get subscribes and how are we going to market?

Jon Voigt: Interesting, interesting, because I always see so many people talking about starting a subscription business and they're always like, how do we get the momentum? How do we get people on? But you're probably right. They're forgetting about the second part, which is probably the harder thing for someone to start if they're going to move into that subscription business, because if you sell a product, you don't ... As you said, the retail example, I sell a shirt in a store, someone doesn't need to be supporting that person going forward. It's done.

Adam Levinter: Yeah, I mean, speaking of shirts, Stitch Fix is an incredible case study on how to successfully create a direct-to-customer retail play online, do it with a subscription model in place, and really pay attention to the customer experience. I mean, this has been the Netflix of fashion since day one, highly driven by data science. Actually, one of the former VPs of Netflix came over to Stitch Fix, and that was a big turning point for the company, but they're hugely profitable because they're so heavily focused on the personalized customer experience. Each shopper gets a personal shopper that handles their account, but there's so much more that's customer-centric about this brand, and that's really why it's become so successful.

Jon Voigt: Right, right. You talked about some industries not being able to really go into a subscription business, but how often have you seen a hybrid, where part of the business is subscription, the rest isn't, maybe because that other area doesn't ... Maybe society's not ready for it yet, or it's just not an easy product to build in a subscription model. How often do you see a hybrid of these businesses, and does that actually, in some situations, build a stronger business because they have options for different people?

Adam Levinter: It's a good question. You know, the first obvious example that comes to mind of a hybrid is Amazon. I know that's a very cliché example, but it's important for so many different reasons. The Amazon Flywheel is so powerful because of ... Really, because of the subscription foundation that they've built since 2005 with the launch of Amazon Prime. I think it's around 2005. But Prime is really the focus of the business. They have another division, Amazon Web Services, which is their cloud infrastructure, which is also built on a SAS model. Amazon Web Services, I think, as a stand alone business, represents about 10 or 15% of Amazon's total revenue, even though the average person doesn't know AWS even exists.

Adam Levinter: Prime, you've got 52% of American households are on Amazon Prime. That equates to roughly a 120 or 125,000 or so individuals are on Prime already in the States alone. So, a third of the country, 52% of American households are on Prime, and Amazon's entire MO is to get you from being a normal sort of Amazon purchaser on their marketplace to a subscriber, because Prime members spend twice on average in terms of a 12-month ... If you take a 12-month snapshot of total spend, Prime member spend about 1,400 bucks a year versus traditional Amazon shoppers who spend about seven or 750 a year on Amazon. So, their whole MO is getting you into the Flywheel somehow some way, be it through Prime Video or otherwise, or Marketplace, and getting you on to Prime as fast as possible.

Jon Voigt: Yeah, it's so cool, and you see that everywhere. You go to Whole Foods and you get discounts if you're a Prime member and all these different things. They're able to focus their marketing and focus their ... How do we move someone through the lifecycle of a customer? Because they have that kind of ... The first step is get them to their Prime membership. The next step is now get them to spend more. They can break down their targets and goals into smaller bite-sized chunks.

Adam Levinter: Yeah, and they do it in such a way that's transparent, and customer centricity has been there since day one. I know half of your listeners or maybe more hate on Bezos, but I'm very pro Bezos, and he's been so customer-centric since the get-go and he continues to be. He's just driving so much value for Prime members that the retention is there, so he talked a little bit earlier about retention. 80% of Prime subscribers who signed up in 2005 are still ... Sorry, of the 100%, 80% are ...

Adam Levinter: &nb