Turn Subscriptions Into Relationships

From financial assets to strategic value

Do you have subscriptions or relationships?

Repeat customers have been central to a good business model since time immemorial. We provide a product they want and need, and the customer gets that value every time. A good base of repeat customers is a stable platform for a successful enterprise. 

In a subscription world, we can formalize this relationship into recurring payment with a minimum of friction. Our customer needs only decide to do business with us once. After that, the vendor takes money regularly via automated draws, and the customer receives their value. Recurring delivery like milk and ice in a previous era followed this model. Gym memberships and periodicals are also classic subscriptions. More recently, this became an essential part of the software industry. 

The automatic-draw subscription reduces the mechanical friction of the automatic relationship. But what about the value? Our customers look to us to receive whatever type of need-fulfillment they are seeking: information, productivity enablement, automation, and so on. Are we doing this well? Are we filling the job to be done as thoroughly as they need - and with consistency? 

Even more than that, a customer relationship is an opportunity. Any salesperson who wants that customer's business for any other product would be jealous of what we have. That relationship is an opportunity for understanding and trust. Understanding lets us gain better context about their pains and the evolution of their needs. Trust converts us from a vendor to a trusted advisor, helping them with problems that go beyond the scope - and perhaps even the department - of the direct subscription relationship. 

The subscription itself is an imperfect indicator of the deeper relationship because it is possible to have a shallow subscription that is unmaintained. A glance at last month's credit card statement will probably reveal at least one service that continues to draw, but you forgot it was still active. The subscription has an annuity value based on historical churn, recurring revenue, and the gross cost of service. These considerations (along with interest rates) cap the present value of the subscription itself. 

But the equity value of the relationship can be much higher. The flow of intelligence and the trust relationships create opportunities to help customers even more deeply with better and different products and services. The customer would much rather deal with the vendors they already trust, so expanding the portfolio of that relationship is a win-win. 

A rational founder might look at the above and reply, "but I only have this one product to offer - isn't this all increasing my costs without benefit?" First, stronger relationships decrease churn and guide product development. Josh Seiden in Sense and Respond compares this customer feedback loop to the idea of "continuous integration/delivery" in technical contexts. 

Second, trusted relationships increase the shareholder value of the firm. An investor can see a path to acquiring other companies with products our customers need. We can raise the capital and cross-sell. A potential acquirer can look at our customer list and see how they could sell more of their product because of our trusted relationships. Potential acquirers drive up the value of our stock by making a market for it. And, of course, we can more easily fund the development of new products when there is a more straightforward path of where we sell them: our customers! 

If this is such a great idea, how do you get started? For best results, reach out directly with an offer of a call. I like to include a Calendly link in the email to make it easy to book a time. (Plenty of competitors do this well, such as SavvyCal.) The ask is 15 minutes of their time to find out what they are doing with their day. It's Mom Test-style customer discovery all over again. The difference is that this time, your targets have a better reason to reply. Just like in customer discovery, there is tremendous value just in being heard. 

Doing this once is how we begin, but how do we make it part of our company? Experts have weighed in and can bring more intellectual firepower to bear. Seiden's Sense and Respond model is great. Nick Mehta's methodologies from Customer Success are a must-read. 

The objection to this model is that it will either eat into profitability or distract from new sales. The typical reply is that talking to customers increases lifetime value, which increases the present value of the subscription, enhancing the value of the company's equity. 

But for me, the transcendent value is growing from a portfolio of subscriptions to a relationship asset. The former is financial, and the latter is strategic. The difference in valuation is enormous. And best of all, it creates equity value for the right reasons - listening to customers means we get in alignment with them. Increasing trust means they will permit themselves to get more excellent value from our services. The customer wins, our shareholders win, and we founders, in the middle, get to create value by doing the right thing by all our stakeholders. That seems like a good day's work. 

Photo by Cytonn Photography on Unsplash