The B2B Revenue Executive Experience
The B2B Revenue Executive Experience

Episode · 8 months ago

Subscription-Based Businesses: How To Manage the Transition & Leverage Data w/ Robbie Kellman Baxte


Most people today have a subscription to some product or service. Or leaching a streaming subscription from a friend or family member… No judgment.

But when we think about subscription services as a business, what keeps us renewing month after month and how can businesses continue to improve that experience?

We speak with Robbie Kellman Baxter, Strategy Consultant at Peninsula Strategies, and author of "The Membership Economy" and "The Forever Transaction", about businesses transitioning to subscription-based, the associated benefits, and the challenges those businesses will have to navigate.

In this episode, we discuss:

  • Discussing a subscription based economy
  • Cultural changes for businesses moving to subscription-based
  • How to leverage data effectively
  • Advice to the audience

Now that you know the benefits of subscription-based and how to transition your business, are you ready to learn how to build trust and confidence with your content strategy or how to optimize your tech stack? Check out the full list of episodes: The B2B Revenue Executive Experience. 

You're listening to the BDB revenue executive experience, a podcast dedicated to helping executives train their sales and marketing teams to optimize growth. Whether you're looking for techniques and strategies or tools and resources, you've come to the right place. Let's accelerate your growth in three, two, one. Welcome everyone to the BDB revenue executive experience. I'm your host, Chad Sanderson. Today we're talking about current trends in the subscription bait tech world. To help us, we have with US Robbie coming backs strategy consulting that Peninsula Strategies and author of the membership economy and the forever transaction. Robbie, thank you so much for taking time and welcome to the show. Thank you so much for having me. So we always like to start with a kind of off the wall question. I'm careful of our guests, people who know you largely through your work. I'd love to know something that you're as it about that those that only know you from that perspect my surprise to learn and about you something that I'm that I'm passionate about that might surprise them. I would say that I've been a girl scout leader for the last thirteen years and that I'm pretty passionate about supporting girls who are leadership oriented from a young age. I love it. I love it all right, thank you for sharing that with us. And so let's talk about the subscription economy. Is For our listeners, I'm sure's mirror from with it, but would love to get your perspective, one like how you would definite what's the context? What exactly is that subscription based economy? Yeah, so you know what I you know, the last certainly the last ten years, we've seen a huge rise in the number of subscription based businesses and and I even think of it one level bigger, which is, you know, membership economy. This this rise in companies really treating their customers like members and focusing on the long term relationship with them. So not just thinking about that initial transaction, but what happens after the moment of transaction in terms of expanding and lengthening that relationship with the customer. And in many cases that mindset gives you permission to charge on a subscription basis because you have that that level of trust with the customer. And so when people engage in this, I mean we've seen a huge uptick in it. Right. It's definitely it's here to stay, and I'm kind of curious, from your perspective, how companies have to reorient themselves to this new reality or how they have to change the way they may be operated, to review even their own customers, so that they can be successful with a subscription based approach. Yeah, well, I would first say that for any company, whether you're just starting out or whether you're transitioning from a more transactional business model to a subscription business model, I think the first step is to take a step back and say what is the ongoing problem we're solving for our customer, or what is the ongoing goal that our customer has that we can continue to help them achieve, and how do we need to design our offering, products and services in such a way as to align with that ongoing need? And if you start with that, you immediately start to see all the things that need to change. Right, of course, the thing that right, the thing that people jump to right away, is let's slap some subscription pricing on whatever we already had. Right, and we saw this in the enterprise software world right like people were calling it Sass and you like that's not really Sass, that's an enterprise product with a you know, an annual you know, an annual price being attached, often an annual price being attached and a three year term, which would make somebody say boy, that really doesn't feel like a subscription at all. But then, you know companies realized that if you were designing for subscription, you moved ...

...from let's say customization of software, where you buy the software, own it outright and customize it for your unique use case, to subscription software, which is configurable but not customizable, usually easier to implement, easier to remove, because subscription is kind of a lighter touch. And then you see, oh, and then if we do it, then we need to we need to sell it differently. So instead of selling it with really, you know, high priced sales people, you know that go out the big hunter, you know hunters who go out and bring back the wooly mammoth to the cave, drag the carcass and leave it for everybody else to deal with. I think we've all worked with those people at some point in our careers. Moving to more of a of a farming mentality, more about you know, bringing in lots of customers and then growing them over time right this land and expand strategy. So so the point I'm trying to make is that when you start by saying how do we align our goals with the ongoing goals of the customer, it starts to affect not just the pricing but also the product itself, you know, the way the product is designed, the way the product is marketed, the way the product is sold, and then customer success versus customer support, the way that you treat customers after that initial transaction, which, in the world of subscriptions, that moment of transaction is really the starting line for the relationship, not not the finish line where all the high priced people go back out, you know, go back out into the woods to look for the next wooly mammoth. Right. That's when your high stakes, high high paid teens really dig in and extend and expand that relationship. So we're I mean we're essentially talking about almost a completely different organizational approach, which even you get even go higher and talk about the mindset of the company itself. Have you seen, I mean it's since it is relatively new. Have you seen companies struggle to make the transition, or is it easier for somebody coming in and building from the ground up? Well, it's it's fun it's funny. It's easier to do it from the ground up, of course, because you have no baggage and the stakes are lower. Right. It's the same as thing. You know, if I'm in a race, and you know you are, you know you're sailing a cargo ship and I have a little speed boat. I can probably go a lot faster than you, but I also am not carrying anything, I have nothing of value. So you know what I'm doing is less relevant than what you're doing, and I think it's sort of the same. It's easier to start from the very beginning and have a clean slate. But you know, the big you know opportunities are for these large companies that have deep relationships with their customers, that have a strong brand, to say, Hey, let's take it to the next level and let's think about you know, our customers. You know, in many cases they say, you know, our customers already love us, even though our business is transactional. What would it look like if we went a little further and solve the problem more fully? What if we better aligned our product offering with their actual ongoing needs. And there's huge potential there. So it's not always easy and is you point out, culture is probably the biggest challenge for existing organizations. But the value is really there and if you go into it with your eyes open, it's not as hard as you think think it is. It just requires an understanding that it's more than just repricing the products and services bundled as you've always bundled them. And and so with those companies, like a kind of thinking through this. With the companies that already exist, they may already have a revenue stream that might help them mitigate the risk of making the changes give them a little bit more room to fail without catastrophic consequences, whereas if I'm a new one coming in, I may not know my customers as well, I still couldn't design it from the ground up, so I don't have to have the same internal cultural battles that I'm going to have to...

...have when I make these changes. And I'm wondering if there change in existing coming making the change. Does it change? Because you mention in the difference between farming and the hunting and then the imports of customer success, does it change the skill sets that they're looking for in individuals and does that create a friction point for the organization? Yeah, absolutely. And when I think about when, you know, I like that years are of focusing in on this cultural issue, and you know what changes in terms of skill set, mindset, these kind of softer things that often companies don't don't consider. I think about you know, there are the what I've thought it's called the left brain issues. Right, I don't have the skill set to sell in that way to I don't know what it means to be in customer success versus customer support. What are the skills I need? I don't know which metrics to track to understand if a customers likely to cancel or not. Those are things that can bet. It's not always easy to do that, but it's you know, there's a clear path to say, okay, you need the skill, here's how you develop the skill. You need to understand this metric. I'll explain this metric. But I think what's harder, what's more insidious, is when people on the team are afraid, when they when they recognize that their role is going to change and they don't want it to change, and in some cases that fear is totally justified. Right, if I am one of those big game hunters and I can see the writing on the wall that we're moving to an inside sales model because the product, the subscription based product, is a lot easier to sell than, you know, the custom solutions I was offering before, and I see how they're hiring all of these, you know, less experienced, less expensive salespeople, I wonder, is there going to be a role for me? So I might want to drag my feet a little bit. I may not support this transformation. I want to make it as difficult as possible because I worry about my own livelihood. So I think what's really important is to be, you know, when you're developing the strategy, to be really clear on who are going to be the winners and losers, who's going to have to deal with the most change, both on the customer side and on the employee side, so that at least you know what you're dealing with and then and then you can decide how you want to deal with it. But at least name the problem. Right. Yeah, it's going to be worse for you Robbie, who's, you know, been used to selling seven figure consulting engagements. Now that we're selling a, you know, a prebuilt APP for Fiftyzero dollars a year, we might not need you or your roles going to change a huge amount. You're going to be managing a big team instead of being an individual contributor that's very well paid. Is that something that's interested in to you, Robbie? You know, and I say maybe now, maybe I'll go somewhere else or yeah, that might be a really interesting new new role for me. But be honest about what's going to happen. Right, what requires? I mean a change management Approch, for they need to be aware that nobody wakes up in the morning and says, Hey, I want catastrophic change in my life today, and so never heard that. He says that right. So they they need to be looking at it. I mean it's you're talking about a significant change and I'm curious. Have you seenizations attempt it and stumble versus, what it looks like when they attempted and our successful? And don't have to name names of companies if you don't want to, but I'm just curious what it what it looks like. How would a company know they're heading to path of making the change to this subscription approach and they're doing it well versus not so well? They're early warning signs. They should be looking for, things they should be aware of. Yeah, I mean, I think the signs that it's not going well and of course it depends on the organization one. You know when, let me let me start with when it goes well. When it goes well, usually what happens is this company decides they want to experiment with subscriptions or membership or recurring revenue relationship. They set aside a team off in the corner...

...of the organization rather than saying we're going to do a wholesale change. You know, immediately they give that team some runway to experiment. The team decides all that, you know, makes a list of all the things they need to learn before we have confidence to flip the switch in the whole organization, and then they map out a plan. We're going to learn this, and then we're going to learn this, and then we're going to learn this and then we're going to learn this, and when we have confidence about those things, that's when we're going to move this to core. We're going to move this to how we do business and that's when we're going to share it with the rest of the organization and start thinking about infrastructure, corporate culture, training, new roles, operationalizing this new way of doing things. But I call it kind of learning and leverage. What do you need to learn in order to have the leverage to get the board support, to get your partnership support, to get support from other parts of the of the organization? One example on the consumer side that I wrote about in my book electronic arts, the video game company. You know, they've known for a long time that subscriptions we're going to be a key part of their long term strategy. But you know, they started about I think it's been about six or seven years that they've been experimenting with subscriptions and they've tried things like, you know, they started with what they call their catalog games. They're they're old games, right. They weren't going to put their new games into a subscription because the risk was much higher. They started with their PC games, the games that you play on the computer, as opposed to their console games, you know, the Games you play on your on your playstation and that was because the playstation that's higher stakes, bigger segment, and they experimented in different small markets, discrete markets, and as they gained confidence about how behavior changes. You know, do people who buy the subscription, who subscribe, also continue to pay for boxed games or do they stop? Which customers do it? Or the customers that are buying, you know, two or three boxed games a year that moved to subscription, or the customers that were, you know, not buying games? Are they new customers? Once they started to learn some of those things, they had a lot more confidence when it came time to say, you know what, we're going to have subscription, which they now do, for our front line titles, are new titles, and we're going to make it available through, you know, all of the consoles and we're going to make it available globally. Right. So that's how you do it right. Companies that do it wrong don't experiment expect results too quickly. Often, I mean, I've talked to more sea sweet teams than I care to admit that have said we need some subscription revenue so we can get a better valuation. Flash. We need some subscription revenue because I get a big bonus if I can show subscription revenue by the end of the calendar year, after which point I'm cutting out of here and going to work somewhere else. That's where you see the disasters right right, because theyy're not really committed to this long term, this long term journey, and it's really interesting the the learning part right, the focus on what do I know about my buyer behavior, that relationship I have even those companies, and it's unfortunate, but even some of those companies that think, you know, hey, our customers love us, when you really dig in, they don't really have dad. I haven't don't have any data on why. We don't understand the data on why they're saying that or how the customers are behaving. So it takes really taking that step forward to understand the consumer behavior of the individual that your individuals that you're trying to switch to that subscription model, which is the same thing we've been here and at Nawse in for years. You need to know your buyer, this seems like. If you don't know that, if you if you don't have an understanding of that, that's going to be a hred flag which has ramification is not only for the revenue, but the individuals in the company, the brand valuations for those that are looking to jump. I mean, are there ways that they should go about collecting data or specific metrics that they should be...

...looking at as they're going through this learning phase? Yeah, absolutely, there's so many and it's great that you that you're bringing this up. I think you know a lot of companies that do know their buyers well. Understand what makes the buyer buy, but what they don't understand is who uses the product and how they get value from that product when they've already bought it. So, you know, if I buy a Lamborghini and drive it off the showroom floor and then I never take it out of first gear, the Lamborghini, you know, dealer doesn't really care, all right, because they've got my money already, right. But if if I subscribe to that same automobile and I don't, you know, and I bought I subscribe because I wanted to feel the wind in my hair and drive one of the fastest machines you know, available on the open road, and I say, you know, it's goes so slowly it's really uncomfortable to drive. I'm returning it to you I'm canceling my subscription and they're like, Robbie, you've never took the car out of first gear. Right. Then they say it becomes their responsibility to help me get value. And businesses that are really good at subscription, that are really good at recurring revenue, do not treat all customers the same. So acquisition is different. Right. They don't just want to acquire anybody, they want to acquire people who are going to get value, recognize that value and continue paying right and expand the relationship. So you become much choosier at the front end about who you even sell to, and then you have a much better understanding not just of what are those acquisition benefits, what are the reasons that somebody buys, which most salespeople really understand. Right, if I talk about this new and improved if I talk about that future, I know that's going to move somebody to buy now, but you also need to know about the retention benefits and the engagement benefits and the expansion benefits that are going to drive and deepen the relationship over time. And so a lot of companies don't know anything about that. which features you're being used, how they're being used. How the land and expand which people talk about all the time? How does that work? What is it? Word of mouth? Is it a viral, organic function where I send you an expense report and you see that I'm using some piece of software and ask if you can use it in your department? To right, I mean what how do things grow and how do how do people decide? I'm using one feature, now, I'm using two features. Now, you can't pull it out of my hands. You know, if you try to quit my job, if you took it away. I think those kinds of questions really understanding that becomes becomes really important and are the reasons that companies should go about. I mean that you're we're talking about a lot of data, a lot of points of to be explored in that behavioral paradigm that may not necessarily be as easy to track as some who's using an iphone and every click can you know, you know what they're doing and where they're going. Yeah, so we're talking about that combination of, you know, if the service is digital, as that the combination with digital and humanity. How To companies go about getting that data or understanding that in a way that they can trust the results that they're getting with. I guess what I'm saying is, without applying a bias to the research that they're doing. How do they do that actively? Yeah, it's a really good question and you know, Chad, I've worked with over a hundred companies across a really wide range of industries and company sizes, and some of them, you know. I've worked on Microsoft. Right, their data would make your heads JEM google their date. I mean they have so much data, right, they can tell you, you know, wow, Robbie, Robbie took you know her she was taking five breaths a minute for the first couple of minutes and then she was taking seven breaths and we noticed it. You know, we know exactly what she's doing. But I also work with, you know, startups where they don't have any data. And also, I mean we haven't talked much about this, but there are, you know, physical products where you don't get any data. Right. If you know, if I buy a truck from you or if I buy supplies from you, you know,...

...or professional services, you know, you don't necessarily know how that's being received on the other side. So one of the things I really encourage organizations to do is to think about, you know, how do you mitigate risk? So, instead of saying how do you get the best you know, I need this data, say well, I'm worried about this. You know, I have this question. I don't understand. Start by asking right like I'm a big fan of just, you know, qualitative, well structured validation interviews to just understand where you are getting really clear on which hypothesis you want to test. And Yeah, if you have great data, wonderful, but a lot of organizations don't have perfect data and you know, number one, that shouldn't prevent you from asking good questions and number two, it might mean that you want to change the way you build your products. So, you know, with this example, let's say, of heavy equipment, trucks and threshers and crushers and cranes and other, you know, machinery that you use for for, you know, building or agriculture. Increasingly they're using sensors, they're using software, their embedding software into their into their products so that they do get better data and so that their product can better solve the full problem. If I'm a farmer right I buy a tractor not because I want to have a tractor, but because I want to have a successful crop this year, and the closer right and the closer you can get to helping them have a successful crop, saying I'm not just going to sell you this, this tractor, but I'm also going to help you know when and how to use the tractor to have the best possible crop. Right, that becomes more valuable. Right, if I'm using sensor date, I'm telling you, wow, the the the water in the soil is very high today. It's not a good day for using that tractor, or the temperature is too hot, or you know, let's map out. You have one person on your team that knows how to use that crane. You have three spots that you need to use the crane today at different edges of the construction site. Let's map out the plant for the day so that you get the most value from your investment with our company. That's how organizations can move toward justifying subscription pricing. They're optimizing the value they provide in an ongoing way. I love it that. That is a great point. So I want to a pivot here just a little bit and I need to ask what was the inspiration in the journey that led you to tackle writing not just one but two books. Well, where did that good that Passion Come Im? That's no small tat ones, no small task. Like a little alone too, but I'm just curious where the inspiration came from that, let the fired about a reality. Yeah, well, so there's a couple of different ways I can answer that and it's kind of fun to think about. For me, you know, one of them is sort of the more straightforward thing, which is as an independent consultant. It's really important that you have, you know, if you don't want to just be a what I think of as a contractor, that is arms and legs that subs in when a company doesn't have enough enough people on the team. You want it, you want to be known for your expertise. You actually need to develop expertise and often the way you demonstrate that expertise is with a one pound business card. But you know a book right, and you say my name is Robbie and this is what I believe song, and if you like it and you agree with it, maybe you want to work with me. And if you don't like it, we won't waste you know, let's not waste time getting to getting to together. So that's one reason, is that I wanted to demonstrate my knowledge and the the deep work I had done in this very narrow space of subscriptions to the other thing is I was an English major in college. So, you know, little shout out to all the liberal arts people out there. You know, I spent a lot of time writing and I love to write and I love to read and so for me, even though writing the books was hard, it was very rewarding.

It was using a part of my brain and a skill set that I kind of set aside for a long time. So I found that I really enjoyed having time every day to write and it really added you know, I think a lot about kind of your your portfolio of activities that you do in a day and, you know, being less focused on you know, do I love my job and do I get everything I need from my job? But, you know, in the bundle of activities I do each day, am I doing things that are meaningful to me? Am I am I thinking creatively? Am I connecting with people? Am I laughing? Am I making money? Am I, you know, whatever the things are that are important to you. You know, trying to optimize your days so that you get a nice mix of the things that are important to you. I love it. So let's Change Direction here again a little bit. We ask all of our guests standard questions towards the end of each interview. The first is simply, as a independent consultant, that means you're a revenue executive yourself and people are probably trying to sell you things and I'm always curious to know when somebody doesn't have a referral into you. Somebody's trying to capture your attention and earn the right to time on your calendar to have a discussion. What works asked. I mean, I think, like, like many people, demonstration that they know who I am, that they understand my business and usually a specific offer sort of this is, this is something I can help you as I understand where they're coming from. And then you know, and I know everybody's different, about what what turns them honor, turns them off about, you know, sales outreach. But for me I always appreciate it when they say something like I'm not sure you're a perfect fit for what we have to offer, but I will do my best to be helpful in my area of expertise, whether or not this results in a sale. You know, something like that. That's how I do my own selling, to be honest. But you know, always focusing. You know, if a salesperson is focusing on providing me with value and whether or not I buy from them, I'm much more likely to want to spend time with them and to like them. And you know, a lot of this comes down to do I like this? I mean I notice all the time, but it's not rational. But if somebody, if I is, somebody does something and it really turns me off, like they, they say, Robbie, you definitely need this in you know, it's time sensitive. Or Robbie, I looked at your website and I noticed that you don't seem to have a great source for janitorial services, which seems like a huge mistake. You know that? Number one, shows that they don't understand my business, because I don't have any need for genitorial service. And second, it's very rude. Great, it's very condescending, and that, at least for me, is a big turnoff. I love it. And so the last question. We call it our acceleration insight and based on all of your expertise, in your deep knowledge. If there was one thing you could tell companies that were getting ready to make the transition to subscription economy, just one piece of ice. It's all you could give them and if they listen to it, you think would put them on the path to success. What would it be? And why? Understand the ongoing goal of your customer and the ongoing problem they're solving and align your business to being their preferred source for that for the long term. I love it. You don't even need to do subscription pricing, just focus on aligning what you do with an ongoing goal. I funny, funny story when I was when I was just getting started writing my first book, I talked to one of the founders of Linkedin and part of their origin story is that, you know, these guys were always focused on long term relationships, building trust with their customers and so on, but the first company that they founded was called social net and it was a dating site. And so you imagine they have this long term focus, we're going to be with you forever, but they have this promise that they're making for a very hopefully short term deliverable. Right, if you...

...don't find your true love and you know, let's say, six months of being in a dating site, you're going to look elsewhere most likely, and once you find that true love, you know you better not be back on the dating site in the dating pool, right. And so they said, the next time we start a business, we're going to pick something where that long term prop where that problem or that goal is a long term one, not a sixmonth one. And so they picked careers, as we all know, and the rest is history. Yeah, that is a great story. All right, robbit. So somebody wants to talk to you more about this topic, find out more about you or engage your services. Where would you prefer we send them? You can come to my website, Robbiekelman Baxtercom, or you can find me on Linkedin. Excellent. And do you have a preferred destination where you want us to send for the books? Well, your favorite independent bookstore would be my first choice, but you can pretty much find the books wherever books are sold in in all different formats, audio, kindle and print, and I second that. Go to your independent bookstore. As an English major, as an Undergrad myself, big supporter of those. I know I liked you. I like that. I like that call Robai. So I want to thank you so much for taking time and join me on the show today. It's been an absolute pleasure to talk to you today. Yeah, great talking to you. To Chad, thanks so much for inviting me. All right, everybody, that does it for this episode. You know the drill. CHECK US OUT OF BE TOB REV exactcom. Share the episode with friends, family, Co workers. Go by the books at an independent, independent bookstore and I've put you here. Leave US review on itunes. Until next time. We have value, saying associates with shall nothing but the greatest success. You've been listening to the BB revenue executive experience. To ensure that you never miss an episode, subscribe to the show and Itunes or your favorite podcast player. Thank you so much for listening. Until next time.

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