Why it’s time to ditch b2b subscriptions*

*ditch BAD b2b subscriptions. The brilliant thing about subs is they get you close to your customers for a long time. As well as the by-product of compounding growth for your business (net revenue retention, etc).

Subscriptions truly work when you get close to your customers in a way that creates an exchange of value. With lots of pressure on the economy, that means helping customers reach their goals. Unless (and until) you do, the lifetime value for you and your customers is weakened.

A good subscription business gives the potential for powerful network effects, as more people use the service. This means every bit of effort you put into solving your customers’ problems should power meaningful change. And how you can forge a near unbreakable partnership by delivering powerful business value.

What do bad b2b subs look like?

Subscriptions take investment in time, people, cash before they become profitable. During the early years, you generally need opportunistic growth to learn about your customers and your service. But there comes a time to use that knowledge. Not to ignore the lessons.

Ad hoc acquisition

Acquisition is critical. But there is power in knowing when there needs to be a coming of age moment. That time when a mature business gains confidence and discipline in acquiring customers who will stick around and grow. But when an established subs business has an institutional mindset of using acquisition to offset churn, it misses the point.

Off setting churn is the right behaviour WHEN you are establishing your subscription product – not when you’ve gone through the hard yards of building and growing and you have unique data about what makes your customers stay with you. Using this unique intelligence to strategically acquire customers most likely to stick around and grow with your service is key to optimal growth.

Inside out thinking

When companies are designed from the inside looking out, it means internal processes can’t align with customers. When b2b subs companies can’t help customers reach their business goals, they slide into the ‘nice to have’ end of ‘must have.’

Picture this, if you will. An economic buyer at one of your customers walks the floor and/or pings a message to the decision making unit.

“We can’t keep all the services so I need you to tell me if these services are a) must have b) nice to have, c) not useful. Be quick and don’t add comments, I’m reporting to the CFO later today.”

• Must Have – the customer knows how you help them/their organisation.
• Nice to have – the customer senses that there’s some value somewhere, but won’t fight for you
• Not useful – the service can be thrown under the bus to sacrifice budget

Inside out thinking is pervasive. It looks like this:

Inside out thinking doesn’t align internally or externally. Outside in thinking is critical to align service & products with customers. Experimental leadership is required to navigate through shifting customer expectations.

Shifting customer expectations

We have a hypothesis about the biggest shifts impacting b2b subscriptions

Shift 1: Executive mindset

Did you know the majority (~70%) of executives believe their organisation will fail to adopt a solution?

Faced with this potentially unspoken belief system from the top down, successful b2b subs teams are mindful and help customers navigate. How often do you get sight of senior executives in your subs service (your customers or your own execs)?

The presence of a senior executive is a signal of success – it is grounded in belief about your solution.

Shift 2: Increasingly limited access to customers

B2B customers are using a heap more channels to find out about suppliers and services like yours.

Sales have no more than 5% buying time with customers – AT BEST.

This access time is narrowing because of the channels. Also, the majority of baby boomers we’ve been used to courting for years didn’t mind buying from reps.

A big shift is coming. 54% of millennials prefer rep-free buying (compared to 29% of baby boomers). Is your value proposition and the way you present yourself to customers ready for it?

Shift 3: New workforce demographic

Millennials – digital natives – are the economic driving force, the largest adult cohort, the biggest percentage of the working population. Growing up on software-like experiences, expecting things to be done for them, pretty instantly. In a b2b info/data context this means it’s time to think like software companies because of this expectation. Software companies are aligning around NRR and customer goals.

We are all selling software these days, don’t kid yourself that b2b info is different. Today, the new generation of customers and buyers expect a software like experience.

How Substribe is evolving

Substribe is in the business of decoding the world of b2b subs…to create a repeatable and scalable subscription service. You could say we’re thinking like an enterprise performance management company.

The idea is that the service will sit alongside our consulting/advisory project work. There are times along the way when it’s felt like too much to decipher (If it was easy it wouldn’t be worth solving) – and we don’t want to fall back on the phrase, “it depends.” We constantly think about b2b subscriptions – and get to see and hear a lot to test thinking out. It doesn’t mean we’re always right, but we are on the hunt for ways to reach optimal subscriptions for b2b subs organisations and their customers.

Our Aha moments

Tightening the net

Just one of the many aha moments we have from listening to our friend and advisor Tony Jaros is to tighten the net on what we do and who it’s for.

There are so many subscription scenarios, levels of maturity, degree of recurring revenues, and so on. So we narrowed our scope, figuring out how we help companies with pretty substantial subscription revenues transition to an optimal state.

Meanwhile we can help companies who aren’t there yet with our project work…and infuse the progressive thinking into those earlier stage companies.

First principles of subscriptions

The renewal is the key – in other words, ‘for a recurring revenue business to exist, the service must renew.’ Well duh, that sounds obvious doesn’t it. But along the way, that seems to have been forgotten. When we ask what the number one priority is for subs businesses, the answer is rarely retention on its own. It competes with other priorities.

Take acquisition. Acquisition is important, conventional wisdom is that acquisition will compensate for churn. But turn that on its head using the first principle…acquisition shouldn’t compensate for a churn problem, it should build on a renewal opportunity. Creating a subs business takes time and a bunch of resource (‘swallowing the fish’). So why keep swallowing the fish?

The need to exchange value

If you’re not exchanging value, then you don’t have a sustainable recurring business model. A reasonable proxy for seeing if there is an exchange of value is found in net revenue retention – but it’s not the measure that’s important on its own. It’s what you do with it – perceptions of value shift over time. They differ by groups of accounts and groups of people. Value based exploration and experimentation is key.

The need to deliver a unique service

Subscriptions should be about getting closer to the customer – that’s where moats are dug, fortresses built and trusted partnerships forged. But the business of subscriptions gets in the way of teams delivering unique and ongoing value to their customers. We want to decode the business of subscriptions so that our clients can focus on creating unique value for their hard won b2b subscription accounts, time and again.

Thinking differently

The calculus of innovation is really quite simple: Knowledge drives innovation, innovation drives productivity, productivity drives economic growth

scientist william brody

Substribe want to unlock innovation in recurring revenue. By creating knowledge about optimal subscriptions, we strive to help innovate, to focus productivity for teams, and ultimately drive economic growth for our clients and their customers.

Our beliefs

We’ve long believed helping customers get the most from the services they buy is really important. The profits are a by-product of getting that part right. A huge part of taking the leap from leading b2b subscription teams to creating Substribe is the opportunity to help a lot of b2b customers get more out of the services that their b2b suppliers create. So, rather than moving from one company to another every few years or so, we would be ‘hyper-learning’ by helping a variety of subscription businesses and their teams.

More than 250 in depth conversations with the customers of b2b information services later….across more than 50 brands….around the world, in different functions, seniority levels, have shaped our thinking.

• Knowing how your b2b customer is performance measured is critical
• Customers want access to must have products to help them perform
• Engagement must connect with value to drive growth
• Unique intelligence from retention should be the special source
• Processes must drive growth of recurring revenues
• Organisations designed around the customer will crack the code

Why change is worth it

A lot of the companies we speak with are doing well. The ones that “get it”, know performance can be improved and want help to cut through. But on the main, no one likes to change, unless it’s worth it.

This is why it’s worth it:

Higher revenue retention correlates with increasing growth rates. Reach a certain point and the growth explodes. The neat thing is that there are marginal gains to be made, to keep positive along the journey.

Every percentage gain in revenue retention is demonstrably worth the effort. You can pound&pence/dollar&cents that statement by looking at the investor perception of value…the impact of 1% improvement in revenue retention is 18% improvement on valuation.

Feel free to argue that measure is based on software. Or you may not be interested in valuation. But there’s a system of measuring the value of subs, from an outside perspective, that points to the fact that it’s worth making the effort.

How to reset

Here are three things to kick start improvements in performance

Gearing – you’ll have 3 major categories for your accounts. High growth, steady growth and test growth. Hopefully not a #4 marked ‘bad fit’. Getting an ongoing handle on the ratios is important, for list building through to target setting.

Propensity – Get a handle on the propensity for revenue growth across a number of dimensions, to control the controllables. They needn’t be hugely complicated, they need to create an objective way to measure what’s happening in accounts. IMO: market conditions, engagement, relationship and outcomes are worth scoring.

Collaborative metrics – In the optimal subs business, all teams play a part in the growth of retention and expansion revenues. But the measure is the start…segmenting the customer base by cohort, and analysing patterns to inform cross functional teams.

If you have an established subscription business and want to set the bar higher for revenue performance, and make those marginal gains along the way… talk to us about the research and advisory membership model we are now rolling out. Alternatively, if you are in the early days, or need a specific problem unblocked, let’s chat about our sprint methodology to get things moving in days and weeks, not months and years.

R.I.P. bad subs