Ron and Ed welcomed the author of The Automatic Customer, John Warillow. John's work has been a staple of the presentations that Ron and Ed have given on subscription-based pricing since the beginning. His nine models for subscription businesses lay the foundation for almost all subscriptions you will encounter. Join us for what promises to be an enlightening conversation.
Ed’s Questions: Segment One
Well, let me get to the particulars and we'll get John right on because we have been looking forward to this day for quite some time. We've been following John's work for the better part of two years or so, since we've been starting to get into subscription economy. John Warrillow is the founder of the value builder system, a simple software for building the value of a company used by 1000s of businesses worldwide. He is the author of the best-selling book Built to Sell: Creating a Business That Can Thrive Without You, which is recognized by both Fortune and Inc. magazines as one of the best business books of 2011. His next book, which is the one that came to mind to Ron and myself, is The Automatic Customer: Creating a Subscription Business for Any Industry. This was released by Random House in February of 2015 and translated into eight languages. His latest book, which we'll perhaps talk a little bit about, released in 2021, is The Art of Selling Your Business: Winning Strategies and Secret Hacks for Exiting On Top. Welcome to The Soul of Enterprise, John Warrillow.
Well, I'm going to start with subscription. Let's dive full in: subscribers are better than customers. Explain.
And that was pre-COVID numbers. I'm sure it's even higher since then. One of the things that Ron and I had talked about in the professions is getting people to change from using the term client to using customer because of the nature of the word customer, it comes from the word custom, it is their custom to repeat business with you, it is their custom when they came into town to stop by your store. But do you like the term subscriber, or even member, better? For those reasons? Do you think changing that language has an impact?
Yeah, that's how we felt to, especially with the term customer. But I'm starting to like member better, what I think back is to that American Express ad campaign from, I don't know, maybe 20 years ago, membership has its privileges.
What are some of the key mindset shifts that a business owner needs to change when they're going to a subscription model from a product based model, let's say?
I listened to an interview in preparation for the show that you did probably four or five years ago now. And you were critical of Microsoft and how they were rolling this stuff out. Do you think they've improved on what they've done with Office 365? Or are they still struggling a bit in your view?
That was certainly one of our challenges at stage two. We sell business software as well. One of the things, and honestly, I don't know where Ron and I picked up this line from, it may have been your book. And as I was flipping through, I couldn't find the exact line. But our mantra has been that we need to price the portfolio in the subscription model, not price the customer or even the service. Because what you're really looking to do is you're trying to spread the risk pool, it's almost insurance, across the entirety of the pool. And I want to get your comments on that. Did we steal that line from you? Or is that not something you remember writing in the book six years ago?
I love talking about this stuff because people think, “Well, there's always some reason my business can't be subscription,” right? You just gave a great example of selling flowers. But what if I'm retail flower shop, I can't be subscription, can I? And I think, of course you can, maybe you could you could sell some subscriptions. And one of the things I like that you talk about, it's not about becoming a subscription model so much as it is expanding into one. Talk a little bit about that difference? I think it's a subtle but very important point.
I love that. As we would say in America, niche down, but I like niche much better. I think that's a a great phrase to “niche down,” to try to get to where you want to be. Well, this is flying by as I knew it would. We are already up against our first break.
Ron’s Questions: Segment Two
Welcome back everybody. We're here with the author of The Automatic Customer: Creating a Subscription Business for Any Industry, John Warrillow. And John wanted to ask you, by the way, I loved your book, I thought your book was excellent. How you laid out the nine subscription models, which was absolutely beautiful. You even gave a little bit of a history of how the European map publishers were the first to really offer subscription, which I found fascinating. But why do you think this subscription Renaissance is happening now? You mentioned the Columbia Record House, which ended up filing bankruptcy—I still think they're charging me by the way—but why do you think that this subscription Golden Age is happening now?
Sure. You wrote that nothing has been as successful in getting people to shop in new product lines. And what I love about this model is it does put a premium on the customer relationship, experience, innovation is baked into the model. You're constantly delighting the customer, you have to constantly exceed their expectations, don't you?
Because you’ve got to develop them into that habit of using you and make it part of their life. I love how you say “communicate like a giddy lover.” But if you do that too much, you can be too needy and annoying. That was a great analogy. I'm going to take your subtitle to heart: creating a subscription business in any industry, because we've been trying to do this, as we said before we went live, in the CPA, legal consulting, and advertising agency space. And I think the model is the concierge or direct primary care medical practice that, I don't know if you're familiar with this—I know you're in Canada—but throughout the United States there's about 14,000 of these general physicians that work in this practice where they have member subscribers paying them anywhere from a cell phone bill a month, or maybe a cable package a month, for access to their doctor: telemedicine, same day appointments, house visits, you name it. And it's just basically saying, look, you're covered for all your health needs, anything that we're capable of doing; if they have to go to a specialist or something that would be separate, their insurance might kick in. But I think that's the model, John, and that model has been around since 1996. A real smart team doctor from the Seattle Sonics founded this company called MD Squared. Do you think this subscription model is possible in the professions?
You mentioned the front-of-the-line model. And in terms of this concierge practice, I want to ask you about this too, because I also think it's tapping into your convenience model and your peace-of-mind model. And I think those are two areas that professional firms completely under invest in. We don't realize how good those make the customer feel. I remember talking to Jonathan Stark, he's got a concierge doctor. He's never used him in 10 years. He said, but I know if I need them, he's there, he'll be right there for me. He says I gladly pay for that. It's kind of like insurance, isn't it?
That's awesome. John, this is just flying by, but it’s great, thank you so much.
Ed’s Questions: Segment Three
Our guest today on The Soul of Enterprise is John Warrillow, author of the book The Automatic Customer: Creating a Subscription Business for Any Industry, published in 2015. Ron and I both highly recommend the book and it's been on our hit list for quite some time. John, I want to stay on the theme that Ron has been talking to you about and that is the nine subscription models. When you were developing the book, what was the process for limiting it to nine, to get to the point where you had something discreet about each of these, that made sense in your mind?
And for that [certainty] most of us would pay a little bit of a premium. One of the things I've heard you talk about is, and I love this analogy, the mindset to get into, rather than try to think about a way to give somebody a 10% discount for coming on board a subscription. What can you do to do something so that it's a 10x better than? So talk a little bit about that? I think that is a great way to think about things.
And people probably would use the carwash more, but that's okay. If I paid $30 a month for a carwash I would more likely use it than not, but that's okay.
Off the top of your head, of the nine models that you talk about in the book, have you seen any new ones emerge that made you say, “Ah, there were there was one I missed. I really need to include that if I ever do version two of the book.?”
Another great example of what you called earlier “niching down” that's a great example of that.
Another question that I have for you, you’re probably aware of Tien Tzuo, the CEO of Zuora [Episode #230] and his book Subscribed. His newsletter is fantastic, another one of the other sources that Ron and I go to. He has been begging Apple to get into the subscription business for their products. Right now, I think, about 70% of their revenue is subscription services, a lot of people don't realize that. But he's been begging them to do this for their products. Any idea on your part, why do you think Apple's hesitant to get into the subscription model for its products?
Outstanding. All right, we’re up against our last break.
Ron’s Questions: Fourth Segment
Welcome back, everybody. We're here with John Warrillow. And John, I want to stay on the professional firm and ask you this, talk me off the ledge on this because a lot of people say, “Well, for a law firm or a CPA firm, we have these big projects, or black holes, they're not common. They don't come up all the time. So we couldn't possibly put that on subscription.” Now, I don't buy that. But I know that you profile that Hassle Free Home Services business that will carve out a one-time project, build my deck or remodel my bathroom, and they charge those as one-offs. Is it possible to run a hybrid business model? That is, partly transactional and partly subscription, because that's where I get hung up, because I think these are such different mindsets, that the two don't play well together?
I couldn't agree more. And people are fighting about that with us. I don't know if you've read No Rules Rules by Reed Hastings of Netflix? But it just seems like this model does so many great things. First off, it puts the relationship at the center, but it also blows up silos, and it blows up bureaucracy. Everything revolves around the customer at Netflix. I learned this from the book, they don't have individual KPIs. You can do that in a subscription model. There is no way you can do that in a transactional model.
You've talked about multiples of earnings being the sales price. And I was just wondering, in the professional space, do you have any experience on what most accounting firms sell for, it’s usually one times gross [revenue]? I think if they are subscription they'd go for a higher multiple. Do you have any evidence to support that claim?
They just have to get over that all-you-can-eat fear, like the carwash owners, “Well, what if they come in a million times in a month.” And like you said, and it was a great point, if they did come in that much, it just shows you how much they value your service. It's going to diminish over time, but the value stays there. Another question I have for you is, and we talked a bit about this during the break, but why do you think companies like Audi and BMW have canceled their automobile subscriptions?
They have that one-on-one relationship, just like Harry's Razor and Dollar Shave Club, that direct-to- consumer is really powerful.
Any new subscription businesses that have come online that have impressed you, or that you've raised an eyebrow, we've got about half minute?
Brunswick is doing a subscription model with boats, and Roam is doing housing around the world, you can live in a house on subscription basis. John, this has been fantastic. Thank you so much. We are big fans of the book. We recommend it all the time. It's all over the place when we talk about this model, really honored to have you on. Ed what's on store for next week?
Ed Kless
Next week, Ron, we have author, columnist, keynote speaker, and small business expert Gene Marks.
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