10 Six Common Setbacks and How to Avoid Them – The Forever Transaction: How to Build a Subscription Model So Compelling, Your Customers Will Never Want to Leave

10 Six Common Setbacks and How to Avoid Them

Any business that has been around for two centuries knows something about adapting to changing marketing conditions. Bonnier AB is a privately held Swedish media company founded in the nineteenth century that is now using a subscription model to tackle the challenges of the twenty-first century media landscape.1 The company created the C More Entertainment Group, a streaming service that leverages the strength of its TV4 ad-supported television powerhouse. Facing local competition as well as international threats like Netflix and Amazon’s Prime Video, the organization focused on a relatively narrow catalog of uniquely Scandinavian content, including soccer, regional movies and series, and hyperlocal and beloved news and children’s programming. By 2017, C More Entertainment had hundreds of thousands of paying subscribers; it also had a significant base who’d canceled their subscriptions. The company wanted to double the number of subscribers who were paying for both TV4’s traditional services and C More. They brought me in to help them strengthen engagement and retention.

When we took a closer look, we found several issues. Prior to 2017, the company had subpar streaming technology—many subscribers canceled for operational reasons. Since then, it had invested in industry-leading streaming quality, but that message hadn’t reached all of the lapsed subscribers. A second issue was the fact that it solicited new subscribers by marketing a blockbuster movie title or a playoff match. This tactic attracted people who would “smash and grab”—sign up, watch the movie, and then cancel before paying. Many of the people who loved the company’s offerings most, older fans of local content, weren’t proficient in using the streaming service and needed help to make it a habit. Finally, C More was competing for resources with the traditional ad business of the parent company rather than building a unified strategy for long-term service of its best customers. None of these issues was a huge problem on its own, but together they exerted a significant downward pressure on revenue.

You’ll face many challenges when scaling up your forever transaction. These setbacks might seem unique to your organization, but they are somewhat predictable. Ultimately C More scaled successfully, but first it had to slow customer acquisition and focus on customer lifetime value, improve its streaming technology, and tighten trials. In 2018, C More and TV4 were acquired by the telco Telia for 10 billion SEK (about $1 billion USD), which was a good exit for all. As of 2020, C More is one of the most popular streaming services in Sweden. Although the company had a rough start and initially underestimated what was needed to succeed, it pulled it off in the end.

The goal of this chapter is to help you anticipate some of the challenges that other organizations have experienced so you can proactively avoid or address them as you evolve to fulfill your full vision.

Setback 1: Organizational and Skills Gaps

Sometimes organizations attempt to support both the old and new way of doing things even as they scale the new way, waiting too long to fully transition. A key roadblock can be lack of readiness in a particular department. Sometimes the organization lacks people with the necessary skills and processes to make it work. As you move from the testing phase to a fuller transformation, you need to be ready, with the right skills for the tasks at hand.

TABLE 10.1 Scaling Challenges in a Subscription Model

Here are some examples, by department, of bumps that slow the transformation after the board commits to subscription revenue as a top priority of the company.

There are enough subscription businesses to assemble a playbook mapping out what each department needs to do and know to make the transformation. But companies still proceed as if they’re the first to navigate these waters. Significant analytical horsepower has to be applied to reinvent everything, from the metrics, to progress-tracking, to processes, to team roles and functional expertise.

Setback 2: Cannibalization Concerns

Launching a subscription or membership business adjacent to a successful business in operation can be a double-edged sword. You may benefit from having access to an established, well-known brand, strong marketing channels, and sophisticated analytics and research teams, but there’s a lot at risk if the transformation doesn’t work.

For example, what if you sell clothing for $60 per item, but now offer a subscription for $60 a month with Netflix-like access to five items at a time? If you only activate subscribers who’re already your best customers, you might lower their customer lifetime value without attracting new customers or more deeply engaging your less active customers. Even companies that know the future depends on transitioning to a direct-to-customer recurring revenue model worry about this transition. They fear leaving money on the table by killing the cash cow prematurely with an abrupt move to a model that consumers prefer.

Newspapers exemplify this dilemma. Most newspapers recognize that people love the convenience, searchability, and shareability of digital editions. Online media is also a less expensive way to create and distribute content. However, many of these media companies have large sunk investments in print infrastructure. Although print demand is declining, those readers who still want the physical paper are willing to pay more than digital consumers pay. The desire to maximize total revenue often prevents media companies from committing to new models. The same is true of advertising revenues.

If you’re an entrepreneur whose company was acquired by a larger company, you’ll probably have colleagues who worry about cannibalization. Many of my clients are bootstrapped or venture-backed startups disrupting traditional industries by focusing on building a forever transaction instead of an anonymous, short-term-oriented strategy. On acquisition, these entrepreneurs are excited to finally have the resources they’ve lacked.

But upon arrival at the new organization, they discover that resources are not available to them and the rest of the organization sees their business as a distraction, or even a threat.

There’s some truth in these concerns. Assess the risk of cannibalization and, if possible, design early product offerings to minimize it. You want to be sure that your best customers won’t be the only ones to convert to subscription—which would actually result in a lower lifetime value of best customers without increasing spend among lighter customers. One way to mitigate risk of cannibalization is to perform small tests so you know how major an issue cannibalization is likely to be. For example, some organizations limit a trial to a small regional market, so they limit their exposure. Others conduct a survey, asking both heavy and light customers if they’d transition to subscription. Another method is to price the subscription on the high side to lower the cost of any cannibalization. You may not get as much lift, but you also don’t risk as much revenue. You can test and learn about usage patterns, effective messaging, and other elements that will contribute to the business’s long-term success.

Setback 3: Dealing with a Middleman

Another challenge you may face, whether or not you are operating inside a larger company, is dealing with intermediaries. If your business includes a mobile app, you probably depend on the Apple App Store and Google Play Store for discovery and distribution. As a result you may not know much about who has downloaded the app. Many content providers have most of their business through cable and satellite companies or depend on movie theaters and radio play for distribution. Many product companies sell through retailers, resellers, or dealers; these entities have a more direct, personal, and ongoing relationship with customers.

Tactics like subscription pricing or membership programs can help these companies establish direct relationships with their customers. But it’s risky to move all at once. For example, if all of your business goes through a single third party, adding a direct channel may be viewed with suspicion and anger by that third-party channel. Your distribution partners may view your direct channel as a competitive move. Even businesses that have established successful direct channels still sell through retailers. Customers might not be ready to move to direct. You need to be where the customer is—it’s OK to nudge them toward change, but you can’t force them (unless you have a monopoly).

In these cases, be clear about what you need to learn before committing to a direct relationship. Understand what kind of leverage you’d need to wield with channel partners to be allowed to continue with your direct relationship. If your business is global, you might have some markets with partners and others where you can start fresh and go direct. Build your understanding and your leverage in these markets before giving up the middleman.

Setback 4: Technology Setbacks

I’ve devoted Chapter 11 to the process of transforming your tech stack, so this is just a reminder about unexpected technology hurdles. It’s difficult to figure out your requirements; once you actually start evaluating vendors and implementing the software, you might discover dependencies that expand the scope of the project and the number of stakeholders. Remember, your mantra should be to keep it simple and get to market with the minimum footprint. Otherwise, you might attempt such a major project that you never actually get to launch.

Setback 5: Unexpected Leadership Priorities

What if your company hits a bump in the road that is totally unrelated to the forever transaction? Someone sues you, or your key product guy is poached, or things take off in Latin America and it’s all-hands-on-deck to manage demand. You need to be flexible and able to pivot, slow down, or speed up, your process.

There are two schools of thought about how the project lead should respond. One approach is the “one firm” approach, in which the project lead views the situation as if he owned the whole company and pinpoints the best thing to do. The other approach is the “advocate” approach, in which the project lead fights with full force to ensure her project wins the maximum resources. The latter approach resembles a litigator in a lawsuit, zealously representing his client’s interests. The board decides but needs to hear the strongest case from each party.

Setback 6: Disappointing Results

What if you implement your experiments and expand your programs, and they don’t work? Failure is bound to happen along the way. You might price your offering too high and get a lower response than expected. Cannibalization may be higher than you’d predicted. Maybe the technology itself doesn’t work as promised and you have to deal with an angry customer base.

Things like this will happen. It’s important to calibrate expectations up front, sharing plans for handling setbacks. If you have clear guardrails for terminating your efforts, then if you don’t hit the guardrails, you keep going. It’s important to try multiple different tests before conceding defeat. Track whether your offer is compelling enough to entice people to join, and whether it delights the customer sufficiently to justify a long-term relationship. If there’s product market fit, then small setbacks involving product mistakes and execution mishaps can be withstood.

Conclusion

Remember: you’re in it for the long haul; set expectations accordingly. Expect some technology setbacks, partner conflicts, and pushback from colleagues and investors. If you have an existing successful business, you’ll worry about cannibalizing your existing revenue. It’s daunting to take this on. I’m asking operators like you to take a big risk, and I don’t take that risk lightly. I truly believe that this path to recurring revenue and commitment to the long-term well-being of your customers leads to a stronger and more profitable business. Many organizations have found this to be a risk worth taking. I believe you will too.

What to Do Next

    Make sure you have a network of companies and advisors who’ve been there before and can help assess if the setbacks are “normal” and easily resolvable or are more serious and demand urgent action.

    Make a list of all the setbacks in this chapter. Rate the likelihood of each of them occurring in your organization. Are any of them starting to become visible?

    Review this list every month or two so you can act quickly on emerging setbacks.