5 Choose the Right Who for the How
At this point, you’re probably thinking about who should be involved in both the exploration and possible implementation of your forever transaction. The best person to shepherd a company’s launch into a membership model is not necessarily the same person who established the vision. Nor is that same person always best suited to run the fledgling business post-launch. Startups may find that existing leadership is well situated to manage multiple business phases as the organization is smaller, the infrastructure simpler, and the transition less complex. Larger, established companies have layers of operational specialists and may benefit from team reinforcements.
Organizations of all types and sizes must be aware that different leadership skills may be needed for successive stages of strategy rollout. To be successful, you and your organization should envision the process in distinct phases, and you need to assign the right team members at each phase.
Phase 1: Launch
In this early phase, you’ll need a team to develop and win support for the business case, as well as to conduct the testing and learning before scaling the initiative. All of these tasks might be completed by the same person or team, or they might be more specialized, depending on the size and structure of your organization. When you’re just developing support for the business case, you’ll need strategic expertise, often coming from consulting, finance, and/or entrepreneurial backgrounds. This team can develop a clear, substantiated argument for investing in a forever transaction. Along with a range of skills to build the business case, you will need subject matter expertise around building and running “forever transaction” businesses. Adding a membership model or incorporating subscription pricing can be difficult to figure out as a neophyte. If you lack this resource internally, look on your board or consider hiring outside help.
Next comes testing the offer in a limited way before broadly committing to operationalizing the model. The testing team incorporates functional experts to execute implementation across sales, marketing, operations, and product, along with strategists. It might have the same leader as the business case phase, or a more hands-on entrepreneur to ensure that any existing business-as-usual is not impacted, and that the testing team can act quickly.
Phase 2: Scale
Once you have a green light to accelerate and scale the implementation into a key part of the business model or the core of the company’s strategy, you’ll need a change-management leader who can juggle multiple work streams, outside consultants, and robust internal communications. This “transition team” should be staffed with operationally focused, full-time members pulled from the functional departments and tasked with management of a multiyear project. They also need a passion for customers and entrepreneurial spirit.
Phase 3: Lead
Completing the marathon of operationalizing the vision to market at scale is just the beginning. You must resist the temptation to dramatically reduce the team, cut the budget for continued innovation, and/or transfer the attention of executive sponsors to other projects once this initial phase is complete. Operating at scale involves a huge learning curve about acquisition, engagement, and most importantly, churn. Take nothing for granted until you figure out your company’s unique churn. For a year or two, it’s imperative to nurture this sapling business, not starve it.
The following story of Hagerty’s transition to a forever transaction illustrates the roles of the different leaders and the handoffs between them.
Case Study: Three Teams for Hagerty Drivers Club*
I spent several years working with Hagerty—the world’s largest provider of collector car insurance—as it established a membership model for car lovers. Hagerty wanted to provide offerings beyond insurance and roadside products that added to the enjoyment of car ownership or participation in the automotive lifestyle, regardless of whether the customer needed classic car insurance or even owned a car.
Hagerty was an ideal candidate for a forever transaction for two reasons. First, many of the people who insured their classic cars through Hagerty already called themselves “members” because of strong brand affinity. Second, as a privately owned business (the company was founded by the parents of the current CEO, McKeel Hagerty, in 1984), Hagerty is committed to the community, the members, and the brand, well beyond short-term revenue.
McKeel Hagerty, the former chairman of the International Board for the Young President’s Organization, is serious about creating a family legacy. He is the ideal CEO for a forever business, understanding that building a membership model requires both investing for the long term and several types of leaders over the course of the journey.
Launch Phase: Eric Okerstrom
McKeel* tapped Eric Okerstrom to research and lead the exploration of membership. Okerstrom was familiar with McKeel’s vision; leaders at Hagerty had discussed creating a membership type of organization for years. In fact, McKeel had once expressed that if he could start the company from scratch, it would offer insurance and other products and services within a membership framework. The company has a reputation for exceptional service, insurance, and related products. The leadership viewed membership as an avenue to better serve clients and expand Hagerty’s reach into the car enthusiast market. This approach resembles USAA, which provides car insurance to service members. Hagerty, however, would focus on people who love cars and driving them.
Okerstrom’s first task was to assemble a team and define what membership would mean at Hagerty. He says, “Someone has to take the idea and ask, ‘What does this really mean for our business?’ You must get clear on it; discuss and share it with the right people for feedback and ultimately pitch it to others for approval. For example, this is what the customer or potential customer would experience, what it would be like and perhaps most importantly, why they would join. I think you have to have this first.” It took about 12 weeks to articulate a few different options for a Hagerty membership model, including three tiers, a range of pricing, and a financial model for testing assumptions and scenarios. Again, this phase cannot be rushed.
This phase was about vision and strategy. It required a charismatic and credible forward thinker to define the big picture and persuade the board, leadership, and organization to tackle this difficult challenge. Okerstrom was the right person for the job. “When we completed this phase,” he explained, “I was confident I could tell the membership story to anyone at Hagerty and they’d get it and know why we should do this.”
Okerstrom could see that he wasn’t going to scale what he was scoping, nor would he run it, but he owned the vision. He garnered approval from the board for the resources to flesh out the plan and begin implementation. Because company leadership already had a membership mindset and confidence in the strategy, and because they didn’t want to confuse their insurance clients, they bypassed a small test, implemented the Drivers Club broadly, and integrated it into their business processes.
Then Okerstrom’s colleague, Nancy Flowers, took the wheel.
Scale Phase: Nancy Flowers
I got a call from Nancy Flowers in June of 2015. I had met her briefly during my earlier work with Okerstrom. Flowers had been tapped to spearhead the next phase: design, development, and implementation of a new membership offering. This entailed everything from product features and branding, to technology requirements and business readiness.
As with any major initiative, change management was essential. Hagerty wasn’t just launching a product; it was adopting a new way of operating and thinking.
As McKeel said, “We are transforming from an organization primarily focused on insurance to an automotive lifestyle brand that puts members at the center of everything we do. This is about a mindset shift, and it requires every person at Hagerty to think differently.”
A major part of Flowers’s role was to engage every level of the organization “There is just never enough. I really don’t think you can overcommunicate or over-involve when facing transformational change.” She recommended establishing a framework and rhythm that included all methods and channels of communication, emphasizing employee involvement.
The initiative was strategic and spanned a few years, requiring consistency and repetition. Leadership had to be reminded that long-term retention and revenue were more important than initial acquisition results, that the product offering must align with the pricing model, and that customer “need states” and behaviors needed to be tracked. Flowers’s team conducted multiple organization-wide education initiatives. Many organizations under-communicate because team leaders wrongly assume the organization tires of hearing about the initiative. With consistent, persistent communication, Hagerty team members understood that participation was part of their job, not a favor granted.
Technology presented another major challenge to implementing the new business model, typical of this major transformation. One of Flowers’s hardest hurdles was to guide Hagerty in becoming a technology company.
Early on, the team selected a narrowly-focused “membership technology” solution to support the launch of a membership product. Midway through the project, they realized that Hagerty needed an enterprise technology platform capable of supporting all aspects of a rapidly evolving business, including but not limited to membership, into the future. Pivoting to a sophisticated enterprise software solution broadened the focus, introduced more complexity, and temporarily delayed the launch of the Drivers Club, but it was the right decision.
In retrospect, Flowers says she would have asked for “more of everything—more technical support, more time, more people. . . . I think we underestimated the enormous task of changing our business model and launching a new product on top of our day jobs of keeping a very healthy, thriving business running.”
Lead Phase: Eric Kurt
During implementation, Eric Kurt was designated to take over as the ongoing overseer of Drivers Club, which made for a smooth transition. A product management and sales leader, Kurt had the skills and relationships to run a business for Hagerty and had managed Profit and Loss (P&L) Statements before. Kurt joined the team as Nancy got close to launch.
This was a particularly ambitious launch to both existing and new customers. Integrating the experience with the current interface was complicated, and the team knew that existing customers might encounter a choppy experience. Many companies face this tough decision—you want existing customers to have early access to the “cool new membership,” but backward integration is much harder than a fresh canvas. As previously mentioned, younger companies and startups have an advantage integrating a membership model into their strategy from the beginning.
Already known for treating customers like members, Hagerty leadership was committed to treating their existing customers at least as well as new ones. Leadership worried that existing customers would feel shortchanged if their transition experience was inferior to or later than that of new members. Transitioning the existing pool would be a huge undertaking. Even aligning renewals for both insurance and the Drivers Club was hard. It was important to the Hagerty team that existing customers got the best pricing, which meant that they couldn’t offer introductory discounts as incentives for new members. Additionally, they had to figure out how to integrate the new benefits into the existing member experience before they could launch with new members, to ensure that there was no inadvertent penalty to existing customers who wanted to join.
Despite the obstacles, the implementation phase resulted in the successful launch of Hagerty Drivers Club. The team received additional resources to continue developing the program with regular improvements. Unlike insurance, the Drivers Club is a fluidly changing offering that involves continuous tinkering, different than Hagerty’s historical quarterly and annual rhythms.
Hagerty’s story holds lessons for any business attempting this transition. Specifically, the company installed people with the right skills for each phase of the project, choosing leaders who communicated effectively with their teams and the broader organization. In smaller organizations, the same person may have responsibility across multiple phases. Regardless, it’s important to recognize the changing needs at each phase, and to explicitly evolve goals as the business grows.
Communication Is Key at All Phases
Team members must have connections permeating every part of the organization, unearthing potential inconsistencies and dependencies and keeping everyone aligned.
Some parts of the organization will invest many hours to build the model. Key performance indicators (KPIs) and incentive plans may demand adjustment to support these novel roles and the implications of the new model:
• Marketing defines the member journey, what happens during the acquisition, onboarding, engagement, and retention phases, and how to talk about and price the new offering. This entails market research, analysis, and many spreadsheets.
• Product teams innovate a minimum viable product (MVP) that can take the team to the next phase. They should also establish a loose road map so the team knows where to go next, like a GPS showing the three turns beyond the next turn leading to your destination.
• Sales teams determine how the change in product will alter the selling process.
• Administrative teams in HR, legal, and accounting will investigate legal and reporting issues; finance validates assumptions and predictions made by the team.
• Operations modifies organizational processes and coordinates with the technology team to ascertain what can be automated and what can’t.
Consider having a team member, whether employee or outsider, who has experienced this process before to anticipate where issues might arise, offer reassurance that challenges are normal, and ring alarm bells when the undesirable happens. HR should honestly evaluate gaps between the current culture and the desired future state. If you don’t have a person on your team who can do this, consider an outside advisor or allocate time for the internal team lead to reach out to people who have had similar experiences who might serve as mentors.
TABLE 5.1 Teams for Transformation
At Hagerty, Flowers’s task force (scale phase) included the CIO, the head of content, and the head of brand, as well as about a dozen midlevel managers from finance, marketing, and operations. The head of HR periodically joined to ensure the organization grasped the cultural implications of the membership. It was Hagerty’s first offering available to customers who didn’t own a classic vehicle. Okerstrom (launch phase) was involved at the outset to ensure a seamless transition, but later quickly moved on to unrelated projects.
It’s crucial to incorporate membership as the new normal across the organization. This is true transformation, far beyond “change management” as usual. It requires engagement from every functional area. Flowers sums up Hagerty’s success: “We knew from the beginning this was about changing the way we think more than anything else. That success comes from putting the members at the center of our decisions and actions. While getting the product right was key, it had to be about creating solutions to meet members’ needs and adding value to their lives. So yes, at the end of the day it is cultural.”
What to Do Next
• Identify your team lead for the phase you’re in.
• Determine what skills you need that you do not have in-house for your current and future stages.
• Build a team of advisors (from outside your organization if necessary) who have experience with customer-centric, recurring revenue dependent models.
• Network externally with other companies that have successfully transitioned to a recurring revenue model.
• Allocate budgets and hours generously enough to ensure success.
* The bulk of the content for this story come from the author’s work with Hagerty, and from interviews and emails with McKeel Hagerty, Nancy Flowers, Eric Okerstrom, and Eric Kurt, Spring 2019.
* Because it’s confusing to call the CEO and the company both Hagerty, McKeel Hagerty’s first name is used, while everyone else is referred to by last name.