8 Manage Emotions, Transform Culture, and Build a Shared Vision – The Forever Transaction: How to Build a Subscription Model So Compelling, Your Customers Will Never Want to Leave

8 Manage Emotions, Transform Culture, and Build a Shared Vision

I love my Peloton bike, and not just because the company has been part of the Membership Economy since it launched. Peloton bikes come with an attached tablet computer that streams live spin classes, and riders can compete with one another on a leader board, simulating an in-person class, without having to leave home. All of the classes are also available in the Peloton catalog, so you can ride anytime. It is currently my favorite way to exercise.

I find the instructors supremely motivating. They offer inspiring exhortations:

“Don’t stop when you’re tired. Stop when you’re done.”

“Pain is temporary. Regret is forever.”

“No one said it would be easy. They said it would be worth it.”

These expressions hold true when it comes to building a forever transaction. In other words, it’s hard. Pain should be expected as part of the package and welcomed as a sign you’re really committed. The results—recurring revenue, loyal customers, a disruption-proof model—are worth it. Think of building a forever transaction as a journey. You have a general idea of where you’re going, a North Star. That’s your forever promise. You have an idea of what to pack—some subscription pricing, some customer success, a product that’s continually improving and evolving, communication and community to support your members on their journey. You’ve heard stories, read books, and prepared well. And you’ve been out to the frontier, testing your ideas through your initial experiments. But now it’s time to bring the rest of the party along.

So far, you’ve successfully created the map and packed the bug spray for the mosquito-ridden swamp. You recognize that you might not make it to your ultimate goal unbitten. This chapter offers some guidance to make the journey easier, by making sure that everyone traveling with you shares your resolve and knows what you know. Now it’s time to build the culture.

Managing Emotional Roadblocks

You should expect emotional roadblocks as you scale. Some employees across the organization will resist for emotional reasons, even when they understand the rational reasons for the new strategy. It’s your job to empathize first, then respond, and ideally, inspire.

Your colleagues might have feelings like these:

    I don’t believe this is the right path for our company, so I’ll just ignore it and hope it goes away.

    I don’t want to learn new required skills because I’m scared I’ll fail.

    I enjoyed faxing documents/working the printing press/unhitching the horses and am resentful that the earth is shifting beneath my feet.

People are afraid of what change might mean for them personally—who they might have to work for or with, and how their personal power might diminish in light of changing politics. Emotional challenges are difficult to recognize and remedy in part because they might sound foolish, irrational, or selfish. People don’t speak them aloud or may lack the words to articulate how they feel. It’s easier to change what people do than how they feel. Consequently, your team members might do what you ask but without enthusiasm and while dragging their feet.

Examples of these personal, emotional concerns that might slow you down include:

    Product teams may not be inspired by the new customer-centric direction because it means the products won’t impress their peers or win industry and association awards.

    Sales stars might resist a farming model when they’ve made a name for themselves as big game hunters. They may fear compensation clawbacks* if the client doesn’t embrace the product or chooses to cancel early.

    Operations and IT are no longer gatekeepers for all new technologies, due to the influx of software-as-a-service (SaaS) offerings that don’t require IT implementation, customization, and support.

    Experienced marketers may resent the move toward data-centric campaigns focused on engagement and retention and away from “creative” tasks, acquisition activities, or the hunt for new logos. Different skills are required, and the work is less glamorous.

    And finance may worry about the transition to subscription cannibalizing today’s revenue, driving investor outcry, as well as confusion about new and changing subscription rules and revenue recognition.

One B2B software company’s CEO told me his Asia Pacific sales director had earnestly explained to him in 2019 that companies in his region “were not ready for subscription.” Yet Asia is selling SaaS like crazy! Salesforce alone did $10 billion in revenue in Asia Pacific in 2018.

You’d think by now, with so many subscription businesses, that employees would be excited to make this transition. However, there’s a huge amount of emotional risk involved in this change, particularly among longtime and senior employees. They may disguise their fear as misunderstanding, logical objections, or unavoidable delays. Usually, it’s just fear.

Where to Dig for Hidden Emotional Landmines

Most companies dramatically underestimate the time, effort, and resources it will take to transform their business from a transactional, product-centric, often offline business to a model focused on business outcomes and customer needs.

For a mature public company, this transition might take as long as five to seven years to be fully realized, according to J. B. Wood, CEO at the Technology Services Industry Association (TSIA).1 A smaller, more nimble organization might see major results within the year. The road map, investment, staffing, rate of change, etc., is vastly different between the two. And during this transition phase, it is common for the financial investment to outweigh the revenue generated, resulting in what Wood has termed a “fish model” (Figure 8.1), in which costs rise and then fall while revenue falls and then rises, leading to a graph that resembles a fish. It is much easier, less noticeable, and less expensive to prune a sapling than a huge oak; the same is true of newer and smaller organizations.

FIGURE 8.1 “Fish Model” of Cost and Revenue Changes

Source: Technology-as-a-Service Playbook 2016 (TSIA)

The software industry is the most sophisticated at understanding the importance of aligning the long-term customer goals with the long-term organizational goals around a “forever promise” based on outcomes, not features or products. Wood estimates that 95 percent of his member companies have successfully transformed in one of the following ways:

    From transactional (perpetual licenses) to cloud served to SaaS

    From selling to a technical buyer to selling to the business buyer

    From selling features to selling outcomes

Companies like Oracle, Microsoft, and Adobe (the poster child for successful transformation from an ownership model to an access-based subscription model) have learned to “burn the boats” in moving to a SaaS model, lest employees try to return to the safe ground of their former business model. (You can read more about their journey in Chapter 20 of The Membership Economy.)

When digging for emotional landmines, start at the top. Leadership sets the tone with the board. Do the board members understand that transformation is going to take awhile? Are they comfortable with declining revenue in the short term? Do they have the stomach for losing some of their non-core customers?

Even in organizations where everyone knows their members or customers are demanding a new business model, and that their current model is becoming a dinosaur, your colleagues may drag their heels. This transformation is usually a “run like hell” process, not a leisurely excursion.

You may have an undercurrent of resistance if you find the following symptoms in your business:

    Salespeople still swing for the cheap seats with big one-time deals.

    Midlevel managers call this strategy the “flavor of the month.”

    People express concerns about cannibalization.

    Teams prioritize the needs of longtime but declining customers, unreflective of the future, over the demands of prospective new customers.

If your organization is scrambling quarterly with promotions and deals to hit targets, there are people whose incentives aren’t aligned, or who are afraid or unwilling to transform. The sooner you find them and fix the emotional leakage, the better.

The Reluctant Hardware Company

I recently spoke with a mid-level manager at a large organization that had built a successful business selling high-end connected healthcare devices. Its board wanted the organization to incorporate services to smooth out revenue and increase the organization’s valuation. This perspective—membership as a means to drive short-term revenue and valuation—is a red flag.

The executive sponsor developed a membership strategy with a subscription model, based on a compelling forever promise: living your best life by optimizing your key health metrics. They had a blueprint for a minimum viable product through which a services subscription could be launched and a road map of additional features to test and learn from over time. It was a logical, doable strategy. The product team, marketing team, technology team, and finance team supported the plan. The plan was easily justified on the basis of long-term revenue and expected value to shareholders. But the transformation was likely to take a few years—investment was required and cultural change too.

As it turned out, the CEO was working on a key performance indicator (KPI) that defined success as implementing “a membership strategy” within the year. So the organization jettisoned the strategy and did a small, points-based loyalty program instead, offering discounts on accessories and not much else. It doesn’t matter how good the strategy is if the KPIs don’t align with the CEO’s incentive structure.

A Cultural Shift to a Member Mindset

Committing to a forever promise may require a cultural shift in your organization. Instead of focusing on Profit & Loss (P&L) statements by product, you’ll be centering your success metrics around your customers. It’s not enough to get the sale—you need to optimize for engagement. You might need to educate your team members, both across your organization (even leaders) and newcomers to your specific team, on “Membership 101.”

Even some senior leaders may not understand this point of view—business schools haven’t caught up yet. Says Brett Brewer, General Manager, Microsoft Office Growth, “All of the accounting and GAAP principles were taught around making widgets, not subscriptions. All those things that we live and breathe aren’t being taught with the same rigor.”2

It doesn’t matter if the customer doesn’t characterize herself as a member, although this might be an aim; the organization must think of customers as members—people they know, with whom there’s an ongoing expectation of a continuing relationship. If you’ve ever had an anonymous driver honk at you and then realized that the person knew you, you understand that we feel differently about offending a stranger than someone in our community. Employees treat customers differently when there’s a personal relationship. This means that organizations need to put customers at the center of everything they do.

Some organizations are product-centric, optimizing around the products they create—a car company or a software company, for example. In a subscription model, subscribers have greater flexibility to cancel, so the product needs to continually evolve to remain relevant to customers. Most companies claim they put the customer’s needs first, but this is rarely true. Some companies are revenue-centric. They’re drawn to the promise of recurring subscription revenues, but disregard that the pricing change necessitates a new business model and not just new pricing.

A revenue-centric business strategizes to maximize financial results in the short term. In a transactional, product-centric business, focusing on meeting quarterly numbers can be effective. For example, adding fees to the product increases revenues. However, ongoing subscribers expect pricing to remain consistent and are angry (and might cancel) if fees are added, especially without commensurate functionality increases. Many companies sacrifice long-term subscriber relationships for short-term revenue and as a result their business fails.

In February of 2019, Kraft Heinz Co. disclosed a $15 billion write-down in intangible assets, including once-beloved brands Kraft and Oscar Mayer.* Many following the company believed that this loss in value resulted from the company’s longstanding focus on cost-cutting. While this approach managed profitability in light of increasing costs for commodities and transportation in the short term, ultimately Kraft Heinz neglected its commitment to provide high-quality food at a fair price. Kraft is not a Membership Economy organization with a customer-centric orientation; it’s an example of what can happen when an organization is too revenue-centric.

Most subscription businesses that fail do so because they don’t understand that for subscription pricing to work, they need to establish a trusted, forever transaction with the subscriber. The customer needs to be treated like a member, like someone who will be interacting with the company for the long term. The company needs to join the Membership Economy.

How do you know if your company has the right mindset? One way is to do what customer experience expert and author Jeanne Bliss calls the “Make Mom Proud” test in her book Would You Do That to Your Mother?3 She wants company executives to think about how their mom would feel as a customer. Talk about a “long-term relationship” you don’t want to damage!

Here’s another clue: companies with a member mindset have a balance between acquisition metrics and retention metrics. Acquisition metrics tell you if your promise is appealing enough. Retention metrics (churn rate, customer lifetime value or CLV) indicate whether you’re delivering on that promise and if that promise truly justifies forever. Many companies prioritize acquisition over retention. That’s a misplaced mindset.

What a Customer-Centric Business Looks Like

I’m always skeptical when an organization claims to be “customer-centric,” a very popular term right now. Organizations oversimplify what it means, believing that all they need to build a forever transaction is new tactics, like subscription pricing or a membership product, and some new marketing language. They may not envision the systemic and cultural challenges they face. If you know what to look for, you can assess a company’s customer-centricity in 15 minutes (or less). Table 8.1 offers a few clues, but I encourage you to take the time to answer the questionnaire.

TABLE 8.1 Product-Centric vs. Customer-Centric Companies

Building a Shared Vision

The best defense is a good offense. Inspire people with your vision. Aligning customer and corporate goals around a shared mission, and explicitly tying your strategy to it, can be very motivating, particularly with a younger workforce.

In June of 2015, Satya Nadella sent a memo to all Microsoft employees with their new mission: To “empower every person and every organization on the planet to achieve more.”4 This vision is exciting in its breadth and ambition. For people who’d spent years toiling away at feature enhancements to Microsoft Office, or as account managers for fickle Fortune 50 Microsoft customers, this was a game changer, signaling a new way of doing business.

In nearly every meeting about strategy, Microsoft employees tie their initiatives and tactics back to this mission, checking alignment. It raises the level of conversation from “what I want vs. what you want” to “what’s going to help the most people achieve more?”

It didn’t happen overnight. In fact, this transformation inspired an entire book for Nadella and years of work across the entire business.5 Brett Brewer, General Manager, Microsoft Office Growth, had to create a Subscription 101 program to educate his colleagues.6 But Nadella’s support from the top has been critical.

Strategy Is a Commodity, Execution Is an Art7

Culture change is probably the hardest and most underestimated challenge of moving an organization from a transactional to a membership mindset.

Ideally, you will dedicate resources to define the essential changes in culture, in functional roles, and in processes, and then educate the entire organization and specific groups on the changes that may affect them. Some of the resources should come from HR, but you may also want someone who is strong in internal communications. Some of your messages will need to be communicated multiple times, through different channels and in a range of settings: all-hands meetings, one-on-ones, department trainings, corporate email, and the employee handbook.

To make all of this happen, you’ll also need support and a steady drumbeat from leadership to ensure that this transformation, while difficult, will pay off in the long term. Without clear, consistent support from the C-suite, you’re likely to fail.

What to Do Next

    Make an honest assessment of your organization’s current culture, whether you’re just getting started or have a strong, well-documented, and intentional culture.

    If your organization has a mission, vision, and values statement, put it on the wall, get a few colleagues in the room, and discuss whether a stranger visiting your organization would recognize these statements as true.

    Identify any potential problems in your current organizational structure, budgeting process, or compensation plan design that may hold you back.

    Who is being asked to change the most? Who is losing (or gaining) budget and head count?

    With your team, brainstorm about potential undercurrents that might prevent you from reaching your goals and map out strategies to manage them.

* A “clawback” is a contractual term that provides that money paid to an employee be returned in situations where the objectives weren’t achieved.

* A “write-down” is a reduction in the estimate of the value of an asset.