Once upon a time, there was a little business that sold books online. Its name was Amazon. It was a boring little business, run by a boring-looking little guy.

But it grew. It started to sell shoes. And dog food. And gifts.

Then it offered “Prime”. A small subscription to get access to better deals and shipping. Then it added value to that. Prime gave you access to movies and music and cloud storage.

And it grew until it was everywhere.

Becoming “Sticky”

You’ve probably noticed how, over the last couple of decades, businesses have become increasingly savvy at making themselves “sticky”. Amazon being one example.

Also, your phone or computer are examples. In nearly all instances, you are buying into an operating system as well. Over time, not only do you become comfortable with that operating system, but you also buy software that only works on that system.

Not only do you buy the software, but you buy subscriptions to some of the software. It was not long before I had invested pretty heavily into a certain system. For me, it’s Microsoft and Android.

Box delivery services are also becoming popular: Have meals, clothes, coffee, or bacon of the month regularly delivered to you or someone you love.

It’s brilliant.

The Brilliance of Predictable, Repeat Business

Businesses or organizations that capture an audience or build repeating, automatic, or ongoing contracted sales are sticky. They are also valuable:

• They don’t have to compete as hard for customers.
• Their cashflows become predictable (read more about the importance of good cash flows).
• They can allow for streamlined distribution of goods or services.
• Revenues for a period of time are highly reliable or even guaranteed.

This creates security and stability. Security and stability in your basic business model allow room for improvements and opportunities. Both of which offer an increased competitive advantage.

It’s not just businesses. Non-profits do this when they set up automatic credit card donations. There are two non-profits that my wife and I support this way. They never have to worry if we get busy or forget. They receive predictable, reliable revenue.

Examples of How This Can Be Structured

Subscription: Automatically renewable billing for a product or service. Examples:  Magazines, streaming services, “box of the month” clubs

Razor and blade: Customers are “locked” into a platform that either offers a variety of consumable or proprietary services or goods. Examples: Razors, printers, operating systems (Apple, Microsoft, Android)

Membership: Customers are allowed access to restricted services, credentialing, influence, or relationships. Examples: Gym memberships, professional associations, online communities

Convenience: Access to a service is made easier by automating it or removing access barriers for the customer:  Examples: Service contracts, weekly lawn maintenance agreements, maintenance agreements

There are other examples as well: Access to valuable networks, insurance, front-of-line, or premium services.

This is not a new concept. People have had milk delivered, houses cleaned, shoes polished, garbage collected, and membership organizations for millennia.

What is new is the kinds of businesses and industries that are exploring (or re-exploring) this approach.

A great example is concierge medicine. In this model, for a fixed monthly or annual fee, a family practice doctor may agree to offer a specific amount of monthly care for a family. In some cases, the pricing can actually be pretty affordable. And it can allow the doctor to reduce their patient load and dramatically simplify billing and administration.

Another example is professional services. Both my accountant and my attorney charge monthly flat fees on annual contracts. For my CPA, this includes advisory support throughout the year and tax preparation. For the attorney, it’s unlimited advisory support and standard business legal services.

I never hesitate or avoid asking them questions out of fear that I’ll get stuck with a bill. The truth is, I don’t reach out to them that often. But they are available when I need them.

How to Avoid the Problems with “Sticky” Models

Don’t trap customers: One of the biggest problems with some businesses is that they make it nearly impossible to quit a subscription or leave. Let people leave. Don’t ruin your reputation for short-term, shady gains.

Deliver consistent services: If you ask for a consistent payment, you need to deliver a consistent service. Inconsistent service or inconsistent quality will kill off the commitment of your customer base.

Keep increasing value: Some companies make the mistake of becoming complacent or cheap with subscribed customers. Successful companies like Amazon understand the need to keep adding to the value they offer. Even though they dominate their markets, they continue to find ways to add value, services, and options to current subscriptions.

How to Apply This to Your Business?

If you can do it well, it’s worth considering how to shift your business in this direction.

Businesses that figure this out grow dramatically in their value and attractiveness to buyers (future revenues are salable if they are under contract). The predictability of cash flow provides tremendous freedom.

Become very customer-centric: Most businesses are focused on a specific product or service. They aren’t thinking deeply about what their customer really wants and needs.

Questions to ask:

• Why do our customers come to us? What goal are they trying to achieve?
• Are there any gaps, friction points, or extra steps they need to address to achieve that goal?
• What can you offer them, on an ongoing basis, that would help them achieve that goal?
• In what way would automating or contracting this make things easier, more reliable, more predictable (or in any other way more valuable) to the client?

Take good care,

Christian

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