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The Automatic Customer: Creating a Subscription Business in Any Industry by John Warrillow
Airbnb, airport security, Amazon Web Services, asset allocation, barriers to entry, call centre, cloud computing, commoditize, David Heinemeier Hansson, discounted cash flows, high net worth, Jeff Bezos, Network effects, passive income, rolodex, sharing economy, side project, Silicon Valley, Silicon Valley startup, software as a service, statistical model, Steve Jobs, Stewart Brand, subscription business, telemarketer, time value of money, zero-sum game, Zipcar
My hope, however, is that by seeing the range of subscription models that are out there, you’ll be able to jot down a few possibilities for launching your own subscription business or complementing your existing business with some recurring revenue. I hope you agree that while cloud-based software companies and media titans have pioneered the subscription business, it is a model that you too can leverage, whether you own a law practice, a coffee shop, or a day-care center. Next, let’s dig into the hard work of actually building a subscription business. PART THREE Building Your Subscription Business Many traditional businesses become successful based on the sheer force of the owner’s personality. When sales are down, the owner leverages his network and brings in business. When a customer is unhappy, it is the owner who uses her diplomacy to smooth things over. But in a subscription business, the very structure and nature of the business usually means you will go relatively quickly from handling a few customers at a time to juggling a larger group of subscribers.
I’ve had a radio production business, a design agency, an events company, a quantitative research business, and a software company. I’m involved in my second subscription business, and while subscription businesses are in many ways more rewarding than the others, they are also more challenging in many respects. Metaphorically speaking, a traditional business requires more brawn, while a subscription business requires more brain. In a subscription business, any decision you make affects your entire base of subscribers all at once. Sending a single e-mail can trigger an avalanche of cancellations. Rather than collecting a few invoices, you have to figure out how to charge potentially thousands of credit cards a month, each with its own expiration date and credit limit. While gathering more customer data is great, your subscription business may collect so much data that you have to figure out which bits of information are critical and which are just noise.
MOSQUITO SQUAD 2013 Customer acquisition cost (CAC) $93 Average MRR per customer $50 Monthly MRR Churn Rate 2.3% Margin 58% LTV $1,261 LTV: CAC 13.5 As you build your subscription business, you’ll need to go beyond the P&L statement and develop a new set of measuring sticks to track your progress. Your LTV:CAC ratio is the hardest working statistic of the bunch because it is derived from all the key numbers you’ll want to track. If you can get your LTV:CAC above 3:1, you may want to step on the gas. If you’re below 3:1, it may be time to slow down and tinker with your model until you can crest the 3:1 milestone. Either way, there is one more essential ingredient you’ll need in order to build a subscription business. Cash is to a subscription business as oxygen is to humans. If you don’t have it, no matter how healthy you are on other measures, you’re dead. In the next chapter, we’ll discuss how to find the money to grow your subscription business. CHAPTER 13 The Cash Suck vs. the Cash Spigot Understanding your LTV:CAC ratio helps you understand the theoretical long-term viability of your subscription business.
Subscribed: Why the Subscription Model Will Be Your Company's Future - and What to Do About It by Tien Tzuo, Gabe Weisert
3D printing, Airbnb, airport security, Amazon Web Services, augmented reality, autonomous vehicles, blockchain, Build a better mousetrap, business cycle, business intelligence, business process, call centre, cloud computing, cognitive dissonance, connected car, death of newspapers, digital twin, double entry bookkeeping, Elon Musk, factory automation, fiat currency, Internet of things, inventory management, iterative process, Jeff Bezos, Kevin Kelly, Lean Startup, Lyft, manufacturing employment, minimum viable product, natural language processing, Network effects, Nicholas Carr, nuclear winter, pets.com, profit maximization, race to the bottom, ride hailing / ride sharing, Sand Hill Road, shareholder value, Silicon Valley, skunkworks, smart meter, social graph, software as a service, spice trade, Steve Ballmer, Steve Jobs, subscription business, Tim Cook: Apple, transport as a service, Uber and Lyft, uber lyft, Y2K, Zipcar
This number gives you the intrinsic profitability of your subscription business, as there is certainty in your recurring revenue, as well as certainty in the costs to service that revenue. In the example income statement it’s $40 million, which represents a very healthy margin. There’s a lot of hand-wringing around how profitable subscription businesses can be. When we look at a subscription company’s financials, Tyler and I always look at the recurring profit margin first to get a sense of how strong the business truly is. Growth Costs—So what about Sales and Marketing? Here lies one of the biggest differences between traditional and subscription businesses. In a traditional business, the cost of sales reflects how much I spent to get that dollar of revenue. But in a subscription business, sales and marketing expenses are matched to future revenue.
Here are some of the topics I’ll be covering: How the subscription model is transforming every industry on the planet, including retail, journalism, manufacturing, media, transportation, and enterprise software The basic financial model and most important growth metrics for subscription businesses How the subscription model changes your approach to engineering, marketing, sales, finance, and IT The eight core growth strategies of all subscription businesses A customer-centric operating framework for subscription businesses I want to note that this isn’t just a Silicon Valley story, nor is this a Silicon Valley book (there are already lots of those). This is a business story. In many ways, this is a book that favors the so-called legacy companies, or “the incumbents.”
Shortly after Tyler and I presented our upcoming plan to the board, we realized that this model may have worked fine for the last five hundred years, but it was entirely wrong for a subscription business, for three key reasons. First, the traditional income statement does not differentiate between recurring and nonrecurring dollars. It’s like saying there’s no difference between a dollar and a dollar that keeps happening every year for the next ten years. Recurring revenue is the cornerstone of subscription businesses, but traditional accounting concepts were never designed to recognize this fact. Second, sales and marketing is matched to past goods sold. It’s essentially a sunk cost. I’ll get into this later in the chapter, but subscription businesses need to think strategically about sales and marketing spend going toward driving future business. And finally, this is a backward-looking picture—it’s all about money already earned, expenses already paid, actions already taken.
The Network Imperative: How to Survive and Grow in the Age of Digital Business Models by Barry Libert, Megan Beck
active measures, Airbnb, Amazon Web Services, asset allocation, autonomous vehicles, big data - Walmart - Pop Tarts, business intelligence, call centre, Clayton Christensen, cloud computing, commoditize, crowdsourcing, disintermediation, diversification, Douglas Engelbart, Douglas Engelbart, future of work, Google Glasses, Google X / Alphabet X, Infrastructure as a Service, intangible asset, Internet of things, invention of writing, inventory management, iterative process, Jeff Bezos, job satisfaction, Kevin Kelly, Kickstarter, late fees, Lyft, Mark Zuckerberg, Oculus Rift, pirate software, ride hailing / ride sharing, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, six sigma, software as a service, software patent, Steve Jobs, subscription business, TaskRabbit, Travis Kalanick, uber lyft, Wall-E, women in the workforce, Zipcar
Brand Finance, press release, “Lego Overtakes Ferrari as the World’s Most Powerful Brand,” http://brandfinance.com/news/press-releases/lego-overtakes-ferrari-as-the-worlds-most-powerful-brand/. 4. Innocentive website, “What We Do,” http://www.innocentive.com/about-innocentive. Principle 6, Revenues 1. Brent Leary, “Amir Elaguizy of Cratejoy: Good Subscription Business Models Focus on Relationships Not Transactions,” Small Business Trends, August 14, 2015, http://smallbiztrends.com/2015/08/elaguizy-cratejoy-subscription-business-models.html. Principle 7, Employees 1. Travis Kalanick, “The Charms of the Sharing Economy,” Economist, The World in 2016 (single issue), November 6, 2015, http://www.theworldin.com/article/10631/charms-sharing-economy. 2. Ernst & Young, Study: Work-Life Challenges across Generations, http://www.ey.com/US/en/About-us/Our-people-and-culture/EY-work-life-challenges-across-generations-global-study. 3.
There will always be more people and resources external to your company than within it—and why wouldn’t you want to access and use these resources? Turn your gaze outward, and leverage your most essential network: your customers. PRINCIPLE 6 REVENUES From Transaction to Subscription In a transactional business, the person really is probably only going to come around once or maybe twice if you have a really high repeat order rate. But in a subscription business, you’re going to see them by definition, over and over and over and over again. And you’re going to have an opportunity to impress them every single time. You’re in a relationship. —John Warrillow, author, The Automatic Customer DO YOU BOX? We don’t mean the sport with the big gloves. We’re talking about participation in a new business phenomenon: at a regular cadence, boxes full of carefully selected, novel, and delightful goods appear on your doorstep as if it’s Christmas morning.
Getting your customers to subscribe to you and your product just to get them to open their wallets each month will bring limited success. Most people don’t love paying bills, and locking people into a contract where they have no choice but to subscribe will not increase affinity. But getting your customers to subscribe in order for you to form and develop a positive, two-way relationship provides many advantages on top of more revenue. Customer contributors (principle 5) and the subscription business model are complementary ways of inviting your customers into a mutually beneficial, long-term relationship with your organization. Take Every Opportunity to Delight Your customers’ lives are busy. The time they spend interacting with your organization is only a minute fraction of their week—although for most firms, it’s the only fraction they care about. Building the kind of long-term relationship that supports contribution, and ultimately network orchestration, requires more affinity—on both sides of the relationship—than mere transactions or promotions can provide.
Netflixed: The Epic Battle for America's Eyeballs by Gina Keating
activist fund / activist shareholder / activist investor, barriers to entry, business intelligence, collaborative consumption, corporate raider, inventory management, Jeff Bezos, late fees, Mark Zuckerberg, McMansion, Menlo Park, Netflix Prize, new economy, out of africa, performance metric, Ponzi scheme, pre–internet, price stability, recommendation engine, Saturday Night Live, shareholder value, Silicon Valley, Silicon Valley startup, Steve Jobs, subscription business, Superbowl ad, telemarketer, X Prize
After enduring three years of reflected disgrace from the dot-com bust, Internet stocks had rotated back into favor in early 2004, and Netflix was suddenly the darling of the postbust era. Its share price had risen nearly 400 percent, and its steady average revenue growth of more than 100 percent each year was starting to attract attention. Even though they’d had no real competition since launching the subscription plan, Netflix had nevertheless continued smoothing out kinks in its subscription business and was pushing ahead in all areas: consumer satisfaction was high; cancellations were low; and finally the service was being noticed by regular Americans, who were signing up at a clip of nearly three thousand per day. The potential online rental market was huge, maybe as large as twenty million subscribers, based on the penetration they were seeing in their first market, the San Francisco Bay Area, where more than 5 percent of residents were members, Hastings told investors.
For all the fanfare of its launch, the Walmart site had managed to attract only about sixty thousand subscribers, and was not growing enough to dent Netflix, even at $4 a month less. Shortly after Blockbuster dropped its rates, Walmart cut its prices below both services, to $17.36 per month. Hastings also wanted to gauge whether Fleming was open to a possible offer from Netflix to buy Walmart’s meager subscriber base. The talks that night went nowhere, mainly because Fleming was trying to negotiate a partnership with Yahoo! in hopes of making the subscription business work. As luck would have it, a young Netflix executive ran into a female acquaintance who worked for Walmart.com at a San Francisco Bay Area music venue. The two often joked about the rivalry between their two companies. One night the woman told him over drinks that Walmart’s online service had little support from its corporate parent. Armed with this information, Hastings dug in to wait, and kept lines of communication open with Fleming
How did the company put away so many DVDs each day with so few employees? I wonder how it all works, he thought. Kaltschnee had started a Web design firm with three other guys in the mid-1990s that became one of the first subscription services for graphics. They sold the company a few years later, and Kaltschnee stayed on to create a second subscription service for the buyers’ stock photography collection. He knew about subscription businesses from that experience, and he wanted to learn how Netflix had been so successful. In November 2003, he launched the blog HackingNetflix.com, in keeping with his pledge to deconstruct the service and learn how it operated; its masthead was Netflix-red and its observations, gentle. Kaltschnee was an unabashed advocate for Netflix from the start, and he’d joined a generation of bloggers who wanted to share their personal experiences with a product or corporation.
The Personal MBA: A World-Class Business Education in a Single Volume by Josh Kaufman
Albert Einstein, Atul Gawande, Black Swan, business cycle, business process, buy low sell high, capital asset pricing model, Checklist Manifesto, cognitive bias, correlation does not imply causation, Credit Default Swap, Daniel Kahneman / Amos Tversky, David Heinemeier Hansson, David Ricardo: comparative advantage, Dean Kamen, delayed gratification, discounted cash flows, Donald Knuth, double entry bookkeeping, Douglas Hofstadter, en.wikipedia.org, Frederick Winslow Taylor, George Santayana, Gödel, Escher, Bach, high net worth, hindsight bias, index card, inventory management, iterative process, job satisfaction, Johann Wolfgang von Goethe, Kevin Kelly, Kickstarter, Lao Tzu, lateral thinking, loose coupling, loss aversion, Marc Andreessen, market bubble, Network effects, Parkinson's law, Paul Buchheit, Paul Graham, place-making, premature optimization, Ralph Waldo Emerson, rent control, side project, statistical model, stealth mode startup, Steve Jobs, Steve Wozniak, subscription business, telemarketer, the scientific method, time value of money, Toyota Production System, tulip mania, Upton Sinclair, Vilfredo Pareto, Walter Mischel, Y Combinator, Yogi Berra
Why not present them with a new offer to make them active customers once again? Netflix is a company that uses Reactivation brilliantly. If you cancel a Netflix subscription, three to six months later you’ll receive a postcard and/ or e-mail from Netflix with an offer to resubscribe at a reduced rate. If you don’t reply, they’ll send another message every few months until you resubscribe or request to be removed completely from their system. Since Netflix is a Subscription business, every reactivated customer means a new monthly stream of income, which greatly enhances the Lifetime Value (discussed later) of each customer. Reactivation is typically a quicker, simpler, and more effective approach to increasing revenue than attracting new customers. Your old customers already know and trust you, and they’re aware of the value you provide. You have their information—you don’t have to find them.
Lifetime Value is the total value of a customer’s business over the lifetime of their relationship with your company. The more a customer purchases from you and the longer they stay with you, the more valuable that customer is to your business. One of the reasons Subscriptions are so profitable is that they naturally maximize Lifetime Value. Instead of making a single sale to a customer, Subscription businesses focus on providing value—and collecting revenue—for as long as possible. The longer a customer remains Subscribed and the higher the price they pay, the higher the Lifetime Value of that customer. The higher your average customer’s Lifetime Value, the better your business. By understanding how much your average customer purchases and how long they tend to buy from you, you can place a tangible value on each new customer, which helps you make good decisions.
When a customer purchases Proactiv, they aren’t just buying a single bottle of face goo—they’re signing up to receive a bottle every month in exchange for a recurring payment. The Lifetime Value of each new Proactiv customer is so high that it doesn’t matter that Guthy-Renker “goes negative” on the initial sale—the company makes a ton of money, even if it loses money on a few customers who don’t continue with the program. The first sale is sometimes called a “loss leader”—an enticing offer intended to establish a relationship with a new customer. Many Subscription businesses use loss leaders to build their subscriber base. Magazines like Sports Illustrated offer gimmicks like football phones and spend a fortune on their annual Swimsuit Edition in an effort to attract new subscribers. These enticements may absorb up to a year’s worth of Subscription revenue, but the company comes out ahead when you consider the Lifetime Value of each customer. Each new subscriber allows Sports Illustrated to charge their advertisers higher prices, which provides the bulk of the company’s revenue.
Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies by Reid Hoffman, Chris Yeh
activist fund / activist shareholder / activist investor, Airbnb, Amazon Web Services, autonomous vehicles, bitcoin, blockchain, Bob Noyce, business intelligence, Chuck Templeton: OpenTable:, cloud computing, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, database schema, discounted cash flows, Elon Musk, Firefox, forensic accounting, George Gilder, global pandemic, Google Hangouts, Google X / Alphabet X, hydraulic fracturing, Hyperloop, inventory management, Isaac Newton, Jeff Bezos, Joi Ito, Khan Academy, late fees, Lean Startup, Lyft, M-Pesa, Marc Andreessen, margin call, Mark Zuckerberg, minimum viable product, move fast and break things, move fast and break things, Network effects, Oculus Rift, oil shale / tar sands, Paul Buchheit, Paul Graham, Peter Thiel, pre–internet, recommendation engine, ride hailing / ride sharing, Sam Altman, Sand Hill Road, Saturday Night Live, self-driving car, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, Skype, smart grid, social graph, software as a service, software is eating the world, speech recognition, stem cell, Steve Jobs, subscription business, Tesla Model S, thinkpad, transaction costs, transport as a service, Travis Kalanick, Uber for X, uber lyft, web application, winner-take-all economy, Y Combinator, yellow journalism
Internet delivery and self-service allow new forms of distribution that weren’t possible in the packaged software world, such as Dropbox’s viral incentive of additional free storage for referring new customers. Nor is the pattern of Internet subscriptions limited to enterprise software. The dominant players in both music (Spotify, Pandora) and video (Netflix, Hulu, Amazon) also enjoy lower overhead and greater distribution by using the subscription business model. Another, less obvious benefit to this model is that once a subscription business achieves scale, the predictability of its revenue streams allows it to be more aggressive with long-term investments, since it isn’t obliged to maintain large cash balances to weather short-term variations in the business. This financial firepower can represent a major competitive advantage. For example, Netflix, which announced plans to invest $6 billion in original content for its streaming service in 2017, has exploited its direct subscription model to outspend classic television networks, which have to rely on less robust revenue streams like payments from cable providers and advertising sales.
Hacking Growth: How Today's Fastest-Growing Companies Drive Breakout Success by Sean Ellis, Morgan Brown
Airbnb, Amazon Web Services, barriers to entry, Ben Horowitz, bounce rate, business intelligence, business process, correlation does not imply causation, crowdsourcing, DevOps, disruptive innovation, Elon Musk, game design, Google Glasses, Internet of things, inventory management, iterative process, Jeff Bezos, Khan Academy, Kickstarter, Lean Startup, Lyft, Mark Zuckerberg, market design, minimum viable product, Network effects, Paul Graham, Peter Thiel, Ponzi scheme, recommendation engine, ride hailing / ride sharing, side project, Silicon Valley, Silicon Valley startup, Skype, Snapchat, software as a service, Steve Jobs, subscription business, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, working poor, Y Combinator, young professional
THE METRICS THAT MATTER The first step in determining your growth strategy and figuring out where to focus is to understand which metrics matter most for your product’s growth. The best way to do this is to craft what Johns dubbed a company’s fundamental growth equation. This is a simple formula that represents all of the key factors that will combine to drive your growth; in other words, your core set of growth levers. This equation is different for every product or business. Here’s an example for the company Morgan runs, Inman News, which is a subscription business: (WEBSITE TRAFFIC × EMAIL CONVERSION RATE × ACTIVE USER RATE × CONVERSION TO PAID SUBSCRIBER) + RETAINED SUBSCRIBERS + RESURRECTED SUBSCRIBERS = SUBSCRIBER REVENUE GROWTH For eBay the formula is: NUMBER OF SELLERS LISTING ITEMS × NUMBER OF LISTED ITEMS × NUMBER OF BUYERS × NUMBER OF SUCCESSFUL TRANSACTIONS = GROSS MERCHANDISE VOLUME GROWTH Johns even created this equation for Amazon to illustrate the value of these formulas:6 VERTICAL EXPANSION × PRODUCT INVENTORY PER VERTICAL × TRAFFIC PER PRODUCT PAGE × CONVERSION TO PURCHASE × AVERAGE PURCHASE VALUE × REPEAT PURCHASE BEHAVIOR = REVENUE GROWTH While all products will share common drivers of growth, such as new user acquisition, higher activation, and better retention, each product or business has a more specific combination of factors that are uniquely its own.
If a product or service is offered internationally, companies should also be sure to look at monetization by country, since different countries have different norms about the types of payment options, and also the fees charged, for services. For example, users in Germany may be more likely to purchase using a specific set of payment options, which are different from the preferred payment method in Russia, resulting in markedly different monetization rates for each country. By the same token, certain business models may be better understood in one country compared to another. Subscription businesses are well understood in the United States, for example, but may be less well received in other countries. Growth teams can experiment with offering different sets of options to different countries to increase monetization within each.4 LEARNING WHO YOUR CUSTOMERS ARE As we’ve seen already, there are numerous ways to segment your customer base to find new insights. And one of the first steps for growth teams trying to better monetize that base is to identify the general groupings of customers who share similar characteristics.
European Founders at Work by Pedro Gairifo Santos
business intelligence, cloud computing, crowdsourcing, fear of failure, full text search, information retrieval, inventory management, iterative process, Jeff Bezos, Joi Ito, Lean Startup, Mark Zuckerberg, natural language processing, pattern recognition, pre–internet, recommendation engine, Richard Stallman, Silicon Valley, Skype, slashdot, Steve Jobs, Steve Wozniak, subscription business, technology bubble, web application, Y Combinator
Hinrichs: I did, let me think. I did in May 2004. I did some things for the insurance and the rates at half a million euros. Santos: Okay, and the objective of that round of funding, was it to grow internationally? Hinrichs: The company was cash-flow positive as of ninety days of operation. So when I funded the company, the company was already cash-flow positive. I wanted to hire some more people. Since it's a subscription business, we had the issue of that we have liabilities on the one side. You can't book the entire revenue you get into the months, so you have to have accrual over the time. In bookkeeping, it's a liability, and to solve this kind of liability problem, yes or no, it's a theoretical problem—does it work? I decided to take the venture capital angel money. Half a year later, when the angels saw how good the system was, everything went well, they said they wanted to invest another time.
You could point to both yourself and also to a potential investor and say, “Hey, this is actually a real business. It's working. It's generating revenues. There is a clear revenue stream. You take money from people. You send them discs. And as long as you keep offering them a good service, you've got a good business.” People at the time really understood, this was in a down economy, that a subscription business was a very good, predictable revenue model. People looked at mobile phone companies. People looked at cable companies and said, “Okay. I understand the economics of a business like this.” In terms of “Is there a need? Is there a market? Is there a good business model?”—it ticked all the boxes. Santos: So, you decided to go forward with this business. What was the first thing that you did to actually put it on the ground?
Zero to Sold: How to Start, Run, and Sell a Bootstrapped Business by Arvid Kahl
"side hustle", business process, centre right, Chuck Templeton: OpenTable:, continuous integration, coronavirus, COVID-19, Covid-19, crowdsourcing, domain-specific language, financial independence, Google Chrome, if you build it, they will come, information asymmetry, information retrieval, inventory management, Jeff Bezos, job automation, Kubernetes, minimum viable product, Network effects, performance metric, post-work, premature optimization, risk tolerance, Ruby on Rails, sentiment analysis, Silicon Valley, software as a service, source of truth, statistical model, subscription business, supply-chain management, trickle-down economics, web application
The optimal situation is when you grow every month, and your revenue consistently increases. You will have reached that state when you create a subscription business with negative churn. In a subscription-based business, churn is the percentage of customers that discontinue their subscriptions month over month. Churn hurts your growth twice. For each churned customer, you need to find a new customer just to get back to a net-zero. To grow, you effectively need two new customers. Negative churn happens when the customers who stay with your business spend more time on upgrades than you lose from customers canceling. That is the holy grail of subscription businesses: when your churn is negative, you don't even need to add more customers to grow. Every new customer is a bonus! But before you can get there, a lot of work needs to be done.
Startupland: How Three Guys Risked Everything to Turn an Idea Into a Global Business by Mikkel Svane, Carlye Adler
Airbnb, Ben Horowitz, Burning Man, business process, call centre, Chuck Templeton: OpenTable:, cloud computing, credit crunch, David Heinemeier Hansson, Elon Musk, housing crisis, Jeff Bezos, Kickstarter, Menlo Park, remote working, Ruby on Rails, Sand Hill Road, Silicon Valley, Silicon Valley startup, Skype, software as a service, South of Market, San Francisco, Steve Jobs, subscription business, Tesla Model S, web application
Building a company costs money, and the faster you grow, the more cash it requires. Of course, that’s not the case for all startups—there are definitely examples of companies that have come a long way on their own positive cash flow—but the general rule is that if you optimize for profitability, you sacrifice growth. And for a startup, it’s all about growth. Being a SaaS company, and therefore technically a subscription business, makes the need for cash even more urgent. A good small-business customer would pay us something like $500 a month. Considering the expansion and upgrade profile of our customer base and our churn rate, we can calculate the lifetime value of this customer as something around $50,000. That’s a significant amount and a good value customer, but the problem is that it will take us years—maybe many years—to see that total amount.
Side Hustle: From Idea to Income in 27 Days by Chris Guillebeau
"side hustle", Airbnb, buy low sell high, inventory management, Lyft, passive income, ride hailing / ride sharing, sharing economy, side project, Silicon Valley, Silicon Valley startup, subscription business, TaskRabbit, the scientific method, Uber for X, uber lyft
Here are just a few to consider: • Long vs short copy on your sales page • Word order, especially in headlines and calls to action • Website navigation and user experience • Free trial vs low-priced trial (or vs no trial) • Testimonials from happy customers vs experts’ ratings or reviews *2 • Hard sell vs soft sell (or both) Just remember that all this testing can turn into a side hustle rabbit hole, so don’t jump down it until you’re sure that your offer itself is solid. BE CAREFUL OF FALSE POSITIVES A friend told me a story of some A/B testing he was doing for a larger brand. He had what he thought was a great idea: to change the call to action on the order page for a software subscription business. His change resulted in a major increase in click-throughs—more than 40 percent! Before he congratulated himself and booked a trip to Vegas, though, he watched the data for a few more days. Alas, something was wrong. More people were clicking through, but far fewer were converting to actual sales. Meanwhile, the control page (the one that doesn’t change) maintained the same level of sales, which made more money for the company in the end.
The Open Organization: Igniting Passion and Performance by Jim Whitehurst
Airbnb, cloud computing, crowdsourcing, en.wikipedia.org, Google Hangouts, Infrastructure as a Service, job satisfaction, market design, Network effects, new economy, place-making, platform as a service, post-materialism, profit motive, risk tolerance, shareholder value, side project, Silicon Valley, Skype, Snapchat, Steve Jobs, subscription business, The Wisdom of Crowds, Tony Hsieh
Without a doubt, engineering and sales would jump in and begin working to better communicate our value proposition and improve usability, but my team and I realized that much of the work required to address unpaid usage of the product and renewals would come from other areas of the business. So the team worried that, without a bit more direction, a broad statement of “free to paid” would send some groups scurrying, while others would feel it was not relevant to their area. Renewals are a great example. Obviously, for a subscription business, renewals are a key value driver. Much of what drives renewals is hard-core operational work. Because our products are often sold preloaded on a manufacturer’s hardware or sold in less developed areas through multiple distribution levels, we often do not know who the end customer is. Improving renewals entails working on myriad operational and legal issues. It involves substantial IT work to improve internal data.
Measure What Matters: How Google, Bono, and the Gates Foundation Rock the World With OKRs by John Doerr
Albert Einstein, Bob Noyce, cloud computing, collaborative editing, commoditize, crowdsourcing, Firefox, Frederick Winslow Taylor, Google Chrome, Google Earth, Google X / Alphabet X, Haight Ashbury, Jeff Bezos, job satisfaction, Khan Academy, knowledge worker, Menlo Park, meta analysis, meta-analysis, PageRank, Paul Buchheit, Ray Kurzweil, risk tolerance, self-driving car, side project, Silicon Valley, Silicon Valley startup, Skype, Steve Jobs, Steven Levy, subscription business, web application, Yogi Berra, éminence grise
Managers invested eight hours per employee and demoralized everyone involved. Voluntary attrition spiked every February, as waves of contributors reacted to disappointing reviews by taking their talent elsewhere. In all, the company devoted a total of eighty thousand manager hours—the equivalent of nearly forty full-time hires—to a mechanical process that created no discernible value. Adobe was transitioning full speed ahead to a cloud-based subscription business model, which it needed to keep winning. But even as the company moved its products and customer relations into a contemporary, real-time operation, its approach to HR remained shackled to the past. Adobe’s leap into the future, as reported in the India Times in 2012. In 2012, during a business trip to India, an Adobe executive named Donna Morris vented her frustrations over traditional performance management.
Exponential Organizations: Why New Organizations Are Ten Times Better, Faster, and Cheaper Than Yours (And What to Do About It) by Salim Ismail, Yuri van Geest
23andMe, 3D printing, Airbnb, Amazon Mechanical Turk, Amazon Web Services, augmented reality, autonomous vehicles, Baxter: Rethink Robotics, Ben Horowitz, bioinformatics, bitcoin, Black Swan, blockchain, Burning Man, business intelligence, business process, call centre, chief data officer, Chris Wanstrath, Clayton Christensen, clean water, cloud computing, cognitive bias, collaborative consumption, collaborative economy, commoditize, corporate social responsibility, cross-subsidies, crowdsourcing, cryptocurrency, dark matter, Dean Kamen, dematerialisation, discounted cash flows, disruptive innovation, distributed ledger, Edward Snowden, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, game design, Google Glasses, Google Hangouts, Google X / Alphabet X, gravity well, hiring and firing, Hyperloop, industrial robot, Innovator's Dilemma, intangible asset, Internet of things, Iridium satellite, Isaac Newton, Jeff Bezos, Joi Ito, Kevin Kelly, Kickstarter, knowledge worker, Kodak vs Instagram, Law of Accelerating Returns, Lean Startup, life extension, lifelogging, loose coupling, loss aversion, low earth orbit, Lyft, Marc Andreessen, Mark Zuckerberg, market design, means of production, minimum viable product, natural language processing, Netflix Prize, NetJets, Network effects, new economy, Oculus Rift, offshore financial centre, PageRank, pattern recognition, Paul Graham, paypal mafia, peer-to-peer, peer-to-peer model, Peter H. Diamandis: Planetary Resources, Peter Thiel, prediction markets, profit motive, publish or perish, Ray Kurzweil, recommendation engine, RFID, ride hailing / ride sharing, risk tolerance, Ronald Coase, Second Machine Age, self-driving car, sharing economy, Silicon Valley, skunkworks, Skype, smart contracts, Snapchat, social software, software is eating the world, speech recognition, stealth mode startup, Stephen Hawking, Steve Jobs, subscription business, supply-chain management, TaskRabbit, telepresence, telepresence robot, Tony Hsieh, transaction costs, Travis Kalanick, Tyler Cowen: Great Stagnation, uber lyft, urban planning, WikiLeaks, winner-take-all economy, X Prize, Y Combinator, zero-sum game
In his 2005 book, Free: The Future of a Radical Price, Chris Anderson built on the lower cost positioning of the disruptor, noting that pretty much all business models, and certainly those that are information-based, will soon be offered to consumers for free. The popular “freemium” model is just such a case: many websites offer a basic level of service at no cost, while also enabling users to pay a fee to upgrade to more storage, statistics or extra features. Advertising, cross-subsidies and subscription business models are other ways of layering profit-generating operations on top of what is essentially free baseline information. Kevin Kelly expanded further on this idea in a seminal post entitled “Better than Free,” which appeared on his Technium blog in 2008. In digital networks anything can be copied and is thus “abundant.” So how do you add or extract value? What is valuable for customers? What is the new scarcity?
Television disrupted: the transition from network to networked TV by Shelly Palmer
barriers to entry, call centre, commoditize, disintermediation, en.wikipedia.org, hypertext link, interchangeable parts, invention of movable type, Irwin Jacobs: Qualcomm, James Watt: steam engine, Leonard Kleinrock, linear programming, Marc Andreessen, market design, Metcalfe’s law, pattern recognition, peer-to-peer, recommendation engine, Saturday Night Live, shareholder value, Skype, spectrum auction, Steve Jobs, subscription business, Telecommunications Act of 1996, There's no reason for any individual to have a computer in his home - Ken Olsen, Vickrey auction, Vilfredo Pareto, yield management
Subscription is often discussed when financially modeling streaming video and some Internet-based businesses. For whatever reason, the only successful pure subscription-based content businesses in America seem to be HBO and the other premium channels (some of which are still all movies, all the time) and businesses that provide one of the “Four G’s”: girls, God, games and gambling. (A fifth “G,” gay, has developed a significant following in recent years.) But, you can simply place the subscription businesses into their actual business categories: pornography, religion, video games (casual and console) and gambling. Pay-per-view Pay-per-view (PPV) has been around since the late 1970s.The modern version of PPV is simple: you select a program, pay for it, and watch it. There are several technological versions which we will discuss in more detail later. As business models go, PPV is extremely good for adult movies, pretty good for major sporting events (like boxing) and a nice business for wrestling, extreme fighting, concerts and, of course movies.
Broad Band: The Untold Story of the Women Who Made the Internet by Claire L. Evans
"side hustle", 4chan, Ada Lovelace, Albert Einstein, British Empire, colonial rule, computer age, crowdsourcing, dark matter, dematerialisation, Doomsday Book, Douglas Engelbart, Douglas Engelbart, Douglas Hofstadter, East Village, Edward Charles Pickering, game design, glass ceiling, Grace Hopper, Gödel, Escher, Bach, Haight Ashbury, Harvard Computers: women astronomers, Honoré de Balzac, Howard Rheingold, HyperCard, hypertext link, index card, information retrieval, Internet Archive, Jacquard loom, John von Neumann, Joseph-Marie Jacquard, knowledge worker, Leonard Kleinrock, Mahatma Gandhi, Mark Zuckerberg, Menlo Park, Mother of all demos, Network effects, old-boy network, On the Economy of Machinery and Manufactures, packet switching, pets.com, rent control, RFC: Request For Comment, rolodex, semantic web, Silicon Valley, Skype, South of Market, San Francisco, Steve Jobs, Steven Levy, Stewart Brand, subscription business, technoutopianism, Ted Nelson, telepresence, Whole Earth Catalog, Whole Earth Review, women in the workforce, Works Progress Administration, Y2K
When Marisa went to interview for the job, she decided not “to pretend like I’m some super-straight magazine person,” she tells me—and “by straight, I mean, gets along well in the corporate world.” But she and Van Meter hit it off, and he hired her as Word’s managing editor. Having never worked in the magazine world, she had no idea what that meant. In fact, putting a magazine on the Web at all was a new proposition: Word would be among the first. To say there was no business model is an understatement. Word’s backers assumed that online publishing would be a subscription business: like traditional magazines, readers would subscribe, and because there’d be no printing or distribution costs, the profit margin would be huge. They’d be selling something ineffable, again and again, without ever running low on inventory—the dot-com era’s delusion of choice. Icon thought they’d make millions in a matter of months. Van Meter dropped out shortly before Word’s 1995 launch.
Upstream: The Quest to Solve Problems Before They Happen by Dan Heath
Affordable Care Act / Obamacare, airport security, Albert Einstein, bank run, British Empire, Buckminster Fuller, call centre, cloud computing, cognitive dissonance, colonial rule, correlation does not imply causation, cuban missile crisis, en.wikipedia.org, epigenetics, illegal immigration, Internet of things, mandatory minimum, millennium bug, move fast and break things, move fast and break things, payday loans, Ralph Nader, RAND corporation, randomized controlled trial, self-driving car, Skype, Snapchat, subscription business, urban planning, Watson beat the top human players on Jeopardy!, Y2K
(“Customer success” is like an upstream version of “customer service”—the mission is to keep customers happy with the products/services they’ve bought.) The recruiting product, offered on a subscription basis, was designed to help companies find and attract new hires. It was selling incredibly well, but the “churn” was high. The churn rate is the percentage of customers who don’t renew their subscriptions, and it’s a critical diagnostic of health for any subscription business, from Netflix to People magazine. When Saxena joined the company, the churn rate was roughly 30%, meaning that 3 out of 10 customers stopped using the recruiting product every year. The company’s traditional approach to managing churn was to assign people to work closely with customers—especially those feared to be at risk of leaving—around the time of renewal. The emphasis was on “saving” accounts.
No Rules Rules: Netflix and the Culture of Reinvention by Reed Hastings, Erin Meyer
Airbnb, Downton Abbey, Elon Musk, en.wikipedia.org, global village, hiring and firing, job-hopping, late fees, loose coupling, loss aversion, out of africa, performance metric, Saturday Night Live, Silicon Valley, Skype, Stephen Hawking, Steve Ballmer, Steve Jobs, subscription business
But, despite some tears and visible sorrow, all was calm. Then, within a few weeks, for a reason I couldn’t initially understand, the atmosphere improved dramatically. We were in cost-cutting mode, and we’d just let go of a third of the workforce, yet the office was suddenly buzzing with passion, energy, and ideas. A few months later the holidays arrived. DVD players were popular that Christmas, and by early 2002, our DVD-by-mail subscription business was growing rapidly again. Suddenly, we were doing far more work—with 30 percent fewer employees. To my amazement, those same eighty people were getting everything done with a passion that seemed higher than ever. They were working longer hours, but spirits were sky-high. It wasn’t just our employees who were happier. I’d wake up in the morning and couldn’t wait to get to the office. In those days, I drove Patty McCord to work every day and when I swung up to her house in Santa Cruz, she would practically leap into the car with this big grin: “Reed, what’s going on here?
The End of Ownership: Personal Property in the Digital Economy by Aaron Perzanowski, Jason Schultz
3D printing, Airbnb, anti-communist, barriers to entry, bitcoin, blockchain, carbon footprint, cloud computing, conceptual framework, crowdsourcing, cryptocurrency, Donald Trump, Edward Snowden, en.wikipedia.org, endowment effect, Firefox, George Akerlof, Hush-A-Phone, information asymmetry, intangible asset, Internet Archive, Internet of things, Isaac Newton, loss aversion, Marc Andreessen, means of production, minimum wage unemployment, new economy, peer-to-peer, price discrimination, Richard Thaler, ride hailing / ride sharing, rolodex, self-driving car, sharing economy, Silicon Valley, software as a service, software patent, software studies, speech recognition, Steve Jobs, subscription business, telemarketer, The Market for Lemons, transaction costs, winner-take-all economy
Tim Cushing, “DRM, Or How to Turn Your Cat’s Litter Box into an Inkjet Printer,” Techdirt, January 8, 2015, https://www.techdirt.com/articles/20150102/09574429580/drm-how-to-turn-your-cats-litter-box-into-inkjet-printer.shtml, accessed September 7, 2015. 7. Kashmir Hill, “Samsung Wants You to Put a Motion Tracker under a Loved One’s Mattress—What Could Go Wrong?” Fusion, September 4, 2015, http://fusion.net/story/193514/samsung-sleepsense-loved-ones-mattress/, accessed November 20, 2015. 8. Rob Price, “The Smart-Home Device That Google Is Deliberately Disabling Was Sold with a ‘Lifetime Subscription,’” Business Insider, April 5, 2016, http://www.businessinsider.com/revolv-smart-home-hubs-lifetime-subscription-bricked-nest-google-alphabet-internet-of-things-2016-4, accessed April 10, 2016. 9. Arlo Gilbert, “The Time That Tony Fadell Sold Me a Container of Hummus,” Medium, April 3, 2016, https://medium.com/@arlogilbert/the-time-that-tony-fadell-sold-me-a-container-of-hummus-cb0941c762c1#.nhl96qogu, accessed April 10, 2016. 10.
Free Ride by Robert Levine
A Declaration of the Independence of Cyberspace, Anne Wojcicki, book scanning, borderless world, Buckminster Fuller, citizen journalism, commoditize, correlation does not imply causation, creative destruction, crowdsourcing, death of newspapers, Edward Lloyd's coffeehouse, Electric Kool-Aid Acid Test, Firefox, future of journalism, Googley, Hacker Ethic, informal economy, Jaron Lanier, Joi Ito, Julian Assange, Justin.tv, Kevin Kelly, linear programming, Marc Andreessen, Mitch Kapor, moral panic, offshore financial centre, pets.com, publish or perish, race to the bottom, Saturday Night Live, Silicon Valley, Silicon Valley startup, Skype, spectrum auction, Steve Jobs, Steven Levy, Stewart Brand, subscription business, Telecommunications Act of 1996, Whole Earth Catalog, WikiLeaks
Spotify announced that it would launch in the United States before the end of 2010—after planning and postponing a 2009 debut—but couldn’t arrange deals with the major labels in time. The company uses a “freemium” model: users in the U.K. can hear a limited amount of music with ads for nothing, pay £4.99 a month to eliminate the restrictions and commercials, or pay £9.99 to use it on a mobile device. The major labels like the company’s subscription business—it has been reported that they own shares in the company99—but they’re concerned that its free service is good enough that consumers won’t feel they need to pay for it. “Our perspective is that you really need to restrict free, so that it’s basically a customer acquisition vehicle and not a service alternative,” says a major-label executive who deals with digital services. “If the free service is really good, what’s the incentive to convert?”
Brotopia: Breaking Up the Boys' Club of Silicon Valley by Emily Chang
23andMe, 4chan, Ada Lovelace, affirmative action, Airbnb, Apple II, augmented reality, autonomous vehicles, barriers to entry, Bernie Sanders, Burning Man, California gold rush, Chuck Templeton: OpenTable:, David Brooks, Donald Trump, Elon Musk, equal pay for equal work, Ferguson, Missouri, game design, gender pay gap, Google Glasses, Google X / Alphabet X, Grace Hopper, high net worth, Hyperloop, Jeff Bezos, job satisfaction, Khan Academy, Lyft, Marc Andreessen, Mark Zuckerberg, Maui Hawaii, Menlo Park, meta analysis, meta-analysis, microservices, paypal mafia, Peter Thiel, post-work, pull request, ride hailing / ride sharing, rolodex, Saturday Night Live, shareholder value, side project, Silicon Valley, Silicon Valley startup, Skype, Snapchat, Steve Jobs, Steve Wozniak, Steven Levy, subscription business, Tim Cook: Apple, Travis Kalanick, uber lyft, women in the workforce
There are lessons to be learned in the stories we’ve created about them (or didn’t create in Wojcicki’s case). These stories deserve our attention because they will have a lasting impact as a new generation of women struggles to climb the tech industry ladder. Wojcicki is the only one left at Google. As the CEO of YouTube, she’s grown revenues by billions of dollars (total YouTube revenues could surpass $12 billion in 2017, according to one third-party analyst) and launched a new TV subscription business to take on Netflix, streaming services, and cable companies. Forbes recently ranked her as the eighth most powerful woman in the world. Nevertheless, the media has never gushed over Susan Wojcicki, nor has it picked her apart. What it has done instead is virtually ignore her—an oversight that becomes more astonishing the more you look at her career. In fact, not only did Wojcicki help pioneer Google’s advertising models; she was also the lead in two of the company’s most critical acquisitions, including the purchase of YouTube itself—for $1.65 billion in 2006.
Don't Be Evil: How Big Tech Betrayed Its Founding Principles--And All of US by Rana Foroohar
"side hustle", accounting loophole / creative accounting, Airbnb, AltaVista, autonomous vehicles, banking crisis, barriers to entry, Bernie Madoff, Bernie Sanders, bitcoin, book scanning, Brewster Kahle, Burning Man, call centre, cashless society, cleantech, cloud computing, cognitive dissonance, Colonization of Mars, computer age, corporate governance, creative destruction, Credit Default Swap, cryptocurrency, data is the new oil, death of newspapers, Deng Xiaoping, disintermediation, don't be evil, Donald Trump, drone strike, Edward Snowden, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Etonian, Filter Bubble, future of work, game design, gig economy, global supply chain, Gordon Gekko, greed is good, income inequality, informal economy, information asymmetry, intangible asset, Internet Archive, Internet of things, invisible hand, Jaron Lanier, Jeff Bezos, job automation, job satisfaction, Kenneth Rogoff, life extension, light touch regulation, Lyft, Mark Zuckerberg, Marshall McLuhan, Martin Wolf, Menlo Park, move fast and break things, move fast and break things, Network effects, new economy, offshore financial centre, PageRank, patent troll, paypal mafia, Peter Thiel, pets.com, price discrimination, profit maximization, race to the bottom, recommendation engine, ride hailing / ride sharing, Robert Bork, Sand Hill Road, search engine result page, self-driving car, shareholder value, sharing economy, Shoshana Zuboff, Silicon Valley, Silicon Valley startup, smart cities, Snapchat, South China Sea, sovereign wealth fund, Steve Jobs, Steven Levy, subscription business, supply-chain management, TaskRabbit, Telecommunications Act of 1996, The Chicago School, the new new thing, Tim Cook: Apple, too big to fail, Travis Kalanick, trickle-down economics, Uber and Lyft, Uber for X, uber lyft, Upton Sinclair, WikiLeaks, zero-sum game
When Beijing forced the company to move all of its iCloud data centers for Chinese customers to the mainland, where they would be run by a local company that doesn’t need to comply with U.S. laws about data protection, Apple quickly acquiesced, showing that there are limits to its philosophy of preserving civil liberties when there are true threats to its business model in key markets.19 Even Netflix, which is in some ways the Teflon FAANG, one that comes in for less criticism because of a subscription business model focused on less sensitive data about our entertainment preferences, has bowed to foreign censors. In early January 2019, it emerged that Netflix had pulled an episode of its popular comedy show Patriot Act in Saudi Arabia, after government officials complained about one of the actors on the show criticizing Crown Prince Mohammed bin Salman for his role in the murder of Saudi dissident Jamal Khashoggi and for the Saudi war atrocities in Yemen.20 Meanwhile, Big Tech is taking on the role of Big Brother right here in the United States, working with local, state, and national authorities to create what is starting to look a lot like a surveillance nation.
Hit Makers: The Science of Popularity in an Age of Distraction by Derek Thompson
Airbnb, Albert Einstein, Alexey Pajitnov wrote Tetris, always be closing, augmented reality, Clayton Christensen, Donald Trump, Downton Abbey, full employment, game design, Gordon Gekko, hindsight bias, indoor plumbing, industrial cluster, information trail, invention of the printing press, invention of the telegraph, Jeff Bezos, John Snow's cholera map, Kodak vs Instagram, linear programming, Lyft, Marc Andreessen, Mark Zuckerberg, Marshall McLuhan, Menlo Park, Metcalfe’s law, Minecraft, Nate Silver, Network effects, Nicholas Carr, out of africa, randomized controlled trial, recommendation engine, Robert Gordon, Ronald Reagan, Silicon Valley, Skype, Snapchat, statistical model, Steve Ballmer, Steve Jobs, Steven Levy, Steven Pinker, subscription business, telemarketer, the medium is the message, The Rise and Fall of American Growth, Uber and Lyft, Uber for X, uber lyft, Vilfredo Pareto, Vincenzo Peruggia: Mona Lisa, women in the workforce
Agatha Christie’s first book, The Mysterious Affair at Styles, arrived in 1920, and Sir Arthur Conan Doyle’s final volume of new Sherlock Holmes stories was published seven years later. With thousands of titles flowing through the book rows of 1920s America, discovery became a fashionable problem, and new organizations rose to solve it. The Book of the Month Club, born in 1926, promised to handpick only the best works for its select members. The very next year it got competition in the book subscription business from the Literary Guild of America. Neither organization is praised as an innovator today, but their business model anticipated a century of selling bundled content. Paying a greatly discounted per-unit price to get more stuff than you can reasonably consume is cable TV, Spotify, Netflix, and the modern subscription box business. What made the twenties such rollicking years for the printed word?
The Messy Middle: Finding Your Way Through the Hardest and Most Crucial Part of Any Bold Venture by Scott Belsky
23andMe, 3D printing, Airbnb, Albert Einstein, Anne Wojcicki, augmented reality, autonomous vehicles, Ben Horowitz, bitcoin, blockchain, Chuck Templeton: OpenTable:, commoditize, correlation does not imply causation, cryptocurrency, delayed gratification, DevOps, Donald Trump, Elon Musk, endowment effect, hiring and firing, Inbox Zero, iterative process, Jeff Bezos, knowledge worker, Lean Startup, Lyft, Mark Zuckerberg, Marshall McLuhan, minimum viable product, move fast and break things, move fast and break things, NetJets, Network effects, new economy, old-boy network, pattern recognition, Paul Graham, ride hailing / ride sharing, Silicon Valley, slashdot, Snapchat, Steve Jobs, subscription business, TaskRabbit, the medium is the message, Travis Kalanick, Uber for X, uber lyft, Y Combinator, young professional
Behance’s final mile began when our third round of discussions with Adobe about a potential partnership fell apart. There were so many reasons for Behance and Adobe to work together, but every time we got close to forming a partnership, Adobe felt they would be best building or running their own portfolio network rather than partnering with one. They were right to feel this way because, as a subscription business, Adobe needed to build relationships with the creative community. Online services like community and portfolio management were becoming a more central part of Creative Cloud, Adobe’s main business. They needed to build it themselves or acquire the best option out there. Several months later, I had the opportunity to meet David Wadhwani, who was Adobe’s senior vice president in charge of the company’s digital media business at the time.
Lean Analytics: Use Data to Build a Better Startup Faster by Alistair Croll, Benjamin Yoskovitz
Airbnb, Amazon Mechanical Turk, Amazon Web Services, Any sufficiently advanced technology is indistinguishable from magic, barriers to entry, Bay Area Rapid Transit, Ben Horowitz, bounce rate, business intelligence, call centre, cloud computing, cognitive bias, commoditize, constrained optimization, en.wikipedia.org, Firefox, Frederick Winslow Taylor, frictionless, frictionless market, game design, Google X / Alphabet X, Infrastructure as a Service, Internet of things, inventory management, Kickstarter, lateral thinking, Lean Startup, lifelogging, longitudinal study, Marshall McLuhan, minimum viable product, Network effects, pattern recognition, Paul Graham, performance metric, place-making, platform as a service, recommendation engine, ride hailing / ride sharing, rolodex, sentiment analysis, skunkworks, Skype, social graph, social software, software as a service, Steve Jobs, subscription business, telemarketer, transaction costs, two-sided market, Uber for X, web application, Y Combinator
Most consumer apps get around the high acquisition costs with some sort of virality, but backup isn’t viral. So we had to pivot [from consumer sales] to go after businesses.” The pivot for Backupify was a success. The company is growing successfully. For now, it remains focused on MRR, but it also tracks how much a customer is worth in the entirety of his relationship with the company—the customer lifetime value (CLV). CLV and CAC are the two essential metrics for a subscription business. In Backupify’s case, the ratio of CLV to CAC is 5–6x, meaning that for every dollar the company invests in finding a customer, it makes back $5 to $6. This is excellent, and it’s partly due to its low churn. As it turns out, lock-in is high for cloud storage, which gives the company plenty of time to make back its acquisition costs in the form of revenues. We’ll look at the CAC/CLV ratio in more detail later in the book.