For a tech start-up, subscription services can look like a perfect solution. Reliable MRR (monthly recurring revenue), invest in customer acquisition, add value to the customer. But it isn’t nearly that simple. The value add of the subscription must be very precisely calibrated, as must the value add of the “free trial” that many offer.
What do I mean by “calibrated”? A subscription service must always be available when the customer needs it, it must never be there when the customer doesn’t need it, and it must remove the friction from a process to allow the subscription to be set and forget. Let’s dig into those.
In London I’ve seen lots of people using Santander Bikes. If you have a Santander Bike subscription, you expect there to be a bike near you when you need one. If even twice you go through the hassle of there not being a bike when you need, you’ll cancel the subscripton. Equally, if you go a month or two without using the bikes, you’ll consider cancelling. Finally, if there was any hassle to owning the bike, like you had to pump up the tyres yourself, you wouldn’t see value in the subscription. Santander Bikes do very well on all of these aspects – the subscription removes the pain of owning, storing, and caring for a bike – bikes are a very useful way of getting around in London – and there is always a bike rack with a bike nearby. In my opinion, that last one is the most difficult, requiring complex infrastructure to store, care for, and transport the bikes around town.
And finally, let’s look at the free trial calibration. If you get something for free, it is immediately less valuable than if you had to work for it. So, if a free trial gives too much value, no-one will upgrade to the full version. But equally, if the free trial doesn’t give you a taste of what the full value is, then the user won’t know how valuable the subscription service is. YouTube does this badly – watching videos with ads was always the norm, so why would you upgrade to the paid version of YouTube – the free version doesn’t give you a taste of what unlimited videos with no adverts is like. Spotify, on the other hand, does this better. Because the default before music streaming was that you had to pay for every song you wanted to listen to, giving people access to any song they want, but only online and with ads, is enough of a taste of the value of the subscription to get people to sign up.
What subscriptions have you considered, and which ones have you actually bought? How do they provide value in the right amount, and did they calibrate the free trial right?
Hi All,
I hope you’ve got an exciting week ahead of you. This week I’ve got a big interview and will continue to apply for jobs despite being at the later stage of applying to some. Hopefully by the end of the year I’ll be able to update my homepage to say where I am a strategy consultant.
This week I write about culture in business and other groups, I explore what a stock exchange is, and I talk about the surprising organisations that make the most valuable innovations.
I hope you enjoy this week’s topics. As always, if you find value then consider subscribing so that we don’t need to rely on an algorithm for you to see this.
Have a nice week, Callum
Most Interesting Subjects of the Week
Culture
AirBnB’s CEO*, Brian Chesky, talks in this article about how cautious a leader needs to be when building culture. Culture in an organisation is often very hard to define, but I like to think about organisational culture as being like personality – culture isn’t created through a single action, but by characteristic patterns of thinking, feeling, and behaving. Additionally, organisational culture doesn’t exist in an individual person, but in the interactions between people.
The first employee you hire will have an outsized influence on the resultant culture. If the second employee interacts equally with the founder and the first employee, then half of their interactions will be with the first employee. So half of the culture will come from that employee, because half the interactions in the company will come from that person. There are two ways to guide this culture – first by very carefully picking that first employee, and second by explicitly stating what the organisational value are.
In company culture goes wrong it can be very hard to fix. As the ex-COO of Pinterest explains here, a misogynistic culture, even with a female in the leadership team, will probably remain a misogynistic culture. Successful personality change needs to be supported at every level of an organisation by a combination of statements by leadership and policy change. Either of those two alone can lead to a build up of cynicism in employees, and lower the effectiveness of future efforts to change culture.
What is the culture of your organisation like? What is it that make the culture that way? Is it the nature of the work which means that rules are strict, is it a leader with a big personality?
* Did you know that AirBnB used to be called air bed and breakfast dot com because it started with renting out an airbed?
Stock Exchange
Before I started writing this segment, I had no idea that there was a difference between the NASDAQ and the NYSE (New York Stock Exchange). Turns out that the NASDAQ is a dealer market, and the NYSE is an auction market. I’ll explain the difference as clearly as possible below.
Dealer markets have many dealers, or market makers, for each stock. These dealers serve to increase liquidity in the market. That is, they are there to make sure that someone can always buy or sell the stock they want, at a price decided by the dealers. Dealers protect themselves by offering a spread – they buy equities at one price (the Bid Price), and sell at a higher price (the Ask Price). The dealers use their own capital to promote the liquidity, and are rewarded by being the middleman through which people trade. These market makers also compete with each other to offer the best prices, so that customers get fair prices.
Auction markets are more orderly. Instead of there being multiple market makers for each equity, an auction market has one Designated Market Maker (DMM) per company or bond. This DMM takes the prices at which people want to sell a commodity, and the prices at which people want to buy that commodity, and executes any orders that match up. Additionally, the DMMs play the role of a market maker, buying and selling at a spread.
These differences don’t make a huge difference to investors, they are able to buy and sell the stocks they want in either place because of the liquidity. But there is a difference to companies who pay to list on the exchange. The NASDAQ is less expensive to list on than the NSYE, which makes it more attractive to tech and growth companies, while the NYSE tends to attract blue-chips.
The World’s Biggest Innovators
There is one group of organisations that does more innovation than any company in the world. They take the longest viewpoints, invest the most money, and take the biggest risks. They invented most of the technology that makes iPhones work, and created the original algorithms behind Google. No, it isn’t universities. The group I’m referring to is governments.
Mariana Mazzucato is an Italian-American economist at UCL in London, and the author of The Entrepreneurial State: Debunking Public vs. Private Sector Myths. Mazzucato points out that the state is not a barrier to progress, as many people, even those in government, see it as, but is actually the biggest entrepreneur in any nation. As well as explaining how the US government has funded most of the discoveries that have lead the the recent explosion in technological abilities, Mazzucato turns her sights to the next innovation that governments should focus on – green energy production.
For an example within this article, think back to the infrastructure needed to make Santander Bikes successful. I’m not going to say that only the state has the resources for something that big, but I do think it unlikely that a private organisation would take the risk of trying to implement it without trying to validate the idea first, and idea hard to validate without the scale needed to really add value to users.
With a better understanding of the role that government has played in the innovations of the past, we can better understand what the government should be doing with regards to our current ecological situation.
Longreads
What it said in short is his Haltung: I see you all as humans, and I see you all as adults.
Callum Macdonald 