Robbie Kellman Baxter on Building a Subscription Model: An interview by Bob Morris

Robbie Kellman Baxter is a bestselling author of The Forever Transaction and The Membership Economy, named a top 10 marketing book of all time by BookAuthority. Sheis a speaker, and consultant with more than twenty years of experience providing strategic business advice to major organizations including Netflix, Consumer Reports and LinkedIn, as well as leaders in industries including Software-as-a-Service, Media, Retail, Consumer Products, Healthcare, Financial Services and Hardware. In the past ten years, her company Peninsula Strategies has advised over 100 organizations on subscription and growth strategy. Kellman Baxter has been featured in the Wall Street Journal and CNN, interviewed on over 50 podcasts, and invited as a guest on numerous business shows. She received her MBA from the Stanford Graduate School of Business and graduated with honors from Harvard College.

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Before discussing your latest book, The Forever Transaction, a few general questions. First, was there a turning point (if not an epiphany) years ago that set you on the career course you continue to follow? Please explain.

17 years ago (I remember because I was pregnant with my now 16 year old son!), I was brought in to do some work for Netflix by a business school classmate. At the time, I had been an independent consultant for a couple of years, and prior to that had been a big firm (Booz & Co) strategy consultant—always a generalist. At Netflix, I fell in love with their business model.  I loved the subscription-for-unlimited-access model (as a person who loves all-you-can-eat buffets) and I loved the  relentless focus on doing a single thing really well.  I also loved how carefully they tracked post-transaction engagement, as opposed to just focusing on basic metrics like acquisition and retention.  As a result of working with Netflix, I changed the focus of my practice to specialize in subscription and membership oriented businesses.

Who and/or what have greatest impact on the development of your thoughts about the subscription model? How so?

My clients. All of my learning is from being in the trenches with subscription entrepreneurs and executives, and then trying to take the specific learnings and determine what was unique to that organization and would could be applied more broadly and consistently. Looking for these patterns across my clients drove me forward in my thinking and pattern recognition.

Here are several of my favorite quotations to which I ask you to respond. First, from Lao-tse’s Tao Te Ching:

“Learn from the people
Plan with the people
Begin with what they have
Build on what they know
Of the best leaders
When the task is accomplished
The people will remark
We have done it ourselves.”

Anytime that you can integrate yourself into the way people are working and learning, it will be easier to teach.  I am very interested in how educators are moving toward a flipped classroom, having students read on their own and then discuss and engage when they are together with their colleagues and the teachers.

There is nothing new under the sun—what’s new is the context and the lens through which objects are examined.  When leaders can fully immerse themselves into the environment of their followers, and simply provide a new lens, rather than implying that they are offering something totally new, people are more likely to engage, and it is through engagement and then effective execution that goals are  achieved.

From Michael Porter: “The essence of strategy is choosing what not to do.”

What I first noticed about Netflix is how focused they are on completing each task or transaction.  Their “forever promise” was “a wide selection of professionally created video content, delivered with cost certainty in the most efficient way possible.” And they never veered from that. Still haven’t.  They have changed how they deliver value, from 3-out-at-a-time to streaming, and from other people’s content to their own, but the promise is still the same. They don’t offer video games, or allow advertising, or do any of the dozen other elements they might have added over the years. It’s that focus which has allowed them to grow and evolve with such agility.

From Alvin Toffler: “The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.”

Learning is everything. We don’t need people with rote skills, we need people who ask good questions, and figure out new ways to do what needs to be done better, and that’s going to come from people with a beginner’s mindset and an eagerness to learn.

From  Maya Angelou: “I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.”

The Membership Economy is all about tapping into Maslow’s hierarchy of needs. Once our physiological needs have been met, we want to mitigate risk, feel a sense of belonging, be recognized for our contributions and achievements, and achieve our full potential.  Businesses that can give their customers these feelings have a much greater chance of earning trust on which to build a long-term relationship.

From Thomas Edison: “Vision without execution is hallucination.”

I think the best leaders go back and forth between visionary and tactical.  You have to be able to see the future, but also able to engage in the messy work of trying and failing. Otherwise you’re either a drone or a fantasy writer.

That is precisely what prompted Edison’s observation. In your opinion, what are the defining characteristics of a workplace culture within which personal growth and professional development are most likely to thrive?

A learning culture, and one where there is always opportunity to use one’s best skills to help strengthen the enterprise.  Trust and relationships are essential.

Looking ahead (let’s say) 3-5 years, what do you think will be the greatest challenge that CEOs will face? Any advice?

I don’t think there is any one challenge that CEO’s will face. So much depends on the CEO’s company. But probably the biggest challenge is for talent, and to create an environment where the talent is engaged in helping to achieve the goals of the enterprise.

Now please shift your attention to The Forever Transaction. For those who have not as yet read it, hopefully your responses to these questions will stimulate their interest and, better yet, encourage them to purchase a copy and read the book ASAP. First, when and why did you decide to write it?

I wrote The Membership Economy to describe to people the massive trend I was seeing across all industries, and regardless of organization size or sophistication.  People weren’t seeing the power of subscription pricing, digital community, and a member-first mindset.  Five years later, everyone understands the power of the Membership Economy, but they’re struggling to implement it.  I wrote The Forever Transaction based on my experience in the trenches working with more than 100 organizations.

Were there any head-snapping revelations while writing it? Please explain.

Writing this book really forced me to think about the maturity model for the Membership Economy—when I first work with a new organization, I can usually diagnose their challenges pretty quickly, but this book forced me to develop frameworks and models to help organizations “self-diagnose”.

To what extent (if any) does the book in final form differ significantly from what you originally envisioned

I completely changed the structure of the book, and came up with the Launch/Scale/Lead framework about halfway into the writing. That really helped sharpen focus and expedite transitions within the narrative.

Who and/or what have had the greatest influence on your thoughts about the subscription model and Membership Economy? Please explain.

My clients.  Every time I would meet with a client, I would try to tease out what was unique to that situation and what was more broadly applicable.  That discipline of doing that for each client helped me really get precise about clarifying my terms.

What are the defining characteristics of this economy?

A focus on the long-term relationship with the customer as the driving force of the business, as opposed to a focus on the products or processes the organization has developed or even a focus on “quarterly capitalism” with sales as the hero.

Since the earliest markets thousands of years ago, business success has often been determined “one transaction at a time.” Carl Sewell wrote a book entitled “Customers for Life.” That’s an admirable — albeit aspirational — goal but certainly one that must be earned, one customer at a time. Your own thoughts?

If an organization has that aspiration, they will treat the customer differently. They will market to prospects more selectively since they need a certain kind of customer to thrive in the long term. They will continue to develop new offerings to serve the customer’s emerging needs, and they will emphasize customer success over customer support.  Also, they will likely want to move to subscription pricing to be fairly compensated for their commitment to a “lifetime” engagement.

What are the defining characteristics of what you call a “full-scale forever transaction”?

The customer has taken off their “consumer” hat, donned a “member” hat, and is no longer thinking about alternatives. They have decided that this organization is going to help them solve problems or achieve goals “forever” by doing that together, in collaboration.  In process, the organization is optimized across every functional area to support that member, and uses metrics to track engagement and loyalty as well as tracking revenue and new customer acquisition.

Please cite an example or two of the organizations that have successfully built on small successes to create such a relationship.

Everyone wants to talk about Amazon, the dominant Membership Economy player in the retail space with Amazon Prime. But people forget that even though Jeff Bezos always had a bold ambition vision “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices,” he started modestly, selling only books onlinel.

And even though LinkedIn wants to help professionals thrive for their entire careers, they started out as mostly a resume posting service with a contact tracking feature.

Here’s a follow-up question. What are the most valuable lessons to be learned from those successes?

Start small but have a vision. Then,  plan to test and learn your way to the bigger vision.

How can C-level executives ensure that their mode evolves and adapts to remain relevant, perhaps even indispensable, to those their organization serves?

Listen to a chorus of customers—not just today’s most loyal customer’s, but lapsed customers and tomorrow’s customers. Continue to evolve how you package value, layering in new benefits and removing outdated ones. Periodically take a step back and ask yourself if ‘this’ is the model you’d design if you were launching today with the same target customer and forever promise.

As I read your book for the first time, I began to think in terms of a series of individual transactions that sustain a relationship rather than a forever transaction. It this merely an issue of semantics or are there significant differences between the two?

With subscription pricing, the customer often stops looking for alternatives after subscribing.  They aren’t continuing to consider individual transactions—they’ve decided once, forever. Hence the term.

Jackie Huba and Ben McConnell have much of value to say about the importance of creating “customer evangelists.” I think it is also important to create “employee evangelists.” What are your own thoughts about all this?

Employee evangelists sell the organization as a place to work much better than HR can.

Let’s say that C-level executives in an organization want to transform it in order for it to thrive in the Membership Economy. Where to begin? Why there?

Start with the culture.  The organization needs to be ready to focus on the long-term, and on Customer Lifetime Value as a core driver.  Otherwise, they will always fall back to short term metrics, quarterly goals and make decisions that might have negative long-term repercussions

In your opinion, which of the material you provide in The Forever Transaction will be most valuable to those now preparing for a career in business or who have only recently embarked on one? Please explain.

I think it’s important for young business people to understand this model in its entirety!  Reading the whole book is the best idea, but if they only read one chapter, I’d suggest the Introduction.

To the owner/CEOs of small-to-midsize companies? Please explain.

Smaller businesses should start by reading the “Launch” section since they are likely not scaled up yet.  If they have a strong small membership model, like a local car wash or a small consultancy, they may want to look at the Scale section to learn how to grow rapidly without losing the kernel that makes the membership meaningful.

Which question had you hoped to be asked during this interview – but weren’t – and what is your response to it?

Are you kidding me? You asked so many probing questions! That was great!

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Robbie cordially invites you to check out the resources here:

Her website link.

Forever Fransaction link.

The Membership Manifesto link.

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