The Robbie Kellman Baxter Hypothesis: The Best Membership-Oriented Businesses Focus on the Long Term

Robbie Kellman Baxter has more than 20 years of experience providing strategic business advice to major organizations, including Netflix, Fitbit, Microsoft, and Consumer Reports. She has been focused on subscription and growth strategies for the past decade. Baxter has been featured in the WSJ and on CNN. She has her MBA from the Stanford GSB, and graduated with honors from Harvard College. She’s the author of the books, The Membership Economy and The Forever Transaction, and a consultant with Peninsula Strategies.

In this episode of the Product Science Podcast, we talk about what successful subscription businesses do right, and why retention is what you need to keep focused on the long term.

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Resources

Questions We Explore in This Episode

The Robbie Kellman Baxter Hypothesis: The Best Membership-Oriented Businesses Focus on the Long TermHow did Robbie get started working with large tech companies? What motivated Robbie to take control of her career, and what did she do to achieve that? Why was consulting a much clearer career path for Robbie? Why do you need to either start a firm or become an expert to survive long term as a consultant? What did Robbie see at Netflix in the early days that told her they were doing things right? What kind of work did she do with them, and what did she learn?

Why was clarity the most important thing Netflix had going for it from the get go? How did they zero in on retention as the number one thing to focus on? How do you get away from saying yes to everything? What common mindset mistakes does Robbie see in her consulting work? Why is it so important to understand that people don’t buy your software because they want your software, but because they’re trying to use it to achieve some other goal? How does Robbie convince clients to align their marketing and product design with the customer’s mission?

What patterns does Robbie see in her consulting work, and what does that data tell her about their relationship to their customers? Why are the best membership-oriented businesses often closely-held, family-owned businesses? How do you keep your focus on long-term impact in an industry where job turnover, even at the C-Suite level, is high? Why has COVID-19 placed an emphasis on recurring revenue? How do you avoid being ruled by the product you’ve built and keep your vision? How are newspapers a good example of being stuck in a product-centric mentality rather than being customer-centric?

How do you know if customers are going to stay? Why is three months a good time period to judge how your subscription model is going? What categories are helpful for tracking your data in a subscription business? Why is month one usually the worst cliff? How does Robbie help companies solve onboarding problems? What metrics do most streaming services look at to predict whether or not someone will be a long term customer?

Why is culture so important to a subscription business? What does it look like for your organization to be truly aligned around a customer journey? How does COVID-19 make this job even harder? Why are poor retention rates not necessarily the fault of the retention team? Why is it so important for members of all teams to “see what the elephant looks like?” What advice does Robbie have for someone early in the process of creating a subscription business?

Quotes From This Episode

The better the company can be at aligning their marketing message, product, and support with the customer's mission, the better and deeper the customer relationship is going to be. Click To Tweet In the membership economy, the transaction is the starting line not the finish line for most people's jobs. Click To Tweet I don't talk about subscriptions first, I talk about membership first, because it's about that mindset. Click To Tweet

Transcription

Holly Hester-Reilly: Hi, and welcome to The Product Science podcast, where we’re helping startup founders and products leaders build high-growth products, teams, and companies through real conversations with people who have tried it and aren’t afraid to share lessons learned from their failures along the way. I’m your host, Holly Hester-Reilly, founder and CEO of H2R Product Science.
This week on The Product Science podcast, I’m excited to share a conversation with Robbie Kellman Baxter. Robbie has more than 20 years of experience providing strategic business advice to major organizations, including Netflix, Fitbit, Microsoft, and Consumer Reports. She’s been focused on subscription and growth strategies for the past decade. She has been featured in the Wall Street Journal and on CNN, and she has her MBA from the Stanford Graduate School of Business, and she graduated with honors from Harvard College. So, welcome.
Robbie Kellman Baxter: Yeah, thank you for having me.
Holly Hester-Reilly: I’m so excited to have this conversation with you. As you know, this is a products management podcast, and obviously subscriptions are huge in the world of all of the things that we do in products management. So I’m super excited to talk to you and hear more about how you think about subscriptions and membership economy and also just your journey, how you got to where you are, it sounds fascinating. If you could actually take us back in time a bit, I would love to start with a bit more of your journey. How did you get started working with companies like this and what was your path to that?
Robbie Kellman Baxter: Yeah. So out of college, I was a strategy consultant for Booz Allen Hamilton, big strategy for what they called marketing intensive company. So companies where sales and marketing matters, where they’re not oil refinery, they don’t have patents or regulatory advantages. From there I went to business school, spent five years working in product marketing. I’m in Silicon Valley, I live in Menlo Park, California, and five years into that I got laid off while I was on maternity leave.
Holly Hester-Reilly: Gosh.
Robbie Kellman Baxter: I know, totally legal, but really a bummer and very bad timing. I said, “Okay, I need to be in control of my own career.” When you’re in a company, there’s a million factors that go into your career and whether or not you move up, whether or not you get laid off that are out of your control. When you’re a consultant, you really only have to satisfy your client.
So I said, “Okay, that’s a much clearer path for me for right now. I’m going to do this for a little while to pay our mortgage, and then I’ll figure out what I’m going to do later. I’ll give myself three to five years, when the kids are out of diapers.” As I got into consulting, I realized that if I wanted to stay in consulting, if I wanted to go more than three to five year period, I either needed to grow a firm, which was not something that excited me at all, or I needed to become an expert. Otherwise, you’re just a pair of arms and legs, you’re a contractor. There’s no shame in being a contractor, it’s a very good lifestyle for a lot of people and works really well. But for me, I really wanted to be an expert in something and provide advice in a true consultative fashion.
So I started looking for something I could be an expert about. It’s not as easy as it sounds because it’s hard to be an expert on all things strategy or all things product or all things finance. And then if you do something narrow, it’s either too narrow to be relevant or too narrow to be interesting. So it took me a while. My fifth client was Netflix. This was way back when I was getting started, and I fell in love with their business model. I loved how they did one thing really well, which was… I would call it wide selection of professionally-created content delivered with cost certainty in the most efficient way possible. I loved how they used that as their north star and how even back in those early that they had three DVDs out at a time, they were already thinking about streaming and downloading. They were thinking about, “What would it look like if the content came through your gaming console or what if it came through your computer, and eventually, what if it came through your phone or your smart TV?”
I loved how they turned down money when it wasn’t aligned with that promise that they were making to their customer. So they didn’t do video games, they didn’t sell guides to books, they didn’t sell TV programs. If you watch a video that you like on Netflix, you can’t buy it from Netflix. It’s not something they do. Anyway, as I was falling in love with Netflix and interested in their model, other people were. I started getting calls from SaaS companies who were saying, “Our model’s not quite working, we want to be more like Netflix.” Or other content companies that said they wanted to be more like Netflix. And then it got really crazy, right? I started getting calls from… “We make dental pain management products, like anesthesias, we want to be like Netflix.” “We make bicycles, we want to be like Netflix.”
I doubled down on that space, and I started looking for and trying to define where the similarities where and where the differences where across these different industries, these different maturity levels, and what was it that I could bring. When somebody said, “We want to work with you because you worked at Netflix, or because you worked at SurveyMonkey, or you worked with Electronic Arts, or worked with any of the companies that I worked with,” what did that really mean? That’s how I started really writing and that’s the beginning of my book, The Membership Economy and what brought me here.
Holly Hester-Reilly: Yeah, awesome. Help us understand, I think Netflix a Goliath at this point in the tech world. Help us understand what piece of their journey you were on the ground for. Where were there at then? Were they still doing DVDs? Had they already transitioned fully? What did that look like?
Robbie Kellman Baxter: Yeah, so this was 2001 to 2003 that I was working with Netflix. They were… Let’s see, where were they? They were just finally establishing a national footprint. I mean, people always think of Netflix, as you said, as this Goliath, but they were still trying to get enough distribution centers so that they could serve the entire country, right? Because the DVD would take three days to return, so you’d send your DVD back, and you’d get the new DVD within three days. And they couldn’t do that everywhere. So I was just there when they were getting that national footprint, so they were launching national advertising. I was there for that.
They were researching and experimenting and thinking about streaming. They were getting into the content world. They didn’t have their own content, but they were attending Sundance every year, they had hired a team of people to look into content. But it was still very much three DVDs out at a time. The work I was doing with them was around acquisition. They had all of these, as many organizations do, all of these partners that said, “Hey, we… ” Not even partners, want-to-be partners who said, “Hey, we love what you’re doing. We have an idea of how we can work with you. What if we gave away subscriptions with our bank accounts? What if we gave away subscriptions with our bicycles? What if you gave away our books with your subscriptions? What if you gave away our televisions with your subscriptions?” All these different ideas that people were presenting. What I loved about Netflix is they were so clear on who would make a good partner and how to value the success of a partnership. Very data driven, but also very long-term focused.
I think this is a key point about subscriptions, that many businesses are all about the acquisition, right?
Holly Hester-Reilly: Yes.
Robbie Kellman Baxter: The new logo, the new customers, that’s what boards want to talk about, right? “Show me your new logos. That’s sexy. That’s fun. That’s exciting.” But Netflix understood that the sexy part was retention.
Holly Hester-Reilly: Mm-hmm (affirmative).
Robbie Kellman Baxter: What that means is, first of all, you want to attract retention. It also means you want to design your product for retention, not just for those headline benefits to get someone to buy, but those benefits that you can’t really even talk about. Nobody cares about them in the selling phase, but they’re the benefits that actually help somebody make a product a habit and increase the likelihood of them staying. Netflix was very, very focused on, “We only want to attract and transact with customers who we are confident are going to stay.”
Holly Hester-Reilly: Mm-hmm (affirmative). Yeah. That’s so powerful. I think there’s a lot of things in what you just said that really resonate for me. The first one just being the impact of having a long-term strategy and having that vision and that picture of who their ideal customer is. I work with a lot of people who struggle with that because they want to say yes to everything. Is that something that you see as well, and how do you work with that?
Robbie Kellman Baxter: Yeah, it’s so funny, Holly, I was talking to a client recently, they have 24 people on their team, just to give you a sense of scale. I asked them who’s their customer, and they said they’re in the HR space and they said any company that wants to serve their employees well. I was like, “Seriously, any company in the whole country?” This is just in United States only.
Holly Hester-Reilly: Yes.
Robbie Kellman Baxter: But it’s interesting how so many companies say, “Well, our product could be good for anybody.” And how scary it is. I mean, it’s scary for me as a consultant. I remember saying to people, “I’m not going to do work for you if it’s not… This is what I do, I do membership. I do subscription. I do long-term relationships. If you don’t believe in long-term relationships, I am not your gal.” It’s very hard to turn away business upfront. It’s also hard to know when someone walks in the front door how long they’re going to stay. It takes a very different way of thinking about a customer, because it’s not just about what’s going to make them buy, it’s understanding, and this even more complicated in a B2B world, but what does adoption look and what does the journey look like?
People talk a lot at customer journey, and I think too often when they talk about journey they mean the journey with their product, not the customer’s journey. If I buy your software, it’s not because I want your software. It’s because I’m trying to do my job, I’m trying to grow my business, I’m trying to get promoted, I’m trying to get home at 5:00, whatever it is. It’s not because I want your software. The better the company can be at aligning their marketing message, their product, their support with the customer’s mission, the better and deeper the relationship is going to be.
Holly Hester-Reilly: Yeah, absolutely. Man, you’re completely speaking my language, because what I’m always talking about is the same kind of thing. I’m talking about our north star should be about making our customers so happy and getting whatever they care about done done through using our software, not just talking about stars like sell more, you know?
Robbie Kellman Baxter: Right. Right.
Holly Hester-Reilly: Yeah, so I totally I get that. Do you find that there are a lot of companies out there that are already this focused on their customer’s value that they’re able to jump in and run with that? Or do you have to convince them how to shift their thinking to be focused on creating that long-term relationship with the customer instead of the short-term wins?
Robbie Kellman Baxter: It’s a good question, Holly, and I’m interested in what you find as well. I find that most for companies, it’s as apple pie and motherhood, right? If you say, “I’m here to help you really focus on long-term relationships and on recurring revenue and engagement and deepening relationships,” they’re like, “First of all, yes, of course, we believe in that. And second of all, we have really great relationships with our customers.” And then you look at it, you look at their data, and you see that a lot of people come in and go out or failure to thrive, failure to launch on the relationship.
Sometimes companies are coming to me, and they’re still very episodic or transactional in the way that they recognize revenue. Some of those companies, even if though they’re episodic, it’s like clockwork, every 18 months they upgrade, they expand by 5%, and you see, “Oh, wow, that looks like a membership relationship even though there’s no subscription there.” And then there are subscriptions, and lots of SaaS companies fall into this, where you can tell from their numbers that they don’t care at all about lifetime customer value, or they are locking people. They say they care… This is what it really comes down to is, it’s easy to be all about customer relationships until you have to hit your quarterly number.
That’s when you stick in a feature that you’re going to charge for. You add some kind of extra cost. You decide to postpone implementing some kind of benefit that you know your customers really need, because that will allow you to hit your short-term number. Interestingly, something that I found, is a lot of the best membership-oriented businesses, the ones that have the most long-term focus are often closely-held family-owned businesses, bootstrapped businesses. Because, number one, they don’t have investors breathing down their neck about, “Hit this number.” Number two, the leadership team is not going anywhere, and their name might even be on the door. And so legacy, reputation, relationship matters to them, I would say a lot more than these people that are going three years here, five years there, two years there, hit my number, move on.
Holly Hester-Reilly: Yeah.
Robbie Kellman Baxter: That kind of focus requires a long-term focus of the employee team as well.
Holly Hester-Reilly: Yeah. I think that’s a really interesting insight. One of my favorite conversations I’ve had was when I talked to Tim O’Reilly about the growth patterns of Silicon Valley and these impacts that just the incentives structure has and the way that people are working trying to hit those big numbers that the investors want to see but their cannibalizing their long-term prospects along the way, because they’re just doing it for the short-term win. I think what you just described is absolutely right, it’s exactly the same thing that I see. I’ve been in companies, too, where even the three or five year sounds long, where the C-suite is rotating in and out less than a year per person. And you’re just like, “How could anybody be looking at a long-term impact here if that’s how they last?”
Robbie Kellman Baxter: Yeah, it’s crazy.
Holly Hester-Reilly: Yeah. So when people start to get caught up on a short-term thing, how do you bring their attention back to the long-term?
Robbie Kellman Baxter: Yeah. Also, I think the first thing is just what you said, which is point it out to them and point out that sometimes you have to make that choice and give them the tools to make that choice deliberately. And so you can say to them, “Look, here’s what’s going to happen. If you hide the Cancel button, if you lock your subscribers into a three-year term, and you don’t invest in engaging them over that three-year term in such a way that you’re 100% confident that they’re going to stay after renewals, they’re going to leave.” You really have to show them. I think you have to show them the numbers. You have to explain it in a logical way, sort of, “If they’re not expanding, if they’re not using these features, how are they recognizing value and what would be the argument that they’re making for why they should stay with you?” I think then people start to come around on those things.
For me personally as a consultant, I start with, “This is a long-term game. And if that’s not interesting to you, I don’t want to work with you.” Right, that’s not… When COVID happened, people actually called and said, “Hey, recurring revenue seems to really be the thing that’s working, those companies seem to be more resilient. I need to get that right now. Can you do that very quickly?”
Holly Hester-Reilly: What did you say?
Robbie Kellman Baxter: I said, “Actually, it’s the exact opposite of doing it quickly,” is what I said. I said, “This is the long-term strategy. However, now is a really good time to begin planting the seeds.” But it’s like saying, “Oh my God, I’m hungry. I heard you have seeds. I love apples. Can you give me some seeds, so I can eat some apples because I’m starving?” It’s like, “Well, no, but actually this is a good planting season. And so why don’t we plant them now so that this doesn’t happen again?”
And so some organizations did go with that and other organizations went back to their frantic promotion based, big sale before the end of the quarter kind of mindset. But a lot of organizations are accelerating their transformation to a long-term approach because of COVID, because of this disruption.
Holly Hester-Reilly: Yeah, that’s really interesting. Are there any stories that you can share of an organization that’s doing that that you’ve been seeing?
Robbie Kellman Baxter: Yeah, so I can give a couple of examples. I won’t say the names of the organizations, because they’re in the middle of this. But one of them is a major grocery chain in Latin America. They have an email list. They have some delivery. But during this time, suddenly what they were thinking of is this membership where you get free… not free delivery, but you pay a monthly fee, you get your delivery included, you get some other benefits as well. Suddenly that moved to the front of the line and the tech investment that’s not insignificant suddenly moved to the front of the line and made it to the top three for the board and the CEO of this multi-national, multi-chain organization.
So that was really interesting to see, this slow-moving organization just pivot towards subscription. I’ve seen lots of examples in the learning space. There’s all kinds of businesses of all sizes, and I’ve worked with several of them that have some kind of content, anything from a university, like a four-year college with a full graduate schools around it, to professional development organizations that do trainings, moving really rapidly, with money [inaudible] invested a lot in physical plant, in having training rooms, in having physical facilitators and process visuals that are booklets, and seeing them also just rapidly make a sharp left turn. That’s been interesting as well.
And then, of course, we’re seeing with gyms and fitness centers that are figuring out how to stream. Not just stream the class, but also go the other way and give you feedback, like, “Hey, you’re not lifting your leg high enough. I know you can do a heavier weight, Robbie.”
Holly Hester-Reilly: Mm-hmm (affirmative).
Robbie Kellman Baxter: But the technology was there 10 years ago but companies were slow to move. It’s very hard to move an organization that has found… I also say the problem with a lot of businesses is when they’re launch, they’re very visionary, and they’re ruled by the vision. And then they build a product, and then they become ruled by the product.
Holly Hester-Reilly: Absolutely.
Robbie Kellman Baxter: And 5 years later, 10 years later, 15 years later, if they were starting fresh with the same vision, they would build a totally different product. But because of their history, they keep tinkering with the old product instead of starting fresh or really focusing on the problem they’re solving. So like in the world of news, that’s newspapers, right?
Holly Hester-Reilly: Mm-hmm (affirmative).
Robbie Kellman Baxter: If you were starting a business where your goal was to help people understand the world around them so they can make better decisions, you wouldn’t do it with a newspaper.
Holly Hester-Reilly: Right.
Robbie Kellman Baxter: Right?
Holly Hester-Reilly: Yeah.
Robbie Kellman Baxter: They’re hamstrung by their printing presses and their distribution mechanisms, and so it’s hard to make that move because they’re so product centric, they’re not really customer centric.
Holly Hester-Reilly: Yeah. I’ve seen the same thing you’re describing so many times working in a lot of tech platforms where even five years later, the product that you would create to solve this problem maybe has a lot of different things under the hood, a lot of different guts to how it works, even if it’s all still digital. There’s so much inertia. It’s so difficult to get people to let go of the pieces of the product that they built with their blood, sweat, and tears, right? You could be like, “It doesn’t matter to the customer anymore.” But they’re like, “Well, it matters to me.”
Robbie Kellman Baxter: Right. It’s funny because people won’t even… It’s hard to even get to say that. If you come around to this they say, “But I made this, and I don’t want to get rid of it. I’m feeling sentimental.” Right, then at least you can deal with that issue. But usually what they’ll say is, “Customers need this feature. They love this feature. The people want this feature.” Right?
Holly Hester-Reilly: Yes.
Robbie Kellman Baxter: One crazy example of that, I was working with a big professional association. They are on a very tight budget. They really wanted to invest in this digital community and digital training and educational resources. But we had to find money from different places, and I said, “Well, about this line item for fax machine and fax guy?” They had a fax person who did faxing. They said, “Well, one of the people on our board really loves getting everything via fax. He doesn’t have a computer.” I said, “Well, that’s one person. I mean, he’s important because he’s on the board, but he should understand that’s not in the best interest for the business.” And then they said, “But the fax guy says it’s really important. And people love it when John sends the fax, and everybody loves John the fax guy.” I said, “Well, John the fax guy should become whatever, John the email guy, John the Slack guy.” And they were like, “Well, John doesn’t want to do that.”
Holly Hester-Reilly: Wow.
Robbie Kellman Baxter: It was like, “Well… ” I mean, I feel so mean but I was like, “Well, then maybe John shouldn’t work for you anymore. Maybe John should just… I mean, that’s his choice. If you’re willing to train him or if you’re willing to let him train himself to do email instead of fax or whatever, and he chooses not to… ” Sometimes just pointing out what’s happening and putting words to it can be really powerful. When you say it, people are like, “Oh, well that sounds ridiculous. Yeah, of course.” But they’re like, “But we love John, and John’s been here for 20 years, and John like to use the fax machine. Mike, our board member loves getting the faxes.”
Holly Hester-Reilly: Mm-hmm (affirmative). Wow. That’s just an incredible story, but it illustrates it so well, people do behave like that and get attached to the thing that’s going on and not want to change and rationalize it. What do you do when you’re working with a client that says that they want all the benefits of membership, of long-term relationship focus things but then their behavior is harder to bring along? What are some of your favorite technics to get them on board and help them get through it?
Robbie Kellman Baxter: Yeah, it’s a good question. Five years ago, I wrote The Membership Economy to say to people, “Look, membership is power. When you have a member mindset, when you think about your customers as belonging to you, and depending on you and having expectations from you, and that you’re going to have a long-term relationship with them, it changes everything. And it allows you to justify recurring revenue or subscription pricing which does all kinds of amazing things for your business model, recurring revenue, predictable cash flow, better evaluations, all of those things. So, hey, company you should consider this really amazing approach.” That was the first book.
Five years later, I don’t have to do that, everybody wants that. But a lot of them start with, “I want the subscription revenue,” not, “I want to have a long-term focus on my customers and treat them really well and build relationships with them and support their ongoing goals and be on their journey with them.” And so I come into this situation a lot where the focus is on getting the subscription revenue and locking in the customer. I’ve had talks with UX teams where they’re talking about how they’ve layered in two more steps into, whatever, the cancel process, and that that’s actually adding six weeks to the average [crosstalk].
Holly Hester-Reilly: Oh no.
Robbie Kellman Baxter: And they’re saying that with pride, right? Because they’re saying, “Well, we actually just did a major overhaul of the cancel process. It’s really effective. We’re actually retaining people for an extra month.” I’m like, “What do you mean you’re retaining them for an extra month? Because they got so frustrated because they could only can cancel on Tuesdays?”
Holly Hester-Reilly: Yeah.
Robbie Kellman Baxter: So how do I deal with that? One is I’m really upfront about that that’s not how I work, and that it starts with the mindset. That’s why I don’t talk subscription first, I talk membership first, because it’s about that mindset. I always say, “If you’re not having a member mindset you’re going to fail.” That’s the first thing. The second thing that I try to encourage organizations to do is to start at the bottom of the funnel. In the membership economy, the transaction is the starting line not the finish line for most people’s jobs.
So the marketers, right, sure you do a little marketing to get that person to be away of you and to get to that moment of transaction. But the heavy lifting for marketing is, how we do market them on the idea? How do we build a relationship with them so that they use our products and so that they share our products with their colleagues or their friends and they go deeper and they buy more? How do we do that? That becomes a marketing question as well.
Same with the product, it’s not just about which feature’s got the big ROI, it’s which feature is going to drive retention. And so really starting at the bottom of the funnel and saying, “Before we turn on our loud speaker, our marketing loud speaker, are we confident that when someone joins they’re going to stay for a long time?” Because if they’re not going to stay for a long time, don’t bother bringing anyone into your leaky bucket.” Sometimes that language, it’s not as offensive or as upsetting to that CEO who’s saying, “Let’s go for the short-term revenue.” You say, “Look, this is what’s going to happen, if you focus on acquisition, you’ll look really good this quarter and next quarter you’ll have nothing. Also, you’ll have a bad reputation because people will talk and they’ll say, ‘Oh, I tried that and I canceled because it never worked or I never used it or it didn’t do what they promised or whatever.'”
Holly Hester-Reilly: Yeah. Yeah so that’s really, really fascinating and helpful. One of the things that I’m curious about is how do people know if the customer is going to stay? How do they know whether they’re ready to make that investment in the marketing because customers are going to be good long-term customers or that they’re not ready?
Robbie Kellman Baxter: Yeah, people ask this all the time. Because if you say, “We think they’re going to stay for somewhere between 36 and 48 months, three or four years,” and you’re on a monthly cadence, that seems like a long time to wait before you invest. Yeah, I don’t wait four years before I invest in marketing. Most of the time in a monthly subscription, you can tell in about three months what the curve is going to look like. Most subscription businesses track their data in cohorts, both cohorts by when the person signed up and also by what channel they signed up through, and sometimes by other factors as well. That way, they can start to see, “Oh, in month one or in period one, we have 93% retention. In period two, we have 95% retentions, and in periods three, four and five, we have 97% retention.” Of course, that’s very good retention, but it usually looks like. Your worst cliff is usually in month one and it’s a failure to launch problem.
I often encourage companies, like, “If you don’t have a failure to launch problem, if people stay past the first pay period, that’s a really good indicator that you’re on to something.” In a B2B company where, let’s say, they have an annual, those metrics might be more around onboarding. So I really encourage companies to understand the difference between a successful onboarding and an unsuccessful one and to really look at… like say, “Okay, here’s all your best customers, here’s all your not best customers. Not your worst customers but just not best ones. What are the differences that you can identify between how those different businesses found you, what their onboarding experience was, and how they expanded over time? And you start to see all these best practices and then you can go back and build those into your process, whether that’s with your customer success team, so how do we onboard them, whether it’s with your sales team to say, “Hey, don’t… ” back to what we were talking about earlier, “Don’t acquire this customer. If they don’t meet these criteria, they’re not going to stay. So don’t bother because you’re just gunking up the gears.” Right?
Holly Hester-Reilly: Mm-hmm (affirmative).
Robbie Kellman Baxter: Of course, you want the metrics to be shared by sales and customer success and marketing and product should all be sharing some of the same metrics. Because it’s often not obvious who’s fault it is, right? We’ve all seen that, right? So you want the product team to build in an onboarding flow, once you know what it is. In the world of streaming content, one of the things that a lot of these organizations have realized is that if you bring a new customer in, the most important attributes of onboarding that line up with long-term relationships are, did they look at multiple types of contents and did they figure out how to get their content from their smart phone to their big screen TV? To their smart screen TV?
If they’ve done those two things, so if you came in to watch Hamilton but then you stuck around for the Disney Princesses and National Geographic specials, you are much more likely to stay than I am if all I did was watch Hamilton and maybe half of The Sound of Music, which was what they recommended to everybody who sat through three hours of Hamilton, which is kind of crazy. But those two actions are very good predictors of engagement.
Holly Hester-Reilly: Mm-hmm (affirmative).
Robbie Kellman Baxter: So even if you don’t have 14 months of data, you can say, “Oh, if they’re watching on their smart TV and they’re using comedies and documentaries and movies and Bollywood and what have you, they’re getting… ” The reason is they’re getting the value they’re paying for. They’ve made it a habit when their enthusiasm is still high, so that means that I’m pretty confident they’re going to stay.
Holly Hester-Reilly: Yeah, absolutely. That is a great example. So it’s really finding those most engaged customers and what are those actions that they’re taking along the way to becoming so engaged and how can you track those early and use that. That’s fantastic. Yeah, and now I’m like, oh, what else should I be watching on Disney Plus?
Robbie Kellman Baxter: I mean, Disney Plus is better than you think. That’s the interesting thing, right? Everybody is like, “Well, I’m not going to stay with Disney Plus after I watch Hamilton because I don’t watch princess movies.” But they have all of these great action titles. They have all of this National Geographic content. They have this ESPN content. They have a lot of… more than you think.
Holly Hester-Reilly: Yes.
Robbie Kellman Baxter: It’s the job of the product team to surface that other content and to help somebody find… I mean this is always the problem, right? It’s like you go the party and you walk in the front door, and you don’t know where to go, right?
Holly Hester-Reilly: Mm-hmm (affirmative).
Robbie Kellman Baxter: You don’t know that if you go down into the basement and make a left, there’s a band over there, right?
Holly Hester-Reilly: Right.
Robbie Kellman Baxter: And they’re really good. And so you turn around and you leave before you even saw the good stuff. And so I think it’s often the job of the product team to welcome you into the lobby and then maybe to walk you down to say, “You look like the kind of person that enjoys country music, let me take down through the maze of rooms and show you where our awesome band is.”
Holly Hester-Reilly: Yeah, exactly. I love it. Are there any other key lessons that we haven’t covered that you feel are really important for a product person to know about the membership economy and the work that you do?
Robbie Kellman Baxter: Yeah, I mean I think we sort of touched on it, but I think that the element of culture is really important in subscription. A subscription business feels different than an episodic or transactional one. One of the big things that you feel is that long-term focus. Another one is that the functional areas aren’t as siloed. If you’re truly aligned around a customer journey, then that means that experience that they’re getting from the marketing materials that build awareness to the experience of the actual sale, that one-to-one experience to how they onboard and learn how to use your products to make a habit, to how they stay, to how they’re supported when they have a problem, all of those pieces have to fit together.
I think one of the realest challenges right now with COVID is that you’re not even bumping into your colleagues from other departments at the lunch table, right? You have your meetings with your product team or your work team, but it’s really important, I think, to stay connected to the customer and to your colleagues and their interactions with the customer. As organizations move to subscription, they really have to think hard about what’s the culture, what are the shared metrics, what is the one metric that everybody’s going to pay attention to this quarter and how do you build that kind of mindset across the organization?
Holly Hester-Reilly: Yeah. Yeah, you’re totally right. Building that collaboration across those disciplines is something that I’ve certainly seen as challenging in most places, right? It’s so easy for companies to silo and for teams to say, “Oh, that side of the team is the problem,” or, “That’s the team whose fault that is. I did my part and then when I handed it off, they dropped the ball.”
Robbie Kellman Baxter: Yeah. Can I share a story?
Holly Hester-Reilly: Yeah, please.
Robbie Kellman Baxter: I think it’s sort of funny. I mean, I think it’s very funny actually or very interesting. I was walking with this streaming content company in Europe. One of the pieces of content that they provided was sport events, live sport events, live streaming of important sport events that people care about. They also provided new release content movies and TV programming that was very popular in this region. They called me in because, the CEO said, “We’re having a retention problem, and I think we need to fire our retention team.” They had an acquisition team and a retention team and a product team and customer support team, everything you could imagine.
We got everybody around the table. The project was called retention, that’s why I was there. I said, “Let’s go through the list of all the reasons that people cancel.” They had, from their NPS, they had all of the reasons. The number one reason that people canceled was because in the middle of the soccer game, the technology conked out. They did not have reliable streaming, right? So you’re like, “Is that really the retention teams problem that the technology conks out, and people call the retention team and say, ‘Hey I was watching, I had all my friends over, and the game stopped. It was so embarrassing and it was so frustrating and it ruined our time.'” How do you win back that, right?
Holly Hester-Reilly: Yeah.
Robbie Kellman Baxter: Second most common reason that people canceled was because there was a very, very popular title, think Hamilton. They had it, and the advertising team said, “Join us, see… ” It wasn’t Hamilton, “but see our big title. Get a one month free subscription.”
Holly Hester-Reilly: Mm-hmm (affirmative).
Robbie Kellman Baxter: Okay, what do you think people did? Everybody joined, got their one month free subscription, watched the European equivalent of Hamilton and canceled before the first payment.
Holly Hester-Reilly: Yep.
Robbie Kellman Baxter: Now, I would argue that part of the fault there was the marketing team for the way that they marketed it. They did market, “Hey, we have all these great titles, and Hamilton is one of them.” And then the second team that I would pick on is the product team, because they weren’t surfacing other content in that first month to make this thing… We know that people are coming in thinking they’re going to cancel, so you have to surface other content, make the habits, get them engaged before the end of the month. And so anyway, I think that’s just a really useful example of how all the teams have to work together and how retention is everybody’s business.
Holly Hester-Reilly: Yeah, absolutely. Out of curiosity, the people who were on the team that was actually called the retention team, what discipline was that?
Robbie Kellman Baxter: It’s like customer success. It was customer support. They created campaigns. They managed the people who answered the phones. “Hi, I want to cancel.” Hi, I want to cancel.” “Hi, I’m so mad. I can’t believe your technology doesn’t work.” They also sent… They created those campaigns like, “Hey, we love you. Come back to us.” Or, “We haven’t heard from you in a while. Please stay.” Or those kinds of marketing-ish campaigns. They had those two functions.
Holly Hester-Reilly: Yeah. Yeah, that totally makes sense. They were not the major players there that weren’t getting it done. It’s a lot of factors.
Robbie Kellman Baxter: Yeah. Yeah.
Holly Hester-Reilly: Yeah.
Robbie Kellman Baxter: It’s just so important that the organization… I totally understand the value of having the product people sit with product people and the marketing people sit with marketing people. But I also feel like periodically you want to just switch that up and make sure that people get to know each other and have opportunities to take a step back and see… They always talk about all the blind people touching the elephant, like see what they elephant looks like.
Holly Hester-Reilly: Yeah, absolutely.
Robbie Kellman Baxter: The whole process.
Holly Hester-Reilly: That’s completely right. Before we run out of time, I always like to ask people if they have any advice for somebody who’s earlier on in their path. For somebody who’s either a product person or a founder who’s early on in the path of making a subscription or membership really succeed, what would you tell them? What’s the best thing that they should know?
Robbie Kellman Baxter: I think get really clear on your strategy. This sounds so basic, but understand what your vision is. Most companies are really good at that, world domination in five years, right?
Holly Hester-Reilly: Yes.
Robbie Kellman Baxter: Right, so we all have our vision of our flavor of how we’re going to dominate everything. And then you go all the way back to step one and you say, “What’s our first step to get there? What’s our second step to get there? And what’s our third step to get there?” I think it’s important, first of all, to have at least three steps mapped out. You can’t know all of the steps because life is so uncertain. But what happens a lot of times is you have one step and you get through the one step and you don’t know what the second step is and you lose your moment. So you have to keep pushing and keep aiming.
When you’re choosing those first steps, be really clear on what you need to learn that will give you the leverage to go to the next step. In the cases of a lot of private bootstrap, venture-backed companies, if you’re bootstrapped, you’re like, “One of the things I have to do is generate some revenue, or I have to turn off the lights and stop.” So then your focus might be much more narrower where you say, “Okay, I’m going to figure out who’s willing to pay right now, and that’s my first experiment.”
If you have really deep pockets, you might say, “I have a little runway. The most important thing for me to figure out is if people will use this product as I expected.” Which is more of what, lets say Spotify did. They weren’t as worried about making money, they were like, “Will people get rid of their big collections of DVDs?” Not DVDs, but whatever the-
Holly Hester-Reilly: CDs.
Robbie Kellman Baxter: CDs, yes. It’s been a while. That was the most important step. So really understand… In other cases, the question is, “I need to have leverage so that I can get the partners that I want to do what I want them to do.” So really be clear on like, “Okay, this step needs to happen first, and I’ll know I’m successful if I’m able to do, if I’m able to get more money, if I’m able to make my partners want to join me, if I’m able to get my customers to change their behaviors.” So it’s that constant balance of your telescope looking out on the horizon and your microscope, looking at the product and the customers you’re serving today.
Holly Hester-Reilly: Yeah, absolutely, I love it. I also love that you ended with telescope and microscope, because it goes so well with our theme.
Robbie Kellman Baxter: [inaudible].
Holly Hester-Reilly: Awesome. Thank you so much for your time today. Where can people find you if they want to follow you?
Robbie Kellman Baxter: Yeah, robbiekellmanbaxter.com, my name, is probably the easiest place to find me. And you can find my books anywhere you buy books, The Membership Economy and The Forever Transaction. I just launched a podcast of my own that is very focused on subscription stories. That’s another place to… If you are a subscription nerd like me, we go pretty deep on subscriptions every week.
Holly Hester-Reilly: Fantastic. Well, thank you again so much. This was a really fun conversation, and I’m sure our listeners are going to love it.
Robbie Kellman Baxter: Yeah, it was great talking to you, Holly. Thanks so much for having me.
Holly Hester-Reilly: Product Science podcast is brought to you by H2R Product Science. We teach startup founders and products leaders how to use the product science methods to discover the strongest product opportunities and lay the foundations for high-growth products, teams, and businesses. Learn more at h2rproductscience.com.
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