The 4 Foundational Frameworks of Consumer SaaS — Robbie Kellman Baxter, Peninsula Strategies

On the podcast we talk with Robbie about finding your super users, the real reasons for subscription fatigue, and why pricing isn’t as important as you might think, especially early on.

Our guest today is Robbie Kellman Baxter, consultant, keynote speaker, and author. She’s advised many of the world’s leading subscription-based companies, including serving on the advisory board of Strava. Her most recent book, “The Forever Transaction” is a deep dive into everything consumer subscription, and a must read for anyone in the space.

In this episode, you’ll learn:

Identifying and attracting lifetime value customers
How to get and maintain customer loyalty
Three causes of subscription fatigue
Why customers cancel their subscriptions

Links & Resources

Robbie Kellman Baxter’s Links

Robbie Kellman Baxter’s website
Follow Robbie on Twitter
Robbie’s book: The Forever Transaction
Robbie’s book: The Membership Economy
Robbie’s LinkedIn

Follow us on Twitter:

Episode Transcript

00:00:00 David:

Hello, I’m your host, David Barnard, and with me, as always, RevenueCat CEO, Jacob Eiting.

On the podcast we talk with Robbie about finding your super users, the real reasons for subscription fatigue, and why pricing isn’t as important as you might think, especially early on.

Hey Robbie, welcome to the podcast.

00:00:58 Robbie:

Thanks for having me. I’m excited to chat with you both.

00:01:00 David:

I was introduced to your work by somebody recommending your book, The Membership Economy, and it really struck me. I was so excited that you agreed to be on the podcast, because here’s a book written in 2015, and we’ll talk about your other book that was written more recently, but written in 2015. I was looking through it, scanning the chapters, so I bought the book. I was like, this is everything we’re talking about now, thinking it’s all so novel with subscription apps, but really consumer subscriptions have been around for decades. You’ve been working in this space way longer than any of us.

So, I thought it would be really fun to have you on the podcast to talk more broadly about these principles of consumer subscriptions that apply equally to D to C subscriptions, as well as the app space that we work in. That’s where I wanted to kick things off.

So, how did you get your start in consumer subscriptions?

00:01:57 Robbie:

A couple of threads came together. I was in product-marketing for what is now called SaaS, for five years, right before I hung out my own shingle and started consulting. So, I had that background as a product manager working with software products that were being sold as subscriptions, and then as an independent consultant.

My fifth client was Netflix. I fell in love with their business model, and I was wondering why isn’t everybody else falling in love with their business model, too? This is amazing. Recurring revenue, predictable cashflow, the amount of data they were collecting on their customer. The fact that they’re offering was just a much better way of delivering on a promise that many of us wanted delivery for, which is a professionally created catalog of video content delivered in the most efficient way possible. It meant not having to put a raincoat over your jammies to go pick up a movie, with cost certainty and no late fees.

I was consulting with Netflix. I was already a customer, and a few people started calling and saying, “Hey, we heard you worked with Netflix. We want to be the Netflix of our space.” Whether that was news, or music, or bicycles, or dental pain management products, or clothes, there was a lot of interest in what it was that Netflix was doing.

So, I started trying to create frameworks, trying to say, what are they doing? Which parts are applicable to other businesses, and which parts are just unique to that group of people solving that particular problem?

That’s really where I got started, and it turns out to be big enough and deep enough that it’s kept me really busy for, it’s been 20 years, 20 years.

00:03:55 David:

Fifth client to, to land as a consultant. That’s a. Really great. And so you were with them before they even introduced the, video on demand on the internet, right. You started with them when it was DVDs in the mail,

00:04:09 Robbie:

Yeah.

00:04:10 David:

Traditional D to C subscription service.

00:04:13 Jacob:

But, but even then was satisfying a lot of those, almost all of those conditions. Right. I didn’t have to go outside just to my mailbox, not too bad price certainty. I didn’t have late fees. and then like, you know, insanely large catalog. Right. you know, it was, it was, it wasn’t. We tend to wait for the technology to get that right.

And then, then we had VOD being,

00:04:33 Robbie:

Yeah. And they were already thinking, I mean, it was amazing to me. So I was there, you know, the time that I worked most actively with dev 2001, 2003, even during that time, which was all DVDs, all three DVDs out at a time, they were already thinking about streaming versus, you know, should they let you download it?

And then have it explode after, you know, you know, some duration. What was the best way to deliver it? Should they come through your, you know, for awhile? I remember I think it came through your PlayStation or your, your we, were thinking like,

00:05:06 Jacob:

My first like set top box experience with Netflix would have been on Nintendo. Yeah.

00:05:10 Robbie:

Yeah. I mean, so they, they were already thinking about it and I think that’s a really important part of any subscription is even if your subscription works great today and it’s good enough to get people to sign up the product team has to be thinking, how are we going to continue to evolve it in particular fringy? Right. How do we continue to stay relevant to these people while also having those new and improved features that bring new people in? And I think a lot of organizations. I have been taught to over-index on acquisition benefits and not thinking as much about those, the sticky engagement benefits that often are really hard to talk about credibly. Right? If I say to you, you know, sign up for my subscription, my, my video subscription, because it’s the most, it’s the easiest to find the next piece of content. And you’re going to love our algorithm, right? People aren’t going to believe you. You don’t have credibility. So, all they’re going to say is, oh, you have Hamilton, I’ll sign up for that.

And then I’ll cancel. And then it’s still up to you, you know, if you’re Disney plus to get them from Hamilton to princess movies, national geographic titles, ESPN, all the other great stuff that they have. Star wars.

00:06:26 David:

I’m

00:06:26 Robbie:

Yeah.

00:06:26 David:

My son right now. Yeah.

That’s great. And then I do want to kind of step back and you’re kind of right into the weeds with some really actionable advice, but I want to, I want to step back a little bit and talk more broadly. So after working with a few, companies in the subscription space and Netflix so early eventually wrote this book, The Membership Economy, which I love.

Phrase and wanted to ask actually, did you, did you coin that phrase then how did you at the time and how do you still kind of define this membership economy that you wrote about.

00:06:57 Robbie:

Yeah. Well, first of all, I’d love to say that, like I just came up with it and it was so natural and obvious, but, you know, I was thinking, I was like, is it, is it about subscription pricing? Is it about premium services? Is it about recurring revenue? Should I call it the recurring revenue that I was trying to think?

What is it? And where I came out was it’s not about the subscription pricing, which I think is a tactic. it’s a tactic that you earn the right to do by having. Relationship that is trusted with your customer. The customer trusts you so much that they’re like fine. You can charge me every month or you can charge me every year and I will just keep paying you and not look for alternatives.

And for me, that was based on a certain kind of human relationship. And that’s where I came up with this concept of membership that you belong. That it’s, you’re committing upfront to a long-term relationship as a vendor, and then you earn the right to have subscriptions. So that was kind of where I came up with it.

I worked with Netflix. I also worked. At that time Intuit. I worked with a survey monkey and their predecessor. Uh Zoomerang and I worked with Oracle on the B2B side, and those were some of the companies that helped me sort of connect the dots and figure out how. The framework, of, you know, here’s some ways to think about what happens when you treat your customers like membership members.

Here’s what you need to track. Here’s how you need to think about it. And here’s what it, what it can do for you. Honestly, the first book, all I was trying to do is say, this is a good idea. You might want to consider it for a bunch of reasons.

00:08:26 Jacob:

Think of it in opposites. I think it’s is it the. the Zuora founder’s book subscription economy,but but you’re right in the sense that subscription kind of implies like

00:08:37 Robbie:

Okay.

00:08:38 Jacob:

Particular tactic for monetization that does go really well with this concept. But when I think of membership, as opposed to just subscription, like membership implies also community to me, right.

00:08:48 Robbie:

Yeah.

00:08:49 Jacob:

Like building this. This, this ecosystem, this community that, that, which was then in genders trust, which then allows you to monetize, right. And and this great business model. about it in those terms, I think is a really nice way to put it as opposed to like, let’s take something.

Let’s take something that, that we were monetizing another way and just slop noodle on it, which is something a lot in the, in the app world, this transition from paid upfront or micro-transactions driven apps to subscriptions, some have made it and some have not. And I think the ones that have made it are the ones who look at it in that light, in the membership light, in the.

Earning their business repeatedly through content or through community. so I, yeah, that, that framing I think is really accurate.

00:09:36 Robbie:

Your point about, you know, so many companies to slap a subscription price onto whatever they already had, you know? Okay. We have a usage based model. Let’s see what happens if we do a subscription based model for the same product, or let’s see what happens if we take, you know, a model where you have ownership, where I download the app and it’s mine, and I can use it forever, even if it’s really, really obsolete.

If it solves my problem, who cares, to one where you’re being forced to pay every month. Yeah, extensively to get upgrades and maybe access to your peers and some kind of community functionality. It really is a different product. You need a different product for subscription than for, you know, a purchase or usage based model.

And, you know, I love teens books. Subscribed is a great book. I recommend it to people. It’s very, well-read has a lot of interesting ideas. but I didn’t go with that, you know, subscription economy model just because I really want. To focus more on the culture and the relationship and not jump straight to let’s get some of that subscription pricing stuff so that we can get a good valuation, you know?

00:10:39 Jacob:

Yeah. Yeah. I, it, you made me think of this one experience I had just as an anecdote was, X-Box in for three or four years ago, released an Xbox subscription. And I thought this is a really cool one because I could defer, I buy another X-Box every three or four or five years. So it was like, oh, I’ll just spread that cost out.

I didn’t have a lot of cash at the time. I was like, this is a great 40 bucks a month. I get a new Xbox, right. And so I went in to do this at the, at the Microsoft store. What it really was, was they were giving me like a cash advance, like they were giving me, like, basically I had to get a credit check to get a subscription.

And I was like, this is

00:11:12 Robbie:

That’s not a subscription.

00:11:13 Jacob:

In mind. Exactly. Right. Like I thought I was joining the, the X-Box club and I was going to just get an expert and they’re going to place my Xbox for me. Right. example. of that case of just like slapping subscription pricing on what was essentially a loan.

00:11:26 Robbie:

Yeah. Yeah.

00:11:27 Jacob:

Now my credit score, I have loan for a 19 20 16 Ford edge and a next box, on those are my two like credit items I’ve ever had. So it’s really weird.

00:11:37 Robbie:

And they’ve come a long way. I mean, Microsoft has come a long way with their subscription strategies, you know, not just on the gaming side, but you know, with, with office 365 and you know, they’ve done a lot of thinking about subscription, but it really is super complicatedto, to make it work.

00:11:54 Jacob:

Right? Like with software zero marginal costs or whatever you can

It makes a lot of sense. will say, I will say, I want to give Microsoft some credit, back in the gaming world there Xbox game pass product product, which I also subscribed to has been amazing.

I bought a new X-Box game in forever, cause I don’t really care about title individuality. I just, whatever it is, $10 a month or $15 a month. And I get access to like 50 different games that rotate. Plenty. That’s plenty for me. And I will probably never unsubscribe from that. Right. But it feels like a

00:12:22 Robbie:

Yeah.

00:12:22 Jacob:

Cause it’s, software-driven, in there. There’s like there’s changing and there’s events stuff that comes in and out and they make it a big thing. built it up into this, into this. Yeah. This kind of, it feels like a membership, as opposed to, yeah, just slapping an affirm loan on an X-Box purchase, basically.

00:12:39 David:

I do want to step back to your, to your book, The Membership Economy, and, I love the subtitle. Find your super users, the forever, transaction and build recurring revenue. finding super users is something we’ve actually talked a lot about here on the podcast. So looking for those cohorts, one of our recent podcast, guests, Eric Crowley.

Talked about locals versus tourists. Seth Miller, another recent podcast guests talked about how, you know, figuring out these cohorts was just a huge unlock for their business. so what’s your process? How do you recommend clients find these super users and how do you think about these, super users?

You mentioned all the way back in 2015 before any of us were thinking about these things.

00:13:24 Robbie:

Yeah. Well, so for me, what I think about with super you. So I think about, you know, anybody does subscriptions knows. Segmentation is like re like the most important thing. You have to know who your customer is. Not just at the moment of acquisition, what they look like. You know, when you’re like, that’s the person I want, but how are they going to behave once they join?

The moment of transaction becomes the starting line for understanding your customer, not the finish line. What like, oh, we knew them well enough to get them to buy it. We knew them well enough to get them to buy. And then to get them to make this a habit and then to get them to go deeper and to stay for a long time and maybe even bring their friends.

So, you know, the first thing I always do with my clients, I say, let’s focus on who you’re, who you’re making the problem. What is the promise you’re making, who are you making it to? and that’s kind of part one. And then we map out the journey. What is it? What is the goal that they have that is ongoing or the problem that they have that is ongoing?

And what are the moments on their journey where you might be able to intervene and help. Right. So in the beginning it might be just one or two places, right? I’m I’m, I’m QuickBooks. I help you at tax time, but then it might be, oh, and I’m going to help you with some other key moments in your process of adulting financially.

Right. You know, one of the things is you move at your parent’s house and you pay your own taxes. Another is you might take out a loan for that. Awesome. You know, for whatever car you said, you know, you’re going to get an, get a car and you need a loan and you know, they can help you. And so you’re layering in those different beds.

On a journey cause you want them to stay. You want to keep providing value. and then once you know what that person looked like, then you go tell your marketing team to go get lookalikes, get more people like that. Super users goes one step beyond that, which is not only are they great customers, you know, high customer, lifetime value, easy to serve, whatever.

They also were putting their own money and effort, their own resources into strengthening your model. So these are people that bring in. These are evangelists who bring in other members. These are people who give you feedback on your products and services, which sometimes doesn’t feel like a gift, but always is a gift.

And it’s, people who are willing to help onboard. New members. Right? So the ones that, you know, explain in the user group, you know, that, you know, this is, this is how you use that product, or this is, this is my workaround, or this is, you know, what was hard for me and how I fixed it.

So those people, you know, that make referrals, that that speak out on your behalf that gather, you know, others they’re so valuable.

And I got really into this idea actually with CrossFit. my sister is a, is a big CrossFitter and watching her. in addition to all the money she was spending to, to be a member of this CrossFit box, the amount of time and effort she was spending to onboard new members to invite them over. When the, when the box was closed, she and her husband would put out their equipment on their live on a cul-de-sac.

They put it all out on the street and invite the whole box, come over and get their workout done there because they love the community so much, right. Their own time and money to support the community.

00:16:27 David:

There kind of specific, Ways, especially digitally like, with, with or customer service, what are the tools that, that you see people be successful in finding those kinds of users and understanding those patterns and who they are and what they

00:16:45 Jacob:

Yeah.

00:16:45 David:

Like. And those sorts of things.

00:16:47 Robbie:

So the, the starting point, I think is always lifetime customer value. So. You look at the group of customers who stay the longest and spend the most right. And the ones that people would say, we wish we could make more of these, you know, and then you look, you develop hypotheses. What does this group share?

And it can be as simple as writing the names of your first 10 customers on a boards. These are the 10 customers we had. These five have been awesome. These. You know, didn’t stick around long canceled, complain a lot, you know, whatever the reason is. And then you try to come up with what is, what did this group share that this group doesn’t share?

That’s the simplest way in a, in a data world where you have the data you’re doing the same thing, but digitally, how did they onboard? What was the source of the lead? what time of year? Like which cohort are they in? Did they join? You know, people like, for example, with QuickBooks people that join in tax season, Might be behave very differently than people who join as a new year’s resolution or who joined in August.

Right. What kind of person starts thinking really hard about managing their money in August? Great. you know, so, so looking for those things, developing hypotheses, looking at the data, trying to say what’s the difference between our most valuable customers and our not most valuable customers, which is not your worst customers, because your worst customers are often outliers, but just the ones where you’re like, they’re just not that good.

They came for two months, they left, they binged, they used up, you know, they were using us really heavily for six weeks. And then they left. What’s different about them than the ones who continue to use this gradual. For five months. and I think that’s where the hypotheses come out and then tactically, what you do after, you know, as you look at the difference in onboarding those different groups and you optimize your onboarding experience.

To build those habits and then you mark it. This is often requires a tremendous amount of discipline. You mark it to only attract the high value people and not to attract the others. So if I walk into McDonald’s with a gown on with my husband and I say, it’s our 20th anniversary, show us to your finest team.

Give us the best you’ve got. And we’d like a nice bottle of champagne, right? Customer’s not always right at McDonald’s. Right. They’re not going to say, oh man, Robbie needs champagne. Somebody scraped down to the seven 11 and you know, get a bottle of Prosecco and you know, we’ll try to pass it off. They say, that’s not really what we do here.

Dummy. They might not say dummy, but they might be thinking it, right. That’s not what we here, you know

00:19:10 Jacob:

The

00:19:12 Robbie:

Right. We’re here, you know, we’re cheap, we’re fast. It tastes good. Your kids love it. You can drive through and eat it. But we don’t do, we don’t do special occasion stuff. And so they know who they are.

Right. And they’re okay with me not coming in. Right. They’re even okay with me saying, by the way, don’t go to McDonald’s, it’s a terrible place to celebrate your anniversary. Right. They’re kind of

Cause it.

00:19:32 Jacob:

Just all

00:19:33 Robbie:

Right. The leaning is terrible. It makes your skin look awful. You know, the point is that if they took care of. Right. What am I going to do? I’m going to tell you, you know what, just go there for your anniversary. Just tell them it’s your anniversary. They’ll run out and get all the stuff you need. Right? And then they have all these people that are expensive to serve. Right? It’s the same thing digitally, right? If you bring in the wrong people who are going to binge on your content in the first month, or the people who are going to push you to create features that nobody needs, except that.

Right. It’s just going to throw your whole business off in the wrong direction. So having that discipline upfront to know what you do and you don’t do well. And to say no to some prospects, it’s really hard to say no to prospects, right? If they have money and they’re like, just add this feature and I’ll pay.

You know, Netflix in the early days, a lot of people wanted them to have video games. Right? Video games were also on discs seems easy, right? As an outsider, as an expert, right? I’m like, ah, video games, same thing. Video games work in a totally different way. And what Netflix said is we don’t really understand how people would view.

Games. We don’t understand how they’ve use them. We don’t understand how many we need. We don’t understand how they value that. We don’t understand how to negotiate terms with gaming companies, but that’s a whole different thing we’re going to, we have plenty of runway here. Just focusing on video content.

00:20:51 Jacob:

Yeah, it’s, it’s really interesting that, that, that feeling as a founder, especially true in SaaS, when you have literally 10 customers and like you will do

00:20:59 Robbie:

Yeah.

00:21:00 Jacob:

For the, your 11th, it’s a little bit true in consumer. Two in the early days, like you, you’re just kind of like, how do I get the funnel bigger?

How do I, how do you, I think you are a little bit myopic on, the top of the funnel and not thinking about this long-term thing, partially because we don’t have a lot of data. You launched your app six months

00:21:19 Robbie:

Yeah.

00:21:19 Jacob:

Trying to make decisions on customer lifetime value. And you don’t really have a good sense because you don’t know who’s sticking around.

You probably don’t have a ton of data, but one thing you said. That really got my gears turning was that of putting them on a board and just looking at them, looking at the 10 customers or whatever it is, a hundred, even in consumer SaaS, where you have hundreds of

00:21:37 Robbie:

Yeah,

00:21:38 Jacob:

So it’s not that many, you can grab it.

You’ll be surprised at how many things I’ve in my old days in consumer’s house of like just clicking into a customer and just watching how they use the app, like an individual, right. It doesn’t, not data, but it gives you hints and you can start there. And then, and

00:21:54 Robbie:

Yeah. Hypotheses, right?

00:21:55 Jacob:

Yeah.

Hypothesis. And then you actually talk to those people, if you can, like get them on the

00:22:00 Robbie:

Yeah.

00:22:00 Jacob:

Surprised what they tell you. One of our, our guests Matthew and photo room a few weeks ago talked about, they would take their app to McDonald’s and just show it to people to keep the McDonald’s references going, and get like in-person feedback.

And that helped them learn, you know, they, they were, they were an app that thought that. For everybody and find out later that they’re actually like, kind of like a pursuer app for Shopify people, people

00:22:23 Robbie:

00:22:24 Jacob:

And people with, with e-comm and, and that like kind of exploded their business for this exact case.

You’re talking about where they found out. Okay. Yeah. We’re not for this entire, like long tail of low intent users where for this really core set, but that can be really scary if that sets kind of

00:22:39 Robbie:

It’s always scary to niche down, but it’s almost always. a good strategy. And I wanted to tag onto something else that you said, Jacob, which I think is really important. People often say, how can I make any decisions about, you know, based on, you know, who has the highest customer lifetime value?

When, you know, we’ve only been around for three months or six months, we have to wait until they leave. Hopefully not for three years or five years, but what I’ve found. And, you know, I wonder if you’ve seen the same thing. Most people who leave leave in the first two months. So what you really want to do is optimize for onboarding, you know, are they adopting habits that look like people who are steady users getting value, and you can often tell that in the first month, by how many people drop off by who stays and buy, you know, are they bingeing or are they using it in kind of a normal way? And so you don’t have to wait for 18, 18 months or however many periods, a lot of it, you get your answer right away. Do they cancel at the end of the first period?

00:23:43 Jacob:

Yeah, it’s good to think about your product in terms of not just. Like signups and getting through the end of onboarding, like that day one experience, but think about what hooks are like, what are the things that people are actually investing contingent on? I always think that that’s, that’s a, know, you think about this long-term relationship, giving users, in your product to invest and to give back and to connect, like putting in

00:24:05 Robbie:

Yeah.

00:24:06 Jacob:

Themselves.

Like there’s passive usage consumption. Netflix does a good job. Like you can save, listen stuff that they do a lot of this just in passively, right? Like you consume content and they learn about you and then they have a profile. but I think some of the best apps, like let put in and that’s going, gonna also not only probably make them stickier users, but also it gives you early indications and some things to hook on and be like, okay.

I mean, Dropbox, this was a big thing in Dropbox. This story. they, they could get people to like understand the concept, but we had massive product issues, getting people to put a file in the thing, right? Like

00:24:41 Robbie:

Yeah.

00:24:42 Jacob:

Not necessarily the most user friendly thing.

Like is some sort of app that runs in the background whenever they would, they did, they pulled users in, they watched them do it and totally fail.

And then they fixed the product.

Right. and, that’s, that’s. core product problem, but it relates to this this story of getting somebody to membership, right? Like getting them

00:25:00 Robbie:

Yeah

00:25:00 Jacob:

And focusing on that.

00:25:02 David:

One of the things that you talked about in your most

00:25:05 Robbie:

No.

00:25:05 David:

That I think, is so important to understanding the activation. Is is this concept of a forever promise. And so, so your most recent book that forever transaction we’ll we’ll link to in the show notes and whatnot. but in order to activate, in order to even just build a business, especially a subscription business, you need to start with Promise that you’re going to make to customers. and then, especially again, like you said earlier to justify recurring payments, like, so tell me how you think about a forever promise and how, how any app, any business that wants to set up recurring payments should be thinking about this forever promise.

00:25:47 Robbie:

Yeah, it’s, it’s really simple. You take a step back and you say, when my customers come to. What is the ongoing problem they’re trying to solve, or what is the ongoing goal they’re trying to achieve and how can I best align my product and my messaging with that goal, that ongoing goal or that ongoing problem.

So what can I promise them about it? So with a Netflix, it’s about, you know, entertaining. You know, I’m going to provide you with the biggest selection of professionally created video content delivered in the most efficient way, right. With cost certainty. you’re never going to have to pay extra fees and you know, there’s a lot of, a lot of apps that are around.

You know, helping you with some part of your business process, getting a certain kind of work done or tracking your finances or creating beautiful images for, you know, personal use for your hobbies. What have you gaming apps for fun? And I think first getting really clear on what your promise is and who you’re making it to, and then you design the features and benefits to support them.

Forever on their journey. And you say, as long as you continue paying me regularly, I am going to continue improving the way I deliver on my promise to you. Right? If I’m a gym, I’m going to have new equipment, I’m going to have new classes. I might offer you stuff online. If I’m news source, I’m going to offer it maybe through an app.

Maybe I’m getting the access to the journalists. Maybe I’m getting, get the access to conferences or webinars on top of news because. My promise is I’m going to help you understand the world around you so you can make better decisions. And I don’t have, like, if you even think about that promise, There’s nothing about that promise that makes you say it needs to be a newspaper, right?

It could be a conference. It could be classes, it could be a community of like-minded people sharing their learnings and their observations. So why not layer all of that in over time so that you get closer and closer to guaranteeing that they’re going to get the impact that they hoped for on an ongoing basis.

00:27:55 Jacob:

It’s interesting. in some ways relates to like what a company mission can be for a different audience. Right? You say, you know, revenue has as a mission. And that’s one thing that I won’t change, right. That that’s kind of what we do. And that’s part of joining the company and whatever. But, but I do think there’s value in communicating that as well.

This is like the customer facing version of that. Like, what’s our

00:28:15 Robbie:

Exactly.

00:28:16 Jacob:

Charter. Like, why are we here? And what can I

00:28:18 Robbie:

Right,

00:28:19 Jacob:

That’s not going to change. Right.

It, especially when you think in those terms of not the like person who’s coming to do a very quick transactional thing as in, I’m going to binge you put it, or maybe I just some trying this out, or I have this like one limited life or limited pain, like a limited time pain. Like what’s

00:28:35 Robbie:

Yeah.

00:28:36 Jacob:

Engagement that we’re going to do, is really interesting ground when I read the, framing of just the forever transaction forever promise. It’s really exciting because we have the infrastructure for the first time in human history to really make this efficient at scale that like computers can do these sort of like, patronage relationships for us.

Yeah. And, rethinking how we frame and, and relationships with customers, I think. Yeah. I mean, it’s some of the work are a bit ahead of us on.

00:29:05 Robbie:

Yeah. Well, I mean, I, you know, I’ve been here a lot. Like I got here first cause I was here for a long time, but you know, it kind of a dubious distinction, but you know, I think you’re right. Like you step back and you say, what are the problems? What’s the ongoing problem. The ongoing problem is I’m constantly running out of laundry detergent.

Right? The ongoing problem is I look in my closet and I have nothing to wear for this occasion, whatever this occasion might be. Right. you know, something that I think is really interesting to think about, you know, Amazon. Talks about removing all friction from all buying decisions, right. They started with just books.

Right. And you still have to wait two weeks to get the book right when you ordered it, but they had this. All the different friction in all the different buying decisions. We’re just going to, you know, layer by layer. We’re gonna remove all of those things. And, you know, at some point, you know, I think they want to get to the point where I think to myself, those are really cool headphones that Jacob’s wearing.

I wish I had those. And before I even say. They’re on my ears. And then I’m like, oh, these are uncomfortable. And they make my hair look bad. They’re gone. Right. That it’s almost magical. That’s what they’re moving to. No friction. I don’t even have to say a word. It just happens. you know, I think having that kind of guidance of like, that’s what we’re trying to do, there’s so many times when I’ve gone shopping and I’ve needed something, whether it’s like buying a new house or buying a white blouse for an event and thinking this shouldn’t be that hard.

I have enough money to pay for. I know exactly what I need it for. And I’ve already spent four hours or four months, or in the case of buying a house for years, trying to find, you know, the needle in the haystack. It should not be this. When, when you say it should not be this hard, that’s probably

00:30:46 Jacob:

00:30:46 Robbie:

Good,

00:30:47 Jacob:

Opportunity.

00:30:48 Robbie:

Opportunity.

Yeah,

00:30:49 Jacob:

No, I I’m. I mean, I’m just sitting here thinking about revenue. Cats are, you know, this is a shameless plug time to talk about my company, but, I think about our forever promise and we, our mission is like we help developers make more money. That’s our goal. but I almost think that. Kind of like a short, pithy way of like phrasing. It really it’s about how do we remove the way he put his barriers? Like, how do we remove all the barriers for a developer to make money? How do we remove all the for a developer to value with software for other people? and often like people see a lot of these.

Yeah. Subscription, infrastructure problems, data problems, all these, all these things are not why somebody got into it. Right. When they started Netflix, it wasn’t like, I just can’t wait to do like cohort analysis.

00:31:35 Robbie:

Okay.

00:31:35 Jacob:

Like all these things, it’s like, no, we want to deliver entertainment to people the easiest way possible.

And so, you know, for us, like, In some ways, our particular problem that we’re, we’ve committed and, and going to the forever thing to, you know, our product is, it’s a subscriber, it’s a, it’s a subscription essentially. but it’s a long-term commitment by the nature of it. It’s very infrastructure-related so like I’ve always talked how to, you know, is there something the early days had to give a lot of assurances to folks like yeah.

We’re, we’re sticking around like, yeah, this is,

00:32:06 Robbie:

Yeah.

00:32:07 Jacob:

The long-term goal for us. But I think, I think that comes down to consumers too. Like the best companies I’ve seen. In our space doing consumer software apps, subscription apps essentially have like a really deep connection to the mission. And the problem I think of calm, I think of,

00:32:24 Robbie:

Yeah.

00:32:24 Jacob:

Photo room, this app, we work with that the, you know, they’ve been in vision, computer vision, and they’ve worked for GoPro and they’ve just, this is in their DNA to

00:32:34 Robbie:

00:32:35 Jacob:

Of image manipulation.

And then, and then on the other spectrum of that, you think of. Companies that are just stamping out, don’t know anybody ever heard that company stamping out utility apps or like whatever it is, and then slapping a subscription thing on it. Yeah, it works. I’m going to get marginally more LTV than they were, you know, before, but

00:32:54 Robbie:

Yeah.

00:32:54 Jacob:

Not going to, that’s

00:32:55 Robbie:

Yeah.

00:32:56 Jacob:

The level of like computer or like problem solving for consumers that we were then we were doing before.

00:33:02 Robbie:

I think you have to be really passionate about the customer needs and the customer’s journey rather than on your product. And this is, this is always a really rough conversation because a lot of businesses, really, really, really hold their products in high regard, whether it’s. Automobiles or, you know, software, I mean, software, you know, most companies around here in Silicon valley, like the software team, they run everything.

Like that’s, that’s the talent and everything, you know, they can build what they want. And, you know, I, I used to joke that, you know, when you work with. The car world, right? Sometimes it’s just about the cup holders, right? It’s not about, it’s not about the big engine, right. Which is what a lot of the people, a lot of people go into the world of cars, automotive because they love cool cars, but a lot of people who buy cars.

Don’t buy cool cars. They buy practical cars that solve certain problems for them. And you have to be passionate about the problems you’re solving for the customers. That again. So I did a lot of work early on with, in my sort of subscription life in the high-end bicycle industry. I was working with the bicycle product suppliers association, really, really interesting space.

But one thing about it is that most people who own bike stores and work in bike stores and sell bikes and manufactured by. Our bike researchers and off-road, you know, risk-taking bike enthusiasts that have nine bikes at home, there’s a whole huge untapped market of people who just need a bike to get to school or a bike to get to work or a bike for, for Saturdays to go to the farmer’s market.

And they ask really annoying questions at the bike store. Like, does this come in pink or can I get a basket for this? Or, this going to get em, you know, Reese on my, on my work pants and at some point, even, you know, like there’s always this tension because the people who create the products, sometimes they’re like those aren’t problems I want to work on.

Right. Or, you know, I worked in the hospital, you know, kind of in the, in the, in the health industry. And I talked to a lot of surgeons and they’re like, yeah, you guys can do whatever you want around customer, this customer that treating customers like patients, whatever. But I want to see my patient unconscious on a table and I’ll cut them open and I’ll fix them and make them better.

And I don’t want to do all that other stuff. Right. it’s hard because they’re the talent. you know, I think this is a big issue with subscriptions because those Mark Key elements, aren’t always the thing that’s going to drive engagement, retention.

00:35:30 Jacob:

It’s falling in love with your own product, right. It’s falling in love with the

00:35:33 Robbie:

Yeah.

00:35:34 Jacob:

And not the problem, you know? you

00:35:37 Robbie:

Exactly.

00:35:38 Jacob:

I mean, I’ve been in the, you know, in the past, when I was in the weeds, like you start to really over it. I think analytics can actually like be, this is where, yeah.

Back to the discussion of like, just throw 10 users on the board and maybe don’t like, get the finest. Tooth comb to like go through your data. First is like, when you have like super high fidelity data on everything, you can start to get really data oriented. But if your product is the thing, collecting the data, you sort of inherently bias the data collection you’re doing based on the product you have.

You miss a lot of opportunities because you’re not just thinking about the problem space. I worked on this app called elevate, which was training, and I can remember so many. So many like heated discussions about, this flow, should we do this or X and Y and Z. And not as many as we should have had about like, why are people actually coming to this app like addressing those questions from like head-on, and thinking about ways that we can improve the product with that.

The beginning. And I haven’t seen that revenue cat too. Like we have a lot of which are really deep and rich and people use and they’re in love with, and we can, you know, you can spend a lot of brain power and a lot of focus thinking about the next iteration of that thing. The re yeah, like you said, the, the, the, the bike shop owner who’s really into bikes are like really into some particular technology touch with.

Yeah, these bigger things, it’s like forever promise this, like, what are we actually building? Like what does revenue cap mean? And in a decade when the problems we’re solving now, actually, maybe aren’t that relevant the case. We’ve talked a lot about media companies and I almost snuck in a metaverse joke.

And now I will just refer to OMA

00:37:14 Robbie:

Yeah.

00:37:15 Jacob:

Joke your headphones, but like, Yeah, we think about this as like modes of consumption are going to be changing. that’s where these, like, missions, customer mission or forever promises kind of come in. It’s like making sure that regardless of a Netflix delivered on a DVD or on a streaming set top box, or into some sort of like brain

00:37:34 Robbie:

Okay.

00:37:35 Jacob:

Like this, the subscribers will transfer.

Right.

00:37:38 Robbie:

Yeah.

00:37:39 Jacob:

Yeah.

And this is one of my, like now I’m now I’m ranting, but think is one of the reasons I’m still really excited about all of these pieces coming together, is because it does just feel like we’ve reached some stage in our economy where we can align a lot more incentives this way.

Then maybe we have been able to in the past, which I think is just exciting.

00:38:00 David:

But as we align those incentives and people get more and more subscriptions. Nice little transition there. Thank you,

00:38:07 Jacob:

That’s great. David, you’re getting this podcasting thing, like really turning it in.

00:38:11 David:

There is a growing, chorus of, but subscription fatigue, People are tiring of all these subscriptions and no matter how much you can align incentives

And everything else, people are just not going to want to pay subscription. So having, having seen the, the growth in subscription, consumer subscription starting way back at Netflix in the early two thousands, and now we are layering on more and more and more.

What what’s your perspective on this, this concept of subscription fatigue, our consumers really tiring of, paying in this way.

00:38:49 Robbie:

Yeah. So the upside of, you know, this explosion and subscriptions is that consumers, and actually businesses alike are much more receptive to subscription offerings. They understand them, they understand the value they can provide if they’re done. Right. and they’re easier than ever before for any kind of company.

You know, from the smallest mom and pop up to the, you know, the biggest multinationals to offer subscription pricing. The downside is there’s this glut of subscriptions. Every company has them and not all of them are well-designed as, as we’ve been discussing. and that leads to subscription fatigue, and, and there’s sort of three things.

Contribute to that. One of them is where these, the product does not justify subscription pricing, right? This is a product I’m going to need once and you’re requiring me to subscribe to it. That feels unfair. you know, or I’m never, I’m hardly ever going to use this in. You’re making me subscribe, even though, you know, my use case doesn’t justify that investment.

Second problem is kind of the flip side of that, which I think of the subscription overwhelm or subscription guilt, which is. This great value. Actually, your product is fantastic, but I can’t use all the value because of my own issues. And that makes me feel bad about myself. Like this is when you, you know, you have the new Yorker magazine piling up on your bedside table.

Right. And you just cause you just want to Netflix and chill cause you’re tired. But like your thought at the beginning of the day is I’m going to get so smart. I’m going to read all these great. That makes you feel bad about yourself, you can’t, you know what I would suggest for example, that a new Yorker does is to educate consumers, that you only have to read one or two articles to get the full value of your subscription.

It’s all you care to consume, not consume all of it or you’re, you’re lazy. but I think that overwhelm, or, you know, same thing with blue apron where the meal kits are in your fridge and you’re not using

00:40:34 Jacob:

No, Don’t even fatigue. it’s a rough subject.

00:40:39 Robbie:

Yeah. Cause you feel bad, like the meals are calling to you and you’re like, don’t go out with your friends.

00:40:44 Jacob:

Yeah.

00:40:44 Robbie:

In the fridge.

Don’t be a waster.

00:40:47 Jacob:

With my spouse about cooking because we have the giant meal kit to do. but it’s great. I love the time.

00:40:53 Robbie:

Yeah. So then, and then, and then I think the last one, I mean, but it’s, it’s great. Cause it’s not the fault. The meal is great. It’s I don’t feel like eating it today or someone invited me over for like the crazy one is when someone invites you to dinner. And so then it’s not even a question of finances.

You’re like, well, either way, I’m not going to have to spend any more money and I’m going to get a delicious dinner. Do I want to make the blue apron dinner or go to my friend’s house? Who just invited me? Well, I can’t go to my friend’s house because I feel bad throwing the blue apron in garbage

00:41:19 Jacob:

To, the lettuce is going to be wilted by the next by tomorrow.

So.

00:41:22 Robbie:

Day I can cook. And then the last issue, so there’s there’s know, bad product-market fit. There’s this subscription overwhelmed or subscription guilt. And then the last one is hiding the cancel button. And I’m really interested in what you guys think about that one. Cause a lot of subscriptions, make it really hard for you to get out of this.

Cancel anytime relationship, even though. That’s what they pitched. Join and cancel any time. If you can find the cancel button, which we’ve hidden behind 27 clicks with a call us on Tuesday, you know, extra hurdle.

00:41:54 Jacob:

Yeah, I think it’s, well, my take is it’s terrible. And anybody that does, it should really reevaluate what they’re doing in software. Cause like, I think it violates that trust, right? Like, welcome. We’re going to ask for this thing where you’re gonna you’re you’re gonna let us charge. We’re just going to suck money out of your bank account every month, because you’ve decided to like enter this relationship with us and then we’re going to go ahead and betray that trust.

Right. We can turn around and betray that

00:42:16 Robbie:

Yeah,

Advantage.

00:42:17 Jacob:

But, yeah, I hadn’t. Thought of fatigue in so many channels like that are so many aspects, but like the, the overwhelming aspect is interesting. And I resonate. I feel that, like, I feel that with, with dinner boxes, for sure, but even in software too, there’s certain pieces of software.

Like, I feel like, ah, I can’t cancel it cause I have these intense and things like that. And that’s not really what you want to, those, aren’t the relationships you want to focus on. Right? Like so.

00:42:40 David:

Side there, I think like I use this example a ton, but, Visco, I’m not a daily user. I’m not even necessarily a monthly user, but when there’s a photo of my kids or just a photo, I took that I really cherish. I important into Visco and Fisco makes it better. And that to me is so valuable that I didn’t even care.

I mean, 20 bucks a year, I think is too cheap for their product. I would pay a lot more, even though I maybe only use it quarterly sometimes, or maybe once a month or, you know, when I’m on vacation, maybe I use it every day for a week, but it’s interesting that that product. Doesn’t create that sense of, oh, I’m not getting enough value out of it because I get so much value when I do. Yeah, maybe. Yeah. Maybe if it were $60 a year, it would be too much. But I mean, I just, I just would never consider canceling because I it’s just, when I have a photo I care about, I take it to Bisco and it’s better and it like, that’s their forever promise and it just resonates so well with me that I don’t, I don’t get that, guilt you know, I get more than $20 a year of value out of

00:43:49 Jacob:

00:43:50 Robbie:

Yeah, I think, I mean, it’s interesting. I think one of the things about this, you know, sort of dealing with subscription overwhelm is, you know, is it framed like whatever the customer is, anchoring their pricing to. where they say it’s valuable enough. So, so for example, I worked with, one of these produce box companies, and one of their challenges was that most of their customers said that most weeks they ended up throwing something away.

Right. Because it’s never the exact right amount of produce. Right? So you end up at the end of the week with like soggy kale or, you know, turnips, and then you go on vacation and you come back and they put them into with these turnips. But one of the things that we did is we set expectations. That it’s okay to throw out a little bit of produce that you’re still getting a better price than you would at the store.

And you’re still supporting farmers, local farmers. So sometimes it’s as simple as just reframing what the expectation is like saying for Visco. You know, if you, if you use, you know, if you use this for two or three, you know, memory pictures a year, You know, doesn’t that pay for itself in 20 bucks worth, you know, three great shots of your life.

You know, the three best moments of 2021. a lot of it is about, is about, I think, expectation setting and understanding your customer and what the value is. Like. I don’t know how much I pay for Amazon prime. I don’t care.

00:45:05 Jacob:

Yeah,

00:45:06 Robbie:

I it almost every

00:45:07 Jacob:

00:45:07 Robbie:

Mean, I don’t.

00:45:08 Jacob:

A decade ago and haven’t thought about really

00:45:11 Robbie:

Right.

But I use it every day. Like I don’t care what it costs. I mean, if they start charging $3,000, I would care. But like, if it’s a hundred dollars a year or $85 a year or $115, I don’t care.

And that’s a really important point about pricing is that at least I’ve found with many of the subscription companies I’ve worked with and a lot of, you know, software products when they don’t sell well, when their business isn’t growing, they immediately jumped to the. Must be too expensive. We’ll have to lower our price. But in so many cases, it’s not about the price. It’s about the value. I’m not using it. If I’m not using it, it doesn’t matter if it’s a dollar or a hundred dollars. and so thinking about why aren’t they using it before you jump right to, well, I guess I’ll take 10% off the top.

00:45:56 David:

Yeah, let let’s let’s talk pricing real quick.

Cause you, you do have several strategies that you get through in the book and in what you were, what you were just explaining was one of the things I really took away from your book. is it you say in the book that it’s more important to understand product-market fit and willingness to pay than finding the exact right price.

And so you, you were, you kind of backed into explaining that, but let, let’s elaborate a little bit. And essentially what you were just describing was that a product that doesn’t have product-market fit, it doesn’t matter what you price it. You know, what are, what are your, what else, what are your thoughts on that?

00:46:36 Robbie:

Yeah. I, I just think, I mean, in so many things in life, you’re kind of on a continuum. Like, you know, I remember when many years ago I started doing weightlifting and, you know, I told people that I was doing it to be more fit and you know, stronger, and now it’s very common, but at the time a woman doing weightlifting, you know, working out with weights and people would say to me, I don’t want.

Huge muscles. And I was like, oh honey, you are so far from that being a problem. Like we’re at the other end of the continuum. Like there are certainly people, women who work out and get too muscly and that’s not what they want men to wear. Like then it intervenes with my ability to do my sport. But for most people it doesn’t just happen.

And I think in the world of apps, I think most people. Kind of over index on pricing and think that that’s going to be the key thing to figuring this out. When a lot of times there’s actually a pretty big gap between, you know, kind of where you can make money and where your customer is willing to pay there’s lots of room, lots of different prices. And as long as you launch somewhere in that. You’re going to make some money and over time, there’s lots of ways to become more sophisticated and get to a better and better price point. But a lot of people assume that if they have a highly elastic product, meaning that for every dollar you increase your pricing.

Your number of customers drops by a predictable percentage. And I think in many cases for a lot of products that are inelastic, if I use it, I’ll pay anywhere between five and $10 month. And if I don’t use it, I will pay nothing. And so if you notice that people aren’t are canceling and they’re the same people who aren’t using the product, it’s probably not a pricing problem.

It’s probably a product problem.

00:48:17 Jacob:

Right. I mean, if you’re talking about product-market fit and a forever relationship like that, I’m going to pay incident money in terms of my lifetime. Right? Like I’m going to pay

00:48:27 Robbie:

Great. Right. And it’s, and the thing is that people assume like, so what I would say is if. If you’re trying to figure out your first price, I’d say, don’t worry about it too much. if you need to do a land, grab like a Spotify priced low and you can raise your price later, although that’s hard, but just do it cause you, you want people to adopt your solution.

If you’re worried about, you know, hurting your core business, And so, you know, then start by pricing really high and you can lower it as you have increased confidence and understanding of use case. But there’s a lot of room in there and that’s really, my advice is be somewhere in that range. And if people aren’t buying it or aren’t staying.

Look for the other signs of what might be driving it besides pricing, like, is it that they, you know, failure to launch? They never onboarded. They never activated, they never used the best features. is it that they were using it for a while and then their usage trickled off. Maybe they used it up, right?

Either they binged or, you know, they’ve watched everything they’ve seen, maybe their job changed. So these features are no longer relevant to their work, but really try to be a detective about where the problem is like. it’s like you have a party, in a bar you’re not making money from the party in the bar. Like before you lower the price at the front door, see like, are people walking by and not recognizing that you have a party, so you have nobody in there because that’s an awareness problem or is it that people come in the front door and can’t find their way to the food and drink and music. And so they think it’s a lame party is that they leave and they never come back.

You know, that’s an onboarding problem. Is it that they’ve been eating all the food and dancing to all the music and they’re like, I’m tired of these songs. I’m tired of this food, which is a different kind of product problem, product assortment problem. Or is it, I went downstairs to the food and there was no food and the music, you know, the speakers weren’t working and that’s an operational issue.

Right. So fix the problems before you drop the price.

00:50:20 David:

That’s such...

00:50:21 Jacob:

I mean I think about it, if you have product-market fit, you’re going to go this way (up and to the right on the curve). All the price is going to do is maybe define that inflection on that curve. Exponential curves, the slope doesn’t matter often all that much in the longterm. You can optimize it eventually, but it’s really getting that product-market fit. Then it just takes care of itself.

00:50:52 David:

That that is a great bit of advice to wrap up on.

Your book, The Forever Transaction, is fantastic. Reading it was so fun just to think about—we put our blinders on with this podcast and in the space we work in with apps—but realizing that so many of the ideas that we think about, so many of the problems we work on, are things that are across the entire industry, across all consumer subscriptions, even a lot of overlapping in B2B SaaS.

So, it was just so fun reading your book, and then getting to ask you questions here. I had 30 more questions that I wanted to ask you. I could go another hour or two, but I’ll, put links to your LinkedIn, to your website, to your Twitter in the show notes.

Is there anything else you wanted to share with our audience as we wrap up?

00:51:42 Robbie:

No, I think we covered a lot. If there’s one thing that I want to leave people with, it’s this idea that if you start with the promise you’re making to your customers, helping them with an ongoing problem, or achieving an ongoing goal that’s important to them, and then you optimize your offering around that, your chances of both acquiring and retaining your customers going to go way up.

00:52:06 David:

Such great advice. Great place to end.

You mentioned that there’s some extra goodies listeners can get if they click on the link in the show notes, they can get your book and some extra goodies along with that.

So, thank you so much for being on the podcast.

00:52:22 Robbie:

Yeah. A real pleasure.

The 4 Foundational Frameworks of Consumer SaaS — Robbie Kellman Baxter, Peninsula Strategies

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