I was shaving my head this morning in the shower with my trusty Mach 3. I thought the blades needed changing. I made a mental note to myself to buy a fresh pack of blades – the woefully overpriced ones at the grocery counter.
I had been buying these blades for FIFTEEN years already – I had been paying Gillette a small fortune.
Funny, because I had never wanted these high-end blades in the first place – I won this Mach 3 way back in the 1998 Christmas party in my first corporate job.
Once I got the Mach 3, somehow I just made a habit of buying the blades.
I represent recurring revenue for Gillette. They must love me.
If your startup idea can operate with a recurring, “evergreen” business model, SERIOUSLY look into trying to adopt it.
I remember lucking into this business model when we started STORM in 2005. We wanted to sell a flexible benefits system to the market. We were looking at possible business models out there. A popular one was simply selling the software. We ask the client for a huge sum of money, in return, we would develop a customized solution for them and support it for 2-3 years. We loved the idea because it gave us immediate, usable cash.
Of course, no company would be insane enough to give a startup a huge sum of money – its just too much risk. So instead, we opted for a monthly “software as service” fee. With a lower barrier, we were soon able to land our first few clients.
Then, aside from the technology monthly lease,we built even more benefits services around it – also paid per month. If your company wanted, we could use our system to service your employees directly – less hassle for you.
It became a platform.
This “evergreen” strategy has a whole lot of advantages, namely:
1) Less dependence on day-to-day sales
Do you know how nerve-wracking it is for a startup founder to sell products day after day so he could pay the bills?
In this scenario, you just need to sell to a consumer ONCE. Then, it boils down to delivery. If you take care of your business, you can expect this consumer to consume repeatedly. The caveat? Your delivery team or your product has to be kickass.
(Is there really such a word?)
When we landed clients in STORM, we would know EXACTLY what the monthly revenue would be. 60K a month for this client. 84K for this client. Month after month after month.
This revenue pattern made planning so much easier for us as we grew. Can we afford to hire another employee? Will we have enough to pay 13th month? We would know definitive answers to these questions. This makes a whale of a difference versus businesses which essentially, makes guesses future sales figures.
The whole challenge of startups lies in the uncertainty of it all. Any item which adds even a smudgeon of forecastability goes a long way.
3) You are forced to be always on your heels
Our clients would pay us every month – with the usual contract provisions that if they are not satisfied with the service, we would get docked on the monthly. Guess what effect this had on our operations?
We were forced to look at the way we did things and ALWAYS improve on them. We would put supreme importance on customer servicing. We would make sure bugs would get stamped out ASAP.
Or else we wouldn’t get paid next month.
That’s tremendous motivation to always deliver what the client expects and more.
4) Smaller bites > One big bite
As I mentioned earlier, its MUCH EASIER to ask a client to pay several bite-sized payments than one big, one-time purchase. This is especially true if you’re a startup. So don’t be afraid to lower your pricing significantly – you’re after the the longterm payoff.
Another advantage with smaller bites? You create a habit. This is extremely strategic.
Does your current business model employ elements of the Mach 3 strategy? If it doesn’t, these advantages are more than enough reason to seriously consider an overhaul.
Are you setting up a consulting firm? Perhaps you could come up with a related monthly service you can offer to outsource on a monthly basis.
Putting up a local bakeshop? Perhaps you can arrange to deliver your freshly baked pan de sal every morning to nearby homes at a significantly cheaper rate.
Tech firm? Perhaps you could build a platform on which you can deliver repeat products/services on.
Design studio? Perhaps you can find clients in industries who need to have things designed on a consistent basis (not the usual one-time website creation for say, startups). Lower your prices and go for long term contracts with monthly or weekly deliverables/payments. Just off the top of my head, you can try publishing (online or print), HR (monthly newsletters to employees), and maybe events.
Who knows, with the right model, you can develop a customer like me – a lifetime consumer. (well, fifteen years and counting)