In this episode, we sit down with Robbie Baxter, consultant, speaker, and bestselling author of The Membership Economy and The Forever Transaction.
Robbie has more than twenty years of experience providing strategic business advice to major organizations like Netflix, Consumer Reports, and LinkedIn. She offers up her insights on the evolution of subscription-based pricing, membership trends that drive recurring revenue, and how sales and customer success can work together to be less siloed.
On subscription-based models being the new normal
"Technology extends the infrastructure that enables trusted relationships." (04:44)
"[One] element that has made for the rise of subscription-based services is a desire to have recurring revenue [...] and the recognition by the investment community that recurring revenue businesses are more valuable than episodic businesses." (05:31)
"A good subscription is actually in the customer's best interest because it allows them to trust another organization to manage the solving of an ongoing problem or the achievement of a goal." (06:11)
On the commonalities between consumer and enterprise-level subscriptions
"What I see in both consumer based businesses and B2Bs is... it's not just about that headline benefit to get someone to buy. It's just as important to have the engagement, retention, and expansion benefits that get them to stay and deepen the relationship." (09:20)
On the challenges of implementation and where data can be the most powerful
"[One] challenge is taking a more integrated approach to managing the customer journey within the customer relationship—how do you market the message? How do you attract the right people? How do you close the transaction? And then how do you make sure the customer is getting the value they paid for?" (10:40)
"If you don't have tons of data, you might do something old school like call [your customers] or email them. But if you're more sophisticated, you can track behavior. Are they using our most basic features? Did they discover our 'super features'? Noticing those things is where I think data can be the most powerful." (15:00)
Michael Pollack [00:00:09] Hello everyone, and welcome to Selling in the Cloud, a podcast about the business of cloud sales and marketing, brought to you by Intricately: the authoritative source of product adoption, usage, and spend data for sales and marketing teams. I'm Michael Pollack, and here with me is my co-host, Sarah E. Brown.
Sarah E. Brown [00:00:39] Michael, great to be here with you on the show today, speaking with Robbie Baxter.
Michael Pollack [00:00:44] It's awesome to be here.
Sarah E. Brown [00:00:45] Robbie is the author of The Membership Economy and the Forever Transaction. She's an expert in helping companies like Netflix, Oracle, and other leading companies master their customer loyalty, pricing and subscription models. And we're really looking forward to diving into those topics with her today on the show. Robbie, welcome to the show. So great to have you here with us.
Robbie Baxter [00:01:05] Thanks so much for having me. It's great to be here.
Sarah E. Brown [00:01:07] Tell us a little bit about your background. And for those who are listening, a brief history of how you got to where you are today as one of the leading experts in SaaS and the membership economy.
Robbie Baxter [00:01:17] So, you know, I went to college, I studied English, writing. I worked for Booz Allen doing big firm strategy. And then after business school, I started working for what would today be called SaaS businesses. I was in product marketing at a couple of different companies and became really interested in these ideas around what is different when your business relies on continued engagement from the customer. And after about five years of this working in product marketing, I got laid off while I was on maternity leave. And, you know, this is kind of the winding road that we all take that gets us to where we are. I got laid off and I started independent consulting. And when you're an independent consultant, if you don't want to just be a contractor, just arms and legs, you really have to have an area of expertise.
And so I was looking for an area to really focus in that I could be passionate about that could be helpful to organizations. You know, that was sort of big enough that it would be interesting and meaningful and narrow enough that I could be credible. And my I think is my fifth client, my fifth independent consulting client was Netflix. And all these lights started going off because I saw the connections between what I'd been doing as product manager in product marketing at these SaaS companies and what Netflix was doing. And I was like, wow, Netflix is doing really well and really deliberately what you know, these subscription-based business software companies should be doing. And that was kind of my starting point.
I fell in love with the business model and people started coming to me and saying, you know, we want to be the Netflix of our space, whatever that is, you know? SaaS companies saying we want to apply those Netflix ideas to our business or insurance companies or music companies or I worked with the company that makes anesthesia and they wanted to be the Netflix of anesthesia and I worked with a company who wanted to be the Netflix of bicycles. And what all these organizations had in common was that they wanted to build deeper engagement and retention and recurring revenue with their customers. And they were trying to figure out beyond just subscription pricing, what can we do to guarantee recurring revenue?
And for me, I started to see it as being a matter of their mindset and what I call a "membership mindset". And that's where this idea of the membership economy emerged. And five years ago, I wrote a book on membership economy to codify what I'd been seeing and what I believed to be the best way, honestly, for organizations to build long term relationships with their customers.
Michael Pollack [00:03:42] Robbie, I'm curious, for our audience... a lot of people who are in tech and in the cloud space, you know, it seems almost—I don't know at this point, it seems almost obvious for software as a service that you move to this membership-based model. You've moved to the subscription model. The concept that you espouse a forever transactions is kind of, I'd say to some extent, almost codified in how a lot of software and hardware today is sold.
But I'd be curious for you to unpack that a little bit for our audience. Was it a business model innovation that changed everyone's thinking around this, or was it that the technology made it easier? Was it the rise of credit cards or smartphones? Why in the past 10 or 15 or 20 years has almost every part of the economy started to shift away from long-term purchases or kind of "purchase and hold" and moving more to a subscription-based configuration? I'd love your thoughts or if you could share kind of your point of view on how that's evolved.
Robbie Baxter [00:04:37] There's a few things that I think have come together in the last 15 years or so that have made subscriptions the new normal. One of them is that technology extends the infrastructure that enables trusted relationships. So, you know, even way back when, when I was working with these subscription-based software offerings, B2B software businesses, there were a lot of challenges with the technology that made it difficult to sell.
We couldn't necessarily see how people were using our software so we couldn't improve it. It was not private. It was not as secure. There was a lot of fear around trusting somebody else to keep a company's data. So over the last 15 years, there's been a tremendous transformation in how SaaS is managed and run and a greater trust and willingness on the part of organizations to use these SaaS solutions.
Robbie Baxter [00:05:30] I think that another element that has made for the rise of subscription-based businesses on the corporate side, is a desire to have recurring revenue and a recognition by the investment community that recurring revenue businesses are more valuable than episodic businesses. So on one hand, you have technology that makes it easier and more possible to offer subscription-based services.
On the other hand, you know that if you offer a subscription-based services, you'll get a higher valuation both from the venture community and from the public markets. And you see organizations preferring good subscriptions. And this is the piece that I think a lot of times we forget about, which is that a good subscription is actually in the customer's best interest because it allows them to trust another organization to manage, you know, the solving of an ongoing problem or the achievement of an ongoing goal in the best possible way with the least effort on the part of the customer.
Robbie Baxter [00:06:29] So in a lot of SaaS organizations, you know, the big advantage of SaaS versus like, let's say, an enterprise solution is that you don't have to manage the software. You don't have to host the software. The updates happen automatically and smoothly. It's configured rather than customized. So it's easy to update and it means that you don't have to go through your IT department—you know, used to be that had to go through your IT department every time you needed something new for your department.
So if you're in marketing, I mean, I remember the days when you put a six pack on your IT guy's desk because you wanted to get to the front of the queue for whatever new software you wanted to get it implemented. And now, you know, you can sell directly to the marketing department or the sales organization rather than having to do everything through the technology group. So all of that, I think, is making for a move toward all kinds of subscription-based businesses and certainly what's driving this explosion in SaaS.
Michael Pollack [00:07:25] Interesting. And if I can just pick at one comment you made there in particular, which is businesses on the tech side, this notion away from what you call episodic, which is a great term, the way software is increasingly architected is it's kind of increasingly built in business offer to bypass IT, to make it really easy for an individual consumer in the enterprise to turn on usage or to activate usage. I'm curious to have you kind of maybe contrast or just share some of the differences you see between how enterprises do this versus how consumers do this.
In our business, we buy lots of enterprise software at home. I'm a Netflix customer. I recognize both those products are kind of similar in some respects. And I'd just love for you to share what you see as kind of perhaps the similarities or the differences between what's evolved as subscription on the consumer side versus perhaps on the enterprise side.
Robbie Baxter [00:08:18] Yeah, it's such a good question. What I see and what I think is the most important bit is that both models require a focus on the end user and on solving their ongoing problem. So two things that are different: one of them is it's direct. In the B2B world, you're bypassing IT. And on the consumer side, you're bypassing the retailer. So it's direct. And historically, when you have to go through that retailer or that that IT department, you have sort of two masters, right? Are you trying to optimize your product and service for the intermediary or for the end user? You have to sort of do both. Whereas if you go straight to the customer, to the person who's actually the consumer who's actually going to be using your product on a daily basis, you can focus all of your energy on optimizing for them. So that's kind of one big change in mindset.
And then the second one is that it's not just about the moment of acquisition. It's not just about closing the deal, getting the person to sign up. It's about what happens after that. It's about engagement and retention. So what I see in both consumer based businesses and B2Bs, is it's not just about that headline benefit to get someone to buy. It's just as important to have the engagement, retention and expansion benefits that get them to stay and deepen the relationship. So that changes how you build your products and services as well as how you market and sell them.
Sarah E. Brown [00:09:48] Robbie, appreciate you highlighting customer success, and I'm curious what you would identify as some of the biggest challenges that enterprise companies are facing in successful implementation of subscription models and also where you see customer success fitting into the overall picture for sellers.
Robbie Baxter [00:10:05] Yeah, it's a great question.
Robbie Baxter [00:10:06] I think that a lot of SaaS businesses are still too siloed. So I'm in sales. I throw it over the fence to customer success and good luck onboarding that customer. And if that account isn't successful, whose fault is it? And I think in a lot of cases, customer success takes responsibility for retention. But in many cases, the real reason that the customer never stayed is because they were never the right customer to start with or they weren't properly sold on the ongoing value of the offering. So to answer your question, Sarah, I think that one of the big challenges is a more integrated approach to managing the customer journey in the customer relationship—from how do you market the message? How do you attract the right people? How do you, of course, close that initial transaction? And then how do you make sure that that customer is getting the value they paid for such that they relax into the relationship, trust the organization to solve their ongoing problems, achieve their ongoing goals, and then ultimately expand that relationship?
And the role of customer success in that, of course, is that post-transaction piece onboarding that new customer for long-term engagement and success and potentially expanding the relationship over time. And I think most SaaS companies have customer success departments now. That's been transformational in the last, I guess I'd say like five to seven years, you know, from people not knowing what customer success is to everybody having a customer success department. And I think that the concept of customer success, that an organization should be focused on the ongoing relationship with the customer as opposed to just closing deals still has a ways to go.
Michael Pollack [00:11:53] I think that's a great point. And I think the role of customer success is an interesting one and a point that comes up for us again and again with guests on the show, as well as our customers just around the changing role of customer success, increasingly becoming the verb that is about ensuring customers achieve success with the product. I think that's a point that we hear again and again. But I'd love to unpack something you said and just talk about data for a second. The data that companies use to think through their subscription models and maybe just think about something or I'm old enough to remember renting videos or renting VHS at Blockbuster.
And then in my life, I saw the the move to DVDs by mail from Netflix, which I thought was just so brilliant. And then the move ultimately to a video on-demand provider. And so in a thought exercise, if you think about what data Blockbuster had about its customers and who came and who checked out what, it's kind of thing compared to what Netflix has today, which is every single thing I look at, everything I hover at, every trailer I look at. In your role, how do you counsel your clients or leading businesses that you work with around which data actually matters? Because there's more of it than ever. And the challenge increasingly is which of which I look at, which I focus on, and which should I build on top of?
Robbie Baxter [00:13:16] Wow. That's like the sixty four thousand dollar question, Michael. I think, of course I'm a consultant, so the answer is it depends. But I think that one place where there's often a lot of potential for organizations there, certainly large organizations that use all the data really well in all different places. And you talked about Netflix, which certainly fits into that category. But, you know, for those listeners who are maybe not quite as sophisticated with their data usage as a Netflix is, you know, one place to start is onboarding. What happens after the moment of transaction, and is there engagement?
You know, I think a lot of my clients have a "failure to launch" problem where, you know, the customer signs up for the subscription but then never uses it. And what are the habits that you can see in the first seconds, minutes or days after someone signs up with your organization that are early indicators that they're going to be good customers and a lot of SaaS businesses really don't dig into that and focus their retention efforts on, you know, the few months prior to the renewal as opposed to those first days and weeks after the initial transaction. And most businesses see the greatest fall off in the first period, right. The churn in period one, whether that's annual or monthly or, you know, every three years or whatever it is, it's after that first period that people are most likely to drop off. And it's because they never got the value that they thought they were going to get.
So how do you know if someone's getting the value that they thought they were going to get? That's the place I think you should focus first and you should focus early, right after they sign up, within a few weeks. Are they getting the value that they thought they should get? And if you're like Blockbuster and you don't have tons of data, then you might do something old school like call them or email them and ask them. If you're more sophisticated, you can obviously track behavior. Are they using this feature or are they using that feature? Did they discover the super features that we have that we know they should be using or are they not using those? Noticing those things—that would be the place where I think data can be the most powerful.
Michael Pollack [00:15:22] In that example, when you talk about really being focused on the onboarding and assessing that piece of it in an org chart today, your point of view is that responsibility lives with product, product marketing, product development, or perhaps with CS, or where do you typically bestow that responsibility in organizations today?
Robbie Baxter [00:15:48] So I believe that it's a shared responsibility and I know that somebody ultimately has to own the metric, but let's unpack it. So here's an example of a case that I worked with. So I had a client I was working at the customer success team on optimizing their processes. They were growing really fast. They had a very young a 24 year old head of customer success—this is a few years ago—she was getting calls on the weekend and at home from clients. She was sort of overwhelmed. And we wanted to really dig in to understand what was going on. We made a list of best customers and not best customers. So a best customer was somebody who had renewed seem to be using the product really well, was referenceable, loved us, loved the product, and it expanded, all the right people were using it.
Robbie Baxter [00:16:30] And then we get another column for not best customers. And they weren't just terrible customers who yelled at us or were bad fits, but they were the ones that, you know, the right people never really seem to be using the product. They didn't renew, they didn't expand and so on. And I asked the CS person there, but we also had the Head of Sales and the Head of Product there. And I asked her, I said, when you look at those two groups, what do you notice? And she said, well, first of all, I noticed that the best customers are my most difficult customers.
And that was a really big "aha" moment because it meant that, you know, her most difficult customers were the ones that were taking this really seriously because they were really trying to roll it out across the organization. So they had the most questions and concerns and they were the most adept at finding the weaknesses in the product. So they seemed like really bad customers because they were complaining all the time, but they were complaining all the time because they were they were committed to the product.
And so that taught us a bunch of things. Number one, it taught us that, you know, there were a bunch of holes in the product and the product team needed to fix that. Number two, it taught us that customers that seemed really difficult were often the best ones because they were engaging, which meant that the ones that weren't complaining a lot and calling a lot might not be using the product at all and might be thinking already that they were going to cancel.
It also taught us, on the sales side, that it was so important to identify that the best customers were the ones that were kind of gathering the troops. They often went slower in the sales process because they had to gather the troops and build support before they launched.
Robbie Baxter [00:18:01] And so everybody had levers to pull to improve retention and engagement. But the starting point for us where we got the quickest early clues was with customer success.
Michael Pollack [00:18:15] You know, Robbie, you had a comment in there that I want to just asterisk, and underline, and star and whatever else I could do here for our audience. But the notion that a quiet customer is potentially a customer risk, I think is a big one. And I would agree with you that the customers that are often the most vocal, while they can be difficult, truly represent oftentimes your best customer because they're thoroughly engaged. They're pushing the product to its limits. And I think that is always the biggest challenge on a product team to not necessarily bend to the loudest customer—not to give the squeakiest part of the wheel all the grease—but that feedback is really critical.
And I agree with you, the customer success team always loves customers that aren't difficult. But you're right to call out that engagement consideration is a big one and one that we even see in our own business. And I've seen before as a founder and early in my career in management consulting, as well, just the customers who were kind of checked out or were really quiet on the matter. They'd already intellectually checked out on the product. They'd already given up.
Robbie Baxter [00:19:14] Yeah.
Michael Pollack [00:19:15] And so I think that's a huge, huge deal. And we're really flagging for our audience and is just a really important lesson.
Robbie Baxter [00:19:21] Yeah. And the sales organization needs to see that, that sometimes those really fast deals or those really easy, small deals actually end up being distracting for the organization because they didn't fully bring along the customers, they didn't fully vet the customers.
Robbie Baxter [00:19:35] They were like, oh, there's money here. I can get the money, but it doesn't turn into long-term revenue. And so your point about these quiet customers, it becomes more and more important when you're relying on those out years for revenue. It's more and more important who you let in the front door.
So sometimes that means slowing down to go fast. And that's sometimes counterintuitive in the sales organization. And if you have your sales team on these kind of, you know, quarterly grinds to hit a certain dollar amount, they're going to find that money wherever they can. Whereas if you're optimizing around recurring revenue, they might spend more time with a different set of prospects.
Sarah E. Brown [00:20:13] Robbie, would be curious to hear what some of the major trends are that you're seeing in the enterprise space. For those who are listening, who also might want to capitalize on those trends, what advice do you have?
Robbie Baxter [00:20:24] So a bunch of things. First of all, seeing it become normal and acceptable, just generally that SaaS is the new normal. I live in Silicon Valley. I live in Menlo Park. And after Membership Economy, I started working with companies all over the world in lots of different industries, not just, you know, I grew up in the software space and, you know, you realize that for a lot of these organizations, they're still tracking things, you know, honestly with pencil and paper, with Excel spreadsheets and so on. But that's really changing.
Robbie Baxter [00:20:52] And so I think the organizations are waking up to the power of SaaS and are realizing, like I'm hearing more and more, you know, insurance companies, manufacturing companies saying we're actually a technology company, we're actually a software company. We need that sophistication that we never thought was important before. We're finally coming around. So that's really interesting, I think, seeing the intersection of software and physical products, so manufacturing, is also really interesting.
So looking at like a Peloton, for example, or Carbon 3D, the 3D printing company here in Redwood City, California, where you can't buy the 3D printers, you have to subscribe to them. Those are, you know, really interesting and emerging concepts, new kinds of business. So those are some of the things that I'm finding really interesting, as well as the increasing sophistication of buyers around what makes a good SaaS offering. And I think that those are probably the top things that I'm seeing.
Sarah E. Brown [00:21:51] Right. Well, Robbie, thank you so much for joining us. For those who are listening, who'd like to learn more about you and your work, where should we direct them to?
Robbie Baxter [00:21:58] Probably my website, robbiekellmanbaxter.com. That's my name, Robbie Kellman Baxter. And you can find my two books, The Forever Transaction and the Membership Economy there. And you know, if you like podcasts, I have a podcast subscription stories, which is very focused on what I call true tales from the trenches around subscription entrepreneurs and executives. And of course, your listeners, if they mention this podcast, you know, I'd love to link in as well.
Sarah E. Brown [00:22:24] Fantastic. And we'll be sure to mention those in our show notes as well. Thank you so much.
Robbie Baxter [00:22:28] Thanks for having me. It was really fun. Very good questions.
Sarah E. Brown [00:22:31] That's it for us. This episode may be over, but we can continue the conversation on Twitter with the hashtag #SellingInTheCloud. On Twitter. I'm @SEBMarketing.
Michael Pollack [00:22:41] And I'm @MRPollack.
Sarah E. Brown [00:22:41] Thank you to everyone for joining us for this episode of Selling in the Cloud, brought to you by Intricately: the authoritative source of digital product adoption, usage, and spend data for cloud sales and marketing teams. If you like the show, head on over to iTunes or wherever you listen to podcasts, and please give us a review. We appreciate it. Until next time.