You have finally taken the step beyond that line that separates wishful thinking from determination. You are not thinking that you would like to have your own business any more, you have now decided that you will start your own business no matter what it takes.
But you have never had a business before nor even made an attempt. So, probably you are not aware of the full range of the business models that you could adopt. And if you have been an employee for quite a while then the chances are that you were living in your own professional bubble without realising how the business landscape has evolved out there.
Frankly, one way or another we are on the same boat. And while I am trying to create time to do productive work for potential business(es), I still dedicate a great percentage of my available time in educating myself. And, as I did in previous posts on Innovation and Disruptive Innovation, I am very much interested in distilling principles, concepts and raw models that I could use as a template to apply to my business ideas and hopefully help you do the same.
The Perfect Business Model
So I have always been imposing one question on myself: What would be the ideal business model I can think of?
Of course, to answer such a question I have to define some criteria. And what I am very interested in, is to minimise commitment in terms of actual working hours, minimise the time required to launch the business, minimise the financial investment and minimise the risk.
I guess that sounds ideal, which is exactly the point since I am looking to find the ideal business model. Therefore, so far so good. But does it sound impossible? Thankfully, no it does not! It actually exists and it has been successfully tested by a great number of businesses.
The ideal business model that fulfils all the above criteria is an online subscription service or product. Actually, not only satisfies all the set criteria but has a couple of additional ones as a bonus. It generates a passive income, meaning that you earn money while not working and it can potentially be location-free, meaning that you can work from anywhere in the world.
Minimise investment and risk
A great deal of the initial investment required upon starting a new business comes from physical requirements in terms of space, equipment and running bills. If you don’t need any of those, then you can have a virtual zero initial investment. And since risk is directly associated with your investment exposure, then it becomes virtual null as well.
An online business requires no more than a website to launch. Which is something that you could set up yourself with a total cost of no more than £100 for the first year. This is less than £10 per month.
If you are going to offer a service or product that you can execute yourself fully then you might not need any additional financial investment. But if you do need some funds that you don’t have and thus you need to raise, there are ways to do it without too much pain. Crowdfunding can always be an option or you can just do a pre-sale in your website. You can offer a reduced rate subscription if people subscribe until a specified date prior to launch and then use that money to create your service or product. You would also have a 100% money back guaranteed, which means that if you wouldn’t manage to reach your goal number of pre-subscribers you would return the money back. Covered by all means. And of course there are other ways for fundraising but it is besides the point to dig deeper into those now.
Track growth and predict future performance on the spot
This is the best part. Any business that sells a one-off product or service is subject to huge fluctuation in performance. If you manage to achieve a significant amount of sales one month and generate a nice profit, nothing can guarantee that you will make a similarly nice profit the following month(s). There will always be a future uncertainty with no way to deflect that fact.
But when it comes to a subscription business things are way different. In principle, you really care about two numbers:
- The Customer Acquisition Cost (CAC), which is the amount of money you spend to get a new customer. To calculate the CAC, you simply calculate your total expenses (i.e. running costs, salaries, marketing) over a certain period of time and you divide it by the number of customers you acquired during that period.
- The Customer Lifetime Value (CLV), which is the projective net profit attributed to the entire future relationship with a customer. To calculate the CLV, you simply calculate the average duration that a customer remains subscribed to your business and you multiply it with the subscription cost.
Then you are looking for two things. You obviously want the CLV to be bigger than the CAC, which means that your business is profitable and you also want the number of new subscribers to be bigger than the ones who quit the service, which would mean that your business grows. If you put those numbers into a graph, then you will be able to make predictions at least for the near future with no big margin for error.
To make this crystal clear, let’s see a simple example. Let’s imagine that you spend £240 per month on your business to have your website online, maybe a couple of tools to automate things like newsletters, a few low-cost advertisements and maybe a virtual assistant just for a few hours. If in that month you make 20 new customers, then the CAC is £240 / 20 = £12.
Now let’s say that your service runs on a membership of £9 per month and you calculate that on average a customer opts out after 2 months. This means that the CLV is 2 x £9 = £18, in other words you have a £6 (CLV £18 – CAC £12) profit on every customer. Safe and sound.
If on average you have 5 customers quitting per month, you need to make at least 6 new ones to have your business growing. Effectively, once you start having your first customers and being profitable (CLV > CAC) then things should start becoming easier. You then start fine tuning your product or service, so you are reducing the quitters and you increase the time that your customers remain active subscribers. Your marketing becomes more efficient over time and you attract more customers and so on, I believe you get the picture.
Obviously, both the Customer Acquisition Cost and the Customer Lifetime Value are fundamental numbers for any type of business. But their calculation is not always so straightforward and their accuracy is not always so unbiased.
Work less for more from anywhere
Don’t get this wrong. In order to create such a business and set it in a successful orbit you will have to work a lot. Long hours with occasional stress outbursts should be anticipated for a while. It is actually that pressure, plus the fear of failure, that prevents most people from even trying or, if they do try, makes them give up too soon. But once you manage to put things on track, then you can have a thriving business without even your presence required.
You will be in a position where you will be able to assign all of your tasks in others and you will have achieved a passive income for yourself. You will need to work only a bare minimum, just to make sure that everything runs smoothly and since it will be an online business, you will probably be able to do that from anywhere in the world.
Actually, this is not good only for you but for your potential employees as well. Since you will run an online business, most or all of your employees can be virtual assistants. They will not necessarily have to go to an actual office but they could be able to work from anywhere pretty much as you. And without going too much in detail, you would definitely have the opportunity to create a very nice working culture within your company.
Types of Online Subscription Business
Software as a Service (SaaS)
This is probably the most popular type of an online subscription service. You create a piece of software that customers pay a membership in order to be able to use it.
One of the best places to look for ideas of a SaaS, is everyday recurring processes that consume fairly big amount of time in any industry. If they include a lot of paperwork as well, then it is a likely very hot spot. If you can create a web/app service where you could automate tasks subject to automation and/or replace printed forms with digital ones embedded in your solution then you are on track for a very successful subscription SaaS.
So, you may start thinking if there is any such process in your industry. Or you may start asking friends or even cold calling companies in other industries trying to find their biggest everyday struggle, the single most annoying thing they have to do every single day that might take one or two hours and try to find a solution that could reduce it in 10 or 20 minutes cutting down a lot of their hassle. The more lucrative the business, the more they will be willing to pay for such a solution.
Examples of Subscription SaaS
Salesforce provides cloud solutions for businesses of any size. Customer service, marketing and analytics are just a few solutions among their wide range. It is also a very interesting company from a sustaining growth and innovation point of view and it will be probably featured in future posts in this blog.
A bunch of companies here – mailchimp, which I use in susime, aweber, infusionsoft and convertkit to name just a few of them. The services they provide include things like integrated signup forms, automated email lists creation and customized newsletters for individual customers.
Adobe is the giant in graphic design and other kinds of creative and document management software. Photoshop, Illustrator, InDesign are just some of the company’s most popular software. What is particularly interesting in the case of Adobe is that it recently changed its business model all together. The one-off licensed products became a subscription SaaS or Creative Cloud as Adobe calls it. You cannot buy Photoshop any more. Instead, if you want to use it you need to subscribe to Creative Cloud and pay a monthly subscription to have access to it.
Online Coaching / Teaching
This one is quite self-explanatory. You produce content with the knowledge you have on a topic in a format that can transfer that knowledge to the customer. In most cases this would be in the form of a series of videos/webinars and/or screen-capture tutorials. But of course any other type of content that could serve the purpose would be applicable.
Design tutorials, foreign languages teaching, business coaching, musical instruments lessons are just a few ideas that can very easily fit in this model. The three most important things in order to do this, and to do it right, are all in your mind: Don’t underestimate your knowledge. Don’t underestimate the importance of your knowledge to others. Don’t overestimate the practical/technical steps it takes to produce an online course.
Examples of Subscription Online Courses
Lynda is probably the most popular online platform for software tutorials that cover pretty much everything. Most of the tutorials are a screen-capture with a voice over it explaining the process which is also shown as text below the running video.
Subscription Based Physical Products
I love this kind of businesses for two reasons. Because a business that produces a physical product is not coming up to your mind instantly when you think of an online subscription model. And because it can potentially be something very creative and in anyway it produces something tangible – something you can touch, something you can smell or hear.
A good place to look for ideas for such a business is your everyday life. It might worth doing the exercise for one or a few days of writing down every single physical object you touched through that day or span of days. Every. Single. Thing. Even stuff like toothbrush, toilet paper, salt container and so on. And then look at your list for any product you buy periodically – i.e. something you absolutely buy every week or biweekly. If you find a product like that, then you could potentially create a subscription service that would produce and deliver that product in a certain frequency.
Or you might be more creative and think of a product that doesn’t exist but it is something that you would like to have and be delivered to you on a certain frequency.
A possible misconception when it comes to physical products is that it requires a great deal of investment for physical space. But that is not true. Yes, you would have to contact manufacturers, packaging companies and delivery services companies and put a system in order but you can find ways to have your business running without even the requirement of a warehouse to store product stock.
Examples of Subscription Based Physical Products Businesses
Weekend Box Club
I am so fascinated by this idea! The Weekend Box Club offers an activity box for kids from 3 to 6 years old delivered biweekly. The box comes in two sizes, small that includes 2 activities or big which includes 4 activities. Activities vary every time and include Do-It-Yourself activities, toys or games, cooking recipes for kids and other really creative ideas that can make a kid’s day more vivid.
Dollar Shave Club
This is a men’s shaving service. You select one of the available blades of your preference and then you select the frequency you would like to have replacement blades delivered to you. Actually, this works so well that there are now quite a bunch of businesses offering this service.
Before you go
Don’t get scared if the websites I mentioned above look too good in your eyes. Those are established businesses, some of them have been around for more than a decade. Don’t try to create the universe overnight. But take the first step. Force, if you have to, yourself to the second. And you will have walked a 1000 miles before you even realise.
Of course, a subscription business is not the only way to create an online business. But I do believe it is the best one by far and if you have any passion, talent or idea that you would like to turn into a business I think you should give it a thought if it can fit this model even if it doesn’t in the first place.
Think a bit more. Ask all those what ifs. Have some faith. To the idea. To your business. To you.
If you have any thoughts on what you just read, either good or bad ones, I would appreciate it if you leave a comment below and let me know. Feedback is invaluable in one’s strive for progress. Thank you for reading! Until soon!