Creating a Subscription-Based Business and Being a Depressed Entrepreneur | Business Bootcamp

Hey everyone, this is Mike Andes and you're listening to the Business Bootcamp podcast. Today is going to be a short episode, but I'm going to share something about creating recurring revenue within your business that I think could change your business. And I look forward to doing that today. Before we get into today's show, a big thank you to today's sponsor, which is Gusto. That's G U S T O. And go go to gusto.com bootcamp try out their software for nine days completely free. And today we're talking about subscription and recurring business and all this. Yes, they are a software service software as a service business. They cost money, but one of the cheapest service providers that we've seen for small businesses. They're cheaper than QuickBooks and far exceeding the customer service that I've seen in any other software service. For accounting for your employees and for doing direct deposits on your payrolls, check them out. Today. You can get that three month trial only at Gusto.com/bootcamp. Now, today I'm going to share one kind of tactical thing about recurring revenue. Then I want to share something about what I've been kind of going through personally and with my business. And hopefully that'll help some of you. Because for so many of you listening, I share my own personal experiences or things I'm going through as an entrepreneur, or things I'm learning because so many of us are in the same boat. We're trying to figure out the same things, we're going through the same struggles, we, we're going through the same issues. And so I hope you can learn something from that. The first thing is I've been reading this book, or listening, I should say on audible to this book called the Automatic Customer. And it's a very interesting book. It's all about recurring revenue, it's all about the subscription kind of model for a business model and how to create your business around a subscription based type of service or product. And so it's really, really interesting, something I've always thought about and really tried to implement and something that I just had never read the book before. And so I encourage you to read the book. But secondly, the kind of, the premise is that regardless of what industry you're in, what type of business you're doing, that you should be trying to create some sort of recurring revenue within your organization. And so I talked about this at the conference we had in January, a lot about creating recurring revenue in terms becoming a recession proof business and creating that recurring revenue, that subscription type of Work in the landscaping industry. But this book talks about all industries, all different types of whether it be online, offline, in person, multi channel, whatever it is, product, service, whatever it is, there's got to be a way for you to create some sort of recurring revenue. If you're installing like they had an example in the book of a company installed elevators and when and they were in New York. And so whenever a big project, a high rise building would go up for being built. Of course all these elevator companies were bidding on it. But what this one company did is they started to figure out that hey, instead of just going after these one time massive projects, why don't we create a subscription based service that we charge every single year and then we come and we maintain those properties and we're on call 247 for these big businesses and property management companies that are doing these high rise buildings. And so they ended up building a third of their business of their revenue based upon this recurring revenue subscription based model where these companies and these building managers would pay a certain amount of money per year, regardless of what, whether or not how much services they used. But that got them a 24,7 on demand technician as well as an annual checkup and servicing of their elevators. And so what happened is when the recession hit in 2007, 2008, for about four or five years in Manhattan and in New York, there was very little amount of high rise buildings being built. And so, so many of their competitors got wiped out, whereas they had this recurring revenue subscription based model in place. And guess what? Those elevators still needed to be serviced and maintained and technicians need to fix things. And so they still made money, they got through the recession and they were one of the few of their competitors that made it through because so many, for four or five years there was just no new construction, there's no new business. But they built that recurring model into their business model. And so I think a big reason I would push small businesses to go after this, the biggest thing is for cash flow purposes. And this is something that I've been thinking about even for like seasonal businesses like landscaping and lawn care is like, how do we create this subscription type model that's going to level out that seasonality and kind of taking out the high highs and then increasing during the times of low lows to kind of create a better cash flow situation year round? How do you do that for a business that gets the bulk of its sales during Christmas? How can you make sure that there's that constant revenue throughout the year and throughout the Book they talk about kind of like the real popular subscription based models, Prime, Amazon prime is a massive, massive hit in this category in terms of people that pay $99 a year to basically get two day free shipping, which is now becoming one day shipping, one day free shipping. And what this does in terms of making a customer more loyal to that brand and buying more often and increasing the lifetime value of that customer. If you look at Costco, for example, Costco doesn't make a whole lot of money on their. If you look at their 10k and you look at their annual statements, their annual revenue statements, you look at their profitability and then you look at their what their members are paying for subscription and that's basically identical. So literally, if you look at Costco's P and L, they literally break even on everything in terms of their products, services that they sell, all that stuff. They basically break even on it. But basically the membership fees that they collect is their profit margin. If you look at over the years of Costco's growth, it's almost always correlated with the number of members they have that are paying a subscription fee to come shop at the store. And so it incentivizes those customers to come back more and more often to Costco simply to justify the fact for getting that membership. And so I find that very fascinating. I find it fascinating that it will in times of recession.

Which entity, which store will a customer go to? They're gonna go to the one that they're already paying a subscription for and they're gonna be. It's gonn volatility of the customer base will be less when you have that membership model in already built into the model. They look at Costco, they look at. Netflix was another big one. Netflix, in terms of creating a subscription based model where they have unlimited access to all these movies and videos and TV shows and all these things instantly. And so I found it really fascinating. The book talks about nine different ways to create that recurring revenue, that type of automatic customer, that subscription based model. So there's just so many examples. I actually like the book mostly because it gives so many examples of different industries and you start think about different ways of doing things. And so for me I have anytime fitness, the gym and it's definitely the subscription based model. They pay the same amount every single month. They are locked into usually a 12 or 24 month agreement and then they can cancel or they can just continue on it a month by month basis after that 12 month contract is up. And during that time what makes the business valuation Like I talked about cash flow and kind of evening out the cash flow. Another massive thing that the book talks about is the valuation of your business is dramatically increased. We talked about this in Pro plus for landscape business course a couple months ago about when you're wanting to come sell your business. You if you have guaranteed income, if you have contracts in place of those subscribers sending money in every single month guaranteed out in their contracts, the valuation, your business is exponentially much larger than if you're just on doing one off jobs. So for example, just because.

Really easy example for landscaping, we can do landscaping jobs all day long, make good money on them, but they're one off jobs. The money in terms of valuation is made on the recurring revenue services. That's mowing, maintenance, things that we have in contracts with commercial or residential customers. Those things are in perpetuity, those things are guaranteed income for a year, two years, whatever that contract is stating. And so when a potential buyer comes to buy a business, they're looking for guaranteed income, they're looking for revenue that's going to be coming in based on the subscribers, based upon the people that are paying continual basis and they're not going to be as inclined to pay a premium for those one time jobs that really aren't going to do them any good by buying the business because it's not guaranteed for them. So when I bought Anytime Fitness, the massive reason why I was willing to pay a premium for it was that I knew that there was already a guaranteed amount of revenue that was basically going to pay for the asking price over the course of one or two years. And so guaranteed in contracts with people's payment information, like money was coming up being drafted. That is the value. If it was a gym that was like you just drop in and you pay for one, you know, month to month basis, like literally that is volatility me because during the summer I could lose all my subscribers. I'm just gonna call them subscribers gym members in this case. Same thing goes for mowing or any other service or product that you're trying to create a subscription modeler on. I would lose all of my gym members during summer if I didn't have them in that contract. If I didn't have in an agreement, if they weren't a subscriber and if I just let them go month to month, I would lose probably 40 to 50% of my members. And then during the winter I'd get this massive spike of people because they only want to use it during the times when they can't Go outside November, December, January. And so what that does is create a much better cash flow situation, a much better customer experience, because there's not massive spikes in use. And it allows for the profitability of the business, the enterprise, to, to be much more constant and much more consistent and much more predictable, thereby making the valuation of that business far greater. And so there's examples throughout the book about companies that were sold in the same industry, same kind of demographic, same sort of revenue, but the companies that had guaranteed income, recurring revenue from subscribers, dramatically, like 5, 10 times as much more money when they were sold simply because they had a subscriber base business model with recurring revenue. And so regardless of what you're doing, regardless of if you're selling products or you're doing services, if you're a contractor and you're building houses, whatever it is, think about a way that you can create recurring services. If you're selling a product, can you have a service on the back end? This is how. Excuse me, this is how Apple is beginning to change their business model. Instead of relying so much on selling iPhones and selling products, they're trying to create services on the back end with icloud, with Apple Music. And the book talks a lot about how, like the demise of itunes. I don't know if you looked in the news, but it looks very possible. Within the next few weeks, Apple's gonna be removing itunes from being a thing. They're actually taking it away because people are no longer interested in buying music. They're interested in renting music. How? By a subscription based model called Apple Music, where they can listen to that entire vortex, all the music in the world, for a small amount every single month instead of having to pay a dollar per song. And so you're seeing this shift of people wanting to go. It's going from. It's becoming a renting economy, right? It's becoming a borrow economy instead of a buying economy. Instead of us buying cars, we rent them out via Uber. We rent the services and the goods from Uber. Instead of renting a home, we rent out to Airbnb. Instead of.

Buying music, we're gonna rent music. We're gonna rent it for a month, we're gonna rent it when we want it. It's on demand. And so I find it very interesting, that model we're going as a society, is the sharing kind of society, sharing culture. And so how do you look at your business model? Whether you're selling services or you're selling software or you're selling physical products, how do you get people to become on a subscription based model. You look at Dollar Shave Club, you look at all these other companies that have completely changed industries based upon the subscription based model. You look at Birchbox for $10 a month, you get a box of samples from a whole bunch of different types of beauty products. Okay, that's interesting. But when you think about it, how can they do it for $10? Because all those companies are giving them samples for free in the expectation that those people are going to, going to use the samples and buy their products. Birchbox is literally just a subscription that takes free products from the companies and then sends it for 10. They make money to send these free samples to people. Incredible business model. Again, that business model is simply built upon the subscriber subscription based model. I think it's genius. And so it's something I've been thinking about, something I think we should all be thinking about in terms of creating better cash flow, a better sellable business, an actual asset that has a great valuation as well as creating a better cash flow situation for our business year round. Last thing I wanted to talk about is a little more personal kind of last week I was in this sort of funk towards the end of the, the week. And I wanted to encourage everyone out there just to be patient as you pursue your entrepreneurial goals. So for me it's sometimes a little bit, it's not always easy to kind of take it, to slow down. And despite so many opportunities that are coming up now, despite the, you know, we're franchising Augusta in August, September of this year. And so all these things are happening and yet still feeling like it's going slow. And what I mean by that is like you can get really disappointed, you can really get annoyed with other people or people within the organization or things happen, they don't really, you don't really expect or things that are slowing you down. You just feel kind of like you're grinding it out and you have this big vision, this big goal, something you're trying to do. And I just encourage you to be, to be patient. And I'm just literally telling myself this. I'm not telling anyone or speaking down on anyone. This is what I had to tell myself last week is like, you gotta be patient, you gotta think about the long term game. And this isn't gonna happen a year, it's not gonna happen in two or five. Like this is a long term game. And I encourage you. Like there's really a balance, I think, between doing what you're passionate about and Then doing what you have to do in order to get to that place. And I think so oftentimes it can be like, well, you gotta do what you're passionate about. But if you do what you're passionate about today, it might be five, six years before that's actually a viable, economical solution that you're actually gonna make some money on, be able to pay your rent, right? Like, what do you do today to get to that position? You might have to work.

Delivering pizzas or waiting on tables or getting a second job. You might have to do that for several years. Do that hard thing and do something you're not passionate about in order to get yourself to the place, being financially set to go do the thing you're passionate about. Like, I'm super passionate about franchising Augusta and being able to completely change the landscaping industry by having hundreds of franchisees around the country that thereby create pressure on all of their competitors in their market to raise the bar of professionalism in our industry. I'm really passionate about that. I want to travel the country, visit my franchisees, help them, encourage them, give them support. That's my goal. I'm super passionate about that. What I'm not super passionate about, and this is what happened last week, is like, the sprayers not working or someone not fixing something, and then it being taken on a job, and then I'm somehow brought into that. I get annoyed by people not doing what they're supposed to in the office, and then it ends up affecting someone on the job, and that ends up affecting the customer. And then is a big, we're running behind, and then there's overtime and then there's staffing issues and then there's stress levels, because now we're behind all these things are happening. And yet that, like, for me, broken equipment and trailers and all that is like, so not what I'm passionate about, but yet it's something that's super imperative that I figure out, something that's super imperative that I nail down. Even if it's simply the grind, even if it's simply the hustle that it takes to do it that is honing your skills. Like, I look back at, like, what I did in school as pre medicine student, and it's so easy. Like, that was a complete waste. You know, four years of just completely, like, hours and hours and hours and days and months and weeks just spent learning about organic chemistry and biochemistry and kinesiology and physics and all these things for pre med. And you can be. I can so easily look at that. As like such a waste of time. And I feel like the only thing that really helped me do is is learn how to put my head down and just absolutely like learn and absorb myself in something that I'm not even super passionate about. In some of those subjects I'm not super passionate about, like calculus. But I had to do it to get in order to get into medical school. And so like, that was the, that was what was driving me. It wasn't the calculus, it wasn't the immediate day to day trying to figure out integrals. Like, I wasn't passionate about that at all. But I was passionate about what that was going to allow me to do. And that was going to get in medical school, which was then going to allow me to become a physician, which was going to allow me to then be able to help people and be able to cure disease. Like, that was my goal and my ambition and that was the big goal. But I think for us as business owners, we can get so caught up in, we want to help the people. If I'm using the analogy of being a doctor. But we forget that today we have to learn the calculus integral and we have to look at our book we really could care less about. We're not passionate about. And I was not passionate about calculus at all. But I did it and I put my head down and it taught me the discipline to do the things you don't want to do so that one day you can do the things you are passionate about. And that's where I feel like I'm still in right now. Even from a business standpoint. It's like I don't get passionate about mowing people's grass. Now. I do get passionate about making sure that people do it right so that the business can make money, so that we can create a really good franchise system which allows us to change the industry. That's interesting to me. But you have to rewind it all the way back, take it all the way back, break it all the way down, and realize that what you're doing today is setting the groundwork. What you're doing today is setting the foundation for a very successful business that will allow you to do the things you're passionate about. That might be traveling the world, that might be doing things online, selling a course. It might be interviewing people that you've always looked up to. It might be selling things, doing things on esports, or doing, you know, selling sneakers or whatever it is that you're passionate about. Just remember that might be years down the road. You might not be able to do it tomorrow. It might take 5, 6, 7, 10, 20 years for you to get to that place and it might take years of doing things you're not so passionate about to get to that place that everyone craves. Everyone wants to be there whether you're an entrepreneur or not. There's everyone that has a job even is in the end goal. They're trying to get towards a place where they're doing what they're passionate about. But remember, if you're in a business right now and you're just seeing like a grind, just seems like everything annoys you because it seems like it's so narrow minded. So like micro when you're trying to think more macro and like what you want to do long term, just remember the micro leads to the macro and the foundation you're building today with concrete and sweat and digging and all the pain that you're going through is the that foundation is what the building of your success, your career and your business is going to be foundationally set upon. And I encourage you, you don't give up. Listen to Mike Andes on the Business Boot Camp podcast. Until next time. Be great. Because nothing else.