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Why Companies are Adopting Subscription Billing Models

Frank Mancieri, Chief Growth Advisor

Volvo recently announced they will make their cars available on a subscription model where consumers will pay one fixed fee per month for access to a car which includes insurance and maintenance.

Everything from tooth brushes to flowers are now available with subscription billing.

Could you offer some sort of recurring plan to your customers? Here are six reasons to consider offering your customers a subscription:

  • Predictability: When you have subscribers, you can plan what your business needs in the future. For example, the average flower store in America throws out more than half of its inventory each month because it’s too rotten to sell.
    At H.Bloom, a subscription-based flower company that sells flowers to hotels and spas, say they throw out less than 2% of their flowers because they can perfectly predict how many flowers are needed to fulfill their orders.
  • Eliminate Seasonality: Many businesses suffer through seasonal highs and lows. In fact, a whopping thirty percent of a typical flower store’s revenue comes on Mother’s Day and Valentine’s Day – ultimately leaving them to scramble and make a sale in November.
    By contrast, H.Bloom has a steady stream of subscribers that pay each month. At Mister Car Wash – where they offer a subscription for unlimited car washes – they receive revenue from customers in November and April even though very few people in the Northern east wash their cars in rainy months.
  • Improved Valuation: Recurring revenue boosts the value of your business. Whereas most small companies trade on a multiple of profit, subscription-based businesses often trade on a similar multiple of revenue.
  • The Trojan Horse Effect: Once you subscribe to a service, you become much more likely to buy other things from the same company. That’s one reason Amazon is so keen to get you to buy subscriptions to things like Prime or Subscribe & Save. Amazon knows that once you become a subscriber, you are much more likely to buy additional products.
  • The Sale That Keeps On Giving: Unlike the transaction business model where you have to stimulate demand through advertising to get customers to buy, with a subscription based model, you sell one subscription and it keeps giving month after month.
  • Data & Market Research: When you get a customer to subscribe, you can start to see their spending and consumption habits. This data is the ultimate in market research. It’s how Netflix knows which new shows to produce and which to kibosh.

Creating a subscription business is a great way to build recurring revenue, which helps increase the value of your business by removing risk.  To discuss these strategies and other ways to increase the value of your business, contact Frank Mancieri, (401) 651-1585, frank@gtgrowth.com.

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“My Mental Readiness for an Exit is LOW”

Frank Mancieri, Chief Growth Advisor

A recent release of findings from an ongoing research effort being conducted by Pinnacle Equity Solutions, Inc., a national leader in the emerging field of exit planning, reveals that 85% of business owners who are considering a future exit from their privately-held business currently have a Low Mental Readiness for their exit.  This newsletter discusses these findings and provides insights for owners of privately-held businesses to learn how you might begin planning for your own business transition or exit in the future by knowing more about what your peers are thinking and doing. 

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Exiting Your Business, Protecting Your Wealth – Financial and Mental Readiness

In October of 2008, John Wiley & Sons published John Leonetti’s book, Exiting Your Business, Protecting Your Wealth – A Strategic Guide to Owners and Their Advisors.  This seminal book on the topic of exit planning provided a system for owners and their professional advisors to plan a business exit.  This exit planning system provides two (2) initial components that an owner should assess – their Financial Readiness and their Mental Readiness for a future business exit.

An owner’s Financial Readiness is simply a measurement of the amount of wealth that is held outside of their business, and/or other sources of income, that can pay for maintenance of their lifestyle.

A business owner’s Mental Readiness is an indication of how much longer the owner would like to continue working in their business.  For example, a business owner with a High Mental readiness is someone who is NOT enjoying working in their business today and would like to move on from the business.  However, a LOW Mental Readiness reflects an owner’s desire to continue working in the business because they enjoy the continued challenge and thrill of running their business.

The data presented in this newsletter are the initial results of more than seventy-five (75) owners of operating companies who have completed an assessment conducted by Pinnacle.  The results provide a view through which we all can better understand an owner’s attitude and preparedness for their future business exit.

Traits of LOW Mental Readiness

The following attributes apply to the 85% of owners who have a LOW mental readiness for an exit.  As a group, they generally:

–          Have no written plans for an exit

–          Have not thought about a future without them working in their business

–          Take less than 3 weeks of vacation per year.

–          Are performing at the ‘top of their game’.

–          Lack the management team to replace their responsibilities at the company

–          Continue to have a high level of enthusiasm to work at their companies.

These traits vary in degree among different owners who completed the Pinnacle report, but are the general areas where they all reply positively to the survey questions.

How Can You Apply These Survey Results to Your Exit Plans?

As you review the list of traits in the preceding paragraph regarding owners with a LOW Mental Readiness, you may see many that apply to you.  If so, you may begin to consider your own Mental readiness for an exit and how this could impact your planning.  And, notably, if your desire is to continue to run your business into the future because owning and running your business is what you enjoy doing, then you are in the majority of your peers.

However, our important message to you in this newsletter is the following:  just because you desire to remain with your business does not mean that planning should be ignored or put off until a later date.  In fact, ‘exit planning’ does not (and should not) mean that you are leaving your business.  Rather, planning for an exit includes growth planning (i.e. increasing the cash flow and value of your business), leadership planning and development (so that the business can run without you), personal planning (so that you have the peace of mind that you can afford an exit) and contingency planning (to assure that you don’t lose what you created if someone unforeseen should happen to you).  These are all very important areas that you can plan for today, even if – like the majority of other owners – you do not plan to exit for a number of years.

Concluding Thoughts

We hope that this newsletter has accomplished the objective of having you understand what your peers are thinking and doing for their exit plans so that you can better define your own.

© Copyright 2014 Pinnacle Equity Solutions, Inc.

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Forget Work-Life Balance. This Is More Effective–and Doable

Frank Mancieri, Chief Growth Advisor

If you haven’t eaten dinner with your family in the past week, haven’t taken a day off in over a year, and feel like you still don’t have enough time to finish your work, you’re doing something wrong.

Ivan Misner, founder and chairman of global networking organization BNI, knows how unbalanced life is while running your own business.

Misner has written 20 books, runs BNI offices across the world from North America to Asia, and has a wife and kids. If you ask him, he’ll tell you he doesn’t live a balanced life. He’ll also tell you that you’ll never achieve balance either. But, that doesn’t mean you can’t lead a healthy life.

“Do you want to know the secret to balance? Forget about balance, you’ll never have it,” Misner told me recently. “You cannot have balance as an entrepreneur, but you can create harmony.”

The difference, Misner says, is not just semantics. “Harmony is something different. When you look at the scales of justice, people think balance is something they need but it’s not realistic,” he says. “For the entrepreneur, who has the most unbalanced life, [he or she] needs to get over it.”

Be here now.

Misner says three words are the key to start a harmonious life: “Be here now.” Whereever you are, be there in mind, body, and spirit. “When you’re at work, don’t think about the time you didn’t spend with your kids last night. Be at work,” Misner says. “If you’re home, don’t think about that project at the office, be with your kids. It sounds simple, but it’s not easy. If it was easy everyone would do it. This is about focus–focus on the people you are with and make sure to be fully and completely there.”

Make time for the most important things.

Set aside time for the most important things and tasks in your life. This sometimes means you’re going to need to get creative. Misner says it’s important for him not to be an absentee dad. So, he squeezes writing books into his night hours.

“I’d hang with the kids, eat family dinner together, hang out, put them to bed, and go into my office at home at 10 p.m. and work until 3, or 5 or 6, grab a few z’s, and go into the office,” he says. “When my first book came out, my oldest daughter was surprised, ‘When did you write a book?'” He’s now writing his 20th book.

Integrate tasks.

Unlike much of the advice you might read about creating solid work and life boundaries, Misner says merging them together is the only way to go.

“For many years, I’d spend summers at the lake house and work remotely. But then, I decided to bring my management team with me for three or four days at a time while my kids and wife were with us,” he says. “If you can integrate work-life elements together, you can create harmony. My life is way out of balance–I’m on the road for nine months this year, but I am not an absentee dad. My wife comes with me and our kids, who are now adults, will meet us and we’ll make it a vacation.”

Remember: You can’t have it all.

You can’t do it all. It’s impossible, Misner says, so you have to pick and choose and practicetime management. If you want to be a decent spouse, then make time to take off and recharge your battery. If an urgent work project comes up that will ruin the company, leave the vacation and make it up to them. But keep in mind this one thing: “Remember when you’re 70 years old, you’re not going to look back and wish you spent more time at the office,” Misner says. “But, you will regret not fostering a better relationship with your kids and partner.”

@WillYakowicz

WILL YAKOWICZ | Staff Writer | Reporter, Inc.com

Will Yakowicz is a reporter at Inc. magazine. He has covered business, crime, and politics at Patch.com, and his work has been published in Tablet Magazine and The Brooklyn Paper.

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How Small Rewards Drive Innovation

Frank Mancieri, Chief Growth Advisor

BY   @WILLYAKOWICZ

What rewards do you offer employees for their disruptive ideas? If it’s half the value of the idea, you may be spending too much, and end up with too many ideas.

Yes, there is such a thing as having too many ideas. And because innovative projects must be implemented efficiently, they can become too unwieldy to manage.

That’s according to Oliver Baumann, an associate professor of management at the University of Southern Denmark, and Nils Stieglitz, a professor of management at the Frankfurt School of Finance and Management, who researched how reward systems can impact idea-generation. Together they created a virtual workplace not unlike Sim City, in which employees were asked to come up with ideas in exchange for rewards.

The results were intriguing: The bigger the reward, the bigger the ideas that flowed into the company’s pipeline, sometimes to the point of excess. When virtual employees received smaller rewards, however, they came up with smaller but more useful ideas. “Our research shows that high-powered rewards are no better than low-powered incentives at producing radical innovations,” the researchers wrote in the Harvard Business Review. “They may generate excitement and high hopes, but they result in few breakthrough concepts.”

Big ideas are also harder to implement. “The companies were quickly hampered by what we dubbed the ‘congested project pipeline’ effect,” wrote the authors. “Because taking action would have required investing resources such as management attention, the firms were unable to act on most of the ideas that were generated.”

Slow and steady idea generation wins the race.

In the real world, 3M allows employees to use 15 to 30 percent of their time to work on pet projects. Google goes even further, offering creative employees up to several million dollars in stock for the idea that wins a Founders Award.

Still, it’s important to remember that rewards only go so far. “Past research suggests you might need a culture or organizational structure that encourages play, serendipity, and random interaction,” the authors write. “A few companies are experimenting, counterintuitively, with switching the focus from success to failure, rewarding employees who dare to stick their necks out.”

Considering how powerful it can be to own your mistakes, that’s not such a bad idea.

@WillYakowicz

WILL YAKOWICZ | Staff Writer | Reporter, Inc.com

Will Yakowicz is a reporter at Inc. magazine. He has covered business, crime, and politics at Patch.com, and his work has been published in Tablet Magazine and The Brooklyn Paper. He lives in Brooklyn, New York.

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6 little things that make a big difference to the value of your company

Frank Mancieri, Chief Growth Advisor

Here is a list of six little details to get right, before you put your business on the market:

  1. Find your lease. If you rent space, you may be required to notify your landlord if you intend to sell your company. Read through the fine print and ensure you’re not scrambling at the last minute to seek permission from your landlord to sell.
  2.  Professionalize your books. Consider having audited financial statements prepared to give a buyer confidence in your bookkeeping.
  3.  Stop using your company as an ATM.  Many business owners run trips and other perks through their business, but if you’re planning to sell, these treats will artificially depress your earnings, which will reduce the value of your company in the eyes of a buyer by much more than the value of the perks.
  4.  Protect your gross margin. Oftentimes, when leading up to being listed for sale, companies grow by chasing low-margin business. You tell yourself you need top-line growth, but when an acquirer sees your growth has come at the expense of your gross margin, she will question your pricing authority and assume your journey to the bottom of the commoditization heap has begun.
  5.  If you’re lucky enough to have formal contracts with your customers, make sure your customer contracts include a “survivor clause” stipulating that the obligations of the contract “survive” the change of ownership of your company. That way, your customers can’t use the sale of your company to wiggle out of their commitments to your business. Have a lawyer paper the language to ensure it has teeth in your jurisdiction.
  6.  Get your Sellability Score. Take 13 minutes to answer the Sellability questionnaire now. You’ll see how you performed on the eight key drivers of sellability and you can identify any gaps you need to fill before taking your business to market. https://www.sellabilityscore.com/b2b-cfo-1/frank-mancieri

Selling a business can be an all-or-nothing affair. Get it right and you will walk away a winner.

Frank Mancieri, Chief Growth Advisor, GT Growth & Transition Strategies, LLC
401-651-1585, frank@gtGrowth.com, www.gtGrowth.com

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Do you know what drives value in your business?

Frank Mancieri, Chief Growth Advisor

The Sellability Score is a quantitative tool designed to analyze how sellable your business is.  You may not be thinking of exiting your business now, but it is always a good idea to know its strengths and weaknesses and improve on the overall value before a major event takes place.

  • Absolutely Free
  • Confidential
  • 13-minute survey

After completing the questionnaire, you will immediately receive a Sellability Score out of 100 al
ong with instructions for interpreting your results. An advisor will contact you to arrange a review of yourSellability Score full report.

Click here to learn more about the survey and/or to take the survey

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