Why Subscriptions are Crucial to Your Business with John Warrillow

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Subscription services are increasingly popular and for good reason. On top of creating more predictable income for your business, they allow you to really focus and serve your subscribers instead of constantly trying to grind out new sales. Plus, it makes your business more sellable. We’ll talk about all of that and more in this week’s episode with John Warrillow, best-selling author of Built to Sell, The Automatic Customer, and The Art of Selling your business. And in Build Something More, we’ll even talk about what it’s like to write a best-selling book!

Top Takeaways:

  • Subscriptions make your business more predictable, more sellable, and place less pressure on your sales process. One Sale → One Payment vs. One Sale → regular monthly payments.
  • You need to go all-in for a subscription business to work. Giving people a choice between one time and subscription will usually result in fewer (if any) subscriptions.
  • When it comes to subscription fatigue, you need to demonstrate value in a tangible way. A 10% discount won’t do that. But showing 10x more value will.

Show Notes:

Transcript

Transcript Coming Soon.

Joe Casabona: Real quick before we get started, I want to tell you about my free weekly newsletter called Build Something Weekly. Each week, Monday mornings generally, you will get an email with a little bit of insight around WordPress and/or podcasting, you’ll get the latest of these episodes with the top takeaways, show notes, and more. And you’ll get the latest content from the previous week. You’ll also get a recommendation. It is action-packed for your Monday mornings. It is free and it is weekly. And you can sign up over at buildsomething.email. Check it out. It’s a free weekly newsletter over a buildsomething.email.

Intro: Subscription services are increasingly popular and for good reason. On top of creating more predictable income for your business, they allow you to really focus and serve your subscribers instead of constantly trying to grind out new sales. Plus, it makes your business much more sellable.

We’ll talk about all of that and more in this week’s episode with John Warrillow. He is a best-selling author of the books “Built to Sell,” “The Automatic Customer“, and “The Art of Selling Your Business.” Plus, in Build Something More, we’ll even talk about what it’s like to write a best-selling book. John and I exchanged notes on how we wrote our books and how much better his books sell than mine because, well, way more people want to know how to sell their business than to write HTML pages.

But John is an absolute fantastic guest. I loved this episode. And I already had “Built to Sell” on my bookshelf, but I went out and bought “The Automatic Customer” right after we recorded this episode. So if you want to learn more about John and get all the show notes and things like that, everything we talked about will be over at howibuilt.it/240.

And of course, thanks to our sponsors for this episode, TextExpander and Nexcess. You’ll hear about them later on. But first, let’s get into it with John Warrillow.

Joe Casabona: Hey, everybody, and welcome to another episode of How I Built It, the podcast that offers actionable tech tips for small business owners. It’s Episode 240. Today’s sponsors are TextExpander and Nexcess. You’ll hear about them later in the show.

But I am so excited to have my guest with me today and the topic we’re talking about. His name is John Warrillow. He is the founder and CEO of the Value Builder System. He’s also the best-selling author of “Built to Sell,” “The Automatic Customer” and “The Art of Selling Your Business.”

Today we’re going to be talking about why subscribers are better than customers. This is music to my ears and I’m excited to learn a ton, but let’s bring in our guest. John, how are you today?

John Warrillow: I’m good, Joe. How are you?

Joe Casabona: I’m doing very well. I stumbled over a couple of words there. It’s Monday morning, you know, I didn’t do my proper warm-up exercises before this. But I’m very excited to have you on the show. I have at least one of your books on my shelf and I’m probably going to have to get “The Automatic Customer” because that is something I’ve been reading a lot about lately.

So, with this topic, every business owner knows it’s easier to sell to a customer. But building your list is something that I’ve talked about a lot too. As a podcaster, it’s hard to capture your audience if you’re just looking at download numbers. And so getting people onto your mailing list or subscribe to a place where you can interact directly with them is a way for you to better engage. But before we get into all that you have quite the resume. So why don’t we talk a little bit about who you are and what you do?

John Warrillow: Yeah, sure. Thanks. So we help business owners improve the value of their company, leading up to an exit usually, but not always. So not to sell was about how do you build a company the value automatic customer was about recurring revenue. So how do you accelerate that value through recurring revenue? And then “The Art of Selling Your Business” is how do you harvest all that value created by effectively selling your company. So that’s me in a nutshell.

Joe Casabona: That’s fantastic. And you know, I feel like this is maybe a prescient interview for another reason. I know a lot of my listeners are heavily embedded in the WordPress space. I don’t know if you follow WordPress closely, but there have been a ton of acquisitions in the WordPress space lately.

As we record this, two have happened in the last few days. WooCommerce acquired… I should have this in front of me. But they acquired a small shop related to WooCommerce services. And Liquidweb, a big hosting name in the space, acquired LearnDash, which is my LMS of choice. So it’s been happening I think at an accelerated rate lately. So I know that increasing the value of your business and increasing the value of your company, possibly to sell it’s something that’s on a lot of the listeners’ minds.

John Warrillow: Yeah, it’s a really liquid market right now. There are a ton of transactions going on. I mean, interest rates is still very low. So that always accelerates people’s appetite to buy businesses. People are coming out of the pandemic hopefully knock wood. And I think that also has caused a lot of business owners to reflect and think, “Maybe now’s the time for me to sell and do something else.” And so it’s caused this kind of very interesting market where a lot of businesses are right now transacting. So it’s a very exciting time for a lot of entrepreneurs and founders.

Joe Casabona: Yeah, absolutely. I think that makes perfect sense, right? Because, again, I talk a lot to solo freelancers, solo entrepreneurs. One of the things that I absolutely had to do going through the pandemic, because I had one small child at the beginning of the pandemic, at the halfway point, we welcomed our second, and now I have-

John Warrillow: Congratulations.

Joe Casabona: Thank you. And now we have a third coming in December.

John Warrillow: Wow. Pandemic was good for you, guys.

Joe Casabona: I know. I know. Just grow in the family. But again in July of 2020, you know, I now had two small kids at home. My wife is an ICU nurse.

John Warrillow: Wow.

Joe Casabona: So she wasn’t staying home. Yeah, it was wild. So if I wanted my business to survive, I needed to extract myself from a lot of the day-to-day. But I know a lot of people were handling it differently. And if you can make an exit, I think that that’s a really good way for a lot of people to keep working on their passion without the immense stress of keeping a business afloat, and maybe supporting a family.

John Warrillow: So what did you do to make your business less dependent on you? What was your process for doing it?

Joe Casabona: That’s a great question. There were a lot of things that I was doing that I did not need to do. For example, editing this podcast was something I knew I needed to hire out pretty early on, because it was taking me forever. And my editor does it at what seems like an impossibly low figure to me. But he’s very good. Hey, Joel.

John Warrillow: Joel just went up 50%.

Joe Casabona: I know. I know. He’s like, “Oh, I don’t charge enough, huh?” So some of the other things I did was I hired a video editor to edit my courses, because that was the thing that took me the longest. I hired a VA to publish this podcast and gather the show notes, all of these time-consuming things that don’t require my face, or my voice, or my hands on the keyboard.

So on the days I could work, which was about half the week, I could focus on creating and then hand it off to my team to do the prim and polish and publish.

John Warrillow: That’s awesome. I mean, that’s just like right out of “Built to Sell.” It’s the classic, how do you get yourself out of the epicenter of your business and make it run without you. And that gives you… I mean, it gives you a peace of mind to know that your company will work if you have to be away for you got to take care of the kids, whatever the reason is. It does matter. You know that it will continue to chug along.

And it allows you to grow beyond you because you’re not limited by the hours of the day. And then of course, when it comes time to sell, if that ever does come around, you’ve got a business that’s not dependent on you, which is the prerequisite for an acquisition, is does it depend entirely on you? And if it does, it’s not really a transferable asset. I mean, awesome job.

And I’m sure you probably used standard operating procedures or some instructions you gave to your VA and your producer so they could sort of follow a checklist. That’s sort of step one in this process is create standard operating procedures.

I remember I interviewed a woman named Jodie Cook on my podcast, Built to Sell Radio. And I talked to her about how did she get her business ready to sell. She was in a marketing services space. So those businesses are tough to sell because they’re generally very dependent on the owner. And in her case, she was doing social media, and it was very dependent on her in the beginning.

But she wanted that feeling of having a business, not just a job, and so she went about writing up all the standard operating procedures so that her business could basically run without her. She’s a pretty entrepreneurial woman. And I said, “Jodie, that must have been like torture for you to sit down and write all these process manuals. Just seems like the total opposite of what you would want to do with your time.”

And she’s like, “Yeah, it was terrible. But I thought to myself like, Would I rather spend three months in prison or three years in prison?” And I’m like, “Okay, well, what do you mean?” And she’s like, “Three months sucked. But if I was to sell my agency without the standard operating procedures, it would have taken me three years in an urn out.” And an urn out is, you know, is the structure that you’re being paid for your business after the fact. And it’s fraught with risk, and so forth.

So she took her medicine upfront, and she sold her company. Two weeks later, she left and rode off into the sunset. That’s the power I think of standard operating procedures.

Joe Casabona: Yeah, for sure. Again, a lot of freelancers don’t think about that. They do the thing that they need to do when they’re doing it. Having an SLP has helped me grow this podcast, make money from this podcast. And so when it came time for me to do that, especially with my VA, right? With both my video and audio editors, and my transcriber, I was pretty clear. Like, “The bumper is here, here’s the sponsor spots or whatever.” I have a stream deck for my courses, so my video editor doesn’t even need to add slides. They just need to clean up the audio, and the color correction and stuff like that.

But with my VA, I would record Loom videos and tell her to transcribe them right out the steps. So she built the manual too. And now we have a lot of processes. I can go and update them when I need to. And she’s aware of those changes.

But it’s been great. Because, you know, as you said, things are happening, when I’m asleep, when I’m away from the business, when I’m watching the kids, when I’m on vacation. I think a lot of people worry about working on vacation. I front-load a lot of stuff to my editors and my VA before I go away, and then I know that things are happening while I’m on a beach somewhere.

John Warrillow: That’s awesome. That’s the process. That’s step one, for sure.

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Joe Casabona: This has been great, right? We kind of laid the groundwork for how to extract yourself from the business or at least make the business easier on you. And I think our main topic, subscribers are better than customers, if you’re not, in the nitty-gritty, you can focus on gaining subscribers. So this topic is really interesting to me. Why don’t we just start at the top? Why are subscribers better than customers?

John Warrillow: Oh my gosh, so many reasons. I mean, the number one reason is that when you make one sale, it’s the sale that keeps on giving, right? It perpetuates itself each month, each year. Subscribers of course are anyone who buys on some sort of contract or where you have the rights to build them without them coming to you in a transaction business model.

And so it’s a great business model for making your business more reliable, more predictable. I’ll give you an example because sometimes it I talk to people about subscription business models and they’re like, “Oh, yeah, like SAS. You’re talking about a software as a service business, right?” And they think that really that’s the only application for recurring revenue.

And I tell them the story of H. Bloom. So, H. Bloom, I wrote about. They are my customer. Their subscription-based flower store. So effectively think of H. Bloom… I mean, you look at the business of selling flowers, I mean, it’s a crappy business model, right? You’ve got the farmer cuts the flower off, the stem starts to die, rots in the fridge, six weeks later, you have to throw it out. Typical flower store in the US throws out more than 50% of its inventory.

Joe Casabona: Wow.

John Warrillow: Because they just guessed wrong, right?

Joe Casabona: Yeah.

John Warrillow: They don’t know how many roses to buy or whatever. And so they throw out half their inventory. Then in order to make sales, two days of the year represent a third of their sales. Mother’s Day, Valentine’s Days when people buy flowers. So 363 days of the year, you have to manufacture demand.

There’s no demand coming in to sell flower. So how do you do that? You rent some very expensive space on some Main Street in town where you’re paying $50, $60 a square foot to try to intercept you and me on our way home from work, we forgot our spouse’s wedding, whatever. So it’s expensive, right?

So now you’ve got lumpy demand seasonality, very expensive real estate, and you’re throwing out half of your inventory every single month. So along come these two guys, Sonu Panda, Bryan Burkhart, out in New York, and they’re like, “We want to sell flowers. But we’re going to do it not on a transaction business model like most flower stores. We’re going to do it on subscription.” And so they sold a subscription to flowers.

Now, they took the step… I know your podcast focuses on really actionable things your listeners can do. If you’re trying to figure out a subscription model, follow what the H. Bloom guys did. Because they didn’t try to create a subscription for everybody who buys flowers. That would have been the recipe for a diluted crappy business model.

Instead, they segmented. And this is the secret, the first step. You segment all the people who buy your product. So in the case of Panda and Burkhart, it was like weddings, funerals, you know, all the different reasons people buy flowers.

And they came across the segment of hotels, five-star hotels, I bet in Philadelphia. You’ve got a couple of them. Probably the four seasons in Philadelphia. You’ve got a five-star hotel, where they want that fresh cut bouquet of flowers every two weeks to be replenished. So it gives the customer that perception that it’s a beautiful hotel. They sold them a subscription to flowers.

You asked the question, what makes a subscriber better than a customer? Today, the average transaction in a flower store in the United States is around $60. So you and I walk in and we spend about 60 bucks one-off. And then they have to go create demand.

Typical subscriber to H Bloom, a hotel that buys flowers from H Bloom spends $4,500 through the life of their subscription. $60 bouquet every two weeks for years.

Joe Casabona: Wow.

John Warrillow: One sale, right? Now all of a sudden, it changes the business model. As these flower store owners sit there waiting for customers to come, you can hire salespeople to go call on hotels because you know everyone you sign up is going to be $4,500 worth of revenue. It totally changes the economics.

Again, a lot of people listening to this will be like, “Yeah, but I don’t want to sell my company. This all sounds very complicated.” If for no other reason to create a subscription model, you should do it because it makes your business more predictable. So you know what your business is going to look like six months from now. Typical flower store throws out more than half of its inventory every single month. At H. Bloom, they throw out less than 2%.

Joe Casabona: Wow.

John Warrillow: Because they only buy flowers for the subscribers they have, right? And so they just don’t have any spoilage. So it makes it way more profitable, ultimately way more valuable, and a whole lot more predictable. So that’s why I think subscribers are just so much better than customers.

Joe Casabona: Yeah, that’s incredible. And you’re absolutely right. You know, we hear about lifetime value, LTV, or whatever. And they say it’s easier to sell to somebody who’s bought from you once before, right? It’s easy to sell to a previous customer. But I’m not sure that my next course is going to appeal to my students the way the last course did.

And I’ve gotten that feedback from students, where they’re like, “I really liked this course but I don’t want to sign up for a subscription or I wouldn’t want to buy this course because I’m not going to take it.” Because I didn’t properly segment. I’ve learned very recently how to do that better. But I think that’s a really good point. And this probably inoculates a little bit against what I’m sure is a common question you get, which is what about subscription fatigue? Right?

John Warrillow: Yeah. Yeah.

Joe Casabona: Lots of businesses are moving towards subscriptions. I have like five streaming subscriptions. I have two audio subscriptions or music subscriptions.

John Warrillow: Your AmEx bill is like six pages long.

Joe Casabona: Yeah, exactly.

John Warrillow: You’re not alone, man. No, it’s a real issue. Again, from Netflix to Spotify to Virtually to H. Bloom, all these subscription-based services, while individually may be just a few dollars a month, they start to add up when you accumulate. So we are running into this kind of subscription fatigue.

What I would encourage you to think about is 10x versus 10%. What do I mean by that? You know, nobody’s going to subscribe to your offering to save 10%. Nobody would subscribe for 10% off flowers. It’s just too small a benefit to give up the freedom of buying on a transaction basis. It literally needs to be 10 times more valuable.

And I don’t mean that you have to basically undermine your profit margins to make a subscription business. But you have to make the perception that subscribing is literally 10 times more valuable. So I mean, if we think about Netflix as an example, I think I could probably make a pretty good case in comparison to cable television, which might cost you $150 a month, depending on where you live, Netflix is probably a better value proposition for a lot of people.

And that’s the kind of thing that you’re going to want to do. So you’re going to want to think about, how do I make perceived values so high that subscribing is just much more valuable. The other thing that I think you need to do to get over this subscription fatigue is go all in. And what I mean by that is give your customers an ultimatum. Tell them that you’ve done the analysis that you can serve them better on a subscription business model, and you have the courage to turn off your transactional offering.

And that is going to be really strong cheese for a lot of people to consider. Because it’s always nice to have your cake and eat it too. It’s always nice to offer both a transaction business model versus a subscription. But I think it’s a recipe for a diluted subscription model.

Joe, I learned this one the hard way. Years ago I used to run a quantitative market research business. It was a transaction business model. We did big surveys and so forth. And I got the idea because of Bloomberg and Thomson Reuters and some of these other subscription-based research companies that we would be better off having a subscription offering.

And so I went to all of our customers and said, “You can still do business with us in the transaction business way.” And these were big banks, phone companies, technology companies. “You can still do business with us in the transaction way. But we’ve also got this subscription you could buy.”

And they kind of nodded nicely and politely and said, “Oh, that sounds really interesting. I’ll take that into consideration. But now that you’re here, can we talk about my custom project that I want to do?” And virtually every one of them had the same reaction.

I think we got three or four subscribers in like a year of trying, and it was a failure. It was like that overweighted 747 that just can’t get off the ground. Like it just never took flight. And we shut it down and stopped offering this subscription, went back to the transaction business model, and thought, “Oh, well, that’s the way everybody wants to do business was.”

I kind of really did some post mortem and diagnosis is like, “What did I do wrong?” And I think one of the things that we did wrong was we gave the choice. So two years later, we went back to the same customers, and we said, “Look, we’ve done the analysis, we can serve you better through a subscription.” And we’ve made the decision that we’re no longer going to do custom projects.

And Joe, the reaction was night and day. It was like 180-degree difference. All of a sudden, they kind of sat up and say, “All right, well, if you’re willing to bet our relationship on this, tell me more about the subscription. How much does it cost? What am I going to get? How do I…” They were asking really detailed questions because they know that we’re about to bet our entire relationship on this.

And fortunately every one of them went to subscription. Ultimately, that was a big reason that that company was acquired by a New York Stock Exchange-listed company. It was a successful exit. It would never have happened had we not given our customers that ultimatum. And that’s why I believe so strongly that you’re going to be viewed as half pregnant, if you have this custom offering plus a subscription and you try to keep all the plates in the air.

Joe Casabona: I think that’s a really great point. I mean, it speaks directly to me, right? Because I am offering both right now. This is great. This is why I started this podcast. I feel like I get free consulting from experts that I just kind of-

John Warrillow: I’m sending you the bill, man.

Joe Casabona: But you’re absolutely right. I’m hedging my bets right now. And you know what? More people are more likely to do, like I said, the… I call it A La Carte. They pick the course that they want to get. And then they disappear. And you know what? My community is worse off because of it. My completion rates are probably worse off because of it. And I’ve been thinking a lot about the subscription lately.

I think this is really good information. And it’s super helpful. And if you go all in, and you don’t give people the choice… though, I mean, they do have a choice. They can either subscribe or not. But the last thing I want to mention here is that I kind of shot myself in the foot recently because I offer lifetime updates for my courses.

And I kind of rebranded the course recently that wasn’t really the same, but I quote-unquote, felt bad, I wasn’t delivering lifetime value. So, anybody who bought the previous version of the course, even though the new version of the course was completely different, I gave it to them. And I probably cut myself in half because of it. So it’s one thing to want to do right by your customers, but it’s another thing to give away the house because you’re worried that people are going to react poorly.

John Warrillow: Yeah. Lifetime memberships are a death knell for subscription offerings. It’s the antithesis, so they’re not… Anyways, I’m sure you can develop a different subscription model for different target customer or whatever. But avoid lifetime.

You know, it’s funny. There’s definitely a launch ethos. Jeff Walker wrote the great book “Launch,” which is a fantastic book, New York Times bestseller, but it talks about the idea of launching a product. And as much as I love the book and think the work is amazing, it is a different mentality to build a subscription company. It’s very different. Like Launch is about a transactional business model, and a subscription is about longevity.

And so things like lifetime access, and lifetime updates would be great launch benefits. But they also undermine your ability to create a subscription offering. So I think you have to pick your train a little bit. Do you want the one-time cash infusion of a launch, knowing that there isn’t a tail to that? Or do you want maybe a lesser bang in the beginning of your launch but more lifetime value, more value over time? And that’s the subscription offering.

Joe Casabona: I think that’s a great point. Because again, in the course creator space, a lot of people are like, “How do I launch continually?” Here’s the eight-week thing, do the webinar, and then do the big sell.” And I’m like that… I know, courses are not passive income, but just like constantly having to sell to get that big launch, it’s fatiguing, right? And I mean, if you’ve done your course, there’s a finite amount of people who are ever going to buy your course.

But if you do the subscription, you can add value based on what your subscribers, what your members are asking you. You can grow with them, or they can grow with you and you can teach them new things. And you have that capital coming in every month to be like, “All right, I can do this. I don’t have to worry about launching because I’m selling to the right segments.”

John Warrillow: Absolutely right.

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And now let’s get back to it.

Joe Casabona: You mentioned how important it is to segment the people who buy your product. Maybe this could the big first actionable tip, right? If we need to, I can do a separate episode on tech stack because I’m all about that. But how do you segment your audience? Where do you start?

John Warrillow: There’s lots of different ways to segment. So there’s demographics, age, income, education level, whatever, psychographic, which is the study of human motivation, and why people do what they do, hard to action, but oftentimes create great personas.

Another one is life events. So you know, you’ve just had your third child, well, guess what, you’re a very prime candidate to buy life insurance. And they know that, right? Because as soon as you have kids, you need life insurance, you need some assurance, etc. So we have these life events that trigger. So there’s lots of different ways to segment.

In terms of building a subscription model, buying trigger is often a good one. So what is it that caused your customer to come to you to purchase? So in the case of H. Bloom, that’s a hotel looking for a bouquet of flowers for their reception table. So buying trigger is another way to segment.

I think, look at all the different segments you can. What you’re looking for is homogeneity. Homogeneity being all the people in that group think the same way and need the same things. And so you’re looking for the tightest possible cohort that feel the same way about a specific issues, that look the same way, ultimately have the same needs.

And you may find that through age, through gender, through education level, but more often than not, it’s sort of buying behavior or buying trigger that causes the most tightly wound, homogeneous group.

Joe Casabona: Gotcha. And that makes perfect sense, right? Because I think a lot of people probably say, like, “I serve podcasters,” or “I serve people who use WordPress.” Both of those segments are pretty broad.

John Warrillow: Those are massive segments.

Joe Casabona: Yeah. So you can’t really talk directly to that group. Like you can’t say one thing that speaks to that entire group, right? Because people use WordPress to be… I use it to blog, or I build custom enterprise websites.

John Warrillow: Yeah, yeah. It’s incumbent on you to go way deeper because you’re looking for a homogeneous need that is unfulfilled. So any generic need is going to be fulfilled with generic media. So I can get lots of information if I subscribe New York Times or CNN or whatever. There’s lots of information out there.

If we go a step deeper and go in an industry level, WordPress developers… again, still there’s lots of stuff out there for WordPress developers. But if you go down to WordPress developers in a certain geography, speaking a certain language, that have a specific problem, that’s when you can get to a subscription offering that might satiate that problem or solve that problem.

Joe Casabona: Actually a great example right there is a very recent episode I had with the founder of WP Owls, who started his newsletter, he and his wife, in Polish because they were the only Polish WordPress newsletter. And then they moved to English and talked about the difficulty because every other WordPress newsletter is in English.

John Warrillow: So language is another one you can segment by, for sure.

Joe Casabona: Yeah, that’s fantastic. And so the last question I’ll ask here before I ask you my favorite question is, what if I segment two deeply? Because again, I think I used to worry about this. I think a lot of people worry about “I don’t want to exclude anybody who might want to give me money.”

John Warrillow: Yeah. Look, here’s the thing. Number one, I would go as tightly as possible because it makes you referable. Think about your own behavior when you’ve referred people, experts specialists. My guess is they were specialists in their area. They weren’t just a roofer. They weren’t just a WordPress developer or audio. They were someone who had a very, very specific niche that you wanted to help them in their own way.

So referability is important for any subscription offering, for any business owner for that matter. And the more you focus, the more you referable you become. Because as a consumer, when you hear about someone who has that unique niche, you want to help so the Polish WordPress guy, I will remember now. I won’t remember, Oh, he does, you know, WordPress developer newsletter. No, that just goes [inaudible 00:37:08]… But the Polish one is kind of unique, right?

Joe Casabona: Yeah.

John Warrillow: It makes it referable. So when I hear a Pole who wants some information, etc. So I would get very, very nichey to begin with. You can then look for adjacencies, people who have similar needs. But I think you really want to serve your core first and then find an adjacency.

Like, for example, at H. Bloom, I mentioned they looked for five-star hotels. Fantastic, great. When they started to saturate that market, they looked at “Who else has the need to put a bouquet of flowers on their reception table?” And they’re like, “Yeah, who else does?” Wealth management companies. You know, those really fancy wealth management company?

Joe Casabona: Yeah.

John Warrillow: You walk in, and there’s someone sitting there giving you coffee or whatever. They want, you know. And then they segmented further and they found out really high-end restaurants with a concierge and like a valet they also want that. But again, I think it starts with the kernel of homogeneous need, and then look for adjacencies as opposed to trying to dilute your offering, capturing all the market share.

And again, I know this is right down the strike zone for you. But if you want to rank in SEO or anything like that, it’s got to be really heavily niched down. Because to rank, it’s going to be very difficult if you’re [inaudible 00:38:35].

Joe Casabona: Yeah, absolutely. What’s the old, maybe the new adage, right? If you’re talking to everybody, you’re talking to nobody.

John Warrillow: Right.

Joe Casabona: You want to picture the person in your head that you’re talking to and solve their problems.

John Warrillow: And then once your subscribers are loyal and your cost to acquire a subscriber is not high, there’s a magic little ratio people should be mindful of which is LTV to CAC ratio. You’re looking for at least 3:1. LTV being lifetime value, CAC customer acquisition costs. And so you’re looking to capture at least three times more lifetime value from your subscriber than it costs you to win her as a subscriber. So at least 3:1. More is better, but at least 3:1.

When you hit 3:1, you’re going to want to get there at scale, meaning not just your friends and family. You’re going to want to prove, especially if you want to raise money for your subscription offering, that you can get to three to one or better at scale. Meaning through SEO, through search terms, through some scalable way to acquire subscribers.

And then when you do that, and you can prove that, then you can knock off another hyper niche adjacent to the one you’re serving, get to 3:1 LTV to CAC, and then get your next niche. But it’s tough to get 3:1 LTV to CAC if you’re too generic. It’s better to be very, very, very siloed. Get to 3:1 LTV to CAC and then see if you can replicate that in another niche.

Joe Casabona: Gotcha. Yeah, that makes sense, right? If you’re spending like 200 bucks on Facebook ads to sell 120 dollar product, you’re burning money, right?

John Warrillow: Yeah. It’s not going to be too long. Again, for that $200 Facebook ad, you really want to make sure you can capture $600 worth of lifetime value from the subscriber or more. And if you can, hit the gas, because that’s a great modal.

Joe Casabona: Awesome. This has been great. I do need to ask you my favorite question, which is do you have any trade secrets for us?

John Warrillow: Oh, man, trade secrets. The bell?

Joe Casabona: Yeah, whenever somebody says “trade secret,” I hit the bell, because it happened every single episode and like the first 50?

John Warrillow: Well, the bell it is. Look, here’s the trade secret. We as owners of businesses, oftentimes define ourselves by our revenue, right? Like, “Oh, I wish I could get to a million dollars in revenue,” or “I want to be on the Inc. 5000 List of fastest growing companies.” Because that’s what society seems to recognize and celebrate.

What I would encourage your listeners to think about is instead of thinking of your role as the CEO of your business, and that revenue is your number one objective, there’s another way to think about it. And you’re just going through this yourself with three kids. Thinking of your business, as more of a child you need to raise as opposed to a business you need to run.

And when we think about a child you need to raise, the early days, you’re wiping their bum, you’re feeding them, you’re doing everything. But over time, you know, in their teenage years, you got to give them a little rope and let them make some mistakes. And then ultimately, in their 20s, you want them in the world, living independently without you and not having to come back into the homestead to survive.

That’s the ultimate goal, I think, for an entrepreneur is to build a business that can thrive without you like you’re doing Joe with your SLPs, and so forth. I think to get there, you need to slightly wear a different hat as an owner as opposed to celebrating revenue and trying to achieve a milestone. Think of yourself as the parent of your company. And in trying to over time get it so that it can run without you.

Joe Casabona: I absolutely love that. Mostly because my 4-year-old asks me why I have so many rules when I tell her to do things. And I’m like, “My job is to make sure that you’re a good citizen in the world. That is my job.”

John Warrillow: Awesome.

Joe Casabona: I think that’s a really great way to look at it. Because if you’re just going to grind it out all the time and work yourself to the bone, you could do that for someone else, and then not have to worry about where your next paycheck is coming from.

John Warrillow: Absolutely right.

Joe Casabona: Amazing. Well, John, this has been fantastic. We will have a couple of extra minutes in Build Something More. I’d love to talk to you about writing and selling a best-selling book.

John Warrillow: Oh, cool.

Joe Casabona: Because I have authored four, though they are very technical books that will never make it to the New York Times bestseller list. But for those of us leaving us now, where can people find you?

John Warrillow: Go to builttosell.com/built. We’ve put together some gifts for your listeners, most importantly, the nine subscription model with checklists. So it’ll give you nine different models you can choose from to build out a subscription offering. So yeah, just drop your email, it’s free. Drop your email into builttosell.com/built.

Joe Casabona: Awesome. I will include that and everything we talked about in the show notes over at howibuilt.it/240. I am also, right after we get off this call, I’m going to buy “The Automatic Customer.” I’m trying to decide if I want the hardcover or the Kindle version.

John, this has been absolutely fantastic. Thank you so much for your time. I appreciate it.

John Warrillow: It was fun, Joe.

Joe Casabona: And thanks to our sponsors, Nexcess and TextExpander. Again, if you want to get all the show notes or sign up for the Creator Crew where you can get ad-free extended episodes early, you can sign up right on that modal actually at howibuilt.it/240. It’s all there for you. Thanks so much for listening. And until next time, get out there and build something.

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