My fascination for subscription start-ups (Part 1)
- They have the potential to become ‘cash cows’
This is not an exaggeration. Every subscription start-up business has the potential to deliver insane amounts of profits and become the proverbial cow on which cash is made! The reason for this lies in the clever tactic that is employed by these business owners. For a subscription to be activated on the consumer’s profile, they have to pay the subscription fee up front before they can receive the product. This means that there is a continuous positive cash float in the business model and, as a start-up, they are on a good wicket as they could plan their expenses based on the subscription revenues collected.
- The start-up business acts as a yielding asset
When you think about it, the start-up business acts like a bond that has been registered in your name and it delivers the same amount of benefits. If the interest rate goes up, then so will the value of the start-up subscription. Secondly, there is a lot more security for an investor to know at the start of the month how much revenue they can expect – is almost like staring into a crystal ball!
- The consumers are “sticky”
Not many are aware that AOL had 2.3 million users that were using the dial-up subscription in 2014! AOL was making a cool $140 million a quarter on a group of customers and the average customer had been paying them for FOUR-ah-TEEN years! There is a lot of evidence to prove that the one thing that people find most difficult to do is to change their habits (like forgetting to cancel the monthly charge for the gym membership).
In fact, when I was used to selling electricity contract door-to-door in the US, I found that consumers had this “motherhood” loyalty to their current energy provider and even if we offered them a 20% discount to their current energy prices they found it difficult to be convinced to change. It took a lot of effort to get them to flip even then I used to have 10% of them cancel the switch after I had left – that is sticky!
I am looking at a business like the Farmery and Supr Daily to add to Artha India Ventures’ portfolio and find that these businesses can be very interesting, in fact, the business model of Massage Envy is enviable (pun not intended) and should be emulated!
In my next post, I will go over the metrics I am looking at while evaluating these start-ups…