Why 80% of Customers Don’t Want Monthly Subscriptions

Key Concepts:

• Subscription vs. Usage-Based Pricing: Two different pricing models offered to customers.
• MRR (Monthly Recurring Revenue): A common metric used by investors to evaluate subscription-based businesses.
• Cross-sells and Upsells: Strategies to increase revenue by selling additional or higher-priced products/services to existing customers.
• "The Secret": The underlying, often unconventional, customer behavior or need that a startup taps into.
• Pattern Matching: The tendency of some investors to only invest in businesses that fit pre-defined models or metrics.
• Visionary Investors: Investors who are willing to look beyond traditional metrics and understand the underlying potential of a business.

Pricing Models and Customer Behavior:

The company offers two pricing options: a low monthly subscription fee (e.g., $16/month for air5) and a prepaid usage-based model. The speaker notes that 80% of customers opt for the usage-based pricing. The key challenge then becomes predicting and maximizing cross-selling and upselling opportunities within the usage-based model.

The Investor Perspective and the "Secret":

The speaker expresses difficulty in conveying the value of their usage-based model to investors who primarily focus on MRR. The speaker then introduces the concept of "the secret," drawing an analogy to Airbnb. Airbnb's founders recognized an existing underground network of people swapping homes, a behavior that wasn't immediately obvious or easily quantifiable. This "secret" was the foundation of their business.

Airbnb Example:

The example of Airbnb is used to illustrate the concept of "the secret." Before Airbnb, people were already engaging in informal house swapping through platforms like Craigslist. This demonstrated a pre-existing need and willingness to share homes, which Airbnb formalized and scaled. The speaker emphasizes that this behavior wasn't readily apparent to traditional investors focused on standard metrics.

Choosing the Right Investors:

The speaker argues that investors who are overly reliant on "pattern matching" and standard formulas (like MRR) are not the right fit for businesses built on unconventional "secrets." The speaker advocates for seeking "visionary investors" who are willing to understand the underlying customer behavior and potential, even if it doesn't conform to traditional investment models.

Notable Quotes:

• "80% of people will go for the usagebased pricing and it becomes how much can you get predictable crossells and upsells"
• "There is a theory in startups i have a secret the founders of airbnb knew this secret"
• "Who gives a about those investors you don't want those investors anyway we want the visionary investors who are like 'tell me'"

Synthesis/Conclusion:

The main takeaway is that some successful startups are built on identifying and leveraging existing, often unconventional, customer behaviors or needs ("the secret"). These businesses may not fit neatly into traditional investment models focused on metrics like MRR. Therefore, it's crucial to seek out "visionary investors" who are willing to understand the underlying potential of the business, even if it deviates from established patterns. The speaker suggests that focusing on the "secret" and the customer behavior it represents is more important than conforming to the expectations of investors who prioritize easily quantifiable metrics.