Blogs

Sharon Schneider

Why Would Anyone Abandon the White Hot Subscription-Based Business Model? We Did. Here's Why.

  • 6628 views
  • 19 comments

Subscriptions models are hot: high lifetime value with a low customer acquisition cost adds up to strong investor interest.  So why would anyone move away from a subscription model? We did. Here’s why.

Good Karma Clothing for Kids got some nice press in the last six months (Crains, Mashable, Technorati, etc.) for an innovative subscription model aimed at the coveted mom demographic. We solve a real, never-ending problem for busy moms, which is that babies go through 7 sizes of clothing in the first 2 years of life. That’s a new wardrobe, including onesies, sleepers, comfy everyday clothes and a few sweaters, jackets, socks—and don’t forget dressier outfits for church or family outings—every two or three months. Busy moms find it difficult and expensive to keep up with the constant wardrobe turnover, especially since babies often wear an outfit only once or twice before growing out of it. With a Good Karma subscription, moms could always have 7 right size, right season outfits in their possession, trading them in for the next size or season as necessary. What could be more convenient for mom?

With this subscription model, which reporters like to call “Netflix for baby clothes,” we won a high-profile competition in New York City during Social Media Week to be named “Best Collaborative Consumption Startup” and we even got in to Excelerate Labs this summer.

And, like many entrepreneurs, we had tons of positive feedback for our idea from the marketplace. Moms would constantly tell us “that’s awesome! I love what you’re doing.”  (Often followed by “I wish I could subscribe, but…”)

At first, we were only listening to the first part of those sentences, the part where they loved our concept. But as the weeks went on, we started to realize that everyone loved our concept and (almost) nobody was signing up for the subscription service. It was a rough few weeks and we tried to tweak our web site and our messaging to increase conversions. 

And then, during one talk by a seasoned entrepreneur, we heard a statement that summed up our dilemma: “there is a big difference between prospects who say ‘I love what you’re doing’ and those who say ‘I love what you’re doing and here’s my credit card.’”

So we started listening to the second part of the feedback from real moms. The part where they explained why they just couldn’t subscribe even though they wanted to. And we heard some concerns about the subscription model that we hadn’t considered before; In short, instead of a convenience, the subscription model felt like a burden to moms. Monthly subscription implies monthly turnover, and they didn’t necessarily need new outfits every month (and we didn’t necessarily want them to return it every month). Subscription means the clothes still belonged to us, and moms felt the burden of caring for them, keeping track of them and therefore “saving” them for special occasions. All these factors added up to more work for busy moms, not less. One mom told a mutual friend that the subscription “would stress me out.” Hmmm...that was the opposite of our intended result. 

And so we lifted the subscription model off the top of our business. The rest remains the same: moms can now purchase high-quality, like new baby and kids clothes that have been inspected, steamed at high temperatures and styled into a few compatible outfits that we call a “bundle”. When they receive their bundles in the mail a few days later, they also receive a prepaid returnable mailer that they can stuff with like-new clothes their kids have outgrown and leave it for their mail carrier. When we receive the bag, we’ll send them store credit for the value of the clothes, which they can use to purchase the next size up. Or, if they just want to clean out their closets but don’t want to buy the next size up, they can donate their credits to the patients of the Ann and Robert H. Lurie Children’s Hospital of Chicago.

While lifting the subscription model off our business, we also changed our name and our branding to better reflect this broader audience appeal. Good Karma Clothing for Kids is now Moxie Jean, “kids’ consignment made easy.

It may sound like the reasons our subscription model ultimately didn’t gain traction are particular to the baby clothes business, but in some ways I suspect they are broadly applicable. In essence, subscriptions first sound like a convenience but can quickly morph into a burden: the weekly copies of Forbes or Fast Company or (god help you) The Economist start to look like an accusatory stack staring at you from the coffee table; the weekly delivery of organic produce tortures you by rotting in the fruit bowl; the monthly delivery of personal care products starts to pile up in the hall closet making you feel like a burgeoning hoarder.

Yes, you can start a business providing a monthly subscription for almost anything (see Member.ly for instant subscription business creation), but after a few weeks or months of novelty, the steady supply of coffee/chocolate/razors/stuff might start to feel like a burden to subscribers. How do you keep them from burning out and cancelling their subscription?

My fellow Excelerate Labs portfolio company Whimseybox has been thinking about how the monthly subscription aspect of their business serves as an affordable entry point and discovery tool for crafters who then go on to purchase products they love, through Whimseybox of course. Founder Alicia DiRago shared with me the advice she heard from Inventables founder  Zach Kaplan: Make sure your customers’ needs are driving the decision to offer a subscription service and not your own need for recurring revenue.

Maybe the subscription aspect of your business is only for the hard-core fans who will appreciate and truly use it up between deliveries. Maybe it’s a low-cost or low-barrier entry point for consumers who want to sample new options within a category they care a lot about.  Maybe subscribers should be able to fine-tune the frequency of their deliveries to match their real-life situation. (I keep imagining the mobile app for a subscription service that provides regular deliveries of consumables—it has only one function: a button which says “Ship my next delivery.”)

Have you found a way to make subscription services sticky and fine-tuned to consumer needs? What do you think are the keys to success for subscription models? As a consumer, have you signed up for some of the new subscription services? What do you think of them?

Post a comment

or Create an Account to post comments

Comments

Cavanaugh L. Gray

Sharon, I've followed your company's pivot since moving my business development company, The Entrepreneur Cafe, LLC back home to Chicago from D.C. I spent a ton of time over 1871 since being back as lifelong friend wrapped up the first Impact Engine class. Love the direction of Moxie Jean-much success to you. Sharon you and Julie offer great insight as to what the other side looks like and it will be helpful as our company looks to move our plans forward. Frank not sure regarding a box company but if you are looking for some more options related to the subscription services here are a few that I have come across: Order Groove, Zuora, Member.ly (Sharon mentioned) and Akeeba. Hope it helps and thanks for the great information . . . Cavanaugh!

frank pyne

Sharon, I am looking at starting a subscription box company. Can you tell me which software solution you used as I am looking to launch in early February.

frank pyne

Sharon

Thanks again. Can you also tell me who you went with for your boxes. And whether you bought the samples from each supplier or did they provide them for free with the hope of gaining potential customers for their full products

Sharon Schneider

That wasn't our model at all, Frank. Best of luck to you.

Sharon Schneider

I'm pretty sure we used Chargify (it's been a while now!) but I have also heard of Member.ly which is specifically for subscriptions. Hope this is helpful!

frank pyne

Thanks again. Can you also tell me who you went with for your boxes. And whether you bought the samples from each supplier or did they provide them for free with the hope of gaining potential customers for their full products

Jeannie Walters

Hi Sharon - Well done! Listening to customers and really *hearing* them are often two different things. Humans love to say we'll do things and then NOT do them. Actions and behaviors tell you far more about customer reactions than what they say. Really love how you were able to pivot. Thanks for sharing. Continued success! - Jeannie

Sharon Schneider

Many thanks, Jeannie. Pivots make all kinds of rational sense in retrospect but the need to change is not always easy to recognize or respond to in real life. So far, so good. We're excited about the progress of the new Moxie Jean.

swathi narra

Hi Sharon,
Congrats on recognizing that a possible transition needed to be made and actually doing it. A brave and smart move! By the way, love the new name.

Sharon Schneider

Thanks, Swathi! Coming from a fab woman with moxie herself, I'm so glad you like it.

James Stubblefield

I just had a discussion with another entrepreneur about being burnt out on the subscription model. It seems that so many people are following the subscription model that it has molded our thinking as if that is the only way to guarantee revenue each month. I will be very interested to see how it works out. Best of luck!

Sharon Schneider

Thanks, James. I think you are right that some (not all) entrepreneurs may have gotten lazy about sticky customers. We're looking at other ways to make customers sticky, and have retained a natural return cycle built into the model. We'll keep you all updated.

Julie Bashkin

As a founder of a recently launched subscription company, KLUTCHclub, I feel the need to comment on this and largely agree with you on many points. Congratulations to you for figuring out what the customer wants and adapting accordingly. While there are many subscription companies popping up, fewer than a handful have received institutional funding. I believe the problem is not with the subscription model per se it is with some of the subscription startups lacking 3 things: 1. a concrete consumer problem to solve beyond "people like to be surprised with some fun random stuff in the mail"; 2. a way to capture the subscriber's attention or add value to the consumer beyond the box subscription and 3. a business model or revenue stream beyond the subscription.

While KLUTCHclub has acquired more subscribers in 3 months than many subscription companies have in over a year, we do not see KLUTCHclub as just as a subscription service company and would urge other subscription companies to have a better vision and a more nuanced identity. We see KLUTCHclub as the online authority on what types of products are healthy. While we faced similar challenges to yours, our response was solving a concrete consumer problem of not being able to make sense of the clutter in the fragmented market full of niche players and take an editorial like position on the credibility of products and giving the consumer reason to subscribe besides getting products in the box (e.g., other members benefits, content, etc). At the same time we have found alternative B2B and B2C revenue streams that solve problems for other companies.

The other issues you mentioned- erroneously seeing subscriptions as a recurring revenue stream- are ones that all entrepreneurs who do not have structured strategies and performance measurement metrics face. As with any business it is important to measure industry specific metrics and benchmark against similar concepts while evaluating analytics of other business model options (e.g., cost to scale, etc). Aside from having customers who want to subscribe, many subscription startups forget the other very important metrics- cost of customer acquisition and churn. It is fairly easy to make people try something once. But scaling fast and retaining those people is a bit harder. That may not mean abandoning the subscription model is the answer for everyone but it does mean everyone should be constantly innovating and evolving beyond just the subscription.

I personally would not walk away from the model as I do think if executed well, it works for some startups. But I also would not advocate it as the only model that works and agree with you that it needs to first and foremost adapt to what customers want.

frank pyne

Julie,

Sounds like great advice. Is it possible for you to tell me where/who makes your boxes as i am looking to launch a subscription service next week and whether you've received funding yet.

Frank

Sharon Schneider

Fantastic comments and observations, Julie. You point out great considerations for any entrepreneur, subscription or not. Congratulations on the growth and success of KLUTCHclub.

Scott Mandel

It's amazing how a simple change can make so much since! I don't have kids, but it sounds like you'e making Mom's job even easier! Keep up the good work!

Sharon Schneider

Thanks, Scott. Your support and encouragement is much appreciated!

Maria Christopoulos Katris

Sharon, congrats and a smart transition indeed. I actually went to your site thinking you were following the above business model and when I realized it was subscription based I did not register. The new model makes perfect sense based on how I was hoping to use the site (recycle awesome clothes that my daughters outgrow after one wear) and will definitely use the service moving forward. With two toddlers at home, this might be the answer I've been looking for...good luck, look forward to seeing you at Demo Day.

Sharon Schneider

That's awesome, Maria, thank you for the feedback. I have to say, once we moved away from the subscription model, we heard a lot more about the drawbacks of our old model. :)

Oh no!

You're fresh out of job post credits.

Buy more job post creditsUpgrade to unlimited plan
Where Chicago's Startup Community goes to stay connected.
  • news
  • jobs
  • events
  • networking

Sign Up Today!

Let startups find you

Create a profile and upload your resume today.