How to generate continuous cash flow for your business? How to make your business standout among the crowd to investors?
People dislike uncertainty. The same goes for businesses. The revenue uncertainty for next month, next season, next year. The employee turnover rate. The raw material cost uncertainty. The government sovereignty uncertainty. Uncertainty is not good for the business. The more uncertainty the business is exposed to, the more risk the business is taking on.
Uncertainty is here stay. Uncertainty can be reduced through the "Subscription" business model
So what is a subscription model? Well, basically you get customers to sign up for your good and services that will last a period of time. When the subscription period expires, you hope that the customer will continue to subscribe for your good and services. That way you are able to generate continuous cash flow for your business. If you are able to predict your subscription base, for instance to predict your yearly new subscribers, to predict your yearly unsubscribing rate..., then you would be able to produce a fairy accurate financial forecast year over year. You can then base your business decisions and plan on this accurate financial forecast. Not only is it good for the company, it also attracts investors. So, if your business is looking for investors, tell you what, investors love businesses with subscription models!
Investors love businesses with subscription models
Unlike most transaction business, the year over year financials are comparatively much more uncertain when compared to the subscription model. For instance, for project based consulting business. Lets say you get a big case this year from a big customer. Your business receives a lot of money. But you are back to zero in the next financial year. For the company that I am working at: a printing press business. Each press machine goes for a few million dollars. An extra two machines sold, or two machines sold less each year could impact the financial year of the company tremendously. As result it is hard for the business to invest into the mid-long term.
Take a few well known successful subscription model examples in today's market. For instance, Amazon's Amazon prime membership, Amazon's AWS cloud storage system for businesses, Applies iTunes subscription, Online dating sites, Online usage based insurance company: Root Insurance, Adobe's cloud software, Dropbox's online storage services, the entertainment content creator Netflix... Have you noticed that all these businesses are subscription based?
In the next article I would like to share a few examples from the above mentioned companies on how they were able to succeed in the subscription model. What exactly did they do to get them here?