#64 – The Membership Economy (Robbie Baxter & Maz Brumand)

Memberships and subscriptions are a ubiquitous part of the fabric of modern life. But not all memberships are created equal. Only a subset provide true value and cultivate long term “forever” relationships with users. In this episode, Levels Head of Business, Maz Brumand, sat down with speaker and bestselling author of “The Membership Economy,” Robbie Kellman Baxter. They chatted about the concept of memberships, as well as how navigating memberships relates to the Levels business model.

06:34 – Recognize who you are serving

Robbie said that “serving everybody” is overrated. It’s actually more meaningful to deeply know your audience, so that it feels personal.

I think if you start at the beginning, you want to know who you’re serving. And so many organizations say we can serve everybody but really knowing who is it that you’re going to serve first and that you can really serve well and who will recognize the value. And the feeling of being recognized, I think, is really important in an organization that has a membership mindset where they say, “This organization, they know me.” And going off a little bit on a tangent, there’s a lot of talk about privacy, right? And the challenge is, the downside of people not knowing your business is they don’t know your business. They’re not able to help you, they don’t know who you are. They don’t recognize you, they can’t be personal with you. So in a membership organization, recognizing the person first by recognizing maybe the category or understanding where they’re coming from and also being able to see around corners which I think is a really powerful thing that great membership organizations do.

08:55 – The trade-off between privacy & personalization

Robbie said it’s important to keep privacy at top of mind, but also know the customer and be able to deliver the value that they need at the time that they need.

I don’t need to know who you are and what your child’s name is in order to have a pretty good inkling of what’s going to happen at three months and six months and nine months. So I can actually protect your privacy but at the same time, with a very minimal amount of data, be able to provide you almost what might feel like psychic insights and support so, that’s one piece. And I think the bigger idea is that when you ask for data, it’s really important and this gets to your dark matter point too. If you’re taking the data, there has to be a reason for it. That reason has to be clear to you as an organization and it has to be clear to the member as well.

10:36 – The importance of trust

At the core, a successful membership model will thrive on trust. This means putting on your customer hat and paying attention to small details, even if people don’t consciously see them.

I believe that for a membership relationship with a customer, any kind of membership whether it’s through subscription pricing or not, at the core it’s about trust. Because what I’m doing is, if I’m the customer, I’m taking off my customer hat, my consumer hat. I’m putting on a member hat and I’m not looking for alternatives. And I’m trusting that you are going to solve my problem, my ongoing problem or help me achieve my ongoing goal, whether or not I am actively evaluating you.

18**:39 – Creating community**

Some users come to a community for the product, and stick with it because of the community itself.

I get to know the other people that are using that app who have similar goals, similar problems to me and maybe I even get to know other people in the larger ecosystem. So in your case, that might be experts and elite athletes and people that I can learn from. And then, it becomes, “Yeah, I came for something that maybe I could have gotten it elsewhere but I’m staying for the people, I’m staying for the community.” So, I’ve seen both of those things be really valuable and I’ve seen companies, when you first come in, you’re coming for maybe a small feature but very quickly the organization’s moving to, how do we layer in community? How do we layer in benchmarking? How do we layer in some kind of network benefit from having brought all these people together that makes us different and special and more valuable to our members?

26:23 – The power of super users

Robbie defined what super users mean to her, and how most engage for the sake of adding value.

I have this concept of super users which for me, what that means is people who go beyond just being good members. That is, they pay you regularly, they get value for what they’re paying for, they recognize that value. That’s a good customer, that’s a good member, really valuable. But people who go beyond that and contribute their own time and money to the wellbeing of the group. And back to your question about creating community, that’s the amazing flywheel for growth and for value, those people that recruit other people in, not because you’re giving them a free cup of coffee or a $5 discount every time they bring somebody but because it’s meaningful to them to bring other people in, to onboard them.

32:59 – Subscription and “forever” transactions

In the membership economy, there is a concept called the forever transaction, which refers to a commitment to adding value for life.

I talk about this membership economy, right? And I talk about forever transaction and a lot of times people refer to me as a subscription person. But for me, subscription is just a pricing decision, it’s a tactic. And what’s really juicy and interesting and important is this membership mindset, this focus on the long term, this forever promise that you’re making. And Apple, separating out for a minute all the stuff that they’ve done with apps and software and content but just the hardware, they sold that stuff outright. There was no subscription pricing for your computer or for your phone.

35:36 – Optimizing long term relationships

The way you build and market products changes when you begin to prioritize deep and long-lasting member usage.

One of the things that I think organizations don’t spend enough time thinking about is if you want to be optimized for long term relationships, that actually has an impact on the way you build products, on the way you think about marketing because the product has to be able to market itself and continue to deepen the relationship with the customer without the enthusiasm that you have when you walk into the store or go online to buy something that you’re excited to get. So, really thinking about that, what is the culture for forever inside an organization versus the culture of the transaction, the hitting the quarterly number, which is totally different.

41:04 – Subscription fatigue

A positive experience and flexibility will reduce churn in the current era of subscription fatigue.

People are exhausted and I think there’s a couple things you can do if you’re a new entrant into this world, this very, very noisy world. The first thing is to recognize the world that you’re coming into. So the downside is people say, “Another subscription you’re forcing me to subscribe. I just want to own it outright.” Or, “I just want to pay as I go.” Recognizing that and also recognizing that people actually know how to use subscriptions.

Robbie Baxter (00:06):

Many of the companies that I’ve worked with, the ones that have been really able to embrace this most fully, a lot of them are closely held family owned businesses because they don’t have to worry about short term results. They don’t have to fall prey to quarterly capitalism. They can say we’re trying to build something so that there’s something for the next generation to inherit. But it really is a very different mindset to say we’re focused on the long term wellbeing of our customers and we trust that everything else will fall into place. And we’re willing to be patient about the financial payoff to that value that we’re creating and building.

Ben Grynol (00:51):

I’m Ben Grynol, part of the early startup team here at Levels. We’re building tech that helps people to understand their metabolic health and this is your front row seat to everything we do. This is A Whole New Level. In the fall of 2021, we started exploring this idea of membership. What does a Levels membership mean? Why would someone want to be a member of Levels? Well, as we build out this business, we don’t want to be incentivized on selling people any products. Might sound counterintuitive and why would we do that? What’s a company that has an analogous business model? Well, let’s look at Costco, let’s look at Amazon Prime, these are companies where membership is the value.

Ben Grynol (01:49):

They provide value to people through their membership. Costco is notorious for not trying to make money on all these products that they sell. They’re incentivized to provide great products to people at the lowest possible price. Well, when you think about health, you don’t really want a health related company to be making money off of your health. Health is not something that should be a privilege, it should not be inaccessible. It should be something that companies are always working in the best interest of people who use their products. Well, at Levels, if we have what’s called a membership, then we’re incentivized not to sell people on product but to provide them with value through the membership that they choose to opt into.

Ben Grynol (02:31):

That’s the heuristic that we’re using as we build up membership at Levels. So Maz Brumand, one of the newest team members, head a business at Levels and Robbie Baxter, author of The Membership Economy, the two of them sat down and they discussed this idea of membership. What is it? Why is it important and how can we think about it moving forward? It was a great conversation and here’s where they kicked things off.

Maz Brumand (02:54):

Well, Robbie, I’m really excited to have this conversation and I’ve read your two books and there is a million questions but also they really resonated for me. And I know the team’s actually read one of your books and we have this thing called a Book Club which everybody reads the book and then discusses it over an hour of the takeaways. And we’ve done that with your book which was really fascinating. So anyways, excited to get started.

Robbie Baxter (03:29):

Yeah. I’d love to hear what they took away and what made sense and what wasn’t relevant sometime. I would be fascinated to learn.

Maz Brumand (03:35):

Yeah. It’s funny because we approached it from, what do people want to achieve and arrive at membership versus, listening to your books, a lot of people were like, “I want to do membership, so how do I do it?” And the way we arrived there was, there were two components that were really important to us. One is to make sure we actually create value for our customers especially in health, this is important. And then the second one is, align that with our incentives so both our customer’s incentive and Level’s incentive are aligned. And when you actually look at that, it’s exactly what you set out in your book. And I think the forever transaction just sums it up really well in two words because you have to create value and you have to be aligned to create that value, create that forever relationship. So it was really interesting to read you your book and then look at the way we’ve been thinking about it and just really clicked and the team really enjoyed that.

Robbie Baxter (04:25):

Yeah. Anything that’s focused on health lends itself really well to forever because most of us, when we think about why we’re making healthy choices, not always but usually with the long term in mind. So I find it really exciting to think about what you’re doing and what’s possible in terms of really changing people’s long term behavior and continuing to extend the value that you provide them where you are now being a starting point.

Maz Brumand (04:51):

Yeah, totally. And I think in health especially we have to be really careful about, make sure we are creating value. Well, there are three things that we really think about deeply which is, we want to make sure we don’t create dark patterns which is effectively creating user experiences that doesn’t create value or tricks users or creating demand that doesn’t drive value. You can look at a couple of business models that are out there, for example, that’s the opposite of what you described in your books which is, for example, up selling people on stuff. You can think of auto repair as being that or businesses that actually benefit with people not engaging or getting value from the products like gym memberships.

Maz Brumand (05:33):

Their worst customers are probably people that use the gym all the time. Or businesses that actually create demand that doesn’t add value for people. I think some of the pharmaceuticals in the news have been in that way. So we’ve been thinking a lot about how do we actually create a business that’s creating value for people. So we give more than we take, whether it’s through pricing strategy or other values and also making sure that we’re incentivized in a way that the more people use our products and engage with us, the more value we get. And there is a number of things that I would love to dig into and ask questions and would love to get your thoughts.

Maz Brumand (06:13):

One of the things that you discuss, I think, in your first book was this idea of belonging and self-esteem. And we’d love to hear how the companies that you’ve interacted with, who’s done it well and what are some of the most successful strategies that they’ve used to create the sense of belonging and self-esteem?

Robbie Baxter (06:33):

Yeah, it’s a great question. I think, if you start at the beginning, you want to know who you’re serving. And so many organizations say we can serve everybody but really knowing who is it that you’re going to serve first and that you can really serve well and who will recognize the value. And the feeling of being recognized, I think, is really important in an organization that has a membership mind set where they say, “This organization, they know me.” And going off a little bit on a tangent, there’s a lot of talk about privacy, right? And the challenge is, if you don’t want… The downside of people not knowing your business is they don’t know your business. They’re not able to help you, they don’t know who you are. They don’t recognize you, they can’t be personal with you.

Robbie Baxter (07:17):

So in a membership organization, recognizing the person first by recognizing maybe the category or understanding where they’re coming from and also being able to see around corners which I think is a really powerful thing that great membership organizations do. So, for example, let’s say, I have a baby, right? And I join a parenting group. For me, each new experience may be a big surprise. At the beginning, my baby was sleeping through the night and now, all of a sudden, three months in, she’s not. And now she’s eating these foods and now she’s not eating those foods. Well, to me, all of that is a big surprise but to somebody who understands the journey of a new parent, they can guess pretty well that this is what’s going to at three months and six months and one year.

Robbie Baxter (08:01):

And being able to help a person prepare for that journey that feels new to them but is not really new to you as an organization, I think it really does wonders for driving trust, for driving recognition and for giving that person a sense of confidence and wellbeing. Because they feel like they’re in the right place, they’re doing the responsible thing, the good thing, the careful thing and they’ve really reduced risk and increased the likelihood of achieving their most important long term goals.

Maz Brumand (08:36):

Do you think there is a trade off between privacy and that getting to know or did you know business that actually manage to do both really well? Keep the privacy at top of mind but also know the customer and be able to deliver the value that they need at the time that they need.

Robbie Baxter (08:51):

Yeah. Well, there’s a couple of elements to that. So one of them is, I don’t need to know who you are and what your child’s name is in order to have a pretty good inkling of what’s going to happen at three months and six months and nine months. So I can actually protect your privacy but at the same time, with a very minimal amount of data, be able to provide you almost what might feel like psychic insights and support so, that’s one piece. And I think the bigger idea is that when you ask for data, it’s really important and this gets to your dark matter point too. If you’re taking the data, there has to be a reason for it. That reason has to be clear to you as an organization and it has to be clear to the member as well.

Robbie Baxter (09:37):

So if I give you a key to my home because I know that you’re going to check on things while I’m gone, it’s worth giving you access to everything I have. And I’m taking a risk but there’s a good payoff and I also understand why you need a key if you’re going to clean my floors, right? You can’t do it without having access so I think that’s the second piece. So one is, you often don’t need as much personal data, disaggregated data, as you might think in order to provide what feels like a very personalized and relevant experience. And the other one is when you do need more data, I think it’s important from a cultural perspective to be really clear on why we need it and what we’re going to do that provides benefit for the customer.

Maz Brumand (10:18):

Yeah. Sounds like on your second point, that trust is really the core component. Really making people believe and see that giving you things that ordinarily may be uncomfortable is because of who you are and what your principles are, is okay and you will treat that with complete discretion and use it in the way that you’ve told them you’d use it?

Robbie Baxter (10:36):

Yeah. I believe that for a membership relationship with a customer, any kind of membership whether it’s through subscription pricing or not, at the core it’s about trust. Because what I’m doing is, if I’m the customer, I’m taking off my customer hat, my consumer hat. I’m putting on a member hat and I’m not looking for alternatives. And I’m trusting that you are going to solve my problem, my ongoing problem or help me achieve my ongoing goal, whether or not I am actively evaluating you. So if I join a gym, I assume that over time you’re going to swap in and out different equipment. You’re going to change how you talk about nutrition. You’re going to redo the fitness rooms, you’re going to update the showers because the promise to me is that you’re going to help me make it as efficient or comfortable or enjoyable as possible to achieve my health goals in this gym.

Robbie Baxter (11:32):

So the challenge though, is that when I trust you, when I take off my consumer hat and I stop looking for alternatives, I think the temptation on the side of the organization is to say, “Robbie’s not even paying attention. I don’t even think she looks at the bill.” We can throw in some extra add-on costs. We can slowly remove some of the benefits. We can slow down the frequency with which we upgrade things because she’s not paying attention and she has no idea that there’s a gym next door that’s 10 times nicer because she’s not shopping. And I think a lot of subscription based businesses do that. They sort of fall in the trap of saying, “My customer’s not very smart. They won’t even notice.” Instead of saying, “My customer has given me the greatest gift, which is trust and I need to live up to that.”

Maz Brumand (12:21):

Yeah. I love that. One of the concepts we use internally is this idea of painting the back of the fence. It’s paying attention to details, even if people don’t see it. You have to really earn that trust. I love what you just said. Do you think that as this sharing economy and the membership economy, fulfill rights, that privacy will become more and more important for people? It seems like the first generation of the sharing economy or membership was very much privacy was taking a back seat. And it seems like as people are moving more into this world, that’s becoming also more important where both are important. You don’t have to choose between one or the other but really combining those two into a compelling offerings becoming more important especially I would imagine in health, that would be even more important.

Robbie Baxter (13:09):

Yeah, for sure in health. It’s interesting, I’ve been in this world of subscriptions and membership for a really long time. So more than 20 years that I’ve been focused on it. And I remember for example, in the very early years that I was working with Netflix, something that was interesting was they had covered the United States. They’d been able to achieve full penetration across the United States, able to send their three DVDs out at a time with overnight turnaround across the country and they were looking to expand. And one of the biggest challenges was that most of the other countries that they wanted to go to weren’t ready to trust a company with their credit card, with their payment model. And so they went to the UK and they turned around and came back and said, “You know what? They’re not ready. We can’t do this.”

Robbie Baxter (13:52):

And I remember early conversations about how payment work in India versus how payments work in France and all of the different nuances. It was really around trust not around technological capabilities. So the trust issue was there. They were like, “I want my privacy. I don’t want somebody to know my credit card number, they could just go out and spend it on anything.” And then what I saw was this rapid, you go from that, “Why would I give you my credit card?” To, “Sure. Here’s a key to my house. Here’s my ID. Here’s all the information about my family. Is there anything else that I can give you? Do you want my health information?” And all of that to just get access to whatever, to get access to a movie or to buy a sweater online.

Robbie Baxter (14:31):

And I think only a few people were really questioning in it. It was sort of like we had this collective suspended disbelief. “They must need it. I’ll just give them the information and I’m sure it’s safe.” And I think we’ve kind of come all the way to the other end of the pendulum now where people are saying, “Why do you need that? Why do you even need my credit card number? Why do you even need to know my name? I don’t want to tell you anything.” So I think it goes back and forth, how we feel about trust. Most people, I think aren’t very rational about what should be private and what shouldn’t be private and don’t really know what their policy and approach should be. So I think it’s difficult. And I think in the area of healthcare, you have almost a bigger and sort of more sacred trust.

Robbie Baxter (15:12):

There’s a lot of people who joke, the only person who knows how much I really drink or what I really do is my doctor, right? And so in some ways you need to know more about your patient or your customer in order to serve them well but I think that increases the obligation you have and it also, I think, increases the risk of what would happen if you… I don’t even want to say betrayed their trust but even if you let them down a little bit in an area that required trust and around their privacy, there’s big risk there.

Maz Brumand (15:45):

Yeah. And the concept of forever transaction or putting the customer really simplifies that decision. Because if you’re thinking that way, it’s really easy to make that business decision of is there an opportunity to do things that may be short term profitable but long term, destroys trust and the forever transaction, it’s very easy to make that decision which is what we love about the concepts that you cover in your books.

Robbie Baxter (16:11):

I was going to say, something that I found sort of interesting is that many of the best companies that I’ve worked with… I don’t want to say the best but the ones that have been really able to embrace this most fully, a lot of them and this surprised me, are closely held family owned businesses. Because they don’t have to worry about short term results, they don’t have to kind of fall prey to quarterly capitalism. They can say we’re trying to build something so that there’s something for the next generation to inherit but it really is, like you said, a very different mindset to say we’re focused on the long term wellbeing of our customers and we trust that everything else will fall into place and we’re willing to be patient about the financial payoff to that value that we’re creating and building.

Maz Brumand (16:56):

Yeah, absolutely. And it seems technology’s really helped in that way too. It’s make making it very transparent so people will know whether you’re taking advantage of them and that creates almost the policing impact for even big companies. So, it’s all moving in the positive direction when you think about the long term and not the short term or this concept of capitalism gone wrong that we think a lot about. Maybe switching a little bit the gears and talking about, so there’s the customer obviously and there’s the business but then there’s this concept of community. Where have you seen businesses really create a community to bring said values for the customers and put the customers at the center? And obviously the community could be customers but also could be a lot more broad than just customers.

Robbie Baxter (17:46):

Yeah. I think of it as such a valuable lever for any business, any relationship oriented business, to say, what is the role of the community and how can we layer in more value by having brought this group of people together? And so some of that is just the collective data, right? Being able to benchmark people, having some kind of a network effect that creates more value when each new person joins, that’s one way that I’ve seen it work. And then there’s also what I think of as sort of true community, that is that we actually know each other one on one or in small groups. And I think both of those, the network component and the community component, the relationship component, both of those create value.

Robbie Baxter (18:29):

In many cases, even from the business side, those are barriers to entry for new entrants because I might come to you because I need an app and there’s five apps that do the same thing. But then I get to know the other people that are using that app who have similar goals, similar problems to me and maybe I even get to know other people in the larger ecosystem. So in your case, that might be experts and elite athletes and people that I can learn from. And then, it becomes, “Yeah, I came for something that maybe I could have gotten it elsewhere but I’m staying for the people, I’m staying for the community.” So, I’ve seen both of those things be really valuable and I’ve seen companies, when you first come in, you’re coming for maybe a small feature but very quickly the organization’s moving to, how do we layer in community? How do we layer in benchmarking? How do we layer in some kind of network benefit from having brought all these people together that makes us different and special and more valuable to our members?

Maz Brumand (19:28):

What is the right time, especially an early company, to really focus on community? Going from this single player mode to this multiplayer mode? Have you seen examples where companies have done a gradual transition or started from the beginning to put the ground or for creating communities? Can you talk a little bit about that? When is the right time to really focus on community or should startups or companies think about it from the get go?

Robbie Baxter (19:56):

Yeah. So I can give you three old school examples, you have LinkedIn, right? They had a forever promise around helping professionals thrive in their careers, right? From the very beginning. And they had vision of everybody’s going to gather there and it’s going to be how you keep up with your professional community and it’s going to be how you stay in touch with news and how you learn and how you hire and all these different things. But at the beginning, it was really just a pretty easy place to put your resume and that by itself was valuable. So I could put my resume up on LinkedIn if I was looking for a job and when people asked me for a copy of my resume, I could send them there or they could just look it up without even calling me and check me out without having to engage in a job discussion.

Robbie Baxter (20:39):

They had the vision though of what kind of community they were trying to build and how they were going to layer in that value over time. The other thing that they did is they focused on different groups, one at a time. So sales people, recruiters and then job seekers and then the rest of us. So having that focus as they layered in additional benefits, the benefits were very focused. And then it was only much later that they started to actually have benefits that an average working person who wasn’t looking for a new job could find valuable. So their approach was just to summarize, have a great feature that doesn’t require other participants, like you said, one player multiplayer and then layer in the additional value over time.

Robbie Baxter (21:22):

Facebook, which said our whole value is community is interaction, is the real relationships. Originally it was the real relationships that you have in real life but in this digital format. For them, it was really important to take one small group at a time, right? So one school then the next school, then the next school and a long time before they let in alumni and then general population so, that’s a second thing. Its to take small groups that exist in real life or that have a very, very, very tight, real connection already and then layer in other benefits over time. And then the last thing is and I mentioned Netflix, they’ve experimented a lot with community and for the most part community hasn’t ended up being a really important part of their business model.

Robbie Baxter (22:03):

Now the data behind all of us and recognizing that even though there’s some person in Topeka, Kansas who likes the exact same content that I do, it’s probably not a good friend of mine. I have a greater likelihood of having the same movie tastes as some random person in another part of the country. Much higher likelihood than I have the same taste as honestly, my husband who lives in the same house as me or my neighbor or somebody that I choose from my movie community. And so in that case, community wasn’t a really big part of their strategy even though at the beginning, I think there was some consideration for it. So I think it’s also important to be open about how much is this helping us in achieving the goals that we have.

Robbie Baxter (22:43):

I used to think that any membership organization, you had to be friends with the people that also were subscribers or also members. But I don’t know the people that have AAA, I don’t know the people that have Netflix, there’s lots of things where just because you and I are both members of something that I want to talk to you about it.

Maz Brumand (23:02):

And if you think about the guiding principle then, when is community really helpful to a business? Are there things that could be a good guide for people when they’re thinking about community such as network effects or what would they be?

Robbie Baxter (23:17):

Yeah. So I think, and this kind of gets to freemium which is the question too, the role of free, a lot of times community or the network effect having a lot of people that have a shared goal or a shared problem that they’re trying to solve, having them together creates value for the people who are willing to pay. So, that’s kind of one reason to think about community. If you said, having all these people together, we can do more for our customers if we had access or a connection or relationship with those people whether or not they’re going to pay so that’s one reason. A second thing is if you have a topic that people want to talk about and they don’t have ready access to other people they can talk to about it.

Robbie Baxter (23:56):

So that’s why you see things like very special kind of niche areas where community pops up because who else am I going to talk to about my macrame habit or my really rare health condition. It’s nice to have somebody else do the work of bringing those people together. Also when facilitation is important, sometimes that creates value if it’s something sensitive or touching. You say, “I want to be with people but I want…” For example, a CEO group. I want to make sure that we have shared values, I want to make sure that we don’t devolve the conversation into things that either aren’t helpful to me or waste my time or create bad feelings then I want to keep this stuff confidential. So that’s another case is when the information is sensitive or high stakes or hard to get, I think those are all reasons when community really comes into play.

Maz Brumand (24:47):

That makes sense and then tying to the origin, the first concept I think we talked about, self-esteem and sense of belonging. How does community help with that?

Robbie Baxter (24:51):

I never thought about that, that’s a good question. How does community tie into creating self-esteem? Well, if you think about Maslow’s hierarchy of needs, right? The middle one is belonging and the one right above that is esteem, right? And the first one is, I want you to recognize me and say, “Hey, Robbie, welcome back. Do you want the usual? How are your kids?” None of that has anything to do with my status. It just means that you recognize me and you see me for who I am and I’m not a stranger and that’s really valuable. But taking that one step further, recognizing me for my contributions and achievements, which is how I think about esteem, that’s one level higher of belonging, right?

Robbie Baxter (25:33):

If you say, “There’s Robbie, I know her.” Great. If you say, “There’s Robbie, she’s so helpful. She knows so much.” Right? Big contributor, big achiever, that both creates more value for me. It creates a deeper sense of belonging. I mean, there’s so much data that shows that if you want to get somebody to give money to your nonprofit, the first thing that you do is ask them for advice or help and then later you ask them for money. And that really works because somehow… I forget, there’s some name for it but you get more committed when you feel recognized.

Maz Brumand (26:04):

Makes sense.

Robbie Baxter (26:05):

You want to give more.

Maz Brumand (26:07):

And I wonder also because it’s coming from a neutral third party, other community members, it’s probably a lot more valuable than if it’s coming from the business because it feels a lot more genuine and it’s more than one entity that has that point of view.

Robbie Baxter (26:22):

Yeah. It’s interesting, I have this concept of super users which for me what that means is people who go beyond just being good members. That is, they pay you regularly, they get value for what they’re paying for, they recognize that value. That’s a good customer, that’s a good member, really valuable. But people who go beyond that and contribute their own time and money to the wellbeing of the group. And back to your question about creating community, that’s the amazing flywheel for growth and for value, those people that recruit other people in, not because you’re giving them a free cup of coffee or a $5 discount every time they bring somebody but because it’s meaningful to them to bring other people in, to onboard them.

Robbie Baxter (27:05):

So to say, “Hey, welcome to the group. This is how we do it here.” Which I actually saw a lot on the Levels Facebook page, right? Where people say, “You’re having this problem? It’s probably this.” “You want to achieve that? Here’s what I do.” And then the third piece is giving feedback back to the organization which I know you also are doing in very proactive way. People sometimes joke, “I don’t really want that kind of help from my customers. Don’t tell me what I’m doing wrong, it’s so annoying.” But that is a gift, right? And organizations where your most loving and engaged members are actually taking the time to give you thoughtful feedback to make the products and services better, that’s incredibly valuable.

Maz Brumand (27:45):

Yeah. We have another internal value which we call, feedback a gift. Both when we’re working with each other and obviously from our customers so we always view that as a gift so it really resonates. Another angle of thinking about delivering value for our members that we think about is this idea of ancillary services or it should take even a broader marketplace, what are your thoughts around when is it the right time and what’s the form in which either ancillary services, which is a much more limited version of the marketplace or marketplace could really help deliver value for members?

Robbie Baxter (28:25):

Yeah. What always guides me is that forever promise. So if you’re saying our promise is health, I think it’s not realistic that any one organization can provide everything that a person needs to be healthy. And so you say, well, how are we going to increase? This is what I always ask myself, how do we increase the likelihood of each member achieving the promise that we promised them, achieving the goal that we promised them? So if we say, we’re going to help you lose weight, right? One way of doing that is to give them verbal guidance, “Here’s how people lose weight. Write down what you eat and eat less and make better choices.” “Here’s a list of the better choices. Here’s a store where you can buy the ingredients. Here’s a restaurant where you can get that food. Here’s a person who lives in your house who watches what you eat and tells you to stop when you’re about to pick something up and exercises with you.”

Robbie Baxter (29:10):

Each one of those things increases the likelihood of you achieving your goals. And in terms of which of those things you should do, you said as ancillary benefits, meaning I think that we as an organization provide ourselves versus where do we partner or even more broadly, when do we just open up the doors and say, “If you think you can help with this challenge of helping people get fit or lose weight or stay healthy, come join us.” I think the timing on that and which one, that is your business strategy, right? And every organization sort of has a different approach. Some really want to have a wild garden, others really want to bring everybody in. Some of them have a hybrid where they say, this is a curated marketplace and anything that you have access to is something that we as an organization back up, right?

Robbie Baxter (29:59):

We support it, if you have a bad experience you call us, you don’t have to call them. I think that those are really important strategic questions. And I think that there’s some opportunity and there’s some risk. The opportunity of course is that you’re giving that member more ways to achieve their goal faster. The downside is there’s increasing complexity and responsibility on the part of the member to figure out what’s the best way for me to achieve my goal both in terms of which features, which products, which services and also how much should it cost me. And the more I have to think about it, the less I’m able to relax into the relationship with you and say, “I just trust them. They’re going to tell me what I need to do.” And so there’s always this trade off.

Robbie Baxter (30:42):

And I actually think that it’s often different kinds of people who say, “Just let me add it, send me to the marketplace and I can figure this stuff out. I’m a researcher, I’m a shopper.” And then there’s other people that are like, “Here I am, I’m in your hands. Help me figure this out. Tell me what to do and I will do it.” And so I think you have to decide which way you’re going, right? I mean, my kids have just gone to college and I’ve gone through a lot of SAT stuff. And there was this guy in our town who does SAT prep and he has a book and it’s 700 pages and it talks you through every single question type that you would ever see in the ACT or the SAT tests and how people make mistakes and different strategies to use. I mean, it’s like an encyclopedia of how to take this test and that book, I think, is $50.

Robbie Baxter (31:34):

And if you want this guy to have your kid take a practice test, figure out where their weaknesses are and give them the four pages that they need, that’s thousands of dollars, right? So in other words, people pay more money for less information that takes less time, right? Because they’re like, “I want the outcome. I want to do well on the test.” Not, “I want all the information.” And so when you’re thinking about your business model, it might feel like giving somebody access to a marketplace of everything they could possibly want, it’s great but a lot of people would say, “You know what? I’d actually pay you more if you just told me, Hey Robbie, honestly, this is what you need. You need this, this and this and this one seems expensive but it’s worth it.”

Maz Brumand (32:18):

Yeah. It’s actually a really good framework. The way we think about it is what is your product offering people? And obviously saving people time, money, [inaudible 00:32:26] paradox of choice is a value creation method that you can key on versus providing everything to people and then they’re just lost in the paradox of choice and also quality sometimes is not clear. It almost reminds me of the early days of a Macintosh versus a PC.

Robbie Baxter (32:48):

Totally.

Maz Brumand (32:48):

Whereas you could put anything you wanted on your PC, Macintosh were, it is what it is. It’s a lot easier to [crosstalk 00:32:55]-

Robbie Baxter (32:55):

Right. And I think it’s such a good example. Apple, I talk about this membership economy, right? And I talk about forever transaction and a lot of times people refer to me as a subscription person. But for me, subscription is just a pricing decision, it’s a tactic. And what’s really juicy and interesting and important is this membership mindset, this focus on the long term, this forever promise that you’re making. And Apple, separating out for a minute all the stuff that they’ve done with apps and software and content but just the hardware, they sold that stuff out right. There was no subscription pricing for your computer or for your phone.

Robbie Baxter (33:30):

But people would come into the store and say, “Hey, I’m an Apple person. What kind of phone should I get?” Or, “I’m an Apple person, what kind of computer should I get?” And they’d say, “You want this one.” And they say, “I’m an Apple person, what kind of printer should I get?” And they would say, “Well, we don’t sell printers.” And the person would say, “Okay. Well, what printer should I buy then? Can you tell me which printer I should buy?” And that is membership because people said, “I’m an Apple person, tell me what to do.” The outcome that I want is I want all my stuff to work together. I want my hardware footprint to just work and I don’t know what that means but I know you do and that’s what I want and I’m paying a ridiculous premium to make sure that everything works together.

Maz Brumand (34:10):

Yeah, definitely. For a long time, Apple, you could fit all of Apple’s products onto a regular size table and you would then paradox of choice was a big component of that. And then obviously with app store, it found a way to allow both this idea of a controlled or a closed environment but also open. And it’s definitely business model innovation where you combine this idea of creating a marketplace where it doesn’t create this free for all very difficult market place to navigate. At the same time, as you said, this forever promise of allowing people to have different ways to achieve their goals.

Robbie Baxter (34:49):

Yeah. And one thing that when you said that that made me think about is that a company like Apple that went from being this kind of walled garden, this small set of products that worked beautifully together where they would say, “You know what? We don’t have a solution for that. So if you want that, you have to go somewhere else.” To being this marketplace and also of course the big part of their business now is subscription based, recurring revenue oriented. It’s a different culture within the company requires a different mindset, different metrics, different way of even designing product because when you’re designing for the long term, you’re not just thinking about what are the acquisition benefits, those benefits that you put in your headlines that get somebody to sign up, but what are the features that are going to get somebody to make it into a habit and maybe expand the relationship over time?

Robbie Baxter (35:36):

So one of the things that I think organizations don’t spend enough time thinking about is if you want to be optimized for long term relationships, that actually has an impact on the way you build products, on the way you think about marketing because you actually have to market after you’ve… The product has to be able to market itself and continue to deepen the relationship with the customer without the enthusiasm that you have when you walk into the store or go online to buy something that you’re excited to get. So, really thinking about that, what is the culture for forever inside an organization versus the culture of the transaction, the hitting the quarterly number, which is totally different.

Maz Brumand (36:13):

Yeah. Actually you asked at the beginning of the call, what did the internal team think of the book and feedback? One of the things that we loved was this idea of farming versus big game hunting. It is true, when you’re a membership and I think also you talked in your books and I want to talk through this at the end of maybe this conversation of how do you actually create membership that is beneficial because there’s not so many membership businesses? One of the concept was this idea of, if you let people cancel easily then how do you create a membership business that people want to be in which is similar to farming versus big game hunting? Because you need to keep people there and solve problems for them continuously versus just get them in the door and hope for the best.

Robbie Baxter (36:55):

Yeah. And it’s hard. I mean, there’s lot of companies and there’s a lot of jokes about trying to cancel your gym membership or trying to get out of some… It was easy to get in and it’s impossible to get out. The FTC right now is creating some new legislation, some new rules regulation around, if you can sign up online, you have to be allowed to cancel online. You can’t require somebody to call if you didn’t require them to call to join and some other principles because so many of these companies are bad actors, right? I mean, they really say, we’re going to lock them in. We’re going to make it hard for them to get out and back to this quarterly capitalism, it does create more revenue in the short term, right?

Robbie Baxter (37:37):

If you make it really hard for me to cancel, I say, “Screw it, I’ll wait another month.” And maybe two or three months go by before I really focus in on it again and say, “Today’s the day I’m going to cancel.” But in the long term, that means I’m probably never going to come back and I’m going to tell all my friends about my bad experience and so in the long term, it does not pay off. The other thing is if people are canceling, it’s really important to understand the reasons for the churn, right? And are they acceptable or unacceptable reasons. So if I join a gym and then I cancel because I move across country, that makes sense. People who move away from a gym should not be members of the gym if you’re not going to be able to take advantage.

Robbie Baxter (38:14):

If I cancel my gym membership because I always have to wait in line for every single machine and I ever get into the classes and the shower is moldy, that’s a product problem, right? If I say, “You know what? I’ve taken every class that you have and I’m sick of them and there’s nothing else for me to learn here. I can do those exercises at home for free, the same thing that I’m doing with you for money.” Then you say, “Do we offer more or do we gracefully let people go?” And maybe even say, “This is a membership that’s great for six months, it’s not really forever.” And I think a lot of organizations aren’t honest. So if I have a program that teaches you, let’s say, how to start a business and I want you to stay in it forever but the first six months is when the great value happens.

Robbie Baxter (38:57):

And then after that, all you really want honestly, is the community of the other eight people that went through the program with you, I need to be honest about what’s in the best interest for the customer. The best interest for the customer, they don’t really need access to the beginner courses anymore. They do really need access to the friends that they made so can I create a lighter maintenance program for them or an ongoing program? But I think when people are leaving and a lot of times people kind of game the system, they join for three months, they cancel for a little bit, they come back later, getting really curious about why that’s happening and saying, is that a product problem or is that in fact the best way for this person to have the experience and how can I structure the product in a way that makes more sense for that customer so they don’t have to game the system?

Maz Brumand (39:38):

Yeah, that makes a lot of sense. I think even Sam had a tweet about difficulty of canceling memberships and having to call customer support and be on the phone for a period of time. And it’s frustrating and with Twitter and all these social media, the information and news travels very fast. So it’s not in the best interest of businesses to create these dark patterns.

Robbie Baxter (40:06):

Yeah, I don’t think so.

Maz Brumand (40:09):

Since we got into this topic, obviously one of the criticism of membership economy is that now at a million of them, right? How do customers navigate the membership economy? And then what are the good practices to actually be contributing versus the detracting? I think one of the examples we just talked about was a lot of people to cancel quickly and easily but what are some of other things that businesses can do to create a positive experience?

Robbie Baxter (40:41):

There’s definitely a big case of subscription fatigue out there where people are like… Five years ago or eight years ago when I told people that I worked in subscriptions, they’d say, “I don’t really understand what that is for a job.” And then they’d probably move away and go talk to someone else. And now they come closer and they tell me of their horror stories, right? “You work with subscriptions? Subscriptions are terrible, I hate them. I have so many, I can’t remember blah, blah, blah.” So it’s definitely changed. People are exhausted and I think there’s a couple things you can do if you’re a new entrant into this world, this very, very noisy world.

Robbie Baxter (41:12):

The first thing is to recognize the world that you’re coming and do. So the downside is people say, “Another subscription you’re forcing me to subscribe. I just want to own it outright.” Or, “I just want to pay as I go.” Recognizing that and also recognizing that people actually know how to use subscriptions. So back to the story with Netflix not being able to go to certain countries, because the countries weren’t ready, everybody knows how to subscribe, right? My parents subscribe to all kinds of things. They’re comfortable with giving up their credit card or having Apple Pay or whatever the case may be, that’s good news. But the first thing is to recognize the environment.

Robbie Baxter (41:42):

You want it not over build. I think there’s a lot of issues around product market fit with subscriptions, either with people saying, “All I need is I need to use this product once and they’re requiring me to subscribe for a year.” Or, “I just want to watch this soccer match but they’re requiring me to join for the whole season.” So really thinking about whether you’re going to force people to buy more than they need or whether you’re going to really optimize the membership to justify. Not everything needs to be a subscription. We don’t need everything on an ongoing basis. Some things have a finite duration or are episodic in nature and we don’t need them unless certain things are in play, that’s product market fit.

Robbie Baxter (42:20):

Second issue is when I think of a subscription guilt which is, it’s a good product but it’s too much and I don’t use it and I feel bad about myself so I’m going to cancel and that’s the New Yorker problem, right? The magazines are piling up, it’s not that they’re too expensive. I think it’s a fair price. And it’s not that the content isn’t good, I never get through them all and then another one comes and that makes me feel bad about myself so I’ll cancel for a while and try to get through these and maybe I’ll subscribe again next year. Same thing with a lot of the meal kit companies, right? Nothing feels worse and you have a meal that’s about to go bad in your fridge and your friends invite you out and you’re like, “I’m sitting home alone eating my Blue Apron meal because I promised my partner that I wasn’t going to throw it away and waste it.”

Robbie Baxter (43:04):

So making sure that you right size things and also that you set expectations accordingly. So for example, saying, I have a client that has a produce box that comes every week and it’s great. It’s great for the farmers, it’s great for your health but people throw away some of the food and they feel horrible about themselves. And so, one of the things that we’ve done is we’ve set expectations through our communications with them that it’s okay to sometimes throw out a rotten piece of fruit or some rotten leaves, leafy greens get old faster when they’re organic and it’s okay to throw it away because you’re supporting the farmers. The likelihood that you eat it is much higher if it’s within arms reach.

Robbie Baxter (43:41):

Setting expectations, it’s okay to read two articles in the New Yorker, you don’t have to read them all. I think that’s also really helpful. And then the last one is, make it easy for them to leave so that when they come back, they want to come back. Make it easy to leave, make it easy to come back and understand why they’re leaving and try to fix those.

Maz Brumand (43:59):

Yeah. Or you put your membership on pause, right? You don’t have to [crosstalk 00:44:02]-

Robbie Baxter (44:02):

That’s very popular now.

Maz Brumand (44:04):

Yeah.

Robbie Baxter (44:05):

Especially for solutions where you know that there’s a problem with subscription overwhelm or subscription guilt where the Dollar Shave Club, right? Sometime people would have the problem saying, “Well now there’s too many razors or I have too much shampoo from one of the hair products.” Being able to pause it so you can catch up. They know that’s an issue. So when you know it’s an issue, you want to come up with a remedy that makes sense for the person who says, “I love this company. I love what they’re doing but it’s too much for me.” What do you do for them? How do you right size it?

Maz Brumand (44:38):

Makes sense. You make me feel good about my Outside Magazine membership now because I love that company and everything they’re about but I definitely have probably 10 editions that I need to catch up on but they’re such great company. [crosstalk 00:44:52]-

Robbie Baxter (44:52):

Yeah. And they’re doing really interesting things with their bundling with all the different companies that they’ve acquired with the goal of helping people enjoy their time outside and moving beyond just content to include apps and events, food and other things that contribute to your enjoyment of an act of life outside. So, I’m pretty sure they’d be okay if you’re only reading one article per issue as long as you’re getting outside.

Maz Brumand (45:20):

Yeah. Actually I learned about all their other services through your podcast. Like, wow, they have all those things. I’ve never even knew so-

Robbie Baxter (45:26):

[inaudible 00:45:26]-

Maz Brumand (45:26):

Yeah. I need to go check them out again but I love to the brand. Maybe changing gears a little bit into one of the things that maybe early startups struggle with is this idea that they’ve created a product and it’s successful for their early customers or a niche group of people. And now they have to think about how do they actually make their products mass market? Do you have any thoughts around, how do you manage both creating a product for people that were your best customers, early customers, and not alienating them and also transitioning to a more mass market where maybe the needs are different? I’ll give you an example. For example, maybe in health, early adopters are over optimizers. They love graphs, they love charts, they do all the research themselves. And maybe when you go to mainstream, people actually want more easy to digest information and advice. So can you talk us through how people have made that transition successfully?

Robbie Baxter (46:33):

Yeah. I mean, I think of it as expanding over time. So when I work with organizations, we’ll often start with like a very small group and often it is that kind of leading or bleeding edge customers that are willing either to put up with a lot of clunky ness because they value what’s at the core and a lighter, more general, member wouldn’t be as patient. Or because they truly are a different group, like you said, they have different needs. They love the data and they’re quite experts. One of the things that I encourage companies to do is to think hard about who that early group is and why you picked them. So did you pick them because they’re the ones that can pressure test the product and make sure it works?

Robbie Baxter (47:13):

Or you picked them because they’re the influencers that’ll tell other people? Or you picked them because they’re going to help you make the most sophisticated product? But to know why and then to say, what is the next group that we’re going to add? What do they need that’s different? Is it less, is it lighter? Is it easier? Is it more elegant? Is it cheaper? Really to understand what’s the difference between those people and what additional benefits or features do you need to layer in in order to make it work? One of the challenges that often happens when you start with what I think of sort of the leading edge, bleeding edge members, the ones who are always pushing the envelope and want the new, new thing is, those people are very hard to retain.

Robbie Baxter (47:56):

Because almost by nature, they want something that nobody else has heard of. So even if you take your product and make it better but now people have heard of it because it’s so darn good, those people are going to say… I mean, they’re not going to say this out loud because it sounds stupid but they’re going to say I’d rather have a product that’s not that good that nobody else has seen yet and be part of that exciting newness than be on the bandwagon, right? The people who had Peloton in the early days, a lot of those people have moved on, right? To whatever the next new thing is. And when I was working on my first book, one of the people I interviewed was the founder of Pandora and he said music is something where there’s definitely an in-crowd, the people that know the latest, coolest music but there’s also a lot of people who love 80s tunes and love Frank Sinatra and music that’s not cool.

Robbie Baxter (48:44):

And they said, we knew that since we were trying to build habits and make people stay that maybe it wasn’t important for us to get those leading edge music fans as much as it was to have a product that everybody felt welcomed in. And so they did for example, town halls, where they went to the flyover states and the Midwest and talked to groups of people that weren’t necessarily known for being music experts, music aficionados, and saying what we want is for you to enjoy listening to music. We have no judgment. if you want to listen to tunes from the 80s or if you want to listen to the latest indie bands, no judgment here, we want you to enjoy. Because they knew that that cool group was going to leave as quickly as they came.

Robbie Baxter (49:30):

And I thought that was really, really wise and interesting to say, we know who we want and our best customer is someone who stays with us for a long time and that profile is this. So a little bit of a rambling way of getting back to the original question, which is, think about who is going to be the customer for the long term. And you might say that your original group of members, they are going to stay for the long term and they are your ideal member and you need to find more of them. Or you might say, we know we’re going to lose some of these people as they move on but they’ve been tremendously valuable for us and we’re always going to make sure that we can serve them well. But we’re going to optimize toward a person who’s just trying to be healthy as opposed to a person who’s trying to optimize their performance.

Maz Brumand (50:14):

Yeah, makes sense. And I think a difficulty becomes by continuing to support something that’s legacy, you accrue enough that the experience eventually degrades for everyone. And so really thinking about the bigger picture of we’re going to provide the best experience for our customers and that may mean that we have to sunset some of the old features seems to be the un-intuitive decision but-

Robbie Baxter (50:41):

Yeah. My recent book, the forever transaction, when we’ve talked today a lot about the launch phase of getting started and finding product market fit and making something happen. And then the scaling phase, which is what we’ve really talked about, how do you grow that? How do you operationalize something? Different kinds of skills, different kind of focus. The last phase is how do you stay relevant over time? And this is where that sun setting that you brought up Maz, that becomes so important because you start to just have all these barnacles on your product. All this old stuff that maybe doesn’t work as well but there’s three people who like it. I worked with an association, been around for 100 years, professional association and they actually had a question of, we can’t continue faxing our stuff out and start an online newsletter so which one should we do?

Robbie Baxter (51:29):

Because many of our most loyal and engaged members really love the fax and nobody of our members loves the newsletter because they didn’t have one. And this was a serious conversation and they thought that they were being very strategic because everybody says, focus on your best customers. And they were like, these are our best members, they’ve been with us for 45 years, they’re about to retire. And so I think one of the big challenges for membership organizations is to look as much at your acquisition metrics as your retention metrics and to balance those two, most companies over index on one or the other.