Book Club #3: The Automatic Customer, by John Warrillow
We review books you should read in preparation to buy or sell a business, as well as how to build a company to sell one day.
About the Author
John Warrillow is perhaps best known for his book Built to Sell and his creation of the Value Builder System, which is a proprietary scoring system that rates a business’s fitness for sale. But today we’re looking at his book The Automatic Customer, that is identifying a megatrend in businesses these days: recurring revenue and subscriptions.
But my business doesn’t work with the subscription model…
This is probably the main argument John battles in this book. He makes the case for recurring revenue not just as something important for your business if you want to keep it, but of added attractiveness should you wish to sell it.
He also points out that all it takes is a little time and thought to identify how you can add recurring revenue to your existing business, even if you don’t see, at first glance, how to do that.
How will my business be more valuable with subscriptions added, exactly?
Great question. John has several answers, but here are two:
Recurring Revenue
Instead of simply looking at one class of revenue which may focus on sale cycles that are longer than a month or a year, you can count on revenue that just automatically hits the bank, whether it’s on a weekly, monthly, or yearly basis.
Hedge against Recession
One of the things that all business owners know is that during a recession large purchases can be scary and sometimes orders that were “for sure” become “holds” or “cancels.” But if your customers are on a lower-priced subscription model they might be less likely to cancel, especially since the automation of their payment takes away the impetus to have to “decide” on an upcoming purchase.
How will my business be more effective with subscriptions added?
Again, John has several answers here as well, but to focus on two:
It smoothes out demand
Instead of bigger cycles of launch and ship, if you’re in a service business, or manufacture, stock, and ship, if you’re in a product business, you have a steady drip-drip-drip of work, which can add efficiencies to your back office and give you the time and ability to integrate the work for your peak times into your off-peak times, avoiding the “slammed vs. dead” paradigm.
Customers are likely to buy more
Because you already have your customers’ trust and subscription, they’re likely to come back to you for more purchases. The biggest example of this was Amazon’s introduction of Prime. Not only did they manage to introduce a new annual recurring fee for many users of Amazon, but they found that these users ended up buying more as a result of the benefits which came with Prime, not least of which was free 2-day shipping.
Why should I buy and read this book?
Because it’s not a long book – John knows that business owners are busy – but also because it has the documentation, case studies, and examples to prove that you can add subscription revenue even to very old, traditional, established business concepts. This isn’t just for the millennial, pure-play, tech companies. You’ll also be given a fresh injection of inspiration about how to make your business even more valuable!
You can find a copy of The Automatic Customer here. John Warrillow is also on Twitter.
Building a business is a lot of sweat and hard work. But a fair bit of it is learning as well. If you need book recommendations on building, buying, or selling, we have plenty to give you. Just ask!
