The founder of a $3 billion tech company warns: 'Don't go to business school. Everything you're taught in business school is wrong.'
- The subscription business model is all the rage these days, and for good reason.
- Done well, subscriptions create loyal customers and long-term cash flow.
- But hardly anyone knows how to do them well, and business schools haven't caught up in how to teach them, says Tien Tzuo, an early Salesforce employee who recently took his own cloud software company public.
- There are some straightforward ways to avoid the pitfalls.
The business world is undergoing a sea change these days as the idea of "ownership" is being replaced by the idea of sharing, says Tien Tzuo, CEO and cofounder of Zuora.
For instance, we stream music and movies instead of buying CDs or DVDs; we rent everything from clothes to power tools instead of buying them. Companies also rent software from the cloud instead of buying it, and all the servers and data centers required to run it.
And we often do it all on a subscription basis, paying per month, quarter or year. And it's this latter part of the equation that changes everything, Tzuo says.
Tzuo just released a book called, "SUBSCRIBED: Why the Subscription Model Will be Your Company's Future - and What to Do About It" where he explains why the world has changed from buying things to renting and sharing things, and how the concept has invigorated even old established businesses from software to manufacturing.
He's seen the shift first-hand. Tzuo was employee No. 11 at Salesforce, one of the software companies that pioneered the concept of subscription-based software. He left Salesforce in 2008 to found Zuora, a cloud-based accounting software company that helps companies bill for their subscription services.
Tzuo has staked his whole career on what he calls the "subscription economy."
It's paid off for him, too. Not only has his alma mater, Salesforce, become one of the biggest most powerful cloud software companies, but he just led Zuora through a successful IPO.
"We don't have to convince people that the world is moving to subscriptions," Tzuo says.
That said, this model is still so new, that most people don't really know how to do it, he says.
"They think, I'm still selling the same product, I'm just making them pay per month," That "naivete" will lead to failure, he says.
He points to Blue Apron as an example, which is notoriously struggling to scale its business.
Instead, "you have to change how you run companies. You have to change how you build products, you have to change how you do marketing and sales completely changes, and even the company culture completely changes," he says.
With subscriptions, the business shifts from convincing people to buy a product (including anti-customer practices like planned obsolescence). It's now about convincing them to keep using a service.
Jeff Bezos agrees
Amy Harris/Invision/AP Images
In this new world, the only companies that will survive are the ones that know everything they can about their customers.
This is Amazon's super power, Tzuo says.
"Amazon knows how many things I bought and sold, movies I watched, and now, through Alexa, knows how many times I asked about the whether," he explains.
Once you know who your customers are, you can then communicate directly with them. That changes sales, marketing, product design and customer support.
Amazon founder Jeff Bezos described it this way in a recent interview, "We talk about it, customer obsession, as opposed to competitor obsession."
"No matter how far in front you get in front of competitors, you are still behind your customers. They are always pulling you along," Bezos explained.
Business schools are '20 years behind'
Meanwhile, business schools are still "20 years behind" in understanding this shift, Tzuo feels.
"Don't go to business school," he says. "Everything you're taught in business school today is wrong. School still doesn't talk about these things."
That means the only way to learn is from people who have successfully run subscription business.
He's not shy about pointing to his book as one place to learn, or to other books written by other people that teach about this model.
But he also suggests going to conferences that focus on this business model, as well as meeting and networking with people doing it well. Hiring folks from successful subscription businesses is another way to bring that experience in house.
"When you start with the customer and you stop thinking about the product all sorts of things happen," Tzuo says.