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The Double-Edged Sword of Explosive Growth

3 Mins read

Managing Customer Experience and Alternative Payment Schemes for New Startups

Envision this: your business idea is a colossal success. Sales are off the charts. But now, all of a sudden, you are facing many issues that come with rapid growth. Fulfilling a wave of new orders takes capital. You’re facing the daunting prospect of serving a hundred new clients, all while your team is still comprised of fewer than ten employees. If your new business relies on the more popular subscription model, rapid expansion becomes even more challenging to manage and finance. Doing so successfully is about balancing the growth rate with providing high-quality service to your existing customers.

Subscription Mania

The modern customer is more savvy and well-informed than ever before. They value flexibility and the ability to choose the best option that suits their needs. This has led to the rise of subscription-based payment services. These come in several forms, ranging from extended mini-loans that allow customers to offset the payment for a product over some time to freemium subscriptions where customers gain access to basic features for free to entice them into paying for premium features once they see the value. These schemes can also vary in their term length and payment frequency. Shorter-term customers may opt for a monthly payment plan at a slightly higher price point, knowing they can cancel it any month.

Subscription models also provide some benefits to the retailers. In addition to attracting customers from a broader range of individuals thanks to a lowered barrier for entry, subscription models can also help to provide a much-needed surge of initial funding when the first wave of subscribers signs up. Monthly and annual subscriptions also offer a level of predictability in terms of future revenue streams.

When interest rates were low during and directly after the COVID-induced lockdowns, many companies turned to subscription offerings to expand their customer base when people were struggling. Now, rates are higher, and some companies that started during this time face difficulties. More careful planning and management is crucial to continue successfully operating subscription-based business models.

Company managers must also be aware of the unique challenges of offering subscription services to their customers. Many of these challenges are also exacerbated by the rapid, early-stage growth that most new companies hope to achieve.

Rapid Early-Stage Growth: a Double-Edged Sword

If a new company rapidly gains popularity and demand in its initial stages, it can seem like the perfect series of events. But when this demand outpaces the young company’s ability to satisfy every customer, it can lead to an outcome much worse than staying small. Customers of a new brand are much more likely to hold them accountable for customer satisfaction issues and other perceived problems with the product. This is especially true in emerging industries. If a company grows too fast that it starts letting down its customers, either through delayed delivery, unavailable customer service, or any other issues, it could rapidly lose most or all of the customers it so rapidly gained. This would be the death knell of most startups wanting to establish themselves in a given industry.

In any given competitive industry, there will likely be one or two companies that make it out of ten or more trying to do the same thing. The key is to grab early attention and growth while prioritizing customer experience and retention.

The subscription model adds another layer of difficulty to this rapid growth phase. Under a traditional model, a company is paid for the product upon delivery. The capital that goes into creating the product is recapped in full. Under a subscription plan, the company is still responsible for the product’s total value when the first payment is made, but the total value may not be paid back in full for months or even years. Under a shorter-term subscription plan, users may cancel their subscription long before the product’s value recaps.

Balancing Priorities

Early-stage managers face the challenge of balancing several priorities. Attracting new customers costs more per customer early on, suggesting spending on marketing should be prioritized. But if that prioritization comes at the expense of customer retention and experience, the growth will be unsustainable. Offering subscription pricing schemes will help to attract more customers more quickly, but if financial outflows are a problem, subscription models could leave new companies strapped for cash.

While the initial growth phase can potentially present dilemmas in cash flow, a strong focus on customer retention from the start can lead to long-term advantages. A stable base of dedicated subscription customers is a valuable predictable revenue base to build a successful company. As your company matures, the focus must shift towards continual innovation. Staying attuned to market needs and the desires of your customers is essential to avoiding the revenue dips that will come with being perceived as out of date.

With over 15 years of dynamic experience at the crossroads of finance, entrepreneurship, and sustainable growth, Zahra Yarahmadi excels in strategic financial management. Passionate about mentoring startups, she has aided over 100 ventures in securing $200 million in pre-seed and seed funds in the last four years. Her unique perspective, gained from working with venture capital firms and startups, provides a deep understanding of aligning goals for sustainable business success.

Ecommerce stock image by SaiArLawKa2/Shutterstock

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