Insights and Opinions

How The Subscription Economy is Changing Business

Today, thanks to the Cloud, it is literally possible to have an idea for a new business one morning, and have that business up and running the next day. Resources from server space and database storage to sophisticated software are all available on demand to anyone with little more than a Web connection and a credit card.

Less than a decade ago, a company needed to invest heavily in infrastructure and software, and recruit the right talent to build up an IT department; today, thanks to the Cloud and software as a service (SaaS), you can avoid almost all of that.

The companies providing those resources, and many of the startups taking advantage of the technologies they make available, are riding a wave of success by operating on a subscription or recurring revenue model.

Consumers no longer buy DVDs; you subscribe to Netflix. Companies donít hire programmers to create a system to track customer information they subscribe to For infrastructure needs, they use NetSuite. It is not necessary to buy servers and hard drives as you accumulate terabytes of data; you let Amazon or Rackspace handle your storage needs.

And countless smaller companies are following that model. If you run a health spa, for example, you donít buy, install and maintain software to manage your business; you subscribe to MindBody, which lets you manage appointments, track your clients, collect payments and market your services, all via an online portal.

Starting a subscription company and getting customers has never been easier. Scaling that kind of company is a different matter.

Yes, there are a number of experienced investors eager to help you grow Ė once you hit key milestones. But to do that you need to understand the challenges of this business model, as well as how to manage this new kind of underlying infrastructure. Critical decisions in hiring, marketing and attracting capital have to be made earlier than ever.

Peter Cowen is a veteran of the technology and venture capital industry at Clear Capital Advisors. He is also the organizer of the upcoming Recurring Revenue Conference.