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No Subscription Model Should Last Forever

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Joe Patti

I was listening to an episode of How I Built This where Guy Raz interviews ClassPass founder Payal Kadakia.

At first I was just drawn to listen because Kadakia presented a familiar story of someone who loved dance and continued dancing even as she was studying Operations Research and Economics at MIT. As I got into the story, I realized it held some lessons about discounting and subscriptions for arts and culture non-profits.

It was the desire to dance that lead her to found the earliest iteration of ClassPass. She was looking to take a class in NYC and couldn’t figure out time, place, price and transportation. She struck on the idea of making a search engine that would unify this information and allow you to find and make reservations for classes in the way OpenTable allows you to make restaurant reservations.

The idea was so compelling to people that when her boss at Warner Music called in her to ask why she was quitting, she walked out with a $10,000 check from him as an investment in her unformed company. While the company was feted with great fanfare, it took 10 days before they had their first reservation. Kadakia says that is when they approached the dance & exercise studios to get a sense of customer behavior and realized that unlike plane and restaurant reservations where people have already made a decision they are going to fly or go out to eat, people looking for classes  (this is ~2012) hadn’t decided to take a class.

This is where the lessons about human nature, discounts and subscriptions starts to kick in (about 34 minutes into the show.) As Guy Raz observes, in the course of about 5 years, Kadakia ends up running 5 different companies because the business model changes so drastically. (It may not seem drastic on a small scale, but when you realize she goes from raising around $40 million in her second round of funding to a recent $1 billion valuation, each change has big implications.) Kadakia says each time they changed the model, human behavior changed on them.

One of the first things they did was offer 30 day passes to a range of different classes. They promised studios around 70% of people would convert to more permanent students. It ended up about only 10% did which Kadakia admits was unfair to the studios. What they discovered was that people were continuing to take classes by signing up with a new email address. Now, my first instinct was to accuse them of gaming the system and curse them under my breath.

Kadakia and her team may have done that, but what she said they realized was that people enjoyed being able to attend a variety of classes. Instead of $45 for a 30 day product, they moved to a subscription model for $99 where you could take up to 10 classes a month, but no more than three at the same studio. Eventually they moved to an unlimited class model.

As the company grew, the fitness industry of spin, barre, bootcamp, etc classes was growing as well and they began doing business with bigger, more marquee names. This raised the average per-class rate they had to pay to studios. Kadakia says they reached a place where they were faced with adopting the business model most gyms use where they are counting on you not exercising in order to make their money. As someone who both continued to dance and took classes every day, she felt the idea of betting against their customers was anti-ethical to their founding principles of getting people to exercise.

Faced with the prospect of having a lot of people angry at them for drastically raising the price of the unlimited pass, they moved away from that as their core product and now package classes differently.

As referenced earlier, one of the main things I took away from this was that sales and subscription models not only need to be structured differently for different communities, but potentially changed up across the lifespan of your organization because audience dynamics and expectations are likely to evolve. I fully expect most venues will find the ticketing model and policies they had in place pre-Covid won’t as fit well for audiences now.

 

Audience Relations, Business Models, Pricing, State of the Arts, Working In The Arts

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Innovation Results From Hard Work And Funding

by:

Joe Patti

In the Washington Post, Jon Gertner reviews a book about innovation by Matt Ridley.  One aspect of the book Gertner emphasizes is Ridley’s view that innovation is 90% perspiration and 10% inspiration:

Ridley’s most important chapters, and his book’s most interesting, are where he calls attention to “surprisingly consistent patterns” that describe the process of making new things. Innovation, he tells us, is usually gradual, even though we tend to subscribe to the breakthrough myth….He also illustrates how innovation can be a matter of the right people solving the right problem at the right time — and that it often involves exhaustive trial-and-error work, rather than egg-headed theoretical applications. This was typically the case with Thomas Edison, who, as Ridley notes, tried 6,000 different organic materials in the search for a filament for his electric light.

Gertner’s criticism of the book is it underappreciates the contributions of government funding in that long process of trial-and-error exploration.

Thus, you won’t find a lot here about the development of the atomic bomb, which depended almost entirely on state largesse, or about the subsidization of renewable energy. Nor will you read much on the transistor, many early lasers or the photovoltaic solar cell, which were created under the auspices of Bell Labs, part of a government-authorized monopoly…. And in Ridley’s story about the origins of Google, you will not see any indication that its founders were helped in their earliest days by a grant from the National Science Foundation.

Indeed, his book consistently plays down the influence of public funding in medicine, public health, personal technology, transportation and communications; it likewise minimizes — quite strenuously, and erroneously — the role of federal assistance in the development of natural gas fracking, which was kept alive by research investments from the Energy Department in the 1970s.

Reading this review, I realized in the 16+ years I have been writing this blog, I don’t think I have ever made a post that tied the lengthy process of creativity together with the importance of funding.

I have dealt with the topics separately. I have had a number of posts about how even creators often attribute their first big successes to some inherent stroke of genius or talent rather than to the 7 years of trial and error that lead to it.

I have also made posts about the importance of government and foundation funding to creative industries. I think the closest I may have come to directly tying both together are some posts I made about how people who have a support and expectations of relatively affluent families/friends are more able to participate in low paying internships/apprenticeships which can be highly important to networking and career development.

In any case, obviously innovation is a long term process which requires funding support and there aren’t a lot of entities willing to make that investment when it comes to creative arts.

By that same token, it shouldn’t be forgotten that businesses in general have benefited from government support of the basic research which constitutes the backbone of many of their products.

Perhaps all those calls for the arts to be run like a business should be answered by noting that contrary to all the garage origin stories of many famous companies, artists are often left to subsidize their own development. Additionally, the history of innovation of all types is one of government support.

 

Arts in an Age of Technology, creativity, State of the Arts, Working In The Arts

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It’s A Good Time To Broaden Board Composition Too

by:

Joe Patti

Tyler Green’s tweet today about art museums acting like corporations rather than charities got me to look at the full series of tweets on the subject.  He is angered by the fact that instead of stepping up to support museums in a time of crisis, the billionaire members of boards are voting for mass lay-offs of staffs.

In brief, his argument seems to be that while museum boards are comprised of people who make the largest individual donations to museums, they are not the largest sources of support for those museums.

He notes that many charities have board members who represent the membership or community the organization serves, but institutions like San Francisco Museum of Modern Art (SFMOMA) don’t have any.

All this is worth serious consideration as our organizations seek to move on to the next normal. Those who have supported our organizations in the past with their participation may no longer feel safe engaging with the general public. There is an opportunity to start working toward oft expressed ideals of engaging a broader audience with whom you haven’t had the time and resources to initiate a conversation. Because they are increasingly likely to be your new audience.

Their numbers may not be as large as your old audience, but social distancing rules have reduced your top capacity so you have some cover to explain the smaller crowds.

I wrote about Nina Simon’s talk on this effort earlier this month.

But perhaps most importantly in the context of Tyler Green’s posts, it is probably time to broaden the membership of the board. This is likely to necessitate a shift in corporate/board culture. Even if your board isn’t comprised of billionaires, it is highly likely that the group dynamics of the board are going to feel alienating to any new members chosen to represent the core demographics served by your organization.

Arts Facilities, Audience Relations, Boards, Leadership, Management Philosophy, Working In The Arts

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Psychology of Re-Opening

by:

Joe Patti

Artsjournal.com linked to a Washington Post story about all the psychological considerations some movie theater operators are factoring into re-opening their spaces for screenings. To paraphrase one of those interviewed, there may be a whole series of conditions that have to be met to admit audiences, but you don’t want people to feel like they are undergoing an airport screening just to see a movie.

An owner of a movie chain in Omaha has decided to rely on a mix of subtle imagery and social proof:

One conclusion: Leaning in to safety messaging is a surefire way to turn off customers.

“If you’re leading off the pitch with ‘It’s so clean you’re not going to get sick’ then you’ve already lost the argument,” said Barstow, whose company is about to open a new Omaha location. Instead of talking about disinfectant and distancing, he says, he believes it more effective to roll out traditional marketing that slips in the requisite information — an image of a shiny lobby with an employee in the background who just happens to be wearing a mask, for instance.

“You let people know you’re taking care of them, but very subtly,” he said.

Barstow said he and his daughter, who runs the company’s marketing operation, have discovered that the best weapon for luring customers might be not what the theater is doing at all — it’s the sight of other customers.

[…]

“Seeing someone like a mom bring her three kids to a matinee is I think going to be the best tool to make people feel comfortable about coming themselves.” Of course, he acknowledges, such events need to happen organically, captured instead of contrived on social media.

At my venue, we had already been planning to start showing movies in late July before our governor added live performance venues alongside movie theaters as places that are allowed to hold events. One of the major points of concern for employees was whether customers would wear masks. We weren’t sure how forceful we could be, but the recent decision by the AMC movie theater chain to make masks mandatory gives us a little more support, regardless of how insistent we decide to be.

One interesting observation from the Washington Post article I hadn’t really considered was the importance of having mask wearing staff communicate reassurance with their eyes and posture since the rest of the face won’t be visible. In this, perhaps the performing arts have a competitive advantage.

“You have to train staff how to reassure customers with their eyes, because no one will be able to see their mouths,” said Barstow, who is mandating employees wear masks.

“Maybe,” he mused, “we should hire local drama students.”

Arts Facilities, Audience Relations, Info You Can Use, Marketing/PR, State of the Arts, Working In The Arts

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