Where does your subscription business fit in the Subscription Economy?

As I spend time with budding entrepreneurs, "consumer subscription" is the most common term I hear to describe their business model. And why not? After all, the economics of successful subscription businesses are hard to beat. Valuations are based on growing ARR (Annualized Recurring Revenue) and low churn. But when asked who they see as their competition, the response I get is narrowed to only those that provide a similar product or service. This approach to startup feasibility needs an adjustment.

Have you added up all of your personal subscription expenses lately? The cable bill was once our universal gripe, particularly in monopolistic markets like Boston where I live. Whether you still have a cable bill or not, you likely have recently added several subscriptions that are taking a chunk out of your budget: Spotify, Netflix, Dollar Shave Club, Nest, Amazon Prime, iCloud... These seemingly small amounts rack up to a total that rivals that cable bill you were so proud to cut. If you ever filled up the hard drive on your first iPad, you probably deleted some apps to make room for new ones. The subscription economy is starting to drive these choices, because there is only so much room on the hard drive known as your wallet.

For the entrepreneur, it's good that you're working on this now, because you not only need to be different and meaningful, but you need to be early. The room in your would be customers' wallets is shrinking... fast. They're IoT'ing the heck out of their houses. They're choosing to pay to get away from ads. And they're staying. Spotify has a 2.2% churn. Chances are you're not taking any of their share of wallet. The question will soon no longer be can consumers further increase their budgets for more subscriptions, but which will they cancel to make room for new ones, and what will make those new ones winners.

To better evaluate subscription model startups, consider: How does your offering stand up against all the other subscriptions out there, not just the ones in your space? Is it replacing an existing non-subscription staple or is it competing against a new luxury? Rather than just compare your recurring coffee and dessert delivery service to the Blue Aprons out there, compare your market to all the subscription services and app markets. It may be growing, but how is it growing relative to these other markets? What is the hierarchy of value to your consumers? How do they prioritize entertainment, food, convenience, and security? If you understand their budget pie chart, and how it is changing, you will soon know if you're entering the right market and understand who will be your loyal subscribers.

The Bureau of Labor Statistics annually reports on spending behavior by different census factors. This is by no means granular enough and primary research is necessary as well, but pouring over these figures and trends will help you start thinking of your market and your potential customers differently.