64 reasons why a membership-based business will fail

Why membership businesses fail

Over the course of the past couple of decades I have built start-ups and/or managed a number of established businesses operating within what we now call the membership economy. Over this time period I have noted problems that some organisations experience, where often good products go bad, or (more commonly) the businesses that were once successful forget what made them successful.

One of the recurring themes in this list is ‘conversion’ of visitors to customers. Having a good strategy and being able to reliably prognosticate conversions both in terms of cost per acquisition and value based on prior experience, or industry standards can save managers a lot of headaches. Retention and lifetime value are also important aspects to grok.

Below is a list, in no particular order of the primary reasons membership business fail:

  1. Targeting: The product is not well matched to the market
  2. Price point: Again, this is an obvious problem. You need to be competitive and meet your users expectation. Be too cheap and folk will not value your offering. Too expensive and your audience will shrink. Find the sweet spot.
  3. Product value: Failure to deliver value to the member will lead them bailing. This will lead to high churn rates and lifetime value will fall.
  4. Audience: Failing to understand the audience.
  5. Rigidity: When a business has no flexibility in its pricing then the potential to entice new users via time limited offers and/or value-adds is limited.
  6. Inefficient marketing spends: Most marketing activity carried out by most businesses is poor. It offers little in the ways of tangible ROI.
  7. Profitability: When the costs of the business outweigh revenue a membership business starts to burn through cash.
  8. Poor conversion rates: The business fails to convert its leads.
  9. Excessive churn: The gains subscribers, but loses too many of them. A benchmark for this depends upon a number of factors such as billing periods and industry. Personally, I like using 80% as a renewal benchmark. Below this and the business is unlikely to grow quickly.
  10. Account management: The members are not communicated to effectively, be it by Email, or via support forums. Customers expect answer fast, especially when the ticket price is high.
  11. Pipeline: The pipeline of leads is ineffectual and results in low conversion.
  12. Ineffectual marketing: Spending too much in way of money, time and effort on marketing that does not grow the membership.
  13. Product failure: The product breaks, or has  fundamental issue.
  14. Lack of ideas: Fundamentally, if a business suffers from a lack of new ideas then it will be damned to repeat the same processes and actions until they become stagnant; and the company loses market share to the competition. New ideas can and should come from the entirety of the team; collated and then the best actioned at the suitable time.
  15. Tangible innovation: Poor management of the product lifecycle and laziness can prove catastrophic for any business.
  16. Security: If their is a data breach, or the site gets hacked then it can turn messy for the business.
  17. Competitive landscape: If the industry is packed with too many players all offering the same solution then your potential for success is limited by the strength of your marketing and customer service. The most successful businesses are often monopolies in everything but name.
  18. Slothfulness: Being too slow to react to customers and the wider industry can destroy any company.
  19. Pricing structure: Over the years I’ve seen businesses driven by some bizarre internal processes that result in very strange price points, including decimal places. If you can’t get the basics right, then something is very wrong.
  20. Reputation: If the business is impacted by poor PR, or customer feedback then the business is at a higher risk than one with less negative connotation. People are often wary for a good reason. Ensure the business maintains its reputation in the marketplace. As a leader you and the staff are responsible for this. The business is an extension of you.
  21. Automation: The lack of automation in renewals is a killer for any membership, or subscription-based business. It’s not difficult. It is expected. If you are not doing this then you will fail.
  22. Average value: If the average value per customer is too low and not being monitored YoY then you do not understand your own business.
  23. Problem/solution: The core product does not solve a common problem for your target cohort.
  24. Natural usage: Often websites launch membership products with near zero existing usage. This rarely, if ever works, especially if the market is already mature.
  25. Paywall problems: The paywall fails and non-paying visitors can access the product. If left unchecked, this has the potential to quickly turn catastrophic as the level of trust erodes.
  26. Confused offering: If the business tries to do too many things, focus within the marketing is lost. The offering then gets diluted and the potential customer does not know what the product does.
  27. Jam tomorrow mindset: This well known term has multiple potential meaning with regard to membership properties. I have included this one, because it is easy to fall into the trap of forever investing for tomorrow… and not concentrating enough on the existing user base who are paying for the product.
  28. Poor financial management: Over the course of my career I have seen some great financial management, but also witnessed some crazy stuff. Failing to monitor YoY performance… and then arguing that this is normal is one of the worst offences. I mean, seriously?
  29. Value-adds: It is always preferable to add value to your offering. If you have two businesses competing and one is offering the exact same solution at the same price, but one is offering additional value then if all things equal the potential customer is more likely to go with additional value. Adding value also reassures the potential client that they are getting a good deal.
  30. Communication:
  31. Unrealistic targets: Hindsight is a great thing. If you, as a manager, set targets unrealistically high then it signifies two things, (1) the business model is based on shaky data; and (2) the employees are likely to be needlessly on the back foot, which tends to lead to demotivation and/or failure to retain talent. Try to set targets based on good data… and then motivate the team to achieve the target.
  32. USP: If you do not have, or lose your unique selling point.
  33. Timeliness: It is vital to offer the user the information, or service they want, when they want it. Depending upon the model you are using, this is not always sometimes this is not always real-time, but the less delay, more timely response, the better for the viability of the business.
  34. Transparency: The lack of transparency about the product, membership and transactions can (and does) spell disaster.
  35. Cost per signup: If the cost of sign-up is too high then the business will likely fail. The cost is something that should be monitored closely, with the team incentivised to bring the cost down using creativity and a sound marketing strategy.
  36. Poor SEO: One gauge of your search performance is monitoring your Domain Authority (DA), which is a score given to a domain by Moz, an SEO service provider. If you are scoring low on this metric compared to your competitors then it is likely you need to spend considerably more to acquire traffic and members than the norm.
  37. Negativity: This is the same for all business. Too much negativity, politics and scepticism fosters a toxic attitude within an organisation. Remember, folk are employed to enable growth, not create issues
  38. Channel reliance: Being too reliant upon one channel of marketing, or one partnership can spell doom for a business. To solve this before it becomes a problem, get on the front foot and diversify partnerships, or channels you use to garner users. For example, if you use Google to market, but then you suffer an issue with indexing then you’ll need to ensure you have alternatives that will help the business recover.
  39. Too slow: For example, as a large site, our architecture needs to support everything from in-house SaaS tools; thousands of news and advice articles; and some 8,000 products in 22 languages. By speeding up our performance (globally) we increased our conversions by 32%. In real terms this meant shifting to a new hosting provider offering optimised CPU’s; spending $200 more per month to increase scale; and making the user experience speedier. It also effected our search performance, with thousands more visits per month resulting from the scale.
  40. Stack complexity: A poor tech team, or agency will look to add complexity, where little is needed in order to make themselves vital to the ongoing viability of the business. This equates to a far higher and forever increasing OPEX. One notable test I use when asking agencies about hosting is cloud computing. Utilising the cloud and a content delivery networks is not always necessary. If you are a local, or regional business, then simply hosting the platform where your audience is will negate the key benefits of using the cloud and CDN’s. For example, if you only sell to people in Singapore, hosting your platform in Singapore will offer more advantage than hosting in a cloud that does not include Singapore as a data centre.
  41. Paywall: Ensuring that the paywall is both secure and effective as a method of keeping out non-paying users. Whilst this may seem obvious, all forms of paywall have challenges that enable people to bypass them.
  42. Shared passwords: As a business owner you will (likely) need to limit the sharing of passwords and machines that are used to access the account. This can be done via IP registering, or via setting a cookie in the members browser. Without this, a login could be passed around the internet, with hundreds of users logging in to the account at the same time. Another way of protecting the site is to utilise membership model based on ‘Seats’. That way only one person can login at a time.
  43. Failed promises: Are you promising something that you cannot deliver in a timely manner? If you are then it will likely impact your retention rates. It is always best to over-deliver what you promise. Do not set expectations too high and then disappoint the audience.
  44. No personality: The business is an extension of the people working at it. A stale, stagnant, unappealing business is less likely to garner usage and retain members.
  45. Poor user interface: The platform is not visually appealing and/or has significant usability problems.
  46. Revenue diversification: The business has no other revenue channels.
  47. Upsell: Once the user signs up, no further revenue opportunity is attempted.
  48. Motivation: The product fails to motivate the end user to subscribe.
  49. Poor conversions: The business fails to convert browsers into paying clients.
  50. Customer service: All customer enquiries should be answered ASAP. Certainly within a 24 hour period. You can reduce the dependency on human interaction by utilising artificial intelligence via threaded knowledge bases and FAQ’s , of via the near ubiquitous chatbots. When customers do require support, it is vital to give the user options.
  51. Lack of community: Launching a paywalled product without an already existent community of users is tough. Within the content business it is almost impossible to succeed without this community. In SaaS and related products, offering free or trial access helps build this initial usage.
  52. Managerialism: It goes without saying that too much bureaucracy and decision-making by committee destroy businesses. Worth scrolling down to ‘Poor Management’ for further information on this topic.
  53. Cash flow: Cashflow for any business can be tough to manage. For membership sites, it can be much easier in the long-run as you can predict monthly revenue accurately, especially if long-term, or annual subscriptions are implemented. However, due to recognising 1/12th of the revenue monthly, cash can be tight at the beginning of the venture.
  54. Data corruption: Losing data as a membership property can prove catastrophic. Always ensure everything is backed-up (daily) and held offsite, as per logical disaster recovery policies.
  55. Failed payments: If a monthly subscription fails, it can fail for any number of reasons. The card could be maxed out; the card could have expired; or their might have been an issue with the payment gateway. It is therefore vital that first automated payment is it tried, upon initial failure; then customer services should reach out to the customer to rectify the issue. Alas, some businesses find it easy to simply delete access. A critical error.
  56. Poor KPI’s: You have a vision for the business. You know where you want to get to. You know the timescale. Set the KPI’s of the business to meet this vision and incentivise the team to achieve them. Its not rocket science. It really is this simple. Without valid KPI’s how do you know how good the performance of the individual, or team is? This all seems logical, but you would be surprised how many established businesses fail to set genuine KPI’s… and then judge outcomes based on the results. If you fail to do this, the business will likely fail too.
  57. Device dependency: With changing usage habits, it is vital that a membership business offer support to multiple devices via either responsive user interfaces, of via device-specific user interfaces. Failure to do this means the business will likely be left behind and at a massive disadvantage.
  58. Tail wags the dog: Never let the back-office administrator dictate the direction of the business. They can have a say, but if the administrator is put in charge of product you get some very strange decisions made, especially around pricing and integrations. Here, let the marketers and product teams lead.
  59. Failure to track campaigns: It is vital that you know what is and is not working. Failure to (truly) understand this often means throwing good money after bad.
  60. Industry understanding: If the business fails to understand the industry in which it operates it has very little chance of succeeding. This is true for horizontal and vertical sectors.
  61. Weak proposition: This is a classic error; and almost always spells disaster. With a weak proposition the business is simply not viable.
  62. Technology: Fairly obvious what this one is. Failure of any of the systems, from the platform itself, the infrastructure and payment gateway can cause havoc for any business, especially one where recurring transactions are required.
  63. Accountability: Every single person within the organisation is accountable for their role, as outlined in their job description. If their are gaps here, assume the task, or responsibility is vacant. Tailoring recruitment effort to fit the requirement is vital.
  64. Poor management: The department head responsible for managing membership does not understand the membership economy, or the drivers of the business. Any business finding themselves in this scenario needs to change. Immediately. I have seen superficially smart people convince teams that they have all the answers to the challenges. However, digging just an inch below the surface you realise that the understanding is superficial. The business always pays the price for this. Picking the right team is tough, but it is vital to ensure that the departmental leader not only talks the talk, but walks the walk… and delivers.
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