Innovating Without a Net

Scroll down ↓

I never perfected an invention that I did not think about in terms of the service it might give others… I find out what the world needs, then I proceed to invent – Thomas Edison

Last week, in Part 1 of this series on business strategies, we saw how locking people into monthly memberships has the potential to smooth cash flow, BUT it can also very easily lead down the road to complacency, laziness, lack of innovation and business stagnation.

In that post, we used the example of a standard health club. This week, we’re going to look at how another brick and mortar fitness company has taken a very different approach and is not only packing the house, but relentlessly innovating along the way.

So, let’s zoom in on SoulCycle®, an indoor cycling brand in NYC that taps innovative business strategy to drive revenue and buzz without locking people into monthly contracts.

SoulCycle was founded by Julie Rice and Elizabeth Cutler, two friends who, in their own words:

…believed indoor cycling could be inspiring…believed you could incorporate upper body and core workout into the routine; and finally they believed with some great branding, a beautiful environment, and outstanding customer service, the 45-minute class could be transformed into a special experience each time.

Unlike most in the fitness world, SoulCycle’s business strategy is not to sell recurring membership contracts, but rather individual sessions and series’.

Drop-in sessions cost between $32 and $36. ACK! You heard right! That’s a price point many would consider insanely expensive. While there is a bit of a discount when you buy a series, it’s not a lot, and because there’s no automated billing, every time a series is done, you need to re-decide to buy a new series.

SoulCycle’s bikes are also all equipped with click-in pedals, meaning you can’t use sneakers. You either have to rent special cleated riding shoes every time or buy your own. And, if you reserve a bike and don’t cancel by 5pm the day before your class, you lose your money.

Man, that sounds like an awful lot of hoops to jump through…

And, with nearly every other gym offering some variation of indoor cycling class as part of their membership fees, SoulCycle’s model sounds like fitness suicide.

Terrible business strategy, right?

But, it’s not. It’s genius.

SoulCycle now boasts 5 locations. Most classes are sold out, often days in advance.

From a solution standpoint. From a marketing standpoint. And, from a business model standpoint. They’ve essentially done everything opposite of the big box fitness membership model.

You’d think running their model on a modified fee-for-service basis would be a burden for SoulCycle. You’d think it’d be so much easier to just lock people into automated billing with discounts. Indeed, it might. But, then, without even intending it, the risk of complacency and stagnation rise dramatically.

No longer feeling the weight and responsibility to have to consistently blow people’s minds, to re-earn the right to people’s hearts, souls, time and money, every single day. To create a truly differentiated experience, setting and present teachers who don’t just make you sweat, but mesmerize, engage and inspire on an extraordinary level.

By charging top of the market fees, they can afford to create cooler facilities, hire mindblowing teachers, offer high-end rentals and amenities and invest in constant innovation and new programming.

It’s pretty clear, the founders of SoulCycle understand…

The lifeblood of business lies not in figuring out ways to lock people into longer and longer financial commitments, but rather, in consistently conjuring innovative new ways to leave their clients breathless.

And, not only is that vastly more fun, it also happens to be good business on number of levels.

Without the monthly auto-bill net, the challenge of constantly innovating and serving to drive sales is very high. BUT, with drop-ins and series clients, revenue per visit is also extremely high. Way higher than you’d normally find in any monthly billing model. I learned this in the yoga world when I owned a studio in NYC. We sold individual sessions, serieses and discounted monthly memberships (yes, I’m guilty).

We realized very quickly, our revenue per visit for a drop-in was nearly twice that of a monthly member. So, while we liked the cash flow evening effect of monthly members, we were also regularly balancing that with the higher per-visit revenue of drop-ins and series members. And, yes, innovation did become a challenge over time as we added more monthly members. But, not so much because of complacency (okay, maybe a little, at least for me), more because of an odd tension in the yoga word between preserving ancient traditions and infusing them with modern interpretation (I was once shredded in Yoga Journal for my “progressive” take, lol).

Also, because series’ expire, clients are incentivized to come often, so they “get their money’s worth.” That increased level of participation often yields faster results, ingrains the “habit” of attenting more deeply and leads to more friendships and a deeper connection to the community.

Now, what about that nagging shift in sales burden we talked about the Part 1 of this series?

There are actually plenty of ways to incentivize clients to “re-up” on or before the time their current series expires. For example, you could offer some added benefit, like free rentals, towels or water, a 10% discount, a locker or priority reservations. I’ve tried a number of these and, depending on your community, they can be very effective.

Okay, so what about marketing? A couple of thoughts…

From a marketing standpoint:

Price implies quality.

When people see a facility or pro charging way more than anyone else, some say, “that’s just plain nuts,” but others say, “man, they must be offering something extraordinary that I want to get in on.” That latter group is comprised of your dream clients. The ones who want the best and aren’t afraid to pay for it. The ones who aren’t shopping entirely for price. And, that’s the group that SoulCycle gets.

And, of course, because those high fees set a giant expectations and the owners can’t rely on monthly billing to coast, they need to deliver the goods every single day. And, they do.

But, SoulCycle also did something very cool with their website…

Something that pushed their mystique over the edge and added some serious social proof to their marketing engine.

They integrated an online reservation system that shows a visual map of the room and the bikes for each class, along with available bikes and reserved bikes. Much like airlines do when you reserve your seat online. So, you can click on the Monday 9:30am class and see how many spots are open, then reserve your bike in advance…if any are free.

The online reservation system alone adds a coolness and convenience factor, BUT, it also does something powerful from a psychology of persuasion standpoint.

Many classes sell out, some even within minutes after reservations open…a week in advance!

When you click on a class and see that nearly every bike is reserved days in advance, that makes a lot of people say…

Woah, this IS the place to be!

Then, when you click on 5 other classes and find the same thing, you say,

OMFG, who do I have to bribe to get me in the room

So, while the intent of the online booking system may have been largely about coolness and convenience in the beginning, it also spurs a “rush to reserve” whenever peak class reservations open that, from a marketing and social proof standpoint, is just pure genius!

The downside, of course, is that in the early days or even now, if the classes were constantly empty, everyone would know and it would have the reverse effect. It would make people ask, “why does nobody want to go to these classes? They must suck.” So, the cats at SoulCycle had to be willing to risk “going naked” with their demand, then working like crazy to build massive interest by any means necessary.

And, that’s what being an entrepreneur is all about.

Creating stunning solutions, charging real money because you’re worth it, being transparent about demand, then working insanely hard, innovating, solving and serving your clients like nobody else.

This type of magic rarely ever happens when you’re working with the giant net of monthly fees underneath you.

It’s not impossible (as we’ll see in Part 3 of this series). It just takes a far more deliberate effort.

Now, how do we apply the lessons from SoulCycle’s business strategy and the recurring income trap to the online world?

Can we blend elements of each to somehow create kick-ass integrated online business models?

This is the question we’ll answer in the third and finall installment of this series next week.

So, stay tuned (and be sure you’re subscribed so you don’t miss it).

————

This is part 2 in a 3 part series on business strategies, with a special look at membership sites versus for for service. Check out part 1 of this series, Business Strategy: The Recurring Income Trap, if you missed it.

You Don't Need a Bribe To Join This Tribe

Plain and simple. Did you enjoy what you just read? Cool, then get more in your inbox every week. And join this amazing tribe of makers and doers. You know you wanna...

26 responses

26 responses to “Innovating Without a Net”

  1. RJ Weiss says:

    Very interesting read. I love hearing innovative ways companies make a profit.

    A little off beat, but still relevant. I once read somewhere (I can’t remember where) about a health club that was free to join and and only charged you dues if you don’t go for a week. This model made them one of the more successful clubs in the area.

    Exciting to see where this series is going.

  2. Social comments and analytics for this post…

    This post was mentioned on Twitter by remarkablogger: RT @jonathanfields Business Strategy: Innovating Without a Net http://bit.ly/ajfs31 (pls RT)…

  3. Laura Roeder says:

    This is very similar to how they run things at the place I work out, Pilates Plus. They also charge a fee for cancellations and a higher fee for last minute cancellations which I LOVE! It is a great motivator to actually go to class. I love how you break down the strategy here, it really gave me some new ideas on how I can apply what my pilates studio does to my own business.

  4. Jonathan,

    This is a fascinating case study and once again has so much applicability to the lawyers I train as part of my Personal Family Lawyer and Creative Business Lawyer programs.

    Specifically this part:

    “When people see a facility or pro charging way more than anyone else, some say, “that’s just plain nuts,” but others say, “man, they must be offering something extraordinary that I want to get in on.” That latter group is comprised of your dream clients. The ones who want the best and aren’t afraid to pay for it. The ones who aren’t shopping entirely for price.”

    I’ll be sending that to them for sure.

    Regarding their “naked” reservation system – I like it. And it’s scary.

    Do you have any idea what the gals did to work like crazy to make sure they didn’t have a bunch of empty bikes showing on that screen in the beginning? How did they market?

    Thanks for the eye-opening information.

    Alexis

    • Laura Roeder says:

      Re transparency – you can get creative in how you position it. Pilates Plus uses a transparent system and when I see that a class only has a few people I think great, more personal attention for me!

  5. Anne Wayman says:

    Love the idea that price implies quality… great meme.

  6. Naomi Niles says:

    Funny, I was just thinking yesterday that I wished more online apps that charge subscription fees would do this. That’s one thing I really dislike about subscription fees. It’s not that they are expensive or not worth the value or whatever, but I really dislike having to worry about them each month and when each one is due.

    Personally, I’d much rather pay per use. For example, I use Freshbooks. I keep having to delete clients in it to keep it at the basic account 25 client limit because I am resistant to upgrade. Not because it’s expensive. I just don’t feel the urge to upgrade to send roughly the same amount of invoices each month.

    Now, if they’d let you have unlimited clients, but charge like $1-$5 per invoice or so, I’d be all over that. There’s the direct value there. I spend $1-$5 to send an invoice, but charge $xxx on that same invoice. Win! The only way it wouldn’t make sense is if I was invoicing for like less than $25, but I’d imagine that’s rare for a freelancer.

  7. Andy Fogarty says:

    My favorite part –

    “Creating stunning solutions, charging real money because your worth it, being transparent about demand, then working insanely hard, innovating, solving and serving your clients like nobody else.”

    I see so many businesses online and off get lost in trying to create new “gotcha’s” in to keep their clients with as little effort as possible that they lose most, if not all, of that creative spirit they started with.

    Transparency has made them focus on innovation with social proof being a driving factor instead of dollar signs. And as a customer, whenever I feel that I’m the focus and not my wallet, I’m always eager to spend and come back with a smile.

  8. I’m thinking of ways I can use this on my blog and within my digital empire.

    I’d like to find a way to charge per post, but I can’t seem to find software able to do it.

    Members area…insane prices…elitism…I love it!

    • Nathan,

      THere is an awesome script I’m using (not on my blog but on a completely different niche – property investing)called Memberwing which does exactly that – it allows you to set up a membership site where your readers can either read your stuff for free, join (whatever levels you have created) or “pay per post”. The best part is that is plugs into WordPress…check it out (just Google it).

      So this post is insanely timely for me. I’ve been rolling around price points for my property product and trying to decide between a smaller, recurring continuity fee for members, or a bigger one-time payment with content dripped for only a limited time. I know which direction I’m going to go now. Thanks Jonathan. :_

  9. Jeff Dolan says:

    Great post. SoulCycle’s strategy is certainly a double-edged sword, and in software, I believe that once we move past a monthly subscription model, a pay-for-use model somewhat like this will become the norm.

  10. Mads K. says:

    This is something impossible isnt it. How can you expect the world to carry out business operations like this? If there is a strategy involved, i would love to know.

    • Dom says:

      Mads K. says this is an impossible strategy, and how can you expect the world to carry on business operations like this?

      So Mads K. are you saying that it’s impossible for businesses to give clients/customers value for money, to constantly innovate, to aim for customer delight, or to act in the customer’s best interests?

      Sadly, the majority of big businesses have so little integrity that their only concern is maximum profit regardless of how they treat their customers/clients. Hence their strategy: lock clients into recurring payments and minimum contracts, and offer terrible service.

      Jonathan Fields’ strategy is refreshing and win-win. It ensures that the customer gets value for money and fanstastic service, and it ensures that the business owner constantly strives to offer the best service he possibly can, constantly innovate, and never get complacent. Everyone wins.

  11. Karen says:

    This was a very interesting article and one that is refreshing to read, Jonathan. When you started introducing the SoulCycle case study, I thought for sure that it wouldn’t work. It’s great to read that they are a success – it makes a lot of sense for the scarcity and the transparency – but what a risk they took! Very glad that they have broken the mold and shown other businesses that it CAN work. I would expect other companies to start doing the same now.

    Karen

  12. Small steps lead to discovery…

    I was reading an email from Jonathan Fields awake@thewheel on business strategy and specifically that of SoulCycle in NYC (I’d never heard of it … very interesting).

    I went to the SoulCycle site and looked around (a new concept in indoor cycling … I went to the press page and for no particular reason clicked on The Huffington Post)

    Up popped an article by Quanta Ahmed, MD (I had never been to the The Huffington Post or heard of Quanta Ahmed, MD).

    I opened the article “SoulCycle: Breathe, Believe, Let the Journey Begin” and began to read (as I read I smiled …this was getting exciting!).

    Sometimes the physical, mental, emotional and dare I say spiritual all come together and lessons are learned. Here this great writer made it happen so clearly I could see it, smell it, taste it and feel it …

    “I can. I will. I am. I do.”

    Discoveries are powered – one step at a time.

    Thanks Jonathan for the discovery.

    Have Fun,

    Jim

  13. Sometimes the obvious is so easy to not see. I’ve had great success with one-of teleclasses. People are wary of recurring fee membership sites. One-times fees are in.

    Rather than charge recurring fees and try to figure out how to churn out content continuously to make people happy (or worse, manage forums, which I don’t want to do), I just create new training with a new price.

  14. Queenie says:

    I always hated the idea of paying a recurring membership for the gym particularly the type that lock you in for a whole year or two or three!!!!! Its about time someone offered something different. I would sooner pay $36 each time to go as and when I wanted than pay $75 per month and only show up 5 times in the whole year and feel like a loser. Paying as you go helps one incorporate workout with their personal life and can help ease one into the habit of going. Once it becomes a habit they can choose to commit to long and longer series with time. Especially for the moms with little kids, we can’t always stick to rigid program which in essence a monthly membership makes you feel like you are wasting money when you don’t go. Bravo to them for a brilliant plan. Food for thought definitely!

  15. Hulbert says:

    This reminds me of supply and demand. When you enter a gym, usually there will be a lot of spots open. But with your SoulCycle example, people have to reserve spots quickly because A) there’s not enough spots and B) if you don’t reserve quickly, others will do it first. It shows that if you provide good value for the people, you will get customers, regardless of what kind of billing methods you use. Thanks for this article – looking forward to the next one.

  16. Queenie says:

    **sorry for the typos above*** typing too quickly*** can’t edit***

  17. I love to see companies who bring a new and innovative idea to an existing market, and then are super successful.

    You’re right, at first glance you’d think they’re pricing themselves out of business, and they may have struggled in the beginning, but eventually they obtained the clientele they wanted, the diehards who are looking for the best regardless of the cost.

    When I first raised my rates, sure I lost a few clients, but in the end I landed more of the type of clients I was looking for.

    Love the series, can’t wait for installment 3. 🙂

  18. […] business strategy series, we’ve talked about the monthly membership business model and the innovating-without-a-net business strategy as they play out in the offline world. In this final post in the series, […]

  19. This is a very interesting and clever strategy. My family and I was once a member of a health club where we had to pay certain amount every month but our motivation to go each month became less and less – especially with no commitment. With this strategy, once you reserve a spot, you are committed to go. 🙂

    I wonder this interesting strategy could work with my business as a Virtual Assistant. Certainly something worthy to ponder over this weekend!

  20. Thanks for the excellent info, keep up the good work. Always good to find great sites online. I look forward to reading more.

  21. It is good to know that there are people who are quite interested on online business with the right strategy to follow.

    This could be a good motivation for people who are involve and interested to be connected in the near future with this innovative lifestyle.

  22. I have to say that the business strategy used by SoulCycle certainly sounds counter intuitive (at least to my way of thinking), but I guess it shows that you don’t have to follow the pack to be successful.

  23. Vanessa Lee says:

    Your site is great informative! Looking forward for more infos.! Keep it up..