The Addiction Model: Building a Business That Feeds Itself
dailyblog.scottdclary.com
Hi All,
Here’s my daily newsletter navigating the crossroads of business, growth, and life.
If you love this content (please share it), but also…
Start here > https://newsletter.scottdclary.com
Check out my Podcast, connect with me on YouTube / Twitter, and read my Weekly newsletter.
Sponsor: FreshBooks
The numbers speak for themselves - over 30 million people have chosen FreshBooks, processing more than $60 billion in invoices and saving an incredible 192 hours annually on accounting tasks. As an all-in-one accounting solution, FreshBooks helps entrepreneurs and freelancers create professional estimates, track time, automatically bill clients, and capture expenses on the go - all while integrating seamlessly with over 100 business tools and providing award-winning customer service.
Ready to stop drowning in receipts and chasing payments? Start your 30-day free trial at freshbooks.com - no credit card required.
Transform Your Business with FreshBooks
Listen Here
The Addiction Model: Building a Business That Feeds Itself
There's a business model hiding in plain sight that you might be overlooking.
It's not for everyone. It won't work in every industry. But when it fits, it can transform a struggling business into a cash-generating machine.
I'm talking about the Razor-and-Blades model.
It's deceptively simple: offer something valuable at low cost, then make your real profit on what customers need afterward.
The first sale is just the cover charge to get into the club. The real money is at the bar.
You've seen this everywhere:
Gillette practically gives away the razor but charges premium for the blades.
Nespresso sells coffee machines at near cost then makes billions on those little aluminum pods.
Apple offers the iPhone on easy payment plans but captures you in an ecosystem you'll spend thousands on for years.
They're not selling products. They're creating repeat customers.
This isn't the business model they teach you in school. It's the one that builds empires.
Your profit isn't determined by what you sell. It's determined by what you sell next, and next, and next.
The Razor-and-Blades model isn't just for physical products. It works for coaches, creators, consultants, and software founders alike.
And it might completely change how you think about your business.
How Successful Businesses Actually Work
Most entrepreneurs build their business backward.
They create high-priced offers first, then struggle to find people willing to pay premium prices with no prior relationship.
They wonder why conversion rates stay low. Why customer acquisition costs so much. Why growth feels so hard.
The amateur sells the expensive thing first. The professional sells the inexpensive thing that makes the expensive thing inevitable.
The masters create buying patterns, not just products.
The genius of the Razor-and-Blades model isn't just the price strategy. It's creating a situation where the first purchase naturally leads to more purchases.
The initial purchase isn't the end goal. It's the beginning of a buying sequence.
Look at Nespresso:
The machine itself does nothing without the pods
The pods only work with that specific machine
The coffee tastes good and is super convenient
Making coffee becomes a daily habit
They don't make money when you buy the machine. They make money when you wake up tomorrow.
Once you buy the machine, using anything else means buying a whole new coffee maker. Every morning, you keep using their pods without thinking twice.
This isn't trickery. It's smart business that works for both sides: you want great coffee easily, they want repeat business.
Your business needs this same approach.
The Three Parts of a Sticky Business
The Razor-and-Blades model works on three levels, and you need all three:
The Gateway - Easy entry product that solves an immediate problem
The System - Your unique method that creates specific results
The Refills - Ongoing items needed to keep getting those results
Most businesses fail because they're selling the wedding but not the marriage. The real money is in the years after the big day.
Most entrepreneurs focus only on part 1, then wonder why they're constantly hunting for new customers.
Some build parts 1 and 2, but fail to create true refills that generate ongoing revenue.
The magic happens when all three work together.
A course creator who understands this doesn't just sell a course (Gateway). They create a method that delivers results but requires specific tools to implement (System). Then they offer monthly templates, coaching calls, or specialized software that makes the system work better (Refills).
Your customers don't want to buy your product. They want to buy the outcome your product creates.
The student can't get the same results without continuing to engage with the refills.
Your goal isn't just to satisfy customers. It's to create customers who keep coming back.
Flipping the Traditional Business Model
The traditional business approach is simple:
Create product
Set high price
Maximize profit per sale
Find new customers
Repeat
The Razor-and-Blades approach flips this completely:
Create entry product at low margin
Design for natural additional purchases
Make the refills high profit margin
Maximize customer lifetime value
Let happy customers bring in new ones
This changes your entire business focus.
Instead of focusing on new customer acquisition, you design what happens after the first purchase.
Instead of maximizing front-end profit, you invest in getting customers through the door.
Your profit center shifts from the first sale to the ongoing relationship.
This works beyond physical products:
SaaS companies offer free plans but put key features in paid tiers.
Consultants provide valuable assessments at low cost that reveal problems only they can solve.
Content creators give away valuable information but build premium communities that provide implementation help.
The model works for every business type when you understand the basic concept.
Creating Products That Need Refills
The biggest mistake entrepreneurs make with this model is creating weak connections between products.
Gillette doesn't make blades that last forever. Nespresso doesn't sell pods that work with other machines.
Not because they're evil, but because strong connections create sustainable businesses.
The gold is in making them happy a thousand times in a row.
Your gateway product must create a real need for the refill.
This need comes from three possible sources:
Technical Need - Your product literally requires your refill to function (printer and ink)
Experience Need - Your product gives best results only with your refill (iPhone and iOS ecosystem)
Identity Need - Using your product becomes part of how customers see themselves (Peloton bike and Peloton membership)
The strongest businesses create all three needs.
Your customer should feel like using a competitor's refill would be a downgrade.
This isn't about building walls to trap customers. It's about creating such a good experience that alternatives feel worse.
The Ethics of This Business Model
Let's talk about the elephant in the room.
This model can seem manipulative when done poorly. When companies create artificial limitations or proprietary standards that add no value, they destroy trust.
The ethical approach comes down to one principle:
The refills must deliver genuine ongoing value worth their cost.
Apple's ecosystem creates a closed system, but it also creates a seamless experience across devices that genuinely improves users' lives.
Nespresso pods cost more than ground coffee, but they deliver consistency and convenience that many find worth the premium.
Your job is creating refills that make customers think: "This costs more, but it's absolutely worth it."
When you achieve this, keeping customers becomes effortless. People happily pay for ongoing value.
The real test isn't how effectively you lock customers in, but how reluctant they would be to leave even if switching was easy.
Applying This to Your Business
You might be thinking, "This works for Apple and Nespresso, but how does it apply to my business?"
The model works for every business type when you think in terms of gateways and refills, not just one-time products and services.
Here's how different entrepreneurs can apply it:
For Coaches and Consultants:
Gateway: Low-cost assessment or starter plan
System: Your unique approach
Refill: Ongoing support, templates, or access to you
For Content Creators:
Gateway: Free content that builds authority
System: Framework or approach unique to you
Refill: Premium community, tools, or application materials
For Service Providers:
Gateway: Starter service that solves an immediate problem
System: Unique process that delivers better results
Refill: Maintenance, updates, or expansion services
For Software Founders:
Gateway: Free or low-cost basic version
System: Workflow that integrates with users' operations
Refill: Premium features, expanded capacity, or add-ons
The key is designing these elements as a connected system, not separate offers.
Your gateway should naturally create the need for your refill through the results it delivers.
The Lifetime Value Game-Changer
This model completely changes how you calculate business success.
Most entrepreneurs focus on:
Cost per acquisition
Conversion rate
Profit per sale
Most businesses are playing checkers with their metrics. This model lets you play chess.
With the Razor-and-Blades model, these become less important. The metrics that matter are:
Customer lifetime value
Consumption rate
How long customers stay
This shift changes what you're willing to spend to get a customer.
If your competitor thinks a customer is worth $100 and you know they're worth $1,000, you can outspend them 10:1 on acquisition and still win.
When Dollar Shave Club calculates that a customer is worth $240 over four years rather than a single $8 purchase, they can spend way more to acquire each customer.
This creates a huge advantage over competitors using traditional models.
Your customer acquisition budget is based on lifetime value, not just the first purchase value.
This is why market leaders can often afford to acquire customers at a loss while smaller competitors can't even break even on acquisition.
They're not playing the same game.
The Hidden Benefit Nobody Talks About
Beyond the business numbers, this model offers something equally valuable: peace of mind.
When your business generates predictable recurring revenue from existing customers, you escape the feast-or-famine cycle that traps most entrepreneurs.
You're not starting from zero each month.
You're not dependent on constantly finding new customers.
You're building a business that feeds itself.
This stability creates the mental space for improving your products and serving customers better – rather than the constant stress of finding the next customer that defines most struggling businesses.
Your Razor-and-Blades Opportunity
The opportunity here isn't just making a better main product.
It's rethinking how your products and services connect together in a way that creates ongoing value.
Don't build a business that hunts. Build one that farms the customers you already won.
Here's how to explore if this model might work for you:
Entry point: What simple, affordable product could new customers easily say yes to?
Core system: What's your unique approach that delivers results they can't easily get elsewhere?
Follow-up products: What do customers naturally need next after using your entry product?
Value balance: How can you ensure these follow-up products are both profitable for you and valuable enough that customers gladly pay?
Real-world test: Would you personally pay for these follow-up products if you were the customer?
Don't force this model if it doesn't fit naturally. Not every business needs to be structured this way. But for the right products and services, it creates predictable income that doesn't require constantly chasing new customers.
The richest businesses in the world don't sell things. They sell subscriptions to results.
Because the most valuable business isn't the one that makes a sale today.
It's the one that creates a customer who naturally comes back tomorrow.
Thank you for reading.
– Scott