…Subscription models and recurring revenue also tend to impress investors — a lesson learned by Jessica Kim, founder and chief executive of BabbaCo, which is based in Chicago and sells children’s activity products. When Ms. Kim started her business in 2008, she sold wholesale products like car-seat covers and inflatable play mats. But after she was accepted into Excelerate Labs, a business-incubator program in Chicago, she got some advice from Paul Lee, one of the program’s mentors. “He told me that he noticed we had such a strong connection with our community of customers and suggested a subscription-based model,” Ms. Kim said. “That’s when it hit me that subscription models are a great way to build lifetime relationships with our customers.”
Ms. Kim came up with the idea of sending out a monthly “BabbaBox,” a box of projects, activities and books that are tied to a theme and that parents can complete with their children. The change to a subscription model had an immediate impact; Ms. Kim’s business grew more in the five months after she made the switch than it had in the previous three years combined. Just as important, Ms. Kim landed several prominent investors as a result of the change, including Mr. Lee, who is a partner in Lightbank, which was started by Eric Lefkofsky, a co-founder of Groupon….