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Beyond the Recurring Revenue Economy: Flexibility Wins

When it comes to building the parts of your business that support your sales model, do you focus on size and scale, or flexibility? In a different world, the companies that built the most powerful sales teams might have had the advantage. In today’s world, however, it’s better to build your business model for flexibility, not strength.

The subscription-based business model is taking hold today because new, cloud-based start-ups are disrupting so many industries. These companies are built from the ground up with a business model based on subscription sales.

That leaves the established market players with several options:

· Stay the course with existing business model

· Switch gears entirely to a subscription model

· Adopt a hybrid business model, either as a transition or a long-term play

The hybrid business model, reflects the reality of many established companies. It is taking hold in many industries where companies have significant investments in their current business structures and customer basis. In the tech industry, for example, Adobe Creative Cloud and Microsoft Office 365 are prominent examples of cloud-based offerings from traditional software companies.

Although it can be difficult to execute well, the hybrid model makes sense. Because when you commit a business entirely to a single business model, you risk rigidity. And rigidity is quite possibly your biggest business risk.

Flexibility wins

In today’s fast-changing markets, industries as staid as home thermostats are being disrupted (think Nest). Your best business strategy is to be ready to adapt. Being wedded to any single business model – whether it selling perpetual licenses to on-premise software, providing subscription-based services from the cloud, or dropping physical shipments using drones – is a hazard.

When how you sell is baked into your organisational structure and culture, then making changes can be difficult, if not impossible.

Change is hard

Earlier in my career, I worked for a traditional CRM business. The CRM industry was famously disrupted by Saleforce, the poster-child for subscription software. Although many saw the change coming, the entire business was built and structured around a perpetual licensing model, and we didn’t have the ability or will to make the difficult changes we needed to survive as an independent company.

Or consider a typical hardware company, with a direct sales force and channel partners selling on-premise software. The sales team has a commission structure. Channel partners expect a percentage of the upfront sale. And a services channel makes a business maintaining the equipment.

If that business now decides to start offering cloud-based services based on its solutions, it will meet resistance on many fronts, including the sales and service teams. Entrenched partners and channels may resist what they see as cannibalisation of their sales.

The business also needs internal flexibility to change how it thinks about and interacts with customers. If switching costs are high, it may be accustomed to thinking of the customer as a fairly captive audience and treat them accordingly. The individuals handling support calls may not consider themselves part of the ongoing sales force. In a hybrid business, the new way of interacting with customers must exist alongside the old way.

See why change is difficult?

Flexibility as a catalyst for driving new behaviours

Still the companies that are successful in the long run are those most able to adapt to changing market requirements. Think back to the Nest example earlier. Before you would heat your home the moment you walk through the door. Today, you think about pre-heating your home from your mobile device before leave work – you now have a much different relationship with your thermostat. What are the same parallels we can draw in a B2B world? How does flexibility drive the internal changes needed to support new business models across your sales culture, systems and processes?


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