Growth Insights for CEOs

Profitable, Recurring Revenue Streams

Posted by Blaine Mathieu



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Transitioning Your Business Model to Grow Your Business-as-a-Service

If you are the CEO of a company selling products or services to other businesses, you are probably constantly looking for new sources of growth. It’s frustrating when your company is not able to realize its growth potential. 

Sometimes the issue involves understanding customers or markets better. In other cases it’s about changes to a marketing strategy or execution plan. But sometimes the solution involves changing the core business model of your product or service (or completing a change that you already began).

More and more companies are realizing that transitioning their business to an as-a-Service model is the answer to driving higher growth and more profitable and stable revenue streams. In this article series, you will learn: 

  1. How to know it's time to think about embracing an as-a-Service model 
  1. What an as-a-Service business is, who is doing it and why
  1. How to take your as-a-Service business to market efficiently and effectively
  1. What are the key metrics to track and capabilities to nurture to ensure you execute this transition successfully

This series will make no assumptions about prior experience with as-a-Service models (sometimes referred to as XaaS). It is equally applicable to companies that have software or technology at their cores and those that don’t. A huge amount of content has been written on related topics and the main goal here not to repeat or replace that, but to simplify and begin the journey. 

Part 1 – Is It time? 

No doubt you have heard many friends, advisors, peers, and the media at large talking about high growth companies that use an ‘as-a-Service’ business model. The trials, tribulations, (and valuations) of tech ‘unicorns’ like Uber, Twitter, and Salesforce dominate the business media these days. Interesting and exciting, but that’s not your business. It’s likely you don’t even consider yourself a tech company! 

So how do you know it’s time to consider transitioning to an as-a-Service business model? Here are some signs: 

  1. Revenue growth is not achieving your expectations, given the opportunity in the market
  1. The cost of marketing and sales is too high relative to the revenue that you are generating
  1. You need to effectively 're-sell' products or services to the same clients over and over again each month, quarter, or year 
  1. Your business has only a limited ability to cross-sell and up-sell other products or services to your existing clients 
  1. As your offering expands and improves, it is becoming increasingly complex for your clients to own and operate or otherwise benefit from
  1. Your customers are demanding real outcomes and value, and are becoming less and less interesting in paying for either your products or your time
  1. Competitors (or substitutes) are beginning to implement subscription models and are growing faster or gaining market share
  1. Some of these new competitors have the potential to ‘disrupt’ your business entirely and cause significant – or even terminal – damage in the long run

Use the following tool to assess your overall level of concern or pain around these eight issues. Next to each one, note a score of 0 (means your business is experiencing no pain at all relating to this issue) up to 10 (means your business is experiencing dramatic pain relating to this issue): 

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Here’s how to read the results. If you scored:

  • 20 points or less: Your current business model is in great shape – keep it up! Monitor and re-assess on a quarterly basis for changes to these scores
  • 21 to 40 points: Yellow flag – there is probably value to at least considering a XaaS model
  • 41 to 60 points: Orange flag – you need to seriously consider a XaaS model for your business
  • 61 to 80 points: Red flag – you are getting your lunch eaten – time is of the essence!

Keep in mind that your potential buyers or clients are often experiencing the flip-side of many of these issues. It is usually when motivations and value are misaligned between buyers and sellers that markets (and businesses) are most inefficient, growing the slowest, and are least profitable. Such a situation needs to be addressed to benefit both parties!

So suppose your score on the preceding tool is high enough that you want to continue this exploration. It’s important to note that as-a-Service business model transitions (like most significant changes to how your company operates) also have requirements and risks. To name a few key ones: 

  • Leaves your comfort zone. Change is usually hard and a shift in business models is one of the hardest as it impacts almost every element of a business 
  • The shift may impact short/medium-term revenue. Shifting to recurring, subscription revenue streams has many advantages but one big disadvantage is giving up receiving most of the revenue up-front when the initial sale is made
  • May impact short/medium-term profitability. Shifting revenue out over time can also impact profitability – at least in the short run until the power of the recurring revenue model kicks in
  • Requires a solution that the market truly values. If the basis of your business is to sell a low value or low quality offering and then move on as quickly as possible to the next buyer, then the as-a-Service model isn’t for you
  • Benefits from having cross-sell or up-sell possibilities. Related to the previous point: such models are more powerful when there are opportunities for add-on purchases and enhanced offerings. As-a-Service is not for ‘one-and-done’ businesses
  • Requires a mindset of ensuring long-term customer success. This model requires clients to basically ‘subscribe’ to the value you are delivering them over an extended period of time. Support models that are based on ‘fire and forget’ will not be effective for as-a-Service businesses. Continuous client engagement focused on true customer success will be required

These may sound like big caveats or hurdles to overcome. But – trust me – for most businesses that want to drive high-value, long-term relationships with clients, the ROI is significant. In future installments of this article, we will deal with how to effectively address each of these issues.

But what if these considerations sound too big or too scary relative to the rewards? In that case, you have two choices: 

  1. Continue to monitor both your current situation (as per the pain assessment tool above) and your readiness to address the requirements. Set a reminder to revisit this on a quarterly basis. Proceed when the factors are in better balance.
  1. Talk to an expert. Often the hurdles seem more daunting then they really are and the benefits too nebulous. Having someone experienced on your side who has been through numerous, similar transitions can make all the difference to making the most appropriate decision (and then implementing it effectively). 

For those ready to continue on this journey, subscribe to my blog at the bottom of this page and watch for Part 2 of this series that will dive more deeply into what an as-a-Service business really is, who is doing it, and why. 

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Topics: CEO Choices, CEO Marketing Vision, CEO Business Strategy, SaaS