8 Questions for the Subscription-Model-Curious
By: Stephan Liozu for Industry Week
For the past two years, I have been deeply involved in the fields of industrial subscriptions and innovative business models in industrial markets. During this period, I have seen amazing work by pioneers in the industrial space. I have collected over 100 case studies of industrial subscriptions and have documented them in my latest book. But I have also seen companies who are still behind the curve and have not started thinking strategically about recurring business models and industrial subscriptions.
The consultants call them the “digital laggards,” and they show a sharp contrast in business performance compared to digital pioneers.
Frankly, there is never a right time to get started with disruptive innovation. I choose my words carefully here. Moving to a new business model—in this case, a subscription model—can be quite disruptive in some sectors. It is not a simple transition process, and it requires some advanced go-to-market capabilities.
While it is never too late, now is the time to seriously think about the benefits of moving to industrial subscriptions, at least in areas that are simple or connected to the core business. The first step would be to focus on an SaaS transition or to launch basic connected services.
But even before taking the plunge, there are a series of questions to ask. The answers can be telling about your readiness to move to a subscription-business model, or at least to launch your first subscription.
1. Why are you getting started now? What is the impetus for your innovation? Are customers asking for a separate way to buy based on potential cash-flow issues or new internal process? Have you identified through your innovation process a new digital opportunity solving key customer problems? Are you starting to see requests for proposal (RFPs) asking for Capex and Opex models?
2. Are your competitors offering subscriptions? What is happening in the market? Are your competitors already launching subscriptions and you are seeing a great adoption rate, forcing you to adapt and match them? Of course, you want to scan what competitors are doing and aim at designing even better digital innovation offering true differentiation.
3. Is your industry or sector ready for subscriptions? Some industries or sectors are more mature than others in the adoption of subscriptions or recurring revenue models. The agricultural business and the smart-building sector are way ahead of the curve. Others have not done that transition yet because of the reluctance of large customers to make the switch or because of regulations. Do you want to be the leader doing the hard early work, or do you prefer to wait for greater acceptance?
4. Have you socialized your subscription idea internally? To get started, there is a need to have a “burning platform” for change internally and solid alignment between key internal stakeholders. Finance, sales, IT, legal must be brought on board quickly. They need to accept and embrace the business case and potential complexity coming with the change.
5. Have you done some basic homework about your business opportunity? You cannot just start with a plain idea on a PowerPoint deck. You need to do some basic research on customer problems, current solutions available to customers and the size of the opportunity. One way to do this is to apply a lean canvas business model and conduct a basic analysis of total addressable market.
6. Have you assessed your subscription and recurring business readiness? I recommend assessing your subscription readiness by taking advantage of readily available online assessment tools. They will guide through some basic questions you need to be ready to answer before pitching your subscription internally.
7. Do you have a service and recurring orientation? Look internally and gage your level of service orientation. Do you have an established service organization? How much of your current maintenance and/or service contracts are attached to the products or equipment you sell? How much recurring business does your company already generate? Digital transformation means service transformation. That is one of the prerequisites.
8. Do you have go-to-market experts to help segment, package, and price? Finally, developing and launching industrial subscriptions require new capabilities. You have them or you do not. You need to refresh your customer segmentation, conduct a price/value analysis, package your subscription, launch, and manage it with the sales teams. This is an area where industrial natives struggle the most. If you feel you do not have these skills, hire experts to assist you.
Here is the good news. There are plenty of good case studies and of publications to help you be successful with your industrial subscription design. But you need to be ready and answer these strategic questions before you do anything. Most of these preparation points can be done in the next 45 days. Assemble a multi-functional group in the form of a “tiger team”—a team of skilled professionals—and prepare a good plan to present to your management. Then it is time for action.