Business models become the new disruptor
B2B has become “B2Any” – and the advent of cloud and SaaS solutions has moved subscription business models with Go-to-Market to the forefront as the new levers for disrupting markets, driving valuations and significant revenue growth. Companies such as Zuora are fueling the “subscription economy”. And a new generation of companies and products has taken advantage of this inflection point – Workday, Box, ZenDesk, Citrix Online, Joyent, Yammer and of course, SalesForce – and the market is rewarding these companies with committed revenue growth and large valuation multiples.
However, pick up the paper on any given day and you’ll read about another failed subscription-based product or recurring revenue company. At the same time, other subscription companies take off and become wildly successful. What makes the difference? The culprit is simple. Typically the root cause is not the product/solution, but a poorly conceived subscription model that fails to quickly engage enough customers and consumes a company’s cash before realizing the benefits of a committed revenue stream.
After working with almost 100 cloud/SaaS companies, we have a few observations:
- Pricing/packaging can be disruptive. Most tech companies simply copy the competition and don’t exploit the power of subscription business models as a differentiator
- Many lose their way: exponential sales and marketing costs to acquire ACV
- Churn is a death-spiral for most subscription businesses and must be managed from the start
- Monetization and customer engagement strategies are different!
- Successful companies pro-actively manage customers through a committed revenue journey
Increasingly, those companies that successfully capitalize on cloud or a new inflection point are competing with a well-constructed business model that quickly engages customers through friction-free and enterprise sales channels, employs a multitude of pricing/packaging strategies to drive committed revenue and defend against churn.
However, very few technology companies understand the range of monetization strategies, nor deploy the optimal pricing and packaging to earn loyalty and drive a successful subscription business and valuation.