Trekking the Best Path to Business Model Transformation
While I personally spend quite a bit of time hiking in the Alps, I would never summit high peaks without being prepared myself, planning my trail and being well equipped, since I know the higher the elevation, the longer and harder the journey will be.
Similarly, as you start your business model transformation journey, are you well prepared and equipped to succeed and grow? Have you thought through different strategies to find the best operating model for your organization?
After many years of helping companies address their growth opportunities and challenges, my advice is to use the Business Model Canvas (BMC) created by Alex Osterwalder of Strategyzer . Similar to a topographic map used to navigate mountains, the BMC is a visual tool used to develop new or existing business models, and does a good job of identifying all possible impacts of your growth strategies, highlighting the necessary operating model to ensure success.
Figure 1 – Business Model Canvas applied to growth strategies in the subscription world
To help you get started, let’s explore six paths for growth and potential obstacles you may face during your transformation journey
1. Rework your value proposition
Adding new subscription services on top of your current product offerings is a way to grow revenue streams while reporting predictable, ongoing revenue streams to your shareholders and investors. This could be a first step in transitioning selling products to selling services. Take a look at my recent blog to read about examples of companies that are making this transition.
Potential Obstacle: Offering any type of recurring revenue models, including subscriptions, pay-per-use, outcome-based requires highly flexible offering and pricing modeling capabilities so that marketing, sales, and pricing managers can unlock their creativity and create innovative and compelling offers.
2. Re-evaluate your target customer segments
Today, you may be operating within a B2B environment and selling products to other businesses. However, you may consider transforming into a Direct-To-Consumer (D2C) model by introducing subscriptions. This can be a unique opportunity to establish direct relationships with the end customers.
Potential Obstacles: Since the number of customers can significantly increase in a D2C environment, your invoice-to-cash platform will need to process millions of customer bills in minutes. With such high volumes, it will become critical to automate your quote-to-cash process for cash collection, dunning procedures, and clearing rules.
3. Expand to new geographies.
This growth strategy is a natural one if you are following a D2C model.
Potential Obstacles: One of the first challenge is the compliance with local and import tax requirements. For example, Brazil has one of the most complex tax systems in the world. In Brazil, your back-office system must keep up with frequent changes in tax regulations and rates while complying with electronic invoice (NF-e) and electronic bookkeeping system (SPED). You must find a way to streamline and automate the tax collection and payment process, to reduce the risks of errors and facilitate compliance.
Another challenge is working a large variety of digital payment interfaces in different countries. For example, China uses Alipay and WeChat Pay, India chose UPI and Paytm, in the United States this is PayPal and Venmo, and in the UK rather Apple Pay and Google Pay.
4. Introduce new channels by creating a marketplace
Reaching new customers by creating a marketplace in which a diverse group of third-party vendors offering related services is part of a growing trend and a way to introduce higher value, one-stop shopping experience to customers. The obvious examples are app stores like Apple Store and Google Play, and content streamers like Spotify and Deezer. However, we see other industries creating marketplaces. Handy in the US and UrbanClap in India provide homeowners a central place to find and sign up for house cleaning, yard work and pet care services from a variety of vendors. Multi-sided B2B marketplaces are also being created, such as Amazon AWS and Microsoft Azure to provide software, services and solutions from different partners. Communications is another area of growth in which marketplaces offer centralized place to buy voice, messaging and video streaming services, including the ability to integrate voice and messaging capabilities into your services with messaging APIs offered by companies like Twilio and Plivo.
Potential Obstacles: What’s necessary behind the scene to run a marketplace? You need to manage the complexity of orchestrating orders, provisioning multi-partner offerings, monetizing a diverse set of services, and don’t forget handling settlement in this new ecosystem of partners, such as revenue-share, royalties, and add-on fees.
5. Create long-term customer relationships to increase customer lifetime value (CLTV)
When selling products, your relationship with customers is based on typically one-time and transactional in nature. However, with subscriptions and other recurring models, the lifetime value of customers becomes a key metric. Therefore, you need to build customer loyalty for continuous adoption and renewals in addition to cross-sell and upsell opportunities. For more information in this area, read my previous blog on how the permacrisis has brought some opportunities to rethink the customer relationship, and how your company can take advantage of these opportunities.
Potential Obstacles: Offering personalized offers and promotions is a powerful way to build customer loyalty and to run effective upsell and cross-sell programs. The ability to automatically and quickly create personalized offers on the fly is a key capability that you should seek to add.
6. Grow through M&A
As you are working on creating a new and unique value proposition, you may realize that that the delivery of this new offering may require an acquisition strategy and evaluation of a buy versus build approach.
Potential Obstacles: Which operating model do you have to set for being successful in this growth approach? Make sure to include a plan to avoid siloed architectures of your quote-to-cash process and enable the financial consolidation as soon as possible. Centrally managing customer invoicing, collections, dispute and payments will be key in avoiding revenue leakage and reducing total cost of ownership. With a consolidated platform, you can rapidly on-board sales reps on new offerings with the right quoting tool, guided selling, and automated workflows to manage discounting and protecting margins.
Don’t consider these six areas as a definitive guide to plan your hike to growth but rather as a prescriptive guide to get you started in planning and preparing for your transformation trek. As you embark on this journey, make sure you are aware of your obstacles and that you plan for acquiring the right tools to overcome them successfully, while remaining agile enough to continue your hike to the top.