Smart, connected products are disrupting business models. On the one hand, they’re giving companies the opportunity to improve their business by providing data that is helping them reduce the cost of delivering services and providing information that customers can use to improve their operations. On the other, they’re bringing in new competitors. There are many small, startup companies that are eating away share at large traditional companies because they have a software-led approach.
The concept of make-sell-ship is history. In traditional CapEx models, the moment of truth was the customer’s signature on the contract. In recurring revenue subscription-based models, very often, the moment of truth is actually the renewal. This is forcing companies to rethink their go-to-market and stand up new organizations like analytics teams, development teams, and customer success, which has an impact on sales, services, finance, and IT departments, all to make the transition to a subscription-based technology-as-a-service or XaaS model.
Vele Galovski, VP Research, Field Services and IoT
George Humphrey, VP Research, Managed Services
J.B. Wood, CEO
Phil Nanus, VP Research, Customer Success
Steve Frost, VP Research, Expand Selling
Customers’ expectations are changing. It’s now up to the supplier of the technology to prove their worth. If the supplier isn’t doing that on a day-to-day basis, the customer probably won’t renew or invest further in that technology company.
The motions of adoption, expansion, and retention become significantly more important to a technology company’s revenue once they shift to a recurring revenue model. Whether you’re born-in-the-Cloud SaaS company, or a legacy technology company that’s making a pivot to a recurring revenue model, TSIA has observed that Customer Success is one of the biggest investments being made.
The reality is, companies do go through periods when they’re making the move to a software subscription model where it’s very difficult to meet financial expectations that were set before their digital transformation. What companies have to remember is that they’re on a journey, and what TSIA has found is that investors know this digital transformation is out there, and we’ve seen many companies whose profitability goes down and their share prices go up.
It’s essential that companies embrace digital transformation and the internet of things (IoT). TSIA’s advice to companies who have not yet started on their digital transformation and the shift to recurring revenue business models is to take that first step, and be bold and aggressive. Don’t be the one who’s hesitating past the point at which customers just can’t wait anymore.
85% of the challenges that companies face when they make the move to a recurring revenue business model are due to the fact that they just don’t understand what they’re getting into. Based on our research and benchmark data, we have identified proven best practices, frameworks, methodologies, and data sets that don’t exist anywhere else in the world. Let us help guide your journey to recurring revenue.
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The Technology Services Industry Association (TSIA) is dedicated to helping technology and services organizations large and small grow and advance in the technology industry. Find out how you can achieve success, too. Call us at (858) 674-5491 or we can call you.