We are in unprecedented times. The world as we know it–our way of life, our relationships, our businesses–everything has changed. The global economy is reeling with uncertainty and companies everywhere are grappling with what this means for their customers, employees, and businesses.
In a way, these are truth-telling moments for businesses. Amidst all the chaos, after the initial reaction, a crisis offers us opportunities to question and reimagine. They clearly show us what’s working and what isn’t–what our customers truly value and what they can do without. Most importantly, they underline the fact that to be successful in the long run, businesses need to build resilient business models and operations that can withstand market upheavals.
During the last two recessions, I worked as an Analyst at IDC where I was responsible for data modeling and forecasting of software industry revenues. This included the revenue trajectories for both traditional software (perpetual license and maintenance), and SaaS (subscription). I currently work with Zuora, a SaaS company that offers order-to-revenue solutions for subscription businesses where I am the Chair of the Subscribed Institute, a think-tank for Subscription Economy executives.
While the past downturns were clearly caused by different factors, one can find familiar patterns to help software companies navigate the current crisis. Based on my learnings, here are a few things for companies to consider:
Subscription business models are built to weather economic storms
“PTC Says Business Model Meant To Withstand Events Like Coronavirus” reads a recent news headline. The business model making headlines is the company’s recurring revenue model. It’s common knowledge that businesses with a recurring revenue model have the advantage of predictability. They are able to start every quarter with an established customer base and contracted revenue, and are able to withstand economic fluctuations better than companies that have to acquire a new set of customers and find new revenue streams every quarter.
Look at how this played out during the last two downturns. It was during those dark days that we saw the SaaS business model emerge and eventually dominate the software industry. The recession-induced inflection points completely turned around how the industry operated as the advantages of selling subscriptions over perpetual licenses became evident. In addition, while the ongoing costs of managing traditional software were unpredictable, the costs of SaaS were much more transparent and therefore easier to budget for.
The financial model offered by SaaS was part of the appeal. Perpetual software licenses require large upfront capital outlays, as well as large internal IT teams to manage on-premise systems. At a time when capital budgets were slashed and teams were being reduced in size, prospective customers shied away from the commitment. SaaS offered the ability to access software functionality via recurring operating costs. But the financial model wasn’t the only reason that SaaS companies not only survived but in fact thrived during the past two economic downturns.
Digital models provide advantages for customers and businesses
The fact that SaaS applications are delivered and constantly improved via the cloud played a key factor in growth. Subscription customers want ongoing value, and SaaS companies deliver on-demand innovation, via the cloud. This ensures that customers always have access to the most secure, up-to-date software available.
Before times of economic duress, the risk of running your business in the cloud seemed too much to bear for some companies. But during the crises, the risk of high and unpredictable capital outlays, out of date software, lengthy implementation projects, or lack of automation further turned the tide toward SaaS.
The current environment is also making a strong case for digital businesses and ongoing value. Most product companies are experiencing a massive supply chain disruption. Their customers are facing the certainty of product obsolescence, machines that need physical maintenance that is proving to be hard to provide, or broken parts that can’t be easily fixed or replaced. If instead of relying on physical features and distribution channels, companies evolved their products through software that could be updated via the cloud, they could provide ongoing value, and set themselves up to be much more resilient in the face of this kind of global disruption.
Look ahead and focus on innovation
Having a recurring revenue financial model by itself does not guarantee business success. The subscription model is fundamentally built on ongoing innovation. During times of market turmoil, most companies make the fatal mistake of cutting back on innovation. But it’s relentless innovation during an economic recession that led to the birth of companies like Adobe (1982), Zuora (2007), Twilio (2008), Nutanix (2009), as well as paradigm-shifting innovations such as the Apple iPod (2001). Now is the time to double down on your customer relationships and do everything you can to provide more value and meet their evolving needs.
As we try to get through these uncertain times, companies from every industry must forge forward keeping in mind the learnings from the past.
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After nearly two decades as an industry analyst, I joined Zuora in 2017 to work with our customers on their business model evolution. Soon after I joined, we launched the Subscribed Institute, a dedicated think tank of Subscription Economy executives focused on the challenges and opportunities of the subscription business model. The Institute collaborates with academics, industry leaders, and independent consultants to conduct both qualitative and quantitative research on business model transformation and key growth drivers in the Subscription Economy. With nearly a thousand executive members from more than 500 subscription companies across the world, the institute has generated original research including frameworks and benchmarks of subscription success.
Now, as the indisputable leader of the Subscription Economy, Zuora has the privilege of working with some of the most innovative companies in the world as well as some of the most successful subscription companies today. Best practices gleaned from our work with over a thousand subscription companies around the world help our customers make critical business decisions, adopt new strategies, and measure their success at regular intervals.
Over the last two years, as we engaged with subscription business leaders across the world at our Global Institute Executive Summits and other events, they also asked us to apply the best practices and benchmarks of the Institute to their own specific business challenges and opportunities and to to help them navigate the ongoing complexities of the Subscription Economy.
The Subscribed Strategy Group (SSG) has been created to work directly with individual companies and help them apply the learnings gleaned from the Subscribed Institute’s research to their specific business needs. The SSG works one-on-one with executives from our customer organizations to chart a strategic path towards subscription success by identifying and removing business obstacles, building internal alignment, and establishing routes to success.
Three Ways the SSG can help your company:
Throughout my career, I have seen first-hand how success in the Subscription Economy requires strategy, cultural, process, and systems transformation.
1) Strategy: Having a north-star strategy is crucial to keep your subscription company on course. What is the customer outcome that your subscription model enables? How does a relationship with your company deliver ongoing value? Personalized experiences? Anytime, anywhere access? Created specifically to help our customers chart a strategic path towards subscription success, the SGG will focus on helping companies hone in on their core objectives and strategize how to get there quickly with subscription services informed by best practices. We will help you identify roadblocks and build alignment to overcome business complexity.
2) Process: Running a subscription business requires a certain amount of reinvention. You have to give up the old ways and bring in new processes and systems to operate your business. The biggest challenge—and greatest opportunity—lies in designing and embracing processes that support the new model. The ever-evolving nature of the subscription business model requires agility at every turn, and every part of the organization needs to be in lock-step to provide the best possible customer experience.
The SSG will work with your organization to help you focus on the roles and functions that most often require change, and to develop an understanding of how they should change, and support a comprehensive approach to change management.
3) Culture: Successful subscription companies are those that have created what we call a “this is possible”, relationship-centric culture centered around a common mission to provide remarkable customer experiences. For companies that were born in the product economy, this requires your employees to step outside their comfort zones and learn what they don’t know, collaborate across silos, share information, and be willing to put the customer at the center of every decision that they make. The SSG will guide you on the primary tenets of subscription culture including subscription values, a focus on customer success, and the role of trust.
Success in the Subscription Economy also requires systems transformation, which Zuora technology helps our customers achieve. While the SSG does not advise companies on technology, business best practices in the Subscription Economy– such as pricing and packaging iteration– must be enabled by systems.
I cannot stress enough the wealth and breadth of experience and data that the SSG team can bring to your organization. As the global lead for the SSG, I am supported by Frank Ernst, VP of Strategy, SSG in North America, and Michael Mansard, Principal, Business Transformation in Europe & EMEA Chair of the Subscribed Institute. The leadership team has a combined experience of over 60 years working with the software technology, media, and manufacturing sectors.
If you’d like to hear more about how we can collaborate, please reach out to us at email@example.com or comment with your questions below.
I’d love to hear from you.
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