In the first article of this series, I made the statement, “Selling technology is becoming a low-growth, low-margin endeavor,” and presented data to back up this sobering statement. In addition, we reviewed the fact that born-in-the-cloud computing companies are enjoying double-digit revenue growth, but they are struggling to be profitable.
So, how do technology companies get back on the track of profitable growth? TSIA’s prescription:
“Embrace as-a-service offers (this is where the revenue is going) that are anchored on business outcomes (not feature functionality, which is commoditizing) and supported by a customer engagement model that cost-effectively drives the adoption, expansion, and renewal of your offers (this is where most tech companies are failing).”
In this final article in my three-part series, we will explore how customer engagement models will need to evolve to better support subscription business models.
The LAER Model
If you are selling technology as a service, the spending level of the customer often starts off low and must increase over time if the deal is to become profitable. If anywhere along the journey the customer does not like or use a service, they may stop using it and the revenue may stop flowing. To prevent that killer churn, new critical milestones must be achieved to ensure adoption, expansion, and renewals.
Thus, TSIA has divided this new customer engagement model into the four sequential phases, which we call the LAER model:
- Land: All the sales and marketing activities required to land the first sale of a solution to a new customer, and the initial implementation of that solution.
- Adopt: All the activities involved in making sure the customer is successfully adopting and expanding their use of the solution.
- Expand: All the activities required to cost-effectively help current customers expand their spending as usage increases, including both cross-selling and upselling.
- Renew: All the activities required to ensure the customer renews their contract(s).
Traditional technology companies excel at landing new customers and renewing maintenance contracts. However, they historically invested very little in activities designed to help customers systematically adopt technology capabilities. That responsibility was left mostly to the customer. Also, these companies were not usually optimized to cost-effectively identify and close the kinds of small-to-moderate opportunities for account expansion (more users and transactions, for example) that are essential to success in a subscription relationship. Instead, tech companies focused on opportunities for large technology refreshes within the existing installed base.
In the old engagement models, foregoing significant attention and investment in the Adopt and Expand aspects of the customer life cycle was an acceptable decision. However, being inattentive to adoption and expansion can crush the profitability of your subscription business model.
LAER and PIMO: Two Sides of the Same Coin
So, tech companies need to cost effectively drive customers through a LAER journey. But the journey has two names, and is actually one coin with two different sides:
- Supplier Perspective: Providers of XaaS solutions are motivated to drive adoption and expansion to reduce churn and grow customer spending systematically.
- Customer Perspective: Customers of XaaS solutions are motivated to drive adoption so that their company realizes the full potential financial impact of leveraging the technology within their business environment.
Not only are the perspectives somewhat different, but the language and tactics we will use are also different.
LAER is the internal perspective and process you will use to maximize customer spending. However, you are not going to walk into one of your customers and tell them you want to land and expand them! That’s your goal, not theirs. The customer wants better business outcomes, and making that happen involves four stages, which TSIA calls PIMO:
- Plan: All the pre-sales discussions, strategies, and agreements necessary to assure the buyer(s) that the involved parties have a considered plan to achieve the outcome that is promised by the solution.
- Implement: All the traditional technical and human implementation activities designed to stand up the solution as well as prepare the users and their processes.
- Monitor: The ongoing activities of the customer and the supplier to determine whether the solution is leading to the designated business outcome objectives. This should be a detailed data- and analytics-driven activity, and not just a feeling of satisfaction.
- Optimize: The interventions that optimize the outcome. This could include troubleshooting and correcting technical or adoption problems. It also includes identifying what is working well and taking steps to expand that success.
Endgame Coverage Models
Technology companies are clearly experimenting regarding the roles and responsibilities engaged to drive subscription customers through the LAER life cycle and help customers unlock business value. But, what does the endgame look like? The proven LAER coverage models are still emerging, but envision a customer coverage model that breaks down the traditional roles and responsibilities between Sales and Services—one that is segmented and optimized based on the LAER life cycle. Note that we are reversing the Expand and Renew phases in the following figures to make it easier to map roles to them. First, there would be a role focused on landing new customers.
Then, once the customer is using the XaaS offer, there would be a role focused on helping that customer adopt. That role may also be responsible for renewing the customer’s current subscription.
Why? Because the renewal of highly-adopted customers should be a process, not an event. Do you need a salesperson to renew a happy customer?
However, if the customer success manager responsible for adoption and renewal runs into renewal challenges, they may need assistance in landing the value proposition again. A renewal specialist may need to be engaged.
Now that we have all these highly-adopting customers using our XaaS offer, there is clearly an opportunity for expansion within the install base. We expect our customer success managers to look for these opportunities, but we may want to create some dedicated resources focused on identifying expansion opportunities.
Finally, what if an existing customer wants to dramatically increase spend on our solutions? This probably requires a hardcore Sales resource to be reengaged.
So, take a look at the last figure. Does that customer coverage model look anything like what you have in place today? Based on our research, the answer is no. But this figure is a perfect example of how the current Sales and Service roles will be blurring into new coverage models optimized to drive a customer through the LAER life cycle.
In the three articles of this series, we’ve made the following arguments:
- The revenues for traditional technology business models are clearly slowing.
- The emerging subscription business models are growing but not yet optimized for profitability.
- Subscription business models will require new customer engagement models.
Clearly, it’s not business as usual for any technology solution provider.
Read additional posts in this three-part series, "Technology and the Subscription Economy."
About the Author
Thomas Lah is executive director of TSIA. Since 1996, he has used his incisive analysis, strategic thinking, and creative solutions to help some of the world's largest technology companies improve the efficiency of their daily operations. He has authored several books, including, Bridging the Services Chasm (2009), Consumption Economics (2011), B4B (2013), and Technology-as-a-Service Playbook: How to Grow a Profitable Subscription Business (2016).