Not Just For Consumers: The Subscription Economy Changes B2B
Jeffrey Wissink Forbes Councils Member
Forbes Chicago Business Council COUNCIL POST
Jeffrey Wissink
Founder, Navint Partners, LLC, a management consulting firm that helps recurring revenue companies build and optimize scalable business ops.
As a consumer these days, it's difficult to interact with a company that's not trying to reach into our wallets every month with some kind of subscription. Whether it's the promise of consumables like coffee and razor blades showing up at our homes as we need them, or more on-demand types of offerings for entertainment, transportation or some other kind of service when we want it, subscription models are seemingly more pervasive than ever.
The popularity of these consumer subscription models is rooted in two factors: access and efficiency. My Spotify or Apple Music subscription leaves my music-listening unencumbered by the number of CDs I own or could feasibly store and keep organized. Rather, for a monthly fee, I have the entire world's collection of music available to me (access), and it's easily searchable and can be listened to whenever I want it, on any device (efficiency). Subscribing to Jeep's new car-subscription service means I have access to a car whenever I need it, based on the need I may have at any particular moment. Helping a friend move? Maybe a Grand Cherokee today. Road trip with the spouse? Maybe I'll opt for the more fuel-efficient model. Depending on my need at the time, I've got access to a car that's fit for purpose, available when I need it and without the maintenance and storage headaches that can accompany traditional car ownership. (Or worse yet, multiple cars!)
In the business world, consumer subscription models are similar. For the last 30 years, the operational focus of companies has been "doing more with less," a concept that is predicated on a finite amount of company resources that must be carefully managed and optimized in order to maximize the profit motive. As technology advanced rapidly over that same period, we devised software to help us automate the management of these finite resources, which in turn resulted in a multibillion-dollar software industry — enterprise resource planning, or ERP. Major companies have benefited mightily from our collective obsession with streamlining, efficiency and making the best use of limited resources that is simply the reality of the ownership paradigm in business.
But just as the Spotify subscription left the consumer in a position where they did not have to live in a world of limited music, businesses are entering a phase where, through subscriptions, cost-effective access to virtually unlimited resources is the new reality. That is, businesses don't have to own the resources they need to enable their business, but rather can pay for efficient access to only the resources they need when they need them. This changes the rules of business operations entirely.
While this phenomenon is undoubtedly forcing a permanent structural change to business operations as we know it, the reality is that companies have been, perhaps maybe even unwittingly, moving in the direction of subscription models for some time. From office space and software to complete process outsourcing of things like customer service, finance and technology departments themselves, assets that are deemed non-core (for good or bad) have been systematically moved out of the companies' operations and toward operational models that can more easily flex as business demands dictate.
What's remarkable is that today, businesses are going well beyond these traditional subscription use cases. We're moving at breakneck speed toward a business environment where just about anything that can be procured as a service is now procured that way. This concept of anything as a service (or XaaS) allows us to imagine a world where businesses can focus their limited resources on the advancement of their unique core competency, leaving other required functions to be serviced by a basket of subscription-based services that can individually scale and be paid for in an on-demand way as needed.
Imagine the hypothetical startup software company. The company is founded by someone who sees an opportunity for a new product, and by hook or by crook, they are able to raise enough money to design, build and test this new piece of software. Of course, in order to launch the product, this business also needs to worry about a million other things as well: how the product is going to be marketed and sold, customer support, billing, invoicing, collections, enterprise software to run operations, hiring people, building out offices, legal and tax matters — the list seems infinite. While these functions are required to run the business, very few of them are directly related to the company's desire to make great software for their customers. And they all consume company resources and attention.
But what if these functions didn't? What if all you had to worry about was listening to your customers and continually improving your product, and every other function could be efficiently pieced together and paid for as the growth of the business warranted?
That's the idea. That's the promise of the subscription economy.
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Founder, Navint Partners, LLC, a management consulting firm that helps recurring revenue companies build and optimize scalable business ops....