Since the industrial revolution, the business model of companies has been to build a “hit” product and then sell as many units as possible. The more product you sold, the more you reduced fixed costs (the factory was key), so you could compete on margin and maximize profits. The goal was profits this quarter and this year.
In Tien Tzuo’s book, “Subscribed,” he outlines how everything has changed since the internet, the cloud, and the platform.
Now, we can have a direct relationship with the customer, and consequently, the business model must change as well. Today, we have to start with the needs and wants of customers and create a service that delivers ongoing value to those customers.
Companies need to turn customers into subscribers and develop recurring revenues rather than a one time or occasional buy. Financial attitudes have changed, as well. Because of scalability, rather than quarterly or yearly profits being the measure (looking backward), today’s financials are forward-looking. Use “profits” to scale the business and focus on growth.
Customers have changed also. Today’s digital customers are also moving from products to services. They want to buy what the product does when they need it, not necessarily the product. They prefer outcomes over ownership. Think Uber. About 30 percent of millennials do not own a car but use Uber. Even Catipiller has a subscription option.
This internet-of-things (IoT) or Subscriber Economy is just beginning. If you want to be successful at it, you have to start with the customer, not the product,
