One of the strategic decisions I see on a regular basis is a change in the direction a start-up business will take in order to provide a solution to any number of perceived problems. It’s what start-up do and it means their business model typically pivots a number of times before they get the mix right. Start-ups have a significant advantage in agility, they can fix any number of problems, however they have a significant disadvantage in focus, or more correctly ensuring they only focus on the solution that will provide the most return. What I find interesting is those start-ups who pivot and re-pivot ultimately move towards a recurring revenue model over a one time fee.
This isn’t limited to start-ups but can apply to any service related business, but it’s not as easy as simply saying lets charge an initial fee and then an ongoing maintenance / recurring fee. Your business solution has to continually add value or eliminate risk in order to be worthy of recurring revenues otherwise you’ll be stuck in one time fee land.
The advantages of a move to a recurring revenue model are many, predictable cash flow, perpetual earnings, It enables business scale and scale enables business sale.
All that sounds good but how do you go about pivoting to a recurring revenue model.
1. Examine your service offering.
- What problem is the customer solving by using you ?
- Is the problem recurring
- Do they have related problems that you currently don’t solve
- What opportunities does your solution enhance for your customers
- Are your customers maximising those opportunities
- Are those opportunities ongoing
- Do they have related opportunities your solution could be adapted to enhance
- Do your customers have the skill in-house to continually mitigate the problems and maximise the opportunities.
2. Find the Gaps
Review the gaps created from 1 above and match your services to them.
Solving problems is good but attached to a recurring revenue model it starts to feel like an insurance product, enhancing opportunities is great and is perfectly suited to recurring revenues especially if you can make it real.
You also don’t have to change your entire service offering in one go. Try with one section of your services and build on it. The key is to start.
3. Make it real – Your recurring revenue needs to be matched by recurring service
If its maintenance contract based you need to do regular pre-problem check-ups.
Ifs its unlimited support you need to be accessible and track areas where support is needed even if it hasn’t been requested yet.
If you’re enhancing opportunities you need to be able to translate the opportunities into the tangible benefits customers are seeking. The ultimate metric in business is money !.
I spoke to a pretty cool web design company recently and their system didn’t tell customers how many people visited their website, they told them the euro value of those visitors to their website. The customers could easily recognised and assess the benefits of using their services and are happy to engage on a recurring fee basis as they understand the recurring benefits.
Dublin is currently bustling with technology and traditional companies offering solutions to worldwide enterprises, those who crack the recurring revenue model stand the best chance of succeeding in the long run.
Good luck and get pivoting.