Capabilities: 6 Ways To A New You

XaaS Key #4:??Capabilities

Part 1:??A Smooth New World

In previous sections, I’ve covered the right reasons to transform to XaaS, the right product and service offers, and the right GTM.??

In this article, I’ll cover the new capabilities you need to develop to get XaaS right.??

I’ve previously mentioned in?From Transaction To Relationship: 6 Keys To Winning In XaaS?that the transformation to XaaS isn’t necessarily easy – but it is rewarding.??A key principle here is the benefit of more smoothed revenues and costs, enabled by XaaS.?

Why isn’t it easy???Transforming to XaaS does require some new capabilities.??Table 1 summarizes the major capabilities and capabilities changes you need to make in the XaaS transformation journey, in relative order of difficulty.

Product development:??From Rush to Continuous

With XaaS, gone are the late nights rushing to complete major product releases.??Instead, product development is continuous.?

In?From Transaction To Relationship: 6 Keys To Winning In XaaS, I mentioned that one of the benefits of XaaS is that customers always have the latest and greatest version of any product.??As a result, product introductions become?featureintroductions – smaller, more frequent, more incremental.??As an example, when transforming from packaged software to SaaS, Adobe shifted from major version releases approximately every two years, to releasing new features as soon as they are ready, many times every year.

To support these continuous releases, product development changes from large teams swelling in size, working on large product releases, often with last-minute rushes to completion, and then potentially contracting in size after the release is complete.??

Instead, fairly consistent teams work continuously on individual features, releasing them whenever ready.??It’s a complete realization of agile development.

There are benefits for the vendor in this model – teams no longer get burned out rushing to complete major releases.??Instead, work is smoothed and continuous.??Team size can be held more constant, with less last-minute additions, then post-release contractions.

Product companies, especially those leveraging IoT, can realize these benefits as well.??While major product releases may still require rushes, new features can be deployed to customers directly through the network, continuously, avoiding drawing both hardware and software development teams together into major rushes.

Given the benefits for vendor, team and customer of the continuous development cycle, this transition can be relatively simple.??It mainly requires a change in thinking about the role of development teams, and the role of product introductions.

Marketing:??From Launch to Brand

Marketing also realizes the benefit of not having to support infrequent, major product releases.??A major product release is the growth engine of most companies, supporting pricing levels, creating segmented demand, and driving a big market splash of attention.??

Unfortunately, they also require extensive and expensive marketing spend to support the launch and ensure its success.??Since these major product launches tend to happen infrequently, they lead to spiky marketing costs.??They also create tremendous risk – a failed launch could literally bring down the company.??As well, they create extensive marketing team burnout, just as these launches do for the development teams.??

However, in XaaS, the emphasis shifts to supporting the brand because … there are no major product launches, just continuous feature launches.??Spending instead can go to supporting the brand, which has the promise of always giving the customer the latest and greatest product offering regardless of what they have purchased in the past.??And as spending goes to the brand, it becomes smoothed.??In many cases, it may even decrease since less goes to launch support spending.

This change is also relatively simple, given it drives so many internal benefits for the vendor.??A significant challenge may exist as the marketing function changes its thinking from launches and releases to brand.

Channel:??From Indirect to Own Web Storefront

In XaaS Success?Key #3:??Go-To-Market/Part 2: XaaS Channels:??Changing Lanes, I already discussed the opportunities and tradeoffs related to selling XaaS direct or indirect.??If you do decide to focus on a direct approach, you’ll need to build the capabilities to do this.

Don’t underestimate this step!??While it seems easy to set up a web presence and start selling direct, even companies we would consider already savvy at ecommerce struggled with establishing a web storefront for selling XaaS.??

Why???It’s not just setting up a cart and payment methods.??To truly be successful, you need to set up all of the related functions for customer success – which in itself is a critical capability.??Communities, support, training, all need to be a critical part of the web presence.??

Also, they need to be properly costed.??One software vendor I worked with developed its web presence relatively blind to the costs – not a major problem, until customer acquisition costs (CAC) needed to be calculated.??CAC is an important concept I’ll return to in a future article.

Sales:??From Hunter to Gatherer

In my experience, one of the biggest and maybe most difficult change for companies transforming to XaaS is the change in sales capabilities and approach.??The sales organization can become one of the strongest resistance points to an XaaS transition.??While change is never easy, the concerns can be managed to everyone’s benefit.

How does sales behavior change???No longer are salespeople hunting for the big whale, the big sale that hits the quarterly quota.??Instead, salespeople must adopt a gatherer approach, seeking to sell the largest number of units, then moving to ensuring customers renew, consume more, and upgrade their services.??Much more effort goes in?after?sale, than?before?sale.

This is partly driven by XaaS product and service design into standardized packages in which one unit is as valuable as the next.??Now, certainly some customers will be worth more as they will purchase more units, but the sale becomes less complicated due to standardized packages and standardized bulk buying discounts.??

It’s also due to the fundamental economics of XaaS.??As I mentioned in?XaaS Success Key #3:??Go-To-Market/Part 1:??The XaaS Sales Funnel:??Deeper Than You Think, the money is in renewals.??Since they money is in renewals, initial customer capture remains important, but realizing the full value from the customer relationship requires ensuring renewal and upsell opportunities.??

Sales operations must fundamentally change as well.??Training, enablement programs, and most critically, compensation structures and programs must change in order to change behaviors with the sales team.??

A key question is whether sales compensation will be reduced.??Not necessarily; in fact, it could increase as greater value is realized by customers and in turn is captured by the vendor.??The timing of the compensation may change, but with proper structuring based on lifetime value of the customer relationship, this concern can be mitigated.

Another critical question many companies have is, whether the standardization in packages, and the move from big-game hunting to gatherer behaviors creates opportunities for efficiencies – or less politely, reductions in headcount.??Not necessarily.??Less effort may go into initial customer acquisition, but more ongoing effort goes into renewal and upsell.??Skills may change, but workload doesn’t necessarily change.??

There's More

The last two major capabilities - customer data and sales and support - deserve deeper treatment, so I'll cover those in future articles.

So…How Do You Feel?

Smoothed revenues, but also smoothed costs and smoothed stress on your team – XaaS produces multiple benefits for the vendor.??Master these four new capabilities, and these benefits can be yours!

What is your take???What do you feel are the major capabilities shifts and challenges in transforming to XaaS???Contact me; I’d love to hear from you!