GrowthX - Path to Monetization

In the previous sessions of our Driving Innovation Now webinar series, we’ve found an idea of a big problem hopefully in a big market and in a meaningful way that we think we can solve really well right now. And we’ve defined the use case and the early customer to work with, so we now know how to take the information and insights we’ve learned together with that customer as an opportunity to build relationships with our stakeholders based on the value we’ve been driving.

In our fifth session with Sean Sheppard, Founding Partner of GrowthX & GrowthX Academy, we focused on the Path to Monetization: how do you monetize the previous work. Here are some of the key takeaways:

There are 3 key areas in the Path to Monetization: 

1. How do you actually execute on building, testing and iterating on new business and pricing models; what’s the structure and in what order to do that.
2. While you’re doing that, you need to position yourself for the pending pricing discussion.
3. Then you identify, plan and prepare resources for the transition to  scale in support of your new business model.

Once again, don’t forget what your objective here is: to build the predictable, profitable, scalable revenue stream for the foreseeable future. And the best way to do that is to create a win-win environment for you and your customers.

2 basic kinds of Pricing Model Components:

• Product oriented - another way to look at it is non-labor or non-human cost.
• Service oriented - labor base cost. Don’t necessarily focus on what to charge at this point, but think more about what goes into charging; and this is very important especially when you’re having early discussions. 

Pricing Model Considerations:

• Margin Requirements - Ask yourself: do we need to make money on this first deal? And if so, how much do you need to make and why? Is it to pay your people, is it to cover your costs, is it to be able to reinvest?
• Strategic Value - What is the ultimate purpose of monetizing that early customer?  Use Case Validation? Reference-ability? Business Model Validation?  Satisfying stakeholder expectations?
• Intellectual Property - Are you creating something that is not yet novel? If you are, who owns it? The objective should be for you to own 100% of it, but if you need to share the IP in some way,  share it under a Joint Development Agreement tied to performance and/or time limitations to ensure both sides have an equal opportunity to win. 
• Market - We need to understand how our customers like to buy and budget and what the market is already accepting with this kind of use case. How does your ecosystem price? What makes you the same or different? Pay less attention to how much they charge and more to how they charge. And ultimately, consider what type of innovation it is (Core, Adjacent, Disruptive). Your price should be very much in line with the type of innovation. The more disruptive the innovation, the more disruptive the price.
• Early Customer - You need to be able to have a really honest conversation with them, and know how your customer budgets for this use case today. How do they like to buy? What is their procurement process?  How long does it take to process?  Who is involved? And what role does each individual play?  What can you do to accelerate the process?

Now, we need 5 steps to actually build a pricing model and test it:

1. Build a simple pricing structure: you and your customers do this together.
2. Share your good intentions to test with key stakeholders.
3. Apply that pricing model to the data and the insights you’ve created for the Use Case.
4. Measure Stakeholder Response and Iterate. Pay close attention to your stakeholders and how they react!
5. Do your best to arrive at terms on the first instance.

Money from an early customer is the ultimate use case validation - when we evaluate traction and results it is always about which early customers are paying you and which ones are not: we call it affiliated vs non-affiliated customers. We have to differentiate between those that are friends and free and those that are strangers and paying - We love strangers who pay! 

Now, at this point, you should have real meaningful data to validate and measure.

EXAMPLE

In this example, the 3 key areas between the customer and the provider on how and where the value can be created are Downtime Events, Customer Labor and Additional Value.  So then, an actual pilot project could be done and conducted by analyzing their gains and expenses. And for that, you need the actual KPI inputs that were used to create those numbers to quantify value and justify a discussion about how much of that value should go to the provider.

How do we position ourselves for this pending pricing discussion that we need to have? 

Monetization is hard! And the reason it is is because it involves humans and everyone has their own perception of value, their own competing agendas or unique, maybe even hidden, incentives driving their behavior. And that’s why building a deep relationship using insights and data is so critical, because it should reveal so much about the individual motivations you’re negotiating with.

The next question is, How do we Resource and scale in support of our new business model? Never forget the key attributes of commercialization leaders that we’ve talked about in the past. So, you think about Resource and Scale in 3 aspects: 

1. Pre-Launch 
2. Launch 
3. Post-Launch

What goes into a Comprehensive Resource and Scale Operation? Product Development, Marketing and Sales. And then it is very critical to throw this back into an existing team of people - there needs to be a lot of thought put in an operation like this when you’re introducing a new product or a new thing. 

Ultimately you have to define the Roles and Responsibilities: Establish what people should do and who’s doing what.  Try to divide people by:

• The provider delivering on the use case.
• The customer  using the product and providing feedback to the provider.
• The provider (or partner) supporting the customer with a pre-defined level of service.

Homework: 

1. Research Ecosystem Pricing Models
2. Understand how your early customer buys and budgets
3. Build a pricing framework to test against use case
4. Map Resources for Scale

If you missed the webinar, would like access to the video or the presentation, or would like to discuss your innovation initiative with Sean directly, please drop a note to [email protected] or complete this form. 

This conversation was the last part of our 5 week journey as part of the GrowthX webinar sessions.