During the course of their careers, most entrepreneurs will at some point be challenged with managing their company through a business model shift. The mechanics of any shift can be difficult -- new technology, sales techniques, operational requirements, and cash flow dynamics come into play -- but they are generally well understood and documented. More surprising, and at least as difficult to navigate, are all of the ways in which a business model transition impacts the people involved.
I recently led my company through a major transition from on-premises, perpetual license software to cloud-delivered software as a service (SaaS) and the lessons I learned can be applied to any evolving business.
If you are leading your company through a transition, here’s what to expect along the way and some tips for optimizing the journey.
1. Balance old and new on the management team.Any major change in a business involves the age-old baby and bathwater questions, and a business model shift is no exception. Should you err on the side of people who understand where you want to take your business, or those who understand your legacy technology and customers?
In our case, I needed a new CFO with direct SaaS experience and a contemporary marketing leader. But other key leaders, specifically our CTO and the heads of sales and product management, embraced the change and adapted quickly. In our case, a half and half mix was just right. We couldn’t have done it without getting some direct SaaS experience in-house, but I don’t believe an all new team would have been successful.
Executives working through a business model shift should look carefully at their management team -- the strength of that team will be an important factor in the future success of the business. Don’t be afraid to bring in new hires with expertise relevant to the new direction of your business.
2. Create opportunities for complete re-invention.
It’s great to see loyal members of the team adapt and grow as the business changes, but it’s even more exciting to witness how a new business model can offer some people an opportunity to do something entirely new.
For example, as our SaaS portfolio grew, we needed to add a DevOps function and a SaaS lifecycle management function. Both of these roles were filled by long-time employees with great skills and deep knowledge of our business -- but no direct experience in these areas. They embraced the new model and jumped in to educate themselves, adding huge value to the company while taking their careers in an interesting new direction.
3. Don’t delay in purging those who can’t adapt.
How is it possible to hate a new product? That’s something I had never seen before in my many years in the tech industry, but it can happen when that new product represents a fundamental change that some employees see as a threat. Employees that refuse to adapt to change, or that lash out against a new model can become a toxic influence. Of course, it’s important to help people understand the change and allow some time to adapt, but do draw the line. Certain people just won’t get onboard and they can do a lot of damage within the organization.
4. Remember that customers have feelings, too.
One of my favorite customers once told me, “For $6 million a year, you need to provide the managed service per our contract … AND you need to meet my emotional needs!”
How true, and don’t forget it in a business model shift. Given all of the operational challenges, it’s tempting to focus inward, but customers also need a lot of attention when one of their suppliers is undergoing a transformation. Some of them may feel threatened by the new model, they may not fully understand it, and once again change is just hard. This is a time to take a high-touch approach to customer engagement and listen very carefully to their concerns.
A business model shift can create huge opportunities for the business, but can bring management challenges as well. I learned a lot during this process and was surprised to find the significant impact from an employee- and customer-relations standpoint. By following these four steps, business leaders should be able to ease the transition process.