In any size company, tough decisions have to be made in order to stay at the forefront of the market.
This was reinforced for us at ACL on conversion of our entire software sales business model from Perpetual licenses to subscription Software-as-Service—in one year. This was a daunting task but the rewards have far outweighed the initial hurdles. Leadership at all levels of management was crucial to meeting our goals and looking back, I see the biggest asset that made the transition possible was communication.
On August 1, 2014, one day after our prior fiscal year celebration, we announced to our global channel and sales organization that they had one quarter to clear their perpetual software pipeline, and thereafter would only be able to sell our software on a subscription basis. We took one year to convert over 7,000 customers in 140 countries to subscription—an accomplishment we were extremely proud of, having run the business on a perpetual business model for the better part of the past 30 years. Here are five things to consider if you are considering the same transformation for your own business:
- Rip off the Bandaid — Too many software companies take the “safe route” giving their sales team and customers the choice of whether to stay with the incumbent perpetual business model or to move to subscription. Most people will default to what they know and so this choice-based model will surely guarantee a conversion that will take years. We found the initial skeptics were mostly internal. Our customers, however, were mostly onboard right from Day One as they were used to a subscription business model in many other aspects of their professional and personal lives. Have the guts to do and then go all in!
- Coincide with an amazing product release — Our announcement coincided with an amazing product release that merged our heritage analytics products with a new, integrated and beautifully designed cloud-based content and risk management solution—together designed to help our customers illuminate and mitigate those risks and opportunities that really mattered, making them the most sought-after employees in their business. Proving the innovative value of your offering at the same time you make an “ask” of a customer makes their decision-making process a lot easier. You need to “earn the right” to ask for a business model change, by delivering value.
- Put your money where your mouth is — One quarter after announcing our switch from perpetual, our sales commissions structure was changed to ONLY pay on subscription. Associated bonus structures for non-sales team members heavily emphasized subscription conversion and activation with highly visible, daily dashboards set up to ensure transparency, accountability, and especially enthusiasm as conversion rates accelerated. When making a change like this and communicating its value, you have to put your money where your mouth is and ensure that compensation structure incentivize the right behaviours to drive the change you want to see.
- Get out of your P&L and start hanging out in your Balance Sheet — A business model transformation like ours typically takes three years to make its way through the financial statements. Make sure you, your Board, and your executive team are ready for that, because once you are in it, you are committed for three years. Forget about your classic P&L—it’ll be upside down for a little while. Focus instead on bookings, deferred revenue, cash, and key SaaS unit metrics as better leading indicators of your success. Surround yourself with relative comparable valuation benchmarks for companies that are already SaaS. These metrics will help create belief and will be your lifeline as you carry your Board, shareholders, and employees through the transition. Creating understanding will build commitment to the vision.
- Customer engagement is the “truth serum” of Subscription — Ultimately, you can sell subscription but if customers don’t “turn the lights on” and actually use your product, you are headed for a crash at renewal time. We actively measured customer engagement through metrics such as Monthly Active Usage and Net Promoter Score with dedicated Customer Intensity Specialists devoted to ensuring our highest value customers had a personalized experience with us, dramatically increasing the surety of their renewals.
Converting a 30 year “young” business with thousands of customers in 140 countries in one year was the hardest, most gratifying, and highest valuation-impacting thing I’ve ever been involved with after leading technology businesses for almost 20 years. If the time is ripe for your business to undergo the same change, be brave, deliver awesome value, pay for the right behaviors, measure the right thing, and ignore the internal skeptics. Chances are your customers thought you should have done it a long time ago.
Laurie Schultz is the CEO of ACL and is the Chair of the Board of the BC Tech Association.