As traditional high-tech device manufacturers begin the transition to selling software and offering software licensing to generate new revenue streams—either through software up-sell for advanced capabilities, or through the addition of pure-play software (as discussed in previous blogs)—an area manufacturers need to pay close attention to are the organization and compensation issues and challenges that could undermine their capability to succeed.
Manufacturers, whose DNA is wired to sell hardware and give away software, often find it difficult to achieve their desired software revenue targets. The core challenge is that account managers and sales teams are used to selling a physical device on a "cost plus" model, and have trained their customers to think the same way. The sales teams, facilitated by marketing material, tend to place value on underlying hardware capacity, capability and cost. If a sales deal becomes competitive, the software is often discounted 100% and becomes a sweetener to the deal. Over time, this becomes, as one product manager told me, "a race to the bottom".
To transition from a company selling only hardware or hardware-centric systems, a more "value centric" selling model will require some comprehensive planning, but will almost always involve the following organizational changes and considerations once executive management has made a decision to become more software-centric:
- Assign product marketing leadership dedicated to software products, and compensate them partly on the revenue generated from the software. It's a good idea to staff with professionals with previous software product management and marketing experience. These individuals will understand how to sell and position the selling of software licenses and maintenance, help significantly in the migration to a value-based software-centric selling model.
- Sales management buy-in. To succeed, you must get sales management buy-in and the management must exhibit leadership in the selling of software and software value.
- Sales compensation models can have a dramatic effect on results. Rather than compensating sales management and their teams on a single bookings target, consider changing the compensation to favor the sales of software, and perhaps, software renewals. I have seen companies virtually change behavior overnight when new compensation models were launched to favor the sales of software and renewals.
- Marketing & Sales Management training on selling software. To help marketing and sales succeed be sure to design and launch comprehensive internal training programs to align Marketing, Sales, and Support on how to value, sell and support software.
Over time, all departments in the organization are impacted by making this transition from a hardware centric company to becoming a thriving software company, but if sales and marketing leadership are aligned and compensated, the rest of the organization changes that may be required, will follow more smoothly.
Did you miss a step? Here are the links to each step.
The Ten Step Process: Converting Your High-Tech Company into a Thriving Software Company
Step 1 – Understanding the Opportunity that Becoming a Software Company Can Offer
Step 2 – Use Software Licensing Methodology to Enable Product Agility in the Marketplace
Step 3 – Balancing Revenue Recovery & Customer Satisfaction with Your Software Compliance Strategy
Step 4 – A Paradigm for the Delivery of Digital Goods
Step 5 – Begin the Process Journey: Designing for Entitlements and Fulfillments
Step 6 – The Importance of the Software License Lifecycle
Step 7 – Designing "Prospect to Support" (P2S) Software Licensing Business Processes
Step 8—Empower Customers with Entitlement Management Self-Serve Capabilities
Step 9—Licensing Supply Chain Secrets High-Tech Companies Need to Know
I hope that this 10 Step series on Converting Your High-Tech Company into a Thriving Software Company has been helpful and information. What strategies have you employed to help your company make the transition?