How to Shift an Enterprise Towards a Subscription Model

Transforming your traditional business into a subscription business requires a huge shift from product focus to customer focus, with a commitment to providing real customer solutions.

So how can you transform the very DNA of your company?

Dr. Ulrich Hermann, former Regional Managing Director & CEO of Wolters Kluwer Central Europe (part of the global 100% digital company Wolters Kluwer Corporation with $3.6B in annual revenue, 80% of it recurring) shares six core steps to build out a successful subscription business from an existing business.

1. Assess your current business model

A subscription business model holds the promise of recurring revenue – a pretty enticing carrot for any business. But, to transform your business, you first need to take a 360-degree look at your current model, operations, and culture and ask yourself some pointed questions. Where are you winning? Where are you struggling? How is your business model working for you…and for your customers? Is it sustainable?

Perhaps the core key questions are:

What are you really providing?
How are you offering value?
What are your customers paying for?

Note that what your customers are paying you for may not be the same thing as what you think you’re providing!

In terms of Wolters Kluwer, historically we ran a content business. When I started ten years ago in Germany, we were a traditional legal publisher, with 90% of our business as print. We produced print content that could be used by legal professionals, shipped it, and priced that accordingly. What we were selling was product based: the value of our content.

Because we were just supplying content and leaving the distribution to our retail partners, we didn’t fully understand what our customers were doing with our content. We considered the value and the cost to product development, and then sent it to the market. Product development followed the waterfall system: we would develop products with customer input, then launch those products.

2. Look at your customers

If you don’t have customer insight, you don’t have real relationships with your customers. Period. If you don’t know your customers, how can you differentiate yourself from your competition (and highlight your better solution)? How can you retain your customers? And how can you possibly sell (and upsell) to customers you don’t really know?

At Wolters Kluwer, when we started to really look at our customers, it became clear that there was a need to better understand how they were interacting with our product. Once we provided the content, we had limited insight into how it was being used, who was using it, how frequently, etc. Our challenge was that we did not have the customer data we needed for our products. Our retail chains sold the content and managed these subscriptions while we completely focused on the content value and editorial side.

Again, the subscription model isn’t about just putting a monthly (or annual, or whatever!) price tag on your offering. It’s about shifting your business to focus on your customers, and your relationship with them.

3. Identify your “way in” towards building a subscription business

For companies to successfully shift to a subscription business model, there has to be a compelling value proposition for customers: what is the event that will encourage customers to subscribe, rather than be one-off consumers? How can you provide greater value in the form of a subscription?

For us, the trigger was our customers’ interest in productivity issues: the lawyers we served were finding their client numbers – and subsequently their client revenue – decreasing. This was happening for a number of reasons, including the liberalizing of legal advice through such sites as LegalZoom, creating new competition for lawyers, and forcing them to think more strategically about the services they offered.

This helped us to think even more strategically about the services we offered. We realized this was an opportunity to offer greater value. Rather than supplying products, we could supply our customers with a solution. This “a ha” moment led us to the question of how to build a subscription business – how we could better address our customers’ needs, and also build a more sustainable business.

4. Pull - don’t push - customers towards your subscription business

This is the golden nugget here: To make the transition from a product company into a digital solutions and services company, everything needs to grow out of the customer – selling, innovation, production management, everything! It’s an organizational transformation.

You cannot push a customer onto your product. You have to fully understand customer’s workflow and address their problems – that’s how you invite new customers, and get them to stay.

Over the years, we’ve moved into the next value chain – software as a service – so that we’re not only delivering the content, but also the workflow with which that content is processed. Our mission is to empower our customers with three things: information, technology, and services. Content is still part of the core of our business model, but we see that it’s equally important to provide the necessary technology and services to enable our customers to work in a more productive way.

And it is succeeding. As of today, 80% of our business is from software and solutions, with the remaining 20% in print. Our revenue is close to 80% recurring.

5. Overcome challenges to transformation

Of course there are going to be challenges to spinning off in a new direction. You can’t just layer a subscription on top of an existing business. Building a subscription business requires changes to your entire business process. And, as we know, people don’t generally like change.

When you’re thinking about how to build a subscription business, you need to be aware of these potential challenges and be ready to protect your new approach. Some of the biggest obstacles to creating a subscription culture include:

Finance – The finance function is there to optimize the existing business and to maximize a profit from existing resources. It’s not there to take risks. And it’s not tasked with understanding what could be a new business model in the future. To deal with finance, you have to be very numbers driven, clearly demonstrating the recurring revenue that a subscription business will yield.Find flexible tools that can measure your successes and provide accurate financial reporting, like Zuora.
Sales and Marketing – You’ll need to forget about marketing and selling around channel or product. Your sales and marketing teams are going to have to re-organize themselves around the customer workflow instead. This is definitely a shift within some organizations, but it’s actually a more effective selling position.
Product Development – Product development also has to be organized around customer workflow and needs, in a real way. You need to seek out customer input and really listen to what they’re saying about their process. Don’t start with your product; start with customer needs and pain points.
Experts – In some businesses, you’ll have to deal with the objections of experts, like editors in publishing or software engineers. In general, experts are not the ones who drive change. They don’t want to hear that there is a new process and they have a new boss. You need to get these experts on board by explaining that there will still be an ongoing need for their kind of insight.
Back office IT – Back office logistics can create a significant hurdle between your past business model and your future subscription business model. Pricing, billing, collections – all of these operations are more complex relative to a subscription model.
Organization – You may need to establish new rules for your subscription business, or separate out the new venture into a different division, in order for it to thrive.

6. Use customer data to optimize and upsell

Watch and learn from your customers. How are they using your service? How can you help them to use it better and increase their productivity? Observe what your customers are doing on your site and from what channels they are accessing you. Track your customers, step by step, from the first moment they log into your ecosystem.

When you’re completely focused on the customer experience journey, you know what keeps them awake. Help your customers to engage with your product, to test out your offering. When you track usage, you can collect data that will help you to identify new business opportunities to continually accelerate your growth. And you can create exit barriers to ensure that your customers stick around.

In the end, our best customers are our heavy users – those customers whose businesses are growing with ours, and who are dependent on us for that growth. When a law firm builds their business environment around our software, they’re embedded within our ecosystem and don’t want to leave. There are naturally occurring exit barriers that keep our customers with us. For example, we have customers in tax accounting that have stayed with us for an average of 30 years.

Once you have a customer connected like that, you can count on your recurring revenue, and you can start to increase your relative value as long as you’re always staying very close to the customer’s actual workflow and finding ways to optimize their usage.

The DNA of a subscription business

If you’re pondering the question of how to build out a subscription business model, you’ve already taken the first step from a product-focused business to one with laser-beam focus on your customers.

Wolters Kluwer today is a customer-focused business with a keen new sense of business intelligence and, best of all, reliable recurring revenue.

Millions of professionals around the world rely on Wolters Kluwer when they have to be right. That is Wolters Kluwer’s promise to professionals. Content, of course, is still a key part of what we do. But now our customers aren’t buying content. They are paying for the value we create in their workflow. That’s the difference. That’s a thriving subscription business.