Almost everything that’s growing in the B2B market today is XaaS, or “as-a-service”, where the “X” is a placeholder for anything you want it to be, such as Software-as-a-Service (SaaS), Device-as-a-Service (DaaS), Network-as-a-Service (NaaS), etc., just to name a few. Being successful in the XaaS world requires becoming LAER Efficient, in which Product Management plays a pivotal role.
In this post, I will address key questions on this topic, including:
- What is the LAER customer engagement model?
- What is a LAER Efficient business?
- What is Product Management’s role in becoming LAER Efficient?
- Where can Product Management learn more about building LAER Efficient solutions?
What is XaaS?
First let’s put some clarity on the term XaaS. It really embodies anything with embedded technology that’s offered to the market on a subscription basis. It implies growth by consumption and renewal.
The technology industry has seen phenomenal growth in XaaS revenue, and indeed the TSIA Cloud 40 Index has reported a healthy 20% year-over-year revenue for the past several years. On the flip side, it’s clear that XaaS business models continue to struggle to achieve scalable and profitable growth, with evidence of this being seen across hardware, software and technology service providers’ XaaS offers.
How do we know this?
TSIA’s Cloud 40 Index has illustrated over the past few years the challenges that subscription business models have in producing positive operating margins, and it’s nowhere close to those seen in the traditional technology business models.
Innovating with highly differentiated solutions is the starting point for B2B business growth, however it’s simply not enough to drive as-a-service businesses to the second phase of scale and profitable growth.
So how do you accelerate scalable profitable ARR growth in today’s technology marketplace? On the face of it, the formula is simple:
- Alignment on target economic engine
- Designing and pricing “as-a-service” offers, built around helping customers achieve specific
- Supported by a go-to-market and model that cost-effectively drives sales, customer adoption, expansion, and renewal
What Does it Mean to Be a LAER Efficient Business?
- Land: All the sales and marketing activities required to land the first sale of a solution to a new customer, and the initial implementation of that solution.
- Adopt: All the activities involved in making sure the customer is successfully adopting and expanding their use of the solution.
- Expand: All the activities required to cost-effectively help current customers expand their spending as usage increases, including both cross-selling and upselling.
- Renew: All the activities required to ensure the customer renews their contract(s).
The Sales and Services teams of technology companies have embraced LAER as the de facto standard customer engagement model for recurring revenue businesses. Companies both large and small across all industries have organized their Sales and Services teams around LAER, including Adobe, Autodesk, Microsoft, IBM, Tableau, Salesforce, ServiceNow, and Talend, just to name just a few.
As noted earlier in this article, the challenge for the industry is to master the formula for scalable and profitable XaaS business models. To help the industry with this challenge, TSIA designed another framework, called the “LAER Efficient Framework”, and identified 4 phases that companies may experience as they make the journey to operationalize LAER for optimal efficiency.
There are a series of organizational capabilities of people, process and technologies required at each phase of the journey to LAER Efficiency along with key performance indicators (KPIs) that serve as progress markers.
What do the Sales, Services and customer performance markers tell us about where the technology industry is on the customer engagement journey to LAER Efficiency?
Based on TSIA’s research across numerous Sales and Services-focused research practices, we see that it is still early days on that journey. Pure XaaS native (also known as born-in-the-cloud) companies lead the pack with traditional tech companies, who are in the early stages of transitioning all or part of their business models to XaaS, just embarking on what is likely to be a multi-year journey.
What is Product Management’s Role in Becoming LAER Efficient?
A key question must be asked of the Product Management team: “Is LAER Efficiency just an issue for the Sales, Services and Customer Success teams?” The instinctive response is, “Of course not!” Why?
The data reminds us that even when the market loves the subscription offer, rewards the company with strong revenue growth, and the business has deployed a Customer Success team to help drive adoption, many businesses still struggle in their quest for acceptable margins and scale.
Even with the best efforts of Sales, Services, and Customer Success, no technology business is likely to achieve full LAER Efficiency without the presence of key attributes in the company’s portfolio of solutions and key practices within the Product Management team.
To double-click on this, TSIA’s research demonstrates that supplier’s that take an outside-in perspective and shift left all the way up the food chain to the very beginning to the product concept, discovery, and design phase, are most likely to realize their scalable growth objectives. These findings draw attention to Product Management’s XaaS Success Playbook where the technology product, the portfolio of offers, and related pricing are not only designed to maximize the customers’ value realization, but also explicitly designed for business revenue capture and for driving cost out of the customer engagement model.
Product Management leaders that acknowledge and embrace this highly impactful role in accelerating the path to LAER Efficiency for their recurring revenue business, will create and build a lasting platform of growth and scale.