Pulling Off a Pivot

Ninety-one percent of organizations are not strategically aligned across functions. The number is even higher shortly after an organizational or business strategy change.

Why? CEOs tend to focus on corporate and product when changing the strategy. While these are natural starting points, neglecting to align your go-to-market (GTM) model can be catastrophic. The issue with this is that even a modest change can create marketing and sales strategic alignment issues.

Let’s use a common strategy change that is prevalent in the software world today to illustrate this alignment challenge. Many software companies are attempting to increase cloud revenue because of the positive impact on a company’s valuation. But a large percentage do not consider all the necessary implications when making the shift to cloud, or they don’t go deep enough with their analysis.

Not fine-tuning the new GTM model when shifting to a cloud product leads to one of two issues:

• Poor revenue performance
• A high-cost model

   

Let’s dig into some specifics. In the perpetual license model, revenue is recognized almost immediately. This helps alleviate the customer acquisition cost incurred due to marketing and sales expenses allocated to new customer attainment. In the new cloud model, a lower-cost acquisition is typically required since revenue attainment is delayed. Also, the complexity of the sale and buyers could differ, leading to new internal roles and routes to market. For example, inside sales is prevalent in cloud software sales, while direct field sales still dominates perpetual license software. On the marketing side, a friction-free online marketing channel may need to be created.

The skills required to market and sell perpetual license versus cloud are different. Making the mental model shift is not easy for the existing talent and is rarely pulled off successfully. Evaluating your talent early can make the transition much more successful.

Another complication with moving to cloud is the need for churn reduction through customer success. With this new model of extended revenue recognition, achieving the desired customer lifetime value becomes extremely important and requires a team to ensure clients are engaged and renew. While this is common knowledge in the cloud world, it is a major shift from the mental model of the perpetual license world.

This is just one example of many potential strategy changes. But it helps illustrate the fault line a business strategy pivot can create between product and the GTM model. Those who consider all the implications and create an aligned GTM model will quickly reap the benefits of the new strategy.