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Five Lessons Every Exec can Learn from Cisco’s SaaS Transition
First, a quick disclaimer: I started my sales and marketing career as a Cisco ASR (Associate Sales Representative) in 2004, and heavily credit my two years there for helping shape my career as an entrepreneur as SaaS CEO. That being said, the changes that Cisco – and their “new” CEO Chuck Robbins – are very publicly undergoing are not only setting a trend, but also creating a case study for how businesses of any size and shape can and should be approaching their markets as the subscription economy envelops one industry after another. In 2017, we are all software companies.
So, no matter your role – CXO, sales executive, marketing executive, customer success leader, channel leader, operations leader – here are five lessons we should all be paying close attention to as Cisco evolves from the world’s largest and most innovative B2B IT hardware manufacturer into a subscription-based software company with its sights set on impacting every facet of how we work, live and play.
1. Talk, Listen, and Respond to Your Market
Cisco’s determination to grow its software businesses is only intensifying, and for good reason: their two biggest divisions – switching and routing – have seen a combined decline of nearly 5% over the past year. Meanwhile, software-driven solutions in security, video, and collaboration have all posted sales increases of more than 10%. In other words, the market is speaking. And to Cisco’s credit, they haven’t just listened and reacted, they’ve responded with rigor and thoroughness as seen in their product, their outcomes-focused brand messaging, and their partner-driven go-to-market strategy.
The fact is, there’s nothing more effective for improving the quality of your product or service than listening to your customers – what they’re experiencing, where they’re headed, what’s working (or isn’t), and what keeps them up at night. For a lot of companies, however, the biggest barrier to listening is simply fearing what they’ll hear. The fact is, the truth is already out there (as are its symptoms), whether you want to face it or not. But it’s only if and when you do that you can truly make the best decisions to grow both your business and your customers’.
2. Any Ship Can Turn with the Right Captain and Crew
It’s something we’re taught from our very earliest days in business – one of the most important competitive advantages small businesses and startups have over their larger competitors is their ability to be more agile, flexible, and responsive to market changes and customer needs. In fact, a recent article from Pardot founder and SaaS investor David Cummings recently stated that successful startups average at least one pivot, responding quickly and aggressively as they validate ideas, gain a better understanding of their market and the opportunities that lie within, and try to improve the economics of their business model.
While you may not necessarily call Cisco’s move a “pivot,” it is without doubt a bold and precedent-setting acknowledgement of the impact that SaaS and the subscription economy have made on even the largest and most innovative companies. And a fair warning to fellow players in the market – from the largest enterprises to the earliest startups – that Cisco strongly believes it has the leadership and team can take even the sharpest of turns with the best of them.
3. All Hail Predictable Revenue
When a company generating more than $22B in sales from switching and routing hardware proudly exclaims “We’re Not a Hardware Company,” there had better be a good reason for it. For Cisco and its huge ecosystem of partners and resellers, there’s one very huge reason: repeatable, predictable revenue from software. As Wendy Bahr, Cisco SVP of Global Partner Organizations, recently said, “as critical as it is for Cisco to align our business model to the way our customers want to consume our technology, it’s equally critical that we help and enable our partners to transform as well.”
The value of recurring revenue isn’t only found on the balance sheets and P&Ls of the Silicon Valley startups trying to raise their next round of funding. It’s rooted in the demands of today’s customers, who expect faster and stronger ROI, better outcomes, and more value from the solutions they’ve purchased. Master the delivery of those three, and chances are you’re well on your way to creating happy customers for life.
4. Your Customers Expect Success
Customer outcomes have never been more critical to the vendor (yes, the vendor) than in the subscription economy, where technology is no longer just an IT decision, and switching between solution providers can be as simple as an expiring contract and a few clicks. The fact is, nothing hinders growth more than churn – losing customers.
Over the past decade, as there’s been a massive shift in what customers buy, and how “traditional” IT hardware and software companies such as Cisco have realized that, as so eloquently stated by Gainsight, “the essence of the subscription economy is the business-customer relationship, which does not end with one-time transaction. In the subscription business model, customer focus is the key to business growth and success.”
In order to compete in the subscription economy, not only do businesses have to embrace new delivery models, they have to build rock-solid, process-driven customer success practices that can deliver a customer experience that meets the rising expectations for ROI, outcomes, and value, as mentioned above. After all, according to Gainsight, companies with a dedicated customer success team see a 24% lower churn rate than companies without one.
As a SaaS CEO, that’s exactly why our very first hire here at Allbound was a Director of Customer Success – more than a full year before we hired a Director of Sales, and why customer success practice should be considered a linchpin of service-based sales and subscription-based business models. And, why Cisco itself has built an entire digital hub and physical practice dedicated 100% to helping their employees and partners better understand and execute a business model to accelerate recurring revenue.
5. Never Sell Alone
If you ever take a moment to truly study some of the world’s largest, fastest-growing and most dynamic B2B technology companies, you’ll find a very common trait, albeit one that’s not always right at the forefront – a large network of channel partners. From “traditionalists” like Cisco, IBM, and Oracle to SaaS “newcomers” like Salesforce, HubSpot, and Box, nearly all of the most flourishing and enduring B2B business models boast prolific reseller or referral programs that contribute anywhere from 30-80% of their overall revenue. However, as cloud and subscription economies have grown, most “traditionalists” have not only had to calm their own nerves, but also those of their partner communities who had become overrun with fear, uncertainty, and doubt as to whether or not they could survive – and, whether or not they were even needed.
The good news for many of these organizations – vendors and their partners – is that the answers were right there in front of them, thanks to their SaaS counterparts. As a matter of fact, not only are partners still critical for businesses looking to achieve or maintain scalable growth in the subscription economy, they’re more critical than ever due precisely to the top concerns for SaaS businesses: adoption, customer outcomes, expansion, and customer success.
In other words, the need for partners hasn’t changed. But the value proposition has advanced to support the full customer lifecycle, meaning partners can no longer only focus on helping vendors extend their sales reach, provide distribution and inventory relief, or assist with financing and reactive support. As shown by Cisco, partners are business problem solvers who deliver a solution to solve a customer’s needs and improve their overall experience. Partners must be able to help vendors drive successful onboarding and adoption, improve customer success, and ensure a recurring revenue stream while focusing on the most critical KPIs of a SaaS business: Customer Acquisition Costs (CAC), Total Lifetime Value (TLV), monthly and annual recurring revenue (MRR and ARR), and churn.
With so much to learn from Cisco’s evolution, what’s the most crucial takeaway for a business leader in the subscription economy? Is it listening to customers? Leadership and team building? Customer success? Building partnerships? I’ll let you decide that. But the one thing I’ll take note of, and I hope you will too, is that in 2017 and in the foreseeable future, I think we can all agree that sales is no longer a finish line – it’s a lifecycle.