Part 1 in this series introduced the top five technology industry challenges for 2018. Part 2 addressed the implications a few of these challenges have on companies. Part 3 will discuss the implications of the final two challenges, getting acquisitions right and navigating ASC 606.
Lowering the cost of customer acquisition, building a growth engine and leveraging channel partners are three of the top industry challenges for 2018 (discussed in Part 2 of this series). But XaaS revenue leaders will also need to effectively navigate acquisitions and ASC 606 to achieve revenue growth success.
Challenge 4: Getting Acquisitions Right
In any acquisition, tech companies must balance the desire for integration with the preservation of organization synergies, particularly with respect to marketing, sales and services capabilities. Integrating too rapidly can potentially eradicate the unique capabilities and operating model that made the acquisition attractive in the first place; on the other hand, artificially isolating acquisitions for too long can create inefficiencies that will invariably drive up costs and potentially frustrate end-customers.
Tech vendors must develop a consistent, definitive integration strategy to maximize the impact of acquisitions to the overall business. Execution of the strategy will enable tech companies to:
- Successfully integrate acquired companies on a set schedule to capture synergies while eliminating inefficiency
- Align the coverage and sales compensation philosophies to minimize organizational disruption
- Integrate acquired capabilities into existing sales motions to enhance the overall portfolio and customer offering set without confusing or frustrating existing customers and prospects
- Create enhanced value messaging that conveys the improved capabilities of the acquiring vendor in the context of the acquisition
To compete effectively in the XaaS landscape, inorganic growth is simply a requirement if tech vendors are to keep pace with the rapidly evolving market. Effective absorption and integration will make the difference between accretive acquisition and simply layering on additional cost centers.
AGI has built the integration plan with roadmaps to identify key milestones, potential risks and pitfalls, and market opportunity. Companies must integrate new acquisitions into existing sales motions and rules of engagement to ensure cohesive marketing, sales and service activities. AGI can help optimize the go-to-customer coverage and deployment model including roles and structure (e.g., specialist overlay vs. separate sales forces) to provide tech companies with short-, medium- and long-term integration plans.
Challenge 5: Navigating ASC 606
Essentially, ASC 606 allows vendors to recognize the value of software revenue associated with a subscription deal up-front despite the fact that the customer will pay for the software (and ongoing maintenance and support) over time. If a company can isolate the software component of the deal from the ongoing service, they can recognize the software portion (revenue and cost) at booking rather than over time. This construct may create issues that require adjustments in underlying sales compensation and, potentially, coverage.
Tech vendors must develop an approach to rationalize their treatment of revenue under ASC 606 to:
- Effectively reward go-to-customer resources for performance as close to the point of persuasion as possible
- Use the right measures, mechanics, modifiers, thresholds and other plan componentry to drive the desired sales, marketing and service behavior
- Determine if ASC 606 creates any unforeseen consequences to existing coverage models or revenue motions
In order for companies to comply with this mandate, they need to identify new sales compensation plans by job role required to effectively reflect ASC 606 approach, as well as build organizational consensus around new plan approaches required. AGI can help conduct cost modeling and incumbent performance analysis to identify any risks associated with these new plans and develop plan materials, including payout calculators and communications materials required to effectively roll out new sales compensation structure.
The five challenges discussed over our three-part series can be daunting for XaaS revenue leaders. But the experts at the Alexander Group can help tech organizations of any size grow market share and top-line revenues by harnessing the power of effective go-to-customer coverage and sales compensation.
Contact an Alexander Group expert today.
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About the Author
Sean Ryan is a principal in the New York office. He is a leader of the Technology practice on the east coast. Sean focuses around leading software, hardware and technology services companies through the difficult challenges of sales transformation, from traditional selling models and building the sales effectiveness and sales compensation structures required to effectively transition. Sean works primarily with technology clients in areas such as sales and marketing strategy formulation, sales transformation, direct, indirect and inside sales channel management, and sales compensation. Increasingly, Sean’s focus has centered around working with companies attempting to establish a presence in Cloud/XaaS markets for both traditional technology players and “born-in-the cloud” companies. Sean has significant experience working with both large companies and start-ups, with all forms of ownership including public, private equity-funded and privately held companies.
