Technical or Adaptive?

Identifying the type of challenge in front of you can determine which course of action to take next to solve it. Is the challenge technical vs. adaptive? Having a systems background I tend to default to viewing every challenge as a technical one. Where a quick, concrete solution can be implemented by an expert or authority. If only all challenges were like this. In reality, we experience challenges of varying degrees of complexity and scale. Adaptive challenges are difficult to identify, require change in numerous places, impact people and require new ways of doing things. These types of challenges take longer to solve, and require people, not experts to solve. I now look at adaptive challenges as a collection of technical challenges wrapped up in a larger people change challenge.

Technical ChallengeAdaptive Challenge
Easy to identifyDifficult to identify
Clear path to solutionRequires change in how people do things
Solved by expert or authority“People” solve the challenge
Change required in smaller areaChanged required in numerous places
People receptive to changePeople resistant to the challenge, and change
Solutions can often be implemented swiftlySolutions requite an iterative approach, and can take longer to implement
Example:Example:
Send salesperson an email alert to remind them to follow up a lead.Design, build and roll-out an enablement program to improve sales effectiveness

The subscription model

The subscription model is a business model where a customer is charged a recurring price at a regular cadence, usually monthly or yearly. Subscription models are not new, with book subscriptions going back to the seventeenth century. The rise of the digital economy and SaaS (Software As A Service) has seen subscriptions and recurring revenue become more and more prominent due to internet delivered services, improvement in payment technologies and the attraction of continuing revenue streams.

Two important factors to consider when thinking about recurring revenue are price and time. For example, Netflix charges $9.99 (price) per month (time) to subscribe to their basic plan.

This generates $9.99 of recurring revenue per month, and $119.88 of recurring revenue per year if the customer doesn’t cancel the subscription during the 12 month period.

$9.99 (price) x 12 months (time) = $119.88

The commonly used terms for these values are:

MRR (Monthly Recurring Revenue) and
ARR (Annual Recurring Revenue)

Having a continual flow of recurring revenue into the business means that managers can more accurately predict revenue over time and focus on retaining and growing that revenue within their customer base.

The subscription model does come with its challenges, with the churn being one of the most impactful. Churn is a measurement of attrition, a measure of the customers that have left a subscription service in a given time period. The churn rate is usually given as a percentage and is used as a key metric for customer retention. If your churn rate increased over time, you are losing a increasing rate of customers.

For example, using the Netflix example above let’s say there were 100 subscribers of the basic plan.

100 users x $9.99 (price) per month (time) = $999.00 MRR (Monthly Recurring Revenue).

If 8 users decided one month that they were no longer happy with the service they were subscribing and cancelled this would mean that Netflix loses 8 users x $9.99 equaling $79.92 worth of churned revenue.

To calculate the churn rate we use the formula:

(Churned MRR / MRR at the start of the month) x 100

Which in this case is:

($79.92/$999) x 100 = 8%

We call this metric gross churn as we are not considering any new subscribers that have signed up during the month.

So how do we improve gross churn? To improve gross churn we need to reduce it, and to reduce gross churn we need to reduce the number of customers that cancel their subscription.

“Let the data be the star”

These were the words my uni tutor spoke reviewing the findings of my research last month. The data gathering process for any research initiative should dispel or validate any previous assumptions made.

By going through the process of research, from informal to academic, the one thing that stands out is how I can be so wrong. Long gone are the days of being a young adult filled with bravado and know-it-all zeal. The data will show you the way of the truth and humble you.

There are also times when your gut-feel prevails and the data loses to your intuition. This feels good.

The key is knowing how to balance the findings from the data and fill in the gaps with your gut. Let the data be the star, and your gut be the…

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More on this here (Forbes).