This is the 2nd of a series of articles on IoT business models stemming from Don Barnetson’s sabbatical. Input and comments are welcomed. First Article available here.
Contemporary IoT value propositions fall into three categories – hard savings (ROI), soft savings and revenue enhancement. These categories require materially different go to market strategies and are difficult to package into a single vertical product thus it is critical that vendors identify their space clearly in advance.
Soft savings involve curtailing internal (ie, non-outsourced) costs via an IoT technology deployment. The most common examples are technologies that improve employee satisfaction and wellness – while the potential savings of making employees x% more efficient are very material, there is not typically a firm way to close the loop and prove the benefit.
These technologies are thus very sales intensive and typically focused on knowledge worker environments where the employees are viewed as a key asset and customers are already deploying capital to improve the working environment such as providing free food and drinks, engaging furnishings, onsite wellness services or other amenities.
Soft savings do not need to happen automatically the way hard savings do. A soft saving IoT system could be a set of sensors which providers information back on space utilization to a real estate manager; or it could be a new actuator which allows a user to control some previously uncontrollable variable such as light level or temperature that impacts employee satisfaction.
Soft savings put a significant pressure on the sales and marketing process. They key questions you need to answer are:
- Does anyone care? If so, who? Is what are you fixing an important enough problem to find a customer champion internally?
- Can you scale sales & marketing? You’re likely going to spend 100%+ of your early revenue on your sales and marketing process – this is fine and necessary; but you need to have a path to either sell enough revenue to each customer to afford a direct sales force or build out a channel to bring it down to a level you can sustain. As customer discovery is everything in this space, you very much need to start with the end in mind.
- Are your early customers representative of your market? Especially in silicon valley, it is possible to find customers who will buy almost anything at crazy prices; unless your business can be built solely on these types of customers they are not representative of what happens in the broader market.
There are not many examples of companies who have successfully scaled IoT products based on soft savings – many, many have failed. However, companies such Comfy (User HVAC control) are illustrating how to scale a sales intensive model in this space.
We’ll explore the holy grail of IoT products in the next post – Revenue enhancement.
Don Barnetson is a Technical, Product and Strategic Marketing Executive with a passion for business model clarity in the Internet of Things (IoT) space based in silicon valley.