Isolde and Emanuel’s Two Model Dilemma
Within Scherr pharmaceuticals, two formerly independent business units, acquired as Siiquent and Teomik, merged with much deliberation on what their shared revenue model would be – or if a singular overarching model was even the right approach. They produced similar products and both specialized in the genetic diagnosis and research technologies space, with Siiquent being a DNA-sequencing start-up and Teomik a provider of research equipment. Since both units found their niche and profited off of it, they were adamant about a flexible model rather than a rigid overarching approach.
The problem was that these two businesses had evolved separate approaches to making money due to their focus on different markets. Isolde Kraft, Siiquent’s head, described her unit’s revenue model to be centered around selling affordable consumables (ie. test kits, biological compounds) to hospitals under tight budget and regulations. Their team had found that only the most affluent hospitals and labs could afford gene-based diagnosis procedures and equipment, and even then there were tight regulatory restrictions. By focusing on low upfront costs and providing customer-backed pricing with various free services, Siiquent was able to align their revenue model with their market and position themselves as the “revenue generator” for hospitals. In contrast, Teomik focused more on the research market since it had already established itself in the space for half a century, and unlike Siiquent’s market, Teomik’s customers had numerous providers for compounds already and expected high instrument prices for genetic research. Teomik, then, was able to earn high margins with patent-protected devices that aligned with research institutions’ goals of publication and novel discoveries.
Considerations for Single vs. Flexible Models
The key advantage of a unified revenue model is its strategic clarity, which is crucial for both internal decision-making and operational efficiency but especially when addressing a potentially muddled market. With independent operational structures, there could be overlapping efforts, increased costs, and even internal competition. In Teomik and Siiquent’s case, their two markets started showing synonymous characteristics, such as when Siiquent’s market diverted their efforts into creating specialized tests for their own research, in which they were able to buy compounds from Teomik at a lower cost due to Teomik’s salespeople wanting to get ahead of Siiquent. However, what proponents of a more flexible revenue model argue is that flexibility is crucial for keeping up with a dynamic marketplace, in which a unified model may group together customers with different needs while a flexible model is considered “tried and true”.
Final Recommendation
As a personal recommendation for ensuring a fair merging process, I would insist on equal participation from both parties to find a common ground that both can reason, with data, and come to a consensus on. The process should be directed by a set of shared objectives by both units, whether that be profitability or customer satisfaction. Once a shared goal has been identified, we can identify and retain the strengths that each model has in achieving that goal. To ensure an evidence-backed merge process, a cross-functional team consisting of sales, finance, and operations will be employed to do checks on different areas of the proposed unified revenue models, and potential overlaps in strengths can be identified by mapping customer segments to needs, which also allows for each unit to continue benefitting off of their existing product-market fit. The process of developing a unified model, then, can also be considered “tried and true” and will be an iterative process of gathering data and incremental releases, such as piloting on one specific market first.
