The case study presents a interesting dilemma about revenue models for the company and two department heads, Isolde and Emanuel, who must merge their divisions despite having distinct markets and revenue models. As a previous co-founder of a startup in a B2B space, I find this case particularly intriguing because it reminds me of the struggle we had while trying to decide on the revenue model. (we failed on this several times :D).
In this reflection I will explore:
1- The markets targeted by Isolde and Emanuel, and how their revenue models compare.
2- The pros and cons of imposing a single revenue model
3- My suggestion of a process to mediate a fair merging of their divisions without dictating a solution.
Understanding the Target Markets and Revenue Models
Isolde’s division, Siiquent, targets hospitals and diagnostic labs. Her business operates on a “razor blade” model:
- The Razor: Selling diagnostic machines at low margins
- The Blades: Generating profits from consumables like test kits
This model is aligned with the market as budged-conscious hospitals prefer lower upfront costs, regular need for consumables l generates ARR, and customer relationship gets better through the ongoing supply and interaction.
On the other hand, Emanuel’s Teomik serves research institutions and universities. His business focus on:
- Selling sophisticated instruments with significant upfront costs to those that can affors like Max Planck Institute
- They are not considerate of if their customers buy consumable from them or competitors.
Why this model worked out for Teomik is that some research institutions want to invest heavily in cutting-edge tech, look for high performance equipment, and try to improve their prestige with high-tech equipment.
Single Model vs Flexible Model
Let’s come back to our case: how does single revenue model compare with flexible one?
Imposing a single revenue model has several advantages:
- It is simple, understandable, making the company’s financial performance and the customer’s budget for the service for the future more predictable. In my experience in the startup, every time we went to customers and send the price quote, the first response always would be “well, can’t you make it simpler?”. It could be because the group responsible for buying the products were not the same with people who were going to use our product. So, simple pricing helped making the deal get agreed on easier.
- It helps with branding – presenting a consistent value proposition to customers.
- Lastly, but not least, it is easy to operate.
However, the disadvantages for this are there as well but mainly it lacks flexibility for an ever-changing market. If the chosen model doesn’t fit market shifts, it can harm the business a great deal.
That’s why, in my perspective maintaining multiple revenue models is more important especially in markets which are constantly disrupted by new tech. The reasons can be outlined as follows:
- Like venture capital approach, not betting everything on a single model allows for experimentation. One example might be Amazon’s bet on different products and revenue streams – ecommerce to AWS. So, the company can test out different models and maybe add more weight to the one that seemingly work better. This would greatly minimize the risk and increase resilience.
- Furthermore, different markets and customer segments require different revenue models. Max Planck institute is in Germany but the X lab might be in US. The US and German market are highly different as German market is looking for much more structure price quotes and services. This is also true for universities vs private research labs and more.
However, this approach needs constant monitoring and experimentation. Furthermore, offering multiple choices might overwhelm the customers: choice dilemma!
Navigating a Merging Process
As the PM assigned for this task, my goal is surely ensuring a fair and productive process that leads to a sustainable solution. In my perspective the following 4-step approach would work the best:
1 – I would firstly meet with customers and industry advisors to better understand market demands and gather unbiased insights.
2- I would have 1-on-1s with Isolde and Emanuel to understand their operations and strategies and their perspective.
3- Thirdly, I would arrange a collaborative meeting for open dialogue and shared understanding. At first, I would lay out the company objective for this merger. Then, using the knowledge I gathered on their markets and their division operations, I would guide the discussion on potential differences. Then, at the end, I would present my findings and insights I gained on this process.
4- Lastly, I would request both to write a brief proposal for outlining their ideas for the merger. After getting these proposals, I would review them with trusted consultants and industry experts – decide on a draft decision. Then, I would invite both heads to a second collab. meeting to share feedback and using the draft decision I made, I would try to aim to reach a consensus.
While this is a complex decision to be made, from my personal experiences, I am leaning towards a flexible model, as I believe it would benefit the company the most.
