Scherr Pharmaceuticals is the holding company of Siiquent and Teomik – yet, the combined entity had no overarching revenue model. As Isolde pragmatically explained, Scherr was facing the razor-blade dilemma within both its business units. Siiquent, managed by Isolde, provided and made money out of consumables; whereas, Teomik, managed by Emanuel, earned its profits on machine one-off sells.
This was not casual, both Siiquent (sold consumables that hospitals and big diagnostic labs needed for gene-based diagnosis, generating recurring revenues) and Teomik (provided machinery that research labs and universities needed for gene-based studies, with one-off revenues and specially gross margins on patent protected instruments) had shaped their business model, including innovations based on both their employees and customers feedback.
However, margins were shrinking and competition was fierce so the management decided to reflect on the possibility of imposing the structure of a single revenue model vs. letting the divisions continue on its flexible way.
My top-of-mind conclusions are:
- Single revenue model
- + Easier reporting
- + Corporate optimization: lower costs, higher efficiency
- – Need to change one or other business model, with the risk associated (both internally and externally)
- – Defensive management
- Flexible revenue model
- + Smooth, no transition needed
- – Customer confusion due to diff. revenue models in a single-parent company
- – Could be a victim of internal inertia
Had the CEO decided to merge both divisions and consolidate the revenue model, my action plan would be the following.
- ASSESS. Assess impact on sales and cost associated with having a single revenue stream.
- PROPOSE. Decide which revenue stream would better fit market trends.
- TEST. Adapt commercial proposals to fit the single revenue stream, in a niche market and validate market response.
- SCALE. Based on feedback, discard or sell a potential “single revenue stream” internally and externally.
Given the circumstances and the high stakes, I would not consider reaching step 3 without the prior. Forcing either way without clear market arguments (ie test) and internal support would be too risky and irresponsible from a GM.
