Isolde, head of Siiquent, targeted stuff – selling everything that hospitals and big diagnostic labels needed for gene-diagnosis. Emanuel, on the other, head of Teomik, sold machines, providing research equipment for research labs and universities for gene-based studies. As Isoldey summarized:
“We both sell two things: machines and stuff that the machines use. My unit makes its
money on the stuff. It’s the classic razor-blade model: Sell the shavers at cost and make money on the blades. Your unit makes money on the machines, and it’s less relevant whether customers buy the stuff from you or from low-price competitors.”
Siquent earned its profit on the stuff; while Teomik earned its profit on machines. Neither made money from the extensive customer service they provided. Emanuel would adjust pricing policies to address customer demands and had a very flexible revenue model. Given that the company sold machines and that customers could buy the machines from other companies, it was important for them to lower the prices to ensure they can sustain customers. Isolde, on the other hand, made money on “the stuff” and sustained profits with the higher prices of some products.
The two approaches have their own pros and perils. Imposing the structure of a single revenue model ensures that the company has a very clear goal in mind and can consistently work towards the goal. Such a revenue model ensures that the company is well structured, and each sector within the company can work on contributing to the greater goal. It requires no additional change and enforces stability. On the other hand, it risks adapting to new market trends or consumer needs and could be a missed opportunity for greater revenue. For example, if a company always adopts the same revenue model even when it discovers that there could be an additional channel of revenue, then it cannot take advantage of that opportunity. Letting the company continue on its flexible way, on the other hand, could potentially lead to more vitality and more sources of revenue, but it could risk losing structure and organization; additionally, if the company lacks a clear revenue model, then it might be easily defeated by other companies with a clearer revenue model.
Given the two distinct revenue models that seemed to work for the two companies before merging, it is a challenging task to come up with a new revenue model for the merged company. On one hand, Emanuel priorities “customers, competitors, and employees” and refuses to be restrained by a single revenue model. On the other hand, this “random reactivity”, as Peter critiques, makes it hard to “select customers or deal with the competitive landscape”. For the negotiation to scaffold, it is important to understand the core beliefs of the two CEOs (e.g. their values) and what they would absolutely not compromise. Then, we can negotiate so that both parties can make some compromises to reach the same final goal.
