Service-Led Growth is habit forming
Steven Forth is a Managing Partner at Ibbaka. See his Skill Profile on Ibbaka Talent.
Service-led growth is driven by a positive feedback cycle.
Delivering services leads to sales of a software platform, generating subscription revenues, the platform gathers data, which generates insights, which lead to additional services. These feedback loops are what drive the service-led growth flywheel. See How to check if your service-led growth flywheel is spinning.
This cycle has a lot in common with the cycle that leads us to form good (and bad) habits. Nir Eyal has developed this into a model for habit forming software he calls Hooked.
The Hooked cycle begins with some form of trigger. The trigger can be external or internal.
An external trigger could be the introduction of a competitive offering calling for innovations in response. It could also be a more general change in the environment creating demands for new services and solutions, as is happening with the shift to a Green economy.
Internal triggers rise up within an organization. They can show up in metrics or business results or in the case of a sudden failure (collapse in revenue or profitability, a drop in employee engagement and an exit of staff, technical or service delivery failures).
Part of the Hook model that is leveraged in service-led growth is the conversion of external triggers into internal triggers. The data and insights part of the service-led growth flywheel creates internal triggers that lead to action.
A trigger that does not lead to action has misfired. This can happen for several reasons.
Signal detection can be weak. Not all companies are in tune with market signals and can miss shifts in demand or solution requirements until it is too late. Some of us are old enough to remember Newbridge Networks, a former star in Canada’s telecom space, touting frame relay even as Cisco and IP switches were taking over the world. A more recent example was Blackberry’s failure to recognize the shift to touchscreen phones.
It is not just external signal detection that matters. Companies need to be sensitive to what is happening internally and make sure that it has the capabilities needed to serce current and emerging markets.
Sometimes it is not an issue with signal detection, but rather difficult in understanding what action to take or how to take the action. Many companies know that they will need to migrate to outcome-based pricing over the next decade. The path from where they are to outcome-based pricing is not apparent. They can detect the triggers, but have no way to connect them to action.
Service-led growth begins when the trigger is connected to effective action.
Note that in the Hook model the rewards are variable. This is based on decades of research into learning that finds that variable results lead to better learning (this is even true in machine learning).
I am not sure this applies in service-led growth though. Business is already unpredictable with results variable. Service-led growth combines services with software and data to make outcomes more predictable.
The Investment part of the Hook model is represented by the accumulation of data in service-led growth. The services engagements are delivered through the software and seed the software with the initial data set. Ongoing use of the software builds up the database, providing fuel for more insights.
Data is not the only form of investment. Skills are just as important. The customer develops skills in using the software and the concepts the software represents. These skills are an investment the customer makes in order to get ongoing value. Smart service-led growth companies also invest in their customer’s skill development.
The service-led growth flywheel kicks in when it begins to generate triggers where the action is additional professional services engagements. These engagements, properly designed, lead to additional subscriptions and generate more data, and the wheel continues to turn.
Read other posts in the Service-Led Growth series
Product-Led or Service-Led Growth: Which is a Better Fit for Your Business?
Service-Led Growth is habit forming (this post)
