Everything a Board needs to know about Product-as-a-Service

What insights do board members need to know, and what decisions must they make before starting a product-as-a-service proposition?

Product-as-a-Service may look easy but is transformative for customers and the operating company. Being aware of the requirements and pitfalls helps to succeed.

In this episode, Mailin Jappé, formerly Director Device-as-a-Service and Patrick Hypscher look back at the fifteen episodes of PaaS Decoded and wrap it up for board members.

This episode is the 16th in the series PaaS Decoded, 16 conversations about the fine details of product-as-a-service.

Video Impression

People

Mailin Jappé, formerly Director Device-as-a-Service (XaaS) EMEA at Acer

Patrick Hypscher, Co-Founder of Green PO, Expert in Sustainable Business Models

Chapters

00:00 Intro
02:51 1. Why start as-a-Service? Acer’s answer
03:42 Industry shifts and circularity as main motivators
06:13 2. How to assess my as-a-Service readiness?
07:08 A clear value proposition based on a suitable product is needed
10:26 B2B propositions need a strong service advantage
14:13 Be prepared to enhance your IT
17:08 It’s not about target audiences but use-case scenarios
20:03 Have a product that is suitable for PaaS
22:03 Be aware of rebound effects and measure the impact of the PaaS model
25:18 Provide a milestone-bound learning budget
27:00 Understand the different profitability mechanics of Product-as-a-Service
30:03 Align sales incentives correctly
34:07 How to assess your readiness level
35:12 Make or Buy, but always iterative
39:31 Innovation level and agile-readiness as leading factors
43:03 3. What are the deliverables a board needs to provide?
43:39 Provide long-term commitment
45:18 Understand the financials
46:14 An explorative culture and a Mini CEO
48:38 Define your why and try it
49:06 More Flexibility and Connectivity ahead

About Mailin Jappé

Mailin Happé studied business administration and management at the European Business School in Oestrich Winkel and Hongkong. After her degree she joined Acer, stayed for over 16 years and earned a MBA from IE Business School during that period. She was Head of Sales Operations EMEA and Director Business Operations and Transformation EMEA. Finally, she build up Acer’s Device-as-a-Service Business and served as Director Everything as a Service.

Further Links

https://emea-acerforbusiness.acer.com/offer-acer/device-as-a-service/

Transcript

[00:00:00] Intro

If you launch a product like this and you want to be serious about it, there’s no way of being half pregnant. You either go for it or you don’t go for it. And you need to give those projects the time to really develop from the zero to one. To be able to judge it cannot be driven by the fluctuations of core business.

Welcome to the 16th and last episode of PaaS Decoded. 16 conversations about the fine details of product as a service. In the last episode, Tom Schneider, Benedikt Braig and Jörg Andre Juncker explained how the Trumpf pay per part model unleashed new efficiency gains. In today’s episode, we want to wrap up this series.

We will look at PaaS from a board’s perspective and highlight three questions a board member needs to answer. First, why should we do product as a service? Second, how should we evaluate our readiness but also the performance later on? And third, what is expected from board members? In answering these questions, we will reference highlights from previous PaaS decoded episodes.

She studied business administration and management at the European Business School in Oestricht-Winkel and Hong Kong. After her degree, she joined Acer, stayed for over 16 years and earned a MBA from IE Business School during that period.

She was head of sales operations in EMEA and director of business operations and transformation in EMEA. Finally, She built up Acer’s device as a service business and served as director, Everything as a service. Welcome, Mailin.

Thank you for having me.

This series covered many different product categories. However, the are more categories that also have product as a service. So what’s any other attractive product as a service offer, you know, that has not been included in this series?

I think when we look at energy transition, we see solar panels, even companies like Ikea venturing into that. Yeah, really bringing innovation to the front and accessible to everyone. But in general, I have to say, listening to the podcast, I, I wish there would have been a podcast like that before joining or starting the journey of as a service,

[00:02:51] 1. Why start as-a-Service? Acer’s answer

Yeah. Couldn’t agree more. So you started device as a service at Acer. Why did Acer start that?

I think we saw clear market trends, market research companies that indicated significant growth that was around 219. So they said by 224, 225, the market would be booming on devices as service. So it was first a decision. We need to first understand what devices as service means and then to go, to be a player in that, to basically jump on the train or not.

That was the main decision. So I think industry shifts and market trends that we could observe out there and also from strategic partners that pushed in the same direction.

[00:03:42] Industry shifts and circularity as main motivators

Okay. And along the way, did you come across any other important? Goals that also help to justify such a transformation.

I think the entire aspect of circularity when we started, it was really industry shift. But the more you dive into the topic, the more you have to ask yourself the question, okay, what actually happens with the products? End of, end of life and also maybe end of subscription. So what about second life?

What about third life? What do we do about this? And this comes to all the asset management of the fleet. And then that’s when circularity comes in and you ask yourself, okay, how can we actually get them, what is a refurbished market, refurbished market? How do those. Secondhand markets actually work because normally as a manufacturer, you’re not very much involved in those.

And that’s when you see that there are actually players like refurbed on the market and growing significantly.

Yeah. And, and when you talk about circularity, also the first episode in conversation with Bert van Son from MUD Jeans, to mind because I feel like he is so passionate about circular economy and using in his case Lease-A-Jeans as an instrument to get material and the products back.

So it was just funny that he didn’t really look at jeans as a service from a industry shift perspective, he more looked at it as an instrument to get access to the material and then we use it, recycle it again. and Maybe also along these lines. That’s the the example Jonas Bulach from V-ZUG from Switzerland gave with the home appliances because here I, I also felt they integrated quite nicely the circular strategy and also the the industry shift with a clear focus on B2B first. From my own experience, it is not not always one single motivation. But I think overall it’s interesting to see that some started either from a pure market side or, mainly circularity driven.

Yeah.

the question is where to find a sweet spot to actually find the market, find the right value proposition and and integrating circular economy that it’s, it can both, it’s not either or it’s an and.

[00:06:13] 2. How to assess my as-a-Service readiness?

All right. So let’s look to the second question and dive a bit deeper. So we look at product as a service from a broad perspective, especially when we are new to the business. Um, it’s about understanding it, but of course, evaluating it for our own business. So let’s assume we have a convincing answer for the why, why should we do it? For strategic industry shift circularity reasons. The next question is then. Is my business really suitable for everything as a service? What are the key facts I need to check before I start?

I think the first thing to consider before diving into the details is That product as a service is affecting all parts of the business. From product to, to legal, to IT. So it needs to be around composition.

[00:07:08] A clear value proposition based on a suitable product is needed

Then if we look at it, what we just said, it needs to have a clear value proposition to the end customer.

Okay. Does it actually make sense to subscribe to a product or to that service? If a product is. A commodity, I would say, that maybe serves only for a very short period of time and it’s not long lasting. Why should I go into a product as a service? In general, we see from propositions, more products that are long lasting, high quality, you just refer to V-ZUG in Switzerland.

I mean, those are very, very high quality products lasting for 15 to 20 years. So. Here, the proposition of the product itself, but also that maybe carries a service component with it. Does a person or does an end customer want to worry about the dishwasher if it has a problem or should all those service just basically be a carefree package for those this period of time and be integrated into the monthly lease of the apartment.

So I think that is an important question to ask. Okay. are my products, actually suitable and what can we bundle them with in terms of services and only I see only in the combination of product and service that it can get interesting also from a financial standpoint, if we only take a product and transform it into a as a service.

It’s more or less a lease and there is a very clear comparison or a lot of customers make the comparison, make the calculation, what if I buy it up front or what if I lease it? So does it actually make sense for me?

And if I may add, that also surprised me in my conversation with Lennart from Commerzbank . I was asking him about like the financial questions, cash flow, funding, and so on, but the answer he gave was exactly what you also said, yeah, where also the bank usually starts with evaluating such a model is looking at the customer benefit and see where the value creation is, actually happens because of course, everything else follows from from the starting point. And I was surprised to see yeah, a bank looking after these more, let’s say customer facing aspects.

Yes. And when we bring in the perspective from the board, listening to Commerzbank, it was very clear that you could go to a bank and ask for money when you already proved a certain business model and a certain value proposition, but everything before it’s the role of the board or a top steering committee to understand those cash needs that a product as a service model actually brings with it.

And the first three to 5 million of investment needs to come somewhere from internal or external venture capitalists or startup investors that really understand the business model and focus on product market fit.

[00:10:26] B2B propositions need a strong service advantage

Yeah, definitely. So that was also one of the key findings. We started off with the customers and the value proposition what I liked throughout the. Uh, series is that towards the end, we also had some clear B2B cases with kaer, uh, cooling as a service or uh, Trump with pay per part. And when talking to Dave, Tom, Benedikt and, and Jörg Andre I think what was really clear to me was this superiority of the service aspect and product as a service. So what you also mentioned, yeah, of course it’s true for B2C that you have to provide a superior service as part of product as a service, but it’s even more true for B2B because especially in B2B most companies are familiar with leasing equipment, yeah, so, so just the financial. benefits, it doesn’t make a big difference. It’s then about the added value and the integrated aspect of the service and how you operate, uh, such assets much more efficiently than the customer does because you provide it as a service. So this was also one of the key learnings when it comes to the valuable position that you really need to emphasize the service aspect and have to be strong here to also attract customers at the end.

Absolutely agree. I think, and when it comes to B2B customers and listening to cooling as a service, it’s like there’s so much complexity in running it more efficiently. And why should every single shopping mall operate it themselves, train people, operate the infrastructure. Why not centralizing that and giving that to the people that can do it best and operating that as, as a service.

And that’s basically a jobs to be done kind of approach that you’re looking at. Okay. How can I help my customers in doing their job or taking over parts of their challenges and burdens? So I think that on B2B, the service aspect is absolutely crucial. And that brings us maybe away from purely the product and also to understand service capabilities.

Is a company able to provide the service themselves as the company already have a service organization, or is it a part that would need to be outsourced with key partners? And what kind of level of service do we actually want to provide?

Yeah, definitely. And, uh, here, a shout out to Boris and Vincent from Philips. We talked about the refurbishment process of Philips. Because that was also an interesting example where Philips has a refurbishment operations and offering with a standalone proposition to customers because customers can buy refurbed products.

And this is kind of a integrated solution with the rental proposition because some Products can be rented and it returns from the rental per position they’re refurbished and then sold via the uh, refurb uh, per position.

So, of course, as you mentioned, you need to have good service operations and you doesn’t necessarily need to have them only for a product as a service.

Yeah, first of all, it helps if you had a good service already before that puts you in a better starting position, but you certainly also I need to add certain operations when you run product as a service, especially to deal with the returns. And you can also turn that again into another proposition beyond product as a service.

[00:14:13] Be prepared to enhance your IT

Yes, and I think that service aspect brings the next part of it. As a manufacturer, you’re responsible for the entire life cycle of a product. If you are running a normal, so that’s where then maybe also the complexity of IT comes in that we quickly discussed in a normal linear business, you sell the product and you almost forget about it.

Where manufacturers then have an access point to the end customers is maybe through. Register yourself for extra warranty, but we don’t see the use of the product while in product as a service, IT facilities, infrastructure needs to be there to actually track the assets throughout the entire lifetime and all the kind of milestones happenings, interactions of the customer with the customer, but also on a product level through this entire lifetime.

Yeah. And I think we will touch upon that later when it comes to the operating model of such product as a service business but again, at the board perspective or someone who needs to start it, it’s, it has to be absolutely clear that you need different kind of it systems to track assets and to manage subscription contracts here. And you certainly can do that at the beginning as a standalone service. But the more you grow, the more you have a need to integrate that with your with your core software systems and ERP and accounting systems in particular, but also shop systems potentially. And I was impressed to hear what what Rob from, uh, shared with us.

So Arend does the furniture as a service, started it already seven years ago with a, a highly strategic ambition. And by now they even upgraded their core ERP system with circular capabilities in mind. So that’s the ERP is able to handle, uh, returning products, returning components remanufacturing aspects.

So that seems to be next level to me that then the product as a service is so well integrated that it already, uh, defines key requirements for core processes like the ERP management. And that’s, that’s certainly along the line, but here again, call out to the board. So, so be prepared if this is successful, it will change the core of your organization.

Yeah.

It’s, I think this is exactly what you’re saying. It’s on a board level. You don’t need to dive into the infrastructures of IT, but you need to be aware that it will bring massive change with it. If it grows, it can be handled in the beginning manually, but it brings quite a level of complexity with it already early on.

[00:17:08] It’s not about target audiences but use-case scenarios

I want to just jump back to a bit the customer side or the product side, because what was also a key learning for me, and it’s important to understand when we talk about customers, um, something that Anna Balez from Lizee pointed out at the very beginning where she emphasized it’s not so much about the specific target audience or the specific person.

It’s always in combination with a specific context so the very same person can behave differently in, in in textile, in IT, in entertainment. So where in one segment he or she might have a preference to own stuff for certain reasons in other areas the customer might have a preference just to, to use it as a service.

So of course it’s kind of obvious, but it’s important that this is, there is not the as a service customer persona out there, it really depends on the use case and. Understanding that. I mean, you mentioned also in this jobs to be done approach. I think that fits perfectly to that one. Having clarity about the kind of situation in which a service has a benefit. I think that’s key. And what kind of customers are affected? That seems to be a bit like, it’s important, but it’s of secondary importance, I’d say. Or does it match your experience also? Mm hmm.

Yeah, I think you need to understand the customer and what kind of problems the customers have, or the customer segments have, and solve those problems with your proposition.

If I think about a product like Engagement Ring, it’s a very, very very emotional and private object that I could not imagine offering as a service, maybe in 50 or 100 years from now.

But this is a product that just doesn’t fit because yes, you maybe need servicing or looking after a piece of jewelry, but it’s something you want to own.

Yeah, there’s, there’s quite some emotional value attached to that piece of product. I might, I might appreciate a tracking feature though, and some other people as well.

But at the same time, it could be that like high end jewelry, what we see on runways or fashion shows that there’s a job to be done to dress. A model and that you rent jewelry there, but that’s a different job than emotional engagement.

Yeah, yeah, definitely. I mean, there are, there are a couple of examples from the fashion industry where you can rent your wardrobe, so to say, especially for then yeah, high end suits, cocktail dresses and, and so on and so on. That also does exist, but I’m curious. I, I, I, so if , anyone knows about jewelry or, or even engagement rings as a service, please reach out to us.

[00:20:03] Have a product that is suitable for PaaS

But let’s dig a bit to the product itself. So we stressed the customer side and also the service side. And I think what many people who joined it serious really highlighted is that the product itself should be, let’s say paas-able. So. And, uh, I guess no one made that stronger than Nora Sophie Griefahn from Cradle to Cradle, the NGO. So basically, of course, stressing that the product should have non toxic materials but should also have a design that enables repair, enables refurbishment ideally enables a spare part harvesting so for re manufacturing later on. So. You need to check, uh, whether your product is actually something also Mailin, you mentioned it at the beginning, and it’s long lasting, like in the case of V-ZUG. So that’s something you definitely need to check at the beginning in order to have a long term profitable business.

I think the part on long lasting is that it’s not a business model built for obsolescence. It’s not that I’m planning to put a product out there that after two years or just after guarantee breaks down so that people buy more from me. So switching that mindset to more maybe, okay, I put an asset on the market and I want to maximize utilization.

I want to basically maximize return on asset from a manufacturer perspective. And that is my monetization model. It’s not like, Selling and I have costs against it. No, it’s like a long term horizon where I say, okay, if I really put a good product out there, it’s actually better at the end for the customer, but also for myself,

[00:22:03] Be aware of rebound effects and measure the impact of the PaaS model

Yeah. And to add the third perspective, let’s say the planet in that case you mentioned obsolescence. Ankita Das from Maastricht University’s, Circular X made that point when we discussed rebound effects, because it could be all what you just mentioned, Mailin, it’s good for the customer, good for, for the company, but ultimately the, the overall consumption might even increase because the product is a service triggers certain rebound effects, so it lowers the barrier for consumption, therefore more people consume therefore we have a higher footprint so that’s certainly something to keep in mind, especially if you also have circularity goals

and Yeah, how to do that is then also something that Marianne Kuhlmann from Circularity addressed because this is about creating a framework to assess the environmental impact of repair and rental businesses. So it’s, it’s not an easy task. You need quite some data. You need some assumptions, but you also need knowledge about what happens to these products after they leave the rental model.

And you need to benchmark that also with what people, customers would do without a product as a service. So what would they have chosen instead? And then compare these two scenarios based on a resource footprint to determine whether the environmental footprint is actually better than the status quo or some other alternative

but I feel like this is next level. Yeah. So there’s this it needs to be done if you want to be circular, but it’s, it’s yeah, it’s another layer and raises the bar a bit.

and I think it’s one of the points to making it measurable that we need going forward also to drive the change across companies, how can we say, okay, we are launching circular business models, if you’re coming mainly from a circularity point of view without being able to measure it, because it seems to be natural. Everyone is talking about circularity. And I’m a strong believer, but as long as we don’t have those data points that, well, we can actually say, okay, what kind of damage does a product do to the planet? And how less damage do we do if we put that into a product as a service proposition, it’s also hard to drive organizations or change organizations towards such a model.

Yeah, definitely. So let me just reflect and, and summarize a bit to see if we left something out.

Key question here from a broad perspective is if we want to look into as a service and we answered the why question, why do we want to do it? we Need to check certain special aspects. So we discussed on the value proposition side, What kind of problem does it actually solve? Where is the service aspect? Especially in B2B, but also in B2C, do I have the capabilities to do that? So like a service organization the operations, be it logistics or also repair and refurbishment. But also of course the customers, what kind of pain points Is product as a service solving, which all requires a suitable product.

[00:25:18] Provide a milestone-bound learning budget

Is there anything else Mailin or I say this is important to check before I start?

I would say, if you ask me okay, how much money are you willing to invest today to first understand whether the business is actually possible? So like a feasibility study in the beginning, how much money are you willing to put on the table for that? And then how much money are you willing to invest over the next five years into such a project or three to five years?

I don’t think once we signed off a feasibility study, It needs to be first clear that it’s a long term horizon, and there needs to be a dedicated budget that can be made available so that the teams can try things, and I would almost call that a learning budget. Very clear milestones, maybe every six months or so. More like startup investing to say, okay, how can we unlock the next rounds? And what do we want to prove with each milestone?

And, just to manage expectations. So do you think after three years this is a, then will be a standalone business unit that can live from its own revenue?

I think it first depends how you measure, how you measure revenue. And there are two parts of it.

One is the asset financing. That you put the products and the other part will be a platform business. When we look at a Grover, for instance, they split the company even in two, one for really the funding of the assets and one into like the platform and providing the services.

[00:27:00] Understand the different profitability mechanics of Product-as-a-Service

So I think the side of the platform needs to be clear how this business model works and needs to show maybe monthly recurring revenues and simulations. That makes sense. It does not mean that this is cashflow positive yet, because when we look at the example of V-ZUG again, we were talking about 12 years of a lifetime of of a machine.

So if you sold it today for 3000 bucks and then you rent it out every month for hundred or for 50, it will, revenue itself will be much lower monthly recurring revenue, but you have more predictable revenue over the time. So I would look at increase of or growth of MRR, number of customers, number of assets in the fleet, so they need to be new KPIs that actually reflect that new business model instead of measuring, okay, what’s the revenue? Because when you look at normal revenue, how you count revenue every monthly revenue recognized. The model in the first couple of years will always look much worse than your standard.

But,

Yeah, yeah.

and this is, I think what the board needs to understand where the board is really being asked to support that this is the nature of the business and that it will need time till this exponential curve kicks in.

Yeah. Yeah. I feel like we can’t stress this enough. So it’s, it’s a bit like looking at a flat and compare, let’s say the buying price of a flat of a couple of hundreds of thousands of euros with the monthly rental fee. Yeah. So and if you take the. Take that. Uh, so this is like, these are totally different leagues, so to say, in terms of numbers.

And this is what you will see in your profit and loss statement. If you compare the normal sales business with the rental business, especially at the beginning where you don’t have that many contracts yet. So be aware that this is a different revenue model. And to add one more thing that Tom Schneider by Trump mentioned. So he kind of highlighted that their CEO, CEO challenged the, product as a service team. There’s like, make sure that every single transaction is profitable. Because if this is the case, then you only need volume, which of course it’s not only, it’s also a challenge, but as long as every single contract transaction, whatever is the, the key metric for your business. If this is profitable, you just then talk about volume and scaling. But yeah, as you mentioned, it will take time and that time also depends on the longevity of your product. If your product is long lasting, like the Visook example, naturally this business case will break even later than if the product itself already has a shorter lifespan.

[00:30:03] Align sales incentives correctly

And that maybe brings me to one topic for sure for management where numbers are reported, but also on the individual sales teams.

So when you think about where to put that new product as a service and the organization, do you actually want to use the same sales organization that then, and then your core business. Because, we have the same challenge on a sales level. If I’m making a deal of a hundred thousand today, for something new that I’m not familiar with, I maybe need to work 10 times as much and pull a leg and an arm to, to sign a contract of a thousand per month. If my KPIs are not reflecting, or if I’m not benefiting from making that effort. It will be difficult to transform the traditional sales organization.

Yeah, it’s it’s good that you mentioned it. And here I was also impressed by Arend again. When I asked this question to Rob, how do they handle that? Because they sell furniture as a service from the same sales people and sales teams as the normal linear furniture sales.

And they solved it quite nicely. I feel because they, what he said is for, for the sales person, it doesn’t matter. So it’s the same sales incentive because they also like Grover have a special purpose that, owns the asset. So, and from a sales team or sales rep perspective, if I do a furniture as a service sale, I actually sell the furniture to that special purpose vehicle get the same bonus commission that I would have gotten for a normal linear sales and this, incentivation conflict is then handled in a special purpose vehicle.

But I feel that’s a quite a powerful, way of doing it to get rid of this conflict and at least create equal weaponery, so to say then if, if you, yeah, if you have these competing incentives on the sales side.

And just to highlight, as we would talk about the special purpose vehicle, and you mentioned Grover, I also learned a lot when I listened to Mitja Sadar who built up the special purpose vehicle or scaled it up at Grover to nearly 2 billion in debt financing. So as we said at the beginning, if you start something like that, you need to have some learning budget at the beginning to finance the first assets, the first contracts. But later on there are also debt financing partners that can take the asset value of your balance sheet. So this is something that can be taken care of, but here again, on the board level, you need to be aware at the beginning, it might drive your own capex but there’s a solution to that, that itself shouldn’t be a problem and a blocker to scale such a model.

Did we miss anything, Mailin, we talked about revenue and also in the different revenue structure , costs wise, anything to highlight from your perspective where it’s important to know on a board level?

I think cost, especially when you look at service costs over the lifetime, those might be driven by a lot of assumptions because , if you have already warranty extensions and so you maybe see what you have some experience data, if you don’t, you need to take the best assumptions and verify them on a regular basis.

So. If you are too conservative, you may be out of market price. If you’re too aggressive it might haunt you after. So just, if you look at costs and revenue over the lifetime to run always, yeah, several simulations and go from a best case and a worst case, and then find work from those hypothesis backwards.

Definitely.

[00:34:07] How to assess your readiness level

So now I think we addressed some key special characteristics of product as a service. If board members are still interested next step would be to assess the own readiness of the organization. In most companies, in nine out of 10 companies, I’d say, yeah, they don’t have experience with everything as a service before.

So how can I make a readiness assessment here if I don’t have the capabilities in house?

I think there are the first consultancies out there that are looking at product as a service. So either going outside to have a feasibility assessment or going to own strategy teams to, in the first step, understand the business model understand all the complexity and the different parts.

And then to have a very frank conversation. Okay, do we have a strong enough why we go into this? What could be the first trials? What could be the first MVPs and what would be the next milestones to unlock more budget, more people investment. And after that, I would really ask, okay, where should.

[00:35:12] Make or Buy, but always iterative

A team be located. Should it be an internal team? Should it actually, could it be even an investment in an external startup? Maybe I don’t even need to develop it from scratch myself as a company. Maybe there is a startup that already does something in that area and that could help me on that. So also looking into M& A potentially.

If I want to do it in house, I would, in the first step, feasibility study then more like a milestone planning. Giving a clear budget to it with a three to five year plan where you want to stand.

Even though I say plan, I think you need to be clear that it’s a very agile and iterative approach in testing value propositions. If I say today, okay, I think my, I want to test the hypothesis that my customers are willing to pay 20 percent more because it’s a circular model. It can be a conviction of today, but in the market test, we find out that people want that but they’re actually not willing to pay for it. So, it’s a constant pivoting and top management and board needs to be aware that it’s a, it’s a normal process in this venture that we need, you need to constantly pivot to find the right sweet spots.

Mhm. Mhm. Yeah, absolutely. Well, what, what just came to my mind when you mentioned a different operation Modi or is it Miele? So, Miele wasn’t part of the series, but I know that Miele started pretty early on to look into home appliance as a service by partnering up with a Dutch startup bundles um, to be like the exclusive partner for the A home appliance category and yeah, exchanging learnings and data with, with bundles.

And next to that, they also did I think at least two attempts to offer a in house solution for the German market. Which of course, Included more operations, more responsibility and for sure a higher quality of learning, so to say. Yeah. I’m not , Bigger venture activities on their side in that field. Might be the case, but I just don’t know it.

But here, also another example is Samsung. So Samsung actually invested also in Grover. Um. And from the outside, it looks, it’s more like an investment case, but this is also like a strategy, , Samsung can do and say, okay, as a service or rental is a viable sales instrument and we want to be part of that but don’t want to build it up by ourself. So then you just invest in one of the big players and learn while being part of the cap table.

Yeah, I think that’s an interesting part to not underestimate also venture capital and learning. Also, maybe going to bigger venture capitalists that are focusing on circular economy to actually understand the dynamics. When we look at investors at Grover, we see that they invested also in other as, as a service models.

So what kind of capabilities from an organization can be transferred from one organization to another, whether it’s furniture as a service or actually electronics, even though the value proposition to the front looks very much different

I need to mention now Andrew, of course, from Circularity Capital who was also a part of that series, , as Circularity Capital is invested in Grover, but also in Lendis they do furniture as a service, and also a kids, bicycle my company, a bike club and of course, yeah, so circularity capital being a major investor in all of these scale ups uh, gather quite some knowledge.

So what you basically said if you need to assess, if you want to assess the attractiveness of, as a service for your company Ask a strategy department or ask for external support. And then if you started think about, do you want to do it as part of the normal organization, or do you want to do our own startup or do you maybe just test waters and partner with a startup or maybe even invest in a startup?

[00:39:31] Innovation level and agile-readiness as leading factors

Do you have any thoughts on what might help to make that decision when to do one of these options?

I think in general, innovation readiness of the company. So do we maybe already have an innovation unit that looks into New products, new trends, and it’s in brackets, just another venture that we want to go for. So there, I think it could be a perfect fit.

If we have a business where that is a hundred percent linear driven by efficiency, high volume, very low margins, it’s maybe so contradictory to a new venture that goes more on an 80 20 rule.

Okay. Let’s try this. If it feels. If it looks 80 percent right then I would definitely keep it separate and very close to the board because it won’t get the guidance from the core business. That it would need. It needs guidance from, with someone of the vision of a future ready digital business, rather than a linear business.

If you don’t have an innovative, agile company, I would definitely also consider, okay, how much are we willing to invest? How much money do we have as learning money? And that learning money could be invested internally or externally. And this is, do we already have other M& A engagements or investments?

Do we have daughter companies? So that would drive my, my thoughts around it

to also limit the risk.

Yeah. And if I may add one thing is don’t treat that as static. Yeah. That’s also dynamic. So if I just reflect on my, my time at Blue Movement, which was initially, it initially started in the Dutch sales unit which was great because this is a unit that is so close to the market and has, so to say, street credibility. And the governance changed that to the digital business unit which was exactly about what you mentioned. They’re building an innovation unit to build new ventures.

And I realized after about five years, if we want to reach higher levels of growth, which we of course want, it helps to cooperate closer than also with core business again, you know, with the existing marketing channels, with the sales teams, with the also parts of the operations. Yeah. So at some point you need to get more efficiency in and also more reach. So there it’s at least that was my perspective. Makes sense to work closer together with the core business and see how to find. Common ground there and how the as a service model can benefit from the, from the core business and maybe the other way around.

On the personal, this was also for me within one of the points where I said, okay, that’s a bit like a next chapter and there might be other people are more suitable and To do that from a profile perspective, but because that requires also a lot of knowledge and network within the existing organization.

I think it can be compared to bring it from zero to one separate. And then if you, once you hit the one and above, you have a proven business model. You have a clear value proposition. When it’s not about pivoting every, every four weeks anymore then it’s maybe time to see, okay, where can we benefit from the core organization?

[00:43:03] 3. What are the deliverables a board needs to provide?

it’s time to see is a good transition to our third aspect talking about the board itself.

So in the first two, we, we said, okay, why should a company do it? And the board needs to answer that. And no one else, especially the boards.

And the second one is a bit, how do we assess whether our company, our products, our market is suitable for that? And how do we start.

But we also need to talk about the role of the board. So. What are the deliverables a board needs to provide to make a product as a service a success? What do you think, Mailin?

[00:43:39] Provide long-term commitment

First of all, a board needs to understand that product as a service is very different from a linear model. This is the first thing.

The second one is, okay, what, what is our role of the board? The complexity of this project is almost putting every function upside down from finance to it, to product, to the sales organization, to HR incentives as a board, you need to be aware of that and you need to protect that project.

You need to take it as a given that you will need to drive change or support to driving that change. And that needs kind of a long term commitment from you as a board. If the board says, okay, we tried that for three months.

I think those are long term, very strong, long term horizon from the board. And understanding the complexity and the nature of this business,

so bold statement, but absolutely true. Couldn’t agree more. And we also addressed that the board needs to answer this why question. And we also started to talk about the cashflow profile and funding needs. Anything you would like to highlight here again from a board perspective?

[00:45:18] Understand the financials

I think it comes back to the topic of KPIs that we mentioned. Okay. How do revenues and costs develop? I think we hear a lot about the Adobe story when they switched from Normal software sales or one off sales to subscriptions that it was like swallowing the fish.

I think product as a service is swallowing a whale because you need to, on top, you really need to finance those assets and you have a commitment for the assets. So for the board, understand the financial implications of this model and what it means and how much money are you willing to put into it to protect it, because as we heard from the banks and also from venture capitalists, the first couple of millions.

Depending of course, also of the machines that you’re putting in there need to come most, most of the time from internal or otherwise from seed investors, if you take it the way through startups.

[00:46:14] An explorative culture and a Mini CEO

Beyond the financials , and the why, and the long term commitment is there anything else

I think anything else is what glues it all together. I think we discussed a lot about different parts of business models, but what is different is this cultural mindset. Okay. We’re constantly iterating. We’re constantly testing. It’s a new sandbox for a new business model in a very digital field. I think we see a lot of also when we talk about the service aspects, data driven AI.

So, we need to have a culture of very cross functional working together of kind of orchestrating that complexity. So I think it’s culture of the teams, but also driven by someone like a mini CEO of that project that can handle from IT to HR or not handle, but orchestrate all, all those different functions together and bring it into one. And that needs to be driven by a explorative culture that wants to learn with a very clear growth mindset.

and any idea how to do it? I mean, let’s, let’s not drift too much to, to culture and change management, nevertheless, we know it doesn’t happen if you put it on a slide and say, no, we want to have this culture. And then you decide, yes, we have this culture and then it’s there. Trying to bring it back to board members. If I, as a board member, want to start that journey. What does it mean for my very own behavior in terms of meetings, in terms of communication, in terms of role modeling,

I think maybe to look into, how can we work together? Is it, how is the reporting structure already? How can we bring this pivoting aspect of this new project together? Is it different kind of reporting? I think the board should be fairly close to that project. So can it even be different kind of interactions?

Is it quarterly reporting that the board gets, or is it actually a lot of conversations? Okay, how is it going? How can we guide? I think it’s a board as a coach also to this new venture where both parties will learn how to, how to drive towards the future and how to change.

[00:48:38] Define your why and try it

All right, so let’s keep the tradition of having three generic questions at the end by now, you know them already. The first one is trying to, crystallize everything again. So what’s the main thing you need to make sure as a brand or manufacturer if you want to start a circular product as a service?

Try it. First, create your why, and then try it with a limited learning budget.

[00:49:06] More Flexibility and Connectivity ahead

What are the trends you see in the next five years in that field? Thank you.

I think. What I see is that depending on the product categories, we saw car leasing evolving, I think, in the nineties, late nineties, early two thousands. Now we see like really car subscriptions where everything is included. We see like electronic leasing. There are big lessors on the market for years already, like the Krenke in Germany.

But I think what we see with Grover with the special purpose vehicles. That there are new trends of kind of how those businesses can be funded. It’s not anymore only a leasing. Okay. How can we get more flexibility? And does it need to be a 36 months contract, a 48 months contract, or even a 10 years contract?

I think we will see with new parts where we can get more data points more flexibility in those offerings.

So can we really move to a subscription base? Like I use my electricity, if I want to change provider, I can change it within two or three months from now. I think that is a trend. I believe we will see more trends in B2B, especially as we’re looking at connected devices and actually enabling remotes.

Proactive service. So do we need to send service technicians to 50 places all over Germany? Or do we actually get reporting on a central level of those 50 installed machines and have to reporting right on our fingertips, wherever we are. So I think a lot driven by connected devices, cloud, then in some markets, even internet availability, when we look at Africa or something.

In Western Europe, coming back to the finance question, markets are still different. , I think what we haven’t touched on. Is the difference on regulations country by country in Europe. So will we see, even though the European commission put as a service models at the forefront to that, this is a model to change towards more circulate economy, but actually when we look at Europe, we’re looking at different regulations, country by country. So it’s not just so easy to move from Germany, expanding to Austria and Italy, for instance.

So those, I think are the trends that I see and then more and more acceptance also of companies and maybe also end users.

So there, there, there are plenty of opportunities. Thanks for highlighting them here. my last question is about you and the listeners right now because circularity is about sharing knowledge and connecting people. what kind of people should reach out to you these days or next year?

I, as I said in the beginning, I really appreciate that you brought together a lot of people through this podcast from all the different perspectives of product as a service. So I think listening to all of those is a, is a great starting point for everyone who’s listening to that. To dive deeper and to get an understanding of it.

I’d be happy. Yeah. Connect on LinkedIn or reach out via Patrick. If this topic resonates with you, I’m looking forward to driving more change into the product as a service and helping companies to drive that change and especially on a board level, how to get clarity, whether you want to do that or not.

Wonderful. Thanks for sharing your experience.

Thank you, Patrick, for having me.

This was the last episode of PaaS Decoded. 16 conversations about the fine details of product as a service. If you liked it, share this episode with colleagues or on social media. If you missed a question or topic, please send me an email so I can improve the conversations for you. If you learned something from this episode, please provide a review via Spotify or Apple podcasts that helps others to discover the podcast.

And don’t forget the most abundant renewable resource is your imagination.