Case Study: Should You Adjust Your Business Model for a Major Customer?

“There’s another one!” Cameron Burke’s son said, indicating to a darkened streetlight opposite a park. “But it’s out too!” Cameron regretted carrying started this diversion with his four-year-old. His company, Lumiscape, constructed smart, connected streetlights that had been commissioned in cities via a United States, including Cleveland, where they were now, visiting his parents. He and Graham had motionless to fist in a travel to Forest Hill Park before bedtime, and he’d challenged a child to count all a lights he could find. But they’d already seen 3 that weren’t operative properly.

Even my hometown can’t get a products right, Cameron suspicion as he chased Graham over to a playground. He always vowed to stop obsessing about work when he was with his son, yet it was a losing battle.

Editor’s Note: This fictionalized box investigate will seem in a stirring emanate of Harvard Business Review, along with explanation from experts and readers. If you’d like your criticism to be deliberate for publication, greatfully be certain to embody your full name, association or university affiliation, and email address.

Lumiscape was now 6 years old. Cameron had founded it with a suspicion of building an LED streetlight that would use a mobile vigilance to forewarn open works departments when a tuber indispensable to be replaced. He’d been an assistance to a mayor of Philadelphia during a time and knew good how many time city workers spent documenting and following adult on complaints about damaged lights. But Cameron also had a bigger vision: Lumiscape’s products were designed to accumulate all sorts of data, including humidity, motion, and seismic activity, and, many important, UVA, UVB, and ambient light so that they could save electricity by dimming when appropriate. The innovative complement betrothed to revoke internal governments’ appetite expenditure and upkeep costs and urge their basic relationships. Headquartered in Philly, Lumiscape now had business in scarcely each U.S. state and a few European countries.

Cameron authorised himself a discerning grin as he suspicion of how good a complement worked in some cities. But not here, he thought. And he’d seen and listened about identical cases of injustice elsewhere. Some localities had bought lights yet unsuccessful to entirely implement a concomitant technology, that meant they couldn’t use them scrupulously or grasp a hoped-for appetite savings. Others had used their existent reserve of high-pressure sodium bulbs in a new lights rather than a intelligent LED ones. Some business had unsuccessful to even implement all a lamps they’d bought. Cameron hadn’t satisfied how formidable it would be for internal governments to change a approach they did business, even when they had a best of intentions.

The year before, stirred by all this, Lumiscape’s care had motionless to focus from a sales indication to a subscription model. Instead of offered a streetlights and withdrawal a cities to conduct them, a association would lease them out for a monthly fee, with installation, maintenance, and monitoring module all included. Lumiscape had also piloted a module in 3 sites to supplement Wi-Fi connectivity to a lights, permitting cities to offer internet use in open spaces.

The house had unanimously authorized a offer from Cameron and his COO, Stacy Hamiko, to change to that strategy. It would position Lumiscape’s record height for expansion as a smart-cities transformation showed signs of holding off. And it would give a association some-more control over a product and code and a some-more quick income flow, that would interpret into aloft multiples from would-be investors.

“Higher!” Graham shouted. As Cameron pushed a swing, he felt his phone buzz. Assuming that it was his wife, revelation him that her craft from Philly had landed, he looked during a text. It was from Stacy: “Houston’s live again. They wish to buy 5,000 streetlights.”

“Houston?!” he pronounced out loud.

“Texas,” Graham yelled from a swing.

Cameron smiled and said, “That’s right, bud.”

Houston had been one of Lumiscape’s initial customers, 5 years earlier. The city manager had creatively wanted 6,000 lamps yet had cut a sequence behind to 1,000 for budgetary reasons. Neil Hart, Cameron’s conduct of sales, had kept in touch, anticipating that a understanding could be resurrected during some stage. And now, according to Stacy’s text, it would be. There was usually one problem: Lumiscape didn’t sell streetlights anymore.

They’re Back

Later that night, after Cameron had put Graham to bed, he called Stacy. She explained that she’d been copied on an e-mail to Neil from Houston’s manager, that pronounced that he’d finally gotten capitulation to buy a additional 5,000 lights. “He mentioned something about over-abundance in their open works bill and some sovereign income they indispensable to spend,” she said.

“It’s usually terrible timing,” Cameron said, jolt his head. “Do we know either Neil has talked to them about subscriptions?”

“Not yet,” she said. “We all insincere a understanding was dead. They were on a list yet flattering distant down it, to be honest.”

“Would they cruise it?”

“Neil says not a chance. Even yet this new pricing indication would substantially be improved for them—a reduce buying threshold and all—Neil thinks that if it took a city manager this prolonged to get capitulation for a purchase, there’s no approach he’ll go behind and say, ‘Never mind. Could we lease instead?’”

Cameron was torn. The mental math was easy: 5,000 lights during $600 every meant $3 million. It would be a largest sale to date for Lumiscape, that had taken in $30 million in income a year before.

But they had committed to this new subscription strategy, and with good reason. In fact, he and Stacy had used Houston as one instance of because offered a streetlights didn’t give business adequate advantages or Lumiscape adequate control. It had taken a city several years to implement a initial order—and it hadn’t even commissioned all 1,000 lights. Worse, it apparently hadn’t hired or lerned anyone to use a module tools.

“I should tell we that Andrew is already articulate about sketch adult a squeeze agreement,” Stacy said.

Cameron sighed. “Of march he is.” Andrew Lowell, Lumiscape’s CFO, had suspicion it was a mistake to pierce exclusively to contracts. He had argued that a engineering group should be reason obliged for creation a product that business could use rightly and that Cameron should pull a engineers harder before changing a model. Andrew had wanted a association to both sell and lease a streetlights, preserving all sources of income and converting business to a subscription indication over time if need be.

Stacy and Cameron had disagreed. Too many business weren’t regulating a lights to their full potential. The true sales indication simply wasn’t working. And given a budgeting routine in many city halls, it was distant easier to go to marketplace with usually one form of product. Even with usually dual options on a table, officials would feel thankful to run both to a belligerent with all a agencies involved.

“I’ll e-mail Andrew and tell him to reason off,” Stacy said.

“Good idea. But let’s call a assembly for initial thing tomorrow morning and figure out a strategy.”

“You’re going to fly back?” she asked, concerned.

“No, yet we don’t cruise this can wait. Let’s do a video call. We don’t wish to remove Houston’s attention.”

The Next Morning

Cameron sat during his parents’ kitchen list and practiced his laptop shade so that he could see everyone—Andrew, Neil, and Stacy—sitting in a tiny discussion room during their Philadelphia office.

“Sorry we can’t be there in person,” he said. “Is a design okay?”

Andrew spoke up. “Yes, solely for that grave demeanour on your face, Cam. Remember: This is good news.”

“I totally agree,” Neil said. “We’ve got their attention.”

“We’ve got their business, it seems,” Andrew said.

“Not so fast,” Cameron said. “We can’t sell them 5,000 lights—not after all a work we’ve put into a new strategy. Not with all a potential.”

“Moving to subscriptions is a long-term strategy,” Andrew said. “We knew it wasn’t going to be a purify mangle from a product model. Lots of cities still possess their lights, and we aren’t going to buy them back. It will take years before we can modify a existent business to subscriptions, so there’s no reason we can’t usually grandfather Houston in.”

“He has a point,” concluded Neil.

“But don’t we cruise it will be treacherous to speak with intensity business about a subscription product when they know that we usually sole Houston 5,000 lights?” Cameron asked.

“I cruise we can explain a rationale,” Neil replied.

“We’ll demeanour like we don’t have a strategy—like we’re being opportunistic,” Stacy chimed in. “This is a impulse to exam a new model. If we can modify Houston to subscriptions, we’ve got a good story to tell, not usually to other intensity business yet to investors.”

“I’ve already floated a idea, and it’s not going to fly,” Neil replied. “He pronounced they have a $3 million to spend this year. How can we leave that income on a table?”

“Exactly,” Andrew said. He clearly had a clever opinion on this, as any good CFO would. But Cameron was demure to go behind on their plan preference so soon.

Andrew seemed to have review his mind. “I know we betrothed to support your preference on a model,” he said. “But we still don’t know because we can’t do both. If opposite business wish opposite things, shouldn’t we accommodate them where they are?”

“Not if where they are is holding a pass on a best aspects of a product once it’s in a field,” Stacy said. “And unwell to take advantage of a upgrades we’re going to continue to offer. We have to cruise a brand.”

Cameron sat behind and watched a 3 of them continue to debate. He knew it was on him to make a call, yet he was still uncertain.

Lights Out

That night he went to Forest Hill Park on his own. He indispensable a uninformed air, and his relatives and mother were happy interesting Graham. He sat on a dais and looked opposite a park during a flickering streetlight. He could tell from a approach it was going on and off that it was regulating a wrong kind of bulb. This meant that it was not usually formulating an upsetting knowledge (who wants to travel by a strobe light?) yet also pulling some-more appetite from a grid.

He got adult to travel home and beheld that someone had spray-painted LIGHTS OUT on a bottom of one of a damaged travel lamps his son had beheld before. It was as if a star was revelation him that Lumiscape had to take improved control over a product. If cities couldn’t contend a lights on their own, a association could assistance them by bundling a module in a subscription, installing a units, regulating damaged hardware, upgrading a lights as new facilities became available, and creation a package affordable.

Cameron had felt certain that a subscription indication was a approach to go. It supposing some-more value to customers, relied reduction on them and their workers to make a product succeed, and guaranteed some-more tolerable income for Lumiscape. It was a improved indication and would assistance him lift a company’s gratefulness before they went out for a subsequent turn of funding.

But could they unequivocally means to contend no to a $3 million bird in a hand? Was Andrew right to advise a hybrid model? Or could they make this final sale and afterwards change their plan once and for all?

Question: Should Lumiscape sell a streetlights to Houston?

This fictionalized box investigate is formed on a Harvard Business School case “Bigbelly,” by Mitchell Weiss and Christine Snively. If you’d like your criticism to be deliberate for announcement in a forthcoming issue of HBR, greatfully remember to embody your full name, association or university affiliation, and email address.

About admin