Business Model Innovation
Business model innovation is not changing what you sell. It's changing how you capture value from what you already do well.
“Changing the business model without changing how sales is incentivized is the number one reason innovation dies during execution.”
Otto GTM ObservatoryWhere the innovation actually happens
The visible part of a business model innovation (moving from perpetual license to subscription, from project to platform) is the least risky part. The part that decides success is redesigning the commercial engine: new pricing criteria, new sales team KPIs, new training on how to argue a different kind of value.
Companies that innovate the model but leave the old model's incentives and commercial processes untouched end up with a new product sold with the wrong logic.
Anti-patterns
Common mistake: launching a new recurring pricing model while keeping sales quotas calculated on total contract value instead of incremental ARR, effectively disincentivizing the commercial behavior the new model requires.
Second mistake: testing the innovation only on existing loyal customers, getting a distorted validation signal compared to how the not-yet-acquired market would actually react.
Practical Application
An industrial software company moves from perpetual license (average one-off ticket of €85,000) to annual subscription (average ACV of €22,000). In the first two quarters, ARR falls because the sales team keeps chasing large one-off deals incentivized by old quotas. After realigning quotas on incremental ARR, the number of new recurring contracts triples in two quarters and ARR exceeds the historical license revenue within 14 months.