Industrial companies are always on the lookout for sources of
growth.
It's often hard to come by, especially for those serving
mature industries and we've seen a lot of different evolutions
over the years.
Companies have looked to emerging markets for growth but
often found their cost structures are not, are not
competitive.
They've looked at adjacencies, they've looked at consolidating
M&A in the core, but there's only so many targets and often
times the M&A doesn't result in the value you expect.
The place we're seeing industrial companies and
manufacturers really focus on currently is services and
specifically services enabled by connected equipment and the data
coming off those machines.
This often can take the form of software as a service or SAS.
And this is really the next wave of growth and we're seeing a ton
of investment and opportunity here for manufacturers.
And the rewards are really high.
It's good for your customer.
It reinforces your core competitive advantage and it's
higher margin, often 40 to 60% return on sales.
And that profit is actually valued more highly by investors
2 to 5X your traditional core multiple we're seeing when you
do this at scale.
The good news is there are examples of companies who have
made this journey.
If we look at the tech space, Microsoft, Adobe are great
examples of companies who have pivoted to a SAS business model.
And there's increasingly examples in the industrial
space, albeit earlier stage.
So there's lessons to learn from.
What we've learned is that one step that's required is a clear
strategy upfront and open communication with all
stakeholders about the end to end journey that you're about to
embark on.
There's also some key investments along the way.
We've seen specifically investments in customer success
in the commercial model and go to market in the underlying tech
stack that enables all this and in talent and operating model to
make this successful.
The good news is you don't need to tackle this all at once.
You can sequence it and make smart investments over time, but
the rewards are significant for companies that we've seen
successfully navigate this journey.