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Reinvent Your Business Model: 5 Tips
 

How a company based on old-school DVD sales reinvented itself for a software-based future.

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If the idea of spending hundreds or thousands of dollars on days of classroom IT training turns your stomach, TrainSignal CEO Scott Skinger feels your pain. That's because 11 years ago he was at the front of the class teaching people how to manage servers and networks and saw first hand how students suffered from the poor curricula most schools used.

So he started supplementing his courses with DVD instruction he created. Over time it became so good he realized he could use it to actually replace what he was doing in class, and make a profit doing so. Ten years later his 50-person company, TrainSignal, has sold millions in IT courses on disc, which go for as much as $400 a crack. Last year alone the company brought in more than $7 million.

But about a year and a half ago Skinger began to see the writing on the wall: DVDs were falling out of favor. There's the cloud for one thing--think about how many of your favorite services you access via the Internet. Plus, competition in the IT training space was getting fierce with more players entering the game and increasingly competitive pricing.

So the idea of migrating his business from physical product sales to a software as a service (SaaS) model made a lot of sense, and actually could make TrainSignal's offering markedly better. An affordable all-you-can-eat plan would give customers a lot more bang for their bucks not to mention frequently updated content, webinars, and lectures about trending topics--all stuff you can't offer in a DVD.

Today the new online IT training portal--only a bit more than a month out of the gate--offers IT pros anytime access to its more than 150 video courses for either $49/month or $468/year. And as frosting on the cake, TrainSignal lets its users download courses for offline and repeated viewing.

But ditching the company's physical product didn't come without a slew of risks. Here's how Skinger mitigated them.

Research the heck out of what customers want.

First, there was the question of whether customers would make the switch. To feel them out Skinger's team polled 2,375 IT professionals and asked them about their training preferences. Nearly 68 percent of them said they prefer online video training over the classroom or books. Almost 95 percent said ongoing IT training is needed for career advancement--and 67 percent said IT training helped them get a promotion or pay raise.

TrainSignal also did stealthy market research and set up a fake company and website with an offer similar to its product offering.

"We advertised on websites and Facebook to send traffic to the website explaining what we were going to launch in a few months. This allowed us to gauge overall interest and get feedback without showing our hand and letting competitors know what we were planning on doing," Skinger says.

Save up to lose money.

"One of the big decision points that we needed to make was whether or not we wanted to completely switch our model over to software as a service and subscription and not sell product at all," Skinger says. "The problem with doing that was when we switch over to the subscription model we'd have zero subscribers and from Day One we'd be starting with zero in revenues and of course we've built up substantial expenses on a monthly basis so we'd be losing money for really the first time in company history."

Keeping DVDs in the mix didn't sit right with him, however, because doing so would cannibalize subscription sales.

The answer was to bankroll enough cash to be able to survive possibly losing hundreds of thousands of dollars while herding customers to the online portal instead of selling them DVDs. He figured it would take anywhere from a few months to a year to get into the black again.

Choose your price points carefully.

While the IT training space is hugely fragmented, altogether Skinger says it's a $25 billion market in which his company can pull a lot of market share away from classroom-based companies such as Global Knowledge and New Horizons. To do it, however, means offering trainees a better value proposition. To hit the sweet spot in terms of what to charge users, Skinger says TrainSignal talked with SaaS experts to get as much outside input as possible. While the company at one point considered a $99/month rate, it settled on half that amount so as to scale subscriber numbers.

"Customer retention rate on a monthly basis is also incredibly important, so we wanted to make sure that our price point was below the breakage point that might cause a customer to cancel."

Get passionate about quality.

Even more than strategic planning, Skinger says a passion for quality has been the key to building a strong brand that can withstand such a marked about-face.

For one thing, TrainSignal training isn't just a PowerPoint dump but recorded video of instructors doing hands-on demos that show students what to click on, what to avoid and why. Instructors also demo working with fictitious companies to give context to the training.

"We create the whole scenario, the number of people, the number of locations, server problems, employee issues, all that stuff just to give more color to what people are learning," Skinger says. "I think by us giving [students] more color and giving them those scenarios and something to really latch onto they're more interested in our training."

Ace your communication with customers.

Customer communication is always paramount but especially when making a huge pivot. Whereas TrainSignal normally has a couple of customer service reps manning the phones at any given time, during the first two weeks of launching the subscription service it pulled in up to 10 employees including the company president to help.

Another tactic: The company offered customers who had recently ordered DVDs free months of subscriptions or their money back if they didn't want one.

So is TrainSignal's reinvention working?

It very well could be. Skinger says the company should be profitable in less than three months, as opposed to the worst case scenario of a year. He says feedback from customers has been overwhelmingly positive. And he projects $12 million in revenue in the first year of converting to subscription.

"One more positive surprise has been the number of subscribers who have chosen our annual option over a monthly subscription, almost five times higher. This has helped out cash flow substantially," he says.

Last updated: Apr 10, 2013

CHRISTINA DESMARAIS is an Inc.com contributor who writes about the tech startup community, covering innovative ideas, news, and trends. Have a tip? Email her at christinadesmarais (at) live (dot) com.
@salubriousdish




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