I have a predilection for cooking over baking. Italians will happily tell you that you need only very simple ingredients to make a delicious meal. Some good olive oil, some cured meat, some fresh mozzarella — perhaps a ripe, heirloom tomato. Baking, on the other hand, is less forgiving to experimentation. Certain ingredients must be mixed in the right order at the right time, at the right quantities for the product to rise. Failing to do so can only be excused if you’re running from the pharaohs.
A HaaS business is more like baking. There are key ingredients that are required, not for a good crumb and a crispy crust, but for unit economics that scale positively with growth. Depending on the product or service, some ingredients will be more critical, earlier or later. The ones I will review here should be thought of as fundamental. In later posts, I will explore them individually and in greater detail, but for now we will just peer in through the baker’s window and savor the smell.
The stack:
The product or hardware is pretty self explanatory. Without it, there would be no service or utility for the customer. As I discussed in Would I Lease This , HaaS products will likely have certain qualities distinct from existing consumer products. They will be more robust, more serviceable, and likely of a higher quality than many of their counterparts. Having the perfect product should not be a gating factor to start a HaaS business though—just be prepared to live with the downstream operational impact from the product’s shortcomings, and be willing to iterate quickly.
Not only is billing self-explanatory, it’s also a solved problem. Recurring billing has been the dominant payment model in software for a decade. There is a cornucopia of tools that do the job, from behemoths like Shopify or Stripe to dozens of smaller tools like Chargify or Recurly. Unless you are Apple, it will be senseless to build an in-house billing client.
Recurring billing for physical products adds complexity. With software, if the customer stops paying, the service can be canceled in real time, as you may have learned when your in-law called to angrily report that the Disney+ subscription has expired. With hardware, canceling the service isn’t so simple, as you must repossess the hardware. Changes to billing may also first require an external trigger, such as an inspection event at a company facility. And on the fulfillment side, a customer may need to be credited for any extra time their product spent in transit.
A HaaS business is built around trust—in a very material sense. A lease is basically a handshake by which the end user will receive the good along with some responsibility for it. For example, Hertz is happy to see a customer accruing highway miles on the way to Lake Tahoe…less so to see the car vanish underneath Lake Tahoe. The appropriate word for this is stewardship which I feel carries the right amount of gravitas for the customer’s responsibility. If a stewardship score metric existed, businesses would prefer to offer their services to those with a high score.
Since there is currently no stewardship score, companies must turn to other methods to filter bad or irresponsible actors (i.e. filter out the *Denethors)*. There are a range of tools to help in this effort, including ID verification, credit checks, payment method analysis etc. These tools have much room for improvement, particularly in the space of HaaS, but that is subject for a later post.
For direct-to-consumer sales (D2C), which has prevailed over the last decade and serves as an enabler for the HaaS future, logistics is 90% getting your product to the customer and 10% getting returns back. With HaaS, it will be an even 50/50 split. Not only will the product be returned to the company at end-of-life (EOL), but often the product will see multiple customers, with a touch by the company in between each. It’s helpful to differentiate the two as fulfillment logistics for *outbound and reverse logistics* for inbound.
This will not only take the form of parcels. Assets may flow through white glove courier service, retail locations, service partners etc. These logistics can often be bundled together in the case of a swap, where an available product replaces a defective one within the same task. This complexity is nontrivial, because if mismanaged, it can result in lost assets and unhappy customers.
MRO’s are a particular passion of mine. As a civilization, we have gotten very good at manufacturing things. We are not so good at keeping them going. HaaS requires applying many of the same techniques of manufacturing to the refurbishment and upkeep of hardware.
At a minimum, service operations require three steps:
Service is in the name (and DNA) of a HaaS business. The quality of the service will contribute to stickiness of the offering, and therefore customer lifetime value. Unlike a one time purchase, the subscriber needs to make the choice to continue their subscription, month after month. Subscribers have higher expectations in getting their questions answered and issues resolved in a timely manner.
Customer service like this can quickly become expensive. The service needs to scale linearly with growth, or better, with the log function. Automations around self-service and good data management are key to keep these costs low while keeping customer satisfaction high. Be prepared to put a lot of effort in this part of the stack, particularly in the beginning. Not only will this keep customers satisfied, it will also be your vital source of feedback for continuous development.
Fragile is tackling asset tracking first.
We believe this is the yeast that will turn the sticky dough of a HaaS business into a delicious loaf of bread
I will be exploring our platform in more detail in our next post!