Engine two: how a company gets re-rated as well as improved

The short answer

Every company has two engines. Engine one runs today's business for profit: margin, cash and the operating model. Engine two builds tomorrow's business for value: a new line, a new revenue model, an asset a buyer prices on a different basis. Engine one pays for engine two. A company that runs only engine one gets better. A company that runs both gets re-rated.

Why it matters now

The way software and services are bought is changing under everybody's feet: more of it is priced on usage or on outcomes, less of it on hours and seats. Companies that sell hours or seats are selling the thing being repriced.

How to do it

1. Name what the market pays for today. Hours, units, projects, contracts that renew.
2. Name what it would pay more for. Revenue that repeats, technology the company owns, outcomes it can prove.
3. Find the line that bridges them. A productised service, a subscription beside the equipment, a platform built from data the company already collects.
4. Fund it from engine one. Margin recovered this year pays for the line built next year.
5. Measure it apart. The new line gets its own revenue, its own customers and its own record, or a buyer cannot see it.
6. Release funding on evidence. Stage the investment, and each stage opens on a measured result.

What good looks like

A published case: a 200-year-old industrial group's water-technology division built its first software products, an IoT platform that cut its customers' operating costs by 10 to 15 per cent, and added more than $100M of revenue in under three years (as reported by the company; case 02 at makersofnew.com/value.html).

Where it goes wrong

• Engine two is started before engine one pays. The new line starves the old one.
• The new line is buried in the old accounts. A buyer cannot price what it cannot see.
• Technology is bought before the business model is chosen. The business model sets the ceiling on everything below it.

The instrument

A MakersOS room shows engine one's euros beside engine two's multiple on the same page, and its library of business models shows which ones open for the company's own class, with a priced path between them.