Industrial Companies Must Become Software Companies — And Change Their Mindset

 

For decades, producing and shipping hardware was enough. Build the best machine, deliver it to the customer, and move on.

That era already ended a long time ago and it is now just taking while to play out.

Marc Andreessen wrote in 2013 that "Software is eating the world", and now software is no longer an add-on to hardware. It is the foundation of customer value, recurring revenue, and long-term differentiation. If hardware companies do not evolve to become software companies, they risk becoming commoditized — and ultimately replaced.

The case for software is simple: Software delivers far higher margins than hardware. It enables recurring revenue through subscription models and licensing, creating compounding, predictable income streams. Where hardware generates a one-time sale, software builds an enduring relationship. This alone can multiply enterprise value by an order of magnitude.

More importantly, software deepens and quantifies the customer's relationship. Software becomes embedded into workflows, daily operations, and critical processes, and a vendor moves from being a supplier to being an indispensable partner.

And in an era of rapid digitization, offering software solutions is the only way for industrial companies to future-proof themselves against disruption — not just from traditional competitors, but from digital-native entrants and platform players.

To build a future ready company, industrial companies must aim to grow software unicorns. In BCG Growth Share Matrix terms, software initiatives must move from "question marks" to "stars" that dominate growing markets, measured by ARR growth, platform leverage, and market share gains.

But ambition is not enough. Execution is the hard path.

Building a software-first business requires a fundamentally different operating model. It faces a different set of competitors and demands a new go-to-market motion, a new developer culture, new incentives, and new organizational speed.

This is not an adjustment. It is a reinvention.

Silicon Valley has spent decades building an ecosystem optimized for this journey — creating companies unshackled from legacy constraints, singularly focused on achieving hypergrowth and market leadership.

For industrial companies, trying to simply "add" software capabilities to an existing hardware business is unlikely to unlock the full value. The most successful models — confirmed by studies and experience — involve creating standalone software businesses, separate go-to-market organizations and incentives designed for speed, growth, and customer obsession. Synergies with the legacy hardware business are welcome, but only if they help unlock and accelerate software value creation. They can no longer be the starting point.

For industrial companies, the necessary mindset shift is profound:

"Ask not how software can improve your hardware. Ask how software can solve your customer's problem."

This article was first posted on LinkedIn on April 28, 2025