The Transformation of Customer Success
1 Prologue
The enterprise software industry has been around for the last few decades.
But ironically, “customer success” is a new paradigm.
The traditional modus operandi was to sell the deal, collect the license revenue, and throw the account over the wall to professional services or a systems integrator.
It was the job of Professional Services to make the promise real, and the dream come alive.
Sometimes they did, but at other times they didn’t. Not for lack of trying, but the entire system was rigged in favor of the software vendor, not the customer.
Projects typically took a long time to go live. The people who made the decision to purchase the software licenses were often in different roles by the time the software went into production, let alone realizing business value.
Customer success was important on paper and in mission statements, but in reality, it was second fiddle to sales, marketing and building the next version of the product.
Until.
The cloud changed everything about how software was sold, delivered and used.
The notion of customer success and what it means has changed dramatically with SaaS and DaaS (data as a service).
For three main reasons.
- Customer success is a pre-requisite, not an afterthought in the SaaS business model. There is no billing relationship without customer success.
- Customers can start realizing business value in days and weeks, instead of months and years. Some services can even be consumed as soon as they are purchased. You no longer need school buses full of consultants to make the product work.
- In SaaS and DaaS, every aspect of user adoption can be measured using new age customer success tools like Gainsight, Bluenose and Totango. From who logs in and when, their journey within the application, their dwell time on different screens, to how they get their jobs done (or not). Which means that every provider has a rich trove of user data — that not only helps make the product better, but also provides actionable insights on what can be done to improve adoption.
The job of helping customers realize value from their purchase of software has now shifted to a nimbler and leaner team that is known as the “customer success team”.
2 The Goal of a Customer Success Team is Four Fold.
1. Maximize Renewals
2. Maximize Incremental Revenue
a) Sell Higher: Up-sells (Upgrading to higher priced offerings)
b) Sell Broader: Cross-sells (Adding new products)
c) Sell Wider: Expansion (Selling to new units or subsidiaries and adding new users)
d) Sell Longer: Extend duration of contracts
3. Minimize Churn and Downgrades
4. Increase Cash Flow (by helping customers move to annual, semi-annual and quarterly vs. monthly plans, and by invoicing and collecting on-time)
Net Monthly Incremental Revenue for any subscription service = Net New Revenue + Renewals + Incremental Revenue - Churn.
Sales is responsible for the hunting (Net New Sales) while Customer Success is responsible for the other three in bold.
But you have the right to ask for renewals and expansion only if the customer is successful.
So, getting customer success right is a very big deal for a subscription business.
3 Key Considerations for Getting Customer Success Right
Attaining the financial goals of renewals, upgrades, cross-sells and expansion demands that customer success managers help customers first realize value from what they have already bought.
More importantly, they need to help the customer develop trust and confidence that the vendor is a true partner who optimizes and solves for them, the customer.
A typical customer success manager has four key responsibilities.
- Educate and train the customer to increase their knowledge and awareness of how to realize value from the service.
- Guide the overall implementation and ensure that the milestones are realistic and in line with customer expectations of value.
- Ensure that users get the job — that they hired the service for — done better than expectations, and enable continuous improvement and optimization to increase user engagement.
- Continue to expand the footprint higher, wider, broader, and longer within the account
Here are six critical considerations for building a great customer success operation that can change the game. (Assuming that the company has attained basic product-market fit with its initial target segment).
1. Hire for values, mindset, and passion, less for specific skills or backgrounds.
Some people are just naturally suited for customer success, just like some are better suited for sales. Look for people who have natural empathy, whose instinct is to help and solve problems in a consultative mode, who have technical aptitude + a strong emotional IQ, and who are comfortable with delayed gratification.
2. It is a growth function, not a back-office function.
Unlike traditional licensed software companies, subscription service businesses live and die on customer success or the lack thereof.
SaaS CEOs need to treat customer success as a growth function. Which means that customer satisfaction is more important than cost to serve in the initial years. And the financial model for investing in customer success needs to take into account the long-term benefits and upside.
CEOs need to use a balanced scorecard for measurement that includes a blend of the following:
- Implementation metrics: Time to production, Budgeted vs. Actual on cost and timeline.
- Operational customer metrics: engagement, usage, adoption, task completion, etc.
- Outcome metrics: Value created for the customer as a result of usage. This is domain and client specific and needs to be agreed upon during implementation. (Not easy to do this and can be hard to measure for some types of use cases)
- Financial metrics: renewals, upgrades, expansion, voluntary churn, involuntary churn, CLTV, CLTV:CTS, CLTV:CAC, etc.
- Traditional customer satisfaction metrics: like NPS
The relative weights of these metrics are dependent on the stage of the company, where they are in the product evolution cycle, and the customer segment they are selling into. It is a good practice to use distinctly different scorecards for customer segments and products that may be at different stages of adoption and product-market fit.
Commissioning people directly on renewals or upgrades is not a good idea and is a tricky thing to do, at least not until you have the scale. Customer success people should instead get healthy bonuses based on performance measured against the balanced scorecards.
3. Proactive Customer Management
It is one thing to get customers to go live, and another to ensure high usage and adoption.
It is important that customer success teams have a standard playbook and process for predicting bad situations before they occur, and engage proactively to remedy before it results in an unhappy customer. Great teams also develop methodical and structured programs to address different types of customer escalations.
Great teams use tools that provide continuous updates and analysis on engagement, usage, and overall adoption. It is important to instrument them to account for variations in the maturity and requirements of different types of customers. There are different classes of customer success tools and they need to be layered intelligently to generate relevant, timely and actionable insight.
We are now starting to see next generation customer success tools that machine-learn user behavior, predict bottlenecks and hurdles, and provide real-time dynamic guidance to both users and customer success practitioners.
It is also becoming critical to provide users the ability to message and interact with customer success reps in real-time and in-context from within the application.
4. Build a Community
Customer success is more scalable when there is a community of users engaging passionately about how best to realize value from the product.
User communities hosted and managed by the SaaS provider, but accessible directly from the application can help you retain some control of the conversation, and also step in when necessary to guide and add value.
Connect customers to each other, within and across segments, for them to understand best practices. A vibrant community of happy users is directly correlated to growth in net new sales and higher incremental revenue.
5. Gather User Stories. Convert Users to Fans and Influencers.
Ensure that you are constantly gathering stories, and organizing them by customer segment and use case.
User stories are also critical to selling more into the industries and customer segments they represent.
Marketing and customer success teams should collaborate to develop the users behind the stories into fans and influencers who can be public advocates.
6. Fast and Iterative Closed Loop Feedback
Customer success teams are your human eyes and ears watching and listening to users.
Ensure that you build a culture where there is abundant and constant communication between customer success and product management, marketing, engineering, and sales.
A culture where customer success is everyone’s job even though it is spearheaded by the customer success team.
The stories and use cases emanating from customer success can enlighten the rest of the organization and make each function more effective. Marketing can develop sharper positioning and more relevant case studies; salespeople can open more doors and close more deals in shorter times, and product managers and engineers can prioritize better to build features with the highest impact.
Establishing strong and passionate customer success teams is an essential pre-requisite for survival and growth. It is no longer sufficient to sell software; it is mandatory to facilitate value realization for the customer.
The more value you generate for the customer, the more it leads to opportunities for expanding your footprint and capturing more of what you create. Great customer success teams enable this virtuous flywheel that reinforces itself over and over again.
Do you have a great customer success team? What are you doing to recruit and develop one?