Archive | Uncategorized RSS feed for this section

Your Customers Expect You to Make them Wildly Successful

12 Apr

In 2015, I worked on a project with Gainsight and Bessemer Venture Partners, called “The 10 laws of Customer Success”. These 10 laws, written by a group of Customer Success practitioners, have now become the core of the new book Customer Success: How Innovative Companies are Reducing Churn and Growing Recurring Revenue, by Nick Mehta, Dan Steinman, and Lincoln Murphy.

The law I authored, entitled “Your Customers Expect You to Make Them Wildly Successful” has become even more of a reality since I wrote it. The more I engage with sophisticated, successful, enterprise customers, the more their expectation (rightfully so) is that we not only provide them with a product, but that we provide them with the expertise, guidance, and, yes, tough love, that it takes in order to ensure success. In the subscription economy, we’re all stakeholders in our customers’ success.

I’ve re-published the law I authored below:

Customers don’t buy your solution to use its features and functions. They buy your solution (and buy into the relationship with you) because they want to achieve a business objective. Just as sales organizations are using a “Challenger” sales approach, Customer Success organizations need to provide new insights and challenges. As Ben Horowitz said in his 2015 commencement address at Columbia University: “There’s no value in telling someone what they already know.”

The value your customer places in your relationship isn’t defined only by your product’s features and functions; it’s also defined by everything else your company does to help make your customers better at what they do. That includes enablement, content marketing, online resources, and in the case of relationships with larger enterprises, direct engagement by subject-matter experts. In some cases, delivering a message that goes against conventional (and popular) wisdom can be difficult, but in the end, delivering a challenging message that is in your customer’s best interest will strengthen your relationship

Delivering wild success requires you to understand three fundamental things:

  • How is your customer measuring success? In other words, what is the customer’s unit of measure (time saved, incremental revenue, reduced cost, specific financial impact of increased quality), and what results does the customer need to declare victory?
  • Is the customer achieving that value (or at least on a realistic path to achieving it)?
  • What’s the customer’s experience with you along the way?

Wild success doesn’t happen by chance. It happens because both you and your customer have a real stake in mutual success, you both share and understand those objectives, you measure and monitor progress against those objectives, you ask hard questions, and you continuously strive to raise the bar when setting new objectives.

The truth is that it takes more than a great product to make your customers successful. In the enterprise, you’ve won the deal because your sales team has done an outstanding job of selling the benefits of your company, painting a vision, and setting expectations that there will be significant payback with your solution. In a recent customer meeting, a forward-thinking CIO expressed to me his concern with many software vendors: “None of them challenge us. They come in, install the software, and then move on. I’d like to understand what we’re currently doing that we should be doing differently. We’re not just paying for a product—we want expertise as well.” In a sense, he was telling us: “You sold us on vision and expertise. That’s our expectation. Now deliver.”

Unless you can start by delivering some value quickly, while executives are still excited, you risk losing momentum and falling into a pit in a success curve that resembles the “Trough of Disillusionment” in Gartner’s Hype Cycle.

OldValue2With early proof points, your customers’ perception of success will be on a much flatter curve:

NewTTVIn addition to ensuring that you’re tracking to ultimate success for your customer, set your customers up for a quick win. Define an initial milestone and track that time to first value (shown in the chart above as “Phase 1 Value”). It may be as simple as delivering an initial proof of concept with basic functionality, but it will quickly provide evidence to your customer (both your immediate sponsor as well as executives or board members) that the decision to go with your technology was a good one. It’s also important to prove value quickly, since any expansion plans you may have with the customer will be predicated on your success. Early wins keep that momentum going. An early win will also be extremely helpful if you encounter any challenges (technical, business, environmental, or political) in future phases. It will allow your sponsor to point to the value already achieved as a way to flatten obstacles and rally support.

Installing software on-premises, provisioning a user account for a SaaS solution, or even providing basic training on the functionality of your product are simply table stakes. Those activities get you in the game, but they aren’t what make you win. If your company innovates—and which successful ones don’t?—it’s important that you outwardly communicate the benefits of that innovation and, critically, how your customers should use your capabilities to be more effective at what they do. Great companies need to provide this expertise and guidance in a way that scales. It isn’t just about having highly skilled professional services consultants who come in on a feefor-services basis (although that’s very important when serving the enterprise, as well as some subset of highly technical solutions). You’ll also need great content (knowledge base, best practices, how-tos) and an efficient means for delivering it.

The main reason why your customer bought your product in the first place isn’t because your features are cool. It’s because your customer has a job to do and expects your solution (and your company) to help them do it better. For example, if your company provides a digital marketing solution, you need to provide the tools, technology, training, and supporting content to make your customers better digital marketers, not just a tool that allows them to send emails. More importantly, you need to continuously provide the customer with examples of how they can use your solution to be more effective, how other customers are using it to be more effective and, if you have the aggregate data, how some of the customer’s key metrics (usage or otherwise) compare to similar companies or industry averages. Without a benchmark of comparison or a target to achieve, the customer’s current performance data has limited value.

To Help Your Customers Become Wildly Successful, You Must First Understand What Success Means to Them

To manage your customers through the journey of wild success, you always need to know three things about them:

  • How are they measuring success? Specifically, what is the key metric, or “unit of currency,” that they’re using to measure success, and how many units will the customer need to add/save/remove/reduce to claim that they’ve gotten value from your solution? You should also know how the customers as a team (irrespective of your solution) are being measured for performance.
  • According to that metric (or metrics), are they achieving success? Or, if it’s a work in progress, is the customer on track to succeed within to the expected time frame?
  • What is their experience along the way? While the first two questions are pretty clear-cut and quantitative, this one is less so; however, it is incredibly important. It will drive the tone of your relationship and interactions with your customers. Even if your customers achieve their objectives using your technology, if their experience is painful and requires more effort than they believe is necessary, then you’ve significantly increased their cost (both tangible and intangible) of achieving success.

ROI Isn’t a Concept; It’s an Equation

Another area that receives intense focus during the sales cycle but may fall through the cracks after implementation is the quantification of ROI. If you’re a provider of Customer Success solutions, your customers might have the following objectives:

  • Reduce churn
  • Find upsell opportunities
  • Improve the ability to scale their team

While it is difficult to attribute the degree to which your solution is helping the customer achieve each of the three preceding objectives, the first thing to do, if possible, is quantify the expected results. For example, reduce churn by how much? Identify how many new upsell opportunities, and of what size? How much total value? How much productivity gain do you expect to see in your team? How do you measure productivity? Is there a way that you can tie use of the product (or particular features of the product) to team scalability? Can you identify a few key metrics associating health scores for a certain percentage of customers in a certain tier as a point of first value? After you understand the expectations, set them as a clear target.

Get on a Cadence and Track Your Progress

Use regular business reviews (with your higher-touch customers) as a way to track progress toward the objectives and targets you’ve jointly defined. If your customers understand that you have a vested stake in their success and you share a common objective with them, they’ll be willing to engage with you on a regular basis to collaborate on how they can get there. Regular strategic business reviews (SBRs), quarterly or otherwise, focusing on these objectives give you and your customers a reason to engage on a regular basis. These objectives also help frame the conversation for a business review. I’ve seen too many quarterly business reviews (QBRs) poorly attended because they weren’t working toward clearly stated and understood success criteria. Product road map updates and a review of open support cases will carry a QBR only so far. In fact, a QBR that covers only those topics is extremely defensive. There’s no way for you or your customer to win if all you’re talking about are features that don’t yet exist and features that aren’t working properly.

A business review must be part of a broader context of a journey to well-understood success. If you have a clear understanding of the customer’s success criteria, then at the end of each SBR, you should be setting measurable objectives for the next one. I met with a customer recently who has an objective to migrate billions of rows of data to a new repository within the next two months using our product. While our CSM is going to have a number of conversations in the interim to ensure that the customer achieves that goal, the larger team is certainly going to review progress against that quantifiable objective in the next QBR.

Success Isn’t a Destination; It’s a Journey

While your customers may have set out initial success criteria, part of the value you bring as a partner is helping customers define what they should think about next. You know and understand the value your product can potentially bring to your customers. You also know how other customers are using your product successfully. This is a perfect opportunity for you to give your customers guidance about what they should be thinking about next. If they just used your Customer Success automation product to increase their retention rates from 85% to 88%, you now have an opportunity to show them how best-in-class companies are achieving 90%+ renewal rates—and how your partnership can help them get there. For lower-touch customers, you can achieve this objective through content marketing and communication of online best practices. For higher-touch customers, this can (and should) be an opportunity for executive alignment. It’s an opportunity to influence each other’s strategy, as well as an opportunity to strengthen the relationship. A good tool to use to help drive customer direction beyond first value is an effectiveness model that you can use to set objectives and timelines to help your customers better achieve their business objectives via your partnership.

In Theory, There’s No Difference between Theory and Reality—But in Reality, There Is

All this sounds great in theory. However, unless you have perfect alignment and agreement on everything throughout your customer relationship (starting with the sales process), you’re going to have cases in which customers won’t come to the table, won’t provide you with key data, will be challenging and confrontational, and may have a different understanding and set of expectations than you do—possibly thanks to an overly optimistic sales effort. You may run into challenges with your product. Your support or services organization may not always deliver impeccable service. All I can say is: Welcome to Customer Success. These are all challenges that you have to deal with, and you must have difficult conversations as soon as possible when issues arise. Issues won’t go away by themselves. Customers, however, will.

Approached properly, these conversations are, at minimum, incredible learning experiences. The best perspective for your company to take is to look at itself through the lens of your customer. No matter how hard you try to imagine how your customers feel about something or what they think, you won’t know until they tell you. Candid customer conversations are a valuable source of information—sometimes epiphanies—for your company.

Challenging times are also a great opportunity to cement a relationship. I have heard it said that the strongest steel is forged by the fires of hell. If you’ve worked through a difficult situation collaboratively with a customer and shown your true colors as a partner; or if you’ve accepted responsibility, identified short-term milestones— then met those milestones—regained trust, and made your customer successful, then you’ll understand and empathize with this statement. If customers aren’t following through on their side of a commitment, then you’ll need to escalate, strategize with your sales team or other business functions, and figure out how to have the necessary difficult conversation with the right person or people. Customer Success is everyone’s responsibility. Use all the resources available to you. Your customer is expecting you to.

It’s true that customers expect you to make them wildly successful. It’s also true that they’re highly motivated to be wildly successful with you. In fact, they’re at least as big a stakeholder in your mutual success as you are. Your customers are demanding because they want to be successful. Challenging your customers isn’t always an easy task. It requires a relationship, mutual respect, and a sense that you both are working toward the same objective. A customer told me recently at a dinner meeting: “The challenge you posed to us was difficult for us to process and accept. We initially took offense that you, in essence, were telling us that we were wrong, and that caused some tension. Ultimately, however, because we felt that you were in the same boat with us, we accepted it. As a result, it has strengthened our relationship.”

Customer feedback about your opportunities for improvement isn’t always as obvious as an escalation or challenge. In most cases, you need to be paying attention to the more subtle clues that there may be risk to your customers’ success. Many times, those clues are in what they don’t say rather than what they do say. Risk might be indicated by a change in schedule or priorities. In any of these cases, it’s critical to get to the root cause of the issue and understand what course corrections you need to make to drive Customer Success.

Remember, your customers aren’t buying a technology. They’re buying a solution to a problem, a path to a better way. It’s your responsibility to understand the customer’s goals and objectives and steer the customer along that path (in both high-touch and low-touch ways). Once you’re able to understand how customers are measuring success, confirm that they’re achieving it, and confirm that they’re having a positive experience along the way, you’ll have the most valuable thing possible: an advocate. And in a world where social media and the network are accelerants that help both negative and positive opinions spread like wildfire, advocacy is priceless.

In combination, the Challenger Sale methodology and the rise of content marketing have created an environment in which customers expect that they have purchased more than just a product to use. They’ve entered a relationship with a company that is going to make them more effective at achieving their business objectives. As a result, the CSM (as well as the entire customer-facing team) need to grab the baton and take on the role of challenger throughout the customer life cycle. Wild success doesn’t happen by chance. It happens because someone asks hard questions, objectives are measured and monitored, and once those objectives are achieved, someone raises the bar and repeats. Welcome to (wild) Customer Success.

The Pyramid of Customer Success

29 Apr
Customer Success is about proactively managing a customer relationship towards demonstrable value… and creating a great experience in the process. As anyone who has ever had the responsibility for doing this can attest, it takes more than just a CSM team to be successful. You’ve heard people talk about “a culture of customer success” or “a customer-centric company”, and while much of what it takes to win and be successful is empathy for and an understanding of the perspective of the customer, those can be pretty empty words without a way for the whole organization to put the philosophy into action.


In order for a company to help its customers achieve success, every part of the organization needs to engage… and deliver, but how do you do it in a way that scales?


As in many subjects related to Customer Success there is no one answer that fits every situation. The subscription economy is continually expanding and evolving, and what it takes to make an enterprise B2B customer successful can be very different than what it takes to make a large number of B2C customers successful. The model in this article can be applied to a number of different products and industries and is offered as a framework to ensure that different functions in your company are thinking about the success of your customers from every aspect of their experience.


As a software solution provider, you are no longer expected to just deliver a product. Your customers expect you to help make them better at what they do as a result of doing business with you, but it isn’t reasonable to think that hiring a bunch of CSMs is going to be either a scalable or an effective way of making that happen. In fact, if you’re expecting the success of a company and the satisfaction of your customers to be completely on the shoulders of your CSM team, then you’re setting yourself (and your CSM team) up for failure.


So how do you implement a culture of customer success across your organization?


A CSM can play many roles in the customer relationship. At any point in time, a CSM can be a number of things in a customer relationship:
  • A rudder – to steer the customer relationship in the right direction;
  • A thermometer – to truly understand the customer’s temperature,
  • A subject matter expert – who can provide guidance to a customer,
  • A relationship broker – who can connect the customer with the right resources inside the company in order help them be successful. These can be resources from product marketing, professional services, support, finance, or any other department
But actually delivering the value and making the customer successful takes much more than a CSM.


In fact, in many companies, the customer success organization doesn’t have a deep relationship with every customer, and in all companies, it isn’t the most scalable way to impact the customer experience (you do have a product, after all).


A pyramid provides a very effective model for how different aspects of what you do can influence the success of your customers, On the bottom of the pyramid, as a true foundation, are the components that scale the best, primarily because they are upstream in the user experience and reach the broadest audience. As you move up the pyramid are components that don’t scale as well; however they provide immense value to the subset of customers who need (and use) them.


I wouldn’t argue that any of these is more important than another, and each type of product (consumer, SMB, enterprise) will have a different Customer Success pyramid, or will have different dependencies on different layers of the pyramid. In some companies and for some products, the specific levels of the pyramid may differ, and in consumer products, some levels may not even exist. The diagram I show here is designed for delivering Customer Success to B2B customers. A consumer-only product will likely not have a Professional Services component to it; however as even some “consumer” products are moving into the B2B space, they’ll need to add less scalable, and more specialized offerings in order to make their higher value customers successful.


Here’s a breakdown of the Customer Success Pyramid layer-by-layer:


1. Product
Customer Success starts with your product: It fundamentally has to work well; it must do what it is supposed to do; and it must do it in a way that ensures adoption of the features that truly differentiate you and will make your customers sticky. As your organization learns from customers, you need to ensure that you’re getting that feedback into your product. Every layer above this in the pyramid will only deliver incremental value to what your product offers, and if there are fundamental deficiencies or usability issues with your product, then you are eroding the potential incremental value that those layers can deliver. I can’t stress the importance of this enough as I’ve seen and lived it in the real world. If your product has fundamental shortcomings, the time and effort of everyone else in your organization is spent on “propping up” your core technology. You won’t have the time and credibility to deliver incremental value.  To some extent, no product is perfect, and the layers above will always help plug some gaps, but to the extent your product is intuitive and accessible, you can use the other layers to really provide a differentiated, service-oriented experience. It’s also important that you use every layer above Product in the pyramid to gather actionable information that will help you improve your product and the experience it delivers to your customers.


2. Documentation
Similar to the product, your documentation has the potential to touch every user… well, every user who can access it quickly and easily. Given the broad potential reach of documentation, it’s vital that your documentation is accessible, contextual, and modularized, with specific relevance to the part of the application or function that the user needs to learn more about. If your documentation isn’t easily accessible by your users *at the time and in the context in which they need it*, then many of them aren’t going to read it.


3. Training
Training material can take a number of forms, from multi-day customized on-site courses to short, focused, easy to digest, “how to” examples. Best in class companies have a range or training materials available and have implemented comprehensive LMS systems to gather feedback to understand which courses are providing the most value to customers. Course content should continuously be updated based on feedback gathered at higher layers of the pyramid. For example, if a significant number of cases are being opened related to system configuration, then your training team should be delivering additional modules around configuring the system. By creating those courses, you’ll not only be lowering the number of support cases that your support team has to deal with, you’ll also be creating a better customer experience by not having your customers face the issues at all. Your customers are telling you (via support) that parts of your application aren’t intuitive. The short term answer is to develop better training, the longer term answer is to make the product  more intuitive.


As your training curriculum evolves, it should be about more than just your product features, it should also include best practices for using your product and should complement your content marketing. For example, if you provide a CRM solution, your training shouldn’t just cover how to create an opportunity on your platform, it should provide guidance on what information is relevant in an opportunity as well as how best in class companies manage opportunities and how they use that information to better understand their forecasts and predict their business. If developed properly, training material will also highlight strengths and differentiators of your product without coming off as additional sales collateral.


4. Online resources
This layer can really help your organization scale and should be monitored and updated constantly: both proactively based on what you want your customers to know; as well as reactively, based on what your customers are asking you and what they are consuming. Online resources can be updated many times per day by many people. These updates can be as involved as developing best practices derived from a large number of customer engagements, then formally publishing them; or as effortless as having a customer or partner respond to an open forum question. The analytics around online resources can provide incredibly valuable insights around what your customers are reading, talking, and thinking about.
Some online resources don’t even need to be owned or managed by your company. Participate in forums that your company doesn’t manage, but are relevant to your space. If you have a partner ecosystem, both you and your partners should be providing online content for each others’ sites.  Many companies that provide solutions directly to consumers enable the vast majority of their customer success through these four layers alone, with the majority of content/investment/usage happening in layers 1 and 4 (product and online resources). By far, you get the most reach and scale from these first four layers as they’re all based on delivering  functionality and content to your audience in a “one to many” model. Working with your Marketing, Customer Support, and Professional Services teams you can target and develop content that will be relevant for and specific to a number of different customer segments.


5. Support
While the first four layers of the pyramid may be sufficient for some consumer products, enterprise products require enterprise support. World class enterprise support requires both rich and relevant online content (layer 4), as well as a strong team that can help customers dig in to complex issues. Your team members in support need to have deep product and technical skills in order to provide your customers with resolution to their issues as well as “soft” skills to manage your customers through challenging situations. For a great resource on how to deliver a great customer experience via your Support team, I’d highly recommend Flavio Martin’s blog.


6. Subject Matter Experts
Generally CSMs fit one (or in some cases both) of two profiles: 1) a subject matter expert; and 2) a relationship manager. Assuming the relationship manager role transcends all levels of the pyramid, subject matter expertise delivered by people who know your product, the industry, and your customers can help ensure your customers are getting off on the right foot and that they’re not getting “stuck” along the way in their implementations. A common question I get is “how is this role different than what a company should offer in professional services?” The main difference is that this subject matter expertise is delivered in very small doses, sometimes reactively, and in many cases at no additional cost to the customer. An efficient Professional Services organization would have a hard time delivering this expertise without a negative impact on profit margins. Subject Matter Experts can also help position the value of a deeper, longer term Professional Services engagement as a result of their interaction with the customer.


7. Professional Services
Professional Services are a great opportunity to drive success with higher value customers. Those services can be delivered by both your internal PS team and an ecosystem of partners. Generally, I’ve found the best services to perform with your internal team (vs partners) are the ones that meet three criteria:
  1. Services that your team can deliver successfully (this sounds obvious; however unless you’re really clear that the purpose of your PS organization is to drive subscription revenue in a way that is fiscally responsible, you can get caught up in trying too hard to indiscriminately drive Services revenue. As a result performing services that your company isn’t ready to do well);
  2. Services that are instrumental to your customers’ success; and
  3. Services which you can deliver while making sustainable profit margins and where you aren’t competing against low cost, “commodity” resources for a lower price.
While a professional services team needs to operate in a manner that contributes positively to the company’s margins, it’s fundamental purpose, if it’s part of a subscription software company, should be to drive the success, retention, and growth of your subscription customers. We measure our PS team’s performance not only on basic PS metrics, but also on delivery success, time to value, customer advocacy, and, yes, our renewal rates, because our PS team has significant impact on the success of our customers.


A common theme:
It may take a slightly different set of activities and roles to deliver success to your customers than the ones I’ve outlined; however a couple of fundamentals will hold true:
A) Your product is, without a doubt, the most scalable way to deliver a positive experience to your customer, so if you can take input from all of the other activities to ultimately improve the product experience, you will maximize impact and reach;
B) Product alone, CSMs alone, in fact, none of these layers by themselves can make customers, especially enterprise customers, successful. A culture of Customer Success needs to think about customer experience in the context of all of these layers.  As you focus on your customers’ experience, try to think about it in the context of this pyramid. Socialize it with the rest of your leadership team. Share it with the rest of your company. Especially as your colleagues ask “what can I do to help improve the customer experience?”

A Practical View of Your Customers

7 Oct

A few months ago I wrote a post about customer segmentation titled All Customers Are Equal, But Some Are More Equal Than Others.  I graphically represented the concept of customer segments with a pyramid, because it was a simple and straightforward representation of the concept.  When it comes down to actually segmenting your own customer base, though, and making decisions about how to service them, I’ve found the best way to do that is to use a Pareto Chart.


Figure 1: Pareto Chart of 2000 Hypothetical B2B Customers

The Chart Described

If you aren’t familiar with the concept, a Pareto Chart is great way to visualize how your revenue is distributed across your customer base and how much your largest customers contribute to your overall revenue.

The chart above came from a hypothetical set of 2,000 customers I created from data that I made-up to represent a typical B2B customer distribution curve. The grey portion of the Pareto Chart is actually a bar graph made up of 2000 data points in descending order. Each (very thin) bar represents a customer’s Monthly Recurring Revenue (MRR) and maps to the axis on the left – in MRR dollars.

The blue line shows the cumulative percentage of revenue represented by the customer base as it moves along the X axis and maps to the axis on the right – in percentage of total revenue.

Creating Your First Segment

The Pareto chart quickly shows you a couple of things:

  1. How your customers are distributed
  2. How many customers fall into each bucket so that you can efficiently allocate resources to manage a large percentage of your revenue base.

The image below takes this hypothetical (but not uncommon) B2B case and creates a first segment of customers. This segment happens to consist of approximately 10% of the customer base (It’s 200 grey “bars” wide, representing 10% of the 2000 bars in the graph) and approximately 45% of the revenue (the right edge of the green area intersects the blue “% of revenue” line at about 45%). You’ll also see that the MRR value at the right edge of the green area is approximately $5,000 – which represents the minimum MRR for a “Tier 1” customer.  Again, these numbers are examples. The process for creating customer segments requires a little art to go with this science and is going to take some iterations to get right; however 10% of your customer base is a reasonable baseline number for a high-touch CSM organization.  You may choose to make it larger or smaller for a number of reasons (which I’ll cover in a future post), but this framework is a good way to illustrate it and justify whether you’re covering a reasonable amount of your revenue base.

Figure 2: The First Segment

Figure 2: The First Segment

The Second Segment

Now that you’ve created a high-revenue customer segment that can justify a high-touch CSM, you might want to see whether it makes sense to cover another relatively small number of customers that still might represent significant revenue with a somewhat lower touch, but still personal, approach.  Based on this customer distribution, you can see that a second segment can be created that consists of twice as many customers as the first segment, and in combination with the first segment gives you coverage for approximately 75% of monthly revenue.

Figure 3: The Second Segment

Figure 3: The Second Segment

Pareto Charts can illustrate pretty clearly how much revenue is represented by each segment of customer as well as show the baseline MRR that can be used to define the “floor” of each segment.  Figure 3 shows that in this hypothetical situation, 75% of the revenue is represented by approximately 30% of the customer base, with an MRR of $1,700 and above.

So Now What?

Now that you have a framework for segmenting your customers, you can optimize your investment in your CSM function.  In this example, the first segment of customers represents significant revenue that can justify high-touch named CSMs who can engage with customers in a personal, frequent, and customized manner. The second segment consists of roughly twice as many customers and a little over half the overall revenue of the first segment, so the amount of engagement per customer that can be justified for each CSM is significantly lower. The third segment represents approximately 3/4 of total customers yet only 1/4 of total revenue and can be effectively managed with Customer Success Automation and Marketing Automation. I’ll discuss how to address these three very different customer segments in more detail, and how Customer Success Automation applies across all three in a future post.

Highlights from Pulse 2013

31 May

Yesterday was the first annual “Pulse” Conference, sponsored by Gainsight to generate awareness for the Customer Success space.  The team put on an impressive first year event that attracted around 300 attendees and included engaging, high-profile speakers with relevant content.  Gainsight plays in a growing space of solutions around Customer Success  Automation (that’s my term, not the industry’s… yet).  I’ll talk a bit more about the space and the other players in a future post as it is a very interesting space with some great technology solutions.  This post is about the highlights of the conference:

The “Three R’s”

Nick Mehta, Gainsight CEO opened by introducing some key fundamental objectives of Customer Succes – and they’re all measurable.  I’ve referred to them as the “Three R’s”: Retention, Renewals, and References.

Geoffrey Moore and the “Four Gear Framework”

Geoffrey Moore, Author of “Crossing the Chasm” and “Inside the Tornado”, presented an alternative framework to the traditional Technology Adoption Lifecycle, explaining that some consumer-focused businesses never faced a chasm to cross, but rather drove their growth through the “Four Gears” of Acquisition, Monetization, Engagement, and Enlistment – presenting a good case that a company’s growth is constrained by the slowest gear and that a strong Customer Success focus can help “Power gear” of Enlistment move more quickly.  I’ve been a huge fan of Geoffrey Moore since the days of “Crossing the Chasm” and thought his observation and insight were spot-on.  His message was so relevant, that not even a full-blown test of the fire alarm system at the Four Seasons in SF was able to detract from it.  He kept the audience engaged.

The “Safe-Switch” Process

Bill Binch from Marketo shared that one of the key risk indicators for customer health they observed was employee churn on the customer side.  I’m sure anyone who has managed a customer relationship can attest that changes in a customer’s key users or sponsors can sometimes jeopardize the status of an incumbent technology solution (especially if the solution has low switching costs) in a pay-as-you-go model.  The CSM team there would offer free “re-training” for the customer’s new team members to reduce any re-adoption obstacles.

Track the profitability of your renewal stream.

Bruce Felt, former CFO at SuccessFactors shared some of the economics of renewals.  SuccessFactors had a great valuation when it was acquired by SAP: $3.2 Billion.  Interestingly enough, their acquisition costs for a customer where astronomical.  Significantly higher than the first year’s Annual Recurring Revenue.  When they tracked the profitability of the renewal stream, however, they calculated roughly 70% operating margins on their renewal stream.  In his words: “You don’t have a business model if your customers don’t renew.”

Renewals are a trailing indicator of customer health

A number of speakers made the point (and I strongly agree), that basically renewal rates measure the score at the end of the game.  They aren’t a timely actionable metric that can be used to impact individual customers.  I’d argue that usage is also a trailing indicator of poor health – it may be useful in determining upsell opportunities for some variable usage products/services, but if a customer’s usage has gone down, in many cases, it’s because they’ve already moved on to a competitor’s solution.  It’s vital for every company to identify the *leading* indicators of customer health for their solution and watch those closely.

Apply leading indicators of customer health in the sales process

Fantastic insight from Catherine Blackmore at Badgeville, where they identify leading health indicators for existing customers and run their sales prospects through those filters to determine whether the prospect is at risk of being a successful customer. If so, they act early to identify any required services and expectation management up front to ensure the customer will be successful before they’re brought on board.  Otherwise, they won’t sign the customer.  Now that’s a culture focused on success.

Retention and Valuation

Roger Lee from Battery Ventures, Ping Lee from Accel, Byron Deeter from Bessemer, and Aref Hillaly from Sequoia all sat on a panel together to provide the investor perspective on recurring revenue.  Some key points:

  • Net churn, or $ Retention Rate (revenue from existing customers, minus churn, plus upsell) should be at least 100%, ideally 110% to 125% for best-in-class
  • Best-in-class companies churn fewer than 5% of their accounts per year
  • Churn is a compounding factor in revenue growth (obvious, but worth noting as it really impacts the math… see next bullet point)
  • Some investors estimate that for every 2% improvement in churn a company will see a 20% bump in valuation.
  • Currently 15% of the total software market is SaaS and 85% is enterprise software.  Some members of the panel expected those percentages to invert in the next 10 years.

Who is more valuable to an organization?

At the end of the day (literally, not figuratively), a panel of CEOs, consisting of Chris Cabrera from Xactly, Aaron Levie from Box, Tien Tzuo from Zuora, and Nick Mehta from Gainsight gave the CEOs’ perspective on Customer Success.  When fielding a loaded audience question of “when will Customer Success become more important than sales?”, the group tactfully raised a good point.  Namely, that many parts of an organization are necessary and equally key to success.  More importantly, however, is that in the absence of implementation/switching costs, in the world of pay-as-you-go SaaS, sales becomes easier (still not “easy”) and retention becomes more difficult.

A long inaugural blog post, but hard to make it any shorter given the great content at the conference.  Job well done!

%d bloggers like this: