The Customer Success Economy: Why Every Aspect of Your Business Model Needs A Paradigm Shift - by Nick Mehta and Allison Pickens
Date read: 2020-08-08How strongly I recommend it: 8/10
(See my list of 150+ books, for more.)
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The next book in the Customer Success series that gives you a more detailed view of how a CSM (Customer Success Management) org would look like and how to implement it for your company. It walks through the KPIs, how CS works with other functions, and how to set up a CS team from scratch including how to incentives. Recommended for anyone interested in learning more about CS and how it might fit within their own company.
Contents:
My Notes
With infinite choice in products and infinite ways to buy, the scarce commodity is now the customer. So making sure the customer is successful isn't just a job or a strategy—it's truly the economy.
Customer Service is there to react to client needs, and Account Management is ready to sell, but no one is proactively getting the client to value.
“When I think of account management, I think of commercial selling. When I think of success management, I'm thinking about advocacy and things we're doing to make the customer successful, without a focus on short-term sales.” Customer Success is the missing link that helps your clients achieve their desired outcomes.
Defining what counts as value to the client, delivering against that, and demonstrating that value has indeed been delivered are three core CS activities.
But the CSM teams often find that corporate CX teams have brilliant people who lack power in terms of operations or a mandate to enforce change across the business.
While Sales leaders might initially be worried about another group engaging with “their” clients, progressive executives look at the model and realize they can radically increase sales efficiency with the expertise and assistance of their new CSM group. By moving existing clients, renewals, and small expansions to a dedicated, scalable, and process-oriented organization, they can get the higher-cost Sales team more focused on true “hunting” and less concerned about how their clients will be treated after the sale.
As of November 2019, close to 70,000 Customer Success Manager jobs were listed on careers site LinkedIn. Since 2015, CSM positions at a global scale have grown at a rate of 176% year over year.
The first Pulse conference in 2013 had just 300 people in attendance. In 2019, that same conference attracted more than 5,000 attendees, growing by more than 15 times in 6 years.
According to LinkedIn, the CSM role has the highest career advancement score possible, meaning that it ranks highest in terms of how quickly people advance once they're in a CS role.
Operations managers: They have experience running internal cross-functional initiatives, which translates well to “herding cats” at the client and mobilizing internal resources to support them. Customer Success organizations need to perform similar functions, and as a result they have been hiring Customer Success Operations Managers. But today, they're standard for CS teams that have more than five or ten CSMs.
CSM for Value Delivery: Once a product and its associated paid services reach a certain critical level of maturity, a CSM can free up their time to focus more on guiding clients through the journey of achieving value. This CSM typically has strong communication skills, executive presence, and the business judgment that helps them serve as a strategic advisor to clients.
Clients often expect you to be a thought leader on their job, not merely an expert in yours.
Gross Dollar Renewal Rate - This is how you calculate it: The difference between $ Eligible for Renewal and $ Renewed is the amount of Churn plus Downsell. Downsell captures a reduction in contract size, for example, due to the client not renewing a particular product module or not renewing some of their licenses. (This calculation obviously assumes that you have renewals in your business.)
If an organization has high churn, there are typically three causes. It could be that the account executives oversell and then pass the account to the CS organization in a bad state. It could be the product doesn't work as advertised. Or it could be that the Customer Success Managers are ineffective. But the last one is rarest. It's uncommon to come across an organization that's running its Customer Success so poorly that you have massive customer churn.
Many CSM teams are specifically chartered to generate leads from within existing customers. Those leads are often known as CSQLs, or Customer Success Qualified Leads. CSMs pass along those leads to Sales, who close them. An investment in Customer Success therefore implies an investment in expansion.
CS teams often track the number of advocacy activities that they generate. They sometimes use the metric, Customer Success Qualified Advocacy (CSQA). Examples of a CSQA include: A client collaborates on a case study that captures a new use case for your product or service. A client offers a written testimonial for use on your website or in your sales material. A client speaks at an event that your prospective customers attend.
An “equation” to quantify Customer Success from a client's point of view: where CS means Customer Success, CO means Customer Outcomes, and CX means Customer Experience. CS = CO + CX.
Make sure you have one set of data on clients across your company—a true “Customer 360.” That data set should include adoption data, Support ticket data, survey responses, and Customer Health Scores. All of that data can help Product and CS teams develop a common point of view about how to prioritize enhancements on the roadmap.
The voice of the customer is an integral data source—potentially the most important to your overall CS strategy. These are your surveys, your one-to-many outreach, your social engagement, CSAT metrics, and CX data. Without actively pursuing and engaging with your customer's direct feedback, you don't have a complete CS strategy.
You'll want the best measure of ROI that you can find.
It could be the client's usage of the online community or portal, or their engagement with marketing emails. The point is to take a stand on a single metric that's a proxy for ROI.
A Vendor Outcomes Scorecard could have the following top-level dimensions: Retention: Are they likely to stay with us? Expansion: Are they likely to expand in spend or consumption with us? Advocacy: Are they likely to be an advocate for us?
We've created “groups” for Retention, Expansion, and Advocacy, with sample indicators for each:
Retention Indicators:
Expansion Indicators:
Client Experience Scorecard might include the following:
We'd recommend parallel processing: Run an offsite with your team to define a roadmap for how to measure different parts of your client base. In parallel, pick just one of the concepts in this chapter (such as the simple health score based on an ROI metric, discussed in the first section) and get going so you have a starting point.
Customer Success begins as a department and a function, but it only thrives as a company-wide transformation. This transformation always requires the CEO to personally own it.
CSMs immediately grasp the idea that CS and Product are the new Sales and Marketing. CSMs are often, well, obsessed with the idea of sharing feedback with the Product team.
Allison believes that the way some sales and Customer Success teams talk about “who owns the customer” resembles two toddlers having a territorial fit. In modern businesses, no one owns the customer. If anything, the company owns the customer—but we're sure the customer doesn't see it that way. Better questions are: What activities should each department conduct in order to benefit the customer along their journey? How can those departments stay informed of each other's activities?
We find that the most advanced PS teams track Customer Health Scores to assess the success of the engagement on multiple dimensions:
You really want the CSMs to be focused on building their relationship with the executive clients, driving more feature adoption and upsell, and generating referenceability, which helps Sales drive new logo revenue growth. So you don't want your CSMs to be explaining how to use or fix your products.
The Support team must roll out their own escalation process so that clients know that raising their hand for more help will result in an action plan, driven by Support, not the CSM. The CSM can simply keep abreast of the escalation for context.
The best-run Support teams ensure they have a 360-degree view of the client's context when resolving a ticket.
You'll want to make sure that your support team can see data on customer health, adoption, renewals, notes from recent conversations with the client, documented desired outcomes, and other information.
Integrating the Support ticketing system with the Customer Success solution and CRM can help ensure that escalations are visible to everyone without much effort from the Support rep.
It shouldn't surprise you that that metric is retention. But unlike in Sales, there's debate over which retention metric to anchor upon: Gross Retention Rate (GRR) or Net Retention Rate (NRR). Here's how John explains the difference between these two metrics. “Gross Retention means, if you had ten customers paying you $10 one year ago, how much of that $10 did you retain today? And Net Retention means, if you had ten customers paying you $10 a year ago, how much are those same ten customers paying you today?”
If you're a private company needing more capital, work hard to get your GRR to the fully optimized level, since investors will notice. If you're public and reporting NRR, you can probably live in the zone of “room for optimization” for GRR and focus on improving net retention.
CSM for Value Delivery - The CSMs count toward Cost of Retention (part of Sales & Marketing) since they contribute to the renewal, even if they don't have formal quota responsibility.
CIOs have become indispensable partners to their CS peers in translating business goals into technology requirements and evaluating CS platform decisions. As a result, companies have become savvier about how to purchase and configure a best-in-class Customer 360 that's personalized, insightful, action-oriented, and automated.
The fact that our CSMs' wellbeing so strongly influences the success of our clients means that we have to generate strong Outcomes and Experiences for our CSMs, too. Put differently: CSMs are clients, too.
“The CEO needs one person to be in charge of this transformation. They have to have a direct line to the CEO. They can't be buried within a department and someplace else. They don't have an operating responsibility; they have a transformation responsibility, because there are so many pieces that are going to have to shift and change in order for this move to happen.”
Successful pilots involve one or a few product lines and create proof points to continue scaling.
In general, we find CSM pilots starting with newer or acquired product lines or with product lines in transition and then expanding to the overall business over time.
As a rule of thumb, high-touch CSMs often manage 1 to 25 customers while Mid-Touch CSMs range from 25 to a few hundred.
As such, companies pursuing high-touch Customer Success pilots often start with a subset of their top accounts.
Define What Data Your Team Needs:
Leading indicators can include:
“Sometimes clients can feel like they're watching a bunch of six-year-old kids playing soccer, where everybody's just chasing the ball rather than sticking to their own role on the team. Define clear roles and responsibilities among the account team. It will be powerful to talk with the client about how each person will support them.”
Create a “strategy deck” showing the charter and structure of Customer Success internally and dashboards per the above to show results. Create a client-facing deck to communicate roles externally.
Successfully charging for Customer Success This has long been a point of contention within our industry: Can you (and if so, how do you) charge for Customer Success? Eduarda Camacho, executive vice president of Customer Operations at software company PTC presented a working framework at our retreat. It's called SuccessPoints and it's a program that gives a customer the flexibility to spend their points on a multitude of services—adoption workshops, training, technical services, etc.).
We're seeing leaders emphasize learning agility in their hiring process. Can this person adapt and evolve? Do they have the strategic thinking skills to plot a course that's unknown? At Gainsight, this is one of our company values—Shoshin, which is a Japanese word that means “A Beginner's Mind.”
We're seeing leaders emphasize learning agility in their hiring process. Can this person adapt and evolve? Do they have the strategic thinking skills to plot a course that's unknown?
Every SaaS company of meaningful size should have a VP or VP-level person in charge of Customer Success. And many non-SaaS companies should strongly consider doing so as well.
The question is: What will that sales leader do on the last day of the quarters—try to help a rep close a new deal, or get on the phone to handle an escalation from an enterprise client? Sales leaders will typically focus on the former, but if they neglect their customers too much this quarter, they'll find themselves trying to plug a leaky bucket next quarter.
She believes Salesforce wouldn't have been as successful if Sales had owned the renewal, because they're more interested in closing new business (due to the typical sales culture, skill sets, and executive focus) and would have inevitably deprioritized renewals.
There's nothing more frustrating when we have a meeting with our CSM, and we think we're going to spend time being educated or informed on best practices around adoption or value realization, but that person is just masquerading as a seller and trying to sell us some other service or some other piece of technology. Don't disguise just another seller as a Customer Success manager.
The bigger you get, the more customers you have and the greater the need for specialization to optimize both the renewal outcome and the Customer Success outcome. We're asking the CSMs to do the complex job of helping clients leverage our tool in the most beneficial way possible, auditing their current product footprint and connecting with their executive leadership to figure out where our products fit within a broader landscape of their IT infrastructure. This requires a lot of product knowledge and muscle that you have to build, a lot of executive presence, and even vertical-specific knowledge of how our products address that vertical's specific needs.
You need to be able to give something up if your budget is limited. Rather than skimping on the items that make your team more efficient and effective, we recommend curtailing what you can cover: Maybe CSMs only get involved post-onboarding. Maybe CSMs can't do renewals anymore. Maybe CSMs don't cover some accounts, with a pure “tech-touch” model instead for those. Maybe CSMs need to push more work to Support and Services.
If you don't have a Customer Success Operations person, budget for one. If you have one already, grow the team.
It's not a lot of money, so plan for it upfront. Budget for:
I want my CSM to not just be a generalist, but really understand this industry that I'm in. If I'm in the financial sector, I want that CSM to know how to get me to success. I want them to talk just like me, and I want them to deeply advise me on roadmaps and basically be a business analyst to my company.
The price has nothing to do with the client's size. It has nothing to do with whether the company is spending more than a million, or less than a million, or $100,000 a year, or $10,000. The price has to do with the client's strategic intent. What are they trying to do? What is the degree of digital transformation that they want? It's about what's required for the customer to get to the outcome.
Sales Training: Methodologies like the Challenger Sale, Corporate Visions, Sandler, and ProActive Selling are relevant for CSMs as well.
Networking: You need to make it one of your personal KPIs to get out of the office, even if it's just 30 minutes a week, to meet another person in Customer Success. Ask them all sorts of questions about their business and learn why they did the things that they did.
Coach through Questioning: Gainsight has created a helpful online assessment to help you find out by evaluating: 1) How you compare to companies your size across the 14 core Elements of Customer Success; 2) Where your company's strengths and weaknesses lie in terms of Customer Success; and 3) How to improve your sophistication in each Customer Success Element. You can take the free, personalized assessment at https://www.gainsight.com/maturity-model/.
An education and certification platform like Pulse+ will give you prescriptive best practices for both career and departmental development.
Read the CS Handbook: The Customer Success Handbook (also published by Wiley—available in bookstores everywhere) is indispensable for CS practitioners. It's the only tactical, day-to-day guide for the CSM job and was written with incredible detail and academic rigor.