Customer success has come into its own over the past decade. Most successful SaaS companies now have a dedicated customer success function, a trend that is expanding into manufacturing and other industries. Rightfully so. Businesses that get the importance of customer success become hooked. Customers who have experienced it become experts and advocates. But, what is customer success?
Because its rise is relatively recent, customer success is still often confused with customer support. To help clear up the matter (and get a clear answer to what is customer success?), MindTouch reached out to industry expert Mikael Blaisdell to discuss the origins and arguments for a customer success program.
The ongoing customer relationship
MindTouch: Tell us a bit about your background and experiences with customer success.
Blaisdell: I’ve been involved in the software industry for about 35 years, focusing on what happens after a sale is made to the customer.
I wrote my first operating plan for a customer success management group (although I didn’t call it that), as part of an assessment for a customer support team in the early 90’s. The recommendation wasn’t accepted by the client. They liked it, but couldn’t sell it to their own management team. The key aspect was authentic ownership of the ongoing customer relationship, and that’s still the key issue today as the new profession of Customer Success Management is evolving. To be effective, you have to have a sound strategic foundation upon which to base your group’s process, organizational structure, and technology suite.
Unfortunately, that’s missing in most companies.
I kept writing over the years about the core strategic factors involved in support, stressing that there is no economic value to anyone in a support call—that the best support call is the one that didn’t happen because it wasn’t necessary. When I got involved in SaaS in early 2006, I instantly noted that this was indeed a game-changer. No longer would a vendor take the bulk of their profits up-front at the point of sale of the software licenses. Now the profits come from an income stream, and if/when the customer leaves, the money stops. You can’t play “take the money and run” anymore, and you aren’t selling features and functions—the product is the ongoing relationship.
To be effective, you have to have a sound strategic foundation upon which to base your group’s process, organizational structure and technology suite. Unfortunately, that’s missing in most companies.
Back to support. Cloud companies simply can’t afford to offer support the old way. A couple of support calls can literally wipe out the profits from that subscription for the month. And if the customer leaves, what looked like a profitable deal can instantly turn into a dead loss for the vendor.
The best support call is the one that didn’t happen.
The basic nature of the new business model means that the burden of getting value from the software, once left almost entirely to the customer, sink or swim, has now shifted profoundly back towards the vendor. That’s been hard for the SaaS vendors to fully realize, and it’s the core of what customer success management is about.
For a long time, I was the only one writing about the practical realities of SaaS, what it meant in terms of the software company organization and process. Traditionally, customer support has had an evil reputation throughout the industry and nobody in the senior management teams wanted to talk about it. In many companies, they’d prefer not to talk about customer success either—but that’s just not an option anymore. It’s not if you’re going to build a CS team, but when.
Most successful SaaS companies now have a dedicated customer success function. And rightfully so. Businesses that get it become hooked. Customers who have experienced it become experts and advocates.
Customer success, explained
MindTouch: What is customer success? Why is it important?
Blaisdell: Customer success, by whatever name, is the organizational response to the reality I just talked about—that you can’t abandon the customer after the sale any more and leave them solely responsible for getting value out of their investment. The mission of customer success can be simply stated as: we build more value faster for the customer’s company and our own, and we can prove it! Both parties have to win in terms of measurable profitability and productivity, and to continue winning, or the relationship ends and the money stops.
To accomplish that ongoing goal, somebody in the vendor’s organization has to own it, to be authentically accountable for producing the value in the customer’s eyes. It’s not enough to just build the value—the customer has to recognize their gain or they are likely to leave. On the vendor side, the CS team has to justify their budget to their own senior management team in clear dollars and sense profitability gains, or they won’t survive.
The beginning of a true strategy for customer retention starts with that realization—that you have to move the point of engagement for the customer success team much earlier in the process.
MindTouch: Is it difficult to execute a customer success strategy? How would you get started?
Blaisdell: Yes it is—very. Virtually all customer success groups start with a basic strategic statement:
“You, you, and you — stop that customer from leaving or else.”
Hopefully, after a few such “code red” exercises, the senior management team will see that the longer you wait to address customer retention, the more it costs and the less effective you can be. The beginning of a true strategy for customer retention starts with that realization—that you have to move the point of engagement for the customer success team much earlier in the process. The logic is painfully clear; but the vision and the leadership to execute on it is a huge challenge.
Customer Success is the organizational response to the reality that you can’t abandon the customer after the sale any more and leave them solely responsible for getting value out of their investment.
Customer success begins with the design of the technology product itself, and is integral to everything afterward. The knowledge developed by the CS team needs to be effectively used so that the company’s marketing attracts the right leads, that sales closes the right deals, and the customer is smoothly brought up the value curve as quickly as possible. That takes a definite owner, a team that is chartered and measured on doing what it takes to retain and to expand the profitability relationship for both customer and company.
That’s customer success management.
The customer success vendors you should know about
MindTouch: Who are some of the customer success vendors in this space?
Blaisdell: There are a number of vendors in the space, and more are coming, driven by a clear need for customer retention tools. We’ve got a full range of marketing technology, sales force automation, customer support tools—what we need are resources specifically designed and built for customer retention and relationship expansion.
The first category of the customer success technology suite is what I would call “usage monitors” that track and report utilization of specific features of an application. This is vital knowledge, and fills a gap in the architecture of virtually every SaaS product. A customer that is not logging into your app, or who is not using key features of the product, or whose usage has declined is an at-risk customer. By the time they get around to telling you that they aren’t getting the benefit they expected, it’s probably too late for corrective action.
Disengagement, the failure to fully engage with the application and/or to continue using it, is probably the prime churn-generator of all.
By the time they get around to telling you that they aren’t getting the benefit they expected, it’s probably too late for corrective action.
Some of the usage monitors also include tracking page-reads on the company website and other content resources such as the support knowledge base.
The next category of the CSM suite might be generally called account management technology. It provides answers to a number of important questions:
- What is the general health of the account?
- Which customers are coming up for renewal?
- Which are opportunities for up-selling and cross-selling?
- What is the status of those prospective enhancements to the relationship?
In addition to the above, there are various tools for managing specific interactions with the customers and tracking their effectiveness. Beyond all of these capabilities are modules and technologies for automating responses such that the CSM doesn’t need to manually perform every function.
A customer that knows how much they are profiting from their usage of your technology is very unlikely to want to leave, and keeping customers moving up the value path is the CSM’s basic purpose.
Another category, at present unfortunately not addressed, is the management of the customer success team itself. As with any other group, the CSM manager needs to measure utilization and effectiveness of the individual resources that make up the team and keep them in proper alignment.
How do you measure customer success?
MindTouch: Once you implement customer success, how do you measure results?
Blaisdell: I’d say that the starting point ought to be the measurement of the value being gained by the customer. A customer that knows how much they are profiting from their usage of your technology is very unlikely to want to leave, and keeping customers moving up the value path is the CSM’s basic purpose.
At the same time, you need to measure the profitability increase you are delivering to your own company. Follow the money, and be prepared to prove your worth in those terms if you want to win. Customer satisfaction data may be a useful indicator in some cases, but it’s the proven increase in revenue generation and overall profitability of both parties that is the key metric.
Churn is a cumulative beast … if you were willing to spend X in customer acquisition cost, then you need to seriously consider spending Y in customer retention costs to defend that revenue stream. You can’t just take it for granted that it will somehow automatically continue on forever.
MindTouch: What happens if a business does not want to implement customer success? What will they lose?
Blaisdell: Over the long view, quite a bit.
I worked with a lender on a study wherein we modeled two companies that were exactly the same in all aspects except customer retention rate. Company A had a 95% retention rate, while Company B only had an 80% retention rate. All else, product pricing, addition of new customers, etc., was identical. After five years, the difference just in bottom-line exit valuation was $15 million dollars. Joel York, writing on his Chaotic Flow blog, did another study wherein he proved that a SaaS company could be adding customers at a fast clip right up until the day they closed the doors because the business wasn’t sustainable.
Churn is a cumulative beast—the money you lost this month to it continues to be lost in the months and years afterward. If you were willing to spend X in customer acquisition cost, then you need to seriously consider spending Y in customer retention costs to defend that revenue stream.
You can’t just take it for granted that it will somehow automatically continue on forever.
About the Interviewee: Mikael Blaisdell is the leading voice in the SaaS/Cloud sector on the strategy, process, people and technology of customer retention and increasing per-customer profitability. Drawing upon the experience of more than 30 years in the support/service field, he provides a range of consulting services for SaaS/Cloud firms of all types and sizes, especially in the area of the emerging profession and practice of Customer Success Management. Director of The Customer Success Association, Moderator of The Customer Success Management Forum on LinkedIn, and Publisher of Customer Success Magazine and The HotLine Magazine, Mikael’s vision and commentary about how companies can optimize customer relationships is read in over 140 countries around the world.
Editor’s Note: This post was originally published in 2014. Some things have changed since then! So, we’ve updated this post to be as comprehensive and accurate as possible.