About Customer Success, it’s importance and the reactive vs proactive approach…

Nowadays we can recognize the function of Customer Success in every itself-respecting organization… from tech start-ups to multinationals, from ICT to banking companies. Led by the developments in the ‘ICT SaaS’ arena, Customer Success has been professionalizing very fast since 8 years! In this article I will elaborate on Customer Success and the reason why it is growing so rapidly in importance. And I will introduce the two schools in Customer Success: the reactive and proactive one.

Peter Spaans has been working in sales for 23 years. Next to sales, he has been training students and employees on the field of communication and the 4 personality types. This article is part of a series on Sales, Marketing and Customer Success...

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Most business people are aware of the importance of ‘sales’. Why? Because earning money (and making profits) is one of the primary reasons to prove that your organization is sound and healthy. And with money (profit) you can develope (grow) the company. But sales is not enough anymore! In the current, fast-pacing business environment it is getting more and more important to retain customers (step 1) and to make customers successful (step 2) (or the other way around as I will discuss later).

The daily practice

So what is the daily practice for a lot of companies…? There is a very disciplined and often aggressive sales organization focused on reaching (and over-scoring) their targets. Parameters are set for the number of calls, visits, presentations, proposals and closed deals. The targets are often increased every year by at least 10%. This to be guaranteed that enough money will be made!

The next step - after the sale has been closed – is that the new customer is going to work with the product or service. So here comes the ‘delivery’ and ‘on-boarding’. Depending on what has been sold, users have to be trained, new workflows and software have to be implemented, and a new ‘working culture’ has to be created. This to make sure that the customer will realize the ROI and the promised successes. For most companies in B2B this is a project or even a program… depending on the scale. But every time an important phase.

Very often, and this is why ‘sales’ still has a questionable reputation for a lot of people*, too much has been promised under pressure of closing the deal… resulting in that customer expectations are not met (or difficult to meet), functionality is not working as it was stated, or the ‘world has already changed in the meantime’ (the latter happens a lot with hard- and software)**.

What but what has caused Customer Success to become so important over the past few years?

The way of doing business

I started marketing and selling software in 1996. Back at that time I was responsible for the sales of the killer-app Rational Rose, a CASE-tool (CASE stands for ‘computer-aided software engineering’). At that time it was common practice that you paid for software (although you never actually ‘owned’ it) And… you paid a year in advance whether or not you would be using the software, or whether you would be satisfied with the software.

For vendors this is very interesting business proposition, as the customer pays in advance and the vendor has 12 months of time to improve short-comings, bugs etc.  

At this moment the most popular software is free of charge or sold as a service: most probably when you are paying for software, it is 'software-as-a-service', or SaaS , and the difference nowadays is that it has a more customer friendly business model. You pay for what you use, and most of the time you can cancel the subscription within a month.

This changed the sales arena dramatically. Unhappy of unsuccessful customers can stop working with the service immediately, cancel the contract and ‘shop elsewhere’… So here is where Customer Success is rushing in!

Why is Customer Success important?

Because it will make you earn a lot more money! Whether you will be checking reports from KPMG, the Harvard Business School or Forrester Research (and there are also many others), they will all state that ‘it will cost 5 times more to acquire new customers than it does to keep the existing ones’.

I repeat…??

It will cost 5 times more to acquire new customers than it does to keep the existing ones.

And, following the claim from the Harvard Business School, a 5% increase in customer retention rates results in 25% - 95% increase of profits.

The most Significant Revenue Driver

What drives revenue? You and I can discuss all kinds of revenue drivers… we can discuss mergers and acquisitions, technological advancements, pricing and promotional strategies, product innovations etc. But the 2 most significant revenue drivers are according to the KPMG study:

1. Customer Retention (52%)
2. Customer Acquisition (45%)

(And for your interest, mergers and acquisitions ‘only’ account for 11% in this study.)

The figures & Churn

The figures speak clearly! And that is also why more and more companies are heading to: reducing (or the retention of) Churn and creating the Customer Success function within their organization to reduce Churn. Churn in this context is the number of customers who leave your company during a given time period.

Two schools

Earlier I mentioned the old school sales approach versus the new school sales approach. In one of the upcoming articles I will discuss these sales approaches and Daniel Pink’s bestseller book on sales. Regarding Customer Success -this article- I want to address the two schools within Customer Success.

Reactive vs. proactive

Most companies are only focused on reducing the number of Churn. Although this is very important and you can earn a lot of money (as you have read earlier), this is a reactive approach. The Customer Success reps (or very often, called the Retention reps) will engage with the customer AFTER there are (signs of) license cancellations and (technical or commercial) problems. These reps will then ‘challenge’ the customer’s decision and point out that the license reduction will cause a reduction of discounts given in earlier contract negotiations. Or point out that the competitor’s proposal is not that solid/good/commercially attractive etc.

The more PROACTIVE school is where the Customer Success representative is reaching out to the customer and engages with the customer with the purpose of:

1. discovering how things are working out for the customer;
2. identifying the (unreported) complaints and bottlenecks which are causing the customer not (yet) te be working as they potentially can work;
3. identifying the company's culture and the level of professionalism;
4. identifying whether employees are trained well and enough;
5. challenging opinions and attitudes that are preventing that users are to become successfull.

Business example

Over the past years working for integrators like Atos and Capgemini, and also smaller tech (start-up) companies I have spokenwith a lot CFO’s, CIO’s, business unit managers (BUM’s), IT managers, business stakeholders, technical developers and owners of small and medium sized business (SMB’s).

Regarding a BUM, there was a situation in which his BU (14 employees) lost it’s largest customer, taking away 45% of the BU’s turnover. His BU was one of 4 BU’s within the group. He immediately received a ‘priority’ message from his CFO stating that he will have to fire most of his BU’s team ‘if the situation would not be soon corrected’. Implying that he would need to cut costs immediately and ‘replace’ the lost customer for a new paying one.

• But he also had serious discussions within his team about the software they are using having the team being divided into 2 camps.
• Resulting in one of our competitors making use of this situation and boldly state that they ‘can do the same for 30% less in price’. (And yes, I would have done the same if I were the sales of the competing vendor. And yes, I would have also send this message directly to the CFO…??).
• And experiencing a lot of hiccups with the software, resulting in complaints about the software from business users as well as the technicians.
• Having no sales support from the sales and marketing departments as their business was not understood and not ‘fancy & interesting’ to sell for the sales reps… Which were the reasons that there were no leads in the sales pipeline for his BU.

Reactive versus proactive approach

Most companies and their retention reps would challenge, delay and discuss only one of the above listed challenges. Their primary interest would be: reducing Churn… meaning that they would try to NOT to have to reduce the number of licenses which this customer is using… despite the fact that the customer’s need to reduce spend is only one of the 7 issues preventing him to be successful.

The proactive approach, if not done earlier, would immediately focus on identifying all the above mentioned issues, address and solve them (within the possibilities you have available) and have the customer become successful. This would be the work for the 'real’ Customer Success representative.

In this case, the steps to have the customer become successful again, implied:

1. having the technical issues solved as soon as possible;
2. build trust between their and our tech team;
3. create direct communication lines between their and our team;
4. create a ‘quick problem solving’ routine for future issues, instead of letting it escalate;
5. train their sales and marketing departments in understanding our software and the business value for their customers... And how to sell it.
6. Help the BUM understand that he needs his sales and marketing department for his success, and they should attend the training sessions;
7. advice on new licenses structures which can be more easily adapted to specific needs;
8. reach out to their C-level and connect them with our higher level executives for trust, commitment and engagement.

This result was that the BU manager stated (he emailed this quote without me asking for it) that he actually was happy with this ‘hiccup’! And that he now experienced a closer bond between his and our organization.

In my opinion this is how Customer Success should approach and engage with customers and why the Customer Success function is becoming more and more important.

* This reputation is primarly based upon the ‘old school’ sales approach which started in the 50’s of the last century, and not the new school which we are experiencing nowadays, more and more.  

** This is definitely not always the blame of the vendor and sales department as a lot of customers have a distorted view on their level of professionalism.

The title from this article comes from the movie ‘Jerry Maquire’ with Tom Cruise, Renee Zellweger and Cuba Gooding Jr., and the scene where Cuba is bouncing on a hiphop beat and shouting the words ‘SHOW ME THE MONEY’.