The Truth about Customer Success

In February 2023, Salesforce will start their 25th year of operations.??While Salesforce did not “invent” the software-as a-service [“SaaS”] model, they have certainly proved that it works and it works well --?especially for them.??

Initially discounted as a lightweight “web tool” Salesforce is now the largest and most widely deployed enterprise software solution.[i]?With that dominance, Salesforce amplifies that the SaaS providers, and the Cloud they live on, dominate business and commerce today as the fastest growing and most compelling business solution platforms.

The Start of a Conversation about Success

However, I do not want to talk about what a great job Marc Benioff and all the good folks at Salesforce have done.?Rather, I want to start a conversation about Customer Success – the engine inside a SaaS company that not just sustains but often accelerates the growth and, yes, the?success?for a business.??That success leads to phenomenal value for employees, customers, partners, and especially for shareholders. Specifically, I want to start a dialogue about Success strategy, design, and operations:??what works, what does not work and, importantly, why do some ideas and approaches work for some companies and not for others???Issues of business model, lifecycle stage, solution type are critical to how well your success organization performs.??Getting the model wrong at any point in a company’s growth can, at best, slow growth and delay value creation.??At worst, it will destroy enterprise value and can kill the enterprise itself.

From Saas to Success:??the?Birth of the Success Organization

Software-as-a-Service did not create the idea of customer success. The notion that customers should get some kind of benefit – hopefully tangible business value -- from a service or product provided has been around a long time. Many companies have amassed fortunes by delighting customers over the years and then selling more and more to those customers and to new customers.??In fact, successful customers (also known as references) fuel growth for many companies.

However, SaaS did create the Success Organization or, more accurately, the subscription software model created the need for a Success Organization.?

It was not so long ago that the “dominant model” for enterprise software was on-premise perpetual-license solutions. Let’s call that the “Old Model.” In that model, enterprise software companies engaged in asymmetric economic warfare with their customers where all the risk fell on the customer and all the money fell into the pockets of the software company.??

The basic value proposition was as follows:??

Give us a lot of money now, then pay a bunch more for implementation and then sometime in the future, if and when it goes live, our software may help your business… or not.??If the software does not work, you probably implemented it wrong and you should pay to upgrade. Oh, and all those customizations we encouraged you to do will have to be ripped out and re-created.?Otherwise, you are rev-locked.

This is not to say that Old Model software never delivered value, but it is fair to say that there was a lot of what came to be known as?scorched earth?across the enterprise software landscape as multi-hundred million-dollar projects languished and failed.?

Fundamentally, the Old Model failed in two critical aspects of a good customer-vendor relationship:??1) Balance of risk; and 2) Alignment of economic interests.

SaaS changed all that.??Because the upfront?subscription?payment?was a fraction of the perpetual license cost (lower economic risk) and the customer had the option to cancel if the solution was a bust (lower solution risk), suddenly the software companies had a vested interest in the success of their product and by extension the success of their customer’s business (alignment of economic interests).

In subsequent articles, I will dig into the financial impacts brought about by SaaS-onomics. For now, let’s just say that SaaS radically changed the conception of “value” for both vendor and customer.??Suddenly, customers expected software companies to earn the right to continue the relationship at each subscription renewal with very much a “what have you done for me lately” attitude.??The equation was simple:??if value received lags price paid, cancel.

The world change for software vendors was equally stark in terms of how companies think of the economic value of a customer.??Prior to SaaS, selling software was often about elephant hunting.??Find a company, get as much money up front as possible and move on. Even considering support fees and the chance of an upgrade sometime in the future, new customers represented a windfall or jackpot with over 75% of the economic present value of a customer realized on the day the contract was signed.

The subscription model transformed a new customer from a windfall gain to a?potential?annuity.??Suddenly, the future payments from a customer were worth way more than the current year’s payment.??Even using very conservative assumptions for the time value of money (10%) and a very high rate of annual churn (25%), the first year of payment from a customer is only one-third of the lifetime value of that customer.

In the SaaS world, suddenly the business plan changed.??Business success was no longer about just capturing customers. Rather success and growth depended on selling a vision of business value and then actually delivering on that vision – delivering the value -- over and over again. This was profoundly good for customers and, in the long run, could be good for software vendors in a kind of “no pain, no gain” mindset.

Meet the Customer Success Manager

If customer success is so important, then reason would hold that the customer success manager [“CSM”] is pretty important too. But what is the point of customer success management and what does a CSM really do?[ii]?What value do CSMs deliver and how should you measure it???What it their goal???I think the answer to this question is straight forward.??

The GOAL of a CSM is to maximize the lifetime value of a customer

Expressed in terms of cumulative annual recurring revenue (or profit contribution), more value for longer is always better.??Lots of things contribute to lifetime value including churn, upsells, and cost of delivery.??However, at the end of the day the math is simple:??more is better. The goal is clear.

The point of “The Truth about Customer Success” is to take a stab at answering the question “how do you do that?”??What is the work???What is the right model for my company? There are lots of examples of CSM roles stretching across the entire customer lifecycle including:??pre-sales, implementation, training, process change, change management, marketing, and support. In some cases, the same model can be wildly successful at one company and a floundering disaster for another company. Some of that is execution error.??Some of that is applying the “right model” to the wrong company or at least at the wrong point in the company’s journey. So, the question remains, what should a leader do right now for her/his company?

I hope to start an active and animated dialogue about what works and why. Rather than create an inventory of anecdotes, my hope is to make this a resource that will help leaders?design for success?and implement and manage effectively.??Examples are illustrative and can be inspiring, but design principles supported by robust business models and metrics are scalable and repeatable.

I hope you will join me in a lively and engaging discussion.

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Rob Foster is a mentor and advisor to executives across the high tech industry. He helps companies achieve unfair advantage by developing and executing innovative strategies which in turn dramatically increase enterprise valuations. He is the founder and CEO of R Foster & Associates, LLC and the Co-Founder and Chief Operating Officer of The Silicon Valley Laboratory.

[i]?Evans, Bob.??“Salesforce Leapfrogs SAP as World’s Largest Enterprise-Apps Vendor.”??Acceleration Economy, Aug. 29, 2022,?https://accelerationeconomy.com/cloud-wars/salesforce-leapfrogs-sap-as-worlds-largest-enterprise-apps-vendor/.

[ii]?On May 28, 2018, Vinod Kasturi published in LinkedIn an excellent article on the role of the customer success manager. Originally titled something along the lines of “CSM:??What the F*** is That?” Vinod published “What is Customer Success Management Anyway?” and defined the three core responsibilities of a CSM:??1) Manage retention; 2) Drive expansion; and 3) Create referenceable Customers.??This series draws from and builds on Vinod’s excellent work.