Why Customer Success is going to be even more critical for start-ups during Covid
In this ‘Interview with an expert’ we discuss the importance of Customer Success in SaaS and enterprise tech businesses with Leo Ryan.
Additional comment: This interview took place before COVID-19 but is even more relevant today. In a downturn, one of the first things that companies will cut are non-essential vendors as they try to control their costs. We anticipate that potential new investors will forgive sluggish new sales growth because of the pandemic… but that any signs of customer churn will be seized upon as an indicator that the company is either providing a solution for a problem that isn’t big enough (nice to have vs must have) or that the product just isn’t good enough.
What is the context and background of what you do?
There will be a point in every SaaS company’s life where the renewals for the coming quarter are greater than top-line sales… It’s often also the moment management panic when they realise the 83% renewal rate they were previously happy about, looks suddenly rubbish. This is the crucible moment and where I focus.
The ‘top of the funnel’ considerations which drive early growth at the product-market-fit stage are not wrong by any means, but they are not the whole picture. Founders will get to a point where they need to start thinking about other KPIs like ongoing use and renewals as this becomes the lifeblood of their business.
Why customer success? What’s your pitch to a CEO on why they should care?
Customer success matters because it is one of the key drivers of a company’s valuation. It’s what their investors care about, what their employees get motivated by when looking at their options, and it’s the price the market will put on years of blood sweat and tears.
In order to value a company investors will be looking at top-line sales (new growth), the percentage of services to software (as a signal of scalability), and last but not least renewals (sustainability). Renewals are imperative to valuation so ignore this stat at your peril. Investors put high multiples on a SaaS business because of the recurring nature of the revenue. If customers are not renewing, then you go from being a 10x multiple business… to one that looks very different.
To get a new sales prospect excited in an initial pitch is one thing — but to keep them excited after they have bought is hard. Think of it as Tinder vs marriage. You can put on a show for a date or two but committing to a long-term relationship is a very different thing. If you fail to keep your customer engaged and excited, then they can walk away and find someone new.
What surprised you when you first moved into the Customer Success seat?
My last role was at the advertising agency Ogilvy&Mather, a traditional, very high touch, marketing services business. I would manage 2–3 clients, speak to them daily, and knew the names of their pets. Then I moved into enterprise SaaS and suddenly I found myself heading a team looking after 100+ customers in 12 markets.
The way we had to think about contacting, connecting with, and adding value was entirely different. What I learned was that when you have fewer client interactions it heightens the value of each one. You simply do not see the client enough to have an ‘off’ day. In meetings, you cannot waste time with small talk and schedule a follow up — you must get directly to the point. That was one of the biggest shifts for me.
What one tool is your must have for Customer Success?
What we developed for each customer, and what I think every software company needs to have, is a customer success plan. Something that explicitly states what matters as the client’s end goal, how your software delivers it, and outlines what you (both the Customer Success rep and the client) need to do to so that you get there. Once you have this, it becomes much easier to check in to see if the client is on track and getting the benefits they need from your software so they can make the vital decision to renew.
This is my favourite weapon because it is so transparent and non-negotiable. If you start the relationship with this, then renewal is par for the course.
I’m a resource constrained start-up — when do I need to start thinking about this?
At those early stages just thinking about it is enough. Customer success about adoption and retention. It is not about hiring people for the sake of it. What you need to think about as an early stage founder is what makes the product useful and sticky. What about your product becomes so vital and adds so much value to your clients’ businesses that to pull it out is retrograde. Before you hire your first salesperson and are still designing the product you can think about what would make it hurt for someone to drop the product.
That mindset of making the product indispensable, taking on user feedback (either verbal or through usage data), and weaving it into your design is the core of customer success.
If you approach your business with this mindset then when you do have a salesperson doubling as success in the early days and renewing a customer, they will find it much easier. If you only do one thing, this should be it… if you can stretch to two then put a customer success plan in place for all sales.
What about a company that has a churn problem — what remedial steps can they take?
The first thing to do is look at who is churning and review the product data on their usage. See why the client was not able to use the software and why they weren’t getting the benefits. Also look at exit notes if the client doesn’t renew. If you don’t have exit notes, then I would add that into your cancellation process at once. You have permission to ask your customer why they are not renewing (price, competitor, ease of use etc) and it becomes vital business intelligence. This is the bottom up view of the negatives.
At the top down level, you should then look at which customers have the highest product usage and why. When you compare the delta between the two this will help you to prioritise and work out what to fix.
I worked with a company recently who had a salesperson who was bursting through their quotas… but was making sales that didn’t make sense. They were almost too good at their job of convincing people to buy as they were selling value to the wrong customer base. This ended up being great in the short term, but a disaster for Customer Success and Account Management as the clients took up so much resource and eventually churned.
What are the biggest mistakes you see? Or common advice you think is wrong?
I would say that a big mistake is failing to thoughtfully segment your customers. How you segment is a determinate process and will be unique to your business — it could be size, region, use case etc. How you think about servicing these segments will be a balancing act between what is viable for the business, and what that client needs so they are getting enough value from the software to renew.
Customer Success should not be about bending over backwards for each client demand. One of the key disciplines in CS is understanding the value to the company of client segment, and then delivering the product to them in a sustainable and scalable way.
The challenge for a founder, their management team, and board is that they need to have multiple states of mind at once. The present state is the need to sign any and all customers. The future state is about being scalable. The business will not grow if you have one mega customer who defines the entire roadmap… but if they are 70% + of your revenue, you need to make sure they are incredibly happy. Some people struggle to do this, but the best boards and founders I have worked with can juggle both this current and future state.
Leo Ryan is the founder of Chairlift, a consultancy that works with B2B SaaS companies to reduce their churn and increase customer spend. He has worked in customer success and client services for over 25 years keeping some of the worlds greatest and most demanding brands satisfied, including Land Rover, Unilever, American Express, Ford, Burberry, Lego, British Airways and many more. He blogs here and is on LinkedIn here.
