Customer Success — The Dos and Don’ts

Customer Success is frequently an afterthought. It should be anything but, especially for enterprise software companies. However, unlike product or sales, customer success receives far less attention than it deserves and is thrust into the spotlight only when something goes wrong, i.e. a customer churns.

So, at our annual Madrona CEO Summit last week, we decided to host a breakout session on best practices for customer success at enterprise software companies. We were fortunate that we have some of the best practitioners of customer success in our portfolio companies — Ratan Tipirneni from Tigera, Oliver Sharp from HighSpot, and Stephen Branstetter from SmartSheet — to lead the discussion.

Here are some of the takeaways.

When is it too early to have a Customer Success team?

The short answer is: never. In the early stages, customer success is all about learning: learning about the product, learning about the customer, learning about how the customer is using the product, learning about what is working for the customer, and more importantly, what is not. In the process, that learning helps build a better product and deliver better value to customers.

This is the process that Highspot used as they built the product and which led to no churn in the past 12 months amidst strong customer growth.

Because of the focus on learning at early stages, it is better to not hold the customer success team to any financial metric (revenue churn, etc.) just yet. Instead, CSAT (Customer Satisfaction) and NPS (Net Promoter Score) are much better metrics to track at early stages. However, NPS reflects the customer’s intent as opposed to actual behavior and hence, there is some debate among customer success leaders regarding its value in monitoring customer success.

As the business matures, the focus of customer success shifts more towards account management, customer support and satisfaction, and making sure customers are using and (very importantly) deriving value out of the product. Tracking financial metrics now starts making more sense — more on that below.

So, what is the playbook for customer success?

Channeling my inner Ratan here, here are the key elements of a successful customer success playbook:

• On-boarding and deployment. Great customer success starts with great on-boarding experience. Initial impressions, positive or negative, go a long way — never lose sight of that. Once a deal is closed, spare no effort to make sure that the customer, large or small, feels special.
• Training. Almost every enterprise software company sells a product that requires some training for its users. So, invest in training and training materials. Make sure that, when a customer gets stuck, s/he has easy access to resources for help — online FAQs, user groups, customer support team, etc. Often, enterprise customers are happy to pay for training, which creates additional revenue opportunities.
• Prompt problem resolution. Nothing satisfies a customer more than speedy resolution of the problem s/he is facing. While that might not be always possible, make sure to keep the customer posted at all times. Slack channels are excellent ways to communicate with and make a customer feel valued. Finally, invest in tools and process to institutionalize knowledge to both resolve and prevent customer issues.
• Usage. Make sure to track usage of your product. A customer who does not use a product will most likely churn come renewal time. Gather enough data to understand who, how, and when is using your product so that you can proactively reach out to the customers who are not and do something about it.
• Value realization. Beyond usage, the value a customer actually derives is a key metric to track since it more directly points to the success or lack thereof of your product. For example, if you sell a storage system then your customer might be using your product every day, even every hour, but s/he might still hate it if the storage system is slow. Tracking just usage data will surely paint a completely misleading picture here.
• Prevention. There is no better way to wow your customer than to help them avoid a problem that you could see coming before they did. If your product permits — if not, you must consider making it do so — collect data from your customer’s sessions to predict a failure and act proactively.
• Focus, Focus, Focus. Make sure that your customer success team remains focused on satisfying your customers. If your CS team is spending too much time in training, create a separate training team. If you find your CS team playing solution architects, create a separate solutions team. If you find your CS team doing consulting, … you get the idea. The bottom line is that your CS team must stay laser focused on helping your customers succeed and nothing else. Smarsheet’s customer success team has executed that playbook better than most and, in the process, has created multiple new business opportunities for the company.

How to measure the effectiveness of customer success?

Like anything else in business (or life), if we want to improve it, we must measure it. Here are some of the most common metrics that businesses use to track customer success:

• Customer Satisfaction Score (CSAT). CSAT measures a customer’s satisfaction with a product or a service asking a variation of “How would you rate your overall satisfaction with the service you received?” This metric captures the “here and now” reaction of a user that can help in pinpointing where the specific customer pain points might be.
• Net Promoter Score (NPS). NPS, in contrast to CSAT, measures customer loyalty based on a customers’ perception of their end-to-end customer journey. It measures a customer’s intent (whether they would recommend the product or not), but not actual behavior.
• Customer interviews. Measuring CSAT or NPS alone, however, won’t tell you anything about why customers are detractors or promoters (NPS), or why they are dissatisfied or satisfied with the product/service (CSAT). To understand what is really contributing to the increase/decrease of the scores, you must supplement the scores with qualitative research — customer interviews, focus groups, user testing, etc. Such additional data will ensure that you have actionable outcomes to address any issues uncovered by the change in scores.
• Gross revenue churn. As the business matures, tracking financial metrics becomes more appropriate and valuable (in addition to NPS and CSAT). Gross revenue churn, a commonly used churn metric, is the percentage of your revenue that is lost during a period due to your customers cancelling or downgrading.
• Net revenue churn is the percentage of revenue you have lost from existing customers in a period, accounting for both cancellations and expansions. It is the difference of revenue lost from subscription churn minus new revenue from existing customers (i.e. expansions). While this is a popular metric to monitor the effectiveness of customer success, it offsets revenue churned by expansions and reactivations and paints a more positive picture.
• Net dollar retention. This is a more recent metric increasingly used to monitor the health of SaaS businesses. The idea being that, if a company acquires $100 of revenue today, it is valuable to track what that will be worth over time. The best companies are usually able to show that $100 from a customer cohort in year 1 will grow to $110 or more by year 2. For instance, in case of Smartsheet, a Madrona portfolio company, that number is $131, i.e., a 131% net dollar retention. Even for a business with a rapidly growing top line (say ARR), a net dollar retention that is meaningfully below 100% will almost always catch up and eventually slow the top line growth.

Two things before we move on from metrics. First, not every metric makes sense for every business. So, pick and choose wisely. Second, trend lines are often much more telling than absolute scores. Any significant increase or decrease of scores should be supplemented by qualitative measures like customer interviews.

How to hire for customer success?

Now that we know the why/when/how of customer success, the question that remains is who: who we should hire to build a world-class customer success team. Turns out that the best customer success leaders focus more on hiring product people and former entrepreneurs (than people who have had a career in customer support) as they are wired to think about “growing the business.” Additionally, some of the best companies have one of their founders leading customer success or at least have direct reporting to.

Bottom line …

Customer success is a critical function of any enterprise software company, at par with product and sales. But, too many CEOs overlook that. Customer success is also a cultural thing — the focus on helping customers succeed must be a company-wide initiative and should be deeply rooted in the DNA of a company. Finally, customer success leaders and teams must be fully empowered as they, and they alone, are best positioned to represent the voice of customers within a company. Customer success can be a really strategic weapon in building world-class enterprise software companies. The best CEOs get that.