The 3 Deadly Fallacies of SaaS Renewal
The conventional model of SaaS/B2B customer renewal is just plain wrong. Getting it right is the key to effortless customer success.
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
Mark Twain
The conventional theory about SaaS customer success goes something like this:
- Your solution creates value for the customer.
- The value drives their success.
- Their Success leads them to renew their subscription.
This is the chain of causality in the conventional thinking about SaaS customer success. Here’s how I drew it in my notebook:
I know this looks like perfectly sound logic, but it’s not. In fact, it’s a disaster for customer success, because every part of this theory is actually dead wrong. There are some gaping holes here, and until you fill them in you will continue to struggle to achieve the results your company needs. Let me explain…
Deadly Fallacy #1:
SOLUTION => VALUE
Truth: Your solution on it’s own will not create significant value unless the customer also changes how they work.
It’s a simple as that. I’ve found this truth can be difficult for many people to grok, particularly in technology companies. Yet, pretty much everyone has experienced it. I’m talking about those customers who implement your technology but get no results, lose interest, and end up cancelling. These are the times you’ve been tempted to say, “They didn’t do it right!” And, actually you’d be onto something, because this hints at the true problem.
Customers who achieve phenomenal results have invariably adapted their processes to take advantage of the way the solution works. This is why it can seem so random which customers succeed and which don’t. If you leave it entirely to the customer to understand and make the essential process changes you’ll naturally get highly variable results.
The solution is simple: take ownership of your customers’ business process change. If you are not crystal clear on how customers need to change their business process, they won’t be either. As I’ve said elsewhere, the enterprise is hard because organizational change is hard. So, an essential role of the customer success manager is to be the agent of the customer’s business process change.
And we won’t be effective if we don’t know how the customer does their work, and more importantly, why they do it that way. Digging-in and doing some deep learning around their processes is not optional.
Reality:
SOLUTION + PROCESS CHANGE => VALUE
Deadly Fallacy #2:
VALUE => SUCCESS
Truth: The value your solution creates must align with the customer’s definition of success.
The next fallacy is that the value your solution creates will automatically make your customer successful. Don’t get me wrong, it’s more likely to be true than not. After all, they signed-up because they saw a clear link to their success. But taking the link is for granted can lead to problems. It’s another major cause of the variability in customer outcomes.
The most common reason why this link gets broken is simply the failure to truly understand the customer’s ultimate vision for their success.
We come to every engagement with so many prior expectations as to how the value drives success, that we often fail to examine and understand the customer’s unique way of thinking about it.
My experience is that there is much more variability in the way customers frame their success then we think, both in what they hope to achieve, and also the vocabulary they use.
The solution is to engage in a process of deep learning about how every customer uniquely defines success. Only then can the customer success manager work to assure the value created aligns to drive the customer’s vision of success.
There are many different things that may need to be done, but the most common missing ingredient is measuring and materializing the link between the solution value and the impact on their success.
Reality:
VALUE + ALIGNMENT => SUCCESS
Deadly Fallacy #3:
SUCCESS => RENEWAL
Truth: If you want to ensure the renewal, you must continually increase the customer’s success.
Almost nothing in customer success is more confusing or frustrating than having one of your successful customers unexpectedly cancel their contract. Getting blind-sided like this has happened to every SaaS company. Sometimes there’s an obvious reason, such as an abrupt change in the customer’s leadership, or they got acquired. But more often it’s not clear what went wrong.
The third fallacy is the idea that driving their success will be enough. This is something I go into detail elsewhere. But suffice it to say, over time, delivering the same value has a diminishing impact relative to the customer’s evolving needs, perceptions, and alternatives.
That’s why value must be a dynamic thing. For every renewal there must be a story about how you are making an increasing impact on the customer’s success. I call this dynamic nature of success, “client velocity”.
And it’s the reason for another counter-intuitive truth of customer success in the enterprise…
Truth: Expanding the account is actually a cause of renewal, rather than it’s outcome.
You’ve probably heard it before: “First let’s secure the renewal, then we’ll work on expanding the account.” This way of thinking is the essence of this fallacy. Experience has taught me that in order to continue to renew year after year, customers need to have a vision of how your solution’s impact on their success is expanding. If the account isn’t expanding, it’s dying.
That’s why you have to first secure the expansion, and the renewal will be a foregone conclusion.
Reality:
SUCCESS + EXPANSION => RENEWAL
The REAL Causal Chain of Customer Success
So, here’s how I see the real chain of causality in customer success…
Think of it this way…
All the factors in red above (process change, alignment, and expansion) are the main activities where customer success managers should focus their efforts.
To achieve phenomenal results:
- Drive key process changes in the customer.
2. Ensure value is aligned with their success, and the impact is measured and materialized.
3. Continually find ways to expand your leverage against the customer’s success.
This is the formula.
But wait, what about adoption? How is it possible that I haven’t mentioned driving adoption? Isn’t that a big part of customer success? Well, that’s what most people think, but it’s actually the heart of one more deadly fallacy.
Bonus Fallacy:
ADOPTION => SUCCESS
Truth: Broad adoption inside the customer is the outcome of success rather than the cause.
It’s a nearly universal belief that getting the customer’s employees to use (“adopt”) the solution is a primary driver of customer success. This is why encouraging adoption is so often a top priority, and why there’s so much focus on training the end-users.
This belief is understandable because we clearly see that our most successful customers always have high adoption. The two obviously go together. But the important question is: which causes which?
There’s no doubt that customers have to adopt the solution at some level to even know if it’s working. Clearly, zero adoption is death. But, what we want to know is: What causes adoption to spread broadly in some customers from that first little bit to a lot?
The answer: success drives adoption. When all the elements of the causal chain lock into perfect alignment, a magic thing happens: your solution goes viral inside the customer organization. This is because there is a reinforcing loop where success drives adoption which produces more value which drives more success, and so on. It looks like this…
Achieving this virtuous circle is the outcome of getting all the elements in the causal chain into alignment.
Reality:
SUCCESS => ADOPTION
That’s the formula for customer success. If any of the elements are missing or out of alignment, driving adoption can feel like pushing a piece of string. You’re never going to get anywhere. When all the elements are there and aligned, success, adoption, expansion, and renewal seem to take on an energy of their own.
You’ve almost certainly had this experience: Some customers just arrive ready to make the necessary business process changes and their vision of success already aligns perfectly with the solution value. These are the effortless successes.
But in the majority of cases, you need to work deliberately to ensure the pieces are all in place and aligned. That’s why customer success is so important in SaaS.
Where to go from here?
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