XaaS Renewals: Who’s Got the Monkey?
Once you get it up and running in full production, the XaaS business model is a beautiful thing. Each fiscal year you start with a greater proportion of your upcoming annual revenue target already booked-provided, that is, that your customers don’t churn.
Aye, there’s the rub!
Which brings us to the topic of XaaS renewals, specifically B2B subscription renewals. There are two kinds of enterprises that are struggling with this issue at present. The first is an XaaS-from-birth company that, having scaled to material size through brisk double-digit sales growth, is now seeing its core business maturing, with growth rates coming down to single digits. In the prior era, although churn was always on the radar, rapid growth could speed one past it, something like a hydrofoil can keep a leaky hull out of the water. But when you settle back down, those leaks become increasingly concerning. It’s time to focus on making the boat more seaworthy.
The other kind of enterprise under the gun is the mature technology company converting from a traditional license and maintenance to an XaaS business model. Here there is no history of concern about churn because in a product model it is the customer, not the vendor, who bears the risks of lack of adoption or failure to achieve intended business outcomes from the purchase. In the XaaS model, by contrast, these both become shared risks-that’s why customers like it so much-and either one can trigger a churn problem big enough to stop the whole XaaS conversion in its tracks. Nothing worse than being in the middle of a big J-curve and blowing out your back tire!
So, in these two kinds of companies getting to best practices on XaaS renewals is a top priority, and frankly, for any other company leveraging a subscription business model it should always get serious attention-it is just too central to the game to ignore. But here is the real rub: No one is really sure what these best practices should be.
To begin with, whose job is this?
Your first thought might be, well, why isn’t it the account manager’s job? And indeed, most account managers do expect to get the compensation rewards from renewals. For complex negotiated renewals, this makes for a good match-it is what account managers are good at. But for straightforward renewals, where process trumps talent, it is not a good fit. Many account managers simply will not give the process the time and attention it needs. Moreover, even when they do, it is not a good use of their skill set-sort of like asking a hedge fund manager to pick up dimes in front of a steam roller. You want to find people and processes more suited to the work.
Who are the process oriented teams to look to? Well there is Customer Support, a function which typically manages the maintenance relationship. Why wouldn’t it manage the renewals as well, given the one source of revenue is replacing the other? The problem here is that this function is not customer-focused, being chartered instead to make sure the products stay up and running, thereby organizing its efforts around a case management system rather than a customer system of record. It has great knowledge of the product but no context for understanding the customer’s business issues. Nor do these reps have relationships outside the technical staff in the customer organization. So, they are not a good fit when it comes time to get a contract renewed.
How about Customer Service? Well, they do talk to business end users, and their job is highly process-driven as well, typically by “smart scripts.” How about focusing some of those scripts on the renewals process? The problem here is the reps are not knowledgeable enough about the products and services being renewed and the use cases that justify continued investment, nor would their other workflows help them to become so. Moreover, in today’s world the customer service function, like as not, has already been outsourced to overseas call centers or is in the process of being transformed into bot-assisted self-service. So again, not a good fit.
How about Sales Development Reps? Here we are definitely getting closer to the profile of the kind of talent we want-sales oriented and process oriented-but SDRs are needed for what they are already chartered to do, namely developing the next cohort of prospects. Moreover, their whole focus is prospect oriented, not customer oriented, so they haven’t accumulated any of the relationships or war stories that help guide the renewals conversation. In other words, they have the athletic ability to do this work but not the game-time experience. To put them on renewals is to drop them into the middle of a basketball game wearing their soccer gear.
Okay, well then, how about Customer Success Management? This is, indeed, the best fit. The whole purpose of the customer success function is to increase consumption and reduce churn. So, it makes total sense for it to own sales renewals, that being the hard metric that best equates to its performance. But there are still challenges nonetheless.
For starters, traditional companies often do not have a customer success management function, or they are just spinning one up, drawing talent from wherever they can-training, professional services, consulting. In the spirit of crawl/walk/run, their first priority is to improve end user adoption, not renew subscriptions. For them it is just too soon. In established XaaS organizations, by contrast, it actually is time for customer success managers to make this transition, but here they may be held back by a track record of deliberately not selling, a way of signaling their primary intent is to make customers successful with what they have already purchased. They have to be able to reframe their relationships without disrupting them.
That’s what I think. What do you think?
Still, challenging though they may be, these are solvable problems. The key then is to settle in on a good set of best practices for the renewals playbook. With that in mind, let me close with a few suggestions:
- Renewals is a process, not an event. Manage it accordingly, investing in systems rather than programs or spiffs.
- Complex negotiations should be escalated to account management; straightforward renewals should not. Sales compensation should realign accordingly. CSRs should have a number to make and should be paid for making it.
- That said, the core focus of customer success management is still on adoption, not sales. Renewals should be treated as a “season” in the life cycle of customer success management. It should feel like an integrated and natural step, not an exogenous event. That means that CSR compensation should prioritize Customer Health Scores higher than renewals revenues.
- It is a bridge too far to focus CSRs on upsell and cross-sell. If such things occur opportunistically in the context of making the customer more successful, so be it, but there should be no compensation as such. Making this a priority could indeed erode the relationship of trust that is core to the function, thereby defeating its primary purpose.
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Geoffrey Moore | Zone to Win Book | Geoffrey Moore Twitter | Geoffrey Moore YouTube
Originally published at https://www.linkedin.com on November 6, 2017.
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The opinions expressed here represent those of the author and not necessarily the views of Wildcat Venture Partners.
