Updated August 1, 2015 in response to this tweet from Lincoln Murphy.
In SaaS, Customer Success is Literally Life or Death
As you may already know, SaaS business success requires a growing amount of recurring revenue. Steady and predictable revenue, most frequently measured as Monthly Recurring Revenue (MRR), is a business asset that makes a liquidity “event” possible.
Once you launch a product, you have to gain and retain clients.
As a subscription business, in order for MRR to grow every single month, you have to rely on a stable of paying clients who will continue paying. That way, you can go out to recruit more subscribers.
You need to make sure you’re gaining more new client revenue than the revenue you’re losing from clients leaving. Andreessen Horowitz describes this issue of churn:
It’s the leaky bucket problem: as long as the hole (churn) is small, you can keep the bucket full by adding more water (customers) than is draining out.
SaaS businesses are realizing more and more that the customer’s experience after the sale–including implementations, onboarding, training, satisfaction with the product itself, support issues, and more–directly impact the likelihood of the customer renewing.
Therefore, that customer experience impacts revenue from other customers as well:
all the goodwill customer teams deliver comes back in the form of renewals, upsells, and cross-sells.
SaaS companies investing more in “Customer Success” are doing so for good reason. The survival of the business depends on Customer Success. Treat your Customer Success Managers well!
Product Management has Long Been in the Customer Success Business
The very areas that are the focus of Customer Success evangelists–including onboarding, training, implementations, and support–overlap the areas that marketing and product teams have long referred to under the banner of “Whole Product.”
Here’s an analogy I like to use: Buyers aren’t buying a quarter inch drill. Nor are they buying a quarter inch hole. They are buying a quarter inch hole successfully drilled in their wall, with the resulting mess cleaned up.
CleverPM’s New Year’s resolution post reminded me of this topic recently:
[A]ny good Product Manager needs to understand the totality of what your customers experience and derive value from — from the very beginning of their engagement with your company, all the way through to off-boarding and closing of accounts…..Part of our job as Product Managers is to ensure that the customer is receiving the optimum experience possible, and a bad on-boarding experience is just as harmful to the overall success of the company as a bad user experience within the product itself.
Helping customers succeed with a product may be of increasing interest within SaaS businesses, but it is standard operating procedure to product and marketing professionals.
Regis McKenna, Ted Leavitt and Phillip Kotler all contributed to the concept of “total product” or “whole product” from the 1960s through the 1980s. At the root is the “core product,” which is the primary area of focus of the new product development process.
In order for that core product to solve the buyer’s need, however, there are a number of related needs that must be met as well. For example, literally knowing how to use the product. Or, in the case of making a purchase at a retail store, having available credit to make the purchase.
Figure: Levels of Product
In Crossing the Chasm, Geoffrey Moore pays significant attention to “whole product.” His thesis is that the recipe for product success is to develop a compelling solution for the early adopters in a single market segment, and gain wider success by having those early adopters act as references among the early majority.
Early adopters will buy a product based on its potential. Early majority prospects will only buy a complete product, and only if enough other people speak well of the offering. To cross the chasm, you need to think “whole product.”
What Exactly Is “Customer Success”?
Since Customer Success is an evolving field (sound familiar?) I did some research to find a comprehensive definition of the term. This definition by Customer Success expert Lincoln Murphy at Sixteen Ventures is expansive and thorough:
A proactive, holistic, and organization-level approach that leverages technology and real-enough-time visibility into customer health (not just usage data, but any contextual inputs) to ensure your customers – including those who directly use (users, administrators, etc.) and those who benefit from the use of your product – continually and increasingly receive value from your product over the course of their lifetime as a customer.
This is followed by a list of 17(!) items and three bonus items that fall under the Customer Success umbrella:
- Customer Development
- Customer Acquisition
- Sales Process Engagement
- Metering / Billing / Payment Process
- Customer and User On-boarding
- Initial Engagement
- Post-Acquisition Follow-up
- Functional Support
- Technical Support
- Customer Feedback Loop
- Ongoing Engagement
- Customer Advocacy
- Customer Intelligence
- Customer Expansion
- Customer Renewal
- Customer Retention
- Post-Churn Follow-up
- Bonus: Customer Success Transgenesis
- Bonus: Customer Success At Your Expense Hurts Everyone
- Bonus: Let’s Improve your SaaS Customer Success
Appropriately, the first items in Murphy’s list address (1) developing customers by understanding your potential customers’ top problems and whether your product (concept) will solve them, and (2) acquiring the right customers.
Many of the subsequent items–the sales process, onboarding, functional and technical support, ongoing engagement–are ineffective if you’ve brought on a customer who is not a good fit for your product.
“The seeds of churn are often planted early… over-promising in your marketing or during the sales cycle can be the culprit.”
Perhaps it’s not over-promising, but rather trying to be too many things to too many market segments, and not serving any one of them particularly well.
In a two or three person startup, the founder and his or her small team is responsible for everything in this list. But at scale, a Product executive is often brought in to drive alignment between product and sales. That early part of the formula is what Product specializes in.
In a pre-product startup, the Founder is responsible for customer development and acquisition. Although it’s tempting to work hard to win customers to grow revenue numbers, acquiring the wrong customers leads to scattershot demands on the product with which development can’t keep up, and to churn. Neither one is good for long term success.
When building or improving a Customer Success function around an existing product offering, the fundamental match between the product and completed customer development efforts has already been established. Attention should be focused on customer acquisition to ensure the right expectations are set pre-sale and that the right customers are acquired.
How many customer success managers do you employ per product manager? Per product?
SaaS Startups Evolve Beyond “Minimum”
In the new world of SaaS, none of the old rules apply. Until they do. Several forces are bringing these age-old marketing and product disciplines to SaaS companies.
Venture capitalist Tomasz Tunguz summarizes the impact delivery model and sales process have on the importance of customer success:
In traditional enterprise sales…the customer pay[s] an annual service fee, often 15-25% of the price of the software….In contrast, SaaS businesses face renewal sales processes constantly….
[T]he as-a-Service delivery model empowers a SaaS company to initially develop a Minimum Viable Product, and iterate and improve the product over time. To ensure customers maximize the value from a constantly evolving product, a startup must provide on-going training and persistent education in order to achieve engagement and true product/market fit.
In early stage startups still trying to find product/market fit, focus is all about the product. During this stage, companies do things that don’t scale, including recruiting early users by hustling rather than waiting for them to walk in the front door, entering data by hand, etc.
But, this doesn’t scale. These users are the very definition of early adopters. Those emotionally invested in solving the problem your product addresses are closest to your ideal customer.
Ideal customers receiving big discounts, or who you personally charm into using your product, may need a lot of hand holding in the beginning. This hand holding may involve getting them implemented on your software, importing data for your customer, giving them one-on-one training sessions, exporting data into a format some other system of theirs requires, and so on.
Startups do these things by hand in the beginning so their engineering resources can focus on the core product; in the early days, they’re working with early adopters whose expected experience is less demanding than that of the majority.
But in order to scale past the early adopters, and gain traction among the market at large, the product has to address the more demanding expected experience systematically.
Achieving Balance On Your Product Roadmap
The Product Management function is charged with P&L responsibility, or at least revenue responsibility, on the company’s product(s) in the marketplace. Often this requires focus on which significant market problems are most pressing within the client base and the target market.
Like in most businesses, Product Management in SaaS startups (often handled by the founders) that are in growth mode has to consider allocating development capacity to address needs of the other areas of the business: support, implementations, sales engineering. How long can you get away with doing things by hand?
Expectation management is easier with established guidelines that indicate what percentage of development capacity will typically be allocated to what kind of work. Often these percentages have to evolve over time. (The longer a product is in market, often the more time has to be allocated to maintenance.) For example:
- 75% new feature work
- 20% maintenance
- 5% easing the implementations load
If you know that your capacity is 20 “story points” of work per sprint, you should project feature delivery based on only 15 points of feature work being done per sprint, not 20. Much stress can be avoided if people aren’t expecting a constant 20 points of feature work, and disappointed every sprint when that doesn’t happen.
What features need to be built?
While you need to deliver the high-profile features your marketing team needs to gain attention, and which your sales teams need to deliver on their quotas, you have to think bigger. You have to think “whole product.”
Did you go to market early and leave gaps in the core user flows that define your product? These are gaps that every client using the product will complain about. If they’re in core user flows, and they’re big enough, they may discourage clients from providing references. Close those up ASAP.
Those gaps may also be nice-to-haves. You may need to work some of these in to establish differentiation. Or, even if you have a handful of clients screaming loudly for them, you may have to defer them in favor of more important items.
This is where a tool like Kano analysis comes in handy. You’ll need to figure out whether features you’re considering will actually remove dissatisfaction if delivered, whether they’ll provide additional satisfaction if delivered, or both. The right balance of delighters and basic needs–shown in the illustration below–is precarious!
Image via Flickr (Creative Commons)
Is there work your Customer Success team is performing manually that you could eliminate with a software feature? How does that compare with something there is no way to achieve in your product, even manually? Maybe you need to keep paying people to do that work that doesn’t scale for awhile.
It’s one thing to say that it takes your CS teams more hours to get the work done. The real measure is whether it delays your customer from using your product in the first place. This is important for two reasons:
- You can’t start capturing recurring revenue until they can use the product.
- If too much time elapses after purchase, the client may decide to postpone the project. Strike while the iron is hot!
What about existing features that need improvement? Are you rushing so fast from feature to feature that you don’t ever get back to iterate on things you’ve released? Are there elements of your long term vision you aren’t acting on?
How does all of this impact your customer’s success with your product, and ultimately your retention?
Which bugs need attention?
You can spend a lot of time fixing bugs. But you shouldn’t fix every bug.
Which bugs are in the core user flows? How severe are they, and how difficult is the workaround?
Think about this from a referenceability standpoint. If a bug is so egregious that as a customer, you might be embarrassed to recommend that product to a member of your professional network? If so, rank that one pretty highly!
Is one client calling about it, or are 20?
Much of our business is data. Does the bug in your system directly impact the reliability of the data your system is capturing or reporting back to the user? If it adds manual work to the user’s day but the data is not compromised, that is less severe than one impacting the trust people are putting in your system.
Trust is one of the factors that keeps people paying to use a hosted product.
What else should Product be doing?
It’s not just features.
Are your product managers updating product documentation? Is there an ample knowledge base available to clients who have questions about how features work, or best practices on using it in their environments?
Is Product contributing to the structure of your kickoff calls and onboarding process in general?
Are you ensuring product update information is available to clients?
All of these help your client be more successful. And since Product is the best source of this kind of information, it’s one of your many significant contributions to Customer Success.
Why Focus Matters
This is one of the reasons focus matters. Everything discussed so far is difficult enough to manage if you have done a good job staying focused and you have tailored your product to a particular market segment.
If current customer expectations differ significantly from your current capabilities, you’ve got a bigger problem. Now you have to balance a larger number of potentially large features that clients think you should already have against your desired differentiators, against the features you need to speed up onboarding, against the existing features you should really improve from a UX standpoint.
Product Management Must Consider Whole Product
According to this post by KISSmetrics, the cost of acquiring new customers can be 7x the cost of retaining customers. So while these tenets apply across business models, they are especially critical for a subscription or recurring-revenue business.
These businesses are built upon a model that assumes nearly 100% of paying customers will remain customers. Their very success depends upon doing what it takes to ensure that assumption proves true.
Product: If we have drifted, it’s time we get back to whole product thinking!
What other angles aren’t addressed here? Please contribute in the comments.