Land & Expand is a Business Strategy – Not a Sales Tactic
October 6, 2015
Making Customer Success the Centerpiece of Your Organization’s Strategy
“Land and Expand” (L&E) has become ubiquitous jargon today for what used to be referred to as account development. This activity was aimed at attracting and then retaining customers so that they would buy more products from you over many years. But L&E has acquired a highly specific meaning with respect to making the cloud SaaS business model work; if you only attract a few business users in each small, medium or larger corporate organization you deal with, your subscription or consumption model will never have a chance of becoming profitable. Especially if, as occurs in many cases from, say Box or Dropbox to Docusign or Splunk, users can download your software for free as part of your freemium pricing strategy. To overcome these barriers companies have figured out that it makes sense to start small by addressing an initial problem or use case to Land on, then Expand from there toward solving more problems for more users. Use cases, Users, and Usage – Three “U’s” that can in many cases yield enormous growth and profits.
The first half of this post draws attention to the mistakes many companies make in their land and expand activities and describes some emerging best practices for “doing it right”. The second half focuses on a crucial catalyst for land-and-expand success in the form of a specific high-value resource that every company should consider deploying in service to their customers: the customer success architect, or solution architect. These two roles are not always identical but I am going to treat them as one for the purposes of this article, under the moniker CSA (for Customer Success Architect).
So what kind of obstacles do companies encounter in pursuing their land and expand strategies? Below are some common misconceptions and mistakes that I’ve seen while working with clients and conducting field research on this theme during the past several years as cloud companies have begun to focus increasingly on enterprise and commercial customers rather than small businesses or individual users.
Treating land and expand as just a sales strategy. One example of this is identifying inside sales teams as your main customer success resource, saddling them with aggressive upsell/cross-sell sales quotas. But sales is only a part of the puzzle, and one that customers don’t value as highly as other elements.
Being preoccupied with chasing new logos rather than cultivating opportunities in existing customer organizations, a tendency that is often driven by a fear of “losing” prospects to rival vendors.
Not looking beyond getting customers to go-live. Unfortunately, especially in the XaaS world, going live is not a customer success metric, it’s merely a “we managed to install it and switch it on” milestone.
Failing to make the first implementation and customer into a “radiating” reference.
Failing to develop sales opportunities with the next department, use case, region, and/or or division of each customer organization. Perhaps surprisingly, field sales teams can falter here, even though the company theoretically has a powerful motivation to develop opportunities in the same customer organization because, as most executives are well aware, it’s so much more profitable to do this than to try to sign up new paying customers.
Relying on a cadre of go-to engineers and solution consultants to perform heroics in presenting custom demos that are supposed to portray the eventual solution tailored to the specific customer’s needs. These individuals often do impressive work in composing a “solution”, but because they are doing so informally the task never becomes repeatable, which is not remotely scalable.
How can vendors address these issues most effectively? During the past few years, we’ve seen some emerging best practices work extremely effectively for a number of companies, among them Salesforce, Workday, ServiceNow, Splunk, and Docusign, as well as other companies that we have researched and observed as they have migrated increasingly to serving enterprise customers.
First, as other commentators have stated before me, land and expand cannot merely be a sales strategy. Instead it must be a business strategy embraced by the whole company, with every executive, manager and professional incented and compensated significantly on the success achieved by customers in using your products and services. Note: Customer success is not quite the same as customer satisfaction: customers can be “satisfied” without (yet) having achieved their target business outcomes from using your service.
Pursuing new logos should not be neglected, but when push comes to shove it should come second to cultivating existing customers because of the much higher value of Customer Life Time Value (CLTV) versus Customer Acquisition Cost (CAC). Although this is well known, management teams don’t always have the spiritual and emotional courage of their intellectual convictions.
Instead of focusing mainly or only on helping customers to go live, sales teams should pursue adoption by the target user or group of users identified for the first use case, and then their ongoing engagement – i.e., using the new system frequently, completing numerous tasks or transactions, enlisting their colleagues or customers to use the same tool, and so on.
It’s not uncommon to experience problems with the first rollout of a new service, whether technical, educational or behavioral. It’s key that the service provider’s field services staff stick with the implementation until everything is working to order. What I believe frequently constrains them is a lack of appreciation for the change management implications for any user or group of users to fully adopt a new way of working. But this is a fundamental, and crucial, obligation to take care of before leaping to the next sales opportunity.
The Customer Success Imperative
For a land and expand strategy to work, it is critical to acknowledge the importance of orienting the entire company towards customer success over and above your sales success. The former is the key to achieving the latter – not the other way around, as so many CEOs and executive teams seem to (want to) think.
As with all significant change, no factor is more powerful for effecting behavior change than incentives and compensation. Incentives can include recognition (awards, promotion) and achievement (retiring quota, getting to president’s club, etc.) apart from direct financial rewards (raises, commission kickers, increased stock options, etc.). Today, however, many companies limit themselves to leveraging sales-related incentives for their field sales and services teams. But if you want your company to be oriented firmly toward customer success first, followed by company, team, and personal success, then everyone’s incentives and (variable) compensation should be geared toward customer success first and foremost.
A Crucial Catalyst for Every SaaS Business
Now to our secret ingredient. This section focuses on customer success architects (CSAs), which for the purposes of this article includes solution architects. CSAs are a highly skilled hybrid professional combining technical capabilities of a solution architect, business analysts, and domain expert with strong communication and inter-personal skills. They are expensive to hire and develop but as I’ve indicated they are highly productive.
Hiring (or assigning), enabling, and managing a cadre of CSAs is absolutely critical. Their raison d’etre is to (a) identify and implement suitable use cases, (b) drive adoption among users, (c) turn customers into radiating references and (d) secure renewals – and rinse and repeat many times. This is the resource that the customer will probably value more than any other during their initial evaluation and implementation phases as well as in helping customers to identify where adoption should happen next in the organization, and how to keep users engaged productively over time.
There is now sufficient evidence in the marketplace about the importance of this role as a crucial catalyst for the success of enterprise and commercial customers, and thus for the predictable growth of the SaaS company, especially B2B focused companies. Wherever some tailoring of a generic solution for each customer is required, the CSA’s main tasks range from “solutioning” – i.e. tailoring the “whole offer” to the customer’s specific situation – formulating service estimates and possibly coordinating the overall SOW, assessing and managing risk, setting and managing the customer’s expectations, defining the client’s responsibilities, all to ensure that the solution is implemented as intended, as part of the overall objective of helping the customer to be successful running their business using the new system.
As for reporting structure, while solution architects may in some cases report into Sales or even Engineering or Product Management, what we are seeing most often these days is that CSAs report into an SVP of Customer Success, or into a separate branch of Professional Services alongside the mainstream PS implementation organization. Wherever CSAs report, we recommend that they be broken out as a separate entity so that they can be funded, goaled and measured under their own rules of engagement, depending on how much of their time and effort is going to pre-sales versus post-sales, and how much is vendor-underwritten versus customer-funded. This factor applies to any product category characterized by some degree of complexity of business process and/or technology requirements – ERP, HCM, CRM, e-commerce, big data, analytics, collaboration, and workflow management are all examples where these variables apply.
While CSAs may not be chargeable during the pre-sales phase – and most probably aren’t – they should be chargeable during implementation. Customers tend to love their solution architects or customer success architects and want them to be and to remain involved in their implementations. This phenomenon is a positive, provided that the CSA doesn’t get trapped forever in one or more client implementations. CSAs need to be able to move between both sides – pre- and post-sales – with relative fluidity, especially considering that the same customer may be implementing one project and planning one or more new ones as part of their progression up the stairway to heaven.
One word of caution: Since sales reps also love using their CSA’s to help close important deals, Sales should not be allowed to “pillage” the resource for their deal-closing purposes, thus depriving other prospects and customers of access to this resource, or preventing them from being allocated on a chargeable basis to projects where their skills and know-how are required.
In order to influence the most judicious deployment of the CSA resources, one company we spoke with applies clear rules of engagement to the use of solution architects in pre-sales and charges their SAs out on a ¼, ½, or full-time basis in initial and ongoing project implementations, depending on the requirements of each specific situation. Another company I interviewed commits both an executive sponsor and a full-time CSA in exchange for stipulating that the customer mirror these commitments by providing their own executive sponsor and a designated program manager to drive deployment and adoption throughout the customer organization. No matter how you slice it, being a scarce and expensive resource CSAs must be allocated selectively.
Charging for and Resourcing Your Cadre of CSAs
Besides your CSAs being up to 70% chargeable during post-sales phases, you may be able to charge for having your CSAs perform pre-sales diagnostic studies that are aimed at identifying use cases and departments or divisions that need help from the new technology or service. Rates can/should be as high as $300/hour; the most common market rate I’ve seen is around $250/hour. Expect them to be chargeable for as much as 70% of their time spent on customer business, assuming that they are allocated with considerable selectivity. Since as I observed customers love their CSAs, so they must pay for them in order to fully value the expert assistance they are getting.
As for resourcing: If you don’t yet have CSAs in your company and are concerned about how and where to find them, look first inside your organization. From personal experience, I’ve seen a number of clients over the years pluck some of their go-to systems engineers, PS consultants, product management and engineering staff out of their current roles and put them very successfully into their new role with great success. Your first group of potential CSAs recruited internally can form your initial team, with the added advantage that they are already familiar with many customers and/or with product offerings and your services. In fact, these individuals have often been performing the role of virtual CSAs in an informal way, as a result of customer requests for assistance with their new applications.
Nothing that matters should go unmeasured and of course a precious resource such as your CSAs is no exception. I suggest that you adopt metrics that reflect what you have asked them to focus on, such as number of successful use cases, number of business users per use case, volume or frequency of usage, and other related metrics such as the customer’s willingness to act as an active reference, and – on the other side of the ledger – attrition.
The natural career path of successful CSAs is into some form of management, whether in customer success or sales or account management. Many also ascend to higher levels of management because of the varied and sophisticated nature of their work with customers. One thing for sure, this is a rare breed of professional that won’t be commoditized anytime soon.
* In addition to working with some of the companies named in this article, author conducted field research with a dozen successful XaaS companies and benefited from the experiences and client relationships of several Chasm Group colleagues.