Land & Expand Strategy: Time to Get Serious about Customer Success!
February 20, 2017
For the past few years I’ve been researching the marketplace and advising clients how to organize their resources effectively to ensure client success and thus succeed in expanding adoption and engagement after first landing a new customer. Progress has been made by some, but in general companies still fall far short of what most enterprise customers consider to be minimum expectations, and thus far short in terms of the expand benefit that could accrue to vendors. Why should this be?
You can check out my prescription for solving this problem toward the end of this post, but first here is my diagnosis of the four main obstacles that I still see everywhere I look:
Management teams are still infatuated with winning new logos vs knocking themselves out to make their existing customers successful. Exercising, in other words, a much greater focus on land than expand, resulting in frustrated customers and limited or even negative expand outcomes – i.e., not only much lower upsell effectiveness but more frequent customer attrition.
For most vendors “customer success” is still largely about taking care of the vendor’s own financial outcomes, rather as the first couple of decades of Customer Relationship Management (CRM) were about making life more efficient and successful for vendors and service providers instead of actually helping customers to enhance relationships with their customers.
The persistent and misguided belief among investors, board members, and executive teams that the only metric that matters for SaaS businesses is license revenue and that service revenues are to be minimized at all costs. This prevents companies from achieving the powerful leverage for license revenue growth that comes from providing the type of high-value services that customers value highly, and are more than willing to pay for.
As a result customer success is still mainly an opportunistic commercial activity directly targeted at securing renewals and the dreaded “upsell”, as evidenced by the staffing and incentives deployed by most vendors today, including some of the so-called best-in-class players such as Salesforce, ServiceNow, and others. The main problem with this approach is that customers become very wary of salespeople showing up only at renewal time to pick up the check, after they (customers) have waited in vain for the vendor to help them with their adoption and engagement challenges. Besides being transparently self-interested and amateurish, this approach fails to provide customers with the outcomes they expect, thus ensuring that vendor and customer are seriously misaligned.
After a decade or so in which Saas companies have focused increasingly on achieving adoption among enterprise customers, it’s high time for executives to review what they mean about client success from their customers’ perspective rather than their internalized view, and then staff their sales and service organizations accordingly. In October 2015 I published an article on this very topic in which, among other topics, I outlined the catalytic role of Customer Success Architect or Customer Success Advisor – either way, CSA is the appropriate acronym – among other critical elements of an effective land and expand strategy. In this article, I shall focus my comments and recommendations on the considerable leverage to be had by deploying this critical catalyst in service to your customers. I strongly believe that you should field a cadre of your own CSAs, whether or not you are looking to partner, or actually doing so, with professional services firms to provide this service.
Along with the AMs, TAMs and CSMs that many companies deploy post-sale today, we need many more CSAs. In case you are not sure what we mean by these acronyms, there are Account Managers, who are essentially the quota-carrying “farmers” who take over from the Sales Rep hunters who won the new logo; TAMs are Technical Account Managers who as the title suggests are supposed to provide a degree of technical guidance in addition to (possibly) having a renewal and/or upsell quota. And CSMs are Customer Success Managers who carry quotas and are typically a commercial resource equivalent to the AMs. No companies have all three of these roles unless possibly for serving different tiers of customer.
What’s so often missing from this picture is the CSA, which is generally considered to be a scarce, hard-to-find, and expensive resource. Even among the more enlightened and successful Saas organizations such as Docusign, Mulesoft, Splunk and the aforementioned Salesforce and ServiceNow, I’ve seen them go back and forth on the right land and expand strategy, and specifically on the commitment to staff this role in sufficient numbers. All of which is quite puzzling, since when organized, managed and deployed correctly they are not only a self-funding but a quite profitable resource. More on this below.
What does a CSA look like and how can we justify the investment?
Interestingly, in its most effective organizational form this highly skilled, hybrid resource is a “business consultant” type. To my mind they are arguably the single most highly valued pre- and post-sale resource/expert that a vendor can deploy in service to expanding the customer’s engagement with your products and services. Proof of this is that enterprise customers are happy to pay up to $350/hr or $400/hr for the services of these highly-prized experts. Typically, their prior experience might range from having been a senior or fast-rising manager in similar customer organizations, to having worked as a successful consultant in the industry practice of a global or boutique consulting firm. To be clear, even if – as I strongly recommend – your CSAs spend a fair portion of their time in pre-sales, helping to build a business case and to set and manage expectations for the work that is to come, they can still be billed out post-sale for up to 50% of their total time. And this 50% utilization can generate up to $400,000 p.a. in very profitable professional service revenue at 30%-40% margin if not more.
And yet, companies totally short-change this resource. To me, it’s a puzzle. More than anything, it’s a testament to the short term mindset of most CEOs and sales leaders, and to a long history of regarding ProServ purely as a low-margin, commodity service centered around offering implementation and integration services, which indeed are generally considered by cuustomers to be expected, i.e table stakes. Instead, they should be focusing on providing highly valued, domain-expert business advice, which most often clearly differentiates them from their competitors and delights customers. There is one executive who you should expect to champion this role, and that’s the senior Customer Success executive – provided, that is, that this leader is indeed a client success-minded individual rather than a rebranded PS implementation management exec, and that they have a real seat at the executive table.
Let’s for a moment reiterate from my 2015 article the key characteristics of CSAs, what I called the secret ingredient:
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. What’s interesting is that, if you look hard enough, you might well identify a number of them currently playing different roles across your organization.
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. I’ve heard of effective CSAs increasing a customer’s investment from a single use case with, say, 30 users, to 90 use cases across international divisions in the space of just eighteen months, not to mention the opportunity of expanding adoption to different divisions and/or countries of the same global customer organization.
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. Thus user and executive adoption and ongoing engagement are requirements that benefit enormously from the efforts of an effective CSA working closely with the designated customer team.
My main point is that alongside the commercially focused account management role, vendors who are truly interested in assuring successful outcomes for their clients need to deploy a cadre of CS advisors, though not an army. For the latter, they are well advised to attract selected consulting partners and provide them with the deal flow that service partners so highly value.
So how should you go about implementing this role?
As a thought experiment, challenge each other in an exec team meeting or offsite to identify the potential CSAs currently performing different roles across the company. Ignore the job they are performing today and focus instead on the skills profile I described above. My bet is that in less than 30 mins of debate you will identify up to 5% of your employee base that have these skills. In a company of, say, 500 employees, I am confident that you will be able to identify a pool of at least 25 potential CSAs. You can then begin to determine the 3-5 people whom you plan to put in the role to get the ball rolling. Experiment with the role for two quarters; make sure that you set them up as a separate group in Professional Services, mainly non-billable in the client wooing stage but mainly billable after that.
The problem so far is that companies have not been diligent about exploiting this opportunity. Among the reasons, besides those cited at the start of this article, are that managers tend to believe that this scarce resource cannot be easily found, and also they tend not to have the insight to try looking inside the company first.
Back to the first four points I raised at the beginning, here is my prescription on each issue:
Infatuation with chasing new logos vs. ensuring the successful expansion of customer use cases: It’s blindingly obvious to say this, but existing customers in a Saas business are almost always prospects for much more business, and supposedly everyone knows that the cost of acquiring new customers is significantly greater than that of cultivating existing ones. Although every executive is aware of this reality, sales quotas and incentives tend to be tuned to pursuing new scalps. It is definitely understandable that there be a healthy tension between resourcing the pursuit of new logos and resourcing customer success initiatives, but in general the pendulum needs to swing back to a more common-sense balance.
Excessive preoccupation with ensuring the vendor’s financial outcomes over delivering the promised results to customers: All CEOs and management teams have to do is to adopt a customer-in view: what are the rightful expectations of your customers regarding the business benefits that they hope to achieve from using your products and services? These might be in terms of cost reductions achieved, revenues increased, customer attrition reduced or gains in market share, and so on. In fact, the key to making this customer-in perspective real is to make sure that the sales team develops a business case that your target customer sponsor agrees with before going through all of the technical proof on the way to signing a deal. An aspect of developing qualified opportunities that Saas sales teams are still woeful at (and a topic for another time).
Investor and board pressure to minimize service revenues and maximize license revenues: While it is understandable that license revenue occupies a privileged position due to the higher valuation multiples it generally assures, CEOs and PS leaders need to do a much better job of distinguishing between low-value and high-value professional services, and describing the leverage that the latter advisory services have in not only generating their own profitable revenues, but in influencing new license revenue. This leverage is crucial to the quality of each customer relationship and to fulfilling the expand part of your company’s land & expand mission. Therefore CSAs must be measured not only by their direct utilization and billings but by the license revenues that they influence. Adopting this type of approach changes everything.
Excessive focus on driving the vendor’s commercial outcomes (renewals and upsell): The preceding three arguments should dramatically influence management teams to redress the current imbalance of resource allocation to commercial vs. advisory activities. It’s natural for companies to invest resources to manage renewals and upsells. But this is not a purely commercial activity, and customers get upset when this is all they see. I’ve never met an enterprise customer executive who values the commercial part of their vendor relationship above the that of the right domain-expert advice in the right place at the right time to help them achieve the promised benefits of the solution they signed up for. Have you?
So there you have it. Is there or is there not a strong business case here for investing in CSAs in order to accelerate your land & expand strategy?
You tell me…