VIDEO: Customer Success Starts at the Top – Dan Steinman24 min read
VIDEO: Customer Success Starts at the Top – Dan Steinman
Customer Success is one of the fastest growing new fields in the tech industry, and it “Starts at the Top” says Dan Steinman.
In this video you will learn:
- Why Customer success is a company-wide philosophy, and everyone has to be bought into it from the top down
- If Customer Success simply exists as a ‘department’ or a role at your company, then it will ultimately fail – (If you’re not committed to customer success, then it won’t work)
- Learn about the “The 10 Laws of Customer Success” and why “if you’re gonna do subscription business, all of these laws are really important”
- Why Customer success is bigger than customer success management. “CSM is a job. It’s a discipline”
- The classic mistake: What happens when a customer that was really important, suddenly churns
- How to organise your SaaS company Org Chart for Customer Success
- Why “Healthy Tension” between your marketing, sales and CSM team is the thing that drives companies forward
- Why “Recurring revenue waterfall” is the most important metric in your company
- and Why you have to look at your customers as your “growth engine” i.e. Make sure your customers are getting value. Make sure they stay customers
If you want to be serious about customer success and do it well, then watch listen and learn from Dan Steinman – He is the author of dozens of relevant blogs, contributed articles, and Customer Success University created by Gainsight, and a recognized thought leader in the Customer Success world.
* This keynote was presented at SaaStock18 in Dublin. If you would like to join us in Dublin this year for SaaStock19, where we will have plenty of Customer Success sessions, grab an early bird ticket at the best possible price to see over a hundred other fabulous speakers.
Dan Steinman, General Manager of Gainsight EMEA
Dan Steinman is the General Manager of Gainsight EMEA. He Leads Gainsight’s charge in EMEA. Hiring a team in London and helping European customers successfully understand and adopt Customer Success technology.
Start of Transcript
Introduction to Customer Success
– Hey everybody! Are you ready for the best 20 minutes of your hour? Yay! Everyone’s here to talk about customer success? There’s a lot of people here. Are you guys sure you’re in the right place? Everybody sure? ‘Cause I heard my team was spreading the rumor that Marc Benioff was gonna get up and speak, and maybe, if you’re here for that, you’re in the wrong place.
About Gainsight EMEA
Anyway, so let’s talk about customer success for a few minutes. That’s what I talk about. I’m Dan Steinman. I’m the general manager of Gainsight EMEA. We have an operation going in Europe. We have 10 people in London. Most of them are here. If you hear people yelling, that’s who they are. We have a booth, if you wanna visit that later. If anything I say makes sense.
Customer Success is about top-down company-wide commitment
Let’s talk about customer success and the theme here is it’s all about top-down commitment. If you’re not committed to customer success, it won’t work from the very top. So, I know some of you are probably founders or CEOs, I’m talking to you. Those of you who aren’t founders or CEOs, you have my permission to go back to those people and say, “Dan Steinman said we should do X, Y or Z.” So let’s find out what those things are.
The 10 laws of Customer Success
A few years ago, we did our Series C round of investment with a company called Bessemer Venture Partners. And they had done this thing several years ago called “The 10 Laws of Cloud Computing,” which was really successful. So they asked us to contribute to something they called “The 10 Laws of Customer Success.” So we did that. We went out in the industry, we found 10 experts, and we gave them each a topic. Or we first curated what those topics should be and then gave each of them a topic. You can see some of those names here. And we created “The 10 Laws of Customer Success.” You can find it online easily. Do Bessemer, 10 laws of customer success. You can also buy our book and it’s in the book as well, so if you want to do it that way.
Customer Loyalty in SaaS
These are the 10 laws. I’m not here to talk about all of them, but you can look at some of them and see why these are important if you’re gonna do customer success, if you’re gonna do subscription business, all of these laws are really important. Like sell to the right customer. You can’t survive if you’re selling into use cases that you can’t deliver on, right? You can no longer build loyalty through personal relationships. Too many customers. SaaS creates a world where we’re gonna have a lot of customers. There’s no way you’re customers are gonna be loyal to you because they like the person who calls them once in a while. Their loyalty is gonna be tied only to whether your product does what you said it was gonna do.
So, I won’t go through all of those. We’re gonna focus on that one, the one that’s at the top for a reason. Because customer success is a top-down, company-wide commitment. So it’s the first law of customer success. What does it mean? Well, it’s pretty obvious. This is from the boardroom down, right? This isn’t just your CEO, but the board has to be committed to this. Because this requires investment. If you’re gonna seriously do customer success and do it well, the board has been bought into this. Because this isn’t just let’s spend a couple of dollars and see if we can find someone to help us out here. No, this is a long-term ongoing commitment that has pretty serious investment behind it.
The Customer Success Department Fail
So here’s how it often happens. Many companies I’ve seen do this. They say, “Well, this sounds like a good idea. “We read Gainsight’s book on Customer Success. “Customer success seems to be a thing. “Maybe we should do it, if for no other reason than “so my CEO can stand up and say, ” ‘I really love our customers. ” ‘See I have a customer success team.’ ” So you hire one or two or three people. Put ’em on the customer success team. And then you say, “By the way, everyone in the company “is behind you all the way,” right? “We’re all in on this.” So everyone in the company supporting that customer success team to make sure our customer’s success. The problem is, real-life happens, and along comes a customer that was really important, and they churn. So here’s what happens when that customer churns. It’s those guys’ fault! Yeah, we’re all behind you, but it’s really their fault. Because they’re supposed to take care of everything. Bottom line is this: If customer success remains a department at your company, it will fail. It absolutely will fail. It cannot be that group of people over there who take care of our customers, and no one else has to worry about that. It can’t be that. It’s gotta be much bigger than that. I’ll tell you a quick story.
Customer Success at Marketo
When I joined Marketo, this is now eight years ago maybe. Give or take. I was the first VP of customer success. Marketo was already a pretty big company. They already had 400 customers, 120 employees, and they were in hypergrowth mode. So I joined and I did what any new executive does for the first couple days, I went around and was meeting all of the other executives. So the first day I met seven or eight different VPs or executive-level people. And every single one of them looked me in the eye and they said, “Dan, I’m so glad you’re here. “We’re so glad that you’re here.” And I’m like, at the end of the first day I felt pretty good. Like, these people heard about me. They know how smart I am. They’re all so glad that I’m here. So, the second day comes, I’m doing the same thing, meeting other executives. And about the third or fourth executive who looked me in the eye and said, “I’m so glad you’re here, Dan,” I just had a light-bulb moment like, “I’m not that good. “There’s no way that they think that I’m that good.” What I realized was, every one of those people had a stack of stuff on their desk that had to do with customers, and they had found a home for that stuff. And that was my desk. That’s why they were so happy I was there. Because they were all doing something that had to do with trying to make customers successful or bail customers out, and they didn’t want to do that anymore. They thought I was gonna come and do all of that for them. The good news is, I wasn’t the smartest guy in the world. I still am not. But I knew enough to know that I couldn’t just do that job, I had to do it by putting pressure on the rest of the company. So, they all came with their stack of stuff. They put it on my desk. They said again, “We’re really glad you’re here. “Now don’t bother me. “Take care of all this stuff.” And I hopefully figured out how to do it a little bit better than that.
Customer success is a company-wide philosophy, and everyone has to be bought into it from the top down
So here’s the equation we use: Customer success is bigger than customer success management. CSM is a job. It’s a discipline. It’s the fastest-growing job in many parts of the world. Europe I think it’s number four. US it’s number two, Australia’s number one. Customer success management is important, it’s a real job, a real discipline. But customer success is bigger than that. Customer success is a company-wide philosophy, and everyone has to be bought into it from the top down.
How can SaaS Businesses organize for customer success
For those of you who are running a SaaS company or a subscription-based company, you know it is much harder to run a SaaS or a subscription company than it was in the old days when we sold perpetual licenses. ‘Cause you have to balance everything in a way we never had to before. We never had to worry about if a customer wanted to pay us for our software 15 years ago. If it took more than a tenth of a second to take their money, then we should have been fired, right? ‘Cause we just, if someone had a PO we took it. Today, we have to really think about, is this customer a customer we can make successful? And if it’s not, the right answer is to say, “Sorry, take your PO and spend it somewhere else. “‘Cause we don’t think we can make you successful.” Because this is all about lifetime value. The key metric in the long run for our companies is lifetime value of the customer. So customer success is bigger than customer success management. So, I’m gonna talk for a few minutes about organizing for customer success. The organization of the company clearly is the CEO’s responsibility. Right? Nobody argues with that. And I wanna talk about how to organize customer success for the right reasons in the right way. So, if you’re a CEO and you’re gonna do customer success, there are a few things that I want you to keep in mind. You need to organize for a couple of things.
Lesson #1: How important is Customer Success for the rest of your company?
Number one, the way you organize communicates the importance of the different parts of the organization. Right? Where you put an organization on your org chart communicates something to the rest of the company. And if you’re doing customer success, it’s important to communicate how important it is to the rest of the company.
Lesson #2: Health Tension
Second thing really good CEOs do, is they organize to create healthy tension. I’ll talk about what that means. Healthy tension is what drives companies forward. A company where everybody agrees on everything is probably not gonna get very far. And a CEO does not want that. He needs healthy debate, healthy tension within his company. Organizing to benefit your customers, not you. It’s a natural tendency to try to make our lives easier. Well, if I put customer success here on the org chart, I know that person’s never gonna bother me. So that’s the easiest thing for me. The real question you should be asking is “What’s best for the customer?” Not what’s best for you.
Lesson #3: Accountability, Importance and Net Retention + the importance of Customer Success
And last but not least, you wanna create accountability for the number. The number in the world of customer success is retention or net retention. And you organize and create accountability by the way that you organize. So, let’s talk for a minute about each one of these. How do you communicate importance? Well, I’m gonna do a series of quizzes. I know you’re all gonna get these right. So, I’m gonna ask this question: If you were trying to communicate the importance of customer success, is this the right organization or is this the right organization? Where you put customer success on that org chart tells the rest of the company how important it is. So, if you are gonna put customer success underneath another organization, as opposed to reporting directly to you, if you’re the CEO, you’re telling the company it’s not as important as those other organizations. On the left side of this, you’re saying customer success is not as important as sales. It’s not as important as marketing. It’s not as important as the product. It’s not as important as services as an overall thing. It’s underneath there. Right? Now, I’m not saying that that’s a wrong organization. Depending on your size, there are places to put something in a temporary place. But over time, if you’re gonna try to communicate how important customer success is, it’s gotta report to the CEO, or somebody who owns the retention number has to report to the CEO. So, if you’re gonna communicate the importance, think about that as you put together your org chart, and that will tell the rest of the company how important it is. And especially when you’re doing customer success for the first time, you’re often talking to people who don’t know what it is, don’t know how it works, are used to maybe the old school. If you have people in your company that are more than 35 or 40-years old, there’s a good chance that they grew up in the Enterprise software world, where we sold perpetual licenses, not subscriptions. So they may not know what customer success is. But the place that you put it on your org chart will tell them how important it is to you and will allow you to say, “Hey, I’m giving the person who runs customer success “the same authority that I give “to the person who runs sales. “The same authority to the person, I give to a product.” So that’s one question.
How to create Healthy Tension between your SaaS marketing and Sales Teams
The next one was: How do you create healthy tension? Again, an org chart quiz. Which of these organizations creates the healthy tension that you want? Again, I hope you guys are getting these right. This is the one on the right. ‘Cause what you wanna do, if you’re a CEO, you need healthy tension in your company. Simplest example: If there’s any CEO in the rom, if you have a VP of sales who’s completely satisfied with the quantity and quality of leads that they’re getting from marketing, then please go fire your VP of sales right now. ‘Cause you need him or her to be way more demanding than that. They should never be satisfied with the quantity or the quality of the leads they’re getting. So there is, by definition, gonna be this healthy tension between your VP of marketing and your VP of sales. You don’t want your VP of sales to ever sit back and say, “Yeah, I’ve got plenty of leads. “Please stop sending them to me. “And they’re the best quality. “I don’t want ’em to be warmer, “I don’t want ’em to be smarter, “I don’t want ’em to know more about how great we are. “The way you’re doing it is just fine.” You don’t want that! If you’re the CEO, you have to create this healthy tension. It’s what drives the company forward.
It’s all about Net Retention
Customer success has to operate in the same way. The best customer success teams in the world put a lot of pressure on all of the other organizations that we’re talking about. And this is really important. Here’s an example. If I’m the person who runs customer success, and I own the retention number. And the product isn’t working the way that we think it should, or that our customers are satisfied with. I have to take responsibility for that and I have to go talk to the VP of product. Like, stop building a better demo, start building a better product. ‘Cause our customers don’t use the demo everyday, they use the product everyday. Now, this is a really interesting twist in our world. Used to be in a world where acquiring new customers was the only thing that mattered, the demo was actually more important than the way the product actually worked. Because the way you sold more was to have a really slick demo. There are VPs of product that grew up in that world. The VP of sales is gonna spend a lot of time in the office of the VP of product. ‘Cause the VP of sales always demanding more. “I need these three features in my product “or we’re all gonna starve to death, “’cause I can’t sell your product.” Right? Well, when that VP of sales leaves that office, we need the VP of customer success to walk in right afterwards and say things like, “If our performance doesn’t get better “we’re all gonna starve to death, “’cause our customers won’t renew their contracts.” Right? They need equivalent pressure from pre-sales and post-sales. That’s really important. And the way you organize is gonna allow that pressure to happen. I need my VP of customer success to say to my sales leader, “Stop telling prospects this. “‘Cause it’s not true. “Stop your guys from telling our customers “they’re gonna be live and running in four days. “It takes six weeks, you know. “At least make ’em say four weeks. “But don’t let ’em say four days. “‘Cause you set us up for failure.” Right? Again, a new twist in the world we live in, which is you’ve gotta set right expectations in sales. You can’t oversell. Because the rest of your company suffers for that. And it’s not just the people who suffer, but your business suffers. We can’t afford to sign customers for one year. The cost of acquisition is greater than what we get back in that first year.
How Customer Success can benefit your customers
So organize to create healthy tension. Organize to benefit your customers, not you. Don’t take the easy path. Oftentimes, customer success starts in sales. There’s nothing wrong with that. But over some period of time, an organization that’s under the sales leader is gonna become sales oriented. Now that’s now all bad. I would suggest in the long run you probably don’t want customer success to be too sales oriented. And if you do this organization instead, they’re less likely to be oriented in that direction. They’re independent. They’re running the retention number. They have to battle with sales. You want some of that tension between sales and customer success. So, organize to benefit your customers. What is the organization that’s best going to turn into the right journey for your customers and the most successful outcomes.
Organize to create accountability
Last but not least, organize to create accountability. If you’re a CEO, you would never put your sales VP under some other part of the organization and say, “Go make the sales number, “but you’re gonna report to the VP of product.” Or “You’re gonna report to the VP of marketing.” There’s no VP of sales in the world that would accept that. If you’re gonna make me accountable for the number, for the sales number, I need to report to you, because I’m gonna do a lot of complaining to you about how bad the product is and how poor the marketing leads are, etc. Right? I’m exaggerating to make a point. I’m not trying to pick on sales people at all. But we don’t want people who are running these organizations to be satisfied with the way the rest of the company runs. We need a better product, we need better training, we need better services, we need better leads, etc. Right? So, to create accountability for the number, the best way to do that would be to put customer success in charge of the whole company. That would be good. This org chart would work really, really well. Given that that’s unlikely, I don’t know a lot of CEOs who are gonna give up their jobs to the customer success people. This organization is gonna work better for creating accountability. If I tell somebody, “You’re gonna report directly to me. “I’m gonna hold you accountable for the retention number.” I’ve given then the authority to go make waves to make sure they make their number, the same way I do with the VP of sales. So you wanna do that by creating that accountability. This is gonna create some really tough decisions.
Recurring revenue waterfall – the most important metric in your company
I’m gonna talk just for a minute or two about the recurring revenue waterfall. Most of you guys are really familiar with this, ’cause your in recurring revenue businesses. But the point of this slide is to tell you what the most important metric in your company is. And it’s not new business sales. So here’s the recurring revenue waterfall. We start the beginning of any time period with X number of dollars worth of contracts. Let’s say it’s the beginning of the year, it’s January first. We have $10 million worth of customer contracts. That’s the 100% number, the starting point. Now, during the year both bad things and good things are gonna happen. Right? You are gonna have churn. If you don’t have any churn, I would argue you’re not trying hard enough to sell your product. You need to let your sales people push the envelope a little bit. Sell some deals that probably aren’t the best fits. Some of those customers are gonna churn. And for lots of other reasons, too. Some customers will churn. There’s a healthy churn number for most companies, it’s not zero. It’s more like 7, 8, 9%, something like that. The second bad thing that happens is what we call down-sell. Which is customer doesn’t churn, they’re still a customer, but they’ve renewed their contract for a lower dollar amount. Or a lower euro amount. So they’re still a customer, but they’re like, “I don’t need 200 licenses, I’m only using 100 of them. “Renew my contract for 100 licenses. “and take 20,000 euros off the contract.” That’s what we call down-sell. That also will happen. This is one of the other challenges we want to make sure sales isn’t doing. Don’t oversell the customer up front. Because in a subscription business, that’s not gonna work. ‘Cause the customer always has a choice of giving us some of those licenses back. Or giving us back modules that they decided not to use, or that they didn’t need. We can’t charge them upfront and expect that to last forever. They’re gonna give those things back to us when the time comes. So you will have churn, you will have down-sell. And then, the good news is, good things will happen as well.
Up-sell and cross-sell
Up-sell and cross-sell. Lot of companies think about those as two different things. Doesn’t really matter. What it means is you’re selling more into your install base. If you’re running a recurring revenue business, those two green bars, in combination, have to be bigger than the orange and the red bars. You have to more than make up for your churn by selling more to your install base. Now, if you’re in the first two or three years of a business, these numbers probably don’t matter very much. You’re just trying to find product market fit. Make sure your customers are getting value. Make sure they stay customers. Whether their contract grows or not is probably not that important. But over time, you have to make sure that you have something more to sell to your install base. ‘Cause you need those numbers to be bigger than the downside. We just call those expansion, typically. And in this particular fake model, what this yields is what we call net retention of 111%. So we had 10 million at the start of the year. We now have 11.1 million. Even though we have fewer customers, ’cause some of them churned. The overall value of that same co-hort of originally, let’s call it 100 customers, is bigger than it was at the beginning of the year. World-class net retention is 125 to 130%. The best companies overcome their churn and add another 25 or 30% on top of that. And that’s the most important metric in your business. What we call net retention. The combination of churn, up-sell, down-sell, all of that rolled together, it has to be over 100%. You cannot survive as a recurring revenue business unless that number’s over 100%.
Your customers are your growth engine
Last message is, your customers are your growth engine. Going forward, the way that your gonna grow as a company, is because your customers are growing. If you get to a mature stage like Salesforce, this year 80% or more than 80% of Salesforce’s business will come from their install base in the form of renewal and up-sell. You’re all moving in that direction. Most SaaS companies, about the third or fourth year, find out that the renewal number is actually bigger than the new business number. That’s actually not a bad thing. You want to push that off as long as possible by selling a lot. But in the long run that’s gonna be true. More of your business is gonna come from your install base, so you have to look at your customers as a growth engine. And all of these things, the way that you organize around customer success, the way you deliver that, are gonna be really important. So that’s it for me. Thanks very much for your attention. Appreciate it.
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