As per McKinsey, SaaS has transformed into the “default software delivery model” and gathers velocity every passing day. As per estimates, SaaS offerings garnered around 6 per cent of enterprise software revenues in 2010 and that share had risen to about 29 percent by 2018 translating to about $150 billion. As per reports from Gartner (see figure below), SaaS or Enterprise Software will see a 10.5 percent growth in the year 2020 and 2021. This also means that software firms in the early stage start-up phase are witnessing higher than industry growth rates. Then there is the The Rule of 40, a metric which says that for SaaS organizations, the percentage growth rate plus percentage profit margin should always exceed 40 percent to ensure long term sustainability and profitability. While new, small and mid-sized SaaS companies are able to meet this metric with ease, its the large, complex firms who may struggle to meet the metrics consistently. While this is good news for the small and mid-sized firms, it also means that a lot of thought and effort should be expended to solve for scale.
Customer Success today forms the back- bone of the SaaS enterprise handling around 60 percent to 80 percent of revenues, depending on the growth stage of the firm. It also serves as a vital bridge between the internal functions (product, sales, marketing) and the Customers. For a firm to scale its business and operations, the Customer Success function must lay down processes and drive the required behavior. From a leadership perspective, due consideration must be provided to augment the Customer Success function in the firms quest towards rapid growth and sustainability
The Customer Success function evolves as a firm grows. In the initial stages, Customer Success is owned by all the founding members or the leadership team and later the function evolves to proactively assist the firm to drive scale and expansion. Lets look how the Customer Success function scales along with the growth of the firm.
Initial Stage: Product-Market Fit
The early stage is when the SaaS firm is trying to achieve a Product-Market Fit and is operating with 5 to 10 people along with the founders. This is the stage where everyone is doing multiple roles and pitching in whenever and wherever required. The aim at this stage is to achieve the Product- Market- Fit and secure a strong validation of the product hypothesis. The stage is one of the most challenging ones since the firm has a product-in-development, few customers who are deriving value out of it, the firm has no credentials, no case-studies and no references. Customer acquisition is given due consideration but does not remain a priority. All the members of the firm are talking to customers, taking feedback, improving the product and seeking further insights.
Customer Success may not feature in the organization structure since its at a behavior level imbibed and practiced by all the members of the firm. Since all the members are interacting with customers in some form or the other, its recommended that the members meet weekly to discuss their findings, identify bugs, apply fixes, conduct education session, product demonstrations and solve for the customers pain points.
Customer on the other hand must have access to support, communication and feedback channels hence having a dedicated support email id, phone numbers of firm members etc. is a must to ensure engagement and resolution.
Early Stage: Customer Acquisition
This stage will see the firm grow from 5-10 people to around 20-50 people. Hiring will be focused around tech and the sales domain. This stage is characterized by the firm having achieved a high degree of Product-Market-Fit, the hypothesis for the product has been more of less validated, major product bugs and fixes have been addressed and acquisition of new customers has gained priority. This is also the stage where existing client referrals become important along since paid promotions prove to be expensive and liable to increase the Customer-Acquisition-Cost (CAC).
This stage also sees the germination of the Customer Success function where the firm may hire one or two Customer Success Managers (CSMs) to own customer onboarding, education and support. The team members may report to the sales head or a member of the leadership team.
This stage is also the starting point where customer requests starts getting channelized directly to CSMs. The stage will also see the CSMs interact with Sales and Product as the need arises. These interactions are still ad-hoc and need-based.
There are no metrics that are formalized at this juncture except for scripting of FAQ’s, response templates for customer queries and adherence to Turn-Around-Time. Education and product demos are carried out in an ad-hoc nature rendering the function highly reactive.
Customers will now see a formal channel of communication with a dedicated team of CSMs. There is a clear focus on request completion (onboarding, education, bugs etc.) and customer engagement.
Intermediate Stage: Growth
This stage may see the firm grow to around 100-150 people and there is a good traction in customer acquisition. The stage will see increase hiring in the sales and the tech teams. The product-market fit has been solved, product hypothesis validated and the tech team is engaged in providing a positive product experience. From a structure point of view, there is a second layer added to the existing leadership. For eg. the founder may have a Head of Sales reporting to him (N-1) and the Head of Sales may hire sales representatives as direct reports (N-2).
This is also the stage where paid promotions will prove to be an important component for ‘spreading” the word to the market. The promotions must be supplemented by case-studies, customer-testimonials, social-media marketing etc.
With the steady increase in client base, the Customer Success function might see additional employees being added to the team. At this stage there is no Customer Success Head being hired due to cost implications but the firm could be in the process of identification of a few eligible candidates. In terms of metrics, Product Adoption, Utilization, Churn Rate, Renewal Rate, Engagement, Time-to-Resolution or TAT are now being tracked. Issues and queries are now being segmented in themes and information exchanges with Product and Sales are more formalized and periodic.
Customers will see a process around engagement with specific modules like Onboarding, Customer Education, Resolution, Account Reviews etc. The process becomes more predictable with less ad-hoc work.
Momentum Stage : Initial Scale
This stage may see the firm grow to around 300 to 500 people. The sales team and the tech team are steadily adding new members and solidifying their impact. There is a steady increase in new customer acquisition which requires a robust customer success program. Marketing and paid promotions are in full swing. There is great likelihood of the firm mapping out the customer journey, developing customer personas, hashing out interaction nodes with the respective functions and developing programs to enhance customer experience. The question that everyone in the leadership team asking are:
- How to we get more with less?
- How do we optimize our unit economics?
- How do we scale to exponential growth and profitability?
- Do we have the required infrastructure? Are our systems in place and do they interact with each other?
The time when a firm has indicated its intention to scale is also the opportune time to hire a customer success head who should be reporting directly to the CEO. The Customer Success Head will be expected to embed a customer success strategy in line with that of the firm’s, build the team with the necessary talent, liaise with functions such as product, engineering, sales and take full ownership of customer engagement. This is also the point when the function will have to significantly contribute towards driving scale at an organizational level. This has several implications and the major one being the shift from being reactive to a proactive function .One of the ways to achieve this is to shift from the “metrics” driven approach to a “Model” or a “Framework” driven approach towards customer success. This shift also provides the much needed ammunition to address the following questions:
- How do we predict and minimize churn?
- How do we build a model where Customer Success drives growth?
- How do we scale our operations to significantly reduce our Customer Acquisition Cost?
- How do we use data and analytics to make informed decision making? How can we shift from a descriptive to a predictive analytics model?
- Do we have the right systems in place that allow interaction and exchange of data between various functions?
- How do we translate CSAT and customer feedback to product enhancements and better customer experience?
In terms of metrics, the Customer Success Head will be owning revenue centric targets in the form of Net Retention (NR), Gross Retention (GR), upsells and cross-sells.
From an engagement perspective, metrics such as CSAT, NPS, adoption rates etc. would be tracked on a regular basis.
This is also a stage where the mapping of the customer journey has been completed along with plotting of functional programs/interventions at all the junctures. Account Segmentation has allowed for the launch of segment specific interventions with large accounts seeing high-touch engagement and the small & medium accounts (SMB) engaged with scaled sessions. Launches of playbooks, case-studies, customer advocacy programs further adds to the value brought about by the function.
The Customers see more depth and personalization in their interaction with the firm. There is engagement of stakeholders at multiple levels (users, champions, decision makers etc.) with periodic business reviews. With the customer journey being mapped, the customers see engagement from various functions such as customer success, product, marketing and leadership. The Customers Advocacy Group (CAG) is now a formalized institution playing a vital role in capturing the “Voice of the Customer”, gathering product feedback, testing new features and functionalities.
Expansion Stage : Rapid-Scale
This stage may see the firm grow to around 1000 people or even more. The product has cemented itself within its defined market and looks to gain a bigger market share. There is great velocity with which the firm is acquiring new customers, churn is within control limits, sales have rough in world class logos, marketing efforts have produced world class content and augmented lead generation strategies while the customer success team has been successful in driving scale. The question now on everyone’s mind is “how do we expand”.
Expansion can be achieved in various ways and some of them are as follows:
- Strategic Partnerships & Alliances – How do we spread our wings locally and globally?
- Strategic Acquisition – Will an acquisition solidify our market positioning or give us competitive advantage or both?
- Product- Can we rollout complimentary products and solutions to garner a larger pie in the market?
- Perception – How are we perceived in the market viz a viz our peers? How do we enhance it?
The Customer Success team has successfully launched scaled webinars, education programs, e-books, e-guides, play-books, online courses etc. One of the main indicators of scale is when the number of hires for the Customer Success function exceed that of sales. As per reports and benchmark studies, the Customer Success function is responsible for 60 percent to 70 percent of the revenues and this comes from the existing clients. Hence in order to drive successful renewal, growth and engagement outcomes, customer success will need to push boundaries to drive innovation and scale at speed. Some of the questions the function will have to address are as follows:-
- Are we collaborating at optimum levels with product, engineering, sales to drive scale? Do we speak the same language and are all our efforts aligned?
- Do we need to make additional investments of time, effort and money to be more productive and to drive scale?
- Are our systems optimized to solve for scale at speed? Are there opportunity areas for large scale automation and conversational AI?
- Do we put a customer – operations and a help-desk team in place to drive efficiency at scale?
- How do we maximize output of individual team members? Do we need to relook at our span of control, targets and performance standards?
Customers at this stage have become a powerful source of advocacy and promotions. The Customer Advocacy Groups have led to a few product enhancements and major customer wins have been garnering media attention. The customers have started experiencing engagement through multi-channel strategy comprising emails, newsletters, social- media, in-app, customer success, help-desk, automated interaction, chat-bots etc. The leadership team has started participating in executive summits, conferences, seminars, round-tables etc. to build executive connect and social capital with the industry at large.
Once the firm has been able to answer all the above questions it may think of going public, may start looking for a buyer or continue on its existing journey. What is important, however, is to understand that success of a firm in its ambition to scale is highly moderated by how successful its Customer Success function has been to scale itself.