Spoiler alert - very possible

At The Customer Conference in London in January 2024, I gave a talk with the title above. Since the conference, I have had repeated requests to explain my views and share them more widely, so here goes.

Customer success was first mooted last century, the mid 1990s, and was given greater exposure in 2004 when Salesforce created its Customers for Life group in response to growth destroying churn. Clicktools, the company I cofounded in 2000 and led for 15 years, was Salesforce’s first European software partner a customer and supplier. We knew them well and so followed suit, appointing our first CSM later the same year. CS really took off ten years later in the mid 20-teens, when many B2B SaaS companies, spurred on by investors, created a CS department, mainly focused on addressing churn.

The challenges

In the last ten years, companies have invested heavily in CS and the role of Customer Success Manager, which for a few years was the fastest growing role in SaaS according to LinkedIn job postings. The problem is that this massive investment in people and associated software has not returned proportionate improvements in key metrics. My analysis of Key Bank’s private SaaS survey data from 2014 to 2023 shows that logo churn, gross revenue retention and NRR are essentially flat.

Now let me say this is not perfect data (1) but other data from Profitwell by Paddle and ChurnRx (2) support the view that these key metrics are not improving: indeed they are getting worse. There is of course an argument that says these metrics would have been even worse without a CS department. The problem is that the CS department has become so established that few are willing to challenge the status quo and even consider or test alternative approaches.

There are however a growing number of questioning views.

Snowflake’s CEO Frank Slootman and CRO Chris Degnan have both expressed views that creating a CS department is stupid. To quote Slootman “If you have a customer success department, that gives everyone else an incentive to stop worrying about how well our customers are thriving with our products and services.” (3) Chris Degnan was less polite with comments he made in a recent podcast, calling CS “bullshit”. (4)

In his annual predictions for 2023 (5) , Balderton Capital’s Dave Kellog said of the need to focus on existing customer revenue “While this bodes well for the customer success discipline, it does not automatically bode well for the customer success department." And popular SaaS commentator Jason Lemkin, CEO of SaaStr said “So I think 2023 may well spell the end of CS as we know it.”(6) I also know many respected CS leaders who privately express concern about what CS is doing, the results (or lack of) and how it is perceived.

There is a common theme across all these concerns: the discipline of customer success is essential but the practices and structure many SaaS companies employ are failing. I think an inflection point is long overdue and has been driven in no small way by CS departments themselves.

Self-inflicted problems

Look back just a couple of years and you will have seen a plethora of CS leaders arguing that their teams cannot be sullied with revenue responsibility; some still do. They argue it will destroy their credibility as trusted advisors. Bunkum! The best sales people are trusted advisors. They know that people are more likely to buy from people they trust and act accordingly. CS was all too happy to blame sales for their problems. Yes, there are bad sales practices but most in CS just complained and did nothing.

What is customer success? It’s not a trick question. The answer is that customers see measurable results as a result of using your products, which generates profitable growth for your company . ChurnRx has compelling data that shows customers with measurable results have a SIX times greater life than those that don’t. (7) Yet still today, ask 99% of CS leaders (and their CEOs) how they measure CS and they will say, GRR, NRR, Logo Churn and NPS. All (with the possible exception of NPS) are important and must be measured but none are measures of the customer’s success - note the all important apostrophe. They are all measures of the company’s success. Few companies know the metrics that matter most to their customers’ key roles and therefore have no idea how to measure them.

A company that really values customer success will have clear measures for their customer’s success and will track it at the executive level. In their IPO filing Klayvio referenced “Klayvio Attributed Revenue” - a measure of how much money customers made using their platform. Travel tech provider Nezasa has a clear customer metric for each of its four core value propositions.(8) It can be done, most just don’t bother!

This lack of a clear focus on measuring customer results has led to CS practices that are ineffective - the results show that. Too many measure what they can, rather than what they need to. Adoption is important but not as important as first results achieved. Digital CS helps scale but not as effectively as building the process to set measurable goals for key customer metrics and track and guide customers in the product. Too many CS leaders are focused on building their teams rather than building the business. They want to own stuff rather than enable stuff, which leads to what investor Rav Dhaliwal calls the ‘everything department’ (9): a jack of all trades and master of none.

Despite being ‘the everything department’ CS departments have little influence over much of what causes churn and drives retention and growth. Greg Daines at ChurnRx published an excellent analysis listing 23 reasons for churn (7), including his view of the departments involved. Of the 23 reasons for churn, CS were only listed as involved in 12 and only in two of those were they deemed solely responsible. This should not be a surprise: most people accept that customer success is a company-wide philosophy.

Many in CS also lack of understanding of how a SaaS business works financially. As a result, many CS leaders struggle to understand which levers to pull to influence the business in a meaningful way.

Please note, in my commentary I have always said ‘most’: there are some excellent CS leaders that understand the bigger picture and are working their socks off to do the right thing. Some of these have gone on to broader roles: CRO, COO, General Manager and even CEO. There are CEOs that truly understand the central role the customer results play in aligning GTM. In both cases, I think there are far too few of them.

Not a CS issue

Whilst they have not helped themselves, the reality is the challenges are not just about the CS department.

The purpose of any B2B SaaS company is to deliver products that convert measurable results for customers into profitable revenue for the company. The red thread of measured results for key roles is what connects all go-to-market activities. It is the basis of what marketing communicates; what sales sell; what services enable and, most importantly for a B2B SaaS company, what the product delivers.

These company-wide capabilities requires a company-wide approach. Functional silos are often a cause of significant issues with delivering a great customer experience but all too often, CEOs jump to a structural solution, creating a department, for what is a capabilities challenge. As Zuora CEO Tien Tzuo says; “We tend to meet each new challenge by creating a new stovepipe.” (10). A company-wide issue needs a company-wide approach and that demands the attention and active involvement of the CEO. They have to grasp fully their responsibility as chief organisation designer and go beyond the simplistic approach of changing the lines and boxes on a chart.

The future

The market shift in 2022 resulted in many customers cancelling SaaS subscriptions and significantly raising the threshold for any new purchases. Those that survived typically had a simple advantage: they could show how they improved results in metrics that mattered to the people buying and using their product. The common key to new customer, retention and expansion revenue was, and is, proving in measurable terms, your value to customers. My friend Greg Daines has great data showing that when it comes to retention, measurable results matters most. It was, and is, the most powerful growth driver. (7)

The message from this is simple. Measurable results to key customer roles has to be the core of what marketing communicates, what sales sell, what services enable and what your product delivers. And it has be coherent across the whole company lifecycle; customers punish companies when they see gaps between the left and the right hand and between saying and doing.

Much of what is currently done in the name of CS is plugging gaps in the product and customer know-how. As their customer base scales, more companies turn to “digital CS”. This layers more cost and complexity on both us and our customers rather than fixing the root cause - the product. Remember, code scales better than people. Done properly, this approach is margin and value accretive.

What next?

The question to address is not what is the future of customer success but what is it that replaces what customer success departments currently do. That phrasing opens up possibilities beyond a development of the current approach. For me, the answer has three elements.

Commercially focused

Delivering measurable results to key customer roles is a growth strategy for both customers and the company. At the conference in London, I sensed the tide has well and truly turned on the revenue front: most, but still not all, CS leaders recognise that revenue responsibility was essential. Many still need to develop the skills to bring this to fruition. Part of this is recognising that renewal and expansion sales are different from new customer acquisition. Whilst there is much to learn from sales, blindly copying what new business sales teams do will not work. Approaches need to be adapted.

Revenue responsibility is a big step forward but not enough. Any company has, at some time, got to achieve or show a path to profitability. Understanding how to improve margins is another essential. In my book it always has been but now the glory years of virtually free, limitless funding have passed, it is more important.

Distributed

The days of CS as the everything department and CSMs as the everything role are relics that cannot survive in their current form. I am not against CS departments per se, nor CSMs, but many of the capabilities needed to convert measurable results for customers into revenue are and have to be company-wide and as such can sit anywhere.

I believe a number of new roles will arise that focus on the capabilities needed. Remember, scale begets specialisation and I think CS is ripe for disruption through specialisation.. The key to this distributed capability is not organisation structure but common frameworks and a strong customer focus element in the company’s culture. It’s why the change I foresee needs strong and sustained executive leadership. CEOs cannot delegate this.

Productised

B2B SaaS companies are product companies: that’s primarily what customers buy. The product has to be the primary vehicle for setting goals, tracking and enabling key roles. As I set out above, I think achievement paths are the way to go.

One of the roles that is already happening is a Results Process Product Manager focused on building functionality for results goal setting, tracking and enabling in product. I have helped do this in one company already and more will follow. CS people should have the knowledge of how to do this and be prime candidates.

Proud heretic

A friend dubbed me “the customer success heretic”, a moniker I am proud to have. A heretic is not a non-believer but, according to the Oxford English Dictionary “a person holding an opinion at odds with what is generally accepted.” I believe customer success is about delivering measurable results to key customer roles and in this context, you will find no greater believer in customer success. The heretic in me says we can’t achieve that fully with the approach many SaaS CEOs and CS leaders are taking today.

I see signs of this change happening and not just in Snowflake. I am working on a few case studies of companies well down this path. I am working with investors who ‘get it’ and want to help their portfolio companies build the necessary capabilities. Putting the pieces together in a coherent and practical way is the challenge.

I ended my talk in London with the words “Lead, follow or get out of the way!” If you don’t take a lead in this, others will and in my experience, it’s always better to be part of the team shaping rather than being shaped. Or worse, shipped out.

As the saying goes “If you think change is difficult, try irrelevance!”

NOTES

I’ve taken a lead from Dave Kellog in including these notes and references so you can follow up for yourself.

1. I constructed this by taking the data from Key Bank’s annual survey of private SaaS companies. As I said, it is real data but not perfect. Each cohort is different and they excluded some data from smaller companies. Nonetheless, I believe it is strongly indicative of retention performance over time.

2. Profitwell by Paddle produce a Churn Index each month, which has trended down, i.e. got worse. ChurnRx ask companies if their churn is getting worse, the same or better. 2017-21, 63% said worse. This has improved but in 2022-2023, 54% still said it was getting worse.

3. Slootman has a chapter in his book “Amp it up” about his views on CS departments.

4. Snowflake CRO Chris Degnan said “CS is bullshit” in a podcast with Harry Stebbings

5. Dave Kellog’s 2023 predictions. Reviewing his predictions as the intro to his 2024 predictions he says “Blowing up customer success to save money is myopic.  Re-organizing it, or simply re-chartering it, with a more business-aligned mission is the key to success.”

6. Jason Lemkin said this as an opening line in a tweet on X on 18 Dec 2023

7. See ChurnRx ebook 23 ways to reduce churn.

8. This is based on a conversation I had with Nezasa’s CRO/CCO Alex Farmer

9. The everything department by Rav Dhaliwal. April 2021

10. Quoted in the book “Subscribed” by Tien Tzuo