The evolution and future

This week's post is a guest post from my good friend and fellow Chief Customer Officer, Boaz Maor.

Years ago we worked together on a study of SaaS team structure related to commercial (upsell, cross-sell, and renewal) responsibilities between customer success and sales teams. Things have certainly changed since then. Boaz revisits our findings and surfaces some new considerations.

Let’s dive in…

↓

The best $225 you’ll spend on career growth this year ​​​ Interacting with executives and board members can be rattling. Especially if you don’t know your metrics. ​ Cover Your SaaS is a self-paced SaaS financial literacy course to help you avoid anxiety and grow your career. ​ Get My Copy Now (Discounted 10% for newsletter subscribers)

The Customer Success world is fast evolving. A dozen years have passed since this new function was founded and it is shifting towards adolescence. What drove the Customer Success evolution was the growth of the SaaS business model that hit an inflection point of maturity in the early years of the second decade of the 21st century with such companies as Salesforce, Box, Zendesk gaining critical mass in their fields.

The SaaS model fundamentally changed the business relationships between vendors and customers. Prior to SaaS, when tech vendors sold their solutions as Perpetual Licence (or hardware), the vendor would expect to get between 70-85% of the LTV (Lifetime Value) from the customer in the initial contract with them. This meant that from a purely financial perspective, making the customer successful was a “nice to have.” Conversely, in SaaS, the initial value capture is 5-15%. In this model, if the customer does not renew and expand, the vendor’s business model isn’t viable.

Salesforce was the first to identify the impact (and therefore critical importance!) of renewal on its overall company performance. It was also the one which established the correlation between customer usage of the solutions and their contract renewal. Since that time, circa 2010, numerous companies, especially the tech companies using the SaaS model, established teams of Customer Success Managers to address the usage and renewal challenges. A wave of startups emerged to support these new needs and new operating models were crafted.

As this was a new trend and a new function, companies experimented with the best ways to operationalize it. What should be the right goals to measure its impact? What are the right roles and jobs? What profiles are best suited for those roles? How should they be organized and where in the org should they report?

In the very early days of “the CS revolution”, heads of CS were Directors and VPs reporting to a wide array of executives, the most common ones the head of Sales due to the commercial responsibility. Or head of Professional Services or Support due to the technical and operational nature of much of the day to day work.

Over time, with the increase in importance and clarity over goals and operating models, a number of companies evolved the role to a “C” level one, reporting directly to the CEO. Most or all of the “post sales” activities including Initial implementation, Professional Services, Technical and Application Support, Customer Success Management and often also Training and Enablement folded under the newly-appointed Chief Customer Officer.

The objective was to enhance the customer experience by grouping these customer engagement roles under the same org and align all of their business goals. Since Renewal was, for all the right reasons, the most fundamental measure of the impact of the post-sale org – and why the entire function was initially created – many companies tasked the CCO with ownership of that commercial metric.

As they gained practical experience with this operating model, companies began to challenge that decision in two ways:

1. if renewal is owned by the CS function, why wouldn’t upsells (buying more of the same) and even cross-sells (buying additional solutions) also be owned by the function, assuming for many customers it is the same buying motion? And…
2. who owns the overall revenue target for the company if parts of that revenue are owned by sales and others by customer success?

This tension, combined with the “c” in the title of Chief Customer Officer (denoting a wide span of responsibility over multiple functions), drove heads of sales, who saw a portion of what they perceived as their responsibility and domain taken away from them, to push for a new title: Chief Revenue Officer (CRO). It also accentuated the tension over who “owns” the commercial relationship with the customer.

Jay and I conducted a study of this topic and published our findings back in 2020. We discovered that while the rhetoric was very strong with most people pursuing a very uncompromising belief that things should be either this or that and there is no other way about it, in practice there were business reasons to utilize different processes in different situations.

At the core of our finding was a discovery that, ignoring the personal interest of the executives involved and focus on the business characteristics alone, only two factors drove the decision of who should own commercial relations with the customer:

1. The Length of the Sales Cycle: the longer the sales cycle, the more time and energy the salesperson invests in achieving the right level of relations needed for the customer to trust the salesperson and buy from the vendor. The longer the sales cycle, the less it makes sense to transfer the ownership of the relationship from that salesperson to a new CSM and the more it makes sense to maintain commercial ownership with the sales team.
   ​
2. The Availability of More Solutions to Sell: the more items a vendor has to sell, the more it makes sense to maintain the involvement of a salesperson in driving those sales engagements. Conversely, if the company has limited add-on solutions or products (because, for example, it is relatively young and with a limited product line) and/or if the growth in the customer contract is mostly “more of the same” (i.e., more users/licenses, a higher level of a plan, small add-on features, etc.), it may not be worthwhile for the company to divert salespeople’s time away from selling to new customers and a commercially-minded CSM can do the job.

The empirical data we collected from companies supported this notion.

This was almost 5 years ago. A lot has changed in this time. Customer Success Platform (CSP) startups (such as Gainsight, Totango, Catalyst, ChurnZero, ClientSuccess, and Planhat to name a few) helped mature the field and support the needs of CS executives for tools to support their newly developed methodologies. Org structures evolved, operating partners and analysts at venture capital and private equity firms developed playbooks and analyzed their impact on companies’ performance.

At the same time, COVID challenged companies’ reliance on face-to-face meetings to drive relationships, while technological advancements enabled more companies to pursue product-led growth (PLG) strategies and business models. Perhaps most notably, AI coming into the mainstream is opening many more options for companies to be efficient with their use of people versus technology in their resource allocation.

In light of the above, we see both a “dust settling” trend (more data exists on what operating models are more successful than others) and new forces for innovation that challenge the status quo. On one hand, we see more clarity in the org structures of many companies consistent with the above vectors, which we highlighted in our post from 2020.

On the other, we see the evolution of PLG and AI introducing new structures including ones where Customer Success becomes an arm within the Product team, which the company entrusts to own product growth and drive its commercial strategy. Among some very large and mature companies (old school, perhaps?) we see Customer Success responsibilities being placed under Marketing teams when customer success tasks are aligned with existing customer engagement campaigns and new customer activation.

We plan to pursue a more quantitative study of these changes (stay tuned for a request to fill a short survey about your experiences shortly). In the meanwhile, if you are either leading a CS team and/or entrusted to develop a recommended structure for one, our suggestions would be:

1. Run an analysis of your sales cycle and establish a viewpoint over its impact over the commercial ownership
2. Consider customer segmentation when doing the above as the analysis may be very different for different customer segments.
3. Tally your upsell options for existing customers and assess their impact (amount of effort and potential revenue impact).
4. Make sure you fully understand the company strategy wrt selling your solutions: field sales, inside sales, product-led growth, partner driven sales, etc. each make huge differences on how your should structure your CS team.
5. Make sure you take into account the potential implications of AI on the above (it is likely to be a hard semi-guessing game considering the early stage and fast evolution of AI - but that’s life…)

And send us your feedback - we’d love to learn from your experiences too!

🤘

​