Customer success is an increasingly important concept as business becomes more connected. In recent weeks I’ve been digging into what it really means and how to measure it. Who better to talk to next than Nick Mehta, CEO of Gainsight? The company is widely recognized as the leading vendor focused on helping companies track and report on customer success.
Software-as-a-Service vendors were the earliest adopters of customer success, which came out of a realization that they were more likely to win a renewal if their customer was having success with using the product, coupled with a digital connection that meant the vendor was able to monitor that usage. It took some time to emerge, says Mehta, because management in those vendors was used to the traditional business model of fueling growth by focusing solely on new customer acquisition. Mehta elaborates:
The truth is, one of the great things about X-as-a-Service is a more durable growth model, where you're growing by keeping and growing your existing customers. That's where so much of the energy is ...
Only in the last few years has the management mindset, I think, changed holistically across all of SaaS management, where people [have said], 'Okay, we can't just focus on this roller-coaster of new logos, we've got to actually keep and grow existing customers.
That management awareness has led to customer success becoming a focus across the business as a whole, rather than solely being the concern of a dedicated Customer Success (CS) team. He explains:
That's forced the conversation to say, actually, how do we get every team inside our company doing more to drive value for customers, and therefore improve our net retention? It's not just the CS team. That's obviously the start. But it's also the product team — how are we making the product better at driving adoption and growth inside the product? People call that product-led growth. That's a very hot term right now.
[It's] the marketing team saying, 'I'm not just about getting new logo leads. How do I actually do a better job marketing to on my installed base, driving expansion, advocacy, that kind of thing? The sales team trying to get better at fundamental account management, like managing existing customers and relationships and all that.
So we're seeing customer success go from a function, a department, inside a company, to really being more of a company-wide thing that's really about durable growth.
Emergence of XaaS
This is not limited to SaaS companies. The rise of customer succcess is driven by two factors. One is the emergence of Everything-as-a-Service (XaaS), as this business model expands beyond SaaS into other industries, putting greater emphasis on ongoing relationships with customers as opposed to the historic model of sporadic sales transactions. The second factor is the continuous digital connection that businesses now have to their customers. This is not just a matter of digitally instrumenting the product itself, as SaaS vendors have done, but also takes into account all the other channels of digital engagement with customers. Mehta explains:
The martech stack is much more sophisticated — now you can see what people are doing. You have an online self-service support site, you can see what they're doing there. You might have an online community. So there's a lot of digital engagement in general.
What I'm seeing people do is say, 'I want to harness all that digital engagement, to better understand what's happening in the customer, what's the value they're getting, what value we could be delivering.' So it starts with product usage, and it expands out to pretty much all digital engagement, from what we've seen.
When Gainsight first launched in 2013, customer success was still nascent as a discipline, with probably no more than around a thousand people employed as customer success managers globally, Mehta estimates. Now that number is in the hundreds of thousands, and it's still expanding rapidly. While the SaaS industry accounts for most of those, it's now reaching into other industries, as adoption of the XaaS business model spreads. Mehta cites examples from Gainsight's customer base such as telco giant Lumen Technologies (formerly CenturyLink), medical device manufacturer Medtronic, online payments processor PayPal and leading educational publisher HMH. It's just a matter of time before others follow suit, and having established itself as a thought leader in the space, Gainsight is on track to continue growing with the market, Mehta believes. He elaborates:
It grows, I think, really based on a couple underlying trends that in some ways are unstoppable. Number one is X-as-a-Service. That's just going to keep going — there's no doubt that that's going to keep going. And then, because of that, customer success as a discipline is going to keep showing up wherever X-as-a-Service shows up. Eventually, it takes a couple of years ...
The thing I always tell people is, we're riding a wave. Our wave, we don't control it. We cannot make HMH become a XaaS company faster. We can't make Medtronic go faster to digital. We have no control over that. But what we can know for sure is, a couple of years after they decided to start going X-as-a-Service, they're probably going to want to figure this stuff out. Usually, it's like two years. What's funny is, the first six months, nine months, they they adopt the X-as-a-Service model, but they keep running everything else the same. They run it like their old business and then they figure out, 'Okay, we've got to change the way we work.'
Customer-centric success metrics
At the same time as expanding into new industries, customer success is also deepening and maturing. When it started out, it was all about instrumenting customer usage and adoption. While these product-centric metrics remain important, the focus is now shifting to more customer-centric measures based around their goals when using the vendor's product or service. Mehta explains:
If I give two trends that are really hot in customer success, one of them is how do we move customer success from this internally oriented, 'Are they using the product or not? Are they going to renew or not?' to an outside-in, 'What value are they getting? If they're getting value, that's going to drive retention, expansion and so on.
This trend started out within customer success teams, who began developing success plans based on establishing the customer's objectives, goals and values, and then supporting customers in adopting the features and functions that most contribute to those goals. But this approach encountered a roadblock, as Mehta recounts:
One challenge though ... is the CS team doesn't always have access to the senior people who made the decision. Those senior people who articulated the business value to the salesperson, they're not always involved in the ongoing relationship day-to-day. So what every team has aspired to do is move upstream, and say, 'Okay, in the sales process, sales 101 is understanding what the client's desired value is, and mapping how you're going to get there. That's what sales is.
And yet all that knowledge historically is lost. Because the deal gets closed, everyone celebrates, and it's handed off to customer success. Customer success now meets with the client, who typically are more junior, post-sale, and they ask the client, 'What are your goals?' and the client says, 'I don't know, my boss told me to go implement this project. I don't know what the goals are.
This phenomenon is leading businesses to deliberately build a process for value realization, which captures the goals articulated pre-sale, and follows through implementation all the way to the customer success team. But that's only phase two of this evolution. A third phase rethinks how the product or service is taken to market in the first place, while there's a fourth phase that iteratively improves the product to help customers better realize their goals. Mehta explains:
It shouldn't even just be a pre-sale, because the value that you're marketing should actually be tied to the value that you're selling in sales. And so people are going back and revising their marketing approach is to be a little more value-oriented.
Level four is, now that you have all this data about what value customers are seeking, and what they're actually getting, the most useful consumer of that data is product. Because they could start seeing, what are the gaps between value desired and value delivered? Those are gaps the product could potentially help close, depending on what the product is.
Iterative value engineering
Back in the old world of traditional enterprise software, there was a concept called value engineering that was often used to make the business case for investing in a new software project. This new trend is revisiting that concept but turning it into an iterative process throughout the product lifecycle that's more in tune with the XaaS model. Mehta sums up:
The crazy thing is, you build a value engineering model that says the ROI you're going to get from buying a product. And then that's the last time you talk about the value.
In theory, that should be the model that you go review every six months and say, 'Okay, you said, we're going to drive this much in value. Here's how we're doing. And by the way, the reason we haven't been able to do X, Y, and Z [is] we need you to do something — because a lot of times a customer needs to do things too.
So it's linking value engineering with implementation and customer success and making it one golden thread.
Gainsight has already done this for its own platform, says Mehta. The first step was to establish a set of value drivers, such as reduce churn, increase upsell, improve customer experience, and so on. Because those value drivers don't map directly to product features, the next step was to define 25-30 different business processes that businesses implement using Gainsight, such as client risk management, onboarding hand-offs, and so on. The completed framework shows how the underlying technology supports those processes. The final ingredient is to quantify how the goals will be measured, as Mehta explains:
Now what we do is, when we sell Gainsight, the salesperson has to go in discovery, figure out what the value drivers were for the client, and specifically get the client to say, 'I want to move this number from x to y.' For example, 'I want to move my gross retention from 82 to 84%.'
When they actually close the deal in Salesforce, the way we set it up, they have to fill out those value goals. That automatically then, in our own Gainsight instance, creates a plan for the customer with those goals defined, and then what are the tasks we have to go to do that? This is an area we've spent so much time on, because it's really important.
This set of capabilities is being productized and will soon be available to Gainsight's customers. This will build on the existing success planning function, where a customer success manager can enter the client's desired objectives, create a plan to get there, and then share this with the clients. The next step is to add the pre-sales element, with direct links into Salesforce and specialist ROI calculation tools, from which Gainsight automatically creates a success plan based on the goals entered by sales people or value engineering specialists.
It's fascinating to see the virtuous cycle of engage-monitor-improve that's at the heart of the XaaS Effect reaching such a level of maturity. I have further thoughts on this which I'll elaborate in a follow-up article and I look forward to tuning into Gainsight's conference next month, too.