Customer success is a practice that grew up in the Software-as-a-Service (SaaS) industry, but it's now becoming relevant to all industries. As every product, experience and service becomes digitally connected, SaaS has become the precursor of Everything-as-a-Service (XaaS), and the practices first evolved by SaaS vendors become essential tools for every business.
So what is customer success? It first evolved as a result of the recurring subscription model adopted by SaaS vendors, which meant they had to keep going back to customers on a regular basis to secure a renewal of their contract. They had a unique advantage compared to other industries at the time, because they remained digitally connected to their customers and their use of the product. Vendors quickly learned to use this invaluable data to look out for the early warning signs that a customer wasn't going to renew. They went on to evolve a customer success function with responsibility for acting on those signals and putting things right.
One company that's been closer than most to this evolution is subscription billing specialist Zuora. Understanding how to run a strong customer success function is a key part of how its own customers find success with its platform. Amy Konary, who helped create the blueprint for how Zuora's own customer success team works with customers, puts it like this:
The reason for the recurring revenue model is because that benefit [of using the product], that outcome, unfolds over time. So you're not going to take all of the customer's money upfront, and then deliver the value. In fact, they're going to pay you only if you deliver that value, and only if that value gets better over time, and only if that value is personalized and helps them actually achieve their own objective, as they see it.
Understanding the customer's goals, and how the product contributes to achieving them, therefore becomes a key part of any customer success strategy. But it's not how companies have traditionally thought about their mission. Konary says that when established companies start thinking about a move to a subscription model, they tend to bring a product-centric mindset. This makes it difficult for them to answer questions such as, 'How do you provide value to your customers?' She comments:
When they start to talk about engineering-type things — features and functions — we know that they've got a way to go, because you don't build successful relationships purely around features and functions. You build successful relationships around successful achievements of outcomes, and solving real customer problems.
Creating the Journey to Usership
When Konary joined Zuora five years ago, she was already one of the world's foremost experts on SaaS, having spent almost two decades as IDC's lead industry analyst on SaaS and subscription strategies. Thinking back to the beginning of that time, when she created IDC's first SaaS market forecast at the tail end of the 1990s, she tells me she can "remember struggling to [get to] $40 million for the whole market," which was the threshold for even calling it a market. A quarter century later, IDC now values the same market at over $200 billion.
After joining Zuora in 2017, Konary founded and is now Vice-President of The Subscribed Institute, which creates benchmark reports based on aggregate data from Zuora's customer base, as well as collaborating on other research on the subscription economy. She subsequently established the Subscribed Strategy Group, an advisory team at Zuora that applies the learnings of the Institute to help individual customers develop their subscription businesses. Out of that work came a framework called The Journey to Usership, which forms the basis of Zuora's customer success strategy, establishing playbook patterns and KPIs that allow the team to calibrate and track customer progress. She explains:
[It] was something that we developed so that we can empower everyone who talks with customers, from the very early stages, through customer success, including our services team, to be using the same playbook for the common business initiatives — and the common KPIs that go with those business initiatives — to help companies find subscription economy success.
That Journey to Usership framework has been operationalized throughout our organization, and in our customer success plans. Because we have KPIs associated with all these initiatives, we're able to monitor and track, are they actually achieving the objectives that they're using the system to achieve? And we can build specific success plans with our customers around those objectives.
Defining customer success at Zuora
The definition of customer success that Zuora has built into these KPIs is much more sophisticated than earlier models in the industry, which largely focused on vendor-centric metrics such as product adoption or customer satisfaction. She elaborates:
For us, it isn't enough that our customer is successful using Zuora, the software. It is that they are successful achieving their objectives, which might be launching a recurring revenue business. It might be scaling and optimizing a recurring revenue business that exists. Or it could be leading the market, as a company, perhaps that had a recurring revenue business in its entire history ... but [is changing] the way that [it] engage[s] with customers that we can support with a technology perspective.
The transformation that the media business has gone through provides a case study in how the XaaS effect of continuous digital connection to customers fundamentally changes how an industry goes to market. With many customers in the media industry, this is a transition that Zuora has witnessed at close quarters. In the old world of print media, the customer relationship that publications nurtured was with advertisers rather than individual subscribers. The digitalization of media has opened up a new channel of direct contact with readers and subscribers. Konary explains:
In the past, where you would go pick up a paper from the newsstand, or even get a subscription at your house, the newspapers really didn't know their end subscribers very much. And all they knew about them was what they needed to know in order to sell more advertising.
With the shift to online — and the shift to the subscriber or the reader really being the actual customer — suddenly understanding what the customer wants, and consumes and how they consume that over time, that customer lifecycle, becomes really important.
This is new territory, where gathering data about customer behavior and interests becomes paramount. Konary says that subscription businesses typically go through a four-stage maturity model. First comes the launch, where the focus is on coming up with a value proposition that will catch people's interest and establish an initial relationship. The next stage is to optimize this value proposition. Here's where the digital connection — what Konary calls "the conduit" — of communication between the vendor and its customers becomes so crucial. She explains:
You have the ability to understand what that reader, the subscriber, whoever you call it, the person who's streaming the media, what they're watching and looking at, how long they're spending there, where they're going next. That gives you the opportunity to then take them on a journey.
If I use streaming media, what is the content I'm going to recommend for them to consume next? Another example might be, I'm a subscriber to the New York Times, I started off with simply getting the app. Soon, I became a subscriber also to New York Times Games. Now I am also a subscriber to Cooking. That is all because New York Times understands my pattern of usage and was able to recommend those at key points, through various stages of the digital connection, to take me as the customer on that journey.
Once the journey is optimized, step three is to scale it out in volume. The final stage four is to lead the customer into discovering further value. The provider refines the offering by analysis of the data it's collecting, while looking at what other elements of the ecosystem might connect into it, to expand its scope.
KPIs and customer outcomes
How companies choose to monetize the relationship may not always be via a monthly or annual subscription, she notes. It might also be usage-based, or a series of one-off sales. What's important is the continuous relationship, and expanding its scope over time. She goes on:
The important element is that you have that relationship, you understand that subscriber — whether it's a business or an individual — and that you as a company or a business, part of your transformation is developed offerings, that are priced in a variety of ways that can be introduced to that customer over the course of that relationship, in really thoughtful ways that will allow you to increase that lifetime value.
Of course this brings us back to the point about customer outcomes, and choosing the right KPIs to reflect what success means to them. The best outcome over the total customer lifecycle might not be to overload them with offerings from the outset, depending on what their ultimate goals happen to be. Konary explains how Zuora looks at this and what it measures:
My North Star is that they are winning in the subscription economy, they are thriving and have successful subscription businesses that are growing over time. Now, our proxy for that in our system might be the number of subscribers that they have, is that growing? The amount of revenue invoices that are being put through our system, is that increasing? That's something we certainly pay attention to, to try to understand, are customers achieving the outcomes that they engaged with us to help them achieve?
If not, we have a series of steps that we take directly with the customers to make sure that we're providing whatever resources they need, whether it's within the system, or whether it's a team like mine, to help them make sure that they see that kind of success. That's really what we talk about.
There are almost 30 business initiatives that Zuora has identified on the Journey to Usership that customers might undertake, such as launching usage pricing, or going multi-national. All of these can be translated into KPIs for tracking. Konary says:
We then will work with a customer and try to understand, of these 28 initiatives, which are the ones that you really want to achieve? ... Then we tie KPIs to that, specifically, and that all goes into the customer success plan. All of those KPIs are tracked directly in Zuora.
So over time, that's how we manage that customer. And that allows us to build a personalized view of how that customer expects to achieve value with Zuora, and how well we're actually helping them realize that.
But despite the strong focus on outcomes, Zuora isn't looking at linking its subscription payments to those results. Billing remains linked to adoption and usage, which are still strong indicators that the product is delivering what customers want. Konary says:
The pricing of the subscription is not tied to those KPIs. I think in our view, our customers willingness to continue to retain and expand the relationship over time is really tied to that covenant. Are we in fact helping them achieve what they want to achieve? Are we helping them to be successful?
I don't know that our customers would want us to necessarily price based on whether or not they go multinational. Having looked at pricing models a lot over my career, it might be a little bit too fuzzy for both parties to land on as a good way of how we'd actually exchange value.
Building up to success
Success at those business initiatives depends on having the right technology elements in place as well business considerations such as how the offer is structured and communicated to customers. Some might change over time, as certain milestones are achieved or priorities change, and the customer success team will change the KPIs to reflect those changes. She sums up:
That's how we're really trying to take that blunt instrument and bring it much into sharper focus with each individual customer in a way that's scalable, and that we can actually put into the systems with KPIs so that we can measure and demonstrate that back.
Some businesses don't start out with a huge amount of knowledge of their customers, especially not if they've traditionally sold through a channel partner rather than direct. So it's important to build up that data over time, as well as using the digital conduit to understand their consumption patterns and to begin to discover the outcomes they're trying to achieve. Konary comments:
I think it's something that is certainly within reach of mature subscription businesses, certainly software companies like Zuora, media companies. For some of our customers in areas that are newer to this idea of even direct to customer relationships, like manufacturing as an example, just understanding and having that direct relationship with that customer and starting to see how that customer is interacting with your product or service, that's the first step toward really achieving that understanding of the outcome.
For those companies that have traditionally focused on features and function, it's a new way of thinking. She adds:
Unless you are thinking from the outside in, what is your customer trying to achieve? — let's build a relationship around that and then let's apply features and functions to that relationship — that's where you can really see companies in building these enduring models.
But it absolutely takes sometimes a cultural shift in mindset around what's the value that we provide to the world? And how do we provide it? Is it in the tractors or in the machines that we build? Or is it in what our customers can do with what we provide? Once you make that shift, where are there opportunities for us to really think about some innovative business models, that not only further ensure that our customers achieve those successful outcomes, but that ... we get paid through our customers achieving those outcomes.
There are very few companies — or people — that have the background and data to understand customer success to the degree that Zuora and Konary have achieved. This is a fascinating insight into measuring customer success at an industry leader.