Customer and User Success

Customer Success Management (CSM) and the Critical Path to Customer Renewals


*This blog post was written by Jason Whitehead, CEO of Tri Tuns and originally published publication on Openview Labs blog. 


Poor user adoption and the lack of perceived value by customers is the greatest challenge faced by SaaS vendors. Quite simply, a customer that is not using your software and not realizing measurable business value from their IT investment will not be your customer for long.

SaaS vendors, recognizing that customer retention is critical for growth and profitability, are investing heavily in Customer Success Management (CSM) programs. These CSM programs are charged with the ambiguous goal of “making customers successful” so that customers renew their contracts and (hopefully) buy more. The challenge is most SaaS vendors don’t know what they need to do to drive customer success or where to even begin building an effective CSMcapability.

In truth, Customer Success Management has as much or more to do with the people, processes, and organizational development of your customer as it does with the actual system you are selling. In this two-part series I hope to take a broader, more strategic look at customer success and shed some light on how you can focus your efforts to deliver the results you and your customers require.

Success is from the customers’ perspective

There is a lot of conversation in the CSM community about where to start building a CSM team. The tendency is to spend a lot of time talking about who should lead the CSM team, whether the CSM team should have renewal goals or not, and whether it should be part of the sales or service departments. The discussion also often centers around how to measure the performance of the CSM team and how to compensate CSM staff. In short, most of the conversation seems to be more about how to make the CSM team successful than how to make customers successful.

Setting out to build a CSM team based primarily on an internal focus and internal parameters is as pointless as trying to Feng Shui the deck of the Titanic. Sure, you can do it, but it probably won’t solve your problem. A far better starting point is seeking to understand how and when your customers determine if they are successful.

Customer renewals based on experienceInitial purchase decisions are based on hope. Renewal decisions are based on experience

When your customer makes their initial purchase decision, they are buying your software based on their hopes and expectations that in the near future they will realize tangible business benefits from its use. All of the evidence they consider – marketing information, product demos, references from previous customers, reviews on social media – all contribute to their expectations for the future.

This is very different from how customers make renewal decisions. The decision to renew is based on customers’ actual experience working directly with your product in their organization. If the customers’ experience is positive and the value they have received from using your software matched their expectations, customers renew quickly and easily. If it doesn’t, well, you know what happens.

Map the critical path to customer success: first for your customer, then for your company

Map the critical success path for your customersWhen do your customers succeed or fail? How and when do they know they are successful? What does it take for them to achieve success?

One of the first things I do when working clients that are implementing SaaS solutions is help the client executives map out the critical path from the time they decide to invest in technology all the way to the point at which they will declare their program a success. This exercise typically reveals that the client had initially defined success as “deploying on-time and on-budget”.

But when I ask them what constitutes success 5 to 10 years after go-live, the answer shifts quite substantially. Now the answer is typically some version of, “our employees have fully adopted the system and we are getting measurable business value from using the system.”

This shift in what constitutes success reveals two critical path items where customers struggle and where your CSM program needs to focus:

1) The need to focus on driving effective, consistent user adoption.

2) The need to help your customer realize (and measure) clear business value from their investment in your system.

Customers have transferred a portion of their user adoption risk to SaaS vendors

One of the biggest problems organizations face is getting their staff to adopt technology and incorporate its use into their daily work activities. A system that sits unused is not delivering any value to the customer’s organization. This user adoption risk — the potential that staff will not adopt systems and business processes as they are designed — is perhaps the greatest threat to customer success.

Since customers will not renew a system that is sitting idle, and since you (the software vendor) need customer renewals in order to grow, you now share a portion of your customers’ user adoption risk. In many ways, customers’ user adoption risk translates into your renewal risk.

Develop a CSM capability that moves customers along the critical path to success

When you go to build your CSM team, you need to have a clear view of your customers’ entire critical path to success. Map out what it would take for your customers to drive and sustain full user adoption of your system over the next 10 years. What you will find is that there are a large number of technology, people, process, culture, and organizational dynamics that all impact customers’ adoption of your system.

Once you understand the critical path to success, you need to figure out where customers are getting stuck and why they struggle to move forward. You will find that a large number of these issues have nothing directly to do with your system. Yet you need to figure out how to get customers to resolve these issues.

You may think it is not your responsibility to help your customers resolve their internal user adoption issues, and in many ways you are right. But remember, while that may not be your responsibility, it is most definitely your problem.


In the next article in this series I will offer insights into how you can build a CSM team that helps customers minimize user adoption risk and maximize customer success.


Do you have a Customer Success Management program? If not, why not? If so, how has it affected your customer churn? 

Please share your thoughts and experiences on the Customer Success Practitioners group on LinkedIn.



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Six Reasons Why Every SaaS Vendor Needs a Customer Success Management Strategy


Just the other day, while talking to a cloud software vendor, we started talking about customer satisfaction and retention. They shared with me their examples of what is becoming a story that I hear all too often from SaaS vendors - that is, they have a great product and get lots of initial sales, but they lose a ton of customers at renewal. And, it’s really hurting their bottom line.

Cloud vendors now realize that if the customer is not successful – that is, getting measurable business value from their SaaS purchase – they will not renew. The more I talk to cloud vendors the more I notice a growing awareness among them that the subscription business model has unexpectedly (and, arguably, unintentionally) shifted what it takes for the vendor to be successful. Cloud vendors now realize that if the customer is not successful – that is, getting measurable business value from their SaaS purchase – they will not renew. Unfortunately, many vendors are not prepared to deal with this new reality.

SaaS vendors now realize that they cannot afford to just sell software, rely on the user interface (UI) design and overall user experience (UX), and hope the customer uses it. Retaining customers – and preserving revenues – means needing a comprehensive, actionable strategy to drive and sustain customer success. Here are six reasons why this is true.


1. SaaS software transfers IT adoption risk from the customer to the vendor.

In the old days of traditional, on-premise software, customers made big up-front software purchases. The software vendor made their profits based on license sales, regardless of usage. With subscription software, customers will only pay for (rent) licenses that are actually being used. Lower usage (IT adoption) = lower license revenues.

2. SaaS profits require long-term customer renewals and retention.

The low cost, pay-as-you-go pricing means that customers need less up-front cash to purchase software. However, the lower up-front fees means that vendors need to retain customers longer to get the same amount of revenue. Suddenly, customer retention is critical to vendor profitability.

3. If customers are not successfully adopting your software, they are not renewing.

OK, this is a no-brainer. Savvy customers – and even the not-so-savvy customers – will not keep paying for things they are not using. If customers are not adopting your software, they will not keep paying for it. Now, this doesn’t mean they will drop all licenses (though many will). It may just mean that they dramatically cut the number of paid licenses to eliminate those that are not being effectively used.

4. No matter how intuitive, fluid or beautiful the System, it’s still a change for the users.

Software vendors love to talk about how “usable” their product is, and many (most?) claim almost prescient intuition on the part of the UI. So suggesting that people might not actually use the software is virtual heresy. But really, it’s not about the software. It’s about the fact that the software is a change in users’ daily work lives. Some will love it, some will hate it, but left on their own, not all will use it to its fullest, business-value-creating extent.

5. Customers will not buy more until they use what you have already sold them.

Software vendors love to add new features to their products. It’s how they keep the product fresh and competitive. It is also how they can charge you more per user.

The problem is customers won’t pay additional fees for new features if they are not using what they have already been sold. So, if you are a software vendor, before you go paying developers to create lots of new features for your software, you better make sure that people are using what they already have. And this should start with your existing customers.


6. Customers don’t know how to maximize and sustain successful IT adoption.

This is by far my favorite. For years, customers and vendors alike assumed that if they deployed a system and trained people to use it, that everyone would. The reality is that very few systems are fully adopted. In fact, one report shows that up to 24% of the value of an IT system is lost due to poor IT adoption.

Many IT implementation efforts focus on getting the system live, but do nothing to ensure it is effectively used and delivering measurable business value to the customer organization. Many IT implementation efforts focus on getting the system live, but do nothing to ensure it is effectively used and delivering measurable business value to the customer organization. The methods used to develop and deploy a system are very different from those used to help organizations manage change and maximize IT adoption. Unfortunately, many organizations do not know how to effectively manage and sustain IT adoption programs. 

SaaS vendors need to invest in Customer Success Management Strategy

SaaS vendors are quickly learning that having a great product alone is not enough. They now need to have a strategy in place to help customers quickly adopt it and make sure it is delivering business value. We are already starting to see SaaS vendors create new positions – such as Customer Success Managers – to help clients get the most from their software. This is just the first step. In the future, customers will demand – and vendors will need to provide comprehensive customer success management programs.

Want to learn more? Tri Tuns partners with SaaS vendors to develop and implement customer success programs. Contact us today to see how we can help.

   

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How to Develop a Cohesive Customer Success Management Strategy


*This blog post was written by Jason Whitehead, CEO of Tri Tuns and originally published publication on Openview Labs blog. 

Many SaaS vendors recognize the need for a CSM function, but they struggle with knowing where to begin creating this capability. They often start with what they are comfortable with and by doing what they already know how to do. But this won’t solve their problem. It is time for something new.

The explosive growth of cloud based, subscription software is dramatically shifting the relationship between software vendors and customers. While the exact impact of these changes is still unfolding, one thing that is clear is that we need to develop new approaches for how systems are implemented, adopted, and managed. And we need to evolve the skills, expertise, methods, and tools needed to drive customer success, as well.

In my previous article I discussed how SaaS vendors need to map out their customers’ critical path to success and then develop the capabilities that will move customers along this journey. In this first post in a two-part series, I will share the first two steps necessary for actually doing it.

 

STEP 1: FIND OUT HOW TO SOLVE CUSTOMERS' USER ADOPTION & ROI PROBLEMS

Let’s be clear – the whole reason you are devoting time and resources to building a CSM team in the first place is that your customers are unable to achieve success using your software on their own. If they were, they wouldn’t need help and you wouldn’t need a CSM team.

The absolute first place to start is to identify what constitutes success for your customer and then figure out what they need to do to achieve it. All of your actions moving forward need to be maniacally focused on making sure customers take the actions necessary to achieve this goal.

Many customers and SaaS vendors get into big trouble before they even start. They think user adoption and ROI issues are about software functionality or the on-time deployment of the system. They are not. For most customers, success or failure is determined by what happens after the system is live. Success is not a technical issue. Success is a user adoption and business results issue. This is where many of your customers are struggling. Consequently, this is where your CSM program needs to focus.

Figure 1 - Customer Success is Determined by What Happens After Go-Live

It is critical that you get your initial needs analysis for your customers correct. If you get this wrong, you will squander precious time, money, and resources trying to build a CSM capability that has no chance of solving your customer’s underlying problem – getting their staff to use the system.

When doing your initial needs analysis, consider the following:

  • Analysis Skills & Perspective: The issues you identify in your needs analysis and the corresponding solutions will depend entirely on the lens of the people you have doing the analysis. Keep in mind the problem you need to address is an organizational change and a performance issue. It is not a technical, sales, or customer service issue. Make sure that you have people with expertise and a proven track record of driving and sustaining user adoption and organizational change doing the analysis.
  • User Behavior: You need to identify all of the drivers and barriers that affect user adoption within your customer’s organization. You need understand why the customer’s staff is not using your system and why your customer is not achieving their goals. Once you identify the root-cause problems then you can begin to help customers take action. This is not easy to do.
  • Methodology: Investigate the methodology your customers use to introduce your system and then the methods they use to manage ongoing user adoption. You will likely find that many of the user adoption and ROI problems are management issues and not user-resistance.

Only once you understand exactly where things are breaking down should you attempt to move forward by deciding how to fix it.

 

STEP 2: DEVELOP YOUR CSM STRATEGY

Your CSM strategy will depend on the nature of your customers’ issues, the value the customer brings to your organization, and the costs associated with delivering CSM services. You may need to segment and prioritize your customers and then make decisions about where to target your CSM efforts for maximum results.

Now we are getting into an area that requires some new thinking. In order for your CSM function to be successful, you need to figure out:

a) how your customers can actually solve their problems

b) what resources you are prepared to provide to help

 

That requires you making decisions in two key areas:

Self-Service or Professional Service

Where on the self-service vs. professional service spectrum do you place each customer segment? Do you expect customers to solve their user adoption and ROI challenges on their own or will you help them?

  • For lower value customers you might help put together basic toolkits to help them build their internal user adoption / ROI programs. This approach tends to be low in cost, but also low in effectiveness.

  • For more valuable customers you might offer a full professional service that helps them drive and maximize user adoption and ROI over the life of the system. Yes, this should also be a revenue-generating service, just like any training or technical service you provide.

Build, Buy, or Partner

For those customers that require a professional service, you need to decide how you will provide it. Below are three key questions to ask to help you determine your approach:

  • Do you want to develop internal user adoption and ROI expertise within your company? If so, build it.

  • Do you want to just bring in expertise on an as-needed basis? If so, buy it (by subcontracting out this work).

  • Do you want to stay focused on the technical expertise in your company while also ensuring customers have the service they need to sustain ROI over the long-term? If so, partner with firms with expertise in developing effective user adoption programs.


By the way, if you are worried that customers won’t pay for a professional service to help them get full business value from your system, don’t be. I have worked with many clients that fully recognize the need for help in this area. In fact, one of my customers, a large organization with a presence in all 50 states, is currently engaged in a major, multi-year enterprise implementation. They recognized that user adoption and what happens after the system goes live is actually the most critical determining factor of their success, so they are directing 80% of their budget and resources to the user adoption program and only 20% to the technology.

 

NEXT STEPS

Once you have your CSM strategy in place you can then turn your attention to developing your methodology and tools and making the internal organizational changes necessary to launch and start introducing your new CSM capabilities to your customers. I will go over each of those steps in detail in the second part of this series.

Please share your thoughts and experiences on the Customer Success Practitioners group on LinkedIn.



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Do You Have a Customer Success Management (CSM) Program? You should.


SaaS vendor success depends on customer retention, whether that's a CRM, ERP or HRIS.

If you are like most SaaS vendors, you have a great product that is developed, implemented and supported by a team of gifted professionals. You can win new sales. Everything looks rosy.

But you have a problem. You keep losing customers at renewal time. And this is costing you big-time! 

Customer Retention is Key to SaaS Vendor Success

The SaaS business model, with its low upfront costs and low, regularly scheduled payments means that SaaS companies need to keep customers longer in order to profit. Every customer that cancels their subscription – or even reduces the number of licenses under contract – has a dramatic impact on your bottom line.

The simple truth is you cannot have a successful SaaS business if you have high churn.

The impact of customer churn is cumulative and drastically underestimated -- an effective Customer Success Management plan can help.The impact of customer churn is cumulative and drastically underestimated

According to the resources developed by SaaS Capital, customer churn has a cumulative impact on the vendor. Not only does it decrease revenues in the period during which the customer cancels their subscription, it also reduces all future revenues. 

For example, in their webinar, “No Churn: Keep Customers & Improve Your SaaS Company Valuation”, showed a comparison of two companies, one with a 95% customer retention rate and the other with an 80% retention rate. After 5 years, the company with a 95% retention rate had revenue that is 40% greater and a growth that is 50% higher. By year 10, revenue is 80% higher and growth rate is 2.5 times faster.  

Recurring revenue is critical component of SaaS company valuation

With customer churn having such an impact on revenues and growth, investors are now looking very closely at customer retention when calculating SaaS company valuations. According to SaaS Capital, business are traded on a multiple of revenue (not EBITDA) and, “recurring revenue is a better proxy for future cash-flows than current income.”

Customer Success Management programs reduce churn, increase revenues

Given the importance of reducing customer churn, it is not surprising that you’re focusing efforts in this area. Effective CSM programs can help you reduce churn. And if your customers are getting more value from your systems, they are more likely to increase the number of licenses they purchase. All of this adds up to increased revenue for you.

Now the problem… how do SaaS vendors deliver the elusive customer success?

Sounds great, right? There is just one hitch. How do you create and deliver effective Customer Success Management programs? 

This opens up a lot of questions. 

  • What tools, methods, skills, and resources do you need to facilitate customer success across your entire customer base?
  • How will you build this new capability?
  • How will you integrate this new service into your existing business model?


Resources to help with your Customer Success Management efforts

Customer Success Management (CSM) help and resourcesOnce you realize that you need a Customer Success Management program, you then need to figure out what this looks like and how to build this capability in a quick affordable manner. If you are not sure where to get started, check out these resources:

  • Check out The Hotline Magazine by Mikael Blaisdell. Mikael is a widely recognized thought leader in the Customer Success Management space and his events and writings reach a large global audience.
   

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