Episode One: The Rise of Customer Success; An Investor’s Perspective

Episode One: The Rise of Customer Success Summary

The Rise of Customer Success

Over the past decade, Customer Success has risen from a sheltered ethos of a select few to the underlying fiber that holds most modern businesses together—as Byron puts it, “It is on!” The Customer Success movement has grown exponentially over the past few years. Pulse, an annual conference centered around Customer Success, has grown from less than 300 Customer Success professionals in 2013 to over 4,000 professionals from all Customer Success functions—correlating with the growth of the industry. Customer Success is now a force to be reckoned with both in the boardroom and within every industry.

Click-to-Tweet:
“Ep.1 #CSPodcast | Customer Success is growing exponentially according to @bdeeter #CustomerSuccess”

The growth of Customer Success is directly tied to the ascension of subscription businesses. Byron noted this growth in his portfolio, stating, “It is a given now, in our subscription businesses, that it needs to exist as a function.” Byron highlights that in order for the role to be successful, it needs to be independent and have a strong leader in place. Our understanding of Customer Success is constantly maturing and has fundamentally changed as more and more companies become concerned with how their programs will be run.

Why Customer Success is an Imperative for Investors

There’s no doubt that the relevance and value of Customer Success is being experienced across every industry. Byron regularly witnesses the Customer Success role take center stage in meetings as a peer organization to sales and commented, “It’s awesome to see CSM at that board table now and that is a change in the last three years.” Byron points out that transparency is key when presenting Customer Success to a board. Many of his portfolio companies showcase real-time data through Gainsight and when that data is married with predictions for the future, it makes a compelling case for investors and gives them a holistic view of the customer lifecycle.

Click-to-Tweet:
“It’s awesome to see #CustomerSuccess at that board table now…” @bdeeter #CustomerSuccess #CSPodcast

According to Byron, the most successful board meetings all deliver the same thing: transparency. Operationalizing Customer Success practices through a Customer Success platform enables clear and reliable communication across an organization and allows you to give accurate reports to your board. Successful board meetings usually contain reporting on Annual Recurring Revenue, expansion, and more. For Byron, a good meeting becomes a great one when board members see repeatable processes that help produce these metrics at scale.

Customer Success as a Pathway to the CEO office

Chief Executive Officers play a huge role in ensuring that their companies are aligned to their customer’s actual needs and desired outcomes. A top-down approach ensures that Customer Success is more than an ideal. But do Customer Success executives have what it takes to run a company from the most senior position? According to Byron, Customer Success executives make outstanding CEOs due to their first-hand understanding of the customer base and product.

Click-to-Tweet:
Ep.1 #CSPodcast | The CEO’s of the future will be, and should be CSMs @bdeeter #CustomerSuccess

In the future, Byron sees CEO’s with Customer Success origins being the standard across subscription businesses. ”You look at the Pulse conference and look across that room,” Byron shares, “Many of those people should be CEOs and many of those people will be CEOs in the years ahead. And I’m extremely excited for it.”

Advocacy as a Revenue Multiplier and Force-Multiplier

There’s no doubt that peer-to-peer recommendations and word-of-mouth marketing are the most effective means at gaining new customers. In fact, a recent study we co-produced with Koyne Marketing indicated that the function that drives advocacy, Customer Marketing, is a rising star in the org chart.

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“At the end of the day, there is no better salesperson than a happy customer talking to a prospect” @bdeeter #CustomerSuccess

The operalization of Customer Marketing is key as companies scale. “In cloud and with CSM systems, people, and processes, you can actually make it a repeatable process and make it happen at scale.” suggests Deeter. We believe that advocacy and customer marketing are key to the Customer Success function. At Gainsight, we’ve operationalized our advocacy program by equipping our Customer Success managers with a process that helps to enable and strengthen advocacy.

Listen to the full podcast for even deeper insights from Allison Pickens and Byron Deeter on the Rise of Customer Success!

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Full Transcript

Allison Pickens: In this episode, I sit down with Byron Deeter, partner at Bessemer Venture Partners, to discuss how he’s seen Customer Success revolutionize his portfolio companies over the past decade and what matters most to investors.

Allison Pickens: Byron, thank you so much for joining us today.

Byron Deeter: My pleasure. Thanks for letting me come on down.

Allison Pickens: Absolutely, it’s great to have you here to kick things off. One of our values at Gainsight is “Success For All” which dictates that whenever we make a decision, we try to make sure that it benefits teammate success, Customer Success, and investor success. As an investor, how do you see this value playing out at your portfolio companies?

Byron Deeter: I come from a long line of team sports, including Rugby in college, so I love the team dynamic. And for me, that’s a big part of our criteria in terms of investment decisions. Fundamentally, technology businesses, particularly in software, are made up entirely of teams. They’re not patent-based usually or, you know, some rare discovery. And so for us, it is team first, in terms of investment decisions, and then TAM in terms of market size and product come second and third, typically.

Allison Pickens: Byron, you are a well-known SaaS investor. As we all know, SaaS and Customer Success are really tied at the hip. What have you noticed in terms of the rise of Customer Success over the years?

Byron Deeter: It is on! The Customer Success wave has amplified over the last three years, I would say. Where it was a discussion point in terms of, “What is it?” and, “What do we do about it?” three years ago, now executives, CEOs, and boards recognize that the function needs to exist. It needs to be independent, they need a high-placed leader to run it, and the questions are much more nuanced: “How are we going to do it?”, “What systems and processes are we going to put in place?”. It is a given now, in our subscription businesses, that it needs to exist as a function.

Allison Pickens: Now, Byron you have tremendous operations experience from having been a CEO yourself. Can you tell us the story of how you became involved in Customer Success as an executive?

Byron Deeter: Yeah, I saw it firsthand. On the other side the table, so to speak, from where I am now as a founder and as an operator. Back in the dark days of the Dot-com crash, I specifically remember in 2001 we were facing, unfortunately, layoffs at the company. We ended up having a great outcome, but had two rounds of layoffs at various points in those tough times and we would sit in a boardroom with with our executive staff and talk through state of the business. The thing that I loved about subscription businesses and where it really drove home to me the importance of the CSM role, which wasn’t called that at the time, was this notion of the customer relationship. It ensured viability for the rest of our employees and for the base business that we had. We had high renewal rates. We were able to put our arms around our customers and when all else failed, when no one was buying anything new and we couldn’t invest in growth marketing programs and things, we could stay in the business and grow it slowly. But, at a break even level with customers that trusted us and would slowly roll out because they were seeing success. And every one of those customers, every dollar that came in, meant that we could keep another employee, meant that we could keep the lights on in the office, and essentially go through the nuclear winter of tech and come out the other side.

Allison Pickens: Now, when you were CEO, how often would you reach out to customers? What was your role in engaging with them?

Byron Deeter: I loved spending time with customers. I was very outbound by nature and also by necessity for the business so I still vividly remember our first early customers and being entirely involved in those deals—Staples, OfficeFurniture.com, and more office products. Three of us would fly out and sleep in one hotel room before the “9 a.m. meeting” type of thing. And as we scaled, and added more customers and a larger team—obviously you can’t do that for every customer, but for me it was the feedback for the business. It was the headlights of where we should be going. It was the headlights for where the product should be going.

Allison Pickens: As an investor, you’ve also been in a lot of board meetings where Customer Success executives are presenting about the impact that their team is having. What’s the best board deck you’ve ever seen? Describe the impact of Customer Success?

Byron Deeter: Well, the first thing I would say is that it’s awesome to see a CSM at that board table now and that is a change in the last three years. In many companies, it [Customer Success] is a peer organization to sales that is entirely new and in many cases, entirely deserved. When they are particularly compelling, where they command the boardroom and where they end up driving engaging conversations, is when they present, oftentimes, direct outputs from their systems. Obviously, many of our portfolio companies use Gainsight because we do believe it’s the right answer for most companies. But, they’ll literally show screenshots of “this is our real system” and, “this is what’s happening”. It’s the reports and they married the current customer base with their predictions of their pipeline ahead, and that combination, when you see it as an output from a system, gives you absolute confidence that it that there is depth behind it and that they’re actually running a process that’s repeatable and predictable. They’re never going to be exactly right, of course, just like any sales prediction is not going be exactly right, but you have confidence and you’re able to drill several levels deeper. In terms of questions, wherever the conversation may go, they can talk about specific accounts. They can talk about specific churn reasons. They can talk about the positive trends they are seeing, and upsells, and that’s engaging and that’s where the executive has command of their function. And we love to see it.

Allison Pickens: We’ve talked a lot about what you look for in a Customer Success leader. What do you look for in a CEO in terms of their customer orientation?

Byron Deeter: The CEO profiles we tend to work with vary meaningfully but they often have one of two spikes. It’s either the product orientation—the person came from a development background, a product background, and they know intuitively what should be built, how to build it and they manage that side of the house to a hands-on level all the way through, often including post IPO. The other side of the house is customer orientation. Historically, that has been someone who’s risen up through the sales ranks, could be marketing and in the future, CSM, hopefully. Where they have this orientation around customers and this go-to-market model, that is the game changer. Those are the two pillars of organizations. And absolutely, that customer-facing dynamic needs to be one of the top, you know, few roles in the company and more and more it is the CEO.

Allison Pickens: You’ve met a lot of Customer Success leaders across your portfolio companies and other companies you’ve spoken with. What do you think makes an excellent Customer Success executive?

Byron Deeter: The CSM is hard because you’ve got to have the empathetic “soft hands”, we used to refer to in McKinsey as “client hands”, where you can talk to them and understand the pains, yet be compelling and have a point of view and convey your best practice perspective by walking down a journey toward success. Combined with sales and management skills, and some quantitative analytical horsepower, that intersection is tough but it’s also fun. As an executive there’s a lot of mind expansion that comes from the role because you get to wear many hats as you own the customer relationship through the pains and the successes.

Allison Pickens: Do you think Customer Success will become a career path for a CEO?

Byron Deeter: Absolutely. I believe it is already and we’ll see that happen because it’s a fairly new function. What we’re seeing is the rapid ascension of these executives in the organization. But, I look at Kirsten Mass Halvey down at Cornerstone OnDemand. Frankly, I look at you here at Gainsight, etc. and I absolutely believe that years in the future here, that either one of you—and you look at the Pulse conference and look across that room. Many of those people should be CEOs and many of those people will be CEOs in the years ahead. And I’m extremely excited for it.

Allison Pickens: When you’re advising CEOs in your portfolio about what to look for in a Customer Success executive, are there certain backgrounds that you think are ideal?

Byron Deeter: Our CSM backgrounds have tended to come from a number of different pockets including, in your case as well, from consulting backgrounds at Cornerstone OnDemand. A number of the early team members were ex-McKinsey. At some of our other companies they come from the sales world, or come from this service or support world. Sometimes even implementation. There really isn’t a profile. What we look for consistently though is deep success in one particular area—mastery of something. You need the executive sponsors at these companies and your customers to respect that person, connect with them, and understand the journey they’re going to take them on. And if you don’t have that, as good as they are, they can’t be effective in the role.

Allison Pickens: That makes a ton of sense. Now one of the things we were talking about before we started recording this podcast was advocacy in one’s customer base. And as you know, we started to track a metric called Customer Success Qualified (CSQ) advocacy where we try to track the activities that our customers do to advocate on our behalf to prospective customers. What are you noticing in terms of trends in Customer Success leaders seeing advocacy as something that they own?

Byron Deeter: Yes, so this notion of customer advocacy is really an extension of the NPS score where you fundamentally are asking the customers, “How much do you love us?“ and, “Would you recommend us?”. That is now widely understood as a good leading indicator for depth of customer relationship experience, whatever advocates taking it to the next level. And it’s actually then trying to put that to good use and at the end of the day, there is no better salesperson for your company and your product than a happy customer talking to another prospect. In cloud and with CSM systems, people, and processes, you can actually make it a repeatable process and make it happen at scale. And that’s a game changer.

Allison Pickens: One of the things you said that really resonated with me was, “Advocacy is an extension of NPS.” So, if someone responds to your NPS survey and says, “Yes I’d be likely to recommend your product or service.” let’s go ask them to do that, right? That’s really the next step we should carry it through and given how much investors like to see that companies are growing scalably, they don’t have to hire huge sales teams that drive that growth. It seems all the more important that we actually get that advocacy.

Byron Deeter: It is a super efficient path to new prospects and ultimately new customers. When you get that referential going, they are going to be highly qualified out of the gates. They’re going to be pre-educated in terms of market dynamics, are going to just be cognitively anchored in terms of what to expect and in terms of what the system is, etc.—it totally changes that dynamic. It feels much less like an invalid lead and it feels much more like a warmed up prospect than a net new outreach. And we all know that those conversion rates are very different and often times the retention is very different on the back end as well.

Allison Pickens: I think a lot of Customer Success executives are in the rhythm of reporting on gross renewal rate, net renewal rate, etc.. So those those are the financial metrics we’re aiming for. What are some other metrics that you’d like to see in a board deck?

Byron Deeter: I had two board meetings yesterday, as a matter of fact, and this came up a lot in the second one, where there was a discussion of renewal versus retention. So, revealing not just the renewal rate over the total denominator of customers, but specifically of those that were up for renewal that quarter in that time period, which percentage chose to renew, was a very different answer because of their seasonality in the business. In fact, this case, unfortunately, is much worse. But the board left with the impression that they may have been trying to buffer some of that and make it presented better than they should have, and as shareholders and board members we’re in with it together. We’re in with the team and I think the other execs in the room also felt that they were trying too hard to market the right answer as opposed to getting to the source and the root cause. At the end of the day, in those board discussions and the executive staff meetings, you’re trying to pull people in to help with the problem. Everyone’s a shareholder, everyone is incentivized, and you need to expose the data to arm people with the information to help make better decisions. And so gross and net retention on a dollar and a logo basis, retention versus renewal, show the difference when you have term contracts. Those types of things, I think, are pretty essential to allow people to really engage and understand the nuances of the business and thus the function.

Allison Pickens: What are the ways in which Customer Success can partner with sales to make sure that we’re growing as fast as we can?

Byron Deeter: The two organizations need to overlap. Increasingly so, we’re finding that things like pipeline and customer handoffs are more and more blurry. Frankly, I think that’s completely OK in the sense that these businesses, particularly software as a service businesses, fundamentally are about service and the ongoing customer relationship. It’s not a binary event. It’s not a signature on a contract where the sale is closed and, you know, life is beautiful and everyone’s done. As a result, the whole organization needs to rally around these customers all the way through the product org, obviously. But in terms of owning the customer relationship and the interactions, really that relationship between sales and the initial customer relationship being established and the ongoing nature of new product introductions and of expanding that product’s usage within the company, etc., is a close coupling with the CSM group. Understanding what the use cases could and should be, understanding where the deep pockets of joy and success are happening, and where the roadblocks are are happening; they need to be aligned to overcome those. If you’re going to build out deep, longstanding, and valuable customer relationships, “Who owns the quota?” or, “Who owns that particular assignment?” matters much less. Our companies implement different approaches for different models. But that union is essential.

Allison Pickens: What do you think is best practice in terms of how sales teams hand-off the customer to Customer Success?

Byron Deeter: What I’ve come to believe in terms of the hand-off is that there is not a right answer. It’s understanding what’s the right answer for you, your business model, and your point in time. We’ve got many companies that will evolve this and it’s not because the the answer has changed, it’s because the company is involved and therefore, for this point, it makes sense at a different time for different reason. We were talking about Cornerstone OnDemand before and Kirsten saw there that they’ve moved that relationship several times over their lifecycle, from handing off immediately at first signature to then moving it over to CSM and professional services. They, for for a while, were doing a model where there was a year overlap and both teams were engaged; both teams were paid. They pulled it back as they introduced new products and it was very thoughtful in the evolution. It wasn’t as if they were fixing broken problems, it was just that they noticed different dynamics that they wanted to reinforce at different times. I’ve been off the board now for a couple of years. I don’t even know what their model is today but I assure you it’s probably evolved even further.

Allison Pickens: Do you think services leaders should be looking to create a profitable service business?

Byron Deeter: We debate this a lot in product-based companies. Not really, would be the answer. Some people may violently disagree with that. But for product-based businesses, fundamentally, we view it as you don’t want to lose a lot of money from the services org but you really want to enable product sales and you want to enable customer success in every sense. You want them to be wildly, you know, committed to the engagement and broadly implemented. And so, if you generate a modest profit, that’s great, but we would much rather see you overinvest in the customer time, overinvest in pulling on the incremental users, completing the incremental integrations and really instrumenting them to create a path that allows them to fully leverage the product. Then, trying to turn the crank on that incremental utilization and driving 30% contribution margin from the team, perhaps at the expense of some of that customer interaction.

Allison Pickens: Switching gears a little bit, I’d love to get your sense of what is the changing role of services in a recurring revenue business. I see a lot of services leaders out there kind of rethinking how they should track metrics, what prophecies they should be focused on, and how to map services across the lifecycle. What are you noticing?

Byron Deeter: There’s a wide range of approaches for services based on that business model. We have investments that are really tech-enabled services businesses at their core. And so it’s all about the initial relationship being services-oriented, and then you layer technology to super-charge the people engaged. On the other end, with businesses more like Gainsight and many of our SaaS customers, you have a situation where the product is first and is the focus, and a lot of the mentality has been around how to pull services entirely out of it, which we think is an overcorrection. Really, there’s this idea that you want a low friction, easy-to-implement product, but you also want the customers to get as much value out of it. And often what we’ll see in our SaaS businesses today is this idea of much more best practices services and expertise services and resources that are available, to really make them able to get the most out of the product and position them for success, as opposed to doing the basics of really grubby, you know, implementations like the SAP installs. It took years and no one liked it. It’s very much the opposite. These are happy services people. These are people that are typically built out at higher rates and paid more, but they’re doing higher value things because the product does a lot of the basics by itself.

Allison Pickens: What are the top three trends you’re seeing in Customer Success?

Byron Deeter: The first one goes back to our board meeting discussion about what we are seeing and I think, increasingly, it’s this analytics and presentation layer on top of the trends that are coming out of the system. We want to see wicked insights around the data and understand that you’ve got your hands around what’s happening and I think that’s becoming standard. The second is this move to A.I and machine learning. But, applied to this use case, it’s a perfect opportunity to leverage machine processing of large data sets around usage of your product, around trends in the customer base and around sales and customer records to find correlations, and insights that will be exposed within products. Teams will be running analytics themselves to expose some bad and tie back into computer models. And then the third is probably broader industry adoption. This started off in deep technical subscription based businesses, largely by necessity but also, I think, because they were visionary and more aggressive. And we’re seeing this trend of CSM move cross industry and vertical very rapidly, so other businesses that are dependent on you know large ticket customer relationships which includes many many businesses are are following this trend aggressively.

Allison Pickens: There’s a fair bit of turnover among Customer Success executives in our industry. They seem to switch jobs a lot. What do you think’s causing that and what do you think we should do as Customer Success leaders to make sure that we’re successful at our companies?

Byron Deeter: Turnover of most executive functions right now is pretty high. I think you see a lot of these data points saying 18 months is the average for CMO.For some functions it’s even less. CSM, I think, is probably longer than that on average but the reality is that organizations are aggressive and have lots of pressures. One of the tradeoffs of having visibility and being pure in the exec meetings, and presenting to the board meetings and the like, is that you’ve got the stage. And so I think that’s something that most type-A leaders want and embrace. But the corresponding element to that is you’ve got to be tight. You’ve got to have a tight process. You’ve got to have your hand around the business, you’ve got to hire well, you’ve got to hold yourself to a higher standard if you’re being asked to be paid more, if you’re being asked to to truly own and manage a function. And with that comes exposure, but frankly, a lot of the turnover has also been promotions. We see time and time again that our great CSM mid-level managers are being promoted into VIP slots at other companies quickly. And it’s because there is a shortage of talent in this function. Because it’s a new function, there aren’t a lot of people that have done it and had success on a large scale. And so people are being pulled up fast and in that regard, it’s bad for the companies that are being poached from but it’s really good for the function and really good for the career path of the executives, young executives in particular, that are in that function.

Allison Pickens: If customer success had a spirit animal what would it be?

Byron Deeter: A flying gorilla; fun, opinionated, human-like. I don’t know, I haven’t thought long and hard about what other spirit animals there are. But I’m going to stick with flying gorilla, absolutely.