The Performance Economy is coming How blockchain will change customer success

 

Customer success, if done well, does exactly as it says on the tin: it makes customers successful.  But what is success in the eyes of the customer and how do you prove it?  Hold that thought for a minute.

Dan Steinman of Gainsight recently gave a presentation that suggests the subscription economy is gradually being replaced by the consumption economy.  [By the way if you haven’t read his stuff, you should.]  Dan’s premise is that customer success drives us to a path where customers only pay for what they use.  Slack, and its policy of returning money for subscriptions that are not used is the oft quoted example.  Slack argue that this is fair and that it drives an intense focus on the customer and the value they get out of Slack.  If Slack can’t get customers to use the app, they lose out financially: that certainly focuses the mind!

I think Dan is on the right path but only half right.

In a consumption economy, the model is pay for use.  At it’s simplest, that’s the pricing model behind many cloud infrastructure services like Amazon Web Services.  The problem however is that is not how customers always measure success.  They want business outcomes: more leads, more customers, more revenue, lower costs; quicker cycle times and the like.  And in an ideal world, they only want to pay for the results they get.  CFO’s like variable costs over fixed costs because they are always relative to the business.  So the problem with the consumption economy is that it does not lead us to a basis for payment that matches our promise of delivering success for customers.

Let’s go back to the purpose of customer success: to support the growth of our business by helping customers achieve their goals, or desired outcomes.  In some cases, quantity (consumption) is a valid outcome but when I was a CEO, the outcomes that interested me most were revenue, cost, profit and speed.  I know they were the result of great customer experiences, founded on a good product and delivered by talented and engaged people.  So when I think about delivering customer success, I think about things that I can map directly to those four top level metrics.  Other outcomes may well be nice to have but focus is important.

Meaningful customer outcomes are however not easy to measure reliably.  Let’s take marketing software as an example.  You might claim that your marketing software has provided 100 leads but the customer says that 20 of those were already known and a further 20 did not match the profile agreed. You might also argue that the performance criteria might have been met if the customer had implemented the success plan agreed.  This uncertainty however is going to change with the adoption of blockchains.

Blockchain technology is what underpins cryptocurrencies like Bitcoin and Ethereum.  I am not going to describe blockchain technology here but I will revisit it in a future blog.  For this purpose it is sufficient to know that a blockchain has the capability to provide a secure, verifiable unchangeable record of an action, a transaction or an identity, amongst many other things.  One of the applications already available is Smart Contracts.  A Smart Contract embeds in code the performance conditions, which when triggered automatically generate payment.  The performance condition is read from a reliable data source (called an oracle and typically another immutable block chain record) to provide proof of performance.

We now have the vehicle to support verifiable outcome based contracts.  We have a way of relating payment to meaningful measures of customer success.  To revisit the example of marketing software; every time your marketing software creates a lead that meets the criteria, a payment is made.  Remember the blockchain record is unchangeable, so it can’t be deleted or altered: the basis of the payment is sound.  The Success Plan that sets out the actions the customer agreed is also part of a blockchain based system, which can also be tracked.

That changes customer success big time.  Ensuring the customer is successful is not just about securing the renewal, it is the very basis of revenue earned.

It doesn’t stop there.  The Performance  Economy, enabled by blockchain technology, will change the business model fundamentally.  Outcomes based payments mean companies cannot afford to sign up customers they cannot deliver success to; a detailed ideal customer profile is a must have.  An agreed success plan becomes part of the sale, not an add-on for some customers after the deal is done.  The product must be able to deliver the value promised.  Marketing and sales will have to tell the truth (not all do) as prospects have ready access to actual product performance.

Now this is not going to happen tomorrow, maybe not even this decade but it will happen.  Bill Gates once said “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.”  The Performance Economy will require leaders of established companies, even relatively new ones, to really stretch their thinking.  If I have learned anything in my forty years in business it is that new technology and legacy thinking rarely deliver success.

The performance economy is born.

NOTE:

As Dan Steinman triggered my initial thoughts, I thought it only fair to give him an opportunity to comment.

“Thanks for the mention and the praise Dave. That really means something coming from you and you are totally forgiven for calling me “half-right”. It’s much better than what I’m often called.  🙂

And you are 100% right! In the presentation, I described the movement from the transaction model where our customers paid us up front for something they hoped would work, to the subscription economy where customers still pay us up front (but only the first year) for something they hope will work, to the coming consumption economy where customers pay us only for what they use (and presumably only for what they get value from).

What I did not mention for fear of projecting too far into the future and scaring the heck out of everyone, is that the next model is exactly what you describe here – the outcome economy. It’s starting to happen already in small ways but keep in mind that real innovators sometimes skip a generation so some will jump right from subscription to outcome. Customers don’t really want to pay us up front and they don’t really even want to pay as they go for usage of our product. What they really want to pay us for is to deliver the outcomes they desire and that we promised. So, somewhere in the future when it’s totally measurable (maybe sooner) we’ll live in this world –  if I promise a customer that we’ll improve their net retention by 10 points, they may well sign a contract that pays us nothing if we deliver less than 5 points of improvement at which point they’ll pay us 5% of the gain and that will accelerate to 10% for any improvement of 10 points or better (our promise).

Lots has to happen to get us there, perhaps mostly in Finance, but it will happen. We’ve given our customers all the power and they are not only not going to give it back, they’re going to keep asking for more. Every step up that ladder increases the need, value, and responsibilities of Customer Success.

I love the blockchain analogy and I’m stealing it as of right now. Look for references to it (with possible credit to you) at Pulse.

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