Building a sticky B2B SaaS business

SaaS = Success as software

The importance of retention to a B2B SaaS product is well understood.  Typically, a company thinks about building a customer success team to address churn when product/market fit and scalable acquisition have been mastered.  I fundamentally disagree with both the timing and approach.  Retention is so vital to growth, and therefore shareholder value, that it has to be built in from the off and a CS team is not the right way to begin to address it.  The primary vehicle for delivering retention and up-sell has to be the product.  Stickiness, ensuring retention, should be central to the design of the product and the business from the beginning.

B2B customers only buy your product to achieve something: they have a goal in mind.  Achieving those benefits and outcomes are what good sales people focus on.  The real challenge is that currently your product alone can’t deliver a customer’s goals.  The customer also has to change in some way.  They may need to change their processes, metrics, skillsets and/or the way they organise.  In some cases these changes may be minor; sometimes they can be significant.

Guiding customers through these changes is the role of customer success and should be an inherent part of your product.  After all, their goal is what customers are buying. It seems natural therefore that the product is designed to facilitate this.  Unfortunately, most B2B SaaS products don’t deliver.  They build a team of people to fill gaps in the product’s capability.  Worse still, this knee-jerk response is seen as the best practice.  Think that through: so called best practice is to add recurring cost to your business to address a failure to deliver on your value proposition – a product that helps customers achieve their goal.

Sticky by design

There is an alternative: build a product and a business that delivers success by design and is therefore inherently sticky.  Much of what I suggest is about expanding the product to take on tasks that are done but through other, typically people-based channels.  Anyone with experience of product support will recognise this as case-deflection: moving agent-based advice to self-service.  Let me add that I do not foresee the end of CSMs.  They will continue but in fewer numbers as more and more advice and guidance is productised.  The problems they focus will be of a higher order, requiring greater understanding of business processes and the psychology of change.

It starts with your choice of business

You have an idea for a new app and decide to build a B2B business.  I have done that and it’s not easy; especially if you have a young family to support.  Before you go all-in, ask this simple question:  does your solution address a problem that a company must fix if it is to service and grow?  In other words, is your solution a must have or a nice to have.  Sticky businesses almost always address the former.  Don’t ask yourself – you thought of the idea and of course you believe it is a winner.  Instead, ask the decision makers in businesses that would be your ideal customers.

Built on a deep understanding of customers goals and work

I think this is the part of the product design process that is most often missed.  We focus on what our app does and even how the customer uses it but not enough on their work.  Building a deep understanding of the jobs users do; what they do well and particularly why they struggle to achieve their goals guides how we can help them drive the changes they will have to make.  The goal is to develop a best practice process the customer can adopt to achieve their goals using your product.

For each use case, map out a typical customers process, highlighting the key challenges and the metrics used to track the process.  Use further research and discussions with customers to build out a best practice process.  Overlay your product’s role in this process: this will show where you need to provide guidance.

Where the CS process is at the core of the product

This is the heart of the concept of CS2.0 and as such requires explanation in depth.  I will therefore cover this in a separate article but here is a summary.

CS processes break down into the following stages:

  • Discovery: Understanding how the customer currently operates, including performance
  • Goal setting:  Establishing the objectives or desired outcome
  • On-board: Configure the app and train users
  • Track & advise: Collaboratively monitor goal progress & advise on change (see below)
  • Success: Confirm desired outcome and reset!

The key is to provide this capability in-app without making the process too cumbersome.  Many companies provide added-value content but do so outside the app.  The problem here is that the information is often out of context.  Delivering the content in-app, removes this by relating advice and guidance to what they are doing.  It will also force you to focus on the essence of the advice; the practical things customers must do to achieve value.

If this seems onerous remember this is about how you enable the customer, not additional work.  The approach is also more scaleable at higher margins than building an extensive CS team.

With tools to enable collaboration

To achieve their goals with your product, most customers will have to change the way they work.  The product’s job is to help them.  A shared workspace where you and customers can collaboratively solve problems will become part of most B2B apps to enable this.  The collaboration structure is configured around the changes the customer needs to make.

That is ridiculously easy to use

Your product might do everything your customers want but if they struggle to use it, churn will grow.  How many training sessions have you had to use Facebook or Twitter?  Software that just works out of the box is an expectation.  Recognise that different users will have different needs, capabilities and experience.  A one-size fits all approach will not work.  New or inexperienced users mayweed more help and guidance.  The key to this is a switchable interface: CS guided for new users and task based for experienced users.  Better still, let the user design the interface they want and tune it as they progress.

And exploits nudge theory to form habits

Positive reinforcement and suggestions help customers to form the habits needed to make and, more importantly, sustain the change.  This might exploit gamification, league tables and mini-case studies to suggest and reinforce good practice.  These prompts are not directional

That enables multiple use cases

Take a lesson from the Hubspot playbook.  Initially focused on inbound marketing, they have expanded their value proposition into adjacent challenges.  They now sell a broader marketing capability, sales opportunity management, CRM and they are about to enter the customer success space.  Note that most of these are ‘must-have’ processes.

Multiple use cases gives multiple points of contact in the customer.  It embeds your application in multiple  processes, making it more difficult to strip out the application.  It also helps improve net revenue retention by providing cross-sell opportunities.

That are sold in-app

Make it easy for the customer to see the additional functionality, products and services you offer in the app.  As they master their goals, show them how you other offerings can expand their success by enabling them to achieve their goals better or easier and tackle new goals.

With extensive and simple integration

The number of applications in use in a company continues to grow: no application can exist in isolation because processes are inter-connected.  Integration is therefore essential and, of course, increases stickiness.  My first SaaS business grew by providing the best CRM integration on the market.  We made a virtue out of not having functionality that competitors had in their software by stressing the importance of a single customer view and the challenges with multiple systems.  85% of customers bought Clicktools because of the power and ease of the integration.

Don’t reinvent the wheel; there are many ‘integration as a service’ products on the market.  Ensure you have a rich API that enables two-way exchange of information.  Key to this is that your product has rich and robust API’s.  A good API allows your customer to link your product into their technology stack.  This again makes removing your application more difficult to remove.

Which exploits a rich ecosystem

Your product is unlikely to provide all the functionality a customer needs and you don’t have the time and resources to build it anyway, so don’t.   Salesforce recognised this early and created the AppExchange to fill gaps customers needed.  It is now a multi-billion dollar business in its own right and many have copied the model.  You should too.  An ecosystem improves stickiness by making it easier for customers to meet their specific needs whilst you focus on your core business.  It also provides great data on what functionality customers need, guiding roadmap and acquisitions planning.

It will happen

I am confident that product-based customer success will become the dominant model of customer success for four reasons:

  • Customers are getting fed up with constant, low value interventions driven by the supplier’s need to ensure retention and sell more.  Much of what goes under the guise of customer success is really supplier success.  Great customer success prompts customers to buy because they see the value they are getting.  It is win:win selling.
  • Product-led CS scales at higher margins, generating improved financial performance.
  • Embedding the CS process into the product provides richer data on which customers achieve success and the steps they take to get their.  Making this data available to technologies like machine learning and AI which will improve the quality of advice and guidance that can be provided.  Eventually, we will reach the stage where the data is rich enough and the application won’t advise the customer what to do, it will just do it.
  • But mainly because it focuses products on the essence of customer success in a B2B SaaS context: delivering the customer’s desired outcome out-of-the-box.  That is the promise companies sell but so far the vast majority have failed to deliver.

What will stop it happening?

Too few companies understand deeply their customer’s goals and the challenges they face in achieving them.  They lack the basic understanding of what drives customer success.

Many, particularly older SaaS companies, will struggle because they lack the joined up data and organisations needed to deliver this agenda.  The biggest barrier is one that has dogged companies for years: legacy mindsets!  I can hear the naysayers already saying that this is pie in the sky, that people-based relationships are the key: that there is already too much on the roadmap.  They argue that their customers and products are too complex.  Ask the same people how they respond to constant interruptions from suppliers wanting to help them or if they understand their own goals and the plans they need to put in place to achieve them.

Most of what companies put in place in the name of customer success today is to address failings in building a business and, particularly, building a product for customer success.  I do not expect companies to solve this challenge in one go.  It will take an iterative approach; building understanding, testing and proving solutions before chopping the top off the next bit of the iceberg to appear.

Most of all, it will become mainstream because it is already happening.  I am talking to a number of startups that are taking this approach from the off.  If you are doing this, I’d love to hear from you.

 

Graphic from Pixabay

The robots are coming

The role of AI in Customer Success 2.0

It is one of the most talked about subjects in technology – artificial intelligence.  According to some, it is going to revolutionise the world.  Kevin Kelly (of Wired fame) describes AI as the second industrial revolution in an insightful TED talk.  This blog examines how AI will change the field of customer success; specifically the contribution it makes to the development of CS 2.0, where the product is at the heart of and the main delivery vehicle for customer success.

Let me begin with a grossly simplified view of the elements of AI.

Data capture and categorisation -> Machine learning -> Propensity modelling -> AI applications.

Data capture and categorisation

AI without rich data is an oxymoron.  Tools for smart capture and categorisation of data are the foundation of AI.  In the field of CS, a single customer view has always been; with the advent of AI is not optional.  Tools are emerging that capture data from documents and others that use AI to rate the quality of data.  And of course we are all aware of AI based intelligent assistants that recognise and respond to speech.  These will be used increasingly in a business context.

Machine learning

Machine learning is the automation of pattern identification in large data sets.  It answers questions like “What product usage data correlates with churn  are the characteristics and activities that correlate with retention?” or “What customer characteristics lead to churn?”

Propensity models

Propensity models use the patterns identified via machine learning to predict outcomes.

AI applications

These are applications of AI to do specific tasks.  These may be full automation of tasks or automation used to guide people in the completion of their work.

Here are a number of tasks where AI applications will contribute to customer success.  Many of these are already in use, although most are still a minority sport.

  • Conversational discovery.  Natural language interactions to collect information on the customer’s goals, challenges and modus operandum.
  • Customer ROI guidance.  Delivered in the application itself, AI will identify the actions a customer should take to achieve their objectives/desired outcome.
  • Personalised implementation plans.  On-boarding tailored to a specific customer’s situation and goals
  • Next best actions will replace playbooks.  Playbooks are typically a company’s interpretation of what a customer should do next.  Next best actions use more granular data patterns to understand context and suggest an action.
  • Customer health/engagement scoring.  AI driven health dashboards will improve the reliability of scoring and will self-adjust as continuous machine learning identifies changes in the underlying data.
  • Feature targeting.  Identify customers that can gain greatest benefit from new features and should therefore be targeted first.
  • Sentiment analysis. Discerning the behaviour and intent from the content and tone of customer conversations.
  • Upsell targeting.  Listing the customers most receptive to additional purchases and why.
  • Content curation.  Identifying the content which will be positively received by which customers.
  • Dynamic pricing.  Suggesting the best price for up-sells and renewals.

Here and now

I am not suggesting that these capabilities will be widespread this year, not even next but I think many underestimate the maturity, sophistication and speed of development of the technology.  Here’s a few things to take note of.

  • Research from IDC into the use of AI in CRM suggests that 55% of companies expect to have implementations (not pilots) established next year (2018).  This will generate additional revenue for the companies using AI of $1,100 billions by 2021.
  • AlphaGo, a Google AI programme beat the best two Go players in the world in 2016.   It was coached on how to play.  Its’ successor, AlphaGo Zero was just given the rules of the game and learned how to play itself.  It took AlphaGo Zero just three days to reach world beating standards using a fraction of the computing power.  Professional players say it uses moves never seen before.  This is what neural networks do and they do it far better and faster than people can.  Imagine giving an AI tool a set of business principles and letting it learn how best to deliver customer success.
  • AI tools are widely available and will become a utility within five years.  The IDC report above suggests spending on AI will grow to $46 billions by 2021.  That is more than the forecast market for CRM, itself one of the biggest technology markets. In November 17, Salesforce launched MyEinstein, a tool to allow administrators, not developers users to build their own AI applications.  Almost all customer success software has, or have plans for using AI in their applications.
  • Andreessen Horowitz, one of Silicon Valley’s leading technology investors believe that AI is a fundamental platform of the same order of importance as cloud and mobile.

AI and competitive advantage

Whilst the technology is vital, I don’t think it is the real source of competitive advantage.  Given its ubiquity, how can it be?  Sure, early movers will gain an advantage but technology that everyone has access to won’t sustain that.  There are two factors that will create the winning edge in the use of AI in customer success.

The first is data – the richness of the picture that companies can build about their customers.  Single view of the customer has always provided an edge.  AI provides the means to extract meaning out of much larger and more diverse data sets.  The more dots you have, the more patterns you can spot.

This is reliant on the second source of advantage; mutuality – a true customer first culture.  Mutuality is not just a belief that customer satisfaction or even their success drives what a company does but about taking actions that are good for the customer and the company.  It is about using the customer’s data to their benefit, not just yours.  It is about doing the right thing for the customer, not just selling them anything you can.  Customers will soon have the means to control access to their own data and will increasingly restrict access unless they can see something in it for them; unless they can see that the company is doing the right things for them.  Remember, it doesn’t matter how good your AI applications are, they are useless without data.

Changing CS

AI will radically change the customer success landscape.  Routine tasks will disappear: chatbots are already replacing the support team and that will extend into the simpler, routine tasks of customer success, particularly as more and more companies build this into their application.  So what of the CSM?  Well if they spend their time doing routine tasks like on-boarding, training and low-level process change; they will also go.  If they are change mentors, guiding people through the human aspects of change, then they will stay.  In proportion, we will need more of these.  We already do it is just that we can’t afford them given everything else a CSM has to do.

Make no mistake, AI will improve productivity and that will impact jobs.  In the early stages, AI will augment people but as confidence in systems grow, AI will take over some tasks.  Whilst I have concerns about individuals who won’t or can’t adapt, I am not fearful of the overall impact.  President John F Kennedy said “We believe that if men have the talent to invent new machines that put men out of work, they have the talent to put those men back to work.”  Throughout history, new technologies have changed work and jobs but the overall effect has always been growth.   People just do different things.  Question is, if you are in CS, what are you going to be doing?

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Is there a role for CS software in CS2.0?

The first of the five tenets I wrote into the CS 2.0 Charter is “Product is the primary vehicle for delivering customer success.  The need for a large CS team could indicate a failure to properly enrich the product.”  I think customers deserve and, increasingly expect, software that guides them towards and delivers their required outcomes out-of-the-box.  Coupled with an increasing desire for self-service: that means no support team, no CS team, at least not as we currently build them.  Putting CSMs in place as we currently understand that role is, in my mind, a failure to create an effective product.  The CS 2.0 approach means that understanding the customer’s way of working, agreeing goals and developing and monitoring a plan of action to achieve those goals is an inherent part of the product.

Few SaaS companies are currently built around this way of working.  Instead of building success into the product, they build a team.  To support these new teams, customer success applications have developed and entered the market.  There are some great products; Gainsight, Strikedeck, Totango, Woopra, to name just a few.  Whilst they all have different strengths, they all start with the same premise. Customer success is a people-centric activity: it needs people and they need information and guidance. In addition, managers need reports and analytics to understand and manage!  The premise of CS2.0 is to replace the people centric model with a product centric model  This raises a big question: “What role, if any, does CS software play when product, not people is the primary vehicle for delivering customer success?”

Let’s start by looking at the major tasks CSMs currently do.

  • Build understanding of their customers and their goals.
  • Establish a shared plan to deliver customer goals.
  • Guide new customers in configuring the application.
  • Train users in the features and how they help the customer achieve their goals.
  • Guide and cajole customers in making process changes needed to achieve their goals.
  • Track usage and encourage wide and deeper adoption.
  • Generate up/cross sell and advocacy.
  • Review and renew the relationship

My vision of CS2.0 is that much of this should and can be embedded in the product.  I do not assume that this shift will happen overnight but I am convinced it will happen.  Let’s start with some initial thoughts on what capabilities are needed.

  • App tracking to a level beyond what is currently available.
  • Tools to enable discovery and problem solving that guide automatic configuration of the application.
  • Context rich, in-app messaging, including video, to guide and cajole the customer into action.
  • Next best actions: micro-workflows based on rich data rather than pre-determined journeys.
  • In-app up/cross sell and renewal purchases.
  • Off-line messaging to reach key customer contacts that are not users.
  • Review the relationship and determine next steps

Of these capabilities, CS 2.0 envisages that only the last two take place outside the product and involve person to person intervention as a default approach.  So what does this mean for CS software?  Here’s my take.

  • As the process of delivering customer success becomes product based, fewer people will be needed to deliver customer success.  That means fewer seats, disrupting the pricing model of many current providers.
  • App monitoring will become core to CS software, giving products like Churn Zero, UserIQ, Pendo and Splunk a more significant seat at the table.  In fact, making this capability native will become a must have.  Expect deep partnerships or acquisitions.
  • Significantly greater levels of data capture and manipulation will make machine learning essential to identify the patterns of activity that drive success for customers.
  • Next best action systems that guide the customer to success based on their specific, current context will replace pre-determined processes as currently envisaged in a customer journey or CS playbook.
  • A signifiant percentage of the ‘one to many’ interventions driven by CS software will be delivered via the product not email or other channels.  Deep, two-way, real-time integration between product and CS software is a must have.
  • Point and click integration with data transformation will be needed to link up the many data sources needed to build deep understanding of the customer.
  • More CS guidance will be delivered through automated chat bots that work with the customer on discovery and delivering their next best actions.
  • All of this makes a rich, single customer view ever more important.  New database technologies like graph that are focused on relationships will be more widely adopted.
  • The danger to existing suppliers comes from two fronts.  New players that build for CS 2.0 from the ground up and existing CRM providers, notably Salesforce.  They have used the tag line ‘The customer success platform’ but, other than call centre/ticketing have never really made a meaningful CS specific product play; despite having all the elements.

In the short term CS software will continue to be focused on supporting the delivery of customer success through people.  That requirement will not stop.  People will continue to be part of the delivery of customer success; just fewer of them focused on a much smaller but higher value part of the relationship.  In the longer term, the drive to product-led CS will place greater emphasis on CS software as the orchestrator of automation through the product.  CS software providers that do not follow this path will become increasingly irrelevant.

Does CS 2.0 mean the end of CSM’s?

I developed the ideas under the banner CS2.0 because I felt most SaaS companies were using old approaches to fill gaps caused by products that fail to deliver successful customer outcomes.  I still do.  I believe that product-led customer success is the only way to build truly scaleable customer success.  New technologies, notably machine learning and artificial intelligence are beginning to take the automation of data-driven, context rich 1:1 interactions to another level.  Such intelligent, automated interventions will solve many of the issues arising from product use without human intervention.

The CS luddites argue that technology will not support this degree of automation.  Well it can today and it will with ease within the next two to five years.  The problem with making interventions effective today rests mainly with companies failure to build a sufficiently rich customer data set.  Context rich interventions require a comprehensive data set covering product usage, sentiment, transactions and, most importantly, desired outcome data.

The same people also argue that this product based approach will eliminate the need for CSMs.  Yes it will; at least in the form most exist today.  Eliminate them altogether? I think not.  Let me explain why.

Most customers fail to achieve value from the applications they purchase not because the software doesn’t work but because their processes and knowledge are lacking.  It’s them; not you.  This doesn’t help you however.  They have not achieved their objectives: their investment has not generated the return on investment you promised.  Cancellation is the outcome.

To ensure the customer achieves their desired outcome, CS has to encompass business coaching: analysing the customer’s context and capabilities as well as their goals and then guiding them through the process improvements that are needed to exploit best your software.  Some companies already have these roles but typically charge for them under the heading ‘professional services’.  I believe that as the performance economy drives us to a pay for results regime, the role of the business coach will have to be bundled into the service and the pricing.  Not getting the customer to success will mean not getting paid!  I will expand on this idea in a future blog.

So instead of replacing CSM’s, CS2.0 elevates their role and skillset; that is until AI develops to take on this role also!

Leading Customer Success into the future 5 key questions for CS leaders

 

The role of the leader places particular responsibilities on the post holder.  One that all too often gets addressed poorly is thinking about the future.  Two things drive this.

There is so much pressure to fix the day-to-day issues; we fix one and another two or three arise.  It’s like chopping off the top of an iceberg: one tenth of the nine tenths was below the water surfaces.  We jump from one problem to the next and before we know it, the future has overtaken us.  I am not suggesting you ignore these issues – you should not! You should however carve out time for reflection on the bigger picture and the changes that are going on around you.

Even those that find time often assume that next year will be essentially a continuation of this year.  That might be ok in slow moving industries where competition is limited and technology is not a factor but do such industries exist anymore?  Most of us face competition, both from direct competitors, new competitors and from other ways customers can spend limited time and money.

Here are five questions you must answer to shape the future of CS in your company.

1. What outcomes do customers want that we are not serving?

No software product I have ever encountered does everything, which suggests that there are opportunities to extend your reach to solve other problems and aspirations customers grapple with.  This requires a deep understanding of customers that surveys and focus groups are unlikely to uncover.  Only by studying your chosen customers and their work can you identify effectively ‘new’ needs.  The best approach I have come across is job or task mapping: documenting what your target customers do and where their needs are not served effectively by existing approaches and technology.

One other technique I have found invaluable (for B2B providers) is seeking an understanding of your customers’ customers.  This can put you one step ahead of your customers and your competitors.

2. How can we use our product to guide better customers to achieve their goals?

Much of what we do in customer success is fill in the gaps in what our product should do.  This is the first tenet in the Customer Success 2.0 Charter and covered in greater depth in this blog.  If we are to scale the business significantly and and profitably, we have to get out of this mindset of every n new customers requires another CSM.  Productising the discovery, delivery and tracking of a customers’ goals is the best way to scale.

3. What technologies and business models are emerging and how will they change our customers’ lives?

The world is full of people who have said “That will never take hold” who have been proved wrong by those that have done it.  Oracle’s Larry Ellison initially dismissed cloud computing/SaaS and lost ground to Salesforce in the CRM market as a result. The recurring revenue model is now spreading outside software: Porsche have recently announced a $2,000 per month subscription that allows members to drive a selection of their models.  It is an interesting fact that no company that led in one wave of technology has ever gone on to lead the next wave.  Real change starts in the margins, at the edge so keep an eye on them.  I often look at Google search stats to see how new ideas are developing and growing.

As above, extending this understanding to your customers’ customers can also help.

4. What technologies and business models are emerging that can change how we deliver value to customers?

Whilst the research is the same as the above, the application is different.  Do new technologies allow us to enhance our product, scale more profitably, build better insights and execute for customers more effectively?  Don’t limit your research to new forms of functionality; infrastructure is a key component of any SaaS business and new ways of building applications can have a significant impact on the ability to deliver an application that better meets customers’ needs.

5. How can we engage better our people to deliver value to customers?

Some have said that CS 2.0 is about removing people from the process: the end of CSMs.  It’s not, although I do see a distinctly different focus for them, which I will address in a forthcoming blog.

I do not think there is any radical new thinking on this front, although I do think there is a massive gap between good practice and common practice.  All too often, so called leaders still view people as resources.  I have never met anyone who gets up in the morning, looks in the mirror and says “Thats a great human resource!”

I have always looked for ways to engage people better, which to me comes down to the following:

  • Understand and if necessary, help them develop their life goals
  • Give people a purpose for their job beyond earning money
  • Tell them honestly how they are performing, what they are doing well and how they can improve
  • Invest in learning and developing and especially on-the-job coaching
  • Give them the opportunity to share their concerns and, most importantly, shape their job
  • Recognise their successes publicly with a generous spirit and no, that does not mean money

Making a start

For me, these five questions are not something to schedule a couple of weeks before the annual budget round, although implementing some of the learning will need to be built into plans and budgets.  They are questions that a CS leader should have at the back of their minds constantly.

I get a lot of my ideas not from studying the work of others in CS, although I do that but from researching other business functions and disciplines.  I am a great student of emerging technologies and research into how people think.  I set aside an hour, twice a week just to research.  I am an avid consumer of TED talks, especially those exploring human nature.

One way to develop new ideas is to set outrageous goals.  A CEO once asked me how could he scale the CS function ten-fold?  I took that and asked how could it be scaled 1,000 fold.  That pushes thinking in different ways, forcing you to explore discontinuous approaches.

Be unreasonable!

I think this challenge is best summed up by the Irish playwright George Bernard Shaw who said “The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.”

Go forth and be unreasonable!

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.