When I started in the venture business and met software companies, I never heard the words customer success during pitches or throughout diligence or in board meetings. A few years later, customer success has become equal in importance to sales and marketing and engineering and product within SaaS companies. The steady increasing drumbeat of the Customer Success mantra is reflected in Google search traffic, whose volumes have tripled since 2009 . So, why now?
I’ve been fortunate to meet two experts from McKinsey’s SaaS practice: Monica Adractas who is now head of customer retention at Box and Brian Stafford, a partner. They explained to me customer success is a decades-old discipline. For example, banks and telecom companies have mastered the practice of customer success over the past 20 or 30 years. Both of these industries are characterized by commodity goods, slow growth in the absolute size of the market and intense competition. Stealing share from competitors is the only way to grow. Not surprisingly, best-in-class customer success becomes a key differentiator.
But, the SaaS world isn’t marked by any of the characteristics of the banking and telecom sectors. SaaS spending is $18B and growing at about 20% per year . While competition exists in certain segments, SaaS penetration is just a few percentage points of the total software market, according to our internal analysis.
As Brian and Monica explained to me, SaaS startups are discovering the importance of customer success because of two important properties intrinsic to SaaS companies: the sales process and the delivery model.
In traditional enterprise sales, the salesperson sold the customer a product once for a perpetual license and committed the customer to pay an annual service fee, often 15-25% of the price of the software. Companies like Tableau and QlikTech among others pursue a similar model in which customers pay for their own customer success.
In contrast, SaaS businesses face renewal sales processes constantly. Each time a customer sees the monthly or quarterly or annual subscription payment, they wonder, should I be paying for this? Renewal conversations occur with much greater frequency than with perpetual software sales. Startups that manage customer renewals better than their peers grow faster and require less capital.
Additionally, the buyer is now much closer to the end user. Unlike the enterprise sale to the head of IT, where software is pushed down from the top, SaaS companies take advantage of the consumerization of IT. Positive and negative feedback about the product flow much more freely and quickly to the buyer, accelerating both purchasing and churn decisions. Consequently, maintaining customers requires a nimble customer success team.
Last, the as-a-Service delivery model empowers a SaaS company to initially develop a Minimum Viable Product, and iterate and improve the product over time. To ensure customers maximize the value from a constantly evolving product, a startup must provide on-going training and persistent education in order to achieve engagement and true product/market fit. Often, these conversations provide the customer success team with valuable product feedback to share with the product team.
SaaS is transforming enterprise software. SaaS products evolve faster, are cheaper to operate and are closer to the end user than enterprise software has ever been. But to achieve their true potential, SaaS startups must master Customer Success and help customers understand how to master these new tools. Advances in the sales/renewal process and the product delivery demand it.