It’s been a busy summer, but I’m back with more content!
In this episode, the Revenue Builders podcast interviewed me about the latest trends in customer success. I’m republishing this extensive conversation here. We covered a ton of topics, including:
What is the impact of generative AI on customer success?
Why has time-to-value improved for B2B products?
How should sales relate to customer success?
…and many more questions.
You can listen to it or read the lightly edited transcript below. Enjoy!
Transcript
JM: Welcome to the Revenue Builders Podcast. I'm John McMahon, I'm joined by my friend and co-host, the Big Man, John Kaplan. How are you, Kap?
JK: I'm doing really good, Johnny. Really good. Looking forward to this conversation today.
JM: Today we have a very special guest to discuss the ever increasingly important topic of client success. Allison was the Chief Operating Officer at Gainsight. She's been on the board of directors of four companies including dbt Labs and Commvault.
Allison's currently the founder and solo general partner of The New Normal Fund. She's published hundreds of thought leadership pieces about customer success and she's the co-author of the bestselling book, The Customer Success Economy: Why Every Aspect of Your Business Needs a Paradigm Shift.
JK: Allison, great to have you. Thanks for carving out the time. I think this is an awesome topic to bring to our listeners, so thanks for coming.
AP: Absolutely. Thanks for having me.
JM: Let's start with a little bit of a history lesson, at least this is from my perspective, having been in the software industry for a long time. We’ll ground everybody on why client success has become so increasingly important over time. In the old model, companies sold a perpetual software license, where the customer owned the software for life. The customer paid a large upfront fee to own the software, and they paid a percentage of the license as an annual maintenance fee so they could receive software updates. At that time, the updates came out every three or six months, not every day, as they do today.
In that model though, customer success was essentially what I call “break fix.” Something in the software was broken, the company was typically reactive and slow to respond to customer issues. Customer support was viewed by a lot of CEOs as just a cost center to their business. The companies believed that they had secured the customer, and the customer felt captive to the software vendor.
Then the cloud came along and we moved to subscription. Customers gained more power because now they essentially rented the software on an annual basis. And companies now realize that these customers could leave them prior to the annual renewal. As a result, now CEOs put more of an investment in customer service to secure the renewals and reduce churn. Many companies even changed the name of customer support within the organization to “client success” or “customer success.”
The software world is changing from some subscription to consumption. Now the customer holds all the cards, because essentially they can leave at a moment's notice. Customers are billed only when they use the software—lights on, lights off, sub-second billing.
Many, but not most companies are investing more in client success and even client advocacy. And as you state in your book, a fundamental shift has occurred and should occur in most of these companies where client success has gone from a job function to a company-wide movement. So let’s start with discussing why customers now have so much power versus before. And it's not just because we moved from subscription to consumption.
AP: There are a few reasons. You noted one of them, which is that the revenue model has shifted. And because you can't just sell a customer and ignore them after the fact, you actually need to pay attention to them in order to generate revenue for them later. You now need to invest in actually supporting them. So, we go where the revenue goes.
As you noted, with the further shift to consumption-based pricing, you really have to care about whether the customer is using the product because the usage is your most important pricing lever, where adoption is literally equivalent to revenue.
There are other reasons why the power has shifted from vendors to customers. One of them is the rise of social media and people's usage of social media in a work context. People will comment on vendors that they like and dislike online. Negative comments can be amplified very quickly and broadly. Actually, if you have one unhappy customer, to have one negative tweet that's retweeted or quoted or liked many times, that could theoretically take down your company.
Another reason is that there's been a shift to working with customers in digital form. Many sales folks, customer success folks, even CEOs are are on a texting basis with their customers. Companies are increasingly communicating with customers in Slack channels. This leads to customers expecting instant responses in the same way they expect instant responses from their friends, their family members, and their coworkers. With that sort of higher expectation for communication, there's also a generally higher expectation for customer experience.
The reasons for this, in general, have propelled the massive cultural shift to people feeling as though their vendors need to have their best interests at heart. People expect that they're buying something in order to get value.
Increasingly, ROI can be measured, as well. And so with more data on the ROI, comes higher expectation of proof of that ROI.
We're also seeing a big shift toward free trials, freemium, in general, and product-led growth. This means that people actually expect to get value even before they start paying. So, things have been flipped in a number of ways.
JM: I don't think that most companies have really responded to have a company-wide mindset on client success. It’s so important. Why do you think so many companies are a little slow to respond to the critical role of client success?
AP: It's interesting. A few years ago, probably around the time I wrote the book, I would've said there are still many companies that are slow to adopt customer success and realize how important customers generally are to company valuation. Nowadays, I would say that we're in the late majority stage of the adoption curve of customer success. If a company hasn't really started taking customer success seriously, they will probably be left behind in pretty short order.
Nowadays, I work with a lot of venture backed companies. I run a venture fund where I invest in SaaS companies across stages. From seed through series C or D sometimes. And often I notice the first customer facing hire will be a customer success person, not actually a salesperson. This is, in part, because founders already know the value of customer success, having seen it at their past company. And also because of an embrace of product-led growth, where actually you have customers before you have revenue. So, you actually need people who can pay attention to your customers and help shepherd them along the journey. At least in my world, I don't see too many companies who are not embracing customer success. There have been a few changes since I wrote the book.
The fact that companies have embraced customer success as a company-wide imperative sometimes means that they don't invest as much in customer success as a function. That’s because many functions across the company are more oriented toward customers than they used to be.
For example, if your product management team is very oriented toward building roadmaps that address customer value and concerns that customers have voiced, you may not need to invest as much in people who are creating band-aids for product efficiencies. That’s a positive reason why some companies don't invest in customer success as a function as much.
JM: There are a lot of people with the break fix mentality out there that are still holding onto the title of VP of Customer Success. Some companies understand their situation and also cross sell to customers, upsell them on other products. So, I've seen some companies take a VP of sales and put them in charge of client success. And then they hire people that are a combination of a salesperson and a SE—a technical person that actually has really good sales capabilities. Have you seen some of that in the industry?
AP: I do see that as quite common. Sometimes those teams are called account management teams, and you'll have a VP of Account Management who has the sales background. But sometimes, they're called Customer Success Teams. They also might be called the Renewals Team. There are a variety of titles.
There are sales-type skills that some types of customer success people need to have. They need the art of persuading someone, helping to unify two different stakeholder points of view if you're seeing a conflict, helping to guide stakeholders along a certain process of getting to value or coming to some sort of revenue related decision. Those persuasive skills become useful in a different context.
JM: Something else that you talk about in your book is that we have to move towards an organization that is giving to customers and focused on the customer's business outcomes. Not just having them buy the product, install the product and hoping that they get their business outcome. We have to focus on their particular outcome. How's the implementation going? And are they achieving their business outcome?
AP: That's especially true in this macro environment. Any CFO will tell you that they're looking more closely at the revenue. They’re looking at the ROI that they're getting from every software investment that they've made. And ROI is the outcome that customers are expecting. So, it becomes really important for customer success teams, in particular, to be able to explain the ROI that customers are getting.
I'd say even better than customer success solely being responsible for that, would be the company as a whole, as a vendor, orienting customers toward understanding their ROI story and having different functions that the vendor can be responsible for.
For example, some companies are actually embedding dashboards into the product itself, that can showcase the usage that those customers have as well as the value that they're getting on various dimensions. When you're logging into this product every day as a customer and you're seeing the ROI that you're getting, you're reminded on a more continuous and a self-serve basis, that you are getting value.
JK: I’ve had success with focusing on those people that can give me insights into how I'm using their products or services. I gravitate towards the ones that show me what I could be doing to enhance their outcomes.
What evolutions have you seen with building those insights into the product? I think you’ve said it begins with an outstanding product. Has it always been that the insights were built into the product?
AP: It's evolved. Companies have realized that the product itself is a channel to the customer. Actually in some ways, it's the most obvious channel. But historically, this wasn't obvious to companies. They thought that these insights had to be delivered via human. But if people are logging into the product every day, especially if it's a sort of productivity tool, that's a great place for you to showcase insights about ROI. And also help share best practices for customers to actually get value.
That started with in-app walkthroughs. Companies like Pendo started offering these products where you could click through a tutorial. Maybe it was when you first signed into a product or when there was a new feature that was launched.
You still see these, but much like with email marketing, people have some fatigue with in-app messaging. So its power has been diminished a little bit. But folks have learned other ways apart from these standard walkthroughs to help educate the customer in the product.
For example, companies like Airtable have templates so that when you first log in, you can choose among the possible use cases for that product. To not have to deal with a blank canvas, you get value. It’s another form of in-product best practice sharing.
Another indication that communicating things through the product has become much more standard is that you're starting to see a whole category of embedded analytics being built. Companies like Explo and Inventive, as well, are companies that are basically allowing the customers of their customers to see how they are using the product, and be able to improve the value that they're getting from there.
JM: That's one of the laws that you have in the book (I think it's law number five), which is to relentlessly monitor and manage customer health. You say that vendors need to recognize that they're in the business of driving outcomes. And they also must shoulder the responsibility of change management for the customer.
AP: Absolutely.
JK: But you also say in the book, that customer health is to the customer success what the sales pipeline is to sales. It’s the predictor of future customer behavior. How do you monitor customer health? What is your definition of monitoring customer health?
AP: When we started out at Gainsight, the customer health score was the metric that we were evangelizing. It was likened to a lead score in the marketing or sales world. The idea is that you wanted to be able to predict whether the customer was likely to renew. You would have a score that would perhaps range from zero to 100, where a hundred is they’re perfectly likely to renew, and zero is they're perfectly likely to churn.
And that score would be calculated based on a number of other metrics, like product usage, perhaps a recent NPS rating, whether the customer had outstanding support tickets or whether those tickets were severe in nature, or had taken a long time to resolve. You can imagine all the different inputs you would have into whether customers were considered healthy or likely to renew.
As customer success has become more broadly understood as fundamental to a company's nature, as opposed to particular functions, it's become important to understand that there are different things to measure with your customers in order to know how your business is operating. For example, the PQL (product qualified lead) is a metric that is commonly adopted, particularly by venture backed companies. But also by some public companies, as well, that have more product-led models.
If you had a segment of users (such as ones that signed up through a self-serve method with credit card, virtually on your website), the PQL helps you understand whether these users show signs that their account is primed for a corporate level contract.
So if you have a bottom up model, you may have a bunch of users at a particular company signing up for your product. Maybe they're not actually collaborating, but they’re independently realizing that this is an interesting product. Then they start working together through the product and start using it more. This could help you realize that if you sold to an executive level or central point of contact at that company, you could sell an even bigger contract size than what all these individual users are paying for.
You could, in turn, offer more value by enabling permission controls, better types of invoicing and billing, visibility into what those customers are using. There's may be some more advanced features that an organization could benefit from that individual users couldn't.
So, the PQL is not a predictor of renewal, but a predictor of whether there is a massive upgrade or expansion opportunity that's possible. Separately, you might predict what the renewal is likely to be. And you also might have some kind of prediction mechanism for whether that particular customer account is likely to refer in other accounts. That’s another source of revenue that you could have from your customers.
So this original thought of a universally valuable score for customers, I don't think that that's as relevant to how companies are operating nowadays. But it was a very useful foundation for building the customer success movement.
JM: You see more companies building instrumentation or telemetry into their products so that they can make the client success people more efficient. This helps them understand the ideal behavior of a new customer that just bought their product. And when they see that someone's going off the ideal behavior, it may trigger that they're not using a certain feature, or using a certain capability in the wrong way. It sends a trigger to client success. Now they know specifically why they should be calling the customer and what type of problem the customer's having.
AP: That's a very standard workflow at this point, and it's wonderful to see it so broadly adopted. That's an example of a real-time translation of data into action, that doesn't necessarily speak to some kind of predictive score of some future revenue outcome. It's simply noticing a behavior and allowing you to take action right away. That's really where you want to be operating as a company, in the moment helping customers as opposed to wondering what’s going to happen three months from now. Certainly, you can change that outcome if you're responding in real time.
And it's hard not to bring up generative AI in any discussion nowadays. It really impacts every industry and all parts of our lives. But with generative AI, many companies and many startups are building on OpenAI's GPT-3 and perhaps building other models or building on top of other platforms. The goal is to surface insights from all the data that companies are gathering on their customers and to be able to crystallize those insights into talking points that a sales rep or a customer success person might be able to use with their customers.
You can have software that looks across all these data sources and doesn't just tell you that a customer's usage dropped, you should intervene now. But it’s much more valuable if it informs you that a customer's usage dropped and here are three best practices that you could recommend to them.
It’s even more powerful if it also provides you with the email template you should use to contact that customer. And maybe it flags several other similar customers that were able to recover from that low usage and recommends that you reference those customers in your email as a proof point.
We're now able to translate customer behavior into action. And we can also not just prompt the action but actually formulate the language that people can use. That's a whole other level of ensuring great customer outcomes.
JM: Then when you can look across all your customers with that perspective, that can also help further define the ideal customer profile. And maybe you can even figure out what new capabilities or products you may need from that ideal customer profile across all your different customers.
AP: Definitely. That ideal customer profile becomes very important. Especially for marketing folks or sales folks. Even more so for early stage companies that are trying to figure out what's working among their existing customers. It helps them identify what types of customers should they target as their next bowling pin—to use the cross the chasm analogy.
JK: In the book, you talk about joint success plans and being very transparent with data and strategy. How much of the insight that you're gaining about what that customer might be struggling with do you share with customers as part of the plan?
AP: In general, our society is leaning toward greater transparency. There's a general mistrust of authorities and of the vendors that are selling us things. The more transparent you can be as a vendor, the better. It actually builds trust when you can say things like, "We messed up."
I remember one time at Gainsight we had a customer, unfortunately, that was not getting value. Their implementation kind of dragged on. It had a lot of false starts for different reasons. Some of those reasons were not Gainsight's fault, if you could possibly decide it as a binary choice. But some of them definitely were our fault. We had not executed well.
My team and I got on the phone with the customer and said, "We're sorry, we messed up. We want to make it up to you. Here's what we're prepared to do. We're going to dedicate these particular people. And on this timeframe, we think we can get you from X to Y. But we need your help, as well, to do that. What do you think?" And I think there was almost a silence on the other end because they were so shocked that we admitted a failure.
People know that other people are fallible, that they make mistakes. What's unusual is that they will have the humility to admit to it. That humility can really help build the trust that ends up building your business. So besides admitting mistakes, which hopefully you don't have to do that often, you can share things, such as how much is the customer using the product. Or what ROI the customer has gotten. In cases where the usage and ROI is pretty low, sharing it with the customer can actually be an opportunity to prompt them to action. I've noticed a very successful tactic is to show a customer where they are in terms of benchmarking with other companies that are like them.
If you tell them they’re at the bottom 25th percentile of similar companies using our product, that implies that they could be getting more value. That’s because 75% of companies that are them are getting more value than they are. So, it inspires a competitive spirit. That ends up making the customer engage more with you and therefore helping them get more value.
JK: It's just human nature when you make an investment in something to get an outcome, to ask yourself and the vendor how you are doing against others. Anybody listening to this podcast, you've all been asked before by your customers about how they look in comparison to other customers. How is their ROI versus other customers? It's just a basic expectation today.
AP: Absolutely. And again, there are software products that can help you showcase that to your customers.
JK: On these laws, one of them that I'd found really interesting was obsessively improved time to value. That was law number eight.
JM: Yeah, I like that one too, Kap.
JK: For SaaS companies, it's the length of the subscription. It just blew my mind when I thought about what that means for consumption.
JM: Also for PLG companies, they have to obsessively improve time to market, time to value. Otherwise, if it keeps extending, customers don’t feel like they’re getting any value.
JK: What are things people are doing? Start with subscription and then talk about the other models.
AP: Time to value is, as noted, one of the most important metrics you can have in customer success or at your company, generally. And very interestingly, I've noticed time-to-value metrics improving over the years. Nowadays, it's very unusual that I would talk to a company and they would say that it takes them several months to implement their software for their customers. It probably would have more to do with the age of company—if they hadn't adopted more modern software best practices. Or might have to do with the industry, like if you're selling into an industry that happens to have very tough implementations for one reason or another.
But for the most part, I see time to value as having massively improved. It's a result of a few things. I think one is that products are just getting better. They're more easily usable. I think they're built more for the user than they used to be. They used to be built for the executive who was looking at the demo. Now they're built more for the person who's administering the product and using it. Also there are many more products that vendors can buy to build into their tech stack. So, certain things that you might have had to do yourself, you now no longer have to do.
A good example of that is integrations software. It used to be that you would have to hook up the integrations between all these software products yourself when you were trying to get a customer live on your product. But now, you can buy software that automatically allows you to build all those integrations. All those things have contributed to better time to value. Companies are also better at measuring it. So, they can learn how to get better at it over time, as they continue to grow. They're more thoughtful about staffing up to ensure that, if needed, there is a human supporting onboarding. It's an area you have to focus on.
There are other types of strategies that people have used to get their customers help. Having really strong product documentation is very important. It's important to keep it up to date. Increasingly, we're finding that the users of products are more technical than they used to be, even if they're not actually developers or people who are necessarily in technical roles. They have more technical skills, which often means that they're more comfortable looking at product differentiation and answering their own questions. The best companies think of documentation as a type of product in itself, where they release updates to documentation in a structured way. They think about the impact of a new release on past documentation that was written and ensure that it's kept up to date.
JK: On that question of obsessively improved time to value, is it just the same for consumption or are there any nuances?
AP: What is often true for companies that have consumption-based pricing models, although not always true, is that they have some kind of self-serve signup, where individual users will sign up for a product. And therefore the onboarding is at the users level, not an organization's level. So the thinking about user level onboarding, it's often a different type of problem than company level onboarding.
Company level onboarding used to be the norm. You would have to get a bunch of different functions into a room to talk about what the project plan is and how you're going to manage this implementation. You might have a group training at the end to get all the users into the room and train them on the product.
Actually, in the Gainsight early days, we used to fly our customers’ teams into a particular classroom setting where we would train them on how to use the product. At the user level, it might be simpler in some ways, but also the expectations are very high. Usually, user level onboarding is done in a self-serve way using documentation and perhaps some email correspondence.
It is interesting to see that some companies find that there's a lift in their lifetime value of their users if they have a human in the loop. For very product oriented companies, this might initially seem kind of crazy. But Superhuman is one example of a very product oriented company that found it valuable to have a 30-minute onboarding call for every new user with a person who would walk them through how to use the product. For those who don't know, Superhuman is basically a super email inbox. You can use key keyboard shortcuts to do all the different operations that you normally would with your inbox.
I remember going through this onboarding myself, maybe, five or six years ago when I first started using Superhuman and was surprised that they bothered to have a human call me. But I could tell that they weren't simply satisfied with having a person on the phone with me, they wanted to make that person much more efficient in the way that they helped onboard me. It was so that they could, I imagine, shorten those calls over time. But then also, they increase the value of that call to me. In particular, they had their own custom bill product tutorial that that person on the phone walked me through. The tutorial would tell me to practice creating a new email by pressing a certain shortcut. Now practice searching through your email using this shortcut. It forced me to do the thing, that I frankly, as a busy executive, may not have bothered to spend the time doing on my own.
There's probably an accountability mechanism in having someone on the phone with users. There's also just the benefit that you have of being able to ask someone questions as you are going through a self-serve workflow. So, I encourage founders who are more technical to really think about how can you use the right combination of humans and software in order to drive the highest LTV lift for your customers.
JM: Do you think in your experience now that most companies actually can get down to the granular level of understanding the root cause of churn?
AP: Some companies, unfortunately, think of it a little superficially. One way in which they might think about it too superficially is they might note things, root causes that are outside of their control, seemingly. Like the sponsor of our product left the company, or we lost to a competitor, or this company was acquired by another company. Well, those are interesting facts, but they don't speak to root causes that existed, but that were also in your control.
When your customer gets acquired by another company, that is not an inevitable churn reason. It actually might be an opportunity to expand your deployment to the larger company that just acquired your customer. That might be the best thing that's ever happened to that account.
What's important about these facts is how you respond to them. It might be that those customers are not worth saving. For example, you might find that you've sold to a lot of small business customers. It's a fact of life that small business customers tend to churn at a higher rate. Many of them might go out of business or be acquired. You might decide that we no longer want to focus on the small business segment, we want to move up market. And that's fine.
It might be that you made execution mistakes with those small business customers, but you might decide it's not worth it to try to improve that execution. I think what's important is just being honest with yourself about what you can improve and what you can't, based on the strategy of your company at the time.
JM: Just to educate our audience that may not understand how you measure churn, can you quickly explain the different ways in which people measure churn? Also, which of those metrics tells the true story of churn?
AP: Particularly in the early days, but also in general, folks are measuring churn both on a dollar basis and also a logo basis. The dollar basis is obviously very important because it maps back to your P&L as a company and it's harmful when you're losing revenue. But the logos are also valuable to look at because it essentially tells you the number of people that are unhappy with you. And that's an important number, especially if you're an early stage company trying to establish yourself. The more people you have out there that don't like you, the harder it may be for you to build positive word of mouth about your company, hire great people and also attract great investors. And of course, attracting great customers going forward. So, it's valuable to track both.
Of course, people also track net dollar retention, not just gross retention. Gross retention is the inverse of gross churn. Net dollar retention says that you can make up in one way for gross churn by upselling other customers. So, it might be that some of your customers stayed with you and they bought more from you over time. You take the net of the churn and the expansion, and you end up with net dollar retention. So, gross retention can be up to a hundred percent, net dollar retention can be greater than a hundred percent because you might expand more than you churn.
Net dollar retention has become the gold standard for measuring revenue from your customers and how it's moving. Generally, people look at new logo revenue. Those are the new customers that you're bringing in. They're bringing in a certain amount of revenue. Then they look at net dollar retention, which demonstrates that if you brought in a new logo dollar, how much were you able to expand that, say, over the course of a year? Best in class net dollar retention is probably 140% plus. But the problem with net dollar retention is that it doesn't tell the full story.
JM: It masks a problem. It says you're doing great in your install base or you're doing great with the customers that have not left you. But it's not talking about the customers that have left you and how fast your install base is decreasing.
AP: Exactly. Even if you're making up for it in a sense of expansion, that decrease is a problem because you end up with more people out there who aren't happy with you for whatever reason. Secondly, you've lost a customer that you could potentially expand. So, there's a missed future revenue opportunity.
The fact that you're losing those customers might signal that something else is wrong. For example, your product might be deficient in some way, or maybe your go-to market strategy isn't appropriate. Maybe you're not selling to the right type of customer, maybe you need to change your ICP or your ideal customer profile. Perhaps there's some kind of execution problem.
Maybe the fact that you're losing some customers points to misalignment between functions at your company that are expected to work together in order to ensure strong customer outcomes. If you're ignoring that churn, you might be ignoring more fundamental problems that might handicap your growth as the company.
JM: Have you seen it all over the map, for those different reasons? Or do you see more of a common reason?
AP: The most common cause of churn in top-down companies, tends to be the loss of a sponsor. The person who, with the executive that initially signed the contract, leaves the company and you're stuck trying to put together the pieces. You’re working with this successor who might have a different perspective on what vendor is right for you. Maybe if you didn't generate enough value for the users, there's not a more organic homegrown movement to support your company.
Another very common reason is that onboarding failed. We've talked about the importance of onboarding. There are obviously other types of reasons that a customer might cite for why they would churn. As a CEO though, if you're looking at your company and wanting to know what you can learn from churn, your mindset should always be focused on how you can make the fundamentals of your company better. How can you create better product market sit, sell into a market that is ready to buy your product and has large budget, in particular, readily available? How can you improve alignment at your company?
There's a blog post that I published, I think it was about a year ago, that was entitled Talent Efficiency. It spoke to seven fundamental attributes of the company that if you have them, it makes it much easier to grow your company into a hundred million dollar revenue business. As a founder, you should always be thinking about, in my opinion, those seven things. Churn is one vehicle through which you can learn how to improve those seven things.
JK: You say a company has to find a natural orientation around CS, and the roles that you need to have to be successful in implementing CS. What do you look for as it relates to product and marketing and sales?
AP: A really interesting indication early on of whether a founder is naturally oriented toward helping customers is if they talk about customer success stories in their pitch deck. Do they show some logos of customers that we're working with and here are some quotes that from those customers? Or do they show how they have gotten value so far and maybe some statistics that those companies would mention in terms of the ROI of your product?
Sometimes CEOs are oriented towards showing that they got this flashy new customer. But they may not be as oriented toward just bragging to investors about their customers in terms of the value that they've been able to generate for customers.
Other founders are very keen on generating value well before they charge customers. Your design partners might say how much value you add. You become so core to what their team does that they couldn't imagine living without you. Because of that, they have to have a contract with you. They’ll say they have to start paying because they worry that without formalizing this, they might have to give you up at some point.
I get so excited for my founders when they start hearing that from customers. It's the ultimate proof when customers come to you and say, we have to start paying now. That's another good indication of whether a company is really naturally attuned to customers.
Another one, as I mentioned earlier, is that a founder hires a customer success person as one of their first customer facing hires.
JK: Where to align client success and customer success? It’s the age-old question. Is it separate from sales? Is it part of sales? Pros and cons?
AP: This is a great question. There isn’t a universal answer. And actually, all through my time at Gainsight, certainly we were selling into functions that were usually called customer success or client success. I'm not particularly biased toward that function. What matters to me is whether a company, in general, is creating value for their customers and different functions might contribute to that.
As an example, at Snowflake, for a long time there wasn’t a function called customer success. There was sales and solution architects. And they worked together across the entire customer journey. That seems to work quite well for accounts where expansion is projected to be high; I believe they sometimes now have account managers where the expansion potential has already been tapped out.
Dbt Labs, where I'm on the board, is an incredibly successful company, backed by amazing investors like Sequoia, Andreessen Horowitz, and they're growing incredibly fast. They have a similar structure to Snowflake’s. They have account executives on the sales team, working side by side with solution architects across the customer journey.
What's important is the combination of skills that this set of functions creates. You need to have someone who's covering stakeholder alignment, conversations where persuasion is important. You need someone who is really internalizing the high level ROI that a customer is getting. Someone who can work with executives and the customer.
Then, you need someone who's working with the practitioners, helping them be more productive with the tool—giving them tips on a technical level. As long as you've got those two things covered, you should be fine in generating great customer outcomes. So, I don't believe there's a universally right set of functions or org chart. I think what matters is that you're covering all of the jobs to be done at your company.
JM: And as you say in the book, injecting CS into the existing way that people work. So, you're seeing more and more salespeople being comped on net new ARR, meaning if someone brings in a $1 million deal, but you lost the customer for $100,000, you’re getting paid on $900,000. And then they're aligned also to the compensation plan of the client success people. Through the comp plan, you're changing the behavior and almost forcing them to work together.
AP: Absolutely.
JM: We talked about instrumentation in the product, and you're also starting to see some things that marketing is doing, with marketing strategies around the data that they're collecting from client success to inject it into their organization also.
JK: We're going to have to invite Allison back.
JM: The tip of the iceberg with you. We're going to have to lure you back somehow. But thank you so much for giving us and our audience such a fantastic overview of client success and some of the elements of it. You did an awesome job. Thank you.
AP: Thank you for having me. This is a lot of fun. You all ask great questions and I'm happy to come back at some point.
JK: How do people engage with you?
AP: I spend most of my time working with CEOs, as a result of having invested in them. So, I tend to be a COO thought partner to CEOs, pre-seed through the later stages of the company. And they're welcome to reach out to me. LinkedIn is probably the best way.
JK: And you've got an incredibly successful newsletter, as well.
AP: Yes, I have a Substack, it's just called Allison Pickens’ Newsletter. And folks are welcome to subscribe there for free, if they'd like to hear about best practices from CEOs who are scaling their SaaS companies.
JK: And of course, The Customer Success Economy: Why Every Aspect of Your Business Model Needs a Paradigm Shift. Allison Pickens, you were awesome. Thank you for joining us.
JM: Allison, you're a powerhouse. Thank you.
