Establishing a Framework for Customer SuccessJune 9, 2020
The Acceleration Team here at Bowery Capital pays close attention to our portfolio companies’ early customer success, and for good reason. With the trend of enterprise sales cycles becoming more complex and at times longer, we have seen the continued rise of land-and-expand sales models. Due to the customer already having some experience using the product, this type of model typically entails a lower cost of acquisition and can be quarterbacked by a customer success team. In that regard, customer success can be just as (if not more) important than customer acquisition when it comes to revenue growth. SaaStr Founder Jason Lemkin even went so far as to say that “customer success is where 90% of the revenue is” at the Gainsight Pulse Conference back in 2015. As an early-stage founder, establishing a framework for customer success is key to long-term scalability.
1. Choose the Right Customers. The first thing that will help ensure customer success is, well, choosing the right customers for your product. Lincoln Murphy, Growth Consultant at Sixteen Ventures, touched on this point when he joined us on our podcast back in 2017. He warned against onboarding customers who aren’t a good fit with the goal of boosting early revenue numbers as there is little opportunity for upselling and a high chance of churn. Furthermore, customers who aren’t a good fit will clog up the customer feedback loop with suggestions that don’t align with the company’s long-term vision, devaluing the feedback loop itself.
2. Use the Right Metrics. When establishing a framework for customer success, it’s important to track the metrics that are most relevant to a given business. For SaaS companies, useful metrics include average revenue per account (ARPA), expansion MRR, churn rate, and retention cost. Once a company has achieved some product/market fit, we view LTV:CAC to be perhaps the most important metric, as it uses data to explain how customer acquisition investments will impact longer-term growth. Lastly, by keeping track of relevant metrics, a company can create a scoring system to assess the health of each customer. Having a pulse on which customers are succeeding or struggling is key to understanding who is using your product and why, mitigating potential future problems, and refining the new customer acquisition process.
3. Align AE and CS Teams. When bringing on a new customer, having the account executive and the customer success manager on the same page is imperative for a smooth transition. In many cases, it may be helpful to introduce the customer success manager before the account executive closes the deal and to have the account executive to stay involved for one or two steps after the sale has been made. In addition to a smooth transition for the customer, this process creates a sense of shared accountability between the two teams. Early on, HubSpot had an issue with churn–to mediate the issue in the short-term, they added a customer success metric into the account executive incentivization program, which eventually facilitated long-term alignment between the account executive and customer success teams.
4. Evolving Tech Stack. Founders and early employees at young startups tend to wear many hats as the company gets off the ground. At the early stage, it usually makes sense to use all-in-one (or at least multi-disciplinary) platforms, such as HubSpot and Intercom, to help consolidate customer lifecycle information. As time goes on, more specialized software products, such as Gainsight, ChurnZero and ClientSuccess, will enhance customer success operations and support the unique needs of the growing team.
The bottom line is that if your customers aren’t successful using your product, you won’t be either. Dedicate time early on to identify and figure out how to measure relevant metrics; to establish repeatable processes; and to align the company’s vision with the success of the customers.
If you liked “Establishing a Framework for Customer Success” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog.
Bowery Capital shares key insights regarding funding and growth from our 2022 B2B Marketplaces research.