Recently on the ‘nuffsaid podcast we spoke with Dave Jackson, CEO of TheCustomer.Co about his new book, Customer-Led Growth: A CEO’s Guide to Building a B2B SaaS Company.
His book provides a comprehensive, principles-first overview of building a customer-first company. While the obvious audience is CEOs, anyone on the executive team will gain insight and value from this thinking to improve their org culture and design.
In this newsletter issue, we will share an excerpt from his book about the trends affecting Customer Success and how we need to evolve due to those changes. This section also gives insight into the principles Dave believes are at the core of Customer-Led Growth. You can purchase his new book here.
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When presented with a new challenge, you must take a new approach. Here are two major challenges and approaches I think are shaping B2B SaaS businesses.
#1 Spiralling acquisition costs
The growth and acceptance of SaaS as a business model has seen an explosion in the number of companies adopting it. New companies appear daily, and old-style software companies are busily transforming their value propositions, products and organisations to become SaaS providers. One problem this has created is the cost of acquiring new customers.
Anyone selling SaaS in its first decade will be familiar with this scenario. Marketing created awareness through content, events, search and cold-calling, generating leads which, at a certain point, were passed to sales. Sales, hopefully after researching the company, began a conversation with a contact, which led to multiple other contacts. A demonstration was set up, which if successful created the opportunity to negotiate and hopefully close a deal.
Research from CEB suggests that, on average, 5.4 people are involved in a decision to purchase a SaaS software product; 6 to 11 for complex products! More content is needed for more people involved in the buying decision, further increasing costs. Dealing with this number of buyers requires more marketing and sales effort, extending the sale cycle and increasing acquisition costs.
As more suppliers enter the market, often addressing narrow niches, more companies are bidding for search keywords, pushing up the price. Content marketers are becoming more expensive as the volume of content pushed out by B2B companies expands significantly. Target buyers are swamped by the explosion of content, which is also driving down the number of shares. Now, only great content that addresses the specific needs of target customers has any chance of meaningful success and that is fleeting. Growth itself increases costs. Early customers recognise readily the pain point the company is addressing and are willing to be early adopters. Once this low hanging fruit is captured, more effort is needed to build awareness and drive conversion.
The upshot, according to SaaS data specialists Profitwell, is a 50% increase in the cost of acquisition (CAC) of B2B customers over the last five years.[1] Generating the best possible return on increasing CAC places greater importance on retaining and growing those expensively acquired customers.
#2 Freemium and atomisation of the buyer
This high-cost acquisition model is still very commonplace and, in some circumstances – notably applications that have to be implemented enterprise-wide, may be a valid approach. There is, however, a fundamental change underway. Software acquisition is driven increasingly by individuals and teams, not entire companies. Faced with a specific need, many users will find and adopt software of their choosing, taking advantage of free or very low-cost offerings. They don’t have the time nor inclination to convince their company to buy a new software package. They don’t know how to navigate a selection and procurement process. They just want to get on and do their job.
Conditioned by the instant availability of applications on ecosystems like Apple’s Appstore or Google’s Workspace Marketplace, users now expect instant access and a richly-featured free app or free trial. This is another example of the consumerisation of business software.
These individual buyers rarely want to get involved with a salesperson. Equally, the companies supplying software in this way can’t afford a traditional sales motion and even if they could, few traditional salespeople would be interested in the volumes and low commission potential of low average sales values. What these buyers want is a product they can access immediately, use immediately and get value from immediately. This changes the customer lifecycle fundamentally.
The traditional SaaS model of engagement can be characterised as:
See -> Try -> Buy -> Use -> Value
Atomisation of the buyer, enabled by the freemium business model, rearranges the steps:
See-> Value -> Buy -> Value -> [Buy -> Value]n
This cycle also starts with marketing driving traffic, increasingly using viral techniques, but changes thereafter. The fundamental shift is that customers expect to see value, to experience the magic if, or even before, they buy. Conversion to a paying customer begins the value cycle again, but payment often raises expectations so delivering value repeatedly is essential to secure renewals and expansion.
With the product-led model, revenue is generated by customers that buy, not by salespeople selling. Delivering value (aka CS) becomes the central driver of the initial and subsequent sales motions. The linear representation of the funnel, even the dicky-bow, are redundant. Modern B2B SaaS is a repeating cycle of value-enabled buying, where the maxim for the supplier is “deliver or die”.
Rethinking customer success
These changes in the way SaaS software is built, bought, and used have massive implications for B2B SaaS companies and how you should think about and deliver value to customers. Here are 5 ways companies will need to rethink CS.
1) Person not company
The premise of this is that a company buys business software to address a challenge or an opportunity, so the outcome has to deliver a measurable benefit to the company. Success plans are developed that focus on the company’s desired outcome. The underlying assumption is that different roles are team players in a game with the same goal. The company is the determinant of value.
This premise is wrong on two counts. Atomisation of the buyer has changed the buying unit for many B2B applications. Understanding the needs, expectations and work of the individual is, therefore, the key to both the initial sale and retention/expansion. Even in sales of enterprise software, success at all stages of the customer lifecycle is dependent on understanding, shaping and achievement of goals of different individuals.
2) Minutes and hours not months and years
In the 1990s, a multi-national customer of mine decided to implement a new ERP system. The project involved hundreds of members of staff, contractors and consultants (not me) and took almost five years to implement. Such was the challenge of getting users to adopt this behemoth that at one point the team gave users project swag – mugs saying: “Resistance is futile”.
Fast forward 25 years. Download an app from the AppStore and it is available instantly and, in the vast majority of cases, you will be using it in minutes: all without the intervention of a salesperson, an implementation team or a CSM. Of course, there is a difference in scale but that is the expectation of software apps today.
The howls of sceptics saying that’s OK for games, consumer or simple apps are deafening. In most cases, they are wrong. Individuals increasingly want to get started immediately and see value quickly. Their timescales for implementing, using and seeing value are measured in hours and days, not months and years.
3) Value Elements not outcomes
Companies that have implemented CS plans have focused on the outcome the company seeks. When asked, most describe it as a high-level, measurable (preferably financial) business goal. Achieving this outcome or goal is rarely achieved by mastery of the product alone: it almost always involves some changes to working practices, skills and metrics.
As expectations of time-to-value shrink and the focus on the individual grows, this singular goal becomes problematic, even in enterprise software implementation. A singular goal is often distant from the people using the application and requires the involvement of people and processes beyond the core users. In his excellent article,[2] Rav Dhaliwal talked of “buyers vs deployers” and the importance of “understanding the ‘distance’ between the purchaser and the deployer/end user”.
Like beauty, value is in the eye of the beholder: taking a more granular approach to value is therefore needed.
4) Digital, not people, first
Fifteen years ago, setting up a CS capability was all about hiring a team of CSMs to deliver the customer success capability. Today, many companies begin with a digital first approach, where the basic value delivery process is automated. This has numerous advantages:
- It meets the increasing preference of customers for a self-serve approach as a first step;
- It allows an affordable, success process to be delivered to all customers;
- It removes people from basic, repetitive tasks, freeing them up to do higher value, more engaging work;
- Digital first enables scale at profit, contributing to improved valuations.
Let’s be very clear, digital first does not mean digital only! Nor does a digital first approach mean the end of a separate CS team and CSMs. Digital first frees up time to take on higher order, more challenging tasks to which people are uniquely suited.
5) Organisation by design, not alignment
One of the biggest failings I have seen B2B SaaS companies make is buying churn. Driven by a misplaced understanding of growth, they seek to attract customers irrespective of their ability to deliver the meaningful value that underpins reliable retention and growth. This, however, is just one example of an affliction facing many companies: the lack of alignment across departments and teams.
I have come to the conclusion that the quest for alignment is, fundamentally, the failure of the CEO and leadership team to purposefully design a customer-focused organisation. It is a problem that is ineffectively resolved by what I call retro-alignment: an attempt to bridge gaps that result from leaving individual departments to define their processes and metrics in isolation. They all try to do their best for the customer but all take a narrow approach focused on their profession.
Remember your roots
You started a B2B SaaS company because you found a new or better way to use software, a product, to solve a problem. You may well have worked in that domain, experienced that challenge and been dissatisfied with the solutions available. You understand the issues and know what a successful solution looks like and, importantly, how its value is measured. You know that lots of other people face the same problem, so you can define and size a target market. In essence, a new SaaS business is founded on understanding and delivering CS.
This knowledge and experience is the basis you used to build out a value proposition. “What problem do you solve for who?” and “How is your product a better answer than others?” are questions every CEO must answer to attract customers and funding. You’ll find answers to these questions in every successful funding pitch deck. B2B investors want to know that your business addresses a real need in a measurable way to a sufficiently large addressable market. Customer success – the capability, not just the team – is how you address that.
Much has changed in the 15 years since I appointed my first CSM. There have been real improvements in the recognition of the importance of CS and how it is practiced. Unfortunately, many companies have yet to recognise the underlying changes, and as a result they are failing to adapt how they practice CS. They argue that their business is different (it is and always has been), that their product is too complex (their fault) and that customers are too demanding to want anything other than a high touch, people-based service (they often prefer self-service).
I think the best companies keep the founder’s belief at the heart of what they do as they grow and bring everyone and everything back to the customer. Growth understandably brings the need for specialisation and that, without great care and effort, brings fragmentation. Remember the words of Tien Tzuo: “When in doubt, build another vertical silo.” In my experience, this has the discipline of customer success writ large. I hope that after reading this book, you will be better equipped as a CEO.
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[1] https://www.profitwell.com/
[2] https://medium.com/@ravsterd/
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Success Happy Hour is a weekly newsletter for Customer Success leaders. Each week we feature one digestible piece of advice or a framework from a top Success leader, along with the best resources from that week. Subscribe here.
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