SaaS & Customer Success
It has been exciting to see the explosion of interest in the Customer Success (CS) function within the technology industry over the last few years. A vibrant CS community is starting to build, and there’s a healthy dialogue within the community that is starting to shape the future of this function. Some of the software vendors in this space have done a fabulous job in shaping this category, and nurturing the community.
However, in the midst of all these exciting new developments, we have lost our way in some basic CS fundamentals. This is robbing the CS community of knowledge and assets, and putting us on a trajectory for reinventing the wheel.
The concepts of CAC (Customer Acquisition Costs), LTV (Lifetime Value), churn, and the role of CS in improving these metrics are now well understood in the world of SaaS. Given the explosion in the number of SaaS companies, and the fact that every SaaS company has a CS function, most of the conversation in the CS community has been implicitly tied to SaaS. This creates an illusion that CS is relatively new, and that we are starting from scratch.
I want to explore two questions:
– Is CS a direct result of SaaS?
– Is the quantum of knowledge in CS today limited to what we have all learned during our journey of building SaaS businesses in the recent past?
Correlation vs. Causality
Statisticians have noticed that there are periods of time when ice cream consumption increases, and at the same time, the number of deaths due to drowning increases. Since there’s a correlation between ice cream consumption and drowning, does that mean that we should ban ice cream to avert drowning deaths? Or measure ice cream consumption to predict the fortunes of funeral home stock prices?
Absolutely not! Increases in ice cream consumption and drowning rates occur as a result of summer weather. There is a correlation between these two events, but not a causal relationship. There’s a causal relationship between summer and the number of drownings because more people are swimming. Correlation can help you predict what will happen, but finding the “cause” of something means you can change it.
Applying Correlation & Causality to SaaS & CS
Clearly there’s a correlation between SaaS & CS – every time you see a SaaS company, you will see a CS function. The question is – what is the causal relationship for CS?
It’s the Business Model – Subscription Licensing!
While some people get SaaS & CS entangled, there’s really nothing magical or mystical about SaaS. It is simply a delivery model. Years back, when I was part of a team that built a SaaS business, we struggled with the operational complexity and architecture (multi-tenancy). With each subsequent SaaS business that I have built since then, this task has become easier. A lot of the complexity has now been abstracted by cloud vendors, both at the infrastructure and platform level, along with numerous design patterns that are available off-the-shelf. You can now have your SaaS service up and running in a few days, without having to sweat the details.
If you buy into this causality model, the interesting question to explore is, “Did the Subscription licensing model exist before SaaS was born, and if so, did that cause the need for CS in other segments?” The premise here is that the CS community can learn and benefit from other segments that have gone down this path.
There are three prominent categories which used/use a Subscription business model which have been around for a long time before the advent of SaaS.
– Consumer/SMB services (Your broadband connection from your Cable/Telco company)
– On-premise software with a Subscription business model
– Managed Service Providers
Consumer/SMB Services with a Subscription Model
Telco/Cable companies that provide Broadband service have had subscription business models for a long time. The first time I got visibility into some of their churn related challenges was back in 2001, when we were selling software solutions to help them tame their churn. Their annual churn rates were at a staggering 36% , and they were bleeding tens of millions of dollars every year because of churn. Churn was one of the top three issues on the CEO’s list, and they were willing to invest millions of dollars in software tools to help reduce their churn. The challenge was to understand the drivers for churn, implement a solution that could scale to millions of subscribers across a vast geography, and drive adoption.
On-Premise Software with a Subscription Business Model
These companies started to show up on the radar in the late nineties, and most on-premise software vendors have now shifted to a subscription model. Almost a 100% of the newer on-premise startups use this business model, since it helps with both scaling the business and valuations. Driving CS for On-premise software is ten times harder in comparison to driving CS for a SaaS business, since it is a multi-dimensional problem.
It’s more complex because you now have more variables in the software stack that aren’t in your control. These variables are shifting constantly, and you have to deal with multiple permutations and combinations of the stack. You have to integrate with the customer’s environment, and you don’t have control over people who are administering your software. Thus, it is very hard to isolate the root cause of a problem (Demarcation problem: your software or the customer’s software?).
Managed Service Providers
Without a doubt, MSPs are the ninjas in CS. In addition to the challenges listed above, MSPs have to deal with people and process related issues. They have mastered the process of mitigating risk on all fronts to keep customers happy and drive renewals. They also have to contend with having to pay penalties for missing SLAs. As a result, driving CS (they are called Engagement Managers) in an MSP can be a punishing role. The richest source of learning for me about CS has been through dialogues with MSPs and attempting to understand their best practices.
You develop a great appreciation for the multi-dimensional nature of their challenge and how the CS concept is wired into every single functional area of the company. The best run MSPs are like finely-tuned engines with every functional area aligned around delivering an SLA and CS. CS isn’t a functional team as much as it is an operating model that they use to run their business. These companies literally live and die by the notion of CS. It will take several years before SaaS companies absorb the nuances of CS from MSPs and attain a level of mastery.
What Does This Mean for You?
– There are a rich set of learnings and lessons that the CS community can draw from outside the world of SaaS. The only prerequisite is an open mind, and an ability to derive relevant ideas from fundamentals.
– If you are a student of CS and want to excel, find someone in your network who has worked in Managed Services operations or in CS for an on-premise SW business. Buy them a coffee and listen to their story on how they have they have tackled CS challenges. You will learn more in one hour with a $4 investment than you will learn from any other source, and you will develop an appreciation for the multi-dimensional nature of CS.
– If you are a CS leader, and have been struggling to recruit for your team because of the gap in supply of people with CS experience, experiment with recruiting someone junior who has worked in an organization with a Subscription business model. They will have the right DNA/attitude. It is not hard to plug skill gaps through coaching, but it is very hard to instill the right CS DNA.
– If you are on the other side of the table and are interviewing for a CS job, test your interviewer’s knowledge on these basic concepts of correlation vs. causality of SaaS & CS. Do they view SaaS as a prerequisite for understanding CS? If so, the odds are high that you are speaking with a manager who doesn’t understand the fundamentals of CS and has a very myopic and uni-dimensional view of CS. That is probably not a great place for you to learn the finer nuances of CS. Look for an environment and a manager where you can attain mastery over CS.
Ratan Tipirneni is a an entrepreneur, and experienced Customer Success leader, with expertise in driving customer-partner delight, churn reduction, and revenue expansion for SaaS businesses. He has been Senior Vice President of Customer Success & Services at Actifio, Inc. since June 1, 2014. Mr. Tipirneni served as GM of Smart Services for Customer Success at Cisco. He led Cisco’s new software models initiative, where he helped develop the Software-as-a-Service (SaaS) business model. He served as Vice President and General Manager at SupportSoft. Mr. Tipirneni also oversaw the founding and leadership of two enterprise technology start-ups, and filled senior product management and engineering roles at Sun Microsystems.