Only the Paranoid Survive
In 1997, Andy Grove was Time Magazine’s “Man of the Year”. They called him, “The person most responsible for the amazing growth of semiconductors”. Why the accolade? In their first year, Intel’s revenue was $2,672. When Grove retired in 1998 after having been its President, CEO, and Chairman, their revenues were in excess of $20.8 billion. This brilliant man is known for a lot, but nothing is more compelling than the core value that drove Intel during his tenure, the credo that “only the paranoid survive”.
“Only the Paranoid Survive.” – Andy Grove
In his book by the same name, he elaborates, “The lesson is, we all need to expose ourselves to the winds of change”. What follows is a look at what the “Subscription Economy” and in particular “Software as a Service” (SaaS) companies can learn from one of the greatest technology leaders ever.
“While the story is unique to Intel, the lessons, I believe, are universal.” – Andy Grove
The Relevance of Paranoia
Not only are these lessons universal, in a subscription economy, they are even more compelling…
Software as a Service has driven a massive shift in the way companies are run, how decisions are made, and how money is spent. As you will see below, because of these changes, the lessons of “Only the Paranoid Survive” are more relevant today than ever.
Why Companies Spend Money
Innovators and pragmatists…
In “Crossing the Chasm,” Geoffrey Moore described the “Chasm” as the transition from the early adopters to the early majority. Early adopters, the proverbial innovators or change agents, are those buyers who are open to, and often interested in being the first to implement a change. By contrast, the early majority wants to buy productivity improvements. They want technology to enhance, not overthrow, the established ways of doing business. What is especially important about these pragmatists is that they are the gateway to the lions’ share of the market, to the TAM you so boldly spoken about to investors. Although Moore provides a lot of insight into what it takes to “cross the chasm”, I believe there is a critical dimension to consider today that wasn’t as prevalent in the 90s when his research was originally done.
Why Pragmatists Spend Money
That fact is that pragmatists often invest because of the existence of a “burning platform”.
A “burning platform” is a business need that requires immediate and radical change due to dire circumstances. Why is a burning platform so relevant to pragmatists? It is important because in large enterprises there is a risk to one’s career from taking an action to solve an unrecognized or lower priority issue. In reality, most issues that drive spending address large, highly visible, and potentially catastrophic business problems.
“Business success contains the seeds of its own destruction.
In technology, whatever can be done will be done.” – Andy Grove
Only the Paranoid Survive
The requirement to provide evolving outcomes…
The other night I had the pleasure to listen to Lincoln Murphy. In addition to his usual insights, he touched up the fact that a customer’s “Desired Outcome” evolves over time. Based on that insight, here is the challenge. You’ve done a great job; you’ve addressed a “burning issue” gaining the respect and admiration of those who were most likely to go up in flames. Unfortunately, this love affair doesn’t last forever. New problems arise, and new heroes are created. This phenomenon is especially concerning in the subscription economy, in which the question, “What have you done for me lately?” can result in churn.
Agility and The Rate of Change
The competition isn’t standing still.
Remember when you started talking with your customer? Key to those conversations was how easy it is to implement your technology. How implementing software no longer requires years or months, but rather weeks or days, and most importantly, it is easy, low risk, and painless! What you pitched is time to value. Unfortunately, this is not an uncommon message from SaaS companies. What you pitched and proved yesterday, is objective evidence that someone else might be able to quickly, easily, and painlessly replace you because they are cheaper, or because of a new “bright and sparkly” feature that you don’t yet have.
The World of Evolving Outcomes
Is this a problem if your direct competitors aren’t nipping at your heels?
Yes, because pragmatists typically want to pay you less once the fires have started to subside or have been put out. Sustaining is not as valuable as putting out new fires. The challenge is that the money to put out new fires needs to come from somewhere, and often that is from you in the form of decreased ACVs.
Who is the Competition
The “Magic Quadrant” and Competitive Intelligence…
There is a traditional way of viewing competition; this is the traditional “direct competitor” competitors whose solutions are similar to yours, those that you see in the magic quadrant. This traditional view is still relevant, but from a SaaS perspective, we need to consider another view of competition. In the world of SaaS, anyone who consumes the budget of your economic buyer is a competitor. They compete for funds that you hope will be allocated to you year after year. As such, on an annual basis, there is competition coming from a lot of different directions, all competing for the budget on which your renewal depends.
“If you’re wrong, you will die. But most companies don’t die because they are wrong…The Greatest Danger is Standing Still!” – Andy Grove
The Solution in a World of Evolving Outcomes
In the pre-subscription economy of large monolithic software, investments were depreciated over time.
The need to evaluate their value year after year didn’t exist. They were sunk costs. In contrast, today this evaluation can result in churn. At the highest level, there are two common types of churn, gross and net. Gross churn is the change in revenue from existing customers; it includes both decreased revenues from lost customers, as well as from decreased spending for your product. Net churn, on the other hand, is gross churn, offset by any expansion.
Gross Churn, Net Churn, and the Value Path
The key to gross churn and optimizing net churn is expansion via the Value Path.
It’s inherently obvious that net churn is improved by expansion; however, the right sort of expansion can have a significant impact on gross churn. The Value Path aggressively embraces evolving outcomes as a critical component of your Customer Success strategy. This approach can eliminate many of the causes of churn, as well as provide both increased and more predictable expansion from your customers.
The Master Narrative, Storytelling, and the Value Path
How the pieces fit together If the Value Path is going to be an integral part of your company’s strategy, it needs to fit into your overall vision.
At the very highest level, your approach to markets is described in a “Master Narrative”. Think of the Master Narrative as the big story that connects all that you do. The Master Narrative is your vision for the market. It is what value you propose to bring to your customers today and in the future. It captures your vision for how markets will evolve because of your existence; it is the statement of the value and impact you will have as a company over time. The “Stories” you create take the master narrative and break it down into components that can be used to express and help your customers recognize the value and need that you can address and deliver today. In this context, the Value Path sits between the Master Narrative and Stories. It is a prescriptive path for your customers to achieve greater and greater value from your company over time. It is the answer for not just how you can deal with evolving outcomes; it is the plan for driving them.
The Value Path, Your Strategy for the Evolving Needs of Your Customers
There is no such thing as standing still in the subscription economy; you are either headed up or out. If Andy Grove is right and “The Greatest Danger is Standing Still,” then the Value Path is designed to address this danger. Perhaps the best way to understand the Value Path is to consider it as a quantifiable maturity matrix for your customers. The Value Path is a strategy that is executed upon with your customers over time. It is a proactive way for not only dealing with, but also driving the evolving outcomes your customers require. Ultimately, it is what drives the realization and recognition of your role as a strategic advisor and partner.
The Value Path, How it Works
Making the Value Path Happen
Values Paths are not done in a vacuum, they are done in concert with Product, Engineering, and Marketing within your company. They are part of your overall strategy, and at the same time, influence it as well. However, from an execution perspective, they are dependent on the Customer Success organization and CSMs. At its most basic level, the Value Path is a prescriptive journey you take your customers on. If you think of the traditional view of the customer journey where at the highest level we go from awareness to research and purchase, followed by implementation adoption and renewal, the Value Path is inserted in between adoption and renewal, and creates a continuous relationship with the customer, where the renewal becomes presumptive on the customer’s part. It is important to recognize that there is typically more than one Value Path for a customer and these are often tied to use cases. Does your company have several use cases such as: ethics and compliance, recruiting and training, or determining an ideal customer profile and identifying leads? In each of these cases, a customer is initially solving a unique problem that is defined by their needs. In a Value Path, you identify what they require now, what the starting point is, and what point of value you take them to next. Since the definition of a Value Path is the “Quantifiable” journey you take customers down, each step in the journey takes them to a point of higher value that they both can quantify and recognize and that builds upon existing value. As part of a journey, the first steps are critical. Once an opportunity converts, the customer journey begins with a critical step…onboarding. Without successfully engaging here, the journey is likely to come to a premature and abrupt end.
Onboarding, the First Step Down the Value Path
The renewal is secured in the first 30 days of the contract, not in the last 30.
Onboarding is often simply associated with implementation and training. There is no doubt that these are critical parts of onboarding, but there are more important dimensions that are often overlooked. During onboarding, the way in which the customer defines success needs to be agreed upon, and the way in which this success will be measured needs to be defined. Although implementation and training are required part of onboarding, without an agreed upon way of validating success, you’ve begun a relationship that puts your champion and trusted advisor at personal risk in their careers. In the world of pragmatists, investments are made to solve a problem and the solution needs to generate a Return on Investment (ROI). However, what is equally import to you and your company is that you’ve established credibility as a company and planted the seeds of becoming a trusted “Business Advisor”. When this is done, the benefits are huge. First and foremost, you’ve earned the right to propose to your customer additional value your company can provide. You’ve earned the right to take them down the Value Path that enables you to align and drive their future needs, and cement a long term and mutually profitable relationship.
From Reactive to Proactive from Consultative to Business Partner
An evolving relationship is critical for CS, but it’s tough to achieve without talking.
One of the core benefits to having a well-defined Value Path is that it enables you to have conversations that the customers want to have. Think about it. What software do you buy where you want to meet with that company regularly? Sure, if there is a problem, you say, “Let’s get people on site,” but do you really have the desire or need to sit down with them to do a QBR when everything is going well? Part of the magic about the Value Path is that you’ve created a continuum of conversations that are based on the success and value you’ve already delivered and the new value you can help them realize. It is 100% customer-centric. It enables your champion to get exposure internally, going up the ladder with results. This can provide a direct path to both up-selling and cross-selling. In addition, from an executive perspective, the Value Path is a form of “maturity matrix” and when combined with “Benchmarking” can become another source of valuable conversations. When executives see themselves in second place, they want to get to first, and the Value path provides a roadmap. If they are at the top of the pack, they are proud to share this success and inspired to stay there. They are true advocates.
The Value Path is More than a Generic Plan
The Value Path is not just any path forward, it one that crafts a vision of the future in your customers’ mind… In the book, The New Solution Selling, Keith Eades lays out a sales methodology that is extendable to the Value Path. Without going into a lot of detail, “Solutions Selling” is about crafting a vision in your customer’s mind of how problems are solved. This is optimal to gain the most from the Value Path. It is not enough to just create a path to a brighter and more profitable future, you need to create a path that biases the customer towards your way of solving problems. There will always be a direct competitor who comes out with a new feature, some portion of your capability, where they temporarily excel. The creation of a Value Path that biases a customer towards your vision of the future, a perspective on how problems are approached, can be a real barrier to this sort of competitive pressure.
“People in the trenches are usually in touch with impending changes early.” – Andy Grove
The Role of Customer Success
Creation and Realization of the Value Path
As much as the Value Path is a roadmap to success for your customers, it is not a straight one. In a world where agility is the name of the game, Value Paths need to adjust to both changing times, traditional competition, emerging problems, and feedback from your customers. Although this sort of agility is dependent on the entire company, Customer Success Managers are uniquely positioned to identify the requirements as they begin to evolve. As owner and implementer of the Value Path, Customer Success has a framework for which to both move customers forward and understand when and where the path is flawed, where the company needs to modify its strategy to meet the needs of customers to continue to be the preeminent contributor to their customers’ success.
In a world where “only the paranoid survive,” the Value Path takes an often-reactive approach to customer success and makes it more than just proactive. It takes it to a level where continuous improvement in value enables you to both predictably drive expansion while also providing a way to make renewals a non-event.
Tom Lipscomb is a Bay Area Executive who has spent his career helping companies around the world deliver products and services that contributes to their Customers’ Success. He has always lead organizations with the understanding that, as Peter Drucker says, “Value in a service or product isn’t what you put into it, It is what the client or customer gets out of it.”