Ep. #3, Customer Success

Don MacLennan: How in the world could we afford to service somebody who's free? An individual developer who may not even be paying you yet may still be making a very, very important decision about whether they're going to use this technology.

In order to understand a customer, you need really good visibility into what's going on. It's early days for this discipline. It's going to be a role that constantly evolves with the shifting and shaping of a company.

Yaron Sadka: Hi, I'm Yaron Sadka, senior sales engineer at Runscope. You're listening to Road to Growth, a podcast about startup sales organizations brought to you by Heavybit, a nine-month program for developer-facing startups.

Road to Growth is a bi-weekly series that breaks down SaaS sales organizations one piece at a time, from the first person to kick off sales at a company all the way down to the partnership and cohesion with the marketing and product teams, we'll take you through what it takes to build a powerful, fine-tuned sales organization.

If you're interested in being a guest, have a topic for us to discuss, or a role you'd like us to dive into, send an email to roadtogrowth at heavybit.com. Today we have with us Don MacLennan of Bluenose Analytics. Don and I will be discussing growing a customer success team and its impact on an organization's bottom line.

Solving a Problem of Their Own

Welcome everybody to our third episode of Road to Growth. We have Don MacLennan with us today of Bluenose Analytics. Welcome, Don.

Don: Thank you.

Yaron: So we always like to start these things with a couple minutes of you introducing yourself to us, giving us kind of an overview of how you got to where you are today. So if you don't mind sharing that with us.

Don: Yeah, absolutely. So Bluenose exists really to unlock the power of customer data and help people use that data to do a better job of retaining and growing the customers they've worked so hard to get.

And my co-founder and I started the company really out of the motivation of solving a problem of our own past, because in our prior roles in the tech industry, we often really wanted customer data to understand how people adopted our product or to drive expansion, sales motions, and the like. And it was pretty hard to come by.

To the point where in my recent past I had to build a data science team from scratch, and I spent about two years and a million dollars of people and infrastructure costs to get there, if only because the business I had a hand in running had a pretty big churn problem and we were trying to cross-sell and upsell other products into that base. And of course if you have churn, then that's not gonna work. So we had experienced this acute problem in our past, in sense of having these customer-facing roles and really not having access and visibility into key customer data that Bluenose would now house.

Yaron: Very nice. And so you came from originally a sales perspective and then some product, and now you and your co-founder took this and you were like, okay, so now we want these analytics, make ourselves more successful. And so that's where this kind of, I guess, customer success role grew out of.

Don: Yeah. I mean, even in our product leadership roles or in sales roles, right? In order to understand a customer, you need access to kind of all the data. Really good visibility into what's going on. So to the extent they're interacting with the support center, you want to know that.

Obviously you want to know how they're adopting the product itself. You want to understand what's at stake financially. What did they buy? When do they renew? Have they filled out a survey?

What did they say when they did that? When someone talked to them recently or sent them an email, what did that look like? And ordinarily that data is living in a lot of silos. And because it's in silos, it really inhibits your visibility, and therefore it's hard to take stock of that relationship.

And so overcoming the silos by putting all this data into a single repository, so-called customer 360, was a really exciting concept for us because we had struggled to achieve that in the past.

And we sense that people in roles where they're responsible for customer retention had that same challenge. And so customer success, the department, tends to be that really focal point for it, meaning for them to do a good job of stewarding that relationship and making sure that customer stays with the product, renews, and expands, they need that same visibility. And so that's the primary audience, is people who've got that role, right, of retention and growth.

A Role and a Mindset

Yaron: So you mentioned customer success, it's something that's relatively new in our world of technology. Is this a role? Is this an organizational mindset? How do you kind of piece this together when presenting it to companies?

Don: Yeah, I think it's both. Meaning, if you don't have an executive and leadership team and a board, right, that really believes in the business imperative and understands that that's going to mean investment, right? Investment in people, investment in resources, investment in systems, then any person as an actor doing this role isn't gonna succeed, because in many respects it is a company culture and a mindset.

So what happens when a customer gets escalated? Well, that root cause may originate somewhere else. It's a product issue. It's a bug.

It's an implementation issue. And so people playing the role of customer success are often, if you pardon the sports metaphor, a quarterback of sorts, right?

Because they're trying to get their colleagues to collaborate around helping that customer get to value, get to adoption, or resolve the issue. And so if you don't have the culture and the executive sponsorship as a mindset, then it's gonna be hard to do the job.

The job specifically kind of fills a void, right? Meaning, you've got sales actors, they're incented and motivated to acquire a customer. And they're incented to do that as many times as often for every week and month of the year.

You have people in customer support that are typically organized around inbound requests. In other words, they'll triage a specific issue at a time, a how-to or a bug or whatever. You have implementation people or onboarding people, so they take a new customer and they're meant to get them live, but they don't stay with them.

And so when you look at all these other more established roles from sales to onboarding to customer support, they leave a void. And the void is now being filled by this role called customer success, which is to say somebody who has that responsibility to ensure the customer reaches adoption and reaches the business value of what they've purchased.

And that's the net new part of it, right, is this dedicated role to kind of fill that void and maybe complete the mosaic, if you will.

Yaron: Right. So for those of our listeners who are not necessarily in the startup world, when you're looking to hire somebody, sometimes you want them to have more than just one hat to wear. You start with generalists and then you kind of get more granular as you grow.

So the customer success role, is that an idea now that's mostly confined to startups and kind of mid-market companies? If not, how does that differ from, let's say, an account manager or somebody in the enterprise that's been doing this for a while, just under a different name?

Don: Yeah, great question. I think it's more prevalently utilized in younger SaaS companies, if only because with these subscription business models, there's a very clear linkage between the need to do customer success and the outcome of retention, right? So it hits a really important financial lever for the viability of a software company.

If we try to put it in a broader context, software as a service or infrastructure as a service or platform as a service, like collectively, right, these are still small fractions of the overall technology industry. So in the case of software, for example, it's about, I don't know, $310 billion annual industry. But the SaaS component of it is sixteen or seventeen billion. So still less than ten percent, albeit growing really fast.

So you don't necessarily see these practices in older, more established tech vendors unless and until they begin to transform themselves into subscription businesses. And as soon as you've got that subscription business model, right, now you've got a really clear implication between the function of customer success and the impact they're going to have on the bottom line. Because you've got to get that recurring revenue, right? Otherwise you can't be profitable.

Yaron: Correct. Right. That's what we're all trying to achieve, right, is growing that bottom line and kind of making sure our companies either get acquired, IPO, or whatever it is that we want to do.

Don: But to your question, even in the context of customer success, yeah, it tends to be a generalist role in a small startup, meaning that person might cover a lot of hats, from onboarding and implementation through to relationship management to escalation management, renewals, perhaps even customer support. So it definitely has some breadth, if only because you have finite resources and finite employees.

And so when we see older, more established SaaS vendors, perhaps even ones that have already gone public, then you'll see a little bit of specialization creep into the function, where there may be a distinct role for renewals and account management, which is pursuing kind of the revenue part of the objective, right? How do I maximize the revenue from a current customer?

And you might have a different actor who's really focused on product adoption and maybe even domain expertise to help the customer learn how to apply the product correctly, which might be a distinct role from onboarding and implementation and so forth. So sometimes you'll start to see the generalist function, even in the world of customer success, get sliced up a bit with scale and growth in the bigger company settings.

Sales or Support

Yaron: Yeah, so you bring up a very interesting point, is as you grow, you start to specialize a little more. For most of the people listening, odds are they're in that fifty to a hundred, two hundred person company, where they're granular but not so fine that they have such distinct roles. When you're starting out with customer success, at least maybe at Bluenose, do you classify them as support? Do you classify them as sales? Where do they fall within the organization as to budgetary concerns, salary and all that good stuff?

Don: Yeah, I mean it's early days for this discipline, so you'll see a lot of variety and you'll see some pretty interesting religious debates in terms of, quote unquote, what is the right model. For example, in terms of to whom that customer success team or resource reports, in some organizations that's gonna be to a revenue-generating executive like VP of Sales or Chief Revenue Officer.

So for example, I just came this morning from meeting the chief revenue officer of one of my customers. And man, there is no way in heck he's ever going to relinquish this function, because in his organization, they have so much expansion revenue potential in their customer base that he just sees this as a continuum of the sales motion.

Yaron: Right. And that's how it was at Iron, where I was as well, is customer success kind of fell under sales because they drive it.

Don: Now, in some other companies, as a reflection of their culture or their leadership or the nature of product they sell or whatever, they may see it differently and say, well, customer success actually belongs to an executive function that spans onboarding and implementation through to customer success into renewals and even into customer support. And in that world, there's probably a little bit of a stronger service bias in the role, meaning that role is there to serve the customer and less of a commercial pull, right?

And there are organizations that are starting to birth a C-level executive, right, who has the combination of implementation, customer success, and customer support and sees that as a continuum. And so there's a lot of debate right now as to what is the true north of the role, right? Should it be a revenue-generating function, in which case it probably lives under the CRO, versus a service delivery function, in which case it lives under this new chief customer officer role or SVP of customer success, you'll see that title from time to time, and that will encapsulate two or three or four departments within.

Yaron: Yeah. So it seems like it's more of a feeder system, I guess, bringing these people in and then kind of shoveling them in different directions depending on what their interests are and where their skills lie, whether it's on the sales side, the support side, whatever it is, integrations as well.

At Iron we did integrations, which meant that somebody now had to take the client after post-sale and integrate the product in for them, which is technically customer success, but then you have different engineers that kind of... There's a lot going on there, and it seems like customer success is a good way to feed into these different pipes as you grow into more of an enterprise and need those specializations. Does that sound about it?

Don: Yeah, I would agree. I heard somebody say it's all about the handoffs. So as you grow and these roles become a little bit more specialized, evolving from the generalist, the handoffs become really critical.

So that when sales hands an account over to the onboarding team, right, the onboarding team isn't asking the customer a bunch of questions that were already told to the vendor and to the sales team and so on and so forth.

So the more you scale this and the more these specialized roles emerge as part of a more cohesive team, then coordinating all those handoffs and touches becomes really important. Otherwise, you can't sustain that sort of one face to the customer, which they valued so much in that first individual who was the generalist. And so we've seen examples when companies grow, they really had to kind of struggle to put that back together, if you will.

Escalations and Incentives

Yaron: Yeah, so I mean that's a great point, is that as you grow, when you're small, you know the engineering team, you know the marketing team, you know the different functions of the organization. As you grow, a new customer success or support person isn't gonna know the other person across the desk who built that functionality as the engineer.

Have you seen this? How do you kind of keep that connection between the two sides?

Don: Yeah. I think the executive team's the glue, right? They've got to create the context. Think about an escalation. Great example.

So customer success gets brought in because the customer threatened to churn, or they knew a C-level executive and called them up and complained. So now this customer success individual is being parachuted into the situation. And you start thinking about, well, what were the root causes for that escalation to occur that made that customer so unhappy, right, that they made that threat? The root cause almost always lives elsewhere in the organization.

And again, back to that sports metaphor. So that person is quarterbacking the resolution. Meaning it may have been that sales sold that customer something that wasn't really a good fit in the first place, or the implementation didn't go so well and there was now some evidence of that after the fact. Or they weren't properly trained, or there's a product gap that's inhibiting their ability to successfully use the product in their specific case, or there's a support issue that's open and it's high impact and so on and so forth.

So much of what a customer success person does is play this coordinating role. I kind of call them communication machines, because they're just constantly communicating with customers and other colleagues.

So in order for that escalation to happen well, the whole organization needs to know what happens when you push that escalation button, so to speak.

And if they don't know what their role is to play when the customer success person says, I need your help, if that hasn't been set as the context and the company culture and priority, then to your point, that customer success person is going to feel like they're pushing rope a little bit, because they're trying to get the attention of somebody in another team that may have other priorities. So it kind of starts at the top.

Yaron: Yeah, as many things do when you talk about culture and kind of mindset. So now this person has to coordinate and quarterback everything. How do they make sure that things get accomplished?

Do you incentivize these people? Because it is somewhat support and you don't want them pushing product and all that. How do you make sure that they're properly compensated for making sure that customers don't churn while also not impacting the customer on their bottom line?

Don: Yep, absolutely. So again, these two schools of thought as to whether it's orientated as a service delivery function, right, augmenting these other actors doing things like implementation and customer support, versus the other school of thought that says, hey, this is a commercially minded person who is going to maximize revenue from the base. In either case, they typically are still driven by quantitative metrics and have variable comp.

So on the revenue-generating side, that's pretty straightforward. You have a renewals goal, both in terms of renewal rate and money, perhaps even an upsell goal. And so that's gonna start to feel like a quota, right, when you're working on that side of the equation.

For people who are still in the service delivery mode, meaning that's kind of the mission and purpose of the function, they almost always still have incentive compensation, such as quarterly goals, and then those goals are tied to quantitative metrics like retention rate and renewal rate, and perhaps even the number of upsell opportunities that they would discover and pass to another team member. So in either case, right, there is a clear business outcome that's highly measurable that they exist to serve.

A Role That Keeps Changing

Yaron: Right. So for a company that's currently implementing this, maybe there is incentive, maybe there isn't. Is there a way for them to at least A/B test the right ways? Are there different strategies for them to go about bringing on a customer success engineer or maybe a customer success person in general?

Don: Yeah, I don't know if A/B testing is the approach so much as it's gonna be a role that constantly evolves with the shifting and shaping of the company.

It's affected by the culture and the leadership. It's affected by the type of product you sell. So if you sell a product that's sort of high velocity and low touch, that informs the role of customer success as being different than a really complicated, very expensive type of product. So even the business model of how you sell and service can have an effect.

If your product has substantial expansion revenue at stake versus you monetize the customer mostly with first purchase. So there's a lot of facets to this that interplay that will ultimately inform, like, what's that right model for that company.

And then you can superimpose that in time, which is to say the right model for today may be really different than how you think about it in a year's time or three years' time as you grow and evolve. Which makes it a really interesting role. If you like change, you'll love this job, because it's gonna change.

Yaron: Definitely. So at least for you, are you iterating on a monthly basis, on a quarterly basis? How often do you go back to the position and be like, we should change these functionalities, at least for you at Bluenose?

Don: Yeah, great question. Well, we definitely have a dog food mindset. In other words, we use Bluenose the product to help us.

Yaron: I'd hope you do.

Don: Oh, absolutely. And yeah, it's evolved.

So our customer success team today is evolving in as much as we're part of pretty significant change when our tool gets deployed into a customer organization, because they're going to use it to introduce, in some respects, a new way of working. So there's a strategic facet of it wherein our customer success manager is partnering with the sponsor executive, right, to manage that as a program. And that's gonna mean that they're gonna be engaged all the time for a long period of time as the product gets rolled out and adopted.

But then there's also the matter of the user population, where we can engage them separately and programmatically, right, through email, through webinars, office hours, support knowledge bases, and the like.

And so our evolution in our case has evolved where we think about the bottom-up part, how do we get every user to be nurtured and adopt the product of their own volition, and the top-down part, which is how do we partner with the executives to drive the program that our product is enabling. And the two kind of go hand in hand.

And that's not how we started, but that's sort of our current framework. And it might change later as we see, perhaps we have very large customers as different than small ones, in which case we may tier our support model. That's a really common challenge, right?

Yeah. The byproduct of success is you start landing these really large customers and all of a sudden your biggest customer is ten times as big as your smallest. And you start realizing, gosh, I can't actually service everybody with that same white glove service. The big ones demand more of me. And it starts to introduce tiering strategies into the mix, which is yet another facet, right, to how to do customer success.

So yeah. We had this own experience in our case, where our customer base is about 18 months old. And we've probably iterated meaningfully at least twice in that time period, which is inclusive of how we purpose our customer success team, how we do programmatic nurturing, and how we even use our product internally.

Yaron: And does that change with a pricing model change as well? I mean, do those two correlate for you at all?

Don: It could. In our case, historically we've sold our whole product at once and the customer tries to implement it all at once, albeit in a staged fashion.

But there's obviously a lot of companies, including many of the Heavybit member companies, that are pursuing kind of a different sales and distribution model that may start with a single developer trying out a product in a test mode or very low scale, and it expands rapidly in time. And that kind of distribution model obviously puts a very interesting lens through how you think about customer success.

Because an individual developer who may not even be paying you yet may still be making a very, very important decision about whether they're going to use this technology.

And on the face of it, it's like, well, how in the world could we afford to service somebody who's free? But what's at stake is them committing to using your product in production, in which case if they flip that switch, right, that customer might go from free to very, very valuable in a really short period of time. So it's an interesting challenge in these developer tool business models, because it's counterintuitive in terms of thinking about when to invest.

Yaron: Right. And I've been a part, I was at Iron, I'm now at Runscope, and both companies, it's similar mentalities, but it's a small, an individual comes in, you don't know where they work or who they know, and they start using your product and you're supporting them because you can and you can provide it, and then they grow into this huge account, you're just like, this is awesome.

And then you go a year or two and you're like, we can't keep servicing these free users as best as we used to. And it's interesting to see that evolution occur for these different companies.

Measuring the Return

So it's something that's really hard to measure returns on, at least in my eyes. Have you found any good metrics to say, hey, this is a good way to measure returns on a customer success person, what they're bringing back in value to the organization?

Don: You know, we as vendors in attempt to sell our product have built some ROI models. I think there are some basic frameworks. The most obvious one, of course, is I apply this resource and what effect on retention is that person or team gonna have. And presumably, after you've staffed that position and retention improves, then that feels like a causal relationship.

Honestly, I think most people invest in this function because at some intuitive level it feels like the right thing to do. And then it is a matter of keeping score, but it may be about keeping score of how effective the organization is in their core processes as much as the business metrics.

Like I wouldn't encourage somebody to say, well, customer success is successful only when we can measure their effect on retention rate. Because it may be that you're really trying to orchestrate some clear points of where they're gonna reach out and touch a customer, like very specific scenarios related to onboarding, related to check-ins, related to escalation management, related to renewals.

And the better things to measure might actually be how well that process is working at all. Right. Are we consistent in servicing our customers? Do we always do outreach? Can I monitor and measure that, to know that my team is doing the work?

So there's the operational facet of it as well, and one could argue that the better you get at that and the more rigorous you are at that, the more you're gonna affect the business outcome in the first place. But there's not a clear ROI model. I mean, people intellectually get

this could affect lots of key metrics, from LTV, right, to even CAC, because with these conversion rates of making somebody happy, and then they scale up their consumption of your product. There's obviously retention rate, renewal rate. So tons and tons of kind of key SaaS metrics could be in scope. It's just challenging to create the attribution and the causality. So I think most people operate a little bit more of an intuitive level, like, hey, it just feels right for our business.

Yaron: Right. And that's how you see it in the beginning, and eventually it just becomes a core functionality that, what you believe is true, and it just kinda sits there.

Don: We'll observe like a key tension point. So everybody loves the contribution that the first one or two or three customer success managers will make to the business, because they're filling that big void. It relieves everybody else of the duty to do it, right?

The impact is really huge. And at some point the CFO says, well, you're asking me for the next hire, right, the fifth team member or the eleventh team member, wherever the case may be. Can't we do without?

And so at some point the hiring momentum slows, because the head of customer success is being denied that next resource. And these are expensive people. And so that often is the catalyst to think about, well, what could automation do?

And then that's when people start to contact vendors like me to say, well, should we optimize the efficiency of our team before we decide to add that next expensive headcount? Because the cost of our product is a fraction of a person. And in doing that, then that's probably the condition for the CFO to then say, okay, well, now that we've done that and we can be assured that they're really efficient and effective, now it's time to add N plus one to the team.

So that's often when we'll get brought in, is somebody sort of flinching about the next hire without actually looking at the role of automation and making it just more efficient.

Best Practices for the Profession

Yaron: So talking about Bluenose then, are you more geared towards a company that already has customer success people in place?

Don: Yeah. And for the time being, we're building a product that really helps that team function. So it's pretty unusual for us to engage with somebody who doesn't yet have that team.

You might see us in the future introduce products that could be relevant to other actors, be it a product manager or a growth hacker or somebody doing conversions, it might be just alternate packaging of some of the features of our product, but for the time being, the audience for us is the customer success department.

Yaron: Okay. And for somebody who hasn't yet achieved that team, I assume there's information and documentation on your website that can help them build that team and then eventually grow into an analytics type Bluenose company that they need, or

Don: Absolutely. I mean, one of the really strong values that we hold is that because it's early days in customer success and people are trying to figure this thing out, what's the best practice? What's the right way to approach this for my business?

We have a mindset that we're responsible for bringing a solution to market, and the solution is equal parts know-how and tool. So we publish tons and tons of best practice content on our site, from blogs to an online community to ebooks. The vast majority of it is vendor neutral, meaning it has nothing to do with our product per se and more about like, how would I even work through interview questions for how to hire a CSM, or whether right incentives to compensate them by, or the strategy.

So there's a rich set of content that we've had a hand in building because we feel a responsibility to advance the profession and be a good member of that community.

Yaron: That's great. I'm sure listeners will really appreciate that, especially those who are looking to grow their business and looking at the customer success role.

Don: Yep. So shameless plug. If they go to bluenose.com slash resources, they'll find a whole bunch of stuff for them that is free and online and is all best practice and vendor neutral, that there's something in it for probably most every person that goes.

Yaron: Perfect. So bluenose.com forward slash resources, great way to build your success team. Thank you again, Don, for coming in for the time. We really appreciate it. You guys are doing a lot of great stuff in your space.

For those of you who haven't checked out heavybit.com, please do so. Don has a great talk on the website in the library portion. So thank you again for listening. Thanks for coming, Don. Appreciate it.

Don: You're welcome. It's my pleasure. Take care.

Yaron: That's all we have time for today. Questions? Feedback? Contact me at roadtogrowth at heavybit.com. Thanks again to Heavybit for sponsoring our program.

To learn more about Heavybit's nine-month program for developer-facing startups, visit heavybit.com. And while you're there, make sure to check out their library. It's packed with great educational talks from developer company founders and industry leaders. Thanks again for joining us. Have a great week.