Startup Execution

Customer Success – The New Kingmaker

Throughout history, the rule of many monarchs was assured by the work of a key team member. Sir Francis Walsingham served as principal secretary and spymaster to Queen Elizabeth I, expanding her maritime strength, unifying Scotland and England, and disrupting plots against the throne. Cardinal Richelieu served as chief minister to King Louis XIII, consolidating royal power, neutering domestic threats, and brokering political alliances. Even Lando Calrissian, a futuristic ruler, depended on Lobot (the bald guy with the computerized “earmuffs”) to run the mining colony and ultimately, neutralize the Imperial stormtroopers.

Seeds of Success

In the Silicon Valley, teams of capable web or mobile app developers have at times been called today’s kingmakers. Developers are no doubt very important. I myself have been a developer and, as a VP Engineering or CTO, have led teams of developers. However, building your app, product or service is only part of the equation. You don’t have true sales momentum without both a strong sales machine and a strong adoption engine. Without sales momentum, your business plan remains unproven.

Foundations of Momentum

In his book Diffusion of Innovations, Everett Rogers writes about five different types of customers in the technology adoption curve: innovators, early adopters, early majority, late majority, and laggards, as depicted below.

In his book Crossing the Chasm, Geoffrey Moore extends this model in describing a gap or chasm that many companies face in transitioning from innovators and early adopters (“enthusiasts and visionaries”) to early majority customers (“pragmatists”).

When targeting customers, companies should focus on one customer segment at a time. Success with one group serves as the base to market to the next group. Marketing to innovators and early adopters usually relies heavily on selling the vision of the solution. Enthusiasts and visionaries buy when they see the solution’s potential value. However, marketing to pragmatists requires a strong focus on the solution’s realized value. Customer references are key to proving the value of your solution. And the strongest customer references come from those that have deployed and adopted the product. Because it is easy to buy a product, but much harder to adopt it, gaining strong customer references is difficult. This difficulty gives ultimately results in the chasm in the technology adoption life cycle. Given this challenge, it is vital that startups invest in the adoption of their solution among their early customers in order to build the momentum needed to cross the chasm.

Enter the Customer Success Leader

Companies that recognize the importance of customer references create a role solely responsible for customer success. And for many startups, a member of the executive team with a VP title, as a peer to the VP of Sales and the VP of Professional Services, leads the customer success efforts. Because the customer success leader must coordinate between the sales team and the professional services team, it is important for the leader to be at least on equal footing with these other key company roles. In some cases, the VP of Customer Success also leads the professional services team.

Adoption >> Landing

The Technology Services Industry Association (TSIA) defines four phases in the customer adoption process: Land, Adopt, Expand, Renew. Many companies understandably put a strong focus on closing the sale or landing the deal. But strong evidence exists to support the case that adoption is more important than landing the deal. Customers that successfully adopt the solution will usually purchase more licenses (expand) and will almost always renew. With expansion and renewal comes recurring revenue. When managing a growing business, I’d rather have $100 a month for 12 months than a one-time $1,500 purchase today. More importantly, when the time comes to place a valuation on your business, $1,200 of recurring revenue is worth several times more than $1,500 of one-time transactional revenue.

Landing Correctly

TSIA also defines three levels of customer adoption: low, high, and effective. Low adoption occurs when the customer bought the product, but doesn’t use it. Many factors result in low adoption, including the lack of a comprehensive adoption plan, absence of executive commitment, and a resistance to change current processes. Low adoption leads to shelfware. And by definition, shelfware is not expanded or renewed.

High adoption occurs when the customer shows great enthusiasm to implement the solution, often rushing right into an installation project. The software is installed, so the customer can claim it’s adopted. But there is a significant difference between basic installation and effective adoption. Basic installation without a comprehensive multi-phase rollout plan that is tailored to your customer’s use cases and needs gives the initial appearance of victory, but often results in slow and laborious progress after the initial sale. Expansion is rare and renewals are in question. Without investing in a readiness assessment or strategy workshop before launching into a deployment, the initial enthusiasm often leads to a solution that only realizes a portion of its potential. Effective adoption is the goal. You want the customer using the full potential of your solution. When they do, expansion opportunities are plentiful and renewals are practically guaranteed.

Effective adoption occurs when customers have a comprehensive understanding of the people, processes and technology changes required to realize the solution’s full value. With this understanding, customers can build an actionable and detailed solution roadmap with executive and organizational commitment. This roadmap defines the exact problems the customer has and shows how each subsequent phase of the deployment plan solves larger and larger portions of the customer’s needs. This readiness assessment and strategy workshop must be positioned during the initial sales cycle. Positioning it after the initial sale is problematic and painful, as you usually end up having to go through the sales cycle a second time.

Avoid the temptation to rush into a sale without the proper adoption plan. Without this adoption plan, customers will not land correctly. And if customers do not land correctly, the likelihood of adoption, expansion and renewal is slim.

Practicals

The customer success process starts during the sales cycle when a customer’s expectations are set. Customer success is more likely when the sales team sets proper expectations, engages the delivery team as part of the sales cycle, and remains involved through the multiple phases of a customer’s deployment and adoption. In some cases, the need for the sales and delivery teams to work together is so great that it may make sense to have the VP of Customer Success actually manage both the pre-sales engineers and the post-sales consultants.

In addition to creating an organizational structure that leads to successful outcomes, companies need to align compensation with adoption. Compensation plans should be structured to incentivize not just the initial sale, but the successful adoption of the product. Bonuses can be added if the customer agrees to be a public reference. The compensation plan should also make it worth the effort for the sales team to pursue renewals and not just the initial sale.

Customer Success Fuels Momentum

Successful customers serve as a proof point for potential investors, other customers and future employees. Booking one or two dozens deals alone does not define success. Customers shouldn’t just buy your product – they should use it. Your product needs to be adopted and woven into the fabric of the customers’ business processes. In order to drive adoption, you need a customer success team. Momentum grows as you build a strong foundation of successful customers. A strong customer success leader may well be the kingmaker of a startup’s executive team.