The way software companies sell is rapidly changing. This is in large part because of what we call The Five Forces, and the momentum of one of those forces—Product Led Growth (PLG). The role of customer success, one of the newest functions inside software companies, has a lot to gain from this big shift. In talking to a lot of go-to-market and customer success teams, I decided to write up some thoughts on how customer success has the opportunity to own the revenue motion inside of their company. Here we go.
Moving to a Customer Success Selling Mindset:
- Your first transaction with a customer is the smallest
- The Total Addressable Market (TAM) of your territory is equal to all the future products they will buy from you
- Grow or die: if your customer isn’t growing, they will eventually churn
Your first transaction with a customer is the smallest
The software business model of the past was all about big multi-year deals that locked in lots of money upfront. Times have changed and this is most definitely not the model for most of the top-tier software companies that have emerged over the last five years (think: Snowflake, DataDog, Twilio). In these companies, the first deal is the smallest. That’s because they allow for a freemium or trial process where the first time a customer transacts, they are doing it in a very small way. The beauty of the model is it allows customers to de-risk software investments and software companies to de-risk customer investments.
For many companies, customer success takes over once a prospect becomes a customer. But what happens when the future value of these customers is much bigger than their initial purchase amount? Renewing can’t be the focus: you are still very much in a sales motion.
The Total Addressable Market (TAM) of your territory is equal to all the future products they will buy from you
The engine of a software business is your product. In this analogy the customer is the driver and their spend is the fuel. As you ship more product, the customer naturally needs to add more fuel. (Like a real car, it’s not unreasonable to think that the new, more high-performance engine is also going to use that fuel more efficiently—extracting more value out of every dollar you pump in.) This can be seen most acutely in successful large cap consumer tech companies like Apple. They have around 1 billion users and that is about around their saturation for people in the world that can afford a $1,000 iPhone. But they are always shipping more products and increasingly taking a larger share of wallet from their existing customer base.
The same model will happen in B2B software and all forecasting should account for how much growth you can get from your existing customer base versus new customers. The change in mindset here is all about thinking of your customer base in terms of territory and TAM. Similar to how a sales member would look at their annual account planning based on what prospects will likely pay the most for their product, customer success can map their own territories with a focus on upside instead of churn mitigation. The next step is to then lay out your long term roadmap and put together an account plan for how you can expand the customer against that roadmap. While Sales might have ABC (Always Be Closing), for Customer Success the shift is from a reactive service model to a proactive sales motion with a new acronym: ABE (Always Be Expanding).
Grow or die: If your customer isn’t growing, they will eventually churn
There isn’t an enterprise out there not pouring time and money into digital transformation. That means the pool of money they are using to purchase products and services from you is growing. If you aren’t growing with them, they are most likely investing in companies that will eventually become your competitors. With Customer Success running the customer-facing playbook and having the most understanding of how everything is being used at the product level, they are sitting in the best position to find the best growth opportunities.
The data below from Gartner on this point is quite clear. Accounts may renew because of great service, but they grow because your product is fundamentally improving how your customers work and no one knows this better than customer success. When improvement is happening, the customer is kicking off a bunch of interesting usage data that can be turned into signals to drive growth of seats, functionality, and volume. Whereas other teams (customer, support, or even product) are looking for a datapoint that might suggest the renewal is in jeopardy, growth teams must be looking for data that signals improvement and therefore expansion. A good mental model to have as a customer success leader in this new world is if your customer isn’t growing, they’re dying.
New Motion, New Roles
The key for any organization is to figure out where they fit in this world and who owns what part of the customer. If Customer Success wants to own the transaction layer with a customer after the first sale, then they need to be thought of as revenue leaders and therefore they should offload the more reactive adoption/service portion of their role, which is a very important and separate function. Here is an example of how the new roles could work inside an organization:
In conclusion, the opportunity is there for customer success to own more of the revenue motion inside of great software companies. What do you think? I look forward to hearing from you.