Product market fit. Do you have it? It’s a critical question for any company, but especially those early in their development. With it, customers will beat a path to your door. Without it, you’ll spend most of your time convincing customers that they need to buy your product. Think about productivity tools like Slack or Trello. Did anyone have to justify the spend on those tools? The answer is “No” because they have excellent product/market fit. But what about that tool that helps your team choose which place to go for lunch this week? It’s one of the first subscriptions to be cut when trying to manage your cashflow.
So how do you know whether you have product/market fit, because as be seen from the examples above, it can literally be the difference between being classified as “mission-critical” or classified as a “nice-to-have”.
There are lots of high-profile discussions regarding “product/market fit”, including Marc Andreessen defining it as being in a good market with a product that can satisfy that market (which, with all due respect, doesn’t really help a company figure out whether it has it or not). Sean Ellis developed a heuristic that says, “if at least 40% percent of surveyed customers indicate that they would be "very disappointed" if they no longer have access to a particular product or service” or said alternatively “at least 40% of surveyed customers considering the product or service as "must have". This was validated by Rahul Vohra of Superhuman in his survey-based approach.
Surveys can be done qualitatively or quantitatively, with prospective customers or existing customers. And it can be done relatively easily and quickly. Obviously, the more in-depth you go, the more confidence you can have in the data. If you’re looking for quick validation, a quick survey of a sample set of prospect and current customers would be sufficient. But if you need to determine product/market fit to show investors, or to help make large strategic decisions about the direction of the company, a more robust analysis would be recommended. However, the approach, you’ll learn whether your customers will fight to keep your product, or whether you could be collateral damage in the next round of budget cuts.
If you’d like to do a Product/Market fit analysis, but don’t have the resources or expertise, or would like it done by an independent 3rd party, please contact Nagree Consulting. We have 20+ years of helping businesses make sound strategic decisions and executing and scaling against those decisions. To learn more, please visit www.nagreeconsulting.com or email us at firstname.lastname@example.org
I spoke with Andrew McFarland, Chief Customer Officer of Black Box Network Services around his role. In our interview, he talks about the role that a Chief Customer Officer can plan (different from the impact of a Vice President of Customer Success) and how he got to be in the position he is in.
Please listen and let me know any feedback you might have
Interview with Andrew McFarland
Best in class B2B companies have 130% Net Revenue Retention (NRR) i.e. they grow their accounts, on a net-basis, 130% each year. Obviously, Gross Revenue Retention plays a part. But upsells or expansions are the driving force behind NRR. So how to do you create a culture of upsells?
There are 3 ways that you can easily create a culture of upsells
Help the customer achieve their goals, not yours
The easiest way to generate upsell opportunities is to stay focused on your customer’s goals, not yours. If your team is focused on quota attainment, they will inevitably break the relationship of trust, or even worse, sell the customer something they don’t want or need. But if the team continues to help the customer achieve their goals, they will inevitably uncover opportunities to sell more.
Example: Acme Inc purchased a SaaS platform from Startup Co to help streamline it’s internal process. After 6 months, usage was mediocre. Instead of the CS Rep trying to sell additional products, they focused on increasing adoption and usage. Through those efforts, the CS Rep discovered that there were additional users that needed to be on the platform, as well as a whole other team that needed to be using the platform. By staying focused on the customer goals, the Rep was able to uncover upsell opportunities without even really trying.
Ensure upsell ownership is well understood by everyone
Make sure that it is very clear who owns the responsibility for the upsell. Is it the sales team? The CS team? The AM team? Or perhaps a dedicated upsell team? Based upon my work with different companies, there is no ‘correct’ answer because it depends upon the nature of the product, the relationship with the customers and the skills of the members of the various teams. The key is making sure that everyone understands who ultimately owns upsells.
Have the right compensation structure in place
Whichever team has responsibility for the upsell, ensure that the right compensation structure is in place. Generally, the most successful compensation systems will have two components:
1. A quota - without it, upsells become a "nice-to-get" rather than it being a critical, and core, part of the individuals responsibility.
2. Rewards for those who do well - when an individual achieves/exceeds their upsell quota, reward them generously through commission percentage, accelerators, uncapped upside or other mechanisms. The impact of upsell revenue is massive to a company's P&L so reward your best upsellers
Implementing these simple changes, it is possible to create a culture of upsells and really drive NRR.
“Why are you asking me all these questions? Have you even talked to the sales rep that I have been working with for the last 3 months?”
Most of us have had this cringe-worthy conversation with a new customer. Sales sells a deal, and on the way back from ringing the gong and high-fiving their teammates, they hand the CS rep a scrunched up post-it note and say “Here’s what you need to know about this account - good luck”. It’s then left up to the CS rep to figure out what the customer wants without sounding like they haven’t spoken with the sales rep.
Below is a case study on a client I worked with. They were struggling with poor onboarding and poor retention, in part driven by poor handoffs between Sales and CS. 3 changes were implemented which resulted in a 35% reduction in onboarding time and a 100% improvement in onboarding NPS scores.
1. Mandated syncs
After a deal closed, there was a mandatory 15 minute internal sync between the Sales Rep and the CS Rep. This was automatically created as a task in Salesforce upon the deal closing. During this conversation, a lot of the qualitative data that the Sales Rep had was passed on and captured. In addition, the ‘forced’ interaction helped improve relationships between Sales Reps and CS Reps.
In addition to the internal sync, there was also a mandatory kickoff call with the customer, the Sales Rep and the CS Rep. While many companies do this already, making it mandatory elevated the importance which resulted in greater compliance. If possible, it’s good to involve the CS Rep before the close. But we found it to be unsustainable from a bandwidth perspective. The kickoff call after the close was very effective and meant that CS Reps only had to worry about deals that had actually closed.
2. Documented hand off notes
An object was created in Salesforce dedicated to handoff notes. It captured information key to the handoff - fields like “Why did the client buy Product X”, “What is the buying process” and “Are they using a competitor product and if so, what features made them switch”. A rep could not move a deal to Closed/Won until these fields were completed.
As quality control, the CS Rep would rate the quality of the handoff notes on a scale of 1 to 5. If the score was 3 or below, it would be escalated to the Sales Rep’s manager for discussion
3. Putting skin in the game
For the Sales Rep, commissions were only paid out once the customer had been successfully onboarded. Initially, there was considerable resistance to this regime, but it was supported from the Sales Executives as they recognized the importance of the onboarding process. There were very clear definitions of “successfully onboarded” tied to usage.
In addition, we measured NPS post-onboarding. Variable compensation for both the Sales Rep and the CS Rep were tied to the post-onboarding NPS. Having skin in the game for both parties encouraged them to work together so the customer had a great experience.
Through these 3 measures, the company was able to significantly improve the experience for the customers. Specifically, it resulted in reduced onboarding time and improved NPS scores, as well as reduced friction between the Sales and CS teams.
If you would like to learn more about how to implement some of these changes at your company, please contact Azim Nagree at azim@nagreeconsulting or visit nagreeconsulting.com
“What’s the difference between Account Management and Customer Success? And more importantly, when do I need separate AM and CS teams?”
I’ve been asked this question multiple times in the last few months so it’s clear that many people are grappling with this problem. The short answer - it depends. Specifically, it depends upon your product, your P&L and your customers.
What’s the difference?
Most people know that Accounts Managers are different to Customer Success Managers. But what precisely is the difference? It lies in the relationship they have with the customer.
Account Managers typically have responsibility for the “business” relationship with the customer. They need to make sure the customer is satisfied, is actually getting value from the product and is ultimately responsible for renewing and cross-selling/expanding. In order to do this, the AM needs to understand the strategy, the business goals and the pain points of the customer. Successful AMs typically have experience in carrying a quota, and their compensation has a large variable component, typically tied to quota attainment.
Customer Success Managers have the “product” relationship with the customer. This means they work with the customer to ensure that they are using the product and getting value from it. To do this, they take the strategy, business goals and pain points of the customer and identify how the product can help. They typically have customer-facing experience, do not carry a quota and only have a small amount of variable compensation.
Example: Acme Inc, a company that sells a SaaS payroll solution, just signed on a new customer, Growth Inc, a fast growing tech company. The Account Manager’s responsibility is to discover/know that Growth Inc purchased the solution because they are growing, that Growth Inc doesn’t have an HR administrator and they are looking to secure Series B funding in the next 6-12 months. The Customer Success Manager is responsible for configuring the platform to make sure that it’s easy to add new employees (because of the growth), the self-service feature is turned on (because there is not HR administrator) and that the management team receives a report on a weekly basis that has metrics that can be easily plugged into a financial model (for the Series B funding discussions).
Single team? Or separate Account Management and Customer Success teams?
There are at least 3 factors that help determine whether you have a single, mixed-function team or two separate teams.
i) Product complexity
The more complicated the product is to implement and use, the more likely you will need separate teams because it is generally too difficult for someone to have technical and sales expertise. In addition, when the implementation is difficult, the client needs to feel like someone is ‘on their side’, and that can’t be the same person who is going to ask for more money. On the other hand, if the product is relatively simple and does not require a lot of technical hand holding, it is possible for that to be handled by a single person.
ii) Profit & Loss
Your P&L may ultimately dictate whether you can afford separate teams, or whether just one is the only economically feasible option. One way to determine this is to look at the CAC:CRC ratio (Cost of Acquisition to Cost of Retention). If your CAC is generally running at the right level (i.e. LTV:CAC is around 3), then your CAC:CRC should be around 3-5 i.e. it should ⅓ - ⅕ of the cost to retain a customer than it is to acquire a new customer. With that understanding, it is relatively easy to see how much your organization can spend in total to retain customers.
Example ACME Ltd has a LTV:CAC of 3, and the CAC is $700. Therefore, the CAC:CRC should be $129/mth/customer (i.e. $700/5). If the number of customers is 1,400, that means the Client Success team should cost no more than $181,250/mth. Knowing this budget needs to pay for tools and fully-loaded headcount, you can play around with different structures to see which one fits with the customer best while fitting with the P&L.
As your customer base continues to grow, you may consider having different structures for different tiers of customers. For example, your Tier 1 and Tier 2 spend enough that the P&L allows for a split team. For your Tier 3 and 4 customers, the economics dictate that the teams must be combined. And for Tier 5 customers (your lowest spending customers), a self-service model might be the only one that is financially feasible.
iii) Customer Feedback
One thing that is easy to overlook is customer expectations. If you have a process for capturing feedback, it’s likely they are telling you what they want. Look for signals like:
Deciding on whether to have a single team or separate teams can be a difficult decision, especially when there is no definitive answer. But the principles above should help in navigating the decision.
To discuss this topic more, or other Customer Success topics, please contact Azim Nagree at azim@nagreeconsulting
Does your organization need Customer Support, or Customer Success? Or both? Too often, companies do not deliberately decide what type of Customer organization is right for the them, instead just choosing one by accident. But the wrong choice can have major consequences on the financials of the business and on customer satisfaction.
So which do you need? Like some many other questions, it depends. But let’s start with defining what each organization looks like.
Customer support - think call center where almost all of the volume is inbound (phone, email or chat) and it’s almost exclusively reactive. In general, the goal of a Support organization is to help resolve the customer's issue as quickly, and cost effectively, as possible. Some of the metrics that are typical for a Support team include time to answer, time to resolve, number of touches to resolve etc. A new measure that is gaining some momentum is called “Customer Effort” which is an attempt to capture how hard it was for the customer to resolve their inquiry and is very appropriate for Support teams. For the most part, people in Customer Support are a little less experienced and are on the lower end of the compensation scale. This makes them a little easier to find and hire.
Customer Success - often called Account Management, this organization is typically tasked with ensuring that the client gets value out of the product/service. As a result, they are (or at least, should be) more proactive with their customers They should be making sure that the customers are using the product/service to do the thing for which they originally bought the product/service. Some key metrics for Success organizations include number of outbound touches per customer, renewal rates and expansions and net promoter score. Generally, Success team members are a little more experienced in customer management and therefore have slightly higher compensation. They are often a little more difficult to find.
When deciding whether you need a Customer Support team or Customer Success team or both, here are some things to think about:
In every organization I have worked at, or consulted to, the Client Success team believe they have too many accounts. Typically, it’s because of staff turnover, New Business team closing lots of deals and/or because Client Success is asked to do more and more (ensure usage, be the strategic partner for the client, look for upsell opportunities, secure the renewal, find success stories etc etc).
Generally, the number of accounts is not too high – it’s a lack of prioritization that makes it seem overwhelming. One solution is to tier accounts. Customers in the higher tiers are treated with high priority, customers in the lower tiers are lower priority. Tiers are determined by actual spend, potential spend, product usage or some other quantitative measure. Below, I give my perspective on the pros and cons of this approach.
1. It’s clear which factors should be used to prioritize customers, and those factors are agreed upon by the entire organization
2. Your customer base follows the 80/20 rule i.e. 80% of the revenue comes from 20% of the customers. This makes prioritization a little easier. The further the customer base deviates from this, the harder it is to implement this model
Otherwise, you may need to address your "understaffing" issues through additional resources and/or improved workflows.
Feel free to contact me if you’d like additional thoughts on when to implement this model and how to make it successful.
Azim Nagree is an ex-Bain consultant with 20+ years in leading strategy, growth and operations transformations.