Oct 15, 2021

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Where Is Customer Success Headed in 2022?

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Where is Customer Success Headed in 2022?

“How did you go bankrupt?” Bill asked.

“Two ways,” said Mike. “Gradually, then suddenly.”

You may be familiar with this passage from Ernest Hemingway’s The Sun Also Rises, which in just three words sums up an intense effect we all feel at times.

The sensation of change happening slowly, then all at once.

At least, that’s how it seems when small actions compound over time and culminate in a sudden shift.

First, this sensation feels overwhelming, but once the shock subdues, we often see that it was a long time coming. For this change came about by repeated efforts and incremental progress made each and every day.

Customer Success gradually, then suddenly, came to exist.

Customer Success gradually, then suddenly, became essential to SaaS companies.

Customer Success gradually, then suddenly, joined the C-suite.

Of course, those who have been in Customer Success for some time, regardless of whether it was named something different then, know that this function is not an overnight success.

The rising prominence of Customer Success is the result of it being the central business driver of growth and profit. Businesses were forced to wise up to this fact during the pandemic when new sales shriveled.

So, as we were planning our closing session for our recently held BIG RYG Leadership Summit, we thought what better way to wrap up our event than to answer the question of “Where is Customer Success headed?”

Because the answers to this question aren’t based on predictions or fanciful guesses. They’re based on the consistent work that Customer Success has done to get where they are today.

In this article, we share three Customer Success trends to look out for in 2022:

  • NRR becomes red hot (watch out)
  • Extreme digital transformation arrives
  • Customer Success flexes its authority

To varying degrees, these trends are already happening now, but will only continue to grow – gradually, then suddenly.

1. NRR becomes red hot (watch out)

net revenue retention

Net Revenue Retention (NRR) is an overnight sensation that’s been years in the making. Nowadays, you can’t sit through an executive, a board, or an investor meeting without being asked about NRR.

As our CEO You Mon Tsang recalls:

“I’ve been raising money for many years now. Twenty years ago, when I did my first big round of funding for a different company, NRR was an “Oh, by the way” metric. The VC firm gave me the term sheet. We negotiated. They reviewed all our contracts. Then, by the third meeting, they said, ‘Oh, by the way, what are your customer metrics?’ It was like a checkbox. They didn’t really care.”

net revenue retention

Once an afterthought, NRR begins to make its way onto organizations’ big dashboards, although on the periphery. As more time goes by, NRR rises in the ranks and becomes an impact metric, or one of the top 10 metrics tracked by company. Within the last 36 months, NRR claims the top spot as a qualifying metric.

“From an investor standpoint, a qualifying metric means I don’t care what the rest of your company looks like, I don’t care how excited I am about your people or your technology, I don’t care if you’re growing 5x, if your NRR is not right, you’re disqualified.” – You Mon Tsang, CEO at ChurnZero

Abby Hammer, ChurnZero’s Chief Customer Officer, points to ChurnZero’s most recent series B funding round to demonstrate the growing importance of NRR: “In our series A, there were some questions about NRR. It was certainly part of the package, but I wasn’t asked about it until after the deal was done. In our series B, NRR mattered. We had long sessions about it. As our CCO, I had to know it backwards and forwards and know how we were trying to move it and why.”

Qualifying metrics get a lot of executive attention, and with that comes a lot of scrutiny. NRR is one of the top metrics CCOs need to know. As a CS leader, you should be ready to explain and back up your NRR. But don’t be scared, NRR is on your side.

NRR is your friend

net revenue retention

If you support your NRR, your NRR will support you – whether that’s in securing budget or buy-in. But for this mutually beneficial relationship to happen, there needs to be a mindset shift among CS leaders.

During one of our BIG RYG Hyper-Workshops on budgeting for Customer Success headcount, Kristen Hayer of The Success League, framed this shift by explaining that as a CS leader, you’re not running a happiness team, you’re running a revenue team.

For CSMs, who are relationship-driven individuals, talking about money with customers can feel icky and uncomfortable.

“When it comes to feeling smarmy about money conversations with customers, we have to shake that out and get over it. Because the way you get a seat at the table is by adding to the business. If you’re just a cost center, then you’re always a drag.” – Abby Hammer, CCO at ChurnZero

If you’re retaining customers, if you’re helping them grow, if you’re getting them to value, you need to own that position. Once you do, you’ll get allotted more budget, you’ll get more space in the decision-making rooms, and you’ll get more time from internal teams to dedicate to customer needs.

People often ask what percentage of revenue or expenses should be allocated towards CS – the answer being up to 20%. But a few years ago, this conversation wouldn’t have even happened. The existence of this benchmark shows how far CS has come, but there’s still further to go.

When you become a qualifying metric, budget will be allocated to you, and you’ll get to decide how to spend it. The distinction between getting budget allocation rather than asking for budget allocation is extremely important, and something that all CS leaders should strive to achieve.

But be weary. The never-ending goal of increasing NRR can put a lot of pressure on CS leaders, and in turn, cause some unnatural behaviors in its pursuit.

NRR is your “friend”

net revenue retention

Even though NRR is your friend, when it’s chased at all costs, it can actually make you behave badly.

When you’re a small business, 80% of revenue comes from new sales, generally speaking. When you’re a large business, 80% of revenue comes from CS. When this happens, all heads turn to you as the CS leader. The bigger the company you support, the more of the burden you own. You start to spend all your time thinking how am I going to juice NRR?

And this is where things can get weird.

An excessive focus on NRR can manifest in many ways. Some of the most common include:

  • CS starts to look salesy
  • CS drives towards product packaging
  • CS moves to a land-and-expand strategy
  • CS segments aggressively

“You may do things with your pricing and packaging that don’t feel right but allow you to do some fun (misleading) math that gets you in a better spot. Your team will start to get pushed on the money side of things. You may trip over the line a few times and feel a little salesy.” – Abby Hammer, CCO at ChurnZero

If you focus too hard on the math, you lose the human element; that’s what you need to remember.

NRR is both your friend and your “friend.” Make sure you keep its influence in check – and that extends to comparing it with others.

Why NRR benchmarks are dangerous

One of the most common questions in SaaS is “What’s a good NRR?”

The responses to this question tend to trickle down from those at the top of the ecosystem, which is your Slacks, your Zooms, and other large enterprise companies.

If you’re a startup or SMB, this sets you up with unrealistic NRR expectations. These markets tend to be volatile, so there’s much more that’s outside of your control. You don’t want to compare apples to oranges; you’ll only cause yourself undue stress. Find similar, like-minded companies to benchmark yourself against, and be ready to hold your ground.

“I bet your board is going to talk to you about product-led growth sometime in the next 18 months. They’re going to say they’ve heard of this thing called PLG, and it’s going to lead to great NRR — and it will. But not all of us have products that can actually support that growth model. Be prepared to have that conversation. Be prepared to be benchmarked. Be prepared to negotiate that benchmark. NRR is fantastic. Use it. Don’t let it abuse you.” – You Mon Tsang, CEO at ChurnZero

 

2. Extreme digital transformation arrives

To paint a picture of the extreme digital transformation taking place in CS, we’re going to use an analogy about restaurants.

When you visit a restaurant, you walk in, you request a table, you get seated, the waiter greets you, gives you their spiel, takes your order, serves your food, brings more drinks, drops off the check – you know the drill.

The point here being that there are many exchanges between you and another human over the course of this experience.

And then COVID happens and suddenly it’s dangerous to engage with one another. Restaurants had to adapt, fast. Physical menus became QR codes. Orders are placed and paid for through smartphones. Outdoor seating sprang up on every street.

“Restaurants did a fabulous job of turning on a pin and rethinking how they approached their customer engagements. Those who tried to keep customers coming in the door had to figure out how to make the experience more digital, but without taking away many of the things that people like about being at a restaurant.” – Abby Hammer, CCO at ChurnZero

Although the restaurant experience drastically shifted, they still managed to keep the best parts. You’re out of your own four walls, and you didn’t have to cook or clean up a big mess.

“Many people like the new experience; it’s smoother,” says Abby. “You can move through a restaurant more efficiently if you’re in a hurry or take your time if you’re not. Re-imagining what it means to still have human experiences in a digital world is something we can learn from restaurants.”

Like restaurants, CS leaders will soon have to reckon with digital transformation – that is if the pandemic hasn’t already made them so do – as demands for growth and profit intensify.

Growth and profit: be prepared to be asked for one or both

As a CS leader, you’re going to be asked for growth and/or profit. Which brings us to the current war for talent and time. If you want to grow, if you’re raising money, if you’re seeing success, you’ll need to double or triple your CS team. A year ago, it was hard to find CS professionals. Today, it’s nearly impossible with the surge in demand for talent.

“No matter where you look, CS leaders have to think about what happened to the restaurants and how they responded. COVID may have initiated that digital transformation, but now restaurants have to adapt because either they have to do more with less, or they just cannot find the people.” – You Mon Tsang, CEO at ChurnZero

If you want to drive a profit, your team will have to become more efficient. When your CSMs begin to own more of the process and more numbers, more pressure gets put on them. As Abby shares, “When you talk to your CSMs about the time they have in a day and how you can help them use it in a maximum impact way, you have to think about what you can do to weaponize them.”

And in many cases, that’s where technology and automation have the greatest effect.

“When interviewing CSMs, I used to never get asked about what tools we have to support our CS team. Now, I’m asked all the time. Because CSMs don’t want to join an organization that’s not going to set them up for success, that’s not going to give them data, that’s not going to give them space, and still stick a number on them and get mad when they don’t reach it.” – Abby Hammer, CCO at ChurnZero

Candidate expectations for their employer to have reputable tools and technology exist is virtually every other modern department. A salesperson would never join an organization that doesn’t have a CRM. A designer would never join an organization that doesn’t have photo-editing software. A PM would never join an organization that doesn’t have project management software.

If you’re only offering a CSM access to a CRM and spreadsheets to perform their job, you’re not competitive enough to win in today’s job market. In the war for talent, not only is there a deficit of CS professionals, but that talent pool now has qualifying expectations for you, and rightfully so. It’s about time CS professionals leveled the playing field.

3. Customer Success flexes its authority

Over the next year, CCOs will continue to increase their organizational prominence and power. This shift is already underway. Our recent leadership study showed that 61% of respondents reported a VP or above as being the highest leader in their CS organization in 2021 – an increase of 7% from the previous year.

CS was undoubtedly tested by the pandemic when it became the sole source of revenue as new business dried up. CS leaders, having proved their business value and that of their teams, are better positioned now more than ever to grow their influence in the organization – and flex on ‘em.

“If CS owns a qualifying metric (NRR), that means you own up to 80% of the revenue, you should be flexing. Sometimes when a new department is growing, you might think you’re asking for too much. But you should ask for less and expect more. That’s the flexing part of it. Don’t ask for it, expect it.” – You Mon Tsang, CEO at ChurnZero

For these reasons, we believe that in the months ahead CCOs will:

  • Get their share of the budget
  • Own everything post-sale, including the renewal and expansion
  • See a new-sales strategy that’s supportive of CS
  • Be named the best path to CEO

But as our own CCO Abby warns: expect it to be bumpy.

“As CS leaders, we’re trying to do something new, and new is hard,” says Abby. “Breaking the status quo is challenging. People are going to question you. They’re going to want results before they give you the means to get those results.”

Because CS didn’t exist all that long ago, many CS leaders are still early on in this journey. For this reason, Abby says CS leaders may sometimes get ahead of themselves, ask for more than they can handle, or fail to make the right partnerships across the organization to get what they need.

“Where we sit in the organization and the struggles were against, our own mindset can get in our way sometimes. There’s a myriad of reasons that it’s not going to go smoothly. But if you keep going, the momentum is on your side.” – Abby Hammer, CCO at ChurnZero

The math is on your side too, as You Mon points out. The new-sales strategy has to be extremely supportive of Customer Success, because from a NRR and GRR perspective, losing a customer hurts the business in many ways.

With great power, comes great responsibility.

As CS takes on more responsibility, their power will grow.

Because when CCOs own the customer, the numbers, and a high-performing team, they will own the business – putting them on the best path to becoming the CEO.

*In case you didn’t know, this blog was adapted from an in-person session at BIG RYG, ChurnZero’s annual Customer Success leadership summit.

Want more BIG RYG content?

You’re in luck! BIG RYG is going virtual for its second year on November 18, 2021.

Register today to get exclusive access to sessions that tackle the everyday issues facing the CS industry with thoughtful discussions and tangible solutions. We go beyond problem admiration and leave you with real tactics for real impact.

While the agenda is still forthcoming, last year’s sessions covered trending topics such as managing CS Operations, scaling your CS team, building better relationships with Product, earning a seat at the executive table, and more.

 

 


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