Customer Success, Then Growth
Customer Success
“Customer success is the concept of achieving business growth by adopting a customer focused approach… SaaS companies must focus on retaining existing customers and the secret to customer retention is to make sure that the customers are happy and successful.” – Gainsight.
Recurring customers are crucial for the success of SaaS companies. With the evolution of the SaaS business model in the last decade, the significance of customer success has escalated dramatically. In this blog post, we’ll explore the importance of investing in customer success and unpack a simple and concise framework that has stuck with me since joining a SaaS startup: customer success, then growth.
Evolution of Customer Success
Customer success may seem like a trendy new concept, but it’s actually a decades-old discipline. Just take a look at industries like banking and telecom, where slow growth and intense competition have forced companies to have the best-in-class customer success teams. Over the past 30 years, both banking and telecom companies have mastered the practice of customer success as a key differentiator for their businesses.
Recently, customer success has become a focal point for SaaS startups. As the fast-growing SaaS industry matured, the emphasis on customer acquisition has gradually shifted to customer retention. In 2013, Gainsight championed the creation of the customer success category, and soon after that, the most common question went from “why start a customer success team?” to “how to build and run a customer success team?”
The Best Kept Secret of SaaS Startups
In the world of SaaS, customer success steps in after the sales process and ensures that customers stick around, buy more, and refer others. A customer success team focuses on three things that occur post-sales:
1. Renewals: happy customers on annual plans are more likely to renew their subscriptions for many years to come.
2. Upsells: over time, happy customers are more likely to pay more for your product than in their first year.
3. Second-Order Revenue: word-of-mouth referrals and champions of your product switching companies, bringing your product to a new organization.
The biggest misconception is that customer success is a new name for customer support, customer service, or account management. The difference is that those business functions are typically reactive, while customer success is a proactive revenue center in a recurring revenue business. With a strong customer success team, your SaaS startup can not only generate more revenue throughout the customer’s lifetime, but also benefit from second-order revenue.
A Prerequisite for Growth
For an early-stage SaaS startup, customer success is a prerequisite for any meaningful growth, not something you put off until you become a growth-stage or late-stage startup. There are three reasons why investing in a customer success team is essential before embarking on growth:
1. Customer Feedback: a customer success team can provide valuable insights and feedback from customers, helping you build a better product.
2. Happy Customers: happy customers drive word-of-mouth referrals and become champions of your product, enabling you to grow even faster.
3. Lower Churn: customer success leads to lower churn rates, allowing you to grow at a more capital-efficient rate.
If you prioritize growth without first nailing down your recipe for customer success, you’re likely only achieving vanity growth, which isn’t indicative of real business growth. Many SaaS startups think that hiring more salespeople will lead to increased revenue, but actually, customer success is the real revenue driver. Inevitably, sales efficiency will slow down, and customer churn will become a show-stopper.
Growth
SaaS startups often charge ahead to onboard customers and figure out how to make them successful on the fly. However, this approach rarely works, and they lose customers out the back door. The most successful SaaS startups are the ones who deliberately invest in customer success and fight the urge to chase growth prematurely.
Once you’ve discovered a recipe for achieving customer success, then the question becomes, “how fast should we try to grow?” At this point, you could either reinvest some revenue back into the startup to grow as fast as you can organically or raise a growth round to grow the startup even faster. Regardless of which path you choose, you’re now in a position to pursue growth aggressively in a way that best suits your SaaS startup.
An Essential Part of Every SaaS Startup’s DNA
There are many ways to grow a SaaS startup, but the one thing that is guaranteed to work is happy and successful customers. In my view, customer success inherently implies “do things that don’t scale,” a tried and true startup mantra conceived by Paul Graham. As a SaaS startup, you need to do whatever you can to figure out how to make your early customers successful, even if it’s not scalable to start with.
Looking ahead, SaaS startups at the forefront of customer success will gain a significant advantage through happier customers, improved capital efficiency, and faster growth. As the SaaS industry continues to evolve, it’s essential for SaaS startups to incorporate customer success into their DNA from the outset. This means investing early and often to ensure that your customers are happy and successful.