In the fast-paced world of Software as a Service (SaaS), layoffs and reorgs are often seen as a necessary evil when companies face financial challenges. However, one area frequently overlooked when making these tough decisions is the impact on customer success teams. As a strategic approach, customer success aims to drive customer satisfaction, retention, and, ultimately, revenue growth. But cutting customer success roles without considering the long-term implications can significantly affect a company's bottom line.
In this article, we'll explore why we started customer success in the first place, why temporary customer success solutions fall short, the risk of cutting CS departments, and what companies should keep in mind when exploring their customer success options.
The Origins of Customer Success
It's crucial to look back at its origins to understand the importance of customer success. In the article "The History of Customer Success" by the Customer Success Association, the development of customer success is traced back to the early 1990s. The article explains how customer success emerged as a response to the realization that just acquiring new customers was not enough. Businesses needed to focus on ensuring their customers achieved their desired outcomes and received ongoing value from their products or services.
That was the 90s. The market wasn’t as competitive as it is today, so the challenge felt back then is even more heightened now that new companies are emerging with each passing day.
Temporary Solutions Fall Short
In response to budget constraints, some companies opt for temporary solutions, such as creating hybrid roles or providing scaled support in place of a customer success management team. While these measures may alleviate immediate pressures, they are not long-term replacements for dedicated customer success managers.
Hybrid roles may lack the necessary expertise and bandwidth to deliver proactive, strategic customer success initiatives. Scaled support often focuses on reactive issue resolution rather than proactive relationship-building and identifying expansion opportunities.
I’m not surprised that we’ve gotten here, though.
It still seems like the “value of customer success” is still up for discussion.
In his article, “The Problem With Customer Success,” Rav Dhaliwal shares why there’s so much frustration and confusion regarding customer success. CS has been around for two decades, why are we still struggling with having a “seat at the table”?
Rav breaks down the problem into two buckets:
No standard definition of customer success - “Customer success” should have a core outcome that we’re all aligned on. It shouldn’t vary. Rav proposed a definition like: ““…creates the conditions for new revenue and business value faster, by bringing <insert contextual skills / expertise> to existing customers”.
Commercial aversion - Rav shares,"A pervasive cultural belief amongst many in the customer success profession is that having a revenue target is incompatible with developing and maintaining customer trust.” We need to accept that we are a revenue-generating team, and our leaders are revenue leaders.
The Customer Success Challengers
It's worth noting the case of Snowflake, a leading cloud data platform. The CEO made headlines by "blowing up" or getting rid of their customer success team, but it's important to recognize that their approach is not universal. Snowflake practices customer success as a mindset, embedding it throughout its organization. They have other roles, such as practice managers (like project managers overseeing the delivery of services), technical account managers (TAMs), and professional services. These roles are responsible for carrying out the work traditionally performed by customer success managers.
Take, for example, the role of TAMs.
TAMs play a crucial part in Snowflake's customer success strategy. Let's take a look at Snowflake's TAM responsibilities (SOW):
Provide ongoing technical guidance for ingestion, security, performance tuning & optimization, and advanced Snowflake features;
Provide product advocacy and customer enablement;
Work with Customer resources as a primary technical advisor, providing guidance on the following matters:
Reference architecture
Architectural guidance
Snowflake best practice considerations related to Snowflake configuration, accounts, security guidance, databases, data management and other topics as agreed upon by the parties;
Serve as a primary technical lead with access to Snowflake technical experts that can facilitate collaboration on broader technical items;
Facilitate Customer access to Snowflake support resources that will allow Customer to directly post support questions and help with technical guidance pursuant to Customer’s support agreement; and
Engage with other Snowflake technical leaders
There’s a lot of overlap between what is traditionally done by a customer success manager and the responsibilities listed above.
How did Snowflake"get rid" of customer success? Here’s how they did it:
#1 Took a commercial-focused approach.
Snowflake delivers value to its customers through professional services and training. Then, all roles align around these deliverables. It starts with their Account Executives (AE). They need to be “customer-obsessed”, they are all about making the customer “successful.” Here’s a screenshot of an open role for an AE, Manufacturing at Snowflake:
Job description of Account Executive, Manufacturing at Snowflake
Sounds a lot like customer success, right?
Then, TAMs execute the work, practice managers oversee the delivery of these services, and customer marketing is in the background identifying upsell opportunities and bringing all this information back to sales to have a sell and sell again motion.
#2 They sprinkled customer success across all roles.
By now, you might’ve noticed a trend. There’s a little bit of CS in the responsibilities of the roles I’ve shared with you.
Who owns the relationship here? According to Frank Slootman, the CEO of Snowflake, “...the entire organization has a Customer Success component: The sales organization owns the relationship; the sales engineers own the technical relationships; and the support organizations own customer experience.”
I’ll point out, however, that not all AEs are created equally at Snowflake, and some lean more toward customer success than others. Take, for example, this Corporate AE role:
Job description of Corporate Account Executive at Snowflake
This one sounds a lot more like the traditional AE roles we’re used to seeing.
If you're a company looking to follow in the footsteps of Snowflake, I want you to consider the following:
Do you have the resources in place to hire for all of the supporting roles Snowflake has on its client teams? AEs, practice managers, TAMs, solutions engineers, etc.?
Did Snowflake actually blow up “customer success,” or are some AEs at Snowflake actually “customer success managers” with a stronger emphasis on commercials and a different title?
The Leaky Bucket Effect
Before a company reduces its customer success team or completely drops the department, they need to solve for customer success without a customer success team.
If not, a "leaky bucket" effect can take hold when these roles are eliminated or significantly reduced. Just as a leaky bucket fails to retain water, a company without a robust customer success function may struggle to keep customers.
At first, the leak might go undetected–no customers immediately churned after you let your CS team go–so there’s clearly no cause for concern. However, as time goes by, you start noticing some changes. Adoption might begin to drop, there’s a spike in your support tickets, your NPS score is beginning to tank, and expansion opportunities are dwindling.
This underestimation of the long-term complications resulting from layoffs or reductions in customer success teams can hinder a company's growth trajectory.
NRR is the foundation of the Rule of 40
Top-performing SaaS companies recognize the significance of customer success in driving revenue growth.
According to a McKinsey article on the Rule of 40, these companies prioritize net revenue retention (NRR) as a critical value creation metric. According to the article, here are the reasons why companies should prioritize NRR:
1. Investor Rewards: Companies that achieve or surpass the Rule of 40 (where the sum of growth rate and free cash flow rate equals 40% or higher) are rewarded by investors with consistently higher enterprise value-to-revenue multiples. Higher Rule of 40 performance leads to greater investor confidence and valuation.
2. Growth Driver: NRR is a core driver of growth and sales efficiency for SaaS companies. By focusing on customer retention, cross-selling, upselling, and investing in customer success, companies can achieve higher NRR rates. SaaS businesses with NRR of 120% or more have been found to have higher valuation multiples, demonstrating the significance of NRR in driving growth and marketing efficiency.
3. Sustainable Revenue Streams: As SaaS companies mature, revenue growth tends to slow, making generating revenue from existing customers crucial. NRR provides a means to achieve sustainable revenue streams by ensuring customer loyalty, expansion within the customer base, and minimizing churn. By prioritizing NRR, companies can generate consistent revenue growth even without acquiring new customers.
4. Operational Discipline: Focusing on NRR requires operational rigor and performance transparency. It encourages companies to implement practices such as setting realistic growth targets, optimizing go-to-market spending, building new business ventures, and leveraging data-driven insights. Prioritizing NRR demonstrates management's ability to maintain strong shareholder returns and operational discipline as the company matures.
Sustainable growth cannot happen without your customer base; this is where customer success comes in.
Conclusion
The impact of layoffs and eliminating customer success teams should not be underestimated.
As companies face financial challenges and make tough decisions, it is crucial to consider the long-term implications on customer relationships and revenue growth. Temporary solutions and alternative roles may provide short-term relief, but they cannot fully replace the expertise and the outcomes generated by customer success managers.
What can the customer success field do about this? We must embrace our next step, which, as Rav mentioned, is aligning on a standard definition and stepping up as revenue leaders.
We know that customer success was created to solve a huge problem, churn, which is a problem we still have today. As a SaaS collective, we shouldn't let history repeat itself.