An Investor's Perspective on the Real Value of Customer Success

Posted: Updated:

If you are in the tech space in the Midwest, you not only know of Bill Godfrey, but you may have been lucky to reap the benefits of his counsel. He is not merely a substantial investor in SaaS companies in Indiana, but he is also a valued advisor about how to make key early-stage decisions that will impact the success and future valuation of a company. He knows what he knows based, in large part, on his own experience as a software executive at Software Artistry, and then again as Founder and CEO of Aprimo. Software Artistry was acquired for $200 million and Aprimo was acquired for $525 million, giving Bill the personal expertise in building companies with strong valuations.

Regarding the strategy and financial model for Customer Success, Bill has some keen philosophies and insights about why and how to do it right. (Spoiler: Getting the model right can result in those subscription services being valued at the same multiple as the subscription software.)

The following is the first (of three) parts of an interview with Bill about his personal experiences as an executive building an expert services division. The second part of the interview focuses on Bill’s assessment of the current state of Customer Success. And, the third part offers his counsel for current SaaS companies trying to reap the true value of an expert services team.

Give us your thoughts on the formative years of Customer Success, and why it didn’t really work at first.

Every SaaS company knows the importance of recurring revenues and negative churn. To protect this nest egg, most software companies have created the role of account management, which is often disguised by calling it Customer Success.  Account managers have strong relationship skills, but typically lack deep product expertise and best practice insights.  Their incentives and quota goals make them sales people in their customers’ eyes.  This incarnation of account management is not what customers need, and it makes customers feel like they’re being nickel and dimed for every services request.  Account management as a function is also a serious drag on a software company’s profitability because it becomes a large cost center.  These economics make it very difficult to scale account management headcount.  This whole model is just broken and suboptimal.

How did you adapt at Aprimo?

At Aprimo, we initially did the Account Management model and experienced all these frustrations.  By listening closely to our customers, we innovated and created a Customer Success team that delivered expert services on demand for a subscription fee.  Our customers absolutely loved it because they always worked with the same expert resource who provided on demand, just-in-time consulting, and their costs were predictable.  We took all the friction out of the relationship.  We quickly realized that, for many of our customers, our Customer Success managers could perform the role of account management.  Securing renewals and upsells became a by-product of assuring their ongoing value attainment using our solution.  And our customers were more than happy to pay us an annual subscription fee for these expert services.  Within a few years, our Customer Success team was contributing $6-7 million in ARR at a 40-45% gross margin.  These economics enabled us to scale our staffing and capacity model to keep pace with our growing customer base.  Customer Success was a profit center and not a cost center.  And when we were acquired, we got the same valuation multiple on our subscription services ARR as we did on our software subscription ARR. 

In your experience both as a software executive and now as an investor, what do you regard as the essential priorities for an effective Customer Success model?

“Having lived in the B2B software application world for 25+ years, I have a philosophical belief that software left to its own devices will atrophy and die on the vine.”

The goal of all SaaS companies is the same: to grow as rapidly as possible. Having a negative churn rate is a big part of making this happen.  In my experience, this absolutely requires selling a “solution as a service” comprised of both software and expert services.  Customers typically end up wanting more expert services, not less, which can contribute to expanding your ARR per customer.

I think it’s perfectly fine for early stage and scale up companies to calibrate their pricing model for these subscription services to be at break even. I know there’s always concern about pricing being too high, which could create friction in the buying process. However, I think it’s more important to get everyone in line with your full solution offering from the start, and enthusiastically share that value proposition. Honestly, most experienced buyers expect this now, and you win credibility and trust points by proposing a solution with built-in, continuous best practices.

To get Customer Success started in that first year, you have to prime the pump with a handful of product experts (two or three), and you’re not going to have contracts to cover that expense. By year 2 it's profitable, and you’ll never look back.

Lisa Leahy is vice president of sales at Bolstra LLC.

  • Perspectives

    • How Well Are You Tracking Your Marketing?

      One of the first metrics business owners learn about is return on investment, or ROI. Earning the highest possible ROI is critical when running a business. You make investments with the expectation that you’ll have something to show for them. So how's the ROI on your investment in marketing and advertising? If you’re like most business owners, your answer is something like "I think it's pretty good" or "things seem to be working."

    More

Subscribe

Name:
Company Name:
Email:
Confirm Email:
HTML
INside Edge
Morning Briefing
BigWigs & New Gigs
Life Sciences Indiana
Indiana Connections
INPower
Subscribe
Unsubscribe

Events



  • Most Popular Stories

    • (photo courtesy Dax Norton)

      Whitestown Again Indiana's Fastest-Growing Community

      The town manager of Whitestown says he is not surprised the town is the fastest-growing community in Indiana for the seventh consecutive year. The Indiana Business Research Center at the Indiana University Kelley School of Business says the Boone County town's population grew 7.6 percent last year. In an interview with Inside INdiana Business, Dax Norton said the commercial, industrial and retail sectors are driving the continued growth in population. Using estimates from the...

    • No Degree, No Problem: Top Jobs that Don't Require a College Degree

      The professional job market is competitive, with most positions requiring a college degree just to get in the door. However, college is both expensive and a serious time commitment.  Many of those who can’t afford college are still in search of jobs that pay well and can provide a career pathway to a sustainable life. Some of these men and women are skilled at working with their hands and want to apply their craft to something other than an office setting.

    • Indy-to-Paris Flight to Take Off

      City and state officials will Thursday and Friday celebrate the beginning of Indiana's first nonstop transatlantic flight between Indianapolis International Airport and Charles de Gaulle Airport in Paris. The celebration will culminate with Governor Eric Holcomb returning from his sixth international economic development trip and delivering the Indy 500 green flag to the Indianapolis Motor Speedway. Lieutenant Governor Suzanne Crouch and Indianapolis Mayor Joe Hogsett will join...

    • Long John Silver's Acquires Indiana Restaurants

      Louisville-based Long John Silver's has acquired more than 70 restaurants, most of which are located in Indiana, from Jasper-based ServUS. Financial terms of the deal were not disclosed, however the company says no jobs will be affected.

    • (photo courtesy Indiana Economic Development Corp.)

      Hoosier Delegation Travels to Germany

      Governor Eric Holcomb’s economic development trip to Europe continued with a stop in Germany. The Indiana delegation met with government, business and academic leaders in an effort to share best practices on “strengthening education and workforce development to support growing, diversified economies.”