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

    • The Power of Partnerships

      You can't go it alone in tech. All technology companies, regardless of their segment, live in an ecosystem comprised of organisms of varying complexity. More mature companies in established categories can function at the top of the food chain, consuming smaller companies through acquisition, but startups are seldom if ever in a position to gain dominance through acquisition. It’s vital for the success of a startup to be able to play well with others...

    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

    • Liberty Mutual Plans 400 New Carmel Jobs

      Boston-based Liberty Mutual Group Inc. is planning to add up to 400 Carmel jobs as part of a $14 million expansion plan. The insurance company has a global presence and currently employs 1,430 in central Indiana. The Indiana Economic Development Corp. says the new jobs, expected to be created by 2021, will pay more than the state and Hamilton County average wages. Plans call for Liberty Mutual to lease...

    • Indiana Included Among 'Least Tax-Friendly States'

      A personal finance magazine has ranked Indiana among the 10 least tax-friendly states in the country for retirees. The ranking is part of Kiplinger’s Personal Finance's 2017 Retiree Tax Map, which compares all 50 states on senior tax breaks, as well as taxes on income, property, everyday purchases and estates.

    • Schools Recognized Among Best For Military Students

      Two Indiana schools are ranked among the best colleges for veteran, active-duty and military dependent students. The Military Times Best: Colleges 2018 rankings are determined by a survey that assesses the veteran and military student services and rates of academic achievement of more than 600 colleges throughout the country.

    • Vote on North River Property Deal Delayed

      The Fort Wayne City Council has delayed a vote on whether to purchase a 29-acre property near the city's downtown. Our partners at WPTA-TV report some members of the council are concerned about the more than $4 million deal, as the city will not know the results of an environmental study until after the transaction is complete. The city has called the property, which served as the site of a former OmniSource scrap yard, as an "important gateway to downtown."

    • Purdue Startup Scores Federal Funding

      The National Science Foundation has awarded a $750,000 grant to a Purdue University-based tech startup. The university says the funding will help Perceive Inc., which is located at the Anvil coworking space on the West Lafayette campus, further develop its automated customer service coaching software.