Multiple times over the past few quarters, we have come across questions around customer success and the importance of proactive customer engagement models and the market opportunities they represent. We have more than one company focusing in this space – Totango, a leader in customer success management solutions and OneMob, a video engagement platform for customers, partners and employees. Very often, we are asked how big is this market today and how fast is it growing. These are legitimate questions for which the answers are not found in any credible independent third party report. This article describes our views of the customer success maturity model and why we believe this market is still in its early stages, but fast maturing.
Enterprises of all sizes are undergoing a profound digital transformation and are adopting cloud-based subscription business models. In a recent survey from Gartner, 42% of CEOs said that “digital first” is now their company’s digital business posture. Every business, from selling razor blades (Dollar Shave Club) to selling music (Pandora, Spotify, etc.), is transitioning to a subscription-based business model. Shared ownership and pay-for-use are becoming alternatives that buyers are evaluating before making any capital investments. As a result, large well-established firms are facing the threat from a gaggle of disrupters who are innovating with new business models. Gartner predicts that by 2020, five of the top seven digital giants will willfully “self-disrupt” to create their next leadership opportunity.
Making this transition is not easy. Top management consulting firms such as Deloitte, have established practice areas around Flexible Consumption to help large companies in their digital transformation. In our observation, this process unfolds in 5 phases – what I call the “Digital Transformation Maturity Model”.
Getting commitment: It all must start with executive level commitment – a buy-in top down to change the ethos of the company and embrace change. This can take several months to gain sufficient impact, and the larger the company, the longer the process.
Organize and Prepare: Once the decision is made, the leaders of the company have to align the entire organization around this new model, which involves a lot of preparatory work. For a lot of product companies, the software needs to change to accommodate a shift from a licensing model to a subscription model. Marketing collaterals need to change, CPQ (configure, price and quote) software needs be updated, and sales projections need to be qualified – just to name a few. Supply chains need to be modified to fit the subscription consumption models. This is a massive transformation effort and can take several quarters.
Implement/Sell: In this stage, sales teams need to be trained. They need to start selling the new model. Some existing customers need to be given advance notice and training related to this transformation. While the sales process is ongoing, the new selling model must be slip-streamed in a smooth fashion. Again, this can easily span 2-4 quarters.
Observe/Measure: In this stage, the organization is learning and collecting metrics. The effects of the new models are just becoming apparent. For example, at an account where the sales executive would have closed a $1M licensing deal, the sales executive is closing a $100K initial 1-year subscription deal. Some customers who found a cheaper alternative may choose to cancel the next year and churn out of the relationship. Some business models built on User Seats are reaching a new plateau in volume etc. The impact of the transformation will ripple into many other observations and side-effects which must all be collected and measured.
Optimize and Improve: In this stage, agile organizations are learning and adapting. They are feeling the effects of the subscription model, but the best ones have been able to reap the benefits of the transformation. The less agile ones are struggling with churn, trying multiple things to retain customers, and are probably seeing their revenues erode. The last two phases are overlapping, but collectively this can range from 3-4 quarters for the agile ones, to 6-8 quarters for the less agile ones. I call this phase the “customer success enlightenment” phase, since it is only then that organizations realize the true need and potential of customer success management. A lot of time, organizations want Utopian state of “zero churn”, but the key here is to understand that it takes a lot of concerted effort to adopt best practices to realize that.
Collectively, the 5 stages of a digital transformation process can easily take 3-5 years. However, the pace of digital transformation is accelerating. Companies are increasingly looking to management consulting firms to learn best practices and to technology startups to accelerate this transition. We often see such companies move at a faster pace compared to those who want to complete the journey by themselves. With the right control mechanisms in place, the nimble companies are able to launch their new SaaS offerings even while their internal CPQ and billing systems are still playing catch up. Their product teams are trying to be faster to market, often using manual work-arounds or adopting new platforms that improve their agility. These strategies can often lead to a non-linear digital transformation curve.
Not all CS platforms are equal. In large deployments, you need to have sufficient granularity of information on how your product or service is being consumed (by BU, group, individual, by module, etc.) and to have a real-time view of this dashboard as opposed to a rear-view mirror. This enables a proactive approach to issues, low adoption and understanding the customer’s business. You need to have systems that are independent of your primary system of record so that they can be dynamic and scale and not get bogged down as you add more data sources. Implementation needs to be in weeks – not months or years. Top performing companies will need to redesign their entire operations with the customer at the center – what Totango refers to as the E2C (Enterprise to Customer) model. Sharing relevant customer information with the appropriate people facilitates not only resolution of customer issues but also feature innovation. (These unique abilities of Totango is what prompted our investment in them.)
To learn more about Customer Success visit http://customer-success-resources.totango.com/h/
Join top industry practitioners and visionaries at the Customer Success Summit – the Premier Customer Success Event being held March 5-6th in San Francisco. Don’t miss this opportunity to learn and network with the industry best…
To register, click here: https://www.customersuccesssummit.com/