May 18, 2020

The CCO’s Guide to Scaling Customer Success

Brook Perry By Brook Perry
Director of Marketing at 'nuffsaid
cco-scaling-customer-success

“Early on in my career, I wanted to focus on helping customers achieve value from products—and I’ve been learning as I go ever since. You’ll see a similar path with most senior level Success leaders today: they simply enjoyed being customer-facing so they made careers out of that interest, and had to shape their roles, teams, and organizations from scratch.” 

Pendo’s Chief Customer Officer, Jennifer Dearman, spent the first half of her professional career in consulting—until she took notice of the wave of thought leadership around customer journeys and “Customer Success” about a decade ago. Back then, the idea of having a dedicated team focused on customer health and happiness wasn’t top of mind for most executives, even in SaaS companies. Dearman was intentional about only joining companies who were forward-thinking on that front.  

 

That intention led Dearman to become the Director of Customer Experience & Engagement at Red Hat and then VP of Global Customer Success at Kronos. As she sees it, Red Hat was the first time she was able to take the theory of Customer Success and implement it, and Kronos was where she transferred everything she’d learned to build out the CS organization from the ground up. 

 

After Kronos, Dearman joined Pendo, an experience she credits with evolving her thinking from solely focusing on the customer experience to also focusing on the product experience. 

 

“Your customers might love their CSMs, but if they have a poor product experience they're still going to churn,” she explains. “Customers stay because the product delivers value. For me, that was the missing piece to the whole Customer Success picture.”

 

In this interview, Dearman takes a deep-dive into how she’s evolved the company’s Success organization for scale. She shares advice on setting team structure, segmenting customers, and creating a right-touch customer experience model, and she offers her opinion on the future of Customer Success.

How Pendo’s Success team is structured

The Success organization at Pendo includes the global technical success team, technical account managers, the renewal and expansion team (also known as the Subscription Success team), and customer success managers.

 

As the CCO, she reports to the CRO. Along with the Success organization, the revenue organization umbrellas the sales organization, revenue operations, and professional services.

 

How the structure has evolved: Subscription Success now owns renewals and expansions instead of CSMs

One unusual aspect of this structure: Dearman reports to the CRO, but the Success team still owns a significant portion of the company’s expansion efforts. In most org structures where the CCO reports to the CRO, the sales team is responsible for the commercial aspects of the customer relationship.

 

But even before Dearman joined, Pendo’s team of CSMs were already handling all renewals and contributing to expansions. In fact, she notes that CSMs were juggling too many responsibilities. 

 

“They had too many accounts, weren’t geographically aligned to customers, and there was no discernible difference in the experiences being provided to customers of different sizes” Dearman recalls. The CSMs were responsible for product adoption, customer health—everything you’d expect a CSM to be responsible for—plus the added responsibility of securing renewals and contributing to expansion. She says the CSMs had an upsell target, and Sales owned the expansion number for the most part. 

 

Dearman recognized right away that she’d need to peel the renewal and expansion piece away from the CSMs so they could do what they do best - help customers achieve their business outcomes.  To do that, she created a new team in her Success organization called Subscription Success.

 

The Subscription Success team handles expansion and renewals for the commercial (mid-market) and corporate (SMB) customer segments. (More on enterprise—the highest tier—below.) 

 

“The CSMs are still responsible for keeping customers happy, driving value, and influencing the renewal and expansion,” Dearman explains. “The land AE turns customers over to the Subscription Success rep, who is part of my team because that relationship between the renewal and expansion motion and the CSMs needs to be very close.”

 

AEs maintain the commercial relationship with strategic accounts

The primary distinction here is with the top-tier strategic customers—Pendo’s enterprise accounts. In this segment, the AE that sells the deal maintains that financial relationship through the life of the customer. 

 

For these enterprise accounts, there’s an AE instead of Subscription Success rep and these customers still have a CSM. 

 

“The CSMs do all of the health and advocacy and classic CS activities in partnership with the AE,” Dearman says. “The AE owns the whole commercial relationship at the highest level, which makes sense. They should be deep in those accounts.”

Dearman’s process for segmenting customers

For all the differences in models of Customer Success, Dearman sees one consistent chapter in the Success leader’s playbook: Most CS leaders start by segmenting their customers. 

 

“One of the first pieces of thought leadership in our space was that you can’t treat all customers the same. You’ve got to segment on something,” Dearman says. 

 

“Some companies focus on the high-touch experience first because, frankly, it’s easier,” she explains. “It's easy to give these customers more love. They are likely getting a lot of attention already and there are typically a lot fewer customers in this category.  On the other hand, it's a lot harder to touch customers at scale. I'm a proponent of creating a model that affects all customers at the same time instead of only starting with one segment. Every customer deserves an investment in their success and a more comprehensive engagement model provides value to all of your customers regardless of their size or contribution to your business. The experience should be similar, not the same.” 

 

“It's easy to give these customers more love. They are likely getting a lot of attention already and there are typically a lot fewer customers in this category. On the other hand, it's a lot harder to touch customers at scale.”

Segment customers along their experience, not spend

When the concept of segmenting customers was first introduced, companies were segmenting customers purely on ARR. The highest spend customers get the high-touch experience, the lowest spend customers get some version of a tech touch, and the ones in between get some muddled version of the two. Dearman recognizes that the thinking around segmentation has evolved. 

 

“When I joined Pendo, I wanted to be more deliberate about how we segmented our customers and to align customer profiles directly with the type of experience a customer needs,” Dearman says. “So we've created experience levels that don't match one-to-one with our sales segments. That was intentional.”

“The idea in segmentation is to align the profile of your customer with the experience that they should be getting. It’s not always based on ARR.”

Her segmentation strategy still contains an ARR threshold. But it now heavily accounts for customer preferences and growth potential, too.

 

As an example: some customers don’t want or need a regular 1:1 with a CSM. They’re happy with self-service, so Dearman’s team will enroll these customers in the self-service experience called Pendo Neighborhood. (More on this concept in the next section.) It’s a fully digital experience, with one notable difference that Dearman developed at Kronos and brought to Pendo: this experience has named CSMs specifically dedicated to supporting customers in the Neighborhood.

 

“When you’re thinking about creating a scale program, you need that kind of differentiator,” Dearman says. “We automate as much as we can. But we also want those customers to have an avenue to office hours or a one-on-one with a CSM if they need it. It’s still a one-to-many, but it adds a level of personalization.”

 

In addition to aligning the customer’s profile to the experience they should be getting, Dearman also accounts for growth potential when segmenting customers. She says some enterprise accounts are in the Neighborhood—they’re just not going to expand. And that’s fine. Dearman still wants those customers to have the best adoption experience they can and leverage Pendo as effectively as possible.

 

And on the flip side, high-growth companies that might normally fall into the middle tier can get moved up into the high-touch experience. Dearman wants to bake in that high-touch connection early in their relationship.

 

How many accounts a CSM can manage

Even with a different style of segmentation, Dearman’s team still has the long-tail accounts. She’s had to figure out ways of assessing how many of those an individual CSM can efficiently take on.

 

She points to the industry benchmark of $2 million per CSM as an acceptable starting point for big companies, but not a great metric for small to midsize businesses. At Pendo, account sizes are smaller, and $2M per CSM would be an unmanageably high quantity of customers per CSM.

 

“I had to pivot my thinking and move towards a number-of-accounts approach as opposed to an ARR threshold,” she says. To calculate that number, she factors in the experience that those CSMs are delivering.

 

If a CSM has 100 accounts and is expected to do quarterly business reviews for each one of them, that’s too many customers. Space out those important reviews or reduce accounts and it starts to become more manageable.

 

“You have to match the entitlements you’re promising to give to a customer with the number of accounts you give to a CSM,” she explains. “They go together.”

 

Dearman says it can be a trial-and-error approach. She poses starting with 15 accounts per enterprise CSM, 40 for the mid-tier, and 100-200 for the long tail. The team at Pendo is still testing those quantities to see if they make sense.

How to scale a right-touch model: Create a community for your customers

Dearman’s Pendo Neighborhood concept delivers high-value experiences for a segment of customers that was largely untouched.

 

“Small customers are unique, and they can get a lot of synergy from each other in terms of how they can leverage your product,” Dearman says. “Putting those customers together and creating a forum for them is important. Pendo Neighborhood is about creating that community, and we have a lot of self-nurturing happening at that level.”

 

Creating a scale program that retains high renewal rates isn’t just a nice-to-have either. It’s table stakes for a customer success program.  Small customers tend to be the first to churn. 

“Small customers are unique, and they can get a lot of synergy from each other in terms of how they can leverage your product. Putting those customers together and creating a forum for them is important.”

The purpose of Neighborhood is to keep this segment of customers fully engaged and informed. A lower-touch experience does not have to mean low-value, and a community model brings even more value to these customers en masse.  The idea is to create a one-stop-shop where customers can have discussions, find resources, stay connected to the product and each other, and open a line of communication with Support or a CSM when they need to.  

 

Start now and iterate

The success of a community-minded scale model depends heavily on the maturity of self-service features and content, automated onboarding, communication campaigns, and the community itself.

 

But a Success team shouldn’t feel like they need to optimize all of those things before starting a scale program.

 

“It’s iterative,” Dearman says. “I’m a proponent of getting started with something, learning and then iterating. If you wait until you have all the building blocks in place, you’ll never launch anything.”

“I’m a proponent of getting started with something, learning and then iterating. If you wait until you have all the building blocks in place, you’ll never launch anything.”

Pendo Neighborhood started out as a Slack channel with a dedicated team of CSMs and an email alias. Now more than 600 customers live in the Neighborhood, which is hosted on Zendesk—and Dearman is still iterating.

 

“We’re in the process of building integrations so we can launch the broader community, and we’re building programs that we can launch in the product,” she explains. “You could wait forever, or you can get started with something. Try things.”

 

The future of Customer Success

Dearman sees a couple of big predictions for CS in the next several years.

 

Clearer role, more funding

Right now, Customer Success as a field is admittedly “a bit of a hodgepodge,” Dearman says. Some CS leaders are responsible for the classically-defined customer success motion (health, adoption, advocacy) while others have some/all post-sale functions, and some also have renewals and expansions. And the on-going debate about where Customer Success should roll up remains a hot topic.

 

“Customer Success must be strategic for a company, have executive support, and dedicated funding. If any of these are missing, delivering on the promise of customer success is nearly impossible. With that in mind, I predict Customer Success will more consistently report directly to the CEO and include all post-sale functions.”  

 

She also predicts Customer Success will be recognized as the growth engine for companies which will lead to better funding for the function. 

 

“Retention is critical for any company. Customer Success is key to retention and that’s foundational. But more companies are starting to realize the revenue growth potential of investing in Customer Success,” Dearman says. “As that trend continues, there will be more budget allocated to Customer Success. And in my opinion that doesn’t mean incremental. It means less funding to new Sales team members and more funding diverted to CS around retention and expansion because that's where the money's at.”

“Retention is critical, and that’s foundational. But more companies are starting to realize the revenue growth potential of investing in Customer Success. As that trend continues, there will be more budget allocated to Customer Success.”

That’s not to deny the importance of net new logos, particularly for startups who have to focus on the acquisition of customers. But at some point in a company’s maturity, the pendulum swings toward expansion as the engine of growth. “The growth of a company then comes from the expansion motion, and that expansion motion should sit within the Success organization,” she says.

 

Success will be more remote-friendly

Dearman has worked with widely distributed Success teams. She’s also worked in co-located ones, where barring a global pandemic, she can count on one hand the people who didn’t come into the office every day. With this experience, she sees the advantages of Customer Success being increasingly operated by remote teams and remote CSMs.

 

“Distributed teams allow you to hire where the talent is,” Dearman says. “And you can align resources more closely to your customers. It's Incredibly efficient and even improves the customer experience since CSMs can meet with their customers without traveling far.” With in-office cultures, she felt the teams missed out on a lot of opportunities.

 

“I understand the concern in-office companies have that becoming more distributed risks losing the company culture,” Dearman says. “In my experience, that’s never been true. Distributed teams have amazingly strong company cultures too.”

In summary:

If Dearman had to distill all this advice into a simple checklist for Success leaders striving for a scalable organization, here’s what she’d say: 

  • Building a scalable Success organization is more than creating a 1:many program.  Proper segmentation, realistic CSM:account ratios, well-defined customer experience levels, and a 1:many model work together to create scale. 
  • Success organizations need to get clear on the role of the CSM. They can’t be expected to juggle the responsibilities of a typical CSM plus the added responsibilities of renewals, upsells, and expansions—at least not at scale.  Something will suffer and it’s usually the customer experience.
  • Customers should be segmented on the experience they need, not only their spend.  Segmentation should take into consideration the customer’s preferences and their growth potential, along with any other attribute relevant to your business. 
  • Every customer deserves an investment in their success. To have a fully comprehensive engagement model, you need to focus on the experiences provided to each segment. 
  • Creating a scale program is table stakes for Customer Success. Create something that gives customers access to resources that help serve their jobs to be done, and puts them together in a community of other customers who are leveraging the product in similar ways. Don’t try to over-architect this program at the outset; start now and iterate on it. 
  • In companies where ARR per customer is smaller, $2M/CSM under management is an unreasonably high amount of accounts for one CSM. Try starting with 15 accounts per enterprise CSM, 40 for the mid-tier, and 100-200 for the long-tail as a benchmark and adjust as you learn. 
  • The future of Customer Success will be more remote-friendly. Consider how you can begin incorporating best practices for leading effective remote teams now, so you’re prepared when your organization makes this shift.