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Nov 4, 2022

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How will the economic downturn affect Customer Success? Learn from three SaaS CEOs.

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With sweeping layoffs, forecast misses, and budget cuts in the news, there’s one question running through the mind of every Customer Success leader right now: What can I do to prepare my department for the impacts of the economic downturn?

To get a CEO’s perspective on the matter, ChurnZero’s You Mon Tsang joined ESG for a special CEO panel on “The economy and Customer Success: The impact and what to do about it,” with ‘nuffsaid’s Chris Hicken and Kapta’s Alex Raymond. Discover the lessons these three SaaS CEOs have learned from leading customer-centric businesses through an economic slump, and how you can apply them.

Here are 10 takeaways for recession-proofing CS.

1. Difficult conversations lead to deeper customer connections.

Now more than ever, businesses need to stay close to their customers, says Alex. This is easier said than done considering most company initiatives and activities tend to be self-centered: leaders only see what’s best for the business. Financial pressures and distress, like those caused by an economic downturn, amplify this inward-facing tunnel vision.

To get your CS team to look outside of themselves and flex their empathy, coach them on how to interact with customers, especially when it involves delivering undesirable news. We put off difficult conversations and dodge hardball questions to serve ourselves, not others. Avoidance deprives the customer of resolution and progress. Customers will respect and trust you infinitely more when you’re upfront with them. Find ways to enable your team to have candid discussions with customers and feed that information back to the company.

2. Customer Success is a proxy for the customer—treat it as such.

Part of adopting an agile mindset means making fast decisions with the best information you have. A SaaS business’s greatest source of intel is direct customer feedback. CSMs have the closest relationship with the customer out of any role in the company. They are best positioned to find, synthesize, and contextualize feedback. If leadership wants to make more informed decisions, give the CS team a say in every matter that affects the customer.

Become an evangelist for what the customer cares about. “If you get in that position,” says Alex, “you’re truly indispensable as a CS leader or CSM.”

3. Putting in “face time” is no longer a condition to earn that next promotion.  

The showboating, workhorse mentality of being the first one in the office and the last one to leave is at the tail end of its heyday. Thanks to the rise of remote work, says You Mon, we’re seeing a fundamental shift in how we develop and evaluate leaders over the next 10 years.

“You’re not going to say that person’s fantastic because they do good work, they put in long hours, and there’s a lot of face time,” says You Mon. “That was how you advanced up the ladder 20 years ago but that cannot be the way it happens anymore.”

With most businesses having gone partially, hybrid, or fully remote, You Mon recommends that all businesses adopt the mindset and best practices of a remote-first company to stay competitive.

4. Customer Success leaders will be judged on their ability to bounce back.

As investors pull back and reexamine how they value companies, there’s one skill CS leaders would benefit from developing: resilience. “This is maybe the most important skill that, especially mid-level, managers can learn,” says Chris.

It’s challenging to lead with positivity when employees are hit non-stop with doom and gloom. Chris says CS leaders need the capacity to create a safe space for employees by acknowledging the uncertainty about the state of the world and, at the same time, be seen as someone who thinks optimistically about the future and focuses on solving problems.

5. The SaaS mindset of “top-line growth over everything” is changing. 

For most of the history of SaaS, top-line growth rate was the game to be played at any expense, says Chris. Profitability wasn’t a focus or concern. Investors rewarded revenue above all else.

The biggest upset the industry has seen as of late is investors prioritizing and scrutinizing customer retention rates. “Eighteen of the top 20 SaaS companies publicly report their retention rates now as part of their K1 filings,” says Chris. For that reason, Chris predicts that more pressure will shift to CS in the next few years. But for now, CEOs should still balance top-line growth and profitability.

6. Finance is less of a Customer Success foe than you think.

CFOs are more of an ally to CS than other leaders including the CEO and even the CRO, says Alex. They understand better than anyone the margin dynamics, as well as the fact that existing customers are more profitable, more easily upsold, and more referenceable than new customers.

CS leaders can remove barriers in their relationship with the finance team by learning to speak their language. “CFOs knew about NRR before you knew about NRR,” adds You Mon. “The conversations you can have with the CFO will be high bandwidth.”

But is a common bond over retention enough to spare CS from budget battles? When asked if CFOs will be presumptive about making cost cuts when it comes to CS, You Mon says, “Absolutely. They’re going to do the math on where cuts need to be made and whether CS is first or last on the list will depend on how well they’re doing and if they’re overstaffed or understaffed.”

If your CFO denies your budget requests, be ready to present them with a tradeoff. “If you’re asking me to do more with less,” says You Mon, “then this is what the NRR and GRR are going to go to and the resulting return on lack of investment.”

7. The more revenue your department owns, the more power it has—full stop.

There’s no better way to earn a seat at the table than by making revenue commitments, says Alex. When CS teams only own customer satisfaction and engagement metrics, they lessen their business impact, and in turn, their value and authority. “You’re going to have a smaller budget,” says Chris, “you’re going to have a lower salary compared to your peers, you’re going to have less influence, and you’re more likely to report to the CRO rather than the CEO.”

While there can be a lot of nuances that go into whether CS should own revenue, make sure you aren’t selling your CS team short—or as a cost center. If a CS team has no clear business deliverables, its contribution and worth will always be questioned within the organization.

8. CSMs need to stop explaining away their aversion to selling.

There’s a common refrain from CSMs: I shouldn’t have to own revenue. CSMs think that having expansion conversations turns them into a pushy used car salesman in the customer’s eyes.

Many CSMs experience a sort of cognitive dissonance when it comes to acting as both their customers’ trusted advisors and salespeople. They think, how can those roles possibly exist in harmony together?

“I’m always confused by that argument,” says Chris. “As CS people, it’s in our DNA to deliver value to customers. We know that instinctively, and by doing the renewal, the upsell, the cross-sell, we’re actually adding a lot more value to the customer. We’re making the customer’s life better.”

When CSMs pass off renewal and expansion opportunities to sales, they rob themselves of the rewards that they’ve rightfully earned helping customers succeed. “I wish more CSMs would look at sales as a value-add activity,” says Chris, “because we would have much more successful CSMs with that mindset.”

9. CCOs must be good at building more than relationships.

As a CS leader, you probably already excel at working with customers. But your credentials as a people person alone won’t earn you a spot in the C-suite.

To attain the CCO title, you’ll need to develop your skills as a full-stack CS leader. “You must show that you can make customers happy, that you understand the commercial aspects of CS, and that you know how to operationalize CS,” says You Mon.

CS as an industry is still figuring out how to codify best practices to increase net revenue retention and scale the customer experience. CS leaders who focus on operationalizing their department will unleash the potential for customers to be their business’s biggest source of growth.

10. Customer Success can catapult its rank by owning product-market fit.

The most valuable role that CS leaders can play is to own product-market fit for their business, says Chris. No executive, other than the CEO, owns this influential area.

CS leaders don’t own most of the touchpoints that deliver value to customers, as Chris points out. However, they’re still the closest to the customer.

“They’re the only executive that can scan that entire journey and report back to the executive team where the business is accumulating risk in product-market fit and where it’s accumulating opportunities for growth and expansion,” says Chris.

When assessing product-market fit across the customer journey, Chris recommends asking questions like:

  • Is product delivering valuable features that are easy to use?
  • Is engineering building a reliable product?
  • Is sales acquiring the ICP and setting correct expectations?
  • Is marketing generating high-value content and effective pricing?
  • Is professional services offering trustworthy consulting services?

CS leaders can grow their prominence by giving the company visibility into the different aspects of product-market fit. “If you can be the executive that gives investors this information,” says Chris, “you’re suddenly the most important part of the board meeting.”

Embed your business in Customer Success to stay competitive in a downturn

Customer expectations are changing, even more so now as declining sales stir competition. To stay ahead of the curve, your CS team will need to do far more than “be there” for your customers. Learn what it actually takes to be customer-centric in our blog, “The three golden rules of a customer-centric subscription business.”

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