Making sure you’re delivering value to your customer means knowing who your ideal customer is. In this episode, Betsy Westhafer and Tony Bodoh talk to Ross G.D. Fulton about the ideal customer and the increase of blending customer success and customer experience for value creation. Ross is the Founder and CEO of Valuize, a company that helps B2B software companies retain and expand their customers and revenue at scale. Ross discusses the four phases of the customer life cycle and the biggest challenge about understanding value for B2B software companies. He also touches on how tech companies convert from perpetual licensing to the subscription model and the importance of alignment between the customer success and product teams.
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My Ideal Customer Is The One Who I Can Make Successful With Ross G.D. Fulton
The Fundamental Value Shift Toward Subscription Models
We’ve got Ross Fulton on the show with us. I’m excited about this because Ross is going to talk through his experience of helping companies move from a permanent software solution to a subscription model. It’s relevant in the tech world, people know about this concept, but if you look back, there are a couple of interesting things I’ve seen in the subscription world. As an example, Panera now allows you to have a subscription to coffee of all things. The car companies are coming out with subscription. We’re going to see subscriptions coming out in a lot of different industries. Our focus on the tech world will show where it’s at, how far it’s advanced and give some ideas to our audience whether they’re in tech or elsewhere of how that might apply to their business.
I’m looking forward to this, Tony. Ross and I connected years ago on LinkedIn. I can’t remember exactly how we connected but we jived on the customer stuff, his focus with being customer success, and all things strategic around customers. I’m very much looking forward to this conversation and getting to know Ross a little bit better as well as the work he does. Ross, welcome. We’re glad to have you here.
Thank you, Betsy. It’s an honor to be here. I’m happy to have a conversation.
I’m sure that you have had the opportunity to be on shows before and talk about yourself. Why don’t we kick it off with a little bit of your background, where you originated, where you landed now, your career path, and a little bit about the work you’re doing?
A bit about myself, I grew up in London. I now live in Vancouver, BC in beautiful Canada. The informative years of my career were certainly spent in London before I left in 2008 with the big economic black cloud that was looming back then. My career has always been in B2B technology in a series of roles where I’ve had one foot in the sales side of the equation and one foot in the post-sale side of the equation, often in roles where I had foot in both camps at the same time. I was accountable for making sure that, “Let’s acquire a business and acquire customers but let’s make sure we’re acquiring customers that we can make successful and business that we can retain and grow.”
That paradigm is now what my company, Valuize, that I founded and I’m the CEO of, focuses on. We work with B2B software companies. We help them retain and expand their customers and revenue, and we help them do that at scale. That has been a hell of a growth story for us because B2B software companies are now moving towards and in a lot of cases, largely adopted a revenue model that points to the need to keep customers and grow existing customers. It shifts them away from thinking about, how do I acquire the next new customer? That revenue model focused on a subscription or a consumption revenue model. Some recurring revenue model is what we specialize at Valuize and how you wrap a customer in life cycle revenue strategy around those economics.
It’s something that I happen to have spent most of my career doing pre the subscription economy, pre the adoption of this type of revenue model. I helped build out a large gain share-based technology, revenue model-based business in London. That was all about getting paid as the service provider off the back of the value that we were delivering to the customer. We had to make sure we were acquiring the right customer. We had to make sure we were able to deliver value to that customer because that was simply how we got paid. There was no upfront payment. There was no payment for access. It was payment for value. It’s that fundamental principle around having that shared value realization in the customer is what we specialize in Valuize, and that we operationalize for our clients. That helps drive the valuation of our clients in their public and private markets.
Talk to us a little bit about how you work with these technology companies that have had this more traditional model to permanent installations on premises to a subscription or a value-based model that you’re talking about. What does that conversion look like and how do they move through that?User data doesn’t replace the type of insight a client advisory board will give you. Click To Tweet
There are a lot of companies who have grown up over many years who had the informative years of their business model developed around the perpetual licensing model. I am a customer and I will buy a license to access the software and that license gives me access forever. I might pay additional uplifts around accessing new versions or pay for maintenance, but the upfront payment is my major expenditure. It has now transformed into more of the subscription economy, where I’m going to pay a certain amount a month or a year to access the software. I’m going to keep paying that for as long as I want to access that software.
What that means for the vendor is they need to ensure that there is a reason for that customer to want to renew their subscription, as well as expand that subscription. That reason has to be value. It has to be, “Am I achieving what we evaluate as core value-based outcomes? Am I achieving outcomes that create measurable recurring value for me through my usage of this software application?” If I am, I’m likely to renew and potentially expand my investment to enable more value to be accessed either by other people in my company or new outcomes to be realized. That as a concept around I need to retain and expand my customers as arguably more importantly as we’re establishing enterprise companies, then acquiring new customers.
That first of all is a strong paradigm shift for B2B technology companies who in the perpetual revenue model world were in the traditional model that I grew up in. A lot of us can still look back on and remember very clearly, which is to acquire the customer. That’s given birth to this domain of customer success inside a number of verticals now but especially inside B2B technology. The main associated organizations called customer success and associated technology category or customer success technology which has all pointed out to, how do we drive that value realization? How do we drive the outcomes within our existing customers so we can retain and expand them? Not only is there a significant economic shift in terms of the unit economic metrics that B2B software companies need to be tracking and prioritizing, which we can talk for a long time about, there’s also a fundamental shift in how companies need to invest and strategize around their acquisition and their post-sales, where their sales and their post-sales strategies.
A lot of companies were talking about this dialect of customer acquisition, customer adoption, customer expansion, customer retention, and look at the customer life cycle in those four phases. We see adoption, expansion, and retention as a cycle. It’s hopefully never-ending to optimize that lifetime value. Adoption is a never-ending concept but these represent new concepts. They represent new ways of structuring an organization, incentivizing an organization, executing processes with customers and internally. There are a number of companies that are doing incredibly well at it and their metrics around their retention rates of customers, their retention of revenue, or is more in net revenue retention, which is how much revenue am I retaining and how much revenue am I expanding within my customer base and combining those two metrics together.
There are some incredible companies out there doing some incredible stuff in that regard and their company valuations whether they be private or public reflect that. There are a lot of companies out there that are still going through this transition process as a number of older enterprise companies out there that are still moving from perpetual revenue to subscription revenue. The consequential shift in how they’re getting to work, managing, and acquiring their customers is in this quasi transition flux where they are still maybe selling in the traditional way, but they’re trying to make the customers successful post-sale. Because they are on a mission of, “Let’s acquire any customer that will buy,” that makes consistently and scalably making customers successful on the backend quite a challenge.
It’s a mixed bag in the B2B software industry. There’s a trend and pendulum shift towards subscription, retention, and expansion of customers. That pendulum shift is being driven by both private investors as well as the public markets who recognize how subscription revenue models now work and the importance of retention and expansion of customers. The boards are putting pressure on the leaders of these companies to answer the question as to how are you going to keep this customer? How are you going to grow them? How are you going to give me that lifetime value back that is ultimately going to give me a return on my investment?
That’s interesting to think about that it’s not at the tactical level but all the way up to the investors who are watching for this thing. I’d appreciate it, Ross, if you could talk to us a little bit about this whole “customer success” train that has left the station. In talking with lots of people, some people love the term and some don’t love the term. Can you talk us through what that means and how it’s different than customer experience, customer engagement or what this whole customer success entity is?
If I talked to my personal opinion, customer success, experience, and engagement need to be blended into one concept. As with a lot of industry terms, a number of them are born out of market creation activities by people trying to sell into a market. Customer success being a term that has been standardized and pushed by customer success technology vendors looking to create this market category that they can go sell in and say, “You need CS technologies versus you need CX technology.” I would say that, but customer success has pointed at how do we drive adoption within my customer base? How do I get them to be using my solutions in a way that creates success and value so I can then retain and expand the customers? That’s what customer success fundamentally is all about. Customer experience as a comparable and parallel field is instrumental in that goal of ensuring that customers are using the software in such a way that they’re realizing value.
Customer experience is arguably more sentiment-based in terms of how do I feel when I’m using the application? How do I feel about my experience of being a customer of this vendor? Customer success is almost functional in terms of doing the job that I do as a customer or as a user within this customer, the job that I perform, how do I integrate that with the capabilities of this particular software application and use it in such a way that I’m going to create some value. I’m going to make myself more effective, more efficient, I’m going to de-risk what I’m doing, or whatever the set of outcomes may be. That’s what customer success has pointed out. CX is a complementary field to that.
I do believe a lot of organizations get themselves lost in, “Should we be doing CX or CS? Should I have a voice of the customer program? Should I have a customer advocacy program?” They’re all the same thing. At the end of the day, they’re all about ensuring that customers are realizing value through an experience that is palatable, acceptable, and hopefully enjoyable to them. All that combines to allowing that B2B software company to keep that customer and grow them. That’s maybe some of the distinctions that I’d call out but they’re increasingly getting blended. Customer success is now increasingly and rightly focused on automation.
How do we automate the emotion of customer success? How do we use technology to engage with the customer in the application or through some technology-driven touch to give the customer that input that they need to allow them to get to that piece of value, to allow them to adopt that part of my product? As we develop that technology type of touch, the ability to drive a positive experience inside the design of that touch is incredibly important because we’re no longer able to rely or we’re not relying anymore on a human customer success manager, spending an hour conveying that point. It’s one email or it’s one pop-up in the application. The CX side of that type of touch is incredibly important because you’ve got one shot. They’re getting increasingly blended in the same way that customer success and sales are getting increasingly blended as a strategy, as emotion, and in some cases as an organization. It’s interesting to watch.
It’s interesting because Betsy and I talk a lot about customer experience and customer transformation. Having worked in the tech side but also worked in financial services and hospitality, all these others that Betsy and I both crossed over, you can’t use the same terminology and get to the same end sometimes. One of the areas when we talk about customer success in the tech field, I talk about that in the hospitality world as customer transformation. It’s how do you help the customer achieve their goal? That’s fundamentally it. To do that, you’ve got to create an experience that’s positive and rewarding, etc. It’s interesting to hear all these different terminologies. Maybe someone will invent the term, finally.
Sales never went through it as a domain. There’s always been sales. A lot of companies now maybe talk about customer acquisition. Some will be talking about that land strategy. Sales has reigned supreme with this concept of the post-sales customer experience and success of what have you. There’s a whole glossary out there. I don’t think it adds too much value. It’s a market creation and segmentation exercise gone wild. It is what it is.
Ross, in the work that you do, you’re working at a high-level and strategic level looking at the whole big picture for this world of creating value. What are some of the biggest challenges that you run into as you start your engagements with your clients?
Valuize was named for a reason. It’s my word play on value realization. One of the biggest challenges we see all the way up to the biggest technology companies in the world that we work with and talk to is, is there a consistent and well-understood definition of what value is available to be realized through usage of the platform or products that that software vendor is providing? By value, I’m meaning not just the big headline value proposition of we’ll save you money, we’ll make you more money, or we’ll be rich. It’s what are the actual outcomes that we can measure that the vendor can be truly accountable for that are achieved through the usage of a product that contributes to achieving that big value proposition?
That definition of those outcomes is surprisingly rare and lacking. Without those outcomes and the Valuize framework that we’ve developed, if you haven’t got those outcomes defined around, this is how a customer is going to measure the value of using our particular product and this is this sequence of these outcomes, how on earth do you develop the processes, playbooks, reporting, leading indicators, and the lagging indicators that you want to be able to measure the health and success of your customers if you don’t know what the outcomes are, to begin with? A lot of companies are still resorting to more of any usage is good. As long as someone is doing something inside the software application, then that has to be a good thing. I’m going to assume that they’re successful and moving towards the big high-value proposition.Value is in the eye of the beholder, not the seller. The customer's definition and need around value are changing. Click To Tweet
That doesn’t cut anymore. A lot of data in companies that relate to their loss of customers, what’s known as churn data, highlights that any usage is not necessarily good usage. The usage has to be pointed at making sure the right job is doing the right thing and the right application to move towards achieving outcomes. That’s the usage that we want to be seeing, and that we want to be looking for indicators of. Defining those outcomes is a big one. That’s quite a vulnerable experience and a vulnerable conversation for people to have with my team when we’re going into founders or leaders of some significant software companies and asking the question to say, “Can you explain to me what the measurable value of using your product is?”
We get a few blank stares every now and then because they can say, “This is the big goal that the customer is shooting for in terms of using our product, but exactly how our product contributes to that in a measurable way, we haven’t got it well-articulated.” That’s an interesting one. Another big one is reconciling this emotion and their cultures of sales and post-sales customer success, whatever you would like to call it. Having the organization culturally, strategically, as well as operationally realize that what happens in the acquisition process, in the sales process has a huge impact on the company’s ability to then keep, expand and make the customer successful. There is what I would describe as a revolution happening in terms of how that sales motion is getting integrated into the post-sales motion and vice versa to ensure that there is alignment, unification, and the right customers are being acquired.
By right customer, I mean customers that the vendor can look at a profile level and say, “We can make you successful. You fit the profile that we know we can drive adoption within using our product and get you to value and therefore keep you and achieve our lifetime value goals as a business.” It’s incredible to watch. There’s some interesting technology coming out that’s helping facilitate this integration. It’s a long way to go in a lot of companies. I’ve talked a lot about this concept of accidents happen at intersections. In the customer life cycle, there is one intersection that is the most dangerous for any business. It’s that intersection between querying that customer and transitioning them into post sale as a customer into onboarding, which is a term a lot of companies use. That intersection is historically and still in many companies is lethal because either a company gets dropped into a black hole and gets forgotten about.
A best case in a lot of companies, the customer crosses that intersection and they’re greeted with a team and a set of operations and processes that the customer have never seen before. All the IP, all the conversations that have been had around the customers’ current state and the outcomes that they want to be achieving through the technology all gets lost. They’ve spent six months buying this software and now they’re talking to a new team. The first thing the new team says to them is, “What are you going to do with the software?” It’s not a good look but it’s a complex and deep set of changes to make inside a B2B software company to minimize the risk of that intersection, if you pave over it, and create a nice seamless bridge. I’d say that it’s the other big challenge that I see being in front of mind for a lot of B2B software companies.
It’s interesting because the name of our show here is REALLY Know Your Customer podcast and you know what your customers need to do. You know that very well. You’ve got the whole methodology built out there. You look at your customers and it’s like, “Do you know your outcomes?” Those outcomes are not what they want to achieve as what their customers want to achieve. Even further, as you described between that sale and post-sales process, if there is no transfer of knowledge, there’s a whole element of not knowing your customer. You do know them but you never transfer that knowledge. It’s fascinating to start to think about this lack of communication. That’s a key element. How do you bridge that gap with the clients you’re working with? What have you seen as a successful approach to that?
You hit an interesting point around the outcomes shouldn’t be focused on what the vendor wants in that, “I want to keep you, I want to grow you. That’s all that matters.” That’s a lagging way of looking at things. The retention and expansion are a result of achieving customer outcomes. What we prescribe as Valuize is a prescriptive approach to this outcome-based mentality such as not going into every single sales cycle with a new customer with a blank sheet of paper and say, “What do you want to achieve?” Instead, it’s taking far more of Doctor/Patient type of approach and saying, “As the vendor, we are experts in your type of company. We understand your market, industry, vertical, current state, etc. We also understand the strategic goals you want to get to, what we might have, what the equivalent of the vendor’s value proposition on the website is that big strategic goal. Let us prescribe to you the outcomes you have to achieve to be able to get to that big strategic goal.”
In the same way that a doctor would prescribe a solution, a plan of action to a patient. Similarly, the doctors are always going to recognize that there are a number of variables that each patient has in terms of their current state, genetics or weight, whatever it may be. The same goes in B2B software in terms of if I am selling a sales productivity solution to a certain size of a company in a certain vertical, there’s going to be a lot of common DNA there, but there’s going to be a number of variables. I still need to have that very consultative discovery qualification mindset inside the sales process to make sure that I’m prescribing the right outcomes in the right sequence, but it’s still a prescriptive approach. We encourage that prescriptive approach heavily. We’ve written a lot about it because it allows the vendor to standardize post-sale.
If we’ve got confidence that the sales organization is prescribing from the same repository of outcomes, each time to the customers, and that we’re only going to be acquiring customers who are signing up to achieve outcomes out of that prescriptive repository post-sales, I can be building the processes, playbooks, formulas that achieve those outcomes in my technology and have those ready to go. We create not only prescriptive outcomes. We create prescriptive formulas or approaches to achieving those outcomes. We can also communicate pre-sales during the sales cycle, but also we’ve got ready to go day-one as soon as we execute the customer. The customer comes through. We’ve got a success plan with that customer that they’ve said, “I want to achieve outcomes ABC and D in that sequence.”
As a CS organization or professional services organization, whoever owns onboarding, they can see, “We’re starting with that outcome that triggers this prescriptive set of processes and playbooks. Let’s go to work.” As opposed to going in with yet another blank sheet of paper and trying to reinvent the wheel inside a customer’s life cycle. That’s prescriptive approach and applying it pre-sale but making sure that it’s driven from the design post-sale of how are we going to get customers successful is extremely powerful. We work with some companies that achieve incredible results in applying that approach. We’re working with a number of organizations that are now starting to develop their version and put it into their revenue and customer life cycle model. There’s a whole list of operational, system, process, and organizational-based concepts that we would also put in to streamline of communication as you described, Tony. All roads lead to the outcomes or the definition of the outcomes and those definitions being prescriptive because that’s how we can unify that customer life cycle.
Many people appreciate that prescriptive approach. The less you have to make them think and they have this friction in their brain, the more value you’re giving them. That’s a brilliant approach. One thing I wanted to touch on is we talked about there are opportunities for automation. You and I have had conversations about personal relationships and those kinds of things. We talked about where a customer advisory board would fit into the overall strategy. I’d like to hear your thoughts a little bit on Customer Advisory Boards and where this fits into everything that you described.
Customer Advisory Boards, I’ll call them CAB to keep things succinct, are important. We go back to the concept of outcomes, designing these outcomes, and designing them in such a way that they’re going to be received as powerful prescriptions in the way that you described, Betsy. The critical input into that design process is understanding the customer and knowing the customer. The Customer Advisory Boards as a platform for a company and in the leadership of a company to get deep into understanding their customers, the leaders and the key stakeholders in their customers is the most powerful platform to be able to do that. It plays to the whole Steve Blank methodology of get out of the building. If you want to understand your customers, you’ve got to get out of the building.
It goes all the way through to the origins of any software company in terms of trying to achieve that first version of product-market fit. You have to know your customers to achieve that. It’s the same with developing these outcomes. You have to be able to know your customers to develop these outcomes. The joy of the Customer Advisory Board is that it’s not a one-time conversation. It is a recurring event where you’re meeting with these powerful set of minds who are going to give you incredible insight into your business. You’re meeting with them on a quarterly basis. That’s so important because it’s May 2020 and I’ve never been in such flux, but even in more normal times, things are constantly iterating and changing inside the customer’s businesses in the markets and the geographies that they operate.
As a B2B software vendor, we need to be constantly iterating on the design of our outcomes and the design of our customer success strategies to reflect changes that are happening in our customer’s world, as well as changes that we’re proactively driving through innovations in our technology. Customer Advisory Boards give me that or give my clients that finger on the pulse within their customer base to say, “In Q2, this was front of mind.” This is what’s keeping them up at night. Therefore, I can pivot or adapt to involve my strategies internally to address both priorities versus in Q3, the landscape shifted a bit. That is no longer the priority and this is now the priority. That priority is now being doubled down on it. It is all that matters now. I need to double down on my ability to ensure that my customers can use my software to achieve that one outcome out of the ten that I’ve got built out because that outcome is all that matters.
If I can identify that, my sales leader is going to love me as well because that one outcome is what I give to my sales leaders and my marketing leader and say, “Go to the market and prescribe this. Explain how we deliver this because this is what our target market, this is what our ideal customer profile is looking for.” That ideal customer profile concept is a good way of summarizing a lot of this in terms of a Customer Advisory Board enables me to build and then can consistently ensure that my ideal customer profile that should be applied as a governance mechanism across my customer life cycle, sales, marketing, customer success, and professional services that that profile is up-to-date and accurate. That’s what a CAB gives me. The ROI that then driven from that in terms of retention, expansion, as well as net new sales, speak for itself.
Thanks for your thoughts on that, Ross. One thing that I want to follow up on that is the risk of assuming you know what those key metrics are and what value looks like to one customer may be totally different than what it looks like for another one. I had that experience myself. We have some key metrics that we use. I put them out to a client and said, “I want to do a pulse check on where you are on these metrics.” Even within that customer, they had shifted. It may be completely different than what matters to another customer, their boards, and their investors. There are a lot of people weighing in on what value means to them. I appreciate your thoughts on that, Ross.
It is a balance. I see organizations talk to leaders and who are drifting too far down. My usage data, my colorimetry data from inside my software application, my mass user sentiment data, etc. tell me what I need. That more qualitative individual conversation with a key stakeholder inside my ideal customer profile of why would I do that when I have 10,000, 100,000, 1 million other data points over here. It’s got to be a blend of both for exactly the reason you describe, Betsy. It’s easy to get lost into, “I can get all these different types of data now and do all these cool, advanced analytics on usage data and support ticket data to give me these insights and you should be doing that.” It is powerful but it doesn’t replace the need and the type of insight that a customer advisory board gives you.You can't flick a switch and turn a company overnight from perpetual to subscription. It is a transition process. Click To Tweet
I want to follow up on that. It seems to me that there are a lot of companies that they start out and they have an idea of what that outcome is. They then start inventing and innovating their software. Somewhere in the middle, after they get to market with that 1st or 2nd version of it, they disconnect from the customer. It’s only when they realize, “We’ve got to grow. We can’t grow beyond where we are.” They’ll re-engage someone like yourself or someone like Betsy or me and say, “We’ve got to get back in front of the customer again.” What is it in your mind or what have you seen out there that trigger point that causes them to move away from the customer and that trigger point that moves them back?
That’s a great observation. It speaks to what is still relevant, but a bit too linear and too simplistic, at least for today’s market, which is we must establish product-market fit as a B2B software company. Once we have that product-market fit or we believe we have that, they’re telling us we have product-market fit. We scale and that scale mentality or scale pressure is driven from investors in most cases. Why wouldn’t you? If you’ve got a formula that suddenly started working, why wouldn’t you double down on that? It is a dangerous mindset to make especially as events have shown. You’ve got to be able to pivot. You’ve got to be flexible.
You’ve got to make sure to point around Customer Advisory Boards that you’re always understanding how the market and how the customers are evolving around that perception of value. Value is in the eye of the beholder, not the seller. The customer’s definition and need around value are changing. You’ve instantly lost a degree if not possibly entirely all your product-market fit so scaling no longer makes sense. We talk a lot about sustainable growth in Valuize and scale, but let’s do it sustainably. The key to sustainable growth in B2B software in this subscription economy is ensuring that we’re growing with a recognition that it’s got to be driven through retention and expansion as much as acquisition. I’m always still retaining and expanding our customers while we’re scaling the acquisition.
Are we seeing the leading indicators of customer health, customer adoption, and customer success which ultimately are the leading indicators for retention and expansion? Are they looking good while we are scaling acquisition? The moment that those start to tweak, all you’re doing is compounding the problem by acquiring the same customers with the same expectations when you’re losing customers at the bottom end of your funnel. In terms of triggers, it is that data and metrics that become extremely mainstream in board rooms which is, “Talk to me about the retention of your customers. Talk to me about a logo level. How many logos are you retaining month-to-month, year-to-year? How much revenue within your customer base are you retaining? Talk to me about the expansion of that customer base and net revenue retention.”
They’re now being viewed as critical as your acquisition metrics around traditional sales metrics, as well as things like customer acquisition, cost and what have you, cap payback periods. The moment that those retention metrics and expansion metrics start to look questionable, the red flag goes up, the question mark around the product-market fit. Are we scaling in the right direction start to get asked and the pivot start to happen. Where the various successful companies get it right is that they’re not waiting for their retention metrics to look bad before they make that pivot and take the foot off the scaling gas and make a change. They’re looking at the leading indicators, the adoption and success. They’re looking at how will they assess and monitor customer health.
They’re listening to their customers and their Customer Advisory Boards, seeing the leading indicators that are going to drive challenges around retention, pivoting, and then realizing, “Are we shooting for the right outcomes here? Do we need to evolve our technology stack in some way? Are we starting to acquire the wrong customer because we’re so focused on scaling through acquisition? We were acquiring the right customer, which was giving us that product-market fit but now we’re straying into the wrong segments where we’re going upmarket too fast. We’ve crossed into another industry or another vertical that doesn’t align with the outcomes that we can deliver the software solution provider.”
The earlier we ask those questions, the better but the continuous nature of asking those questions is the critical piece. I’ve done the early stage rocket ship before and you get caught up in it. It’s like, “We can’t lose here. Let’s keep acquiring as many people as we can.” Thankfully, we also had the mindset to look at the bottom half of the funnel. The second funnel where our existing customers sat and made sure that that was a finely tuned engine that was then getting reflected in the acquisition motion that we were trying to scale.
That points to the whole concept of the alignment of the leadership team. Everybody has their goggles on that they’re looking at their part of the business through. If you’re in sales, you’re looking at the acquisition. We talk about this in the book too. You have your kings, priests, and prophets in the book ProphetAbility that Tony and I wrote. You have these different perspectives. If the leadership team is not coming together, and that’s one of the things we do within our Customer Advisory Board methodology, is making sure that we have the internal alignment before they go in front of their key customers. I would imagine that that plays into the work that you do as well because you’ve got to bring together all these different perspectives to make sure that the people that are focused on retention and expansion and the people that are focused on the other part, that they’re all coming together so that there is that dual view at what’s going on.
The degree of change that I was describing that B2B software companies are going through because of the changes in the revenue model and so long, it has to be top-down. This is not an individual employee-driven concept. It has to be a top-down driven, top-down sponsored change. You’ve got to have that unification in the leadership team. There are some interesting trends around the emergence of the chief revenue officer or chief customer officer type of role that are increasingly getting that holistic ownership of the entire revenue and customer life cycle. They’re not just incentivized around bringing new customers in the door, but they’re also incentivized and accountable for keeping those customers and growing those customers.
That’s a healthy approach to take at a leadership level. It’s an instant red flag to myself and my team when we look at a company that has both a bit of silo, but even any form of misalignment between the sales and post-sales leader if they are two separate roles. If they roll-up into a COO or CEO who is at best ignorant of the risk or worst-case apathetic to the risk of that misalignment in those silos, we have to fix that first before we do anything else. A lot of companies are now trending to that holistic ownership of the revenue life cycle. The product side of the equation was equally concerning in terms of the silos between the sales and post-sales leadership, and then post-sales leadership and product.
The sales to CSPs, the sales to post-sales piece is getting a lot better. I still think a lot of organizations struggle with integration with a product organization and product leadership. The communication flows are better. At least, the quality of data flowing from the customer-facing teams like customer success into product and say, “Here’s what we’re hearing. Here’s what we’re seeing. Here’s what our data tells us around how our customers are adopting our product and what they want to be using the product for and how they want to use a product.” That data is much higher quality going into the product organization. It’s debatable how often the product organization truly takes it onboard and integrates it sufficiently into their product roadmap strategy, product design strategy, and takes it seriously.
If they have a product roadmap that’s already baked and they’ve got next quarter planned out, they’ve got the next year planned out, a lot of them are loath to change it. To your point, Betsy, and what we’ve been talking about around the rate of iteration and change in markets and how we need to keep on top of those to ensure customers stay successful, that iteration has to be applied to how we stay on top of the product roadmap. Don’t get me wrong, there are a lot of companies that do it well. That alignment at the leadership level between product and customer-facing teams, let’s call it customer success, is still work in progress. The other root cause that we often see in all sizes of the companies, but I say is more prevalent in the growth stage size of the company, mid-market size of the company, is the leadership’s understanding of the revenue model where they’re operating in now.
Even if they are the 25 to 30 something young genius who’s developed this potential unicorn of a company, they’re still often being mentored and are hiring additional leadership members around them that come from this old world of perpetual revenue. Maybe they have worked in SaaS companies and subscription revenue companies prior to joining this new company. They haven’t quite got their head around the unit economics over a recurring revenue model, what net revenue retention means, let alone how the strategies need to be built to optimize net revenue retention. That new leader inherits some of that mindset. It becomes all about acquisition and a pray approach to retention. Once you get into a room and you explain to them the unit economics, how it all maps to how they acquire customers, and how they drive adoption, their light bulbs go off.
There’s a lot of wide-eye panic-look expressions in the room but they at least have the clarity. We’ve got an alignment and buy-in to the changes that need to get made where it gets to be tricky as many companies have a hybrid revenue model. They’re transitioning from perpetual to subscription. You’ve got people to incentivize on the perpetual model, but also this subscription model. Where do you go? That’s a tricky one, but it’s unavoidable. You can’t flick a switch and turn a company overnight from perpetual to subscription. It is a transition process. That’s a sticky patch to get through.
You said a term that I don’t hear spoken often enough. You said that there are people that could be wrong customers. I don’t think we talk about that enough. How do you make sure you’re focused on the right customer? To me, it seems like it would make sense especially going to this customer success world that we would measure and track how many wrong customers have we had conversations with. How far did they get down our pipeline? I say that because that can be a leading indicator also that you may have to change your platform. Either you’re selling or marketing to the wrong people or you’ve got to change your platform and they might be the key indicator. It’s funny that you said because I can count on my hand how many people I’ve talked to over the course of my career and have ever admitted the heresy of the wrong customer.
It gets to thousands of years around customers are about me selling. When I talk about customers, I’m thinking about acquiring a new customer. When you talk about the ideal customer profile, a lot of people understandably and naturally think an ideal customer is one who is most likely to buy from me. I’m not naturally thinking in a lot of people’s cases an ideal customer is someone who’s going to buy from me, but someone I can make successful, someone I can keep as a customer and grow. I’m not saying people are exclusively not thinking about the retention and growth piece at all but it’s often a side note at best. With the recurring revenue type of model, you can’t afford to have that mentality.The ideal customer profile must be centered on who you can make successful so you can retain and expand them. Click To Tweet
The ideal customer profile must be centered on who can I make successful so I can therefore retain and expand them. That is who I then go and acquire. There are some specifics around their ability to buy from me. You should always have an ideal buyer profile. The ideal buyer profile is a subset of the ideal customer profile. From a sales governance perspective, in terms of me being a vice president of sales and looking at my pipeline for the next two quarters out, I’ve got to be looking at my prospects, the opportunities, and assessing them against the ideal customer profile not just the ideal buyer profile. However, a lot of VP sales aren’t incentivized to think that way, let alone their sales reps underneath them.
They’re only incentivized to get a customer in the door. Why would I be thinking about the more holistic ideal customer profile? That’s an area that every company needs to look at and make sure is addressed. Increasingly, it is being addressed that you see mechanisms like callbacks being put into commission plans where if a customer, as a sales rep will acquire this customer of that customer churns in X period of time later, my commission or percentage of my commission gets clawed back. I’ve seen the last stick approach. We see the carrot approach as well which I would always start with the recommendation around, which is incentivized the sales rep to acquire the right customer instead of threatening them with a stick where you have more of a hybrid sales role whether that sales rep is not only acquiring but also farming, so expanding existing customers.
There’s a logical conversation to have with them to say, “You want to acquire the right customer because that gives you the opportunity to expand over here.” Where you’ve got the hunter farmer model, we have hunters and then you have farmers who are a separate sales team who are doing the expansion piece, or customer success is doing the expansion piece, which I would fully endorse. You’ve got to go with governance primarily on that hunting team and say, “We’re going to govern you. We’re going to require you to acquire the right customers, not just any customers.” Again, someone is there with a pen and ready to sign the PO. The moment it can be hard to do so I have huge empathy, but it has to be done to get these revenue models to work.
It’s funny to think. We all in a freshmen level college courses learned about how much cheaper it is to retain a client than it is to acquire one. It’s such easy math. It’s striking to me that it’s such a topic of conversation about how important it is. It’s a little observation there.
The theory is fairly well universally understood. The ability to measure it and report on it at a company per company perspective. Many companies I’ve seen don’t have the systems and the operations to be able to report. They’re doing an okay job of reporting on the cost of customer acquisition but they should be reporting on the cost of customer retention and expansion but they’re not. They don’t have their company-specific version of that theory to prove out and say to their board or leadership, “We should be doubling down over here.” It’s still rooted in more macro theories which are correct, but it’s not quite enough to drive that change in other companies.
If you look at the cost of churn compared to all of those costs, it’s a no-brainer. Switching gears for a bit, Ross. Tony and I love to give our guests an opportunity to give a shout-out to a community organization, charitable organization, or somebody that you want to shine a spotlight on. Is there any organization that you’d like to share a little bit about with our audience?
I live in a small town in South of Vancouver and there’s a small organization that doubles down on helping young children with educational opportunities and getting into a lot of STEM thinking. A lot of science technology type of thinking, solving creative problems that are incredibly important. There are a lot of worthy causes and challenges in the world right now but I’m a believer in enabling our youth and my kids, I’ve got young kids, to be able to address new problems and possibly the problems we still have in the future. Education is key to that. Generally, I’m a strong advocate for companies or organizations that are trying to drive and improve education within the youth whether it be within inner cities or any demographic. Those that are taking the approach of how do we teach these kids and how to solve problems in a creative way is extremely important. There’s one in Vancouver that I like to support but any organization like that, I am all in. I’m excited to see the results of the efforts of these companies in the future. I feel like we need the next generation to step-up there.
If you think about what’s happening as we’re maneuvering around this Coronavirus crisis, what we’re seeing is creative problem-solving like never before. If we can teach our young kids how to do that when they have a crisis of any kind of nature, it will come naturally to them to be creative problem-solvers. That’s awesome. Thanks for sharing that. Tony, do you have anything else?
This has been a fantastic conversation so I am questioned out, but this is good.
Ross, thank you for great insights. I feel like our audience is going to get much value from this conversation and looking at this strategically at a very high level, how all of these pieces and parts need to fit together. Thank you for your time and your willingness to share your expertise. We appreciate it.
It’s my pleasure. Thank you for having me. You have both, Betsy and Tony, do a great job with this. I get a lot of insight from it. I’m looking forward to hearing all the future episodes.
Thanks, Ross. One question. Where can people find you?
I’m on LinkedIn, search for Ross Fulton. There’s only a few of us on there. I’m at @RossGDFulton on Twitter as well. If anyone wants to reach out and email me with a question or wants to chat about any of this, I‘m always happy to at Ross.Fulton@Valuize.co. Our website is Valuize.co. You can contact me or any of my team through that as well. We have a lot of content on there which talks to a lot of what we’ve talked about if anyone’s interested.
Thank you for being here, Ross.
It’s my pleasure.
That was fantastic. I am still overwhelmed with such information that was provided that Ross gave us here. The biggest piece that stands out to me is the depth of knowing your customer. If you know your customer, you understand who your ideal customer is. That’s not determined by who’s going to buy as Ross very clearly laid out. It’s determined by who can be successful in achieving the outcomes that they want to achieve with the product or service that you offer. That is something that is not just for technology companies or software companies. That should be across the board. I know I’ve been saying it for years, talking to people, my term was your best customer. It’s the customer who buys and pays the most and is successful achieving their outcomes with your product. That doesn’t matter what industry it’s in. I love this interview.
To your point, one of the lines that caught me that he said is that value is in the eye of the beholder, not the seller. He has such a unique ability to paint the strategic vision but then drill down into what that means in day-to-day life for customer success professionals, CEOs, or product people, whatever the case may be. I do think this interview points to the fact that knowing your customer is not just a nice to have and while we’ve got a great relationship, it goes much deeper than that. You and I study this stuff on a daily basis and work with clients on this, but I learned a lot from talking to Ross.
It’s fascinating to see the depth that he goes to. I’m going to come back to this because I think it can be applied in any industry. If you’re reading this blog and you’re saying, “I like what Ross said but I don’t know how it applies to my industry.” Reach out to Betsy and myself because I guarantee, if we get on a call together, we’ll be able to help you apply it to your industry because of the number of industries that we have both covered. I’ve touched over 50 different industries doing this type of work that I do. You’ve got up close to a similar number, I would guess.
It is important to talk to people to get different perspectives. Listening to Ross, having a conversation with you or with me especially because he touched on both the areas. The customer experience and how important that is. The Customer Advisory Boards and how important that is. If you want to have a conversation about this, pick up the phone, and give us a call. We’re happy to talk more in-depth about that. In the meantime, we will see you next time. Thanks for joining us.
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About Ross G.D. Fulton
Ross G.D. Fulton has spent 15 + years driving sustainable growth for technology companies. Ross designed and led pre + post sales strategy for a £250m performance-based revenue business in Europe’s largest technology services company. After moving to Vancouver (Canada), Ross built the customer success strategy for one of Vancouver’s largest software companies as part of their overall transition to a subscription-based revenue model. Ross is now the Founder & CEO of Valuize. Valuize is a consulting company that has empowered B2B software companies including Splunk, Datto, Elastic, Commvault, Databricks, GE Digital and PointClickCare to retain and expand more customers. Valuize achieves these outcomes by increasing the impact, efficiency and scale of their clients’ customer success strategies and operations.