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Hypergrowth comes from existing customers - and you have three growth levers to pull with customer success.
We talked with Dan Steinman, Chief Evangelist at Gainsight about those levers.
We talked with Dan Steinman, Chief Evangelist at Gainsight about those levers.
- (00:00) - Introduction
- (07:00) - How do you grow through your customer base?
- (10:16) - Why don't we celebrate customer revenue?
- (13:04) - A leap of faith
- (16:47) - CS and PLG
- (20:20) - Don't raise prices, reduce discounts
- (24:43) - What's the role of the CSM?
- (29:58) - How to upsell
- (33:11) - CSMs and discovery
- (39:00) - CSMs and commissions
- (42:57) - The product and the price
Creators & Guests
What is The Revenue Formula?
This podcast is about scaling tech startups.
Hosted by Toni Hohlbein & Mikkel Plaehn, together they look at the full funnel.
With a combined 20 years of experience in B2B SaaS and 3 exits, they discuss growing pains, challenges and opportunities they’ve faced. Whether you're working in RevOps, sales, operations, finance or marketing - if you care about revenue, you'll care about this podcast.
If there’s one thing they hate, it’s talk. We know, it’s a bit of an oxymoron. But execution and focus is the key - that’s why each episode is designed to give 1-2 very concrete takeaways.
[00:00:00] Toni: Hey everyone, this is Toni Holbein, you're listening to the Revenue Formula.
[00:00:03] In today's episode, we're going to talk about the three levels of growth driven by customer success.
[00:00:09] And we're talking about it with no other than Dan Steinman, who is Chief Evangelist of Gainsight. Enjoy.
[00:00:20] Toni: So Mikkel, why, why, why are you having a Red Bull there? You know what? I'm
[00:00:23] Mikkel: so thankful for Ingi. So Ingi Björk is our office manager here at the team. She must have heard or seen me drink Red Bull when we do late night recordings. And I mean, you know, somebody got a bit burned out after talking with so many folks on the West Coast several nights in a row.
[00:00:40] Toni: So why would we continue doing that? Why would we continue to talk to people from
[00:00:45] Mikkel: the West Coast? Well, you know, the thing is we, uh, we recorded an episode, talking about where hypergrowth comes from. Yes. And we concluded that it comes from the customers. And then the following day I was taking the train to work and I was starting to reflect.
[00:00:58] And it's like, so. So, I have 10 years in marketing, you like some finance, some sales operations stuff. We can't talk about CS. There's no way. I mean, at least the people who know us, they're going to know, you know, we've not done that work quite a lot, which is,
[00:01:14] Toni: which is why we decided to talk to the, uh, grandfather, maybe, I don't know, of customer success, the godfather of customers.
[00:01:24] Let's go with that instead. Yes. So Dan Steinman is with us here today. Hi Dan.
[00:01:29] Dan: Hi, you guys. It's glad, I'm glad to be here. I have a, I have a quick Red Bull story too that I'll tell you guys in a moment.
[00:01:36] Mikkel: Why in a moment, we could just hop into it
[00:01:38] Dan: Okay. We'll do it right now.
[00:01:40] Mikkel: Let's go.
[00:01:40] Dan: But once in a, in a previous part of my career, red Bull was a customer of mine and I was visiting their onsite location, which is pretty amazing. They have. Uh, skateboard ramps and all sorts of things for filming, right? For filming some of their, uh, adrenaline, you know, kinds of commercials.
[00:01:59] But, I don't remember why, but I was totally exhausted. It was late afternoon when I got there and we sat down in the lobby waiting for the person to come out and get us. And in the lobby, they have coolers full of Red Bull and they're marked with all the Red Bull logos and everything else. And I sat down on a chair right next to one of them and I leaned over against it and I fell asleep. a friend of mine took a picture. This is like the worst ad for Red Bull ever. Here's this guy in our lobby, sound asleep, leaning against the Red Bull sign.
[00:02:29] Toni: At least you didn't have an open can of Red Bull in your
[00:02:32] Dan: didn't have that because I don't, I didn't, I never liked the taste. So they got away with that. But that was pretty funny to think that you're at Red Bull.
[00:02:39] There's all these exciting things going on. There's this. Can of caffeine waiting for you if you want it. And I'm sound asleep in the lobby. So,
[00:02:47] Mikkel: But you know what I saw? There's, uh, there was this Formula One race where they talked about it. It was so warm. It was actually dangerous for the, uh, the drivers. And as one from the Red Bull team, he had like an oversized Red Bull. Like, no joke. It was just a two liter or something. I was like, is it, is it Red Bull or is it water in there?
[00:03:05] I'm kind of not sure.
[00:03:06] Dan: yeah. I think if someone drank that much Red Bull, they might die. Right.
[00:03:10] Mikkel: Yeah. I mean, they do wear diapers when they're riding, you know, so don't know. Um, So I guess that's enough on the... So there
[00:03:18] Toni: might be some people that don't know Dan. Maybe you should introduce Dan just
[00:03:22] Mikkel: a little bit. I mean, you said, uh, already said, well, we settled on Godfather. The Godfather of CS. So you're the chief evangelist at Gainsight and also expert in residence at Notion Capital.
[00:03:34] So you've been working within this field for quite a bit of time. And you said just before we hit record, yeah, this is a subject I can just... We can just press play I can talk about
[00:03:46] Dan: Yeah. Yeah. I've been, I think I've been in officially customer success now for almost 20 years, which is pretty close to the birth of it. But what's interesting is I did a number of jobs. That were customer success before we ever came across that term. Cause the term came from Mark Benioff at Salesforce in the early 2000s, but I was doing account management, customer advocacy, customer relationships.
[00:04:12] I had all these titles that were essentially describing customer success, The, the term customer success didn't come about till the early 2000s. So
[00:04:22] Toni: But if I if I don't get this wrong, you also literally wrote the book on CS, right? I mean, I think you co authored this with a couple of others But basically just to put a little bit more authority on your name That's the you you know, you've you've written the literally written the book on this
[00:04:37] Dan: yeah, we were lucky we had a chance to do that kind of early on in the, in the boom of customer success. I think it's now seven years ago or so. Um, Lincoln Murphy, Nick Mehta, my CEO, Ed Gainside and myself collaborated on the book. I basically did all the typing and gathered all the ideas together. Um, but that was quite an experience.
[00:04:59] And that book has been in many cases, kind of like the Bible of customer success. Uh, and it's sold, I think now almost a hundred thousand copies, which is a really big number for a business book. If there's no name on the, on the author line, that's really recognizable. Like I always say, if Mark Zuckerberg wrote a book, it would sell more than a hundred thousand tomorrow morning.
[00:05:22] Mikkel: Yeah.
[00:05:23] Dan: If you don't have a recognizable name on the author line, 100, 000 is not an indication of the quality of the book, but it's an indication of the volume of the movement of customer success.
[00:05:34] Toni: And I also think that, um, especially Gainsight, uh, and you guys really have been driving that movement, right? I mean, obviously you've been shaping it to a large degree and I think you're right. You know, some of that came from Salesforce, some of that came from, uh, from Mark Benioff. Um, but especially you and Nick kind of took this and built this into, you know, this large movement that it is now, the category that it is now.
[00:05:57] And basically all the other players that are also now trying to play in this category, right? So really, really impressive, seeing that journey.
[00:06:04] Dan: yeah, sometimes if you're an entrepreneur, sometimes you hit the timing perfectly. A lot of times you don't, because one of the things about being an entrepreneur is you're often too early, but we hit the customer success thing at exactly the right time. Now you could argue we made it the right time and maybe there's a little bit of both.
[00:06:24] I think we accelerated the movement. It would have happened without Gainsight, but we definitely accelerated it. And as you said, I think we helped shape it because we, we created a way for the, for the community to come together. And that's what really drove the, the movement, the entire community saying, this is important.
[00:06:44] We're going to have some discipline around this. Ways to do this and ways to not do this. And we're going to share those ideas. And we just kind of created a platform for everyone in customer success to be part of that and to share with each other.
[00:07:00] Mikkel: Yeah, so, I mean, so great to have you, uh, an expert in this, uh, this particular subject we're going to talk a bit about today. I think like we talked a bit about in the intro, We're coming from a period of growth, uh, growth at all costs, basically. We've seen massive growth, a lot of focus on newbiz.
[00:07:15] Uh, you know, we, we've been joking a bit around that, uh, no one celebrates a renewal, even though it's, it's bigger than newbiz deal, right? and, and the thing is hypergrowth will come from the customer base, right? Um, and so what I'm really curious to hear a bit from, from your perspective, what are you seeing, you know, now that we're hopefully waking up as an industry to the fact that those customers, you know, they're, they're pretty important.
[00:07:38] What are you actually seeing some of the, the best teams out there do at the moment to grow through their customer base?
[00:07:44] Dan: Yeah, I think, I mean, all of these things always start at the top, right? I think you can do a grassroots thing inside of a company, but generally speaking, it has to kind of trickle down from the top, which means. At the top of these companies, there has to be this realization that revenue doesn't just come from new business.
[00:08:06] It comes from your install base. And in fact, if you look at the numbers, a reasonably successful SaaS company, typically in about year 3 or 4, will actually cross over the line where more of their ARR is coming from their install base. Then from new customers, and if you extend that out to 20 plus years, like at Salesforce, especially in this economy where selling to new customers is really hard.
[00:08:36] I don't know the exact numbers, but somewhere close to 90 percent of Salesforce's business this year will come from their install base in the form of renewals and upsells. So whether it's 50 percent or 60 percent or 90, point is that's a That's your goldmine, and that's where the value of your company comes from.
[00:08:59] If you're a recurring revenue business, this is why SAS multiples have always been really high compared to non SAS multiples, because there's an assumption that those customers are going to continue to be customers. Now, in the middle of that business, you know, that's not a given. You have to work really hard to earn and then earn again their business.
[00:09:19] But the best companies take that idea really seriously. And two things happen. If you do customer success really well, obviously your churn is small, but you also enable upsell and a bunch of other ancillary things that we'll talk about, but you don't just enable upsell, but you create an opportunity for upsell with a really, really, really low cost of sales.
[00:09:45] Because if we're doing customer success really well, a lot of upsells are pretty transactional. They're not long solution sells because many of them are small, but even bigger ones. You know, once they trust you as a vendor and they're getting value from what you have sold them already, the likelihood of them buying more goes up significantly.
[00:10:06] And then, and so the cost of sales to existing customers goes way, way, way down, which is something that ought to warm the heart of every CFO and CEO in the world.
[00:10:16] Toni: And the, I mean, the, the rationale totally makes sense, right? Super straightforward. First of all, so much cheaper, quote unquote, to, renew. a given customer so much cheaper to get upsell from an existing customer. Why do you still think, and I mean, still to this day, and you've been in this, you said, like 20, 20 years or so, why to this day, even after Uh, the issues that we went through in the industry now for the one or two last years.
[00:10:45] Why is it still newbiz feeling like that's still the king of the bow tie, so to speak, right? Why, why is it still that the, the other side of the bow tie is being neglected by so much?
[00:10:56] Dan: Yeah. I think that's, that's just a comfort zone for everybody. That sales is the thing. And here's one of the realities, I think. customer success, in some ways, if you're trying to prove the ROI of customer success, you set out to try to prove a negative, which is, would those things have happened or not without customer success?
[00:11:21] Would those customers have renewed and would they have bought more from us? And it's relatively easy to say, yeah, we build this great product and we treat our customers right and we're the best in the industry. I bet all of those things would have happened even if we didn't have 32 customer success managers running around.
[00:11:41] Now, logically, that doesn't make any sense, but there still is this perception that that might be true and it's impossible to prove otherwise. Because the only way to prove that that wouldn't have happened is to eliminate all those people and the technology behind them. And live for two years with a churn rate, that's certainly going to go through the roof.
[00:12:03] Whereas in sales, there's this really high correlation, which is I hire a salesperson. I give them a million dollar quota. Our average quota attainment is 82. 7%. So I know every salesperson I hire, I'm going to get 827, 000 or million or whatever it might be. So it's, it's just been done for so much longer, number one.
[00:12:28] And number two. The correlation is really, really obvious. Whereas the correlation between a really good CSM and their customers not churning is not as obvious because it's, there's no proof that it, that they wouldn't have stayed with you anyway. So I think that's part of it. Uh, but I think, I do think most CEOs still lean towards sales more than they lean towards customers.
[00:12:51] And when push comes to shove and you say, Hey, you have to cut 25 headcount to make your numbers. They're just going to be way more likely to cut from marketing and customer success than they are. To go after direct sales people.
[00:13:04] Toni: Yeah, I was, I was almost about to say the same thing, right? Some of these, some of the rationale that you've been taking us through here, it actually also applies to, let's just say some of the marketing tactics. It, the same as like investing in brand, for example. Well, you could or could not do that, and you know, you would try and prove a negative, and then you do it without, and then you have...
[00:13:26] Your top funnel collapsed, I think to a large degree is also because it's, it's so provable, on the sales side. It's so last touch. It's so, Hey, I sent this email with a signature in there. It's like, that's mine. It's so, it's so direct, that it's extremely comforting to, to lean into this and, and, and try and do more of that while neglecting that there was a lot of work upfront that was happening, you know, from the marketing team, from the team from, I don't know, the solution engineers.
[00:13:55] And so, you know, leading up to that point. And I think you have the same, uh, diffusion almost the, the same, the same fog happening on the customer success side that, you know, ultimately has probably a massive impact on, on the revenue itself, but to a degree you need to be, and that's why kind of like there's a need to stand at the top to, to a degree you need to be a believer as a CEO, right?
[00:14:17] You, you need to believe in this being the right thing. in order to invest in it and then, and also in order to build a first, you know, best class, uh, SaaS company behind that.
[00:14:27] Dan: it's definitely a leap of faith. Um, you know, back to that idea of, you know, by the way, this, it is true that sales has a direct impact, right? Because. We know we're selling complex solutions, and let's say the average price that we sell our product for is 200, 000. Without salespeople, there's no one in the world that comes to us and says, Yeah, we want to sign over 200, 000 for your product.
[00:14:51] It never would happen. And it is quite possible that if your product was really good, some customers will figure out how to use it and they'll get value out of it without a customer success manager. So you can kind of see the logic there, but time after time, because I lived in this world really early on, I know for sure that every single SaaS company 20 years ago, and there were maybe 15 or 20 of them, Marketo and Eloqua and Salesforce and NetSuite and a few others.
[00:15:22] Every one of them struggled with churn because they didn't have customer success and that's how they fixed it. They hired people to take care of the customers. Here's, here's why it's necessary because in the B2B SaaS world, we are solving complex problems with our software. We are not Facebook. You don't just log in and then start pushing like, right?
[00:15:47] There are complex problems and complex problems require reasonably complex solutions. We try to make our UI and everyone else does as easy as possible, but when you're solving a complex problem, the solution is going to be relatively complex as well. Which means our customers need a person, in most cases, helping them understand how to best use that product and to push them to change their behavior.
[00:16:16] Because natural human A condition is inertia. I'm doing this in Excel, I figured out how to do it, I can get by on seven and a half hours a day of doing Excel and I won't get fired if I keep doing my job reasonably well. Getting that person to throw Excel away and log into your system and learn something new while still trying to do their old job for at least a few weeks, that's a hard thing to do.
[00:16:42] Much of customer success is really about behavioral change.
[00:16:46] Mikkel: Yeah.
[00:16:47] Toni: So I think this is a, there's a net new insight, at least on my side to kind of, to almost see it like this with the, um, with the advent of, of PLG, right. And, you know, we had some of that before, you know, trials, free trials, you know, freemium, all of that stuff. Some of the principles you just mentioned there, they're kind of, they're tackled to a degree by PLG, right?
[00:17:08] First of all, PLG is not a motion for everything. So I don't think you can PLG yourself into a 200k deal. But yes, they're trying to make it like Facebook, super easy, super simple to understand, so basically to onboard and so forth. What, what do you think, is the role of, of CS? You know, with those PLG companies.
[00:17:25] So what is, what is it that you're typically seeing? Because, you know, even, even when you have a very strong PLG company, when you go on LinkedIn, you see lots of CS folks living there and working there, right? So there is something here that, uh, that this role is, uh, has a purpose for. So what, what is your perspective on
[00:17:42] Dan: Yeah, I'm a, I'm a little bit of a PLG skeptic be because of what I just said, which is when you're building B2B solutions, they're pretty complex and that doesn't lend itself easily to PLG. There's a few, I mean, if you look around, there's a few exceptions to that. Slack would be one of them. Pretty straightforward and easy to use.
[00:18:04] and it becomes viral because of the nature of it. Me using Slack alone doesn't make any sense at all. But once you guys are also using it, now we can start communicating. Here's an interesting insight to this question. I knew the guy who ran, uh, customer success for Slack in Europe really well. And I asked him one day, I said, Why in the world does Slack need customer success?
[00:18:28] Now I was kind of cutting my own throat. They were a GainSight user and happy about it. But I said, why does Slack need customer success? It's the most viral kind of B2B tool I've ever seen. And he looked at me, he said, simple answer. He said, we have customer success because we want to raise prices. Now you have to let that settle in a little bit, because here's the equation.
[00:18:52] In fact, uh, the equation is the same as with sales. In sales, how do we get a sale? We convince the customer that the value of the thing they're buying. Is much higher than the price they're paying for it, right? Very simple sales equation. So now here we sit with customer success. Our customers have already purchased our product.
[00:19:13] How, how is it possible to raise prices? Because by the way, raising prices is the easiest way for a company to make more money. Instantaneous doesn't cost you anything as long as your customers don't start churning. So what's the equation? The equation is if you've pushed the value that the customer's getting up high enough and the price is down here.
[00:19:33] You can move the price up to here without causing churn, right? Cause your, your value is still exceeding your price. That's the equation for customer success. It's not just, let's make sure customers don't churn. Let's maximize the value they're getting because then all sorts of other good things happen.
[00:19:53] Not only do they renew their contracts, they become better references. They provide you better customer feedback. They improve your NPS scores. They buy more from you, et cetera, et cetera, et cetera. There's. So many good things, but one of the last things in the kind of maturity curve of customer success is doing customer success really well, gives you some price flexibility.
[00:20:14] You can actually raise prices if you're driving maximum value for your product.
[00:20:20] Mikkel: So I think this is, this is one of the, at least the. Bigger growth levers we've discussed. If you raise prices annually, then you start to see compound, right? And I think it's super easy for Toni and me to sit on the show and say, yeah, I just raise the prices. But then there's also a reality of someone at the end of the day having to go out and, and raise the price on someone.
[00:20:41] Right. And how, how do you tackle that? Because you might be eating away some of the value you talked about, right? The value they're, they're getting versus what they're paying. How, how do the, some of the best teams out there tackle. You know, building that compound.
[00:20:54] Dan: right. Well, I think one of the things that I like to think about is. It's not always about a price increase. It's a reduction in discount. So think about how the software world works. Has any customer in the history of the world ever bought a piece of software and not gotten a discount on it? The answer is no, they all get discounts.
[00:21:16] And if they're smart enough to wait until the end of the quarter, they often get 30, 40, 50, even more discount, right? When I, when I first learned this, I was at Marketo running customer success there. And our average discount was probably 30 ish percent or something like that. It's just one of the tools that salespeople use.
[00:21:35] Yeah, I'll give you 30 percent off if you sign tomorrow, right? It's just the way it works. Then we would get to renewal time. And one of the things we would try to do is raise their price, but we weren't really raising their price. What we were doing was reducing their discount, but of course, customers see that as a price increase.
[00:21:53] And I don't blame them and they push back. But here was my, what I would always say to a customer in that situation. I would say, there's a few reasons why we're going to reduce your discount. Number one, our product today is significantly better than it was a year ago when you bought it. It's a much better product.
[00:22:12] We're not charging you more for it. It's a way better product. Performance is higher. There's several new features that you have that you didn't have before. You're a better user of it because of all that we've invested in you. And if this is the first renewal, then we can say, and by the way, last year, you only got eight months of value out of it because it took us four months to get you live.
[00:22:34] This year, you're going to get 12 months of value. So I have every right to cut your discount from 30 percent to 20%. And I'm going to cut it again next year because we're going to continue to improve our product. And you always have to do that with the understanding that, or the hope that you can justify the price that the customer is paying.
[00:22:55] And if you're good at customer success, you will be able to justify that. What you're, what you're in fear of is getting to a renewal and having the customer say, I could do this with a different tool and do it much cheaper. That happens all the time. And it's usually the result of letting customers settle into a comfort zone using your tool where they're getting some value, but they're not getting as much as they could.
[00:23:21] And this is back to the PLG conversation. This is, I think, the downside, even of a really good PLG Motion, which I totally support. You will never, without people involved or without some really intentional, digital efforts, you will never get a customer to 10 on a scale of 0 to 10 in using your product.
[00:23:45] What I'm hoping for with PLG as a customer success leader is, my job is to get the customer from 0 to 10. They know nothing at all. I need them to use the product at level 10. That's the maximum value. If within the product, you could get that customer from zero to five. Now my job becomes getting them from six to 11.
[00:24:07] Hopefully I can take them one level higher. Now I'm having, this is by the way, a much better scenario for everyone. Cause now the CSMs are not helping them log in and showing them how to click, click the first three times. It's how to use the product at its maximum value, how to use the nuances of the product, how to maximize that, how to have strategic conversations, right?
[00:24:29] You're doing, now you're suddenly doing all the things that have really high value with a customer and the customer success people get. Get maximum,
[00:24:38] Mikkel: Yeah.
[00:24:39] Dan: know, uh, gratification out of those kinds of things.
[00:24:43] Toni: So one thing, and this is not necessarily a PLG, connected motion, but we see this actually a lot, customers signing up to, or prospects signing up to a product, becoming customers in the process, whether through sales or PLG, and then there's part of the onboarding and the ongoing customer success and then there's trying to do the upsell, right? From, and I'm, you know, I'm sure you have heard this question, like, you know, probably two, 20 million times already. but from, from your perspective, you know, the CSM, uh, where, where does the responsibility start? Where it's, where does it stop? Uh, and the account manager, where does it start and where does it stop?
[00:25:25] Dan: 2 million, at least 2 million times I've answered this question, but it's really important and it's a fun conversation because there's no specifically right or wrong way to do these things, but this is the the most important thing that changed because of the subscription pricing model and that is how do you Handle the commercial aspects of existing customers, because we never really had to do that before when we collected all of your money up front.
[00:25:55] And then you went through onboarding and, and, uh, started using our product. We didn't care that much about whether you used it because we already had all your money in our bank account, right? We would collect that at the time of sale. So there was no urgency around making sure you were using our product.
[00:26:11] By the way, there was also no fear that you might churn because the investment you made. Not only in buying our software, but also two years of implementation to get it up and running, which means you had to hire 47 people from Deloitte and Touche, you know, for two and a half years to implement it, etc.
[00:26:28] Your investment was three years and about ten million dollars and there's no way you're churning after that investment. If someone didn't like the UI, you just fired them and found someone who did like the UI. Right. And so those days were pretty easy, pretty easy from a post sales standpoint. Today that's changed dramatically.
[00:26:46] And the most interesting thing that we have to do is figure out this question. How do we manage the commercial aspects of existing customers? Because. They're super critical. And by the way, when you're doing SaaS and you have a subscription pricing model, you actually have to build your product differently so that there is more for the customer to buy.
[00:27:08] It can be this monolithic buy everything up front because you just aren't showing the value of your company if the customer isn't buying more from you. Right. It's, it's just a perception, uh, in the investment community that you have to show growth of average contract within your install base to prove that And other, another part of that is to capitalize on your investment in customer success, you need to create the opportunity for the customers.
[00:27:39] So how do we manage that? I'm a pretty big proponent, although I'm not purely, purely ideological about this, but I'm a pretty big proponent of customer success people are not naturally salespeople. So we're better off if we ask customer success people to do customer success things. And we ask salespeople to do sales things.
[00:28:06] And what does that mean? What's that dividing line? For me, the dividing line is if there's a sales transaction that requires negotiation, then you probably should have a salesperson doing it. And here's, here's an example of something that's an upsell, but it's not negotiation. I'm your CSM, you've bought my product, you hire 10 more people.
[00:28:28] You call me and say, Hey, we need 10 more licenses. Okay, the price of those licenses is already set in the contract. All that we have to do is send you logins and passwords. There's no negotiation involved. It would be a bad customer experience if I said, Oh, let me get my account manager involved to close that deal.
[00:28:47] It'd be like, why? The real answer is I go push a button. You guys have 10 more logins and passwords and off you go. No negotiation involved, but an upsell just happened. It's an actual sales transaction. But there was no need for somebody to get involved who, who was going to negotiate the price of that because it was already set.
[00:29:07] Here's the alternate example. You guys come to me and say, Hey, we're hiring really fast. We're growing fast. We want an, a site wide license agreement. So every person in our company can use every part of your product and we'll never pay you any more money for that. Guess what? That's going to be a negotiation.
[00:29:26] And as a CSM, I'm probably not the best person to do that. I need an account manager to come in. So I think we have to have, um, CSM, customer success people who are really savvy about what they can do and what they not only can't do, but shouldn't do and should bring somebody else in. But if you do that, that account manager comes in, closes the deal, pretty low cost, typically.
[00:29:53] And then exits until the next opportunity comes up, whether it's renewal or another
[00:29:58] Toni: So follow up question that, and this is, this is a topic because I think for a year now, people are like, Oh, customer base. Great. Let's, let's, you know, push our app sell up. But how do you do this proactively? Right. And just to maybe prompt you in the right direction, not sure what your perspective on this is.
[00:30:15] It's also sometimes the, okay, how do I, instead of just waiting for handraisers to happen, how do I almost generate, you know, I don't want to say an outbound motion, but a more proactive motion from the team to trigger some of those, um, some of those potential upsells. Do you have like a, uh, you know, what's, what's your perspective on, on how to achieve this the best, especially if you have a CSM team and account management team and so forth.
[00:30:40] What, what's, what's the, what's the best practice around
[00:30:42] Dan: Yeah, great question. Uh, I'll start with one of my favorite things that I would say to my CSMs is I will never ask you to be a salesperson. However, I will ask you to be sales savvy every single day of your life, because here's the reality. Great CSMs, not only have customers who don't churn. They have customers who buy more from us.
[00:31:08] The best CSMs do that. And in fact, here's one of the favorite things I, I would often say to a CSM. If I give you 30 accounts and none of them ever churn, you will not get fired. But if I give you 30 accounts and none of them ever buy more from us, you will never get promoted and your raises will be really small because the best CSMs in the world do both of those things.
[00:31:33] They make sure customers don't churn. And they make sure customers buy more. The only way to do that is to be actively seeking opportunities to sell more to that customer. Now that doesn't mean you have to be cold calling and doing demos and pushing people to buy more, but you have to be aware of what your product can do, what the other parts of your product can do, where else it could be applied at that company.
[00:31:58] And you need, you can, you can go to a certain degree to try to figure out whether that's a real opportunity, but then. Open up the opportunity in Salesforce and bring the account manager in to go close the deal, but you have to be thinking about it. And one of the key levers is something we call CSQLs, Customer Success Qualified Leads.
[00:32:19] And we would typically give our CSMs a target every quarter. You have 30 customers. We need 30. Customer Success Qualified Leads. You don't have to close them. All you have to do is open them, get them in the pipeline. But we're going to track what percentage of them close, because we know some of you are going to be better at this than others, and we want to reward that.
[00:32:40] And we want to incent that, right? So, uh, if we can get, this is the gray line, you know, here's my, this is again, my ideology. Customer success people do customer success things. Sales people do sales things. But there's a gray area in between, which is demand generation. And that's a shared responsibility. Us, we're success people, should be finding some of those opportunities.
[00:33:04] And the salespeople need to be allowed to go into those accounts and, and prospect for some of those opportunities as well.
[00:33:11] Toni: So one, one of the ways, so I totally agree with you. but sometimes it's, it's hard to, Nail down, okay, what does it mean to be salesy or, you know, sales savvy? I think that's those, that was your word. Um, sometimes I recommend to folks like, yes, your CSMs shouldn't be trying to, uh, negotiate. You're totally right.
[00:33:31] They shouldn't be trying to close a deal. They shouldn't be like, Hey, it's the quarter end. I need the signature. Where's the signature? None of that stuff. But for me, sales savvy actually means that they're doing in sales terms, uh, the discovery. Right? They're doing the, the needs analysis to a degree, right?
[00:33:47] And because they have built up this relationship, uh, with the customer, because they have so much contextual knowledge of how the customer works and works with your tool, they actually to a degree have the background and they have earned the right. to ask a couple of questions. And those questions could be discovery related, like, Hey, how do you actually solve this problem over there?
[00:34:07] You know, is this difficult? Why are you doing like this? You know, going in that direction and then, you know, pushing it over to like, Hey, would you mind if we pull someone else into this conversation and then take it from there? It's so, you know, I just try to dumb it down a little bit. Is this roughly what you've been seeing as well?
[00:34:24] Or how do you, how would you. You know, if, if you were to kind of almost write a playbook on this, you know, what would be the more tactical steps? I guess
[00:34:31] Dan: Yeah. I think you've, I think you really nailed it. What we're asking the CSMs to do in existing counts is also to be the SDR or the BDR person who's looking for opportunities. Now, you know, we have this phrase in the world of customer success called trusted advisor. That's what we want our CSMs to be to the customer, but, and so trusted advisor, you could draw that line a little bit too thickly around that term.
[00:34:58] And what I would say to my CSMs is. You need to get to the edge of being a trusted advisor. Maybe you even need to have your customer look at you a little bit sideways once in a while, as you're looking for opportunities to sell them more, because the minute somebody else comes in and actually does the deal, and then you go back to help them use it, the trusted advisor status will get restored very quickly.
[00:35:22] But you need to creep up to the edge of that cliff and push. This is again, the best CSMs figure out how to do this balance. That's how do I. How do I ask the right questions? It's totally discovery. That's exactly the right way to think about it. How do I ask those questions? And the customer knows the reason I'm asking those questions is because we want to sell more to them.
[00:35:44] By the way, you can't hide that. What customer in the world doesn't know that their vendor wants to sell them more? Let's not pretend the customer doesn't know that if I tiptoe around it, but let's Let's just be honest about, Hey, you know, one of the things that I'm going to be doing with you, my primary job is to make sure you're getting maximum value out of what you've already purchased.
[00:36:06] My higher level job is to make sure you get maximum value out of us as a company, which means there may be other things that you should buy from us to improve and increase the value that you're getting. So I think the best CSMs are not hiding that. But they're also not ever in sales mode. They're never negotiating.
[00:36:26] They're not redlining contracts. They're not cold calling other divisions That's that's not their job, right? the primary job of the CSM is to maximize what the customer has already bought and then look for Opportunities for the salesperson to sell some more. Discovery, SDR, however, you want to say it that is kind of the idea and those playbooks are already written How does a good SDR find opportunities, right?
[00:36:53] And then, and then I think the dividing line for me is CSMs are looking for opportunities from the person who's already bought from us. Account managers are looking for opportunities from others who have not yet purchased from us. Cause that typically is out of a CSM's comfort zone. If you say, Hey, there's another division of this company.
[00:37:14] We've never talked to them. Why don't you cold call and see if you can find the VP of XYZ and see if they're interested in our product. That's not going to go very well because the CSM just isn't going to want to do that.
[00:37:26] Toni: Very, very quick follow up question on this. should CSMs be asking for internal referrals? So I understand, you know, you shouldn't be calling the, the other division, but the, Hey, can you introduce me to Axis? That's something that CSMs should be doing.
[00:37:39] Dan: yes, for sure. Because they, they are the feet on the ground. They are the people that have the relationships that can be extended to other folks. So I think that is a totally legitimate question to ask. And, and they do that, you know, if I do that with you guys, let's say you're my customer. If I do that with you guys.
[00:37:59] You'd be happy to do that if you're really getting value and I've built up my trusted advisor status with you. You're like, yeah Every everything we've done with this company has gone really well. Why wouldn't we want to do more with them, right? That's got to be the attitude that we want the customer to have.
[00:38:15] Of course, that's a perfect world which we don't often get but that has to be the idea and then the other side of that coin is But when a comp manager goes in to that introduction and starts selling, who are the first people that that internal new customer potentially is going to call? It's you guys.
[00:38:37] Do the, are these guys really good? Are they responsive? Does their product really work the same, the way they say? So it's that internal reference in both directions. Can you introduce me to so and so knowing that so and so is then going to call you to say, should I work with this company? Do they build good products?
[00:38:54] Are they responsive? Whatever. Right. So it's become this, it's this kind of virtuous cycle if you do
[00:39:00] Mikkel: So just a practical question, since we're talking this expansion referral area, right, and saying an SDR should conduct a lot of discovery and kind of tee up an opportunity for. The salesperson to basically jump in, jump in and close, right? The account manager will get a commission. Should, should the CSM also get any kind of commission?
[00:39:19] How do, how do you see that actually?
[00:39:21] Dan: Yeah, it's a, you have to pay both of them because if you're going to ask CSMs to look for opportunities and to do all the work that makes it possible to sell more to that customer, you have to pay them. And in fact, I, I love the fact that we have to pay them for that because it reinforces with the leadership of the company.
[00:39:42] That this is a revenue driving organization. This is not a cost center. And the minute you start getting treated as a cost center, you might as well go to a new company because you're going to get laid off sooner or later. It has to be tied to revenue. Therefore we have to have CSMs on a comp plan. Now it's not an AE comp plan.
[00:40:00] It's not 50 50. It's an 80 20 kind of plan. It's often paid on a group target, a team target, because CSMs will work harder to not let their team down than they will to make more money for themselves, which is why they're not salespeople and in most cases have chosen not to be salespeople. So, and by the way, when someone pushes back and says, well, I don't like double comping, CFOs will always say this.
[00:40:25] I don't like to double comp. I don't want a comp. com manager and the CSM. My response is you do this on the front end because you have a salesperson and a solution consultant or whatever we call them. What does the SC get paid for? For closed deals. Does he ever close any deals? No, the AE is the only one who ever closes deals, but they both get comped for closed deals, right?
[00:40:47] Same thing. We have to have the same attitude, I think, with existing customers where the account manager is on a 50 50, um, leverage plan with a quota that they have to hit and the CSMs are in support of that. Uh, comp manager closing deals whatever way they can, and they should also be comped. But an 80 20 plan, the comp, especially if you do it on a team, this is not a greenfield.
[00:41:11] You're, you're never going to get 350 percent of your quota, right? The highest you'll ever get is maybe 120 or 130. So they're on an 80 20 plan. The most they could ever do is 120%. It's not very expensive is my point. So I think I can talk most CFOs into the idea that. You need to comp both the account manager and the CSM, and it won't cost you that much money.
[00:41:34] Toni: Super practical question on top of that. would you do it on net retention rate or on upsell or on, you know, gross churn? What, what is it, you know, what would you comp the CSMs on?
[00:41:44] Dan: Yeah, yeah, I think the primary measurement of customer success is net revenue retention. Because every single thing a CSM does should lead to the likelihood, higher likelihood of the customer renewing and a higher likelihood of them buying more. And neither of those things will happen if the CSM doesn't do their job really well.
[00:42:04] So net revenue retention is the core in their comp plan. But I think one of the things we've done at Gainsight is we alternately include some more MBO like things in their comp, like number of CSQLs, number of referenceable customers, number of customers willing to do, uh, testimonials or ROI studies or speaking engagements or whatever those things are, right?
[00:42:29] There's a whole bunch of things. That we get out of successful customers and the CSM is responsible for those. So I think we can, we can comp them on some of those things. CSQL is being one of the primary ones that you could say half of your, uh, leveraged comp is going to be on NRR every single quarter.
[00:42:49] The other half we're going to rotate with some of these other metrics and measurements that we want you guys
[00:42:57] Mikkel: There's one thing I kind of want to circle a bit back to. We talked about, you know, the case of Discovery with the CSMs and, you know, a customer who wants 10 more licenses, right? Sometimes your ability to expand and sell more is also predicated on how you build your offering in the first place. That means how you structure your pricing and packaging and even what new commercial features.
[00:43:19] needs to be built. How do you see CS playing a part in, in that side? Because it gets very almost strategic, right? But they're so close to the customer. How, how do the, some of the best businesses solve this balance of making sure they have new product on, on the shelf?
[00:43:35] Dan: to go achieve. Yeah. It's a really, really important question. Um, Another thing that I often would say to my CSMs, I know what you do all day, every day. I know how hard that is, but if you go through a week and you haven't done something that makes our product better, then you have not done your job.
[00:43:57] Because our product is the only thing that's actually scalable and we only win in the market if our product is the best product. So you have to be constantly thinking about What is working for the customer? What do they wish it could do? What are they trying to make it do that it can't do? And we have to be really diligent about flowing that information back to the product team to improve the product.
[00:44:20] I also need to use my leverage as the voice of the customer to put pressure on the product team to improve the life of my customers. For example, The product team is always getting pressure from sales. You got to build these new features. Our competition is killing us. We're all going to starve to death, right?
[00:44:42] Well, at some point as a VP of customer success, I need to have that same kind of leverage with product. Like our performance is killing us. I've got at least 10 customers threatening to churn because the performance is not good enough. If we don't improve that. We're going to have churn problems and we're all going to starve to death.
[00:45:00] Right? So the same message that comes from sales, except now the product team has two constituents. They have to, uh, you know, please both the sales team and the customer success team. In other words, both prospects and customers. So you have to figure out as a company or as an organization, what is the best way to bring product information back.
[00:45:27] To the product team, by the way, just a little aside. I, I often paint this picture of what I call the golden triangle, which is three organizations, customer success, sales, and product. Those three organizations have to be highly collaborative, but they also have to do this a lot. They have to bump heads. If you have a, I tell CEOs, if you hire the right customer success leader, they're going to be very disruptive.
[00:45:56] In the company, it's going to cause you a little bit of pain because they're going to tick off the sales team and they're going to tick off the product team, but you're going to be a better company for it because you want a VP of customer success who's pounding on the sales VP saying, Hey, stop setting expectations wrong.
[00:46:12] Start demoing in the product, the way it actually works, transfer knowledge to us, set customer expectations and stop overselling. You can't do any of those things anymore. You might've gotten away with it before, but. I'm going to stand in your way because we have to get our customers to renew their contracts or everybody loses.
[00:46:31] Because it costs more to sign a new customer for one year than what you get paid for that first year. If they don't renew that first contract, you've lost money. On that deal. And you flushed all the resources that were put into that customer down the toilet. They're all gone. So you need this idea of what I call healthy tension and a good CEO knows this.
[00:46:53] Their main job in life is managing healthy tension. So it doesn't get unhealthy, but they don't want every like, here's the example. I always use so that everyone gets this. If I'm a CEO and let's say one of you is a VP of sales and the other is VP of marketing, and I go, you, I go to you, Mikkel, you're the VP of sales.
[00:47:11] How's it going with marketing? Well, that's the best marketing team I've ever seen. I have no complaints at all. There's nothing I want or need from them that I'm not getting. It's unbelievable. My next statement to you is you're fired. Because if you, if you are demanding more from the marketing team, that's your problem.
[00:47:33] Like, don't you want more leads? Don't you want better leads? Don't you want warmer leads? Don't you want bigger leads? You can never say everything's perfect with marketing. That's. We want marketing and sales to be doing this like, and marketing's pushback is I'm giving you a bunch of leads. You're throwing them away with bad salespeople.
[00:47:51] Right. And you want this back and forth, not, not in a way that ends up in a fist fight, but in a healthy way that says, Hey, I'll do more for you, but you gotta, you gotta take better advantage of the leads I'm passing over. And this is just the same thing for sales, customer success product. I think you want them, you know, with some tension saying, Hey.
[00:48:12] You know, sales can say, Hey, I'm going to sign this customer. Customer success says, I don't think you should because we tried that particular use case before and it hasn't worked very well. Okay. The answer is, let's take it out of the pipeline. The answer is how do we make them successful? And maybe the answer is, okay, sales, you can sell that customer and we'll make them successful, but you can't sell them our 5, 000 onboarding package.
[00:48:37] You have to sell them our 50, 000 onboarding package. And if you do that, then I can make them successful. In other words, I'm asking sales to be better at their job. And they're going to ask me to be better at our job too. Like that's a tough customer, but we got to take it on and see if we can make it successful because if we do that, we've increased our TAM and everybody wins.
[00:48:59] Toni: Dan, I think we could continue this conversation for another hour or so, but I think we need to start cutting this short here, actually. So Dan, first of all, thanks for taking out the time. Um, I think what we talked about today was extremely insightful. A bunch of people listening. Uh, so first of all, we actually discovered, you know, how is PLG going to shape the whole CS side and, and the customer success landscape with it.
[00:49:21] Some really valuable insights there. We talked about the tension, the handover, the, where does it start? Where does it stop between CS and AM? Extremely insightful there. We then talked about how CSM can actually evolve and, and push for upsells. Right. And I think here we really understood how demanding the CSM job is, right?
[00:49:42] It's not only onboarding. It's not only this it's, well, you need to drive upsell on, by the way. You also need to make the product better every day because otherwise you're also fired. So there's a bunch of things coming together and then wrapping the whole thing up by really talking about the, the strategic importance of the, uh, of a strong VP CS in the ecosystem of the organization, really kind of bumping, bumping hats, creating tension.
[00:50:05] But ultimately building a much stronger and more, more sophisticated organization.
[00:50:09] Dan: Right. Yeah. I mean, I think I made it sound like I fire people a lot. I really don't fire that many people, but I did ask a lot. You have to be demanding, right? If you ever work for a boss who's not demanding, then, then you're not going to get better as an employee.
[00:50:22] Mikkel: Absolutely. Right. I'm also constantly demanding that Toni, he go and close more deals and, you know, nail some strategic items. We, I mean, there's a lot of, well, Mikkel
[00:50:30] Toni: had better leads, you know,
[00:50:32] Dan: That's exactly right.
[00:50:34] Mikkel: that's the dynamic you want. Dan, thanks so much for joining. It's been a wonderful conversation. Really appreciate it. Uh, to have an expert on the CS side, you know, like you said, Salesforce is 90%. You know, we can, like we say, sometimes we need to fact check ourselves, but in that ballpark, uh, so, so super great to have you on and, uh, dive deeper into this.
[00:50:54] Uh, really appreciate
[00:50:55] Toni: it.
[00:50:55] Dan: Yeah. My pleasure. I love the fact that you guys are focused on revenue and wanted to talk customer success because it is still one of the hardest things for us to overcome is this idea that we're not a cost center or a revenue driving organization. And this conversation really helps us go down that path.
[00:51:12] Toni: Wonderful. Thank you, Dan. Thank you. Everyone's listening. Thanks Mikkel. Bye.
[00:51:16] Have a good one.