Build long-term relationships with strategic customer success

This article is based on a presentation given by Chad at our Customer Success Festival in Boston 2023. Catch up on this presentation, and others, using our OnDemand service.

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Embarking on the path to elevate Customer Success Managers (CSMs) from operational supporters to strategic partners marks a pivotal shift in how businesses approach customer engagement and long-term success.

I'm Chad Horenfeldt, VP of Customer Experience at PathFactory. My journey in CS, including roles at Meta, has equipped me with a profound understanding of this transformation.

This article aims to share the insights and strategies I've developed for:

Transitioning CSMs into strategic roles
Addressing the challenge of customer churn with strategic foresight
Aligning CSM efforts with broader business outcomes
Cultivating a deep understanding of customers' businesses
Balancing customer-centric approaches with company-wide objectives

The year of churn

As customer success develops and customer complexities evolve, I find myself reflecting on the current landscape, especially concerning customer churn.

Contrary to the popular narrative of 2023 being a year of efficient growth, my observations and experiences paint a different picture — one dominated by an alarming rate of churn. This phenomenon isn't just about losing customers; it's about the unexpected loss, the kind that catches you off guard and leaves a lasting impact.

During my time leading the customer success division at Meta, and through conversations with numerous companies, the recurring theme has been the struggle against surprise churn.

In data compiled by the Altimeter Group, which analyzed 60 SaaS companies, we've seen a worrying trend. Net dollar retention rates have dipped from an average of 120% down to 111% in just a few quarters. This decline isn't just a number — it's a direct reflection of the challenges we face in maintaining and growing customer relationships.

The repercussions of this widespread churn are felt deeply within the customer success sector. As companies grapple with declining retention, customer success teams often bear the brunt of the blame. This has led to significant layoffs within the industry, myself included among those affected. High-profile companies such as Red Hat, Salesforce, Microsoft, and even Twilio, which eliminated its entire CS team, exemplify the drastic measures being taken.

Transforming CSMs into strategic partners

The essence of this article revolves around transformation — shifting the role of CSMs from operational to strategic. This transformation is crucial not only for addressing the immediate challenges of churn but also for ensuring the long-term success and growth of our organizations.

As CSMs, it's vital that we understand the path ahead to increase our value and better serve our customers. Adopting a strategic mindset, honing our skills, and aligning closely with our customers' goals are just the beginning.

For CS leaders and executives, the task is to foster an environment that supports this transformation, equipping our teams with the tools and knowledge needed to succeed.

Whether you’re a CSM seeking to enhance your role or a leader aiming to bolster your team's effectiveness, the journey toward strategic customer success is both critical and rewarding. By embracing this shift, we can not only mitigate the challenges of churn but also unlock new opportunities for growth and advancement within our organizations.

Beyond product expertise: Refocusing CSM priorities

Imagine we're on a game show, let's say "Family Feud," where I ask, "What does a typical CSM focus on?" The most common responses might include renewals, retention, and cross-selling.

It's widely recognized that a foundational aspect of a CSM's role is to become a product expert. Indeed, knowing your product inside and out is crucial, especially for new CSMs or when leading a team as a CS leader. The initial focus tends to be on product mastery, from onboarding to keeping up with the latest features and updates.

While building deep product expertise is essential, focusing too heavily on product details can unintentionally lead customers to view us as merely support staff rather than strategic advisors. When seen as just an ancillary service resource vs. a trusted partner who understands their bigger-picture needs, our ability to add value diminishes. We should take care not to let an imbalance toward product specialization eclipse the comprehensive, consultative approach that makes CSMs indispensable.

Consider the aftermath of a quarterly business review (QBR) or a significant product update. If we bombard our clients with an exhaustive list of suggestions or features, we risk overwhelming them. This is particularly counterproductive given the increasing pressures businesses face today, including reduced budgets and smaller teams.

Our enthusiasm for our product can sometimes lead us to prioritize initiatives that, while exciting, may not align with our customers' immediate value drivers. For instance, proposing a client to beta-test a new feature might seem like a great idea. However, we must ask ourselves whether it truly aids in achieving the value necessary for renewal.

The key is to balance our product expertise with a keen understanding of our customers' business objectives. Instead of overwhelming them with information or features, our role is to streamline and focus on what will genuinely drive value and support their success. This shift from a product-centric approach to a more strategic partnership is crucial in elevating our role as CSMs and fostering long-term customer relationships.

Beyond adoption: Aligning usage with value

A core focus for many CSMs is driving product adoption. It's a logical goal: monitoring usage metrics and encouraging increased interaction with our product seems like a direct path to demonstrating value.

However, it's crucial to challenge this assumption. Simply because a customer frequently uses various features does not inherently translate to them deriving significant value from the product.

This distinction introduces the concept of the "watermelon effect" where, akin to a watermelon appearing green on the outside but red on the inside, a customer's health score might look positive at a glance, yet underlying issues suggest a different reality. This discrepancy is often a precursor to surprise churn.

An often overlooked aspect in the pursuit of adoption is the decision-maker's perspective. While CSMs might be inclined to showcase usage statistics and feature engagement during QBRs, such data may not resonate with the decision-makers. As someone who has been on the buying side of software solutions, I can attest that the sheer volume of logins or the breadth of feature usage is secondary. What truly matters is how the product aligns with and advances the company's strategic objectives.

There's a tendency among CSMs to focus interactions on their primary contact or champion within a client organization. While nurturing this relationship is easier and can feel more productive, it's a strategy that risks overlooking the decision maker's influence. Engagement metrics, while useful, can distract from the critical conversations about business outcomes and value realization.

Ignoring the decision maker can lead to disengagement, as evidenced when they turn off their video during a QBR, signaling a disconnect between the discussion's focus and what they find valuable. This behavior underscores the need for CSMs to align their strategies more closely with the business goals of their clients, rather than solely concentrating on product usage.

The challenge, then, is to bridge this gap. It involves shifting our approach from merely reporting on adoption metrics to facilitating discussions that connect product usage with tangible business outcomes. Engaging decision makers effectively means speaking their language — focusing on how the product supports their strategic goals, solves their unique challenges, and drives their business forward.

By prioritizing these considerations, CSMs can ensure that their efforts not only boost adoption but also underscore the intrinsic value of their product in meeting the overarching needs of their clients. This strategic alignment is essential for fostering deeper, more meaningful partnerships with customers and ensuring their long-term success and satisfaction.

Rethinking customer centricity in customer success

Being customer-centric is often heralded as the bedrock of customer success. This philosophy is characterized by a willingness to go above and beyond for our customers, whether it's responding to late-night requests or pushing for feature requests to be prioritized on the development roadmap. However, this approach, while noble, demands a deeper examination.

A fascinating study by Greg Daines challenges a prevalent assumption in our industry — that customer satisfaction, as measured by net promoter score (NPS), directly correlates with customer loyalty and retention.

Surprisingly, Daines found no significant link between NPS scores and the duration of a customer's relationship with a company. This insight suggests that our efforts to boost NPS scores might not directly influence customer retention as previously thought.

This revelation becomes particularly poignant when considering the silent segment of our audience — those who do not respond to NPS surveys. Their shorter tenure with our services points to a critical oversight in how we measure and interpret customer satisfaction.

In my extensive experience in customer success, I've seen firsthand the emphasis placed on being customer-centric. While ensuring customer satisfaction is crucial, an exclusive focus on this can obscure other vital components of our role. For instance, high retention rates within your portfolio are commendable, yet they do not guarantee personal job security if the broader team or company is not thriving.

Moreover, the intense pressure to deliver exceptional customer experiences can sometimes lead to internal friction. Advocating passionately for a customer's needs might inadvertently foster an "us vs. them" mentality within the company, especially when interacting with product teams or sales. Such dynamics, although stemming from a place of wanting to support our customers, can ultimately hinder rather than help our collective goals.

My journey through the evolution of customer success, from startups to their acquisitions by giants like Oracle and Meta, has shown me the importance of a balanced approach. While customer centricity remains a cornerstone, it's equally important to nurture internal collaboration and understand the broader business context.

Fostering a culture that transcends the "us vs. them" mindset is essential. Instead of placing blame or demanding unfeasible features, effective communication and understanding the constraints and goals of our colleagues across departments can lead to more innovative solutions for our customers.

True customer success is not solely about being customer-centric in isolation. It involves integrating this approach with a comprehensive understanding of our company's strategic objectives and working collaboratively across teams. This balanced strategy not only enhances our ability to serve our customers effectively but also contributes to the resilience and success of our organization as a whole.

The blueprint for becoming a strategic CSM

In the realm of customer success, transitioning from a typical CSM to a strategic CSM requires a deep dive into the nuances of your customers' businesses. The goal is to move beyond product expertise to become an indispensable partner in their success.

To achieve this, I rely on a comprehensive framework I call the "Three Cs":

Company
Customer
Challenge

Understanding the three Cs

1. Company: A strategic CSM invests time in understanding everything about their customer's business. This includes the products or services they offer, their revenue generation models, key competitors, and the overall industry landscape. The more you know about the company you're servicing, the better equipped you are to provide tailored advice and solutions that align with their specific needs and goals.

2. Customer: This focuses on your customer's customers — the end-users of their products or services. Grasping who these individuals or entities are, why they choose your customer's offerings, and the markets your customer is targeting or expanding into is crucial. Such knowledge allows you to speak the same language as your customer, using terminology and references that resonate with their business model and market positioning.

3. Challenge: Here, the emphasis shifts from product-related issues to the broader business challenges your customer faces. This could range from staffing changes and failed product launches to shifts in market dynamics. Understanding these challenges helps you to better support your customers by aligning your solutions with their immediate and strategic needs.

The beauty of our digital age is the abundance of information available at our fingertips. Tools like Gemini, ChatGPT, Google News, G2, and Glassdoor offer a wealth of data on companies, industries, and market trends. Engaging with these resources can provide you with a nuanced understanding of your customer's environment, challenges, and opportunities.

A strategic CSM's expertise extends beyond their own product to encompass the entire ecosystem in which their customer operates. This includes a thorough knowledge of the customer's industry, key trends, challenges, and the technology landscape. Understanding how your product fits within your customer's tech stack and integrates with other systems is essential for providing comprehensive, strategic support.

Identifying and understanding the various stakeholders within your customer's organization is another critical aspect of strategic customer success. This involves knowing not just the decision-makers but also influencers across different departments and levels.

Developing account plans that detail the strength of your relationship with each stakeholder and their influence within the organization enables a more targeted and effective engagement strategy.

You have to get to know your customers better than they know themselves. While aspirational, this goal underscores the depth of understanding and commitment required to truly make a difference as a strategic CSM. By adopting the “Three Cs framework” and dedicating yourself to a deep understanding of your customers' businesses, challenges, and the broader ecosystem, you set the stage for a level of engagement and success that transcends traditional customer success roles.

Focusing on customer business outcomes

As a strategic CSM, the emphasis shifts significantly towards understanding and driving our customers' business outcomes. Recognizing what these outcomes are, why our product was chosen to achieve them, and how they align with broader business goals is crucial.

This understanding forms the foundation of a relationship that transcends traditional customer service, moving towards a partnership that genuinely impacts the customer's success.

Business outcomes stem from the primary reasons a customer chooses our product or service. These could range from increasing revenue and conversion rates to enhancing the employee experience. These outcomes vary across industries and roles but are unified by their focus on achieving specific, measurable results.

A common pitfall is confusing these outcomes with more generic goals. Instead, a strategic approach involves first identifying these outcomes, then establishing clear success criteria. A simple formula to articulate this is "increase X by Y by Z timeframe," providing a tangible target for our efforts.

Often, customers may not have a clear idea of their success metrics. This is where we, as strategic CSMs, can bring immense value by offering examples and benchmarks from similar customers. Providing these insights not only helps in setting realistic expectations but also offers social proof, encouraging customers to define what success looks like for them.

Once business outcomes and success criteria are established, the focus can shift to setting specific goals. These are the strategies or tactics deployed to achieve the desired outcomes. However, understanding the distinction and sequence — outcomes, success criteria, then goals — is vital for a structured approach to customer success.

To operationalize this approach, I advocate for creating a playbook and conducting workshops with your team. This playbook should detail potential business outcomes, corresponding success criteria, and the variety of strategies that can be employed to meet these objectives. Additionally, incorporating customer examples can further enrich this resource, providing clear, relatable benchmarks for success.

Strategic CSMs excel in using discovery techniques not just to gather information but to challenge and engage customers in meaningful ways. Questions that provoke thought, such as what needs to be removed from a customer's whiteboard in the next 60 days, can uncover deeper insights into their priorities and challenges.

In communicating with customers, especially during QBRs, it's essential to tailor insights and updates to align with their business outcomes. This tailored approach ensures that the information shared is relevant and valuable, fostering deeper engagement, particularly with decision-makers.

Ensuring decision-makers are informed and engaged is critical. If they cannot attend a QBR, providing a concise summary that highlights progress, challenges, and adjustments tailored to their business outcomes can make a significant difference. This targeted communication demonstrates a deep understanding of their business and a commitment to their success.

Transitioning to a strategic CSM involves a deep dive into understanding customer business outcomes, employing discovery to uncover real needs, and tailoring communications to align with these outcomes. By adopting this approach, CSMs can elevate their role from service providers to essential partners in their customers' success.

Crafting a joint success plan and fostering a collaborative culture

To truly embody the role of a strategic CSM, it extends beyond identifying customer business outcomes and success criteria. An integral part of this strategic approach involves developing a joint success plan with our clients.

Documenting these business outcomes and tracking progress against them are essential steps in demonstrating value and fostering trust with our customers. It's about showing them the milestones we've reached together and the tangible benefits they've gained from our partnership.

Being customer-centric is crucial, but equally important is advancing the broader objectives of our company. At Meta, I emphasized to my team the importance of acting as catalysts for change within our organization. This entails not only celebrating our successes with customers but also addressing and learning from our challenges.

When we achieve success, sharing these stories across the organization can inspire others and highlight effective strategies that can be replicated. Conversely, encountering issues, such as receiving poorly fitting customers, should prompt constructive discussions rather than finger-pointing. Organizing retrospectives to understand what went wrong and how to prevent similar issues in the future is a proactive step towards improvement.

Updating CRM systems and customer success platforms, despite being tedious, plays a critical role in forecasting renewals and identifying trends. These activities are not just administrative tasks but are pivotal in gathering intelligence that can guide the entire organization.

Seeking insights from fellow CSMs and the sales team can uncover common challenges or emerging needs among our customers and prospects. This collective knowledge can then form the basis of a compelling business case to prioritize certain features or initiatives, emphasizing the potential revenue impact or cost savings.

A strategic CSM also exemplifies empathy, not just towards customers but within their team and across departments. Understanding that every function has its constraints and challenges is vital. The goal is to foster a culture of mutual respect and collaboration, where the default assumption is that everyone is working towards the same objectives.

Criticizing colleagues in public forums or escalating issues in a way that undermines trust can have detrimental effects on team dynamics and personal reputation. Instead, strategic CSMs seek to understand different perspectives and work collectively towards solutions that benefit both customers and the company.

The journey to becoming a strategic CSM is multifaceted, involving deep customer engagement, internal collaboration, and a relentless focus on achieving tangible business outcomes. By developing joint success plans, sharing successes, learning from challenges, and fostering a culture of empathy and collaboration, CSMs can drive significant value for their customers and their organizations.

This holistic approach not only enhances customer satisfaction and retention but also positions CSMs as invaluable assets within their companies, capable of driving change and contributing to overall success.

The evolution to a strategic CSM

The journey from a typical CSM to a strategic CSM involves a fundamental shift in focus and mindset. This transformation is not just about enhancing our skills but also about broadening our impact — both with our customers and within our organization. Let's recap the key shifts that embody this evolution:

1. Beyond product expertise

Typical focus: Mastery of the product.
Strategic shift: Deep understanding of your customer's business.

Becoming an expert on your customer's business is as crucial as knowing your product. It's about understanding their industry, challenges, and goals. This knowledge enables you to offer solutions that are truly aligned with their needs, thereby fostering a deeper partnership.

2. Driving business outcomes

Typical focus: Pushing for product adoption.
Strategic shift: Achieving tangible business outcomes.

The ultimate measure of success for our customers isn't how extensively they use our product but whether it helps them achieve their specific business outcomes. Our role is to identify these outcomes, set clear success criteria, and guide our customers towards realizing these goals.

3. Customer and company centricity

Typical focus: Solely on customer needs.
Strategic shift: Balancing customer needs with company goals.

While being customer-centric remains a pillar of customer success, a strategic CSM also considers the broader implications for their company. This involves contributing to the organization's growth, sharing insights across teams, and helping to shape product and strategy based on customer feedback.

Being a strategic CSM transcends the traditional boundaries of customer service. It's about building trust and delivering value not just to our customers but within our organization as well. This dual focus challenges us to:

Deepen our understanding of our customers' businesses and industries.
Define and drive towards meaningful business outcomes.
Foster a culture of empathy and collaboration, ensuring our actions benefit both our customers and our company.

The call to action for aspiring strategic CSMs is to reflect on how we can enhance our strategic impact. Consider:

How can you better understand your customer's business and industry?
What steps can you take to more effectively define and achieve business outcomes?
How can you contribute to your company's success while remaining deeply customer-centric?

Becoming a strategic CSM is a journey of continuous learning and adaptation. It's about leveraging our unique position to not only champion our customers' success but also drive meaningful growth and innovation within our organization. What will you do to become a more strategic Customer Success professional?