If you think across-the-board cuts are the only solution to market problems, you’re going to have a rough time in the coming months.
Navigating economic uncertainty successfully is about knowing precisely where to cut and where to invest, with the goal of reducing risk and uncovering new growth opportunities.
Fortunately, most SaaS companies have an entire department uniquely positioned to accomplish both of those goals. As this article will show, if we examine the market downturns of the past, the evolution of CS as a function, and emerging industry trends, it is abundantly clear that Customer Success is where every company and C-Suite needs to be investing to make it through this economic environment successfully.
The market is in a rough spot
We are experiencing the third-largest Nasdaq drawdown in 20 years, currently at -28%. We are seeing layoffs happening left, right, and center—since the start of the pandemic, over 1,000 startups have laid off more than 160,000 people, and these numbers continue to climb.
And it’s not just startups—large tech companies like Uber, Google, Shopify, and Salesforce are reducing headcount, cutting travel, and taking a number of initiatives to reduce spending. As of me writing this article, more than 60% of all software companies are trading for below their pre-pandemic stock prices, and the crossover hedge funds largely responsible for minting unicorns, no longer have the capacity to invest.
In short, the market is bleak. But there is GOOD news…
SaaS companies are uniquely positioned to survive recessions
Going into the 2008 financial crisis, there were 17 public SaaS companies. Every single one survived and rebounded stronger than before. While over 1.8 million businesses were forced to close between 2008 and 2010 and nearly every major tech company suffered immensely in their stock price, SaaS proved resilient in the long term. Even at the earliest stages, small companies became giants. Just look at Slack, Uber, Zoom, Square, and Asana, all of which were founded between 2008 and 2011.
During the same period of time, we also saw companies who prioritized customer experience gain a 6.1% return, while the S&P 500 Index dropped 16% and those who didn’t invest in customer experience sustain a loss of 57%. It has never been more clear that customer-centric companies are much more likely to survive and even thrive during market downturns like the one we are in now.
To be clear though, simply being a customer-centric SaaS company is not going to make this downturn easy for you. Your growth rate will decrease, your upsells and expansions will decrease, your customer churn and contraction will increase, and you will face a wide variety of challenges. However, in the same way that you want to be as healthy as possible so when you’re sick you have a better chance of a swift recovery, putting your customers first and acting in a customer-centric manner will help to soften the blow of the downturn and make it easier to weather.
Winning companies do one thing better than anyone else during market downturns: retain customers.
The companies that win put customer retention as their number one priority. They recalibrate their strategies and resources towards ensuring the loss of as few customers as possible.
This shift from new sales to retention is critical for a few reasons. First, budgets are being frozen left, right, and center. Companies are looking to reduce their spend across the board, which means they are not buying new software, and your sales team is going to have a much harder time.
Second, you should think of every single one of your customers as “at risk” because during a downturn, every company evaluates its tech stack and looks to cut as much as possible. You need to do everything possible to ensure that your product is on the “do not cut” list if you are going to survive with your ARR intact. And third, net revenue retention (NRR) has become the most important factor in determining company valuations, and when customers churn, the subsequent impact on NRR can be massive.
We’re in a much better spot than we were in 2008
In 2008, “Customer Success” was barely a whisper. It existed in very few organizations, it was highly reactive, there were no purpose-built CS platforms, customer data was sparse, there were no industry-wide best practices, no CS leaders in the C-suite, and little-to-no executive buy-in.
Now, 14 years later, Customer Success has a critical seat in the boardroom and companies have Chief Customer Officers in place. We have in-depth customer data to work with, proven industry-wide best practices, robust CS platforms, and extremely mature CS teams who are driving phenomenal results for both their customers and their companies.
Customer Success is perfectly set up to lead the way out of the market downturn, but there are challenges
As the owners of net revenue retention, upsell/expansion, and customer experience, there is no team or department better suited to lead the way out of the market downturn. CS leaders own the most critical metrics for company survival and long term success, so it’s your turn to step up to the plate in a big way.
They have their work cut out for them though. Across the board, CS leaders I speak with are facing the same 5 challenges:
1. Headcount & Budget - Layoffs are rampant, hiring freezes are happening across the board, and even growing companies have started to limit new headcount. Budgets are also being reduced, while growth and retention targets are staying the same or increasing. You need to find new ways to increase efficiency and do more with less, as soon as possible.
2. Data - Data is spread out across multiple systems and CS leaders don’t have the information they need at their fingertips. CSMs are not all capturing the same level of information, and these challenges are making it incredibly difficult to forecast metrics, implement automation, and streamline reporting.
3. Best Practices - Leaders are primarily relying on their own past experiences or conversations with mentors and peers to determine the best path forward. It’s extremely difficult for them to validate which strategies are working and which ones aren’t due to a lack of data and insights.
4. Admin & Tooling - Many CS organizations still don’t have a dedicated CS operations resource. Their tickets go in a queue to RevOps or SalesOps, which means they’re often waiting weeks or even months to make simple, yet critical changes to health scores, templates, playbooks, and customer journeys.
5. Quantifying & Attributing Impact - Despite all the data we have available today, it’s still a challenge to drill into specific plays and actions to determine how effectively they’re working, and what exactly to replicate and scale.
The good news though, is that despite these challenges, Customer Success is dominating. CS is the number one topic in every boardroom now, NRR (owned by CS) is the most important metric in determining a company’s valuation, and CS continues to be one of the fastest-growing professions, alongside Data Scientist and AI/ML Engineer.
There are clear next steps for CS leaders
CS leaders are in the best possible position to lead the way through the market downturn, but they have their work cut out for them. They need to move quickly and be extremely decisive. Some key next steps that come to mind for me include:
Pushing for buy-in for headcount and tooling. If NRR is truly the most important metric at your company, then you should be first in line to get new headcount and tooling.
Evaluating your tech stack. Your data powers the story you need to tell to your customers, your board, and your market. Without the right data, you are operating without a foundation, so this needs to be a high priority.
Segmenting and prioritizing your customers QUICKLY. You need to know which customers have the highest upsell potential, so that your CS (and/or AM) team can focus on them immediately to drive revenue. You need to know which customers are struggling with adoption, who are directly in your ICP so that CS can take action immediately to drive adoption. You also need to know which customers are about to churn so that you can stop wasting time on them. It’s critical that you know which customers fall into each of these categories at all times so that you can maximize your efficiency and subsequent results.
Collaborating cross-functionally to upsell and retain customers with precision. Product Managers need to know when there is low product adoption. Account Managers need to know when upsell opportunities arise. Leadership needs to know when an at-risk customer requires their intervention to prevent churn. Part of CS leading the way out of the downturn involves CS being the central hub within the organization bringing teams together to drive results.
Analyzing your top performers. You need to very quickly understand what is making your top performers successful so that you can replicate and scale what they are doing across your organization.
Engaging with the broader CS community. There are hundreds, possibly thousands of other CS leaders going through the exact same challenges that you are. If everyone is trying to solve their issues in a silo, nobody wins. By reaching out to offer your help and request the help of others, we can work together to succeed as an industry and emerge on the other side as even stronger leaders and companies.
Exciting times are up ahead for Customer Success
We have come so far over the last 10 years, and I can only imagine where we’re going to be by the end of this decade.
We’re seeing more CS leaders becoming CCOs, and at many organizations CS is overtaking Sales in terms of influence, budget, and headcount. CS teams are increasingly leveraging AI/ML to prioritize tasks, build data-driven workflows, and gain powerful insights. Hiring is also starting to become easier as the popularity of CS as a career increases, and we continue to mature as an industry when it comes to the documentation and proliferation of proven best practices.
Things are very scary in the market right now. But if you look at what we have accomplished in the last few years (including learning how to build companies remotely and succeed during a pandemic) and how quickly we have matured as an industry, there is no doubt in my mind that Customer Success can lead companies out of whatever comes next.