Ten years ago, customer success leaders rarely presented in the boardroom. Now, it's arguably the most critical part of the board presentation.
Take it from Vas Natarajan, Partner at Accel, who sits on 14 boards and has led investments in Slack, Facebook, Segment, and more.
“The Customer Success leader’s part of the presentation is the convergence point at which I'm able to evaluate whether a company is being successful, whether or not we have product market fit, whether or not we have a viable company going forward.”
- Vas Natarajan, Accel
Here Vas gives his perspective on:
- What happens behind the scenes at board meetings
- The NRR vs. GRR debate
- Leveraging the “Customer-Led Growth flywheel” to show value to investors
- The stories (and data) CS needs to share with the board
Now that that’s been settled… if you’re wondering what matters right now and how to position yourself effectively, let’s dive in.
Boards in 2023 look an awful lot like 2022
Not to start with bad news, but we believe honesty is the best policy: according to Vas, the next 18 months are going to feel similar to the previous 18 months. That means that ongoing scrutiny around budgets will continue to loom and as CS leaders, we must be ready for it.
Right now, most boards are going through reviews of their company’s tech stack to find recurring costs to cut.
You should know, said Vas, the conversation will go something like this: the board will task the CIO or COO to look across all company tools, questioning whether workflows can be consolidated or feature redundancy eliminated.
As a CS leader, you’ll be expected to take part in this cost-cutting exercise. At the same time, you need to deeply understand your own platform to ensure it's not getting cut by your customers when their boards do the same.
As you set out on your quest to remain essential to customers, here are the big questions you need concrete answers to:
What are the main tools we sit next to in the tech stack?
- How are we different from those tools?
- Why are our workflows, analytics, productivity features superior?
What can’t be done if our solution didn’t exist?
- Why can’t these other tools perform these functions instead?
What proof do we have of our claims?
- Which customers can back this up with tangible impact stories?
- What data or competitive research do we have that shows our unique value?
- What sales data do we have to suggest people buy us over competitors for specific features or use cases?
With ongoing budget cuts, CS leaders hold a major stake in helping companies avoid their day of reckoning across customers.
The board cares about GRR over NRR and so should you
You’re not alone if your net revenue retention (NRR) is tanking. Right now, the median net dollar retention is 116% across the major SaaS companies, as taken on today’s publish date from Meritech Capital. A year ago, this median was 125-130%, with some brands hitting 150% NRR which is widely unheard of right now.
However, Vas said he prioritizes gross revenue retention (GRR) as a board leader. Here’s why:
👉Makes deeper issues visible: You can land one big expansion deal but lose a bunch of smaller deals and that can often mask your bigger underlying problems in the health of your business.
👉A better directional metric to product-market fit : That’s determined more closely by GRR because it’s about overall acquisition rather than expanding with a handful of customers (which may or may not be due to customization, steep discounting, and other non-scalable activities).
👉Helps fix the “leaky bucket” problem: If you can keep more deals, even at a lower ARR, they’re still there to retain and expand, instead of going out to reacquire again which is way more costly.
👉Better demonstrates the revenue value of CS: GRR shows whether you have the right coverage deployed to maintain your overall customer base, whether you’re demonstrating value through your partnership, and whether you’re truly driving customer success.
“Growth rate is positively and exponentially correlated with net revenue retention, while gross revenue retention is a “table stakes” benchmark – to have a shot at performance parity with your peers, GRR must be at least 90%.”
- SaaS Capital 2023 Insights Report
An important note on professional services: They should not be perceived as a line item to quickly cut. This part of CS, or when contracted out, often reduces burn that drops directly to the bottom line, monetizes salaries from being an expense to being compensated by customers, drives efficiency across other CS functions and increases your average deal size and ongoing contract value. In many ways, professional services is a revenue multiplier, especially for GRR, and something to strategically leverage to maintain the health of your customer base.
Overall, every account within your ICP matters and leadership needs to invest in the right programs, services and resources that help CS fill all the gaps. This could mean a customer community, hosting office hours, sending bi-weekly newsletters and videos, launching Admin courses, hiring professional services, hosting an adoption event… get creative with whatever budget you have.
Avoid going back out to replace that revenue at all costs. Focus on driving more value from customers to keep your GRR up.
Enter, the CLG Flywheel
Are you customer-funded or venture funded? Vas is a huge believer in Customer-Led Growth. It is truly here to stay in the boardroom.
Here’s how the flywheel goes in his words:
Get deeply embedded into a customer’s workflow: “I’m such a big fan of this because to me, this is the biggest indicator of a company's long term enduring success. Do we sell products that are indispensable to our customers? Do we solve core workflows? Do we avoid the consolidation of tools analysis? Are customers willing to support a net-new application because we help them perform their job better than any other tool.”
Become indispensable: “When they cannot live without us, does that translate to us being able to expand their usage over time? Are we then able to take that product and sell it to more and more constituents inside the organization? Or relatedly, can we absorb more and more of their workflows inside of the organization?”
Organic customer growth: “Now, this is where the flywheel really spins. Do our customers love us so much that we're able to generate free leads? Are we able to leverage strong word of mouth for inbound organic pipeline? Do we ultimately close more net new business from this?”
“It’s all about customer-funded as opposed to venture-funded now.”
- Vas Natarajan, Accel
Overall, if you're able to see this flywheel spin inside of your organization, you are building a really healthy, durable business.
As a leader, this is also in your best interest because it takes you off the hamster wheel of raising capital over and over and over again. You don't have to sell more of your business and see your stakes in the company dilute overtime because you’re customer-funded.
The kinds of stories (and data) CS needs to share with the board
Inspire confidence towards your durable customer growth strategy by deeply understanding your deals under review, clearly knowing your ‘golden accounts’—the accounts that have real product stickiness—and having a plan to reduce deal risk and build more golden accounts.
What percentage of deals have reached that golden moment, and what is your plan to get the rest there?
Your ‘golden moments’ should define product stickiness such as user logins, activity, feature adoption, data storage, integrations, etc. The more processes and critical data a customer is managing in your platform, the better.
Who are your key champions inside those businesses?
How do you target more champions like this across other customers whom we could potentially expand and grow into a Golden Account? Also, what is your plan to reduce champion risk through multi-threaded relations with these personas?
The right compensation matters.
Have a clear action plan around customer expansion. Are you cross-selling new products into the base? Are you expanding usage of your product to increase upsells and overages? Then, think about how compensation can accelerate this.
Be critical on deploying CS coverage and know your reasons why.
When you rationalize that CSMs are a paid asset, it makes sense that you can only attach so much to your customer base. Have a clear understanding of the accounts that you want to have CSMs allocated to. It’s about quality coverage, not quantity.
Proactive organizational planning builds resilience.
Know what your headcount will look like 18 months out. Where do you need to hire your CSMs? What should compensation look like? How do you plan to scale with only junior CSMs? What budget do you need for more management to coach junior team members up market?
What technology is needed to help you scale?
In addition to proactive people planning, have a clear plan around how you can increase customer coverage through tech-touch programs. What training can be moved to self-serve? What processes can be updated from manual to automated without impacting the customer experience?
How are you partnering with Product, Sales and other teams to drive customer outcomes?
The CS leader should be able to tell the CEO if he/she has the right lieutenants in each department to increase NRR and GRR, and be able to speak to how they work with other teams or not to deliver customer success.
What are your at-risk deals under review?
The best CS leaders know their at-risk deals and view it as an opportunity to win more (not a failure) by using the collective resources of the management team and Board. More on that below.
Vas Natarajan on CS leaders who embrace at-risk deal management:
“One big indicator of a strong CS leader is what percentage of deals (renewals) under review were saved last quarter. I keep track of that. So, if the prior quarter we had ten deals under review and the CS leader says we saved six because we activated our CEO and CTO, maybe even a board member, and overcame that lack of champion doubt. Perhaps they even went out to visit the customer, found new champions to advocate for their use of the product… that to me is what sets you apart in CS.”
Proactive CS Partnerships, using Product as an Example
Ultimately, with customer risk and growth, it’s all about the depth and richness of how the CS leader plans to go about it—and that means going beyond CS. To be successful and to not find yourself doing everyone’s job at once, CS leaders need the right collaboration and data across the business to influence the product roadmap, value-based marketing, pre-sales positioning, and other functions that reduce risk and grow healthy customers.
If there’s too many silos in a company’s success strategy, the board gets worried.
Vas’s litmus test for a unified success strategy: He asks two things:
- What were the biggest product gaps with customers or reasons for lost deals last quarter?
- Are those being put on the roadmap and if not, why?
When customer needs are multithreaded across the company’s outputs, they know they have excellence in a CS leader. This is the end state to succeeding for yourself, your team and the business.
The future of business is the Chief Customer Officer
Vas firmly believes that “the next evolution is to see the CCO become the ultimate leader to the CEO.”
That’s because Chief Customer Officers possess the unique ability to synthesize all of the critical data happening at the customer level, think holistically about driving value through all teams, and ultimately become the operating system for the entire go-to-market strategy.
Harness your power, seize this opportunity and know that you will look back on this time as a formidable moment in your career.
Get “The Best Deck for CS Leaders in the Boardroom” here 👇