In Conversation With Pieter Kemps
Pieter Kemps: Arda, what are the main characteristics and benefits of the SaaS business model?
Arda Koterin: SaaS has completely transformed the way technology is delivered to the market. This model removes barriers for both vendors and customers, allowing for greater scalability, which is an important factor when it comes to growing a SaaS business.
It is also an extremely fast paced business model, with lower barriers to entry, easier adoption, and quicker sales cycles that allow businesses to understand and reiterate their products more quickly.
The nature of the SaaS business model also allows you to efficiently expand your client base to different industries.
Pieter: Great points. Just to add on to that, SaaS has a very high quality of revenue because it is predictable, recurring, and has higher gross margins.
Having said that, subscription businesses are not without risk. There are no long-term lock-ins through water-tight contracts. As the Amazon CTO used to say when speaking about AWS: "We have to earn the trust of our customers every single hour." Why? Because customers can leave at any given hour. Even though the revenue may be recurring, it stops the moment the customer leaves.
So, what does that mean for how you run a SaaS business?
Arda: As you mentioned, the idea of recurring revenue is often like a dream. But like dreams, it can easily turn into a nightmare if you start getting a “leaky bucket” and subsequently losing customers. The big enemy of a SaaS business? Churn! Therefore, the focus should be on “negative churn”, which means expanding revenue from your existing customer base.
This will require you to have a strong focus on customers. If you fail to do so, you’ll not only lose your existing customers, but also lose prospective customers if you prove unable to meet your customer’s expectations. Customers talk! All of this requires more than just your usual reactive "customer support". It has to be proactive.
Pieter: Yes, churn is the big enemy here. So in the grand scheme of things, what you would want to focus on is the net revenue. This means that even if you lose a customer or two, as long as your existing customer base starts spending more, the installed base will keep growing with time.
Customer success plays an instrumental role in ensuring this. It’s a fairly new function, so let’s talk about how it compares to legacy systems of customer support in traditional companies, where the customer calls them when they have a problem. How is customer success different?
Arda: The main difference is that customer support is reactive, while customer success is proactive. With customer support, it’s customers coming to you with a problem.
With customer success, you’re expected to be proactive, building a structure which allows you to have multiple touchpoints with your customer, helping them define success, and discover how you are going to help them achieve their goals. Customer success goes beyond just making sure that the customer still likes you and is feeling “emotionally happy”. It’s about helping your customer articulate what success is for them, mapping out the metrics, and helping them achieve that using your product.
Pieter: So how do you structure a customer success team? What are the different roles, and how do they work with the customer, as well as other business functions?
Arda: It’s important to take a holistic approach to customer success by structuring the teams based on the individual customer and their needs, but I can give a general idea of how it works.
Firstly, we have customer success managers who are in charge of customer health in the aspects of ensuring high product usage, paying attention to their objectives, and helping them to reach their goals.
On the other hand we have account executives. They handle the other functions we can expect from customer success such as renewals, upsells, negotiation, and high-level stakeholder management.
Once we start onboarding, the customer success managers are functioning almost as project managers, aligning all the different technical teams involved as they prepare for implementation. The customer success team is everyone turns to in order to understand what exactly the customer needs.
Then it gets to the scaling stage, where we start implementing more use cases by further understanding the customer’s goals, iterating on the current solution.
The final and most important step is monitoring on an ongoing basis. You should have a strong monitoring mechanism to understand your clients status because you cannot simply rely on being able to talk to them on a regular basis. Therefore you need a strong monitoring mechanism to track the signals to see where they are, and where they are headed. The key is to be proactive so that you can see the path in advance, and predict what needs to be done in order to bring them towards their goal.
In terms of working with other business functions, the alignment between sales and customer success is crucial. Thus, we ensure to document the entire process so that everyone can have a holistic understanding of the background from the customer success point of view.
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Co-Founder & Chief Customer Officer