Lincoln Murphy Customer Success AMA Transcript and Video – May 19, 2017

On Friday May 19th, 2017, I did a Customer Success Ask Me Anything (AMA) on Facebook live. It was awesome. The video is embedded below, along with the questions that were asked and my answers.

Yep, if you don’t want to watch or listen, no problem! I got the entire AMA transcribed (and cleaned it up a bit for readability, added links, etc.) and posted that below. I answered 13 questions in great detail.

Follow me on Facebook so you can find out the next time I do one.

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Lincoln Murphy Customer Success AMA Transcript and Video – May 5, 2017

On Friday May 5, 2017, I did a Customer Success Ask Me Anything (AMA) on Facebook live. It was awesome. The video is embedded below and while there seems to be an audio/video sync issue, the audio is crisp and listening to this will be time well-spent.

If you don’t want to watch or listen, I got the entire AMA transcribed (and cleaned it up a bit for readability, added links, etc.) and posted that below. I answered 20 questions in excruciating detail.

I’m planning on doing another Customer Success AMA on May 19, 2017, on Facebook.

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The 5 Fatal Flaws of most Customer Journey Maps

Customer Journey maps are a favorite tool of Customer Experience (CX) and Customer Success Management (CSM) professionals around the world.

Very often, they are elaborate, colorful maps – some look like movie storyboards or even children’s board games – that take the customer on a journey to nowhere.

What journey are you mapping? If it’s not the one that takes your customer to their Required Outcome in an Appropriate Way (together, those two things make up the customer’s Desired Outcome), then it’s a map to nowhere for the customer… and to churn for you.

Honestly, from a true Customer Success Management standpoint, we shouldn’t even be talking about maps at all. Instead, we should be talking about something more like a navigation app like Waze that doesn’t just show how to get from static point A to point B, but changes the journey (and ETA!) based on the realities on the ground (current location, traffic, obstacles, the driver simply ignoring directions, etc.).

But for now, we’ll talk “maps”… and here are five fatal flaws of Customer Journey maps; some will only have one of these, others will have all 5. Enjoy.

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The Cost of Bad Fit Customers: The $1.2M Churn and Burn to Learn Mistake

Brazil flagTambém disponível em Português por Superlógica

Do you need to churn and burn customers to learn? A lot of people in startups think so. In fact, a lot of people in companies of all shapes and sizes think so.

Think you need to churn and burn through thousands of customers before it starts to have a negative impact on your growth velocity and costs? I’ll show you why that’s just not true.

If you think churning and burning customers so you can learn is the way to go, sit back and let me tell you a fun little story about an expensive lesson that didn’t need to be learned.

In fact, what I’ll share is why startups need to build-in Customer Success from the ground up, and established companies need to bring Customer Success into their universe ASAP.

First, I have to acknowledge what Steve Blank famously said: “Your startup is essentially an organization built to search for a repeatable and scalable business model.”

This means it’s totally accurate to say that, at first, you don’t know what you don’t know.

The problem is that some people use that startup definition as an excuse; a crutch to never have to make a real decision (“we don’t have the data – yet”).

But there are a lot of things you DO know but simply – and to your detriment – choose to ignore.
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Customer Success Goals: Cohorts, Metrics, and Prioritization

I asked the VP of Customer Success what her goal was for the Customer Success Management (CSM) organization, and she said, “to ensure customers achieve their Desired Outcome through their interactions with our company.”

That’s the definition of Customer Success that I developed, so I obviously loved that answer for this reason.

But I didn’t like it because that’s not actually a goal.

That’s their purpose. That’s why the CSM org exists (in fact, it’s why the company exists), but it’s not a goal.

A goal is something that’s meaningful, actionable, and reachable; it’s an objective and a timeframe.

And if you’re a Customer Success leader who wants to get a “seat at the table” with other executives, you need to be able to tie your goals with those of the company and become so important – so valuable to the rest of the company – that you need to reach your goals to drive the company towards their goals.

Let’s dig in…

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Contents of an Awesome Customer Success Playbook

Customer Success has been clearly defined and what goes into Customer Success Management has been fully documented.

But when it comes to certain aspects of Customer Success Management, there are still a few things that remain a bit mysterious to some.

A great example of that is the concept of the Customer Success Playbook, the sports analogy-based workflows, processes, interventions, etc. – called “plays” – to run with the customers when something happens.

I haven’t talked about Customer Success Playbooks much, and here’s why.

While there are high-level Customer Success frameworks like those I use with my clients, the way we orchestrate and operationalize a Customer Success-driven Growth strategy is different enough across companies, products, and customer segments, that trying to create a one-size-fits-all Customer Success Playbook that works for all companies is never going to – or should never – happen.

But my lack of coverage of this subject doesn’t mean Customer Success playbooks aren’t important; they absolutely are super-important. They’re so important in fact, that trying to come up with generic ones that would work for any company isn’t something I think can be or should be done! So I’ve avoided talking about it publicly.

A friend of mine asked me for some advice the other day. She knows that I’ve helped hundreds of companies around the world with their Customer Success-driven Growth strategies, but she decided to start by Googling around.

After finding unhelpful posts or forum answers on how to create generic Customer Success playbooks, she came to me.

So I typed up the following for her and since she liked it, I thought I’d share my take on how she should go about creating Customer Success playbooks for her unique situation with you, too.

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Customer Success: The Definitive Guide 2017

Customer Success is transformative.

Whether you have a Software-as-a-Service, subscription or membership business or you sell one-off products or services and simply want to do business with your customer more than once, Customer Success should be your driving purpose.

Customer Success has its roots in the Software-as-a-Service (SaaS) world and my original definition was very much SaaS-centric.

But since then, companies that are not SaaS, or even technology companies at all, have recognized the transformative power of Customer Success and embraced it as their new operating model.

If you aren’t familiar with exactly how Customer Success is transformative, I’ll lay that out for you below in great detail in this guide.

I don’t know what will happen with Customer Success in the next couple of years, but I wouldn’t be surprised if sometime down the road we’re no longer talking about “Customer Success” as a separate function within a business, but simply as part of the way you do business.

Even today that’s how you should view it.

Why? Simply put; No Customer Success = No Your Success.

You make sure your customers are successful and they’ll make sure you’re successful.

On the flip-side, if your customers are not achieving “success” in their relationship with you, your success is at risk.

Of course, what “success” looks like for your customers is 100% unique to your customers, in the context of your product or service.

So while there’s not a one-size-fits-all definition of lower-case customer success – that’s up to you to know – as far as the concept of upper-case Customer Success is concerned, I’ve attempted to define that for you here.

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Understanding Customer Success Management Compensation Models

Understanding Customer Success Management Compensation ModelsWhat’s the best Comp Model for Customer Success Managers (CSM)? How can I create a compensation model that drives the type of behavior we need? What percentage of CSM comp should be variable, and what impact should individual vs. org-level performance have on the variable piece of compensation?

The more this comes up, the more I realize – especially when you’re first operationalizing Customer Success Management in your company, but very likely eventually – that when it comes to Customer Success, variable compensation is a red herring.

You’re going to spend a lot of time on it even when you don’t need to. You – and your CSMs – have better things to do than worry about this… like actually making your customers successful.

Let’s dig into this…

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Determining the Number of Accounts per Customer Success Manager

This is otherwise known as, “How to Determine Customer Success Practitioner Coverage Ratios.”

Initially, the question was “how many accounts should a Customer Success Manager (CSM) handle?”

But people quickly realized that answers like “37 on the low end; 200 on the high end” weren’t actually helpful.

Then, an ex-CEO-turned-VC with a strong content marketing machine, said a different thing that has, unfortunately, stuck:

“1 CSM per $2M/ARR.”

That’s not accurate, it never was, and it needs to stop being propagated.

Here’s what to do instead…

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Customer Success-driven Growth: Rapid, Exponential, and Efficient

Doing whatever you can, spending whatever you can spend, to acquire any and all customers – whether they’re a good fit long-term or not – is played out. That’s not a valid growth strategy anymore (it never really was).

Today, Investors, Boards, Executives, and Startup Founders are all looking for rapid, exponential, and efficient growth. And yes, you can actually have all three of those.

In fact, there’s no more efficient – and done correctly, rapid and exponential – growth than growth within and from your existing customer base.

And the key to unleashing the power of this growth engine is Customer Success.

I even wrote a post that illustrates just how much of an impact Customer Success-driven Growth can have not just on Revenue expansion, but literally on the value of your company!

Let’s dig into what Customer Success-driven Growth is…

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Why You Can’t Offset Churn with Upsells

If you lose $1 in revenue through churn – either because a customer cancels their subscription or decides to stay but pays you less because of discounts or downsells – you first need to replace that $1 before you can start to grow.

Now, you can acquire those churn-offsetting revenue dollars in two ways: by acquiring net new customers or by getting your existing customers to buy more or expand their relationship with you.

For the longest time, companies looked at acquiring new customers as the logical way to offset churn. But at some point, it would occur to them that this was a losing proposition for several reasons, ranging from a longer payback period for Customer Acquisition Cost (CAC) to the negative market sentiment created by so much churn.

So the logical next step in offsetting the revenue lost from churn was for vendors to look at getting their existing customers to buy more or to otherwise expand their relationship with them.

But as you’ll see, this doesn’t work, either.

Some people think that having churn – even a lot of churn – is okay as long as they’re making up for it by getting more from the customers that stay.

In fact, I’d say this is one of the biggest – yet least talked about – misconceptions around Customer Success: that you can “use” existing customers to offset whatever churn you have.

It’s time to address this directly so there are no more misconceptions…

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9 Things Customer Success is Not

The definition of Customer Success has been clearly laid out.

What goes into Customer Success Management has been fully documented.

But there’s still a chance that you have a misconception or misunderstanding about Customer Success that could keep you from fully embracing this potentially transformative concept.

So I want to make sure any preconceived notions about Customer Success aren’t standing in your way of understanding something this powerful.

So let’s go through a few things that Customer Success is not…

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Customer Success Management: An Executive Overview

Customer Success is when your customers achieve their Desired Outcome through their Interactions with your company.

The actual process of moving customers toward their ever-evolving Desired Outcome is called Customer Success Management.

It’s important to understand the difference between Customer Success and Customer Success Management; the former can be thought of as an Operating Philosophy, while the latter is your Operating Model that can increase the value of your company.

Okay, let’s dig in…

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The 8 Elements of Customer Success Management

the-8-elements-of-customer-success-managementCustomer Success is when your customers achieve their Desired Outcome through their Interactions with your Company.

To actually ensure your customers achieve their Desired Outcome – or what they need to achieve, the way they need to achieve it – and not just hope it happens, you need to actively work your customers toward that goal.

That’s where Customer Success Management comes in.

I define Customer Success Management as the process of moving customers toward their ever-evolving Desired Outcome.

And Customer Success Management is made up of the following things:

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Logical Customer Segmentation: The Key to Scaling Customer Success

logical-customer-segmentation-the-key-to-scaling-customer-successCustomers that pay more need more human interaction, right?

Customers that pay less don’t deserve as much human interaction, right?

Customers that we give more human interaction should pay more, right?

Segmenting customers based on how much they pay us is one of those traps that a lot of Customer Success organizations fall into, mostly because it seems logical and it’s what the industry has been doing for a long time.

But that doesn’t mean it’s right. Let’s explore a bit, shall we?

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Orchestrating Sales and Customer Success Alignment

orchestrating-sales-and-customer-success-alignmentIf you aren’t familiar with the concept of Customer Success yet, it’s when your customers achieve their Desired Outcome (what they need to achieve, the way they need to achieve it) through their interactions with your company.

Customer Success begins at the first interaction with prospects by your sales team, and continues across their entire lifecycle, and is required for scalable, repeatable Account Expansion.

Very often, Customer Success and Sales are thought to be on two different sides of the company, almost at odds.

But the best companies have Customer Success as their Operating Philosophy (the best of the best have Customer Success as their Operating Model), and they see that the Customer Success Management org and Sales are more similar than different, and when they bring them together, magical things (read: exponential growth) happen.

Let’s dig into this, shall we?

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Success Potential: The Foundation of Customer Success

Brazil flagTambém disponível em Português por Mathias Luz

Customer Successsuccess-potential-the-foundation-of-customer-success starts with acquiring customers that have Success Potential.

Customers that have Success Potential are said to be good-fit customers. This is the opposite of bad-fit customers that cannot get value from a relationship with us now or in the near future.

If you knowingly allow bad-fit customers to be acquired, nothing else you do in Customer Success will have the result you’re hoping for as those customers – no matter what you do – will never achieve their Desired Outcome.

In fact, if you’re a CEO that allows your sales people to sign customers without Success Potential, you should fire your Customer Success Management org because you’re just setting them up for failure anyway.

And if you’re a Customer Success Practitioner or Leader that works for a CEO that allows bad-fit customers to be signed, you should quit and go work for a CEO that isn’t setting you and your team up for failure.

Bottom line… if you want customers to:

  • Stay longer
  • Buy more
  • Invite you into other parts of their company
  • Advocate for you publicly

…then don’t acquire customers without Success Potential!

Okay, so let’s dig into this concept of Success Potential, shall we?

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Excuses and the Myth of Near-Zero Churn

Excuses and the Myth of Near-Zero Churn headerChurn is a drag on growth. Churn hurts company valuation. There is no good reason to have churn in your business.

I did an “Ask Me Anything” on Slack as part of the build-up for my “Building an Engine of Growth” Workshop and Keynote at SaaStock 2016 in Dublin, Ireland and it was awesome… until the last question, which started out like this:

I’ve always felt like Lincoln’s recommended churn rates are, in many cases, unreachable.

Oh no… and I’d been having such a great time until that point. He went on to say…

Yes, I understand low churn rates are best for business, but realistically, how many companies actually do have 5% annual churn instead of what I more commonly hear which is closer to 5% monthly (painful, but technically survivable).

Who starts a business to just “technically survive.” WTF?

Well, even though what I talk about is unrealistic, he still wanted to know how to lower his churn from 5% per month to, you know, 1 or 2% per month.

Okay, so I composed myself and addressed his question… and I thought it would be useful to you, too.

But first, let’s get clear on why so many people think near-zero churn is unrealistic; they’re trying to justify negative results by blaming the customer instead of owning their failures.
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Success Vector – the KPI for Customer Success-driven Growth

Success Vector - the KPI for Customer Success-driven GrowthCustomer Success is a Growth Engine. Investing in Customer Success-driven Growth is an efficient way to drive revenue and company valuation, and we need a metric that is designed to measure that growth. Introducing, Success Vector.

Customer Health Score, historically the Key Performance Indicator (KPI) of Customer Success, is too much of a moment-in-time snapshot; a lagging indicator. We need something more forward-looking.

So, looking at Customer Success as the growth engine it is, we need a KPI that we can use to ensure we’re on track to meet the growth potential Customer Success will unlock within our existing customer base.

The Key to Real Predictable Revenue

Every company wants predictable revenue, but most turn to new business Sales to get it. They create a goal they want to hit – essentially a made-up number the CEO or Board wants to see – and then they try to figure out how to hit that number.

The “predictable” part of all of this comes down to ensuring your pipeline is loaded with (at least) 5x more leads than your target goal so you can hit it with a 20% close rate. Math!

While that may be “predictable” in a spreadsheet, in reality, hitting that goal requires a lot of work, coordination, effort, hustle, incentives, and luck. Yet, historically, this is where companies look for new revenue by default.

That’s changing as companies realize it doesn’t get more predictable than being able to look at your existing customers, say these 100 customers will reach this Success Milestone in the next month, that milestone has a logical upsell associated with it, the value of that upsell is $1000/ARR, and the percentage of customers that should take the upsell based on their Success Vector is 90%.

That means, for that cohort, we’ll add $90k/ARR next month. Then, by combining the expansion value of all of the milestone cohorts, we can give an accurate prediction of the revenue we’ll generate from our existing customers.

That’s actual, real predictable revenue.

Historically, Customer Health Score was a Key Performance Indicator (KPI) for Customer Success, but it wasn’t giving us what we need in this new world of Customer Success-driven Growth, so I went into my lab (probably a Starbucks or on an airplane) and tore the idea of a Customer Health Score apart with the sole purpose of giving us a real way to see not just what’s happening with our customers today, but where do we think they’re going in the future.

And Success Vector was born.

Until now, only my clients knew about Success Vector as a Customer Success KPI… it’s time to let everyone in on it.

Let’s dig into Success Vector, shall we?

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Don’t Mix SaaS Free Trial and Churn Metrics

Don’t Mix SaaS Free Trial and Churn MetricsAny metric that’s not acted on is a vanity metric, right? Sure, but that doesn’t cover every situation.

Sometimes we measure things because we’re “supposed to” but honestly don’t know what to do once we have the result (add that to the list of things that are true but few people will admit publicly). It’s only a vanity metric because all we can do is look at it. We sure would like to act.

And then there are times where the metrics that we’re measuring are done with a purpose, we want to – and maybe even have an idea on how we will – act on them; but the metrics are just wrong. And acting on them will be either impossible or fail to have the impact you hope it will.

Which brings me to this question I got from Phil at Corvus Coffee, a subscription coffee company based out of Denver, CO:

“I’m wondering if you have an opinion on what a churn rate should be while marketing a free trial heavily to grow a new online business compared to when we have a more established subscriber base.”

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