The Seven Systems of CSM Excellence

Universal practices instill high performance

What makes some companies like Intel, Southwest, and Ritz-Carlton perennial performers? Is their secret charismatic leaders? Good timing? Grand vision? No. High performance isn’t about what organizations do, but how they do it. Customer Success teams can apply the same disciplines used by top-performing companies to dramatically increase results.

Jim Collins, author of Built to Last and Good to Great, says “dynasty” companies (those generating financial returns of at least 10x for 15 years or more) behave very differently than the rest. Unlike typical organizations, top performers are fanatically disciplined, empirically creative, and productively paranoid.¹ Laser-focused and utterly relentless, they eliminate distractions and drive continuous improvement everywhere. Rather than follow industry experts or imitate others, top companies engineer their own breakthroughs using empirical evidence, observation and experimentation. And they remain hyper-vigilant, watching competitors intently and adjusting their strategies to thrive in a constantly shifting landscape.

High performing organizations like the ones Jim Collins describes depend on a set of interconnected, self-reinforcing management systems to instill their unique behaviors. Their management disciplines become embedded in the organization’s “operating system,” creating a culture of excellence in individual work areas and throughout the enterprise.  The management systems they use are universally applicable, so Customer Success leaders can use them to realize similar benefits:

Sensory System

What it does: Methodically collects and interprets customer, market, competitive, regulatory, workforce, and technology trends to continually uncover new opportunities and threats.

Leading practices: Use quantitative and qualitative analysis extensively for market and product definition and performance monitoring. Implement internal and third-party “listening posts” in multiple channels. Increase relevance and salience by interpreting findings according to market segment. Systematically analyze, review and prioritize feedback for company business reviews, product roadmaps, and process improvements. Reduce “blind spots” by periodically challenging underlying assumptions and measurement techniques.

Application in Customer Success: Collect product usage, customer satisfaction, trouble ticket, and contact frequency statistics to generate health scores for specific customers and market segments. Utilize direct customer comments in CRM records and formal customer reviews for product and process deficiencies. Share discoveries via periodic, formal feedback sessions with development, sales, marketing, accounting, and operations leaders.

Planning and Review System

What it does: Inputs information, prioritizes actions, defines objectives, goals, strategies, tactics, and owners, and aligns financial and personnel resources to promote successful execution. Evaluates progress formally and periodically, holding people accountable, adjusting plans, and promoting learning.

Leading practices: Develop strategic (multi-year) plans that articulate long-term vision, objectives and goals, customer and market dynamics, competition, product and service roadmaps, value propositions, value delivery systems, staff development, risks, and financial pro-formas. Link strategic with annual plans and implement through product development and process improvement plans. Coordinate planning and review activities via calendars, and use scenario analysis to detect and quickly respond to environmental “triggers.” Involve all employees to build commitment for action.

Application in Customer Success: Participate in enterprise planning activities, share customer intelligence and help set functional objectives, goals, strategies and tactics. Prioritize, define, implement and track account management and marketing plans along with process improvement projects. Review progress monthly and quarterly.

People System

What it does: Defines jobs, employee knowledge and skill requirements, and facilitates screening, hiring, training, performance feedback, career development and overall organizational change.

Leading practices: Define short-term and long-term staffing and skills requirements as well as succession plans aligned with the strategic plan. Use structured screening, hiring, training, retention, and cultural indoctrination practices. Conduct both formal and informal performance reviews. Interpret quantitative job performance measures in proper statistical context. Collaborate to define and hold employees accountable for development plan execution.

Application in Customer Success: Craft position plans, metrics, knowledge and skill requirements, and development plans for CSMs to build stronger relationships, deliver onboarding, and uncover and advance sales opportunities. Characterize and use personality traits, in addition to education and past experience, to screen new hires. Give regular feedback, formally and informally, and avoid ranking.

Work System

What it does: Describes requirements and designs optimal workflows at a macro and micro level between customers, business partners, suppliers, company departments and work groups.

Leading practices: Map processes to identify critical handoffs, disconnects, metrics, and process improvement opportunities. Periodically redesign processes for enhanced speed, cost effectiveness and increased quality. Protect and develop core competencies to promote strategic advantages. Use partnership management and supply chain management techniques to influence change and improvement with third parties.

Application in Customer Success: Define the customer lifecycle linking onboarding, training, engagement, renewals, upselling and cross-selling activities using phone, e-mail, video, events, webinars, and social media contact as required. Define critical handoffs and feedback loops with sales, customer support, development, and accounting.

Metrics System

What it does: Focuses managers and teams on the critical few cause-and-effect relationships that keep processes under control and promote beneficial end results.

Leading practices: Deploy and manage daily operations across the enterprise via linked, balanced and aligned dashboards. List a critical few leading and lagging indicators in each dashboard to measure key business process performance, especially attributes driving competitive distinction and financial results. Calibrate dashboard signals using customer specifications or statistical process limits. Review periodically, take corrective action, and launch process improvement projects as signals dictate.  Benchmark performance against competitors and “best in class” process references.

Application in Customer Success: Construct dashboards measuring outcomes (renewal rate, new revenue, etc.) and process factors leading to them (conformance to contact schedule, 30-day adoption %, etc.) as appropriate to the defined CSM role. Use a total of ten or fewer metrics, rolling up individual statistics into overall team performance. Set “red,” “yellow,” “green” action limits based on historical performance or goals articulated in the annual plan. Make dashboards visible in work areas, review and discuss performance with team members at least monthly.

Continuous Improvement System

What it does: Manages projects emphasizing customer focus, teamwork, and scientific methods to uncover root causes of problems, driving ongoing improvement in products, services and internal processes.

Leading practices: Execute cross-functional improvement projects using formal methods such as Lean Six Sigma, process simulations, and predictive analytics to maximize results. Choose projects based on financial or strategic impact, including major initiatives linked to annual and strategic plans. Increase effectiveness and customer value and reduce customer dissatisfaction, cycle times, and inefficiencies in all products and processes. In SaaS companies, diminish downstream bug detection, remediation, and customer churn costs through better upstream product definition, software development and validation processes.

Application in Customer Success: Implement formal methods to collect data and analyze processes to determine changes that increase customer retention and revenue and lower the Cost to Serve. Use statistical techniques such as logistic regression to study factors that impact customer churn, such as adoption rate, unresolved trouble tickets, or contact frequency. Design and execute experiments to test new ideas. Participate in company feedback loops to report software bugs and advocate for product and service enhancements.

Leadership System

What it does: Provides strategic direction, prioritizes actions, engages and inspires employees to perform at high levels, learn, and enact changes.

Leading practices: Articulate clearly and broadly communicate company mission, vision, values, goals and strategic plans. Engage the workforce and lead strategic change using formal processes. Model by example, recognize and reward high performance, and develop new leaders throughout the organization. Provide and receive performance feedback.

Application in Customer Success: Define the team’s purpose, goals and values. Understand and align with what motivates individual team members. Recognize and reward performance and hold people accountable. Incorporate leadership effectiveness feedback from superiors and employees in personal development plans.

When Customer Success leaders run their operations using the seven management systems above, their results rival the very best performers. Excellence becomes part of the culture, and customer churn, referrals and revenue relentlessly improve.

Excel-lens is a publication of Service Excellence Partners. We increase customer loyalty and business performance in the cloud computing industry. Contact us today.

Source:
1. J. Collins, M. T. Hansen, 2011. Great by Choice: Uncertainty, Chaos and Luck—Why Some Thrive Despite Them All. 

Five Critical Moments in the Customer Experience

Manage these situations well and customers will be yours forever. 

Veteran salespeople know sales ultimately don't come from a prospect's logical evaluation of a product's features, advantages and benefits. They know people make decisions based on emotions and then use logic to justify them. What matters is not what the product is but what it does and how buyers feel about it. Time and again, what makes top salespeople successful is their ability to link product benefits with the personal impact they make. 

But closing the sale is just the beginning in recurring revenue businesses. Customers must remain subscribers for years before they become profitable. Like experienced salespeople, Account Managers and Customer Success professionals must go beyond software usage, good NPS® scores or satisfactory customer service to influence what makes customers loyal. They must create personal attachment throughout the subscription experience so their customers continue to renew. 

Essential interactions

SaaS companies can systematically build affective bonds with their customers. It begins with knowing how the subconscious brain works, especially when it comes to subliminal needs for safety and security. When managers are attentive to the process and consistently orchestrate the following five encounters, they reduce fear and create ideal conditions for relationships to flourish. Customers are more than satisfied; they become loyal, raving fans. 

1. Moments of Connection. Humans naturally seek commonality. We engage in small talk, chatting about a bad call while sitting next to a stranger at a ball game or talking about the weather on a conference call with new vendors. When we have things in common, we sense we are among friends. We subconsciously gravitate to people like us because we feel safe with them. 

To create stronger connections, SaaS companies must set aside “zero touch support” and corporate façades and create warm, personal interactions early in their customer relationships. When customers feel they can relate to the people behind the brand, suddenly the company has a face. In the beginning, a friendly encounter with someone who seems familiar alleviates the customer’s subliminal anxiety. When a smart mix of personal and electronic communications follows, the relationship builds over time. 

2. Moments of Power. At times we have all felt powerless and out of control. For example, nothing rattles nerves more than driving in winter and sliding on a patch of ice. That gut-wrenching feeling is a natural defense mechanism that evolved over eons. Our emotional programming helps us avoid situations that put us at risk. In day-to-day life we compensate automatically by attempting to control outcomes, making us feel safer.  

SaaS companies can reduce natural anxiety by encouraging autonomy and choice. For example, customers can feel powerless learning how to use a new product. Customer Success Managers can lower tension using an onboarding process that helps customers quickly practice new skills and build proficiency. When the company allows customers options to choose from, customers also feel empowered. And as the adage goes, knowledge is power. Keeping customers informed is another easy way to soothe the psyche. 

3. Moments of Proof. Our deep hunger for certainty is another natural protection from our evolutionary heritage. Subconsciously we want to know what’s going on and what happens next, once again because it’s safer. We are comforted when things go as we expect and anxious when they don’t. 

SaaS companies can increase certainty in many ways, from demonstrating products to hosting quarterly business reviews to displaying system performance statistics. When the company makes promises and keeps them, expectations are met and customers become more confident. And when SaaS companies also prove that the business and personal outcomes they predicted came to fruition, they erase any remaining doubts in the customer’s mind. 

4. Moments of “Wow!” We cherish times when friends and family surprise us with simple acts of kindness, appreciation and gratitude. These occasions happen infrequently, but when they do, they leave profound impressions. Like all social animals, we reflexively evaluate our status and importance relative to others. Rank ensures we maintain a greater share of resources, which in turn increases chances for our survival. When someone surprises and delights us, we feel special and cared for—we find our prestige is greater than expected. 

Solving a problem meets minimum expectations, but going the extra mile on occasion makes customers feel important and desired. For example, resetting a password is a mundane task for Customer Support. But when a technician also takes a minute to check the customer’s system configuration and makes a change that speeds up system response times, the customer is thrilled. Simple acts of kindness pay substantial dividends. 

5. Moments of Truth. Life occasionally involves crises. When we have no choice but to rely on others, we find ourselves in our most vulnerable psychological state. How others respond when we need them most can make or break a relationship. As they say, when the chips are down, you find out who your friends are. 

In business as in life, stuff happens. Sometimes the ball gets dropped, leaving a customer with mess. Other times, issues are widespread, such as the havoc caused by a major outage or security breach. When SaaS companies use an effective service recovery process, one that restores confidence along with service, customers regain trust. How the company responds reveals character and can quickly turn around a bad situation. 

Product value and quality matters, but how SaaS companies create positive emotional experiences over time ultimately tips the scale when customers consider renewing their software subscriptions. Understanding and responding to customers’ deep psychological needs is the first step to building stronger relationships and creating loyal customers. 

Net Promoter and NPS are registered service marks, and Net Promoter Score and Net Promoter System are service marks, of Bain & Company, Inc., Satmetrix Systems, Inc. and Fred Reichheld.

Excel-lens is a publication of Service Excellence Partners. We increase customer loyalty and business performance in the cloud computing industry. Contact us today.

Why SaaS Needs Lean Six Sigma

The cloud computing industry loses about $10B every year due to customer churn, and in response, many executives launch improvement initiatives. They assign Customer Success teams to engage new customers, increase product usage and probe for sales opportunities. Other times, executives hold developers accountable for monitoring online customer behaviors and designing stickier user interfaces. Marketers sometimes get into the act, countering revenue losses through new customer engagement programs or by introducing renewal incentives. 

These isolated activities can incrementally reduce churn, but customer defection is a complex, enterprise-wide problem that requires joint effort. Customers leave when a number of deficiencies in sales, development, marketing, operations, and even accounting combine to frustrate them. Instead of assigning a single function or diluting efforts among multiple groups, SaaS companies should address customer attrition holistically with a disciplined and coordinated Lean Six Sigma approach.

Proven and unified

For decades, manufacturing and service organizations have used quality improvement techniques to satisfy customers, save money and increase revenue. Companies have shown repeatedly that relying on personal perceptions and making snap decisions leads to treating symptoms, not underlying causes. Using formal techniques, practitioners first explore difficulties from the customer’s perspective and then analyze data to uncover and resolve “root causes” of problems. As a result, improvements people make are dramatically better and more sustainable. Studies show that companies proficient in quality improvement practices consistently outperform rivals in growth and profitability by a factor of 2:1.¹

Quality methods have evolved over the years to help teams be even more successful. Modern Lean Six Sigma techniques include rigorous financial analyses to target improvements and demonstrate monetary gains. Lean principles remove wasted time and effort, speeding cycle times in engineering, production, and service operations. But best of all, Lean Six Sigma espouses cross-functional teamwork instead of working independently. Ineffective, inefficient workflows and fumbled handoffs between departments are often the most significant obstacles. When greater customer focus and scientific methods combine with better coordination and cooperation, solutions transcend internal boundaries and deliver maximum impact.

Lean Six Sigma in action

A young firm introduces an app that allows people to capture and annotate photos taken on mobile devices. The software then automatically uploads images and links them with documents the user stores in the cloud. During early trials, the founders discover that the software has widespread appeal, so they introduce the product at a low price point, expecting it to sell in high volume. 

But after several months, the executives discover a problem. Monthly customer churn numbers run far above expectations. Rather than settling for myriad, piecemeal solutions, the executives form a cross-functional Lean Six Sigma team to address the issue from a broader and deeper perspective. The project follows DMAIC, the phased improvement process at the heart of Lean Six Sigma:

Define. The problem is straightforward: 2.2% of users cancel their subscriptions each month, costing the firm $5M annually. The team establishes a goal to significantly reduce this number.

Measure: Despite having extensive data on mobile and website usage patterns, the team realizes that little is actually known about their customer churn. Marketing had originally decided to capture only basic contact information in order to reduce sales “friction” during the sign-up process. As a result, there’s no data classifying behaviors by market segment. In addition, the team finds few customers complete the online exit survey upon cancellation, so the reasons why customers leave are unknown. The team hires a third party to collect the missing information. The vendor uses billing records to e-mail and call a sample of departed customers to ask questions about their experience.  

Analyze: The vendor finds that the company indeed attracts a wide range of customers, but after using Lean Six Sigma’s Pareto analysis, the analyst shows that just a handful of segments account for the majority of churn. Surprisingly, estimators at small auto body shops are the largest defecting group. Challenged with extensive visual inspections and impatient customers during peak times, auto estimators purchase the mobile app hoping to speed their quoting process by quickly capturing images and making shorthand notes for later documentation. But the estimators learn that the time they spend copying photos into their company quoting systems negates the time they save with customers. Getting assistance from the software firm to solve the problem isn’t easy. The company’s limited self-help resources and e-mail-only, 2-day customer response time prompts most estimators to abandon the idea after just a few months. 

The team then examines internal factors. Investigating the technical issues, they learn that the company’s online database can’t exchange data in the formats commonly used by repair quoting systems. Customers buy software online and the firm provides no special attention or information to help estimators in the beginning. The company’s heavily burdened customer support team handles all tickets on a first-come, first-served basis, forcing customers to wait equally long periods for help. When estimators get into trouble, their options are few. It’s no wonder they’re leaving in droves.  

Improve: The team enhances the product and redesigns the process to make estimators more successful. Engineers research the most common exchange formats and discover they can develop an API that automatically imports images into quoting systems without the need for manual intervention. The plan calls for Marketing to add a single question during the sign-up procedure to assign each user to their respective market segment, allowing the company to better track behaviors. The team then proposes hiring a Customer Success Manager to reach out each estimator within a day of their subscription to help integrate the API, ensure the estimator gets the results he or she desires, and create a stronger working relationship. The team advocates “triage” (a Lean Six Sigma technique) in Customer Support to separate the estimators’ trouble tickets and deal with them first. Thanks to the use of simple statistical tools, the team calculates that the improvements will recover about $1.5M in lost revenue. Adding up the cost of implementation, the team finds the expense makes up a small fraction of the segment’s expected customer lifetime value. Management gives the go-ahead and the team coordinates and implements the changes. 

Control: Estimators are delighted with their new experience. Churn drops 82% in the segment and more auto shop estimators join based on strong recommendations from their associates. Overall, the company’s monthly churn drops by 38%, boosting topline annual revenue by $1.9M. What’s more, estimators who left come back, generating another $220K in revenue. Product managers notice new product and service opportunities in the market segment, promising to grow it even further. The Lean Six Sigma team then standardizes the approach and turns its attention to next group of departing customers. They repeat the DMAIC cycle and lower churn even further. 

It’s a better way

Had each SaaS company function done what they naturally do and worked within their own silos, the results would not have been the same. They would have proceeded without an in-depth understanding of their customers’ challenges. Functional leaders would have prioritized their activities around their favorite projects or according to whatever was most pressing at the time. As a result, improvements would have been typically myopic and disjointed, failing to benefit specific customers or deliver clear economic gains. 

Perhaps it’s time for a different strategy. The Lean Six Sigma method encourages SaaS functions to join forces, focus intently on customers, develop comprehensive solutions, and achieve more impressive results. A holistic improvement strategy may be just what the industry needs to retain more customers. 

Excel-lens is a publication of Service Excellence Partners. We increase customer loyalty and business performance in the cloud computing industry. Contact us today.

Source:
1. Hendricks, K. and Singhal, V. March, 2000. The impact of Total Quality Management (TQM) on financial performance: evidence from quality award winners. DuPree College of Management, Georgia Institute of Technology

Why Customer Defections Mean Things are Worse Than You Think

“A bird in the hand beats two in the bush.”

John Ray's A Hand-book of Proverbs, 1670

Most SaaS executives assume customer churn rises the minute a company loses its competitive edge. Not so. If customers are switching to top rivals in appreciable numbers, executives should be especially nervous—the situation is already much graver than they think. Research suggests customers leave because they’re long dissatisfied and now view the competition is twice as good. Executives must heed the warnings and overcome their own biases if they want to turn things around.

Thinking that doesn’t add up

Strangely, people tend to avoid loss even when they are faced with the possibility of larger gains. Research shows that people require more compensation to give up a possession than they would have been willing to pay to obtain it in the first place.¹ Even when all things are equal, repeated experiments show people subjectively weigh gains much differently than losses.

In 1654, French mathematicians Blaise Pascal and Pierre de Fermat proved that the expected value (EV) of an investment depends on the amount (x) and the probability of its outcome (p):

EV = px

For example, say a coin flip determines you collect $100 for heads and $0 for tails. Since the probability of obtaining heads using a fairly balanced coin over a large number of trials is 50%, the likely payout, on average, is $100 * 50% = $50. As shown by the charts, this relationship is true no matter the amount or the probability used in the calculation. Today many financial decisions are made using Pascal and Fermat’s expected value.

But that's not how most people make decisions. Faced with a choice of receiving $3,000 for sure or taking an 80% chance to win $4,000, most people will keep the money, even though the expected value for taking the risk is greater ($4,000 * 80% = $3,200). Prospect Theory in modern economics asserts that rather than apply logic, people instinctively determine value (V) by weighting differences in probabilities (p) and amounts (x) shown below:

V(x,p) = w(p)v(x)

The clean, linear function reflecting objective reality is suddenly replaced with this subjective, nonlinear aberration:²

Intuitively, the irregular curves hold water. People would rather take a 95% chance losing $100 than pay $85 for sure because amounts “feel” equally painful and 95% probability “feels” less than certain. On the other hand, people will take a 5% chance to win $100 instead of choosing $13 cash because $100 seems a lot more than $13, and 5% seems like a realistic chance.

Scientists also discovered that when they tested 50-50 win-loss scenarios, subjects said the following ratios equally attractive to when compared with receiving nothing:³

In other words, faced with even odds, most people want 2:1 upside before taking a risk. A bird in the hand is indeed worth two in the bush!

Why do we think this way? Most scientists believe it’s a vestige of our human evolution. In prehistoric times, survival probably depended upon playing it safe when we had resources and taking risks when we had none. In the modern age, however, our success depends on scientific and social advances, situations requiring thoughtful reflection instead of impulsive action. But since our complex reasoning evolved relatively recently, it often takes a back seat to our more primitive instincts, even when the consequences aren’t life or death. Despite today’s advances, subconscious emotion, not conscious logic, often rules the day. This explains why regardless of the odds, we continue to buy lottery tickets.

Tip of the iceberg

Evidence shows people are far more likely to stay in a bad situation than pursue a better one. What this means for SaaS companies is that once customers subscribe, they are likely to stay. But when customers switch, it’s very serious. Their actions show they’ve already had enough and customers realize competitors offer significantly greater advantages.

As humans themselves, executives likewise have a choice. They can either look logically at their company’s performance gaps and do something about them, or scoff at their customers’ subjectivity and do nothing at all. Like their customers, executives must overcome their own, natural inclination to preserve the status quo even when things are going south. If they can see the advantages of change and take risks to improve organizational performance faster than their customers get fed up and go elsewhere, churn reduction has a fighting chance. Otherwise, perhaps, companies with more evolved thinking will be the survivors.

Excel-lens is a publication of Service Excellence Partners. We increase customer loyalty and business performance in the cloud computing industry. Contact us today.

Sources:

1. Kahneman, D., Knetch, J. L., and Thaler, R. H. (1990). Experimental tests of the endowment effect and the Coese theorem. Journal of Political Economics, 98, 1325-1348.
2. Kahneman, D., and Tversky, A. (1979). Prospect theory: an analysis of decision under risk. Econometrica, 4, 263-291
3. Tversky A., and Kahneman, D. (1992). Advances in prospect theory—cumulative representation of uncertainty. Journal of Risk Uncertainty, 5, 297-323

Software Adoption is a Matter of Habit

Six tips to increase user adoption by capitalizing on human nature

In the SaaS industry, customer retention rates depend heavily on the extent to which customers engage with their product, especially during the early stages. The more they use it, the more value they find in it, which increases the chances that they will continue to subscribe. In fact, data from Scout Analytics indicates that customers who use their new software at least once per week over the first six months of their subscription are about 50 percent less likely to churn.¹ Understanding this well, most Customer Success operations focus their churn reduction efforts on encouraging product usage. However, this approach is insufficient by itself because it overlooks human nature, the most influential factor of all. SaaS companies must change customer habits before product adoption is fully realized.

Creatures of Habit

How many times have you driven to work, but upon arriving, had no memory of the commute that got you there? Clearly, driving is complicated. You get into your vehicle, fasten your seatbelt, apply the brake, start the engine, put the gear selector in reverse, look behind you, back out, turn the wheel, apply the brake, close the garage door, put the car in drive—and that’s just getting out of your driveway. You process thousands of stimuli, decisions, and actions in a typical commute, yet it can all be done without much conscious thought.

How can something so complex become second nature? Our magnificent brains help us simplify life. Because cognition demands so many resources, our subconscious creates habits to increase efficiency. Although the brain accounts for only 2 percent of body weight, it consumes 20 percent of the body’s total energy.² To streamline, the basal ganglia recognizes patterns and creates shorter neural pathways to get the same job done faster and with fewer resources. The brain automatically rewires itself, enabling reflexes to perform tasks that once required more cognitive power. This subconscious rerouting happens all the time. By some estimates, about 40 percent of what we do every day is habitual.³

The Habit Cycle

Habits are made up of four things: a cue, a routine, a reward, and an underlying craving.⁴ A cue is something in the environment that triggers the behavior, the routine is the action, the reward is the positive outcome, and inner cravings are the motivation.

Let’s say you want to start exercising habitually. We’ll assume you want to shave off a few pounds because you don’t like how you look in the mirror. A better self-perception is your underlying craving. Next, to create the new habit, you follow a cue-routine-reward cycle. First, you set up a recurring reminder in your calendar (cue) and then go to the health club every time you schedule it (routine). After the first few workouts you'll start to notice newly toned muscles (reward). It may be difficult to repeat the cue-routine-reward cycle, but if you stay disciplined and patient, your brain rewires itself. Pretty soon, exercising regularly will be automatic. Simple enough.

The problem is that old habits are notoriously stubborn. This is because our brains always take the path of least resistance. Having been more efficiently converted and stored in the subconscious, habits become easier for the brain to recall and execute. Once neurons have been wired together during the learning process, the connections become permanent, so the brain must now expend more energy to substitute a new habit. Conscious repetition causes neural connections to strengthen, forcing the subconscious brain to eventually choose the new wiring over the old. If repetition is lacking, the brain simply defaults to the old reflexes. That’s why reinforcement is so important for creating habits and why change is so difficult. The more entrenched our behaviors, the harder and more frequently our brains must work to replace them.

Making Product Usage Habitual

You should view software adoption within the context of changing habits. Upon subscribing to your service, customers are essentially trying to replace one behavior with another, such as using your online database rather than an Excel spreadsheet to track their information. Your customers’ brains are wired to repeat their former behaviors, so the key to success is to be patient and vigilant, while smoothing their path to change. The following six tips can help:

1. Promote the Motivation—People ultimately change their behaviors because they are inspired to do so. In cases where a department head makes the software purchase decision, it is likely that many users won’t feel personally connected to the motivation behind it. Be sure to repeatedly reinforce your benefits with all users. Cultivate their desire to adopt new habits, such as explaining how the new software saves them significant time and effort.

2. Chunk Large Processes into Small Cue-Routine-Reward Cycles—Any process can be reduced to a series of repeatable steps, and stringing together smaller routines allows the brain to learn, adapt, and reuse skills more efficiently. Running a new financial system is a daunting task, but “paying a bill,” “reconciling a bank statement,” and “running a month-end report” are more accessible and easier for the brain to make into habit.

3. Implement Recurring Cues—Recall that every habit needs a sensory cue to initiate the autonomic behavior. You can provide simple triggers through e-mail reminders with embedded links to start transactions. For example, Facebook and LinkedIn constantly send updates to revisit their website and reconnect with friends, family, and business associates. If you identify and map the routines involved in using your product, you can associate a cue to enact each step.

4. Reward Frequently— Don’t leave progressive adoption to chance.  It is essential to track, display, and reward it at every turn. Recognize customer successes via web pages or e-mails when new users accomplish milestones. Note their “moments of proof,” drawing attention to the improvements that using your software yields. Be sure to recognize both initial and repeat successes to promote habit formation.

5. Leverage the Support of Others— Rewiring the brain is difficult and takes conscious effort. Use your cohort’s shared experiences to encourage fellow users. Whenever possible, train people in groups and let them interact. Just like Alcoholics Anonymous and Weight Watchers, social groups provide a safe environment and unmatched support for people undergoing changes in habit. User groups also increase perceived value and builds affective bonds between the company and its customers, which further reduces churn.

6. Be Mindful—Above all, be patient. Experts estimate a new habit can take from 22 to 60 days to form, depending on complexity, entrenched current behaviors, level of motivation and reinforcement frequency, and even the age of people involved. It’s a process that requires intense focus in the beginning, and typically includes false starts and frustrations along the way. Once the habit is established, however, it tends to stay for the long haul.

Software adoption is about changing habits. To maximize usage and minimize churn, your SaaS company should look a step beyond software features, focusing more on the human beings who use the product and the new habits their brains are attempting to form with it.

Excel-lens is a publication of Service Excellence Partners. We increase customer loyalty and business performance in the cloud computing industry. Contact us today.


Sources:

1. Scout by ServiceSource blog. 
2. Swaminathan, N. (2008) “Why does the brain need so much power?” Scientific American.
3. Duhigg, C. (2012) The Power of Habit: Why We Do What We Do in Life and in Business. Random House, New York. ISBN 978-0-679-60385-6
4. Ibid.

Is Your Customer Success Team a QA Department in Disguise?

A revolutionary change may be at hand.

Many Customer Success teams work with customers to help them learn and deploy new software in order to increase usage and build relationships at a critical time in the customer lifecycle. Others perform an important account management role, providing ongoing support and generating renewals. Often, however, CSM teams fill their days responding to customer complaints or being pressured to push upgrades to compensate for high churn. If CSMs spend most of their time mending frayed relationships or engaging in retention heroics, managers should be concerned—perhaps the Customer Success function is really there because the company lacks successful customers. 

Sound familiar?  Take heart. This situation is reminiscent of the transformation that occurred in manufacturing Quality Assurance departments not long ago. The important lessons they learned can help you lead your SaaS organization out of the problem-solving dark ages and into a problem-prevention renaissance. 

Learning from the Quality Movement

Reeling from tough economic times in the late 1970’s, Americans needed answers. Japanese brands Sony and Panasonic had decimated the American consumer electronics industry, while Toyota, Honda, and Nissan were busy thumping the Big Three auto makers. The Japanese produced significantly higher quality, lower cost goods, and consumers everywhere snapped them up. From the Rust Belt to Silicon Valley, the once-dominant American manufacturing industry was in crisis. 

Then in 1980, NBC News ran a program entitled, “If Japan can… why can’t we?” The show revealed how the quality improvement methods we taught the Japanese after World War II helped them beat us at our own game. Dr. W. Edwards Deming’s work with the Japanese challenged conventional notions that high quality must come at a high cost. Their global success proved that high quality meant far less waste and rework, lower costs, more reliable products, and happier customers. 

American industry got the message. After losing its way during the post-war boom, it was time for a new start. Led by Motorola, Alcoa, Ford, and many others, manufacturing rebounded by rediscovering quality methods, revamping operations, and regaining lost market share. Today, defects are no longer measured in percentages but in parts per million. It’s all due to a fundamental shift—manufacturers now achieve high quality not through inspection and remediation but by designing it into products and processes in the first place. Gone are large “test and fix” Quality Assurance operations, thanks to robust product designs, high capability production lines, and responsive supply chains. The modern, lean Quality function no longer requires scores of repair technicians but a select few quality consultants working upstream to ensure improvement never ends. 

Enlightenment in Customer Success

Just as manufacturing defects crippled manufacturing companies, experiential defects now rob SaaS companies of millions in revenue each year. Too often after buying SaaS offerings, customers find features lacking, software difficult to use, information hard to find, and support frustrating and unresponsive. This leads to churn.

When your Customer Success team becomes a de facto “save desk,” it’s behaving just like the Quality Assurance department of old, reacting to problems rather than adding value from the start. Worse, factors affecting churn can appear at multiple points in the process, but these problems get funneled to the Customer Success team in the name of “efficiency.” As a result, the team spends its time solving avertible problems at great expense. 

To remedy the situation, SaaS leaders must shift their focus to prevent churn in the first place:
• Create better products 
• Deliver better services
• Strengthen customer relationships 

To accomplish these goals, it’s critical to address the negatives that make customers leave and the positives that make them loyal. Leaders must dig deeper to uncover the cause-and-effect relationships that lead to better results. Doing so eliminates frustrations, saves time and money, and grows revenue through more successful installed-base sales campaigns. Given relatively low barriers to entry and increasingly crowded markets, companies that keep and grow hard-won market share will be the survivors when SaaS markets inevitably shake out most of the competition. 

Joining the Renaissance

The spark that ignites change is close at hand. Now more than ever, SaaS executives and investors understand the financial consequences of customer churn, emphasizing continuous improvement and analyzing customer use patterns and satisfaction data to drive software revisions. Executives are also beginning to look beyond the technology and to the people using it, placing greater importance on the overall customer experience. They see that the art of up-selling, cross-selling, and referral selling begins with a clean canvas of happy customers. As helpful visualization and predictive analytics technologies arrive on the market and teams adopt time-tested process improvement disciplines, your SaaS company can build customer loyalty that transcends software development and involves all aspects of the business.  

Excel-lens is a publication of Service Excellence Partners. We increase customer loyalty and business performance in the cloud computing industry. Contact us today.

Customer Loyalty Problem Solving

A three-level model helps focus improvement efforts. 

Customer retention is critical for companies with business models that rely on recurring revenue. The “leaky bucket” that is customer defection robs 

companies of precious revenue and profit. In cloud computing, cutting customer churn in half over the typical customer life cycle doubles company cash flow and gross margin.¹ Even a small churn reduction pays off in the long term when millions of dollars in revenue are in play.

Obviously, improving customer loyalty is the key, but how? Where should managers start? I propose a simple, three-level model to concentrate on the customer benefits that lead to loyalty: Implicit, Explicit, and Experiential.

Implicit Benefits

Customers take certain things for granted, such as reliable wireless phone service, accurate bank statements, and bug-free software. People assume basic attributes come with the service, and when companies fail to deliver on these minimum expectations, customers have little patience. Chronic problems providing what quality expert Dr. Noriaki Kano calls “must-be” quality² leads to customer defections in every industry. In Software-as-a-Service (SaaS) companies, churn can lead to the loss of half of a firm’s customer base during each renewal cycle.

This is why managers must make delivering the fundamentals a company’s first priority. In cloud computing, that means system uptime, secure data, error-free code, and basic product support. SaaS executives must get and maintain control of their technology development and operations processes or prepare for a rapid demise.

Explicit Benefits

Companies promise things during the sales cycle. When deciding between competitive options, customers evaluate each company’s “value proposition” and choose the best option. If promises don’t materialize, customer expectations go unmet. For example, a SaaS company may state that their software creates a certain type of report, but the customer later discovers it can’t. Customers may not return if the issue is severe and the dissatisfaction high enough. If a competitor offers comparable benefits, and changing providers is simple and cheap, potential for churn grows.

Marketing masters Michael Lanning and Lynn Phillips say companies should make strong value propositions their strategic foundation.³  First, managers must choose a winning value proposition, one that focuses sharply on a target market and offers a compelling alternative. Second, executives must deliver the chosen value proposition by translating it into design requirements, bringing it to market, and then providing it in day-to-day operations. Finally, the company must communicate the value proposition clearly and consistently in marketing, sales, and customer service. When promise-making and promise-keeping are in close alignment, customer expectations are reliably met and churn is reduced. An effective strategic management system ensures value propositions aren’t empty promises.

Cloud computing companies competitive in delivering Explicit and Implicit benefits will typically retain 80-85% of their customers from one renewal cycle to the next. But to raise performance to world-class levels of 95% or higher, companies must become proficient delivering a third type of benefit.

Experiential Benefits

Customers prefer to do business with people they know, like, and trust. How a company does business is as important to customers as the product or service they receive from them. When customers have lackluster experiences, churn increases. Just one unhelpful tech support interaction can end a business relationship, especially when the customer feels ignored, devalued, or unfairly treated. On the other hand, service companies that form strong relationship bonds enjoy significantly higher customer loyalty.⁴

Customer Experience Management (or Customer Journey Management) is a technique used to analyze and improve customer interactions. Managers collect data on myriad customer “touch points” (website visits, phone calls, e-mails, blog entries, social media, etc.) and plot each interaction against time. Patterns emerge where gaps and problems exist, and managers can use process improvement techniques, such as Lean Six Sigma, to resolve them.

While addressing functional gaps is the first place to start, research suggests a more mindful approach is the secret to achieving the highest levels of customer loyalty. Underlying all human

relationships are reflexive responses to subtle, social cues that can have a profound effect on conscious feelings and decisions.⁵ For example, our subconscious mind is sensitive to certainty, the ability to predict the future. When a Customer Success Manager begins an onboarding call by saying, “We’ll have you up and rolling in just fifteen minutes,” she provides subliminal assurances to the customer, producing a rewarding dopamine burst in his brain. If additional, beneficial cues accumulate during the call, the brain assigns a positive marker to the memory.⁶  Later, the brain reactivates the marker as it recalls the experience, allowing subliminal emotions to “weigh in” on the evaluation. When companies understand and proactively manage simple social cues through employee training, refined user experience (UX) design and other means, the resulting positive interactions lead to richly satisfying relationships and more loyal customers.

Loyalty troubleshooting is easier when managers focus on Implicit, Explicit, and Experiential benefits. When customer turnover is high, executives should attend to the basics. When it’s moderate, the priority becomes clearly articulating and consistently delivering competitive distinction. And when managers strive for world-class loyalty, being mindful of the customer experience is the path to success.

Excel-lens is a publication of Service Excellence Partners. We increase customer loyalty and business performance in the cloud computing industry. Contact us today.

Sources:

1. Skok, David (2013). “SaaS Metrics 2.0 – A Guide to Measuring and Improving What Matters,” For Entrepreneurs blog
2. Adapted from Noriaki Kano, Nobuhiku Seraku, Fumio Takahashi, Shinichi Tsuji (April 1984). "Attractive Quality and Must-Be Quality" (in Japanese). Journal of the Japanese Society for Quality Control 14 (2): 39–48. ISSN 0386-8230. 
3. Lanning, M. and Phillips, L. “Building Market-Focused Organizations,” (Gemini Consulting White Paper, 1992).
4. Gremlera, D. and Brown, S. (1996) “Service Loyalty: Its Nature, Importance, and Implications,” University of Idaho and Arizona State University, USA
5. Rock, D. “SCARF: a brain-based model for collaborating with and influencing others,” NeuroLeadership Journal.
6. Damasio, A. R. (1996) “The somatic marker hypothesis and the possible functions of the prefrontal cortex,” Philosophical Transactions of the Royal Society B, 351, 1413-1420. 

Aristotle's Approach to Startups

How an ancient practice keeps entrepreneurs from deluding themselves and their investors 

Thousands gathered this week in San Francisco at the Lean Startup Conference to hear industry luminaries share their expertise on how to launch successful startups. Conference hosts blogged about how innovative “Lean Startup” methods can reduce risk by rejecting the traditional path of extensive business planning and huge upfront investments. Instead, today’s top entrepreneurs formulate and test hypotheses, adjusting their new offerings quickly and cost-effectively with fast development cycles. 

That’s right, the heart of today’s hottest management trend is a 2,500-year-old idea that you first learned in grade school. It’s the scientific method, one of Aristotle’s lasting contributions to humankind. He promoted the radical idea that new knowledge can be gained from empirical study of the natural world. Throughout the ages, Ibn al-Haytham, Roger Bacon, Descartes, and many others went on to perfect the concept. (1) Eventually, a 19th Century scientist and philosopher named William Whewell defined the five-step method commonly used today: formulation of a question, a hypothesis, a prediction, experimentation, and analysis of data to confirm or reject the hypothesis. (2) 

Lean Startup is the scientific method 

Today’s Lean Startup approach employs the scientific method to answer essential questions about new products, business models, and early market demand. Rather than generating lengthy market research reports, entrepreneurs list their hypotheses on a one-page “business model canvas.” Then, applying agile development techniques, founders work closely with customers to quickly test hypotheses and refine product features, pricing, marketing, and delivery. Following this path helps entrepreneurs prove that their products, key business processes, and economics all work on a small scale before they seek funding for rapid expansion.  

This approach is not just for startups. Big companies General Electric, Toyota, and Comcast all use Lean start-up practices to develop new products and services with small teams, (3) an intrepreneurial practice that helps them avoid the bureaucracy inherent in large organizations. Many leading firms run ongoing, low-cost experiments, and then learn all they can from them, only committing massive money and resources when and if the business ideas demonstrate traction. Jim Collins, author of Good to Great and Great by Choice, calls this “firing bullets, then cannonballs.” He says following this critical discipline can help companies outperform financial benchmarks by a factor of ten or more over the long term. (4) 

Angel investors and venture capitalists can also benefit from Lean Startup methods. It’s estimated that as many as 90% of new high-tech ventures fail, (5) meaning investors typically waste billions every year on ideas that go nowhere. The new approach limits risk for investors because it helps them methodically validate ideas using someone else’s (the founders’) boot-strapped funds. Financiers then avoid investing in ideas that arise from hopes and dreams alone, and substitute them with scientifically proven models based soundly on “dollars in and dollars out.” 

Pass the pie in the sky

Perhaps the scientific method’s greatest contribution to startups is helping entrepreneurs overcome their own human shortcomings. All people suffer a cornucopia of flawed thinking—Wikipedia lists no less than 92 decision-making, belief, and behavioral biases.

Unfortunately, entrepreneurs tend to be in a class by themselves when it comes to bias. Being an entrepreneur often involves a steadfast belief in an idea that will be bigger than Google, regardless of what anyone else thinks. While that level of confidence is admirable, even infectious, it’s almost always self-deluding. Whether applied in the physical sciences or in business, the scientific method helps minimize bias and errant conclusions through repeated experiments, rigorous peer reviews, and credible evidence. In the end, objective reality always trumps subjective belief. 

After a history of bad decisions and so much money wasted on dead ends, entrepreneurial approaches are changing. Increasingly, investor’s say “Prove it” when entrepreneurs claim to have the Next Big Thing. Thanks to the scientific method, the Lean Startup approach can do exactly that.

Excel-lens is a publication of Service Excellence Partners. Our unique approach helps founders at early stage companies better scale operations and manage growth. Contact us today.

Sources:

1. De Lacy O'Leary (1949), How Greek Science Passed to the Arabs, London: Routledge & Kegan Paul Ltd., ISBN 0-7100-1903-3
2. History of Inductive Science (1837), and in Philosophy of Inductive Science (1840) 
3. Lean Start-up Conference program, http://leanstartup.co/full-program 
4. Jim Collins and Morten T. Hansen (2011), Great by Choice: Uncertainty, Chaos and Luck—Why Some Thrive Despite Them All, USA: HarperCollins Publishers, ISBN 978-0-06-212099-1
5. Max Marmer, Bjoern Lasse Herrmann, Ertan Dogrultan, Ron Berman. Start-Up Genome Report Extra. s.l. : Stanford University, 2012.