One of the best things about the enterprise software market is a little upstart called Zoho. This is a company that aspires to be the purveyor of the “operating system of business,” and to a certain extent they’re well on their way to building out a portfolio of enterprise and productivity software that could, at least theoretically, run much of the operations of basically any small to medium-sized company.
They’re also done a great job upending some of the established practices of the industry: They’re privately held with no external venture capital or private equity bosses to pervert their mission, and therefore proudly not beholden to the whims of enterprise software’s quarterly dance with the Wall Street devil. The company also has a remarkable pricing model that allows customers to buy everything Zoho sells for the price of most single-function SaaS products; they have an amazing story to tell about how they recruit and educate their workforce via Zoho University; and they have an incredible culture of openness and doing good in the world that is refreshing in a market of performative virtue-washing, do-gooding, and other nonsense (such as stakeholder capitalism, a self-serving ruse companies that don’t pay corporate income taxes use to justify their lack of participation in the social contract.)
Having started by servicing small businesses, and then medium-size enterprises, Zoho is now on the cusp of moving upstream to net bigger, upper mid-market companies – up to and including the $1-2 billion/year revenue category. With those aspirations come a host of challenges and one big fat opportunity. The challenges are familiar: how to scale up sales, marketing, services, and partners to make this move, not to mention product feature/functionality.
That big fact opportunity – which can actually help with some of the challenges – is worth spelling out both as an inspiration to Zoho and a warning to the rest of the enterprise market about what the competitive future may hold for them when, eventually, a Zoho takes this route.
The opportunity? Be the first enterprise software company focused on real customer success. And I mean the real kind – selfless, altruistic, whatever it takes, do or die customer success — and not the fake, pretend, lip-service forms of customer success that unfortunately dominate the enterprise software landscape today. I’ve come to realize that the predominant form of customer successing, to coin a grammatically challenging term we probably don’t need, is basically not much more than a cover-up, like greenwashing, that is intended to make everyone feel good without ever doing anything that makes anyone feel any real pain.
Defining Customer Success
Before I get to the details of the cover-up, we need to define customer success. To me, a successful implementation delivers on its expected, and intended, functionality and value, in a timely and cost-effective way. Success at a minimum improves key business processes and enables new ones, and measurably moves the needle for business success along the way. This isn’t just about on-time and on-budget – it’s more complicated than that. Lots of projects have met those criteria and still been failures, just as lots of projects haven’t met those criteria and can be seen as a success.
That’s why I go for expected functionality and value: it’s important to acknowledge that mistakes can be made, deadlines and budgets busted, and the result can still be considered a success as long as it delivered what was expected, assuming abject cost overruns and years-long delays are not what any expects. Sometimes the failure can be remedied by some concerted effort at remediation – the escalation waltz – whereupon it can eventually become a success. And sometimes the parties end up in court. Most projects do eventually meet some degree of success, albeit a success too often encumbered with enough of the stigma of customer dissatisfaction so as to be a Pyrrhic victory at best.
The issue of setting and meeting expectations is critical, and that’s why real customer success can only be defined and reported by the customer, not the vendor or partner. I really don’t care about self-reported metrics on this topic. If they’re not independently audited, none of them are trustworthy. Especially as the customer success is too often part of the sales and/or marketing organization, neither of which are the place one should go for objective truths about the result of a sales execution model that ultimately isn’t conducted in the customer’s best interest – but I’m getting ahead of myself.
Anatomy of a Cover-up
This why I use the term cover-up to describe the customer success trend in our industry: by and large, real customer success is a concept honored “more honored in the breach than the observance,” to quote from a famous play about deception and cover-up. Titles like vice president of customer success began popping up like mushrooms in a dank basement several years ago, as the industry started seeing its traditionally mediocre-to-lousy customer sat numbers begin to rival those of the telecom, credit card, and airline industries. As a reaction to this by the forces of PR and marketing, and in typical too big to succeed fashion, executive titles were created, customer success fiefdoms were laid out across the corporate bureaucracy, and the customer success hooey began.
And a whole lot of hooey it has turned out to be. In the six or so years since this concept started popping up, there has been no measurable success for these efforts. There are corners of the industry that are showing increasing success rates, the best being pure greenfield, pure SaaS, mid-market implementations. But these implementations are successful precisely because the expectations of the customer have been tempered by the requirements for process standardization: they know they’re not getting all the bells and whistles they used to deploy on-prem as they migrate to the cloud. If you standardize your processes and have no data, process, or customization migrations to manage, you can be successful relatively easily. That’s what technology and business discipline does for you, there’s no need for a customer success bureaucracy to make SaaS meet these well-defined expectations.
But for existing customers looking to transform, migrate, re-platform, and otherwise update an existing system, customer success programs aren’t really changing success rates. Success happens, of course, but no vendor has come forth with real data showing how it has improved customer success by creating a customer success program. None. I doubt they could prove it if they tried: I’ve never seen decent definitions of success or other metrics on how vendors track success in a truly objective way, how they would use whatever positive metrics they could come up with to prove the causative effect of having a customer success exec in place doesn’t seem possible.
Go on, prove me wrong, customer success and marketing departments. Send me your data – I promise to publish anything you can send me that’s credible and verifiable.
I’m not expecting a lot of honest pushback from vendors about this dare because other than a handful of smaller vendors – Unit4’s agreement with Raven Intelligence is the most notable – no vendor has really gone to the trouble of engaging with a third party to look into the customer success issue in a systematic fashion. This is why I think customer success has been a cover-up, plain and simple, since its inception. It’s been a cover-up because the continuing problems across the industry with project implementation success, change management, user acceptance, data migration, and the delivery of measurable long-term value tell a story of business as usual, as in never-ending problems with customer success. The majority of enterprise software engagements – outside the pure cloud/SaaS, greenfield kind – still struggle with achieving real, unadulterated success. And the bigger the company, the more complex the starting point, and the greater the chance that the customer will not succeed by any reasonable measure.
Who is the Real Customer Anyway?
How did we get to this mess? It starts with the assumption that the customers on whom vendors are focused are the companies that buy their software and services. Unfortunately, for all too many vendors, that assumption is unfortunately not entirely true: For most of the enterprise software industry the number one customer is the investor – public or private – and the degree to which this primer inter pares customer is kept happy is the most important metric companies really care about.
I know it’s horribly cynical to say this so emphatically. But if you’ve ever been around when the quarter ends at an enterprise software company, you’ll know that the rabid selling frenzy account execs go into trying to close as many deals as possible as the quarter ends isn’t about making customers happy or successful. Not at all. All that last-minute deal making, and attendant shenanigans like selling vaporware and shelfware to meet quota, with promises of discounts on the stuff the customer really wants, is only about sales reps achieving their sales goals, and the company achieving whatever measure of success investors are looking for. Because you can bet Wall Street sure as hell doesn’t care a rat’s patootie for customer success metrics.
As an example, I took the transcript from the recent Microsoft’s Q4 2022 call and did a quick content analysis. There were questions about deal size, growth, price performance, “Azure’s resiliency and exposure,” the likelihood of “deceleration,” customer spending priorities, capital spending, utilization, selling more bundles, and my two favorites, “the linearity of customers’ consumption pace,” and something about an “end of year budget flush,” whatever that may be. (Definitely not a customer success stat, unless you’re a fiscal plumber of sort, I guess.) Not a single question about customer success. Indeed, the term customer success never comes up, and success made a lone appearance when Satya Nadella mentioned the concept of success being a differentiator, but he dropped as quickly as he said it in the first place.
To be perfectly clear: Keeping Wall Street or private equity happy has nothing to do with customer success. Nothing. The money bros (and it’s mostly bros on these calls, for reasons worth exploring in a later post) have a simple analytical framework: just turn in continuous growth – and profits, though they are sometimes optional – at a steady quarterly cadence, regardless of whether those numbers are in any way directly connected to real customer success and long-term customer value. Even when there’s an exec on the call whose job title includes customer success, the issue never seems to come up in any meaningful way.
If you’ve ever wondered why the Solow Productivity Paradox – you can see the computer age everywhere but in the productivity statistics – is as true today as when Nobel Laureate Robert Solow said this 35 years ago, look no further than this disconnect between revenue growth and customer success.
This disconnect is why there’s next to no productivity growth in the economy at large attributable to tech despite the continuous growth in tech spending; why project failure after project failure by large systems integrators is swept under the rug by vendors all too willing to put the same miscreants on keynote stage when it comes time to hand out partner awards; why shelfware and vaporware exist in such vast numbers in customer portfolios; why user acceptance and change management are so hard; and why incentive programs are skewed toward making as many deals in the quarter as possible, and to hell with the concept of making good deals that are focused on customer value.
And this also why “elephant hunter,” quota-carrying sales reps are always seen as the prerequisite to going big in enterprise software: These foot soldiers in the war of quarterly revenues are always the first thing a company is supposed to stock up on when it comes time to sell complex software that needs a direct sales approach. They supposedly know how to talk the talk to CIOs and, ideally, CEOs, CFOs, and LOB decision-makers, and get them to sign on to whatever is weighing down the rep’s kit bag with incentives and bonuses. They pay lip service to concepts like ROI and lifetime customer value, but that’s really not why they’re at the door: they need to make a sale that’s good for the vendor regardless of whether it’s actually good for the customer. Hopefully the two goals converge on the contract page, but we all know that’s much more rare than it should be.
The Zoho Opportunity (Finally)
With this as the backdrop to all that is wrong with enterprise sales and customer success, I propose that Zoho has a great opportunity to do what it’s good at and not play this cover-up game in the same old industry sandlot according to these benighted rules. The beauty of being this new to enterprise sales and this culturally conditioned to think differently about everything. (Zoho also runs its own cloud, with no third party hyperscalers and their massive margins to feed, and uses that savings to build product. They’re saving a pretty penny indeed: last quarter, Microsoft Cloud’s gross margin on $25 billion in revenue was a mindboggling 69% and that was down from last year.) With no Wall Street bros grunting at it about budget flushing, and, so far, no big game hunters selling for it, Zoho has a chance to reconfigure the twin impacts of a rotten sales culture and a rotten equity culture before it gets sucked into playing “follow the leader.”
I’m of the opinion that if Zoho doesn’t take up the mantle of true customer success, some smart, forward-thinking company will do so someday, if for no other reason than it’s the right thing to do. I know, that sounds a little utopian, but bear with me as a try to explain why Zoho may be uniquely positioned to lead the market on this important issue.
It’s not like Zoho isn’t dedicated to customer success already, on the contrary. But if the company wants to move upstream, particularly with a forthcoming ERP product added to the mix, it will need something to stand out in a crowded space filled with mavericks like Acumatica, which has already staked a claim to be the best in licensing and contracting – hell, they even have a Customer Bill of Rights (swoon.)
Zoho will also have to worry about behemoths like Microsoft Dynamics, Netsuite, SAP, and others, all of which can sell at volumes that upstart mid-market vendors like Zoho can’t touch. And, perhaps most importantly, Zoho will have to compete with the undisputed, and perennial market leader, Other, as in the hundreds of small, regional, industry-specific ERP and enterprise software vendors that, together, outsell the brand leaders in the mid-market by a significant margin.
I’m hoping Zoho can be the maverick that breaks away from the herd. They’re starting from scratch, after all, and don’t have to play follow-the-leader if they so choose. If Zoho, or anyone else, wants to do right by the customer and put customer success first, I have a few ideas on how to execute this radical a strategy (some of which I have begged, borrowed, and stolen from Jon Reed’s excellent post on the subject, as well as Phil Wainright’s equally excellent post):
- Create and promote a Customer Bill of Rights and Obligations. Jon’s article has a couple of good examples of what the first part of that looks like, so I won’t elaborate here except to say that a Customer Bill of Rights is just a starting point. I’ve added Obligations to this because customers just can’t be passive consumers of success, they have to be proactively involved in making sure they bring the right skills, sponsorship, project management processes, and other capabilities to the party. I’ve written on the concept of customer obligations here.
- Create and promote a Partner Bill of Rights and Obligations. Same idea, with a twist: As I’ve said many times, the partner is often the “adult supervision” in the project, and that means they have to more than do a good job – they have to make sure the customer does too, which can mean holding customers to their Rights and Obligations, even if that means dragging them kicking and screaming to the table. (Here’s a link to a podcast I did with Jon and Bonnie Tinder, CEO of Raven Intelligence, that discusses the partner problem in depth.)
- Think about success as a series of steps or stages, not as a single, monolithic event. Was the pilot successful? The contract negotiation? The partner engagement? The scoping? Data migration? Go-live? Operations? Upgrade? Measuring and reporting these data will make sure that success is a journey, and not just an event.
- Track success using cloud telemetry, from conference room pilot to go live and beyond, and share these data with all stakeholders. If you’re implementing and running in the cloud, you have the ability to measure everything, especially, as in the case of Zoho, it’s your cloud. So do it: make sure you’re measuring at specific milestones and not just at some “end point,” like go-live, and then embrace transparency and accountability by publishing the results, however good or bad they look. There’s nothing like opacity and pass-the-buck to ensure your projects and operations will underachieve. The light of transparency shines on accountability too.
- Engage third party auditors to verify your success data, so that they’re not the usual self-congratulatory nonsense. And include third party survey data, such as is produced by Raven Intelligence, to make sure everyone knows you have nothing to hide when it comes to customer success.
- Make sure you’re looking at success specific to industries, geographies, and project types: the road to success for a utility may be very different than the road to success for a mining company – one type of success doesn’t necessarily translate to all.
- Conduct a quarterly customer success call to balance the quarterly calls everyone does with that other customer base, the financial analysts. Publish your success or perish.
- Create an internal improvement process and give it teeth. Embrace the feedback loop and make it work: you have the data, use it for good.
- Don’t hire elephant hunters, hire customer success hunters. And incent them accordingly: bonuses need to be dependent on verifiable measures of customer success, not sales success. With all the data you’re collecting, it shouldn’t be too hard.
- Make public how you incent your customer success execs. Better yet, tell the world how you “punish” execs who don’t meet your customer success goals. Some threat of punishment is necessary: If they don’t have skin in the game they won’t care enough to ever fix this mess.
I realize this is a lot to put onto a company like Zoho – I’m essentially asking them to atone for the sins of the industry by creating practices and processes that will make it harder for Zoho to be successful than if they just took the classic enterprise sales model and ran their efforts by the book. But it’s just too hard to resist suggesting they capitalize on this once in an industry opportunity to start from scratch with a completely new model – particularly for a company that lives to show the industry that it doesn’t have to emulate the same old story we’ve been hearing in enterprise software for decades.
If not Zoho, who? If not now, when?
[…] The third discipline for growth requires a focus on capitalizing these kinds of small-scale businesses, agricultural and manufacturing in nature, to support “the fastest possible technological learning, and hence the promise of high future profits, rather than on short-term returns and individual consumption.” This can come at the cost of short-term profitability and a consumption-oriented economy, Studwell argues, and therefore is in opposition to business models that are driven by Wall Street’s appetite for quarterly profits and growth at all costs, at the expense of long-term value, employee satisfaction, and ultimately, customer success. […]