By: Ed Powers
In response to increasing customer demand for greater flexibility and lower costs, many large, global companies are adopting subscription-based business models for their new software and infrastructure offerings. This shift involves more than simply hosting software in the cloud and setting up subscription billing. Firms must rethink relationships with their customers, too.
Why? Instead of collecting all revenue and profit up front, subscription and usage-based models do it over time. That means customers must subscribe for a minimum period for the provider to just break even. Since profitability only comes over the long term, selling “shelf-ware” doesn’t fly any more—suppliers must ensure their customers actually use their products. Absent adoption, they will likely churn, and the company will wind up losing money. And ensuring customers quickly and fully realize the value they expected is the unique role of Customer Success.
But Customer Success is an entirely new concept for most established companies. Many global firms already have complex sales and distribution channels for their legacy products. Senior leaders often don’t understand how subscription models work, or what the Customer Success function brings to the party. And given the small (albeit growing) revenue from nascent offerings, few care. Consequently, managers of fledgling Customer Success teams rarely get the attention or resources from the higher-ups they need.
A Remedy for Prompting Change
To deal with this challenge, the CS manager must catalyze change effectively, and this takes top-down:
- Awareness of the problem
- Motivation to solve it
The trick, of course, is to get the right C-level people mobilized and focused on making the change. Only senior executives have the authority and the influence to break down barriers and drive the level cross-functional cooperation required for building successful CS operations.
Change management guru John Kotter provides valuable insights on exactly how to do this. His 1996 bestseller, Leading Change, proposed an 8-step process for successful transformation:
- Increase urgency
- Build the guiding team
- Get the vision right
- Communicate for buy-in
- Empower action
- Create short-term wins
- Don’t let up
- Make the changes stick
This framework has been used thousands of times to better manage the “people” side of change, and much has been learned along the way. In his 2002 follow-up work, The Heart of Change: Real-Life Stories of How People Change Their Organizations, Kotter studied why so many change initiatives failed while others succeeded. He concluded:
“People change what they do less because they are given analysis that shifts their thinking than because they are shown a truth that influences their feelings.”
Procurement executive John Stegner shares a persuasive example in Kotter’s book. Stegner couldn’t get general managers at manufacturing divisions in his company to care much about consolidating and managing their spend. Doing so would have dramatically reduced costs because of the negotiation leverage that comes from collective buying.
To get a sense of the problem, Stegner tasked a summer intern to study how much the company paid for work gloves at various factories. She learned that the company bought 424 different kinds, each division purchasing independently. Moreover, the same glove from the same supplier could cost $5 at one factory and $17 at another. The student collected samples of the gloves and labeled each with its own price tag and which factory bought it.
Stegner and the intern then mounded the gloves on the conference table at corporate headquarters and invited the division presidents to come take a look. The senior leaders were stunned thumbing through the specimens and reviewing the high variability in prices. The pile demonstrated in a very tangible and compelling way the reality of the problem. Had Stegner simply showed charts and graphs to make his economic case during a staff meeting, he wouldn’t have made nearly the same impact. By appealing to emotion and intuition, “We must fix this!” became the rallying cry from the C-suite. The changes that followed led to hundreds of millions of dollars in savings.
The story underscores one of Kotter’s main points:
“The flow of see-feel-change is more powerful than that of analysis-think-change. These distinctions between seeing and analyzing, between feeling and thinking, are critical because, for the most part, we use the latter much more frequently, competently, and comfortably than the former.”
Neuroscientists agree with Kotter. They say we are always of two minds: an emotional, intuitive brain (called System 1) and a rational, logical brain (System 2). System 1 runs below our conscious awareness. It’s incredibly fast and efficient, but it’s full of bias. Our System 2, on the other hand, is conscious, precise and deliberate, but it runs slowly and requires more effort. To consume less energy, the brain favors System 1 over System 2, and as a result, emotional decisions tend to dominate. In fact, about 70-80% of the time, logic just sits on the sidelines, justifying choices that have already been made.
So, speaking to the heart first, and then the head, is a better strategy to capture someone’s attention and stimulate action. After emotion leans in and logic has the chance to catch up, closing the deal with the numbers then satisfies both System 1 and System 2.
What does this mean for a Customer Success leader seeking to increase urgency for change?
Step 1: Show, Don’t Tell
A CS leader’s best weapon is their front-row seat to the decisions customers make. When accounts cancel their subscriptions (and some invariably will), the CS leader or an outside expert can conduct exit interviews. By asking the right questions, customers will reveal why they switched. After multiple conversations, clear patterns will emerge. By recording web calls and editing them into a “supercut,” the CS leader has everything they need to trigger an emotional response from a C-level executive. Hearing the story right from the horse’s mouth is instantly relevant, compelling, and undeniable.
Step 2: Tell
Of course, this only satisfies their emotional System 1; System 2’s rationality must also be addressed. If the CS leader then shows the financial impact of churn, including its effect on company valuations, the senior exec will likely go all in. For instance, Bessemer Ventures says a 2% improvement in churn equates to a 20% increase in shareholder equity. Hearing this, the executive will do the math. They’ll realize something must be done for the sake of the firm—and for their own stock portfolio.
Step 3: Make it Easy
To obtain their full commitment, the CS leader must also have a plan and a way to make things easy for the executive. Once the exec processes the information, they’ll naturally ask, “So what are we going to do about it?” By showing a road map for change, how CS can help, and by making a few specific requests, the CS leader can energize the executive to engage and lead the action.
Increasing urgency in the boardroom is the key to get new Customer Success operations funded and resourced. After making incremental gains, an enterprise-wide strategy to continuously improve products, services, and processes to better meet the demands of new business models follows. But the first step is marshaling the C-suite, and it’s up to CS leaders to show them the way.
About the author:
Recognized as a Top 25 Customer Success Influencer, Ed Powers is a consultant known for helping teams make breakthroughs in customer loyalty by addressing why customers leave—and why they stay. His unique approach combines neuroscience with data analytics and enterprise-wide improvement to deliver dramatic results. For more information, connect with Ed on LinkedIn or visit his Service Excellence Partners website.