The CEO. Thanks for reading.
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I was tempted to stop there because I’ve been writing a lot of long posts lately and because I do believe the answer is that simple. First let me explain the controversy and then I’ll explain my view on it.
In days of yore, chief revenue officer (CRO) was just a gussied-up title for VP of Sales. If someone was particularly good, particularly senior, or particularly hard to recruit you might call them CRO. But the job was always the same: go sell software.
Back in the pre-subscription era, basically all the revenue — save for a little bit of services and some maintenance that practically renewed itself — came from sales anyway. Chief revenue officer meant chief sales officer meant VP of Sales. All basically the same thing. By the way, as the person responsible for effectively all of the company’s revenue, one heck of a powerful person in the organization.
Then the subscription era came along. I remember the day at Salesforce when it really hit me. Frank, the head of Sales, had a $1B number. But Maria, the head of Customer Success [1], had a $2B number. There’s a new sheriff in SaaS town, I realized, the person who owns renewals always has a bigger number than the person who runs sales [2], and the bigger you get the larger that difference.
Details of how things worked at Salesforce aside, I realized that the creation of Customer Success — particularly if it owned renewals — represented an opportunity to change the power structure within a software company. It meant Sales could be focused on customer acquisition and that Customer Success could be, definitionally, focused on customer success because it owned renewals. It presented the opportunity to have an important check and balance in an industry where companies were typically sales-dominated to a fault. Best of all, the check would be coming not just from a well-meaning person whose mission was to care about customer success, but from someone running a significantly larger amount of revenue than the head of Sales.
Then two complications came along.
The first complication was expansion ARR (annual recurring revenue). Subscriptions are great, but they’re even better when they get bigger every year — and heck you need a certain amount of that just to offset the natural shrinkage (i.e., churn) that occurs when customers unsubscribe. Expansion take two forms
- Incidental: price increases, extra seats, edition upsells, the kind of “fries with your burger” sales that are a step up from order-taking, but don’t require a lot of salespersonship.
- Non-incidental: cross-selling a complementary product, potentially to a different buyer within the account (e.g., selling Service Cloud to a VP of Service where the VP of Sales is using Sales Cloud) or an effectively new sale into different division of an existing account (e.g., selling GE Lighting when GE Aviation is already a customer).
While it was usually quite clear that Sales owned new customer acquisition and Customer Success owned renewals, expansion threw a monkey wrench in the machinery. New sales models, and new metaphors to go with them, emerged. For example:
- Hunter-only. Sales does everything, new customer acquisition, both types of expansion, and even works on renewals. Customer success is more focused on adoption and technical support.
- Hunter/farmer. Sales does new customer acquisition and non-incidental expansion and Customer Success does renewals and incidental expansion.
- Hunter/hunter. Where Sales itself is effectively split in two, with one team owning new customer acquisition after which accounts are quickly passed to a very sales-y customer success team whose primary job is to expand the account.
- Farmers with shotguns. A variation of hunter/hunter where an initial penetration Sales team focuses on “land” (e.g, with a $25K deal) and then passes the account to a high-end enterprise “expand” team chartered with major expansions (e.g., to $1M).
While different circumstances call for different models, expansion significantly complicated the picture.
The second complication was the rise of the chief revenue officer (CRO). Generally speaking, sales leaders:
- Didn’t like their diminished status, owning only a portion of company revenue
- Were attracted to the buffer value in managing the ARR pool [3]
- Witnessed too many incidents where Customer Success (who they often viewed as overgrown support people) bungled expansion opportunities and/or failed to maximize deals
- Could exploit the fact that the check-and-balance between Sales and Customer Success resulted in the CEO getting sucked into a lot of messy operational issues
On this basis, Sales leaders increasingly (if not selflessly) argued that it was better for the CEO and the company if all revenue rolled up under a single person (i.e., me). A lot of CEOs bought it. While I’ve run it both ways, I was never one of them.
I think Customer Success should report into the CEO in early- and mid-stage startups. Why?
- I want the sales team focused on sales. Not account management. Not adoption. Not renewals. Not incidental expansion. I want them focused on winning new deals either at new customers or different divisions of existing customers (non-incidental expansion). Sales is hard. They need to be focused on selling. New ARR is their metric.
- I want the check and balance. Sales can be tempted in SaaS companies to book business that they know probably won’t renew. A smart SaaS company does not want that business. Since the VP of Customer Success is going to be measured, inter alia, on gross churn, they have a strong incentive call sales out and, if needed, put processes in place to prevent inception churn. The only thing worse than dealing with the problems caused by this check and balance is not hearing about those problems. When one exec owns pouring water into the bucket and a different one owns stopping it from leaking out, you create a healthy tension within the organization.
- They can work together without reporting to a single person. Or, better put, they are always going to report to a single person (you or the CRO) so the question is who? If you build compensation plans and operational models correctly, Customer Success will flip major expansions to Sales and Sales will flip incidental expansions back to Customer Success. Remember the two rules in building a Customer Success model — never pair our farmer against the competitor’s hunter, and never use a hunter when a farmer will do.
- I want the training ground for sales. A lot of companies take fresh sales development reps (SDRs) and promote them directly to salesreps. While it sometimes works, it’s risky. Why not have two paths? One where they can move directly into sales and one where they can move into Customer Success, close 12 deals per quarter instead of 3, hone their skills on incidental expansion, and, if you have the right model, close any non-incidental expansion the salesrep thinks they can handle?
- I want the Customer Success team to be more sales-y than support-y. Ironically, when Customer Success is in Sales you often end up with a more support-oriented Customer Success team. Why? The salesreps have all the power; they want to keep everything sales-y to themselves, and Customer Success gets relegated to a more support-like role. It doesn’t have to be this way; it just often is. In my generally preferred model, Customer Success is renewals- and expansion-focused, not support-focused, and that enables them to add more value to the business. For example, when a customer is facing a non-support technical challenge (e.g., making a new set of reports), their first instinct will be to sell them professional services, not simply build it for the customer themselves. To latter is to turn Customer Success into free consulting and support, starting a cycle that only spirals. The former is keep Customer Success focused on leveraging the resources of the company and its partners to drive adoption, successful achievement of business objectives, renewals, and expansion.
Does this mean a SaaS company can’t have a CRO role if Customer Success does not report into them? No. You can call the person chartered with hitting new ARR goals whatever you want to — EVP of Sales, CRO, Santa Claus, Chief Sales Officer, or even President/CRO if you must. You just shouldn’t have Customer Success report into them.
Personally, I’ve always preferred Sales leaders who like the word “sales” in their title. That way, as one of my favorites always said, “they’re not surprised when I ask for money.”
# # #
[1] At Salesforce then called Customers for Life.
[2] Corner cases aside and assuming either annual contracts or that ownership is ownership, even if every customer technically isn’t renewing every year.
[3] Ending ARR is usually a far less volatile metric than new ARR.
Another on the spot post. Thanks. You might have missed one option: New Biz Sales reports to the Head of CS. Given that revenue from renewals and expansion quickly become the major revenue source, this puts all revenue in one place, under the person with the biggest revenue number!!
There is another reason that this should not be dismissed. B2B SaaS companies sell the solution to a problem or opportunity, a benefit, an outcome. All of these are synonyms for customer success. The best sales people sell customer success. Who better to guide and enable them than the team that knows most about customer success. A truly commercial CS leader is not afraid of owning a number, even a big number, because they have mastered the art of nurturing buyers.
Dj
But if newbiz sales goes under head of success isn’t that effective a customer-focused CRO? I have no huge problem with it, other than the CEO will tend not to hear stories about the tensions between newbiz sales and, say, renewals as they’ll be buried under that head. I’m trying to separate the roles so the CEO gets more information faster. Yes, some of it will come out in the numbers — e.g., a high one-year churn or first-time-renewal churn rate probably reveals troubles in sales (over-selling) or services (failed implementations) or partners (ditto).
What I wonder in this era of support becoming quota-bearing Customer Success is who does support? What I’ve experienced is that CS isn’t appropriately skilled anymore to do classic support – troubleshooting issues, writing bugs, seeing issues through to resolution. They are under too much sales pressure. They tend to push support over to engineering, who has their own delivery pressure and works on a backlog burn down basis and not an emerging incident basis. Or maybe it goes to QA who generally have better troubleshooting skills but the same backlog burn down approach to work.
In my world, you have a full support team who does support. And they are charged to cost of goods sold. Customer success is effectively “account management” and does renewals, incidental upsell, and is charged to sales. Details would be different between an enterprise sales team (more ownership, permanent) and mid-market (short, transient ownership).
But in my world, the point is that customer success calls to see if you’re adopting, you’re hitting your business objectives, if you’re happy, if you’re planning to renew, if there are any expansion oppties, etc. When a technical support problem comes up, they get support involved to solve it. In many companies, customer success is really advanced technical support in disguise and when they spot a problem they go solve it themselves.
Aha, this is helpful to me. Out here in central Indiana the companies I know of tend to conflate customer success with support. It has led, in my experience, to a reduction in the quality of support.
Wouldn’t be a lot simpler if we just made the title reflect the responsibility? If you’re a CRO you should own all revenue, pre- and post initial sale. Otherwise make it something with Sales in the title to the point at the end of the article.
If the CEO is commercially minded and experienced enough to manage dynamic between strong sales and CS leads, you probably don’t need a CRO so go the route you’re suggesting but don’t call the sales leader a CRO. Otherwise a true CRO who can own both sides and align everyone (again having both sales and CS experience) is ideal in my experience. The problem arises if the CEO doesn’t intimately understand those functions him/herself and doesn’t serve as arbiter of the inevitable conflicts but manages from on far. That causes for a lot of unnecessary and unproductive friction and slow decision-making
Yes. Though lots of great companies (e.g., Salesforce) have great people with pretty loosely defined, overlapping, and ambiguous titles. Personally, I’m flexible on titles, but think the clarity needs to be on roles. And personally, I wouldn’t have a CRO, I’d probably have a VP of Sales and a VP of Customer Success and be done with it (or derivatives thereof like “senior” or “executive” or such.)
Great perspective overall. I also like your tactical advice of, “never pair our farmer against the competitor’s hunter, and never use a hunter when a farmer will do.” It’s a great guide to building rules of engagement between the two teams.
thanks
Dave, I really like this article as it’s challenged my thinking on the topic. A few clarifying questions for you.
1. You shared examples of early- and mid-stage, but what about later stage? “I think Customer Success should report into the CEO in early- and mid-stage startups.” Would you have VP/exec of (1) Sales and (2) CS?
2. Assuming you answer “yes” to two distinct roles for Sales and CS, doesn’t that create a massive exec group that report to the CEO (VP CS, VP Sales, COO, CIO, CFO, Chief People Officer, CMO, Chief Legal Officer….)? This is related to your response to David Jackson (above) and whether the CEO has too *much* information to absorb due to org structure.
3. “To latter is to turn Customer Success into free consulting and support, starting a cycle that only spirals.” Isn’t this the case regardless of where they sit in the org (VP Sales or VP CS) and more about the incentive structure and training? E.g., if I’m (a) incentivized to sell ProServe and (b) trained, then I’ll more likely pitch ProServe to my customer.
Also, if, as a CSM, sit inside the Sales org, then wouldn’t I be better equipped due to training to cross-sell than if I were part of the CS org? Or is that a weaker argument because “well, the AE will cross-sell the customer” and I, a CSM, won’t exercise that muscle (the argument you make)?
4. “[CROs] were attracted to the buffer value in managing the ARR pool” if that’s the case, then wouldn’t that make a CRO a tad more balanced and think more carefully about renewals and whether the customer was a good fit? E.g., if, as a CRO, my new business is 1MM and my renewal is higher (2MM or 3MM), then I’d think carefully about (a) new business and ensuring they will be good, long term customers and (b) I’d be very thoughtful about renewals.
Again, I love your publishing — thank you for all the work you share.
Thanks for reading.
1. Most of the work I do is with sub $100M companies so that’s primarily my reference point. That said, when I was at Salesforce at $3B there were separate heads of Sales and Success (Customers for Life). So, I think I’d argue at all scales they should be separate but know where my recent experience base is.
2. Org design is really about choosing which disputes/tensions you want to hear about and which you want potentially papered over by an e-staff VP. I’d say for a $50M SaaS company it’s easy to run with CEO and the following direct reports (forgetting whether they are SVP/EVP or C-level titles): CFO, Sales, Customer Success (including professional services), Product (formerly known as product management), Engineering, Marketing, and People. That’s 7 directs. Manageable. If they’re all senior, you can arguably manage 9 or 10. At some point you could coalesce a few under a President or COO
Legal and IT can be under finance.
Suggestion: for companies in the size range you care about, make a list of 10 you really like, and go on the website and see their structures.
3. On the spiral comment, my argument is you get the Customer Success team that you staff. If you fill it up with technical support people and/or former consultants, when faced with a technical problem they will have a tendency to just go solve it themselves. If it’s filled up with account managers they will stay focused on adoption, the renewal, scouting for oppties — and perform escalation management. And if they’re good they’ll know the difference between technical support, consulting rework (free), and the need to convince the customer they need paid consulting. The spiral is the danger of staffing it with technical people and then expecting them not to do technical things. See my post on the three types of CSM.
There’s two types of cross-sell: incidental (fries with your burger which anyone who’s not afraid to ask for money can do) and non-incidental (aka major) which is basically another sales cycle — e.g., selling consolidation to the controller at a company where the VP of FP&A is using your planning module. Yes, it’s a cross-sell, but to a different buy on a different problem. On training, I think you’re right but it all depends how salesy your CS team is and whether sales development does training for both sales and CSMs.
4. In theory yes, but try to find a great hunter sales leader who actually really care if the customer renews, especially if you’re doing 2-3 year contracts. It’d be great if they did. As a VC friend once said “great sales leaders think in increments of 30 or 90 days” — they’re just not long-term people. Those who are probably graduate to CEO. Is it worth getting a worse sales VP or just saying, sales job is to go sell. We’ll keep an eye on you so you don’t sell deals where we can’t solve the problem, but go sell. The risk in your argument is you over-rotate on renewals.
Look it is possible to find the perfect head of sales who will balance all this stuff appropriate. But, as mentioned, if they’re crushing their numbers, scaling the org, correctly balancing renewals and CSAT, then … hang on to them becaus they’re probably getting recruiter calls for CEO jobs.
I think you’re underestimating the benefit of a strong CRO who is not just quarterly driven. I guess it depends on where you want the CEO to be spending his or her time, but with the right revenue-focused leader in place I believe customer success should be as close to sales as possible early on.
When customer success is outside of sales in the early stages, a few challenges I’ve seen:
1) Separate Systems – Sales lives in CRM. Period. This is where Customer Success should be as well. I think you’d agree here given your experience Dave. Who owns Salesforce in young companies? Where is sales ops spending their time? It’s not CSM if this function is not in sales.
2) Separate Agendas – A challenge I’ve seen when CSM is outside of sales is overall account management. I’ve also seen lots of disagreement on the profile of a CSM person – are they TAMs or are they farmers? Do they have a number? If they’re in sales there’s a revenue or churn number and it roles up to the CRO. Period.
3) Customer Confusion – Who is the quarterback? What I like about Salesforce is that the AE is always on point. The AE might bring in a specialist or technical teams to improve adoption or CSMs to help with best practices (or in my case Pardot sales person to once again try to move me off of Hubspot), but there’s never a doubt who owns the account. Sales. At renewal time there might be a renewals rep. This team also needs to be in Sales.
I don’t want to go beyond DKs rule of 3. I’m a believer that over time Customer Success should be separated out with a strong leader at the management team level, but keeping it close to sales early on will keep everyone focused on the key accounts and ensure there’s alignment and communication.
I’ll throw this in as a final thought – at some point, this might be more about the kind of CEO you have in the early stages and how they view the role of sales than it is about customer success, but that might be fodder for another post…
Darren, thanks for reading and I hope you are well. No question this is a controversial issue which is why I chose to write about it. Thoughts on your comments.
1. Agree, but the CEO can control this. Here’s the demo: everybody use Salesforce! (And GainSight plugs right in.) The problem might be a weak CEO, not the org structure :-)
2. Agree, but the CEO controls this in defining the roles and the comp plans for the two VPs. If they report to the CEO you can have the same thing — I did. They had a number, they forecast it, they owned it, they were paid on it.
3. Most folks solve account ownership via duration — e.g., enterprise reps own their accounts forever, mid-market own for 6-12 months, corporate don’t own at all. The actually changes the CSM job inversely – corporate CSMs are more upsell focused in this model and enterprise ones are more back-the-rep oriented. But, and this is key to me, the CSM owns the renewal. In my world, for big accounts the AE is always on point. But not in all cases. There is no confusion in this model imho. Though it is more complicated.
4. Oh, now I see, your argument is really about early-stage companies. I missed that. Argh, I think I have to disagree, you know why? Reps get used to owning renewals and they never want to let go. That distracts them and keeps them from selling. If you own one account (e.g., Qualcomm) I guess that’s OK. If you’ve got a geographic patch, I want you out selling, let a CSM do the renewals. And when the CSM finds an expansion oppty if you pay them both on it, then they’ll naturally flip the work to the right place.
I think in your last sentence you answered your own question. And yes, btw, I’ve seen that movie, too, and I don’t like it, either.
Dave – Re-Reading this, do you have a re-worked or recently informed opinion that might cause you to edit or even re-write this? I am interested as I am faced with this discussion topic presently. Also, while I have your attention (or not?) do you have a Board Reporting template you favour with the most interesting and valuable KPI’s?
Hey Andy — no intervening developments have really changed my mind with the exception of having a president kind of role where you deliberately want all revenue going into one person. but unless you’re in that situation, which I’d not recommend until at least $100M in ARR, then I’d separate filling the bucket from managing and be thoughtful to incent collaboration where needed.
This is not a full template, but a good start
https://kellblog.com/2020/05/10/the-first-three-slides-of-a-saas-board-deck-with-company-key-metrics/
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