Every service should increase my gross margin.
—Old-world services leader
Every service should be automated.
—Product-oriented startup founder
The rise of recurring revenue business models is causing an existential crisis for PS teams as they confront challenges from divergent, extreme points of view represented by both quotes above. Older companies are questioning long-held beliefs about the charter of their PS organizations. Newer companies, often led by founders who believe that their product should automate services, are questioning the value of PS teams, period. PS teams can be a critical part of the story for driving subscription growth, but they're undergoing massive changes in order to deliver on that promise.
Let's bring back Anthony Reynolds, the CEO of Altify who showed up in Chapter 8:
And that's the new role of Professional Services—helping the client realize those benefits that they're seeking.
Prior to the rise of the subscription model, the definition of success for most Professional Services teams came from an internal perspective—finishing a project on-time and under-budget was considered a success. While this worked in a legacy transaction model, where implementation was a large up-front investment by the customer, those operating within a recurring revenue landscape are finding that this definition no longer applies to Services that support subscription products. “The unremitting, industry-wide transformation toward new technology consumption models is generally undermining PS's traditional, core cash cows and competencies (product-led, project-based, deployment-oriented services) and forcing them to explore and deliver on new ways of being relevant in a B4B context,” shared TSIA in their State of Professional Services 2017 Report.
As we discussed in Chapter 6, clients now expect that their vendors will deliver outstanding Outcomes and Experiences for them, and that expectation holds for PS teams, too. As a result, PS teams have begun to define success in their clients' terms:
Instead of asking, “What's the quickest, least-expensive way I can onboard this customer?,” PS teams are changing the question to, “How can I provide services to this customer so they achieve exactly what they wanted from our product/service?” By connecting their own definition of success to each client's definition of success, PS teams start to cultivate client relationships that can become a source of exponential revenue.
The top SaaS companies these days are growing faster than their predecessors. Sometimes, such as in the case of the videoconferencing company Zoom that recently went public, they build a product that's so easy to use that they're able to grow through a bottom-up adoption model, with limited effort invested by client-facing team members. Success stories like these have set a new expectation for some startup CEOs, that a “self-serve” go-to-market model is not only the best way, but also the only way, to grow into a big company. As a result, CEOs are sometimes skeptical of the value of professional services. They may ask themselves, “Why would I want to charge my clients for lower-margin services, when that may cannibalize higher-margin subscription revenue?” or “Why would I want to hire people to onboard our clients, when I can automate an onboarding process in the product itself?”
These are important questions to ask. Certainly Zoom and other companies that have grown through a primarily self-serve model are terrific success stories. The reality is that not all markets are like videoconferencing. CEOs need to ask: What does my client need from my company? Can the product truly provide those terrific Outcomes and Experiences on its own, or will human intervention help? If human intervention will help, then can I provide enough of that intervention through a Customer Success manager (which is essentially a free service to the client), or will I need to cover the cost by charging the client? If the latter, then the company should make Professional Services a fundamental part of its go-to-market model.
That said, even when a PS team is an important growth lever within the company, the Product Management team should constantly be seeking to automate the PS team's work, particularly more manual activities. This will ensure that the PS team can meet its gross margin goals while also generating strong outcomes and positive experiences for clients.
Whether you're a large company transitioning to a subscription business model or a new startup that wants to embrace both automation and services, there are several processes that you'll want to get right when designing your services organization:
The most contentious topic in conversations between Sales and PS teams is typically the hand-off of the client between them after the client signs the contract. During the period before signature, the Sales team learns a great deal about the client's objectives and expectations. If the PS team subsequently kicks off the project without reflecting a strong understanding of what the client shared to the Sales team (often only a few days earlier), the client is likely to be frustrated—meaning that you've started your partnership with an escalation. When PS and Sales teams are functioning well together, they create a process for documenting the client's desired Outcomes in pre-sales and sharing that information systematically with the PS team.
Once the contract signature happens, clients expect to get started right away. That means that clunky PS organizations just won't cut it. PS teams need to forecast their staffing needs more accurately than ever before, because under-forecasting may generate delays in kicking off projects. In general, enterprise clients won't wait for longer than a couple of weeks to get started, and SMB clients want to start immediately. PS teams also need to staff for agility. For example, if four highly specialized team members, who are not fungible for each other, are required for a project, then if one of those team members is unavailable, the entire project could be delayed. Agile PS teams are embracing less specialization, and when specialization is required, they adopt a thoughtful sequencing of activities so that the project keeps moving.
One of the most common root causes of churn is a poor onboarding. When clients struggle during onboarding, they often don't recover. Therefore, onboarding is arguably the most important part of a client's journey, and that onboarding is often run by a PS team. As a result, PS teams have become increasingly thoughtful about how to measure whether onboarding is successful—not by internally valuable definitions such a project margin, but by definitions that are valuable to the client.
A PS team may set a threshold for adoption of the product that they expect a client to achieve by the end of onboarding: for example, a certain percentage of users performing a certain action within the product with a certain frequency. That adoption metric should be a proxy for whether the client is getting initial value, or in other words, that the client is on track to achieve their outcomes. PS teams often have a standard metric that they use to measure the success of all onboardings so that they can benchmark projects against each other, but they'll couple that with a parallel assessment of whether this specific client is on track to achieve its unique goals. If the client hasn't achieved the standard adoption metric as well as its own unique goals, the vendor may decide that it would be justified to invest in extending the project, or it may find an opportunity to sell an additional services engagement to get the client to a higher level of value. Often, the hand-off of a client from the PS team that's managing the onboarding to the Customer Success Manager may be contingent on the achievement of these initial Outcomes.
You'll need a strong methodology in order to help clients predictably achieve Outcomes. We discussed our own methodology at Gainsight, the Elements of Customer Success, in Chapter 6. There's a standard way of implementing each Element using our Gainsight products. When a client says that they want to focus on certain Elements (in other words, that those Elements match their desired Outcomes), our PS team follows the standardized configuration for each Element, adapting the default to suit the client's unique needs. By the end of an onboarding, we're looking to make sure not only that the Element has been implemented properly, but also that the client is adopting the processes within each Element and thereby achieving value from the product.
When a client achieves its initial value by the end of onboarding, that tends to be the perfect time to ask the client if they'll serve as a reference for prospective clients or otherwise participate in an advocacy activity. At Gainsight we refer to the client's participation in advocacy following the onboarding as a PSQA, or Professional Services Qualified Advocacy event, and we measure the number of PSQAs as a primary metric for our PS team.
Great PS teams are capturing many different data sources to ensure that the engagement is going well. Andrea Lagan, the former COO at professional services automation company FinancialForce and current chief customer officer at HR software company BetterWorks, has led that effort for her team and has also seen her PS clients do this as well. “If a consulting team that's implementing a solution doesn't know the peripheral activities that are happening for the client, they're missing half the picture. Customer centricity needs to be core for a PS team, so naturally you have to design systems to ensure you have the full context about your client.”
We find that the most advanced PS teams track Customer Health Scores to assess the success of the engagement on multiple dimensions:
For companies that are optimizing their Helix to drive fast growth, selling services is a way to drive value for the client, so that the client renews, expands, and advocates to other prospective clients. In other words, great companies view services as a strategic lever for growing the business. As a result, they don't just look to sell services for onboarding; they look to sell services throughout the client journey, driving both value and revenue along the way.
Some companies find it valuable to sell services in a subscription, matching the subscription nature of the software. They may sell the client access to a technical account manager who can prescriptively guide the client over time on optimizing the technical configuration of the software (especially when there's a heavy data component), keeping up with new feature releases, and doing some work that would otherwise have to be handled by a team member at the client.
Other companies find they're able to elevate their relationships with their clients to be more strategic—thereby ensuring stronger renewal rates and faster, larger expansion—by selling advisory services. An advisory engagement may not even relate directly to the company's product, but it may address questions that ultimately allow the client to derive more benefit from the product: for example, how to design processes, how to structure teams, and how to incentivize team members. Sometimes companies sell these advisory services even before they sell their product to the client, because they find that they will be able to sell the product faster once the client resolves some of the big questions that they feel are precursors to a product purchase. When a client trusts the vendor as a source of thought leadership, they are more likely to believe that the vendor's product reflects their expertise and is therefore more likely to help the client achieve its desired outcomes. Like advisory services, education services tend to deepen the partnership between vendor and client for the same reason.
Given the benefits of selling services to clients—driving faster value, faster sales cycles, higher renewal likelihood, and faster expansion—the companies that are most advanced in Customer Success design systems for various departments to help sell more services. The most important type of collaboration is between Services and Sales. Salespeople may earn a commission on services, but even if they don't, they have strong processes for working together with the Services team: they're aligned on what services should be sold to what type of client, what's the right approximate attach rate (dollars of services sold per dollar of product sold), how services team members will be involved in the sales cycle, and when should we involve a partner instead of our own internal services team. Larger organizations often build specialized Services Sales teams to own a services bookings quota and work hand-in-hand with the subscription sales team.
Other teams also tend to be crucial participants in the selling of services. Product Marketing creates collateral not just about products but also about services, and helps determine the pricing and packaging. CSMs have targets for services leads that they generate by discussing the value that services could bring during key meetings (such as Executive Business Reviews) with the client and at other major milestones. Support teams identify situations where services (such as education) could help a client avoid future issues. When everyone at your company is aligned around the value of services, selling them becomes a repeatable motion, and your clients achieve far more value than they otherwise would.
In this chapter, we discussed the trend that older services organizations have had to adjust to subscription business models, and the trend that newer startups are realizing the value of services even in a world where products can help automate learning and onboarding. We'll discuss in the next chapter another client-facing organization that's undergone significant change as a result of the Customer Success movement: Support.