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.”
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[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.