TSIA's Research Executives take on highly controversial topics in your industry and apply best-practice research methodologies to provide a data-driven response.

Frank Slootman, the CEO of Snowflake, has written a very insightful book for technology leaders titled Amp it Up. It’s a great read that TSIA highly recommends. In the book, Mr. Slootman dedicates an entire chapter to the following assertion:

Technology providers do not need distinct customer success organizations.

Mr. Slootman offers a compelling rationale as to why his assertion is correct. Still, there are crucial insights and framing you can also leverage when debating the necessity for a customer success organization within your management teams.

This blog will cover the following: 

• Reviewing the Assertion
• Why Customer Success?
• Do You Need a Customer Success Organization? 

{{special-callout}}

Reviewing the Assertion

These are the opening paragraphs of Chapter 10 in Amp it Up:

About ten years ago, it became fashionable in Silicon Valley to organize and staff a so‐called “customer success” department. Suddenly it seemed like everybody had one, but they didn't exist much before then. The idea was to allocate resources for a dedicated team of people who would singularly focus on customer success. 

Customers liked having a special team that would advocate on their behalf. These customer success folks would not report to sales or customer service, but they would coordinate and engage any and all resources of the company on behalf of the customer, to address whatever issues might come up. Typically, this team would be staffed with a blend of specialists from other departments, from technical to sales to product support. 

Does that sound like a great managerial innovation? It certainly did to the folks at both ServiceNow and Snowflake, who had set up such functions before my arrival. They were happy to follow the trend set by other companies like ours. But not me. I pulled the plug on these customer success departments in both companies, reassigning the staff back to the departments where their expertise fit best.

The chapter goes on to provide the following rationales for dismantling a customer success organization:

1. If you have a customer success organization, every other department in the company stops worrying about customers being successful.
2. Customer success managers become dominant in coordinating customer activities, and other departments like sales, professional services, and engineering need to be more active.
3. Customer success is the job of the entire company, not one organization.
4. You don't need a separate organization to manage the customer's success if you have proper processes and accountability across the sales and engineering teams.
5. Customer grievances are best solved by reducing complexity and removing bureaucratic intermediaries. This is why the sales and engineering teams should work directly with customers.
6. Creating new organizations to solve cross-organizational coordination is an expensive tactic.

These are all valid—and compelling—assertions. It’s very hard to argue against simplicity when structuring a business. By eliminating customer success, there are fewer moving parts. Additionally, the current economic environment, which places a premium on improving profitability, creates additional pressure to eliminate customer success. But is this the right answer for every technology company?

Why Customer Success?

Every two years, TSIA conducts an industry study on the organizational structure of technology companies. In our 2022 survey, 76% of respondents reported having a distinct customer success organization. Slootman is making a case that technology companies do not need this organization.

Yet, having this organization in place is a common practice. So what’s going on here? Are these teams falling victim to a fashionable management trend that will ultimately prove to be a mistake?

To understand what created the existence of customer success, we first need to understand three parameters that contribute to the organizational structures of companies:

• Specialization: Companies create distinct organizations that have specialized skills. For example, sales organizations specialize in processes and skills that help sell a product or service to a prospect. Engineers specialize in the skills needed to build compelling products.
• Focus: Companies create distinct organizations to focus on a specific task. This is different from specialization in that these organizations are not about mastering unique expertise but about covering a critical company need. For example, a company may create regional sales teams to better serve the specific needs of those geographic regions. 
• Complexity: Finally, companies create organizations to manage increased complexity better. A prime example is the rise of corporate human resource functions. Once hiring, evaluating, and terminating employees became too legally complex for managers to handle, companies invested in corporate human resources (HR) expertise to provide much-needed support. 

Now, let’s examine how organizational structure evolves within technology companies. It’s the story of a small startup like any other. At this stage, the founders are wearing multiple hats. They are designing the product, selling it, and helping customers use it. In terms of organizational structure, the company looks like one sizable single-celled organization focused on the thematic concept of making customers successful (Figure 1).

As their company grows, the founders realize they simply can’t wear all the hats. The first natural division in the “organizational structure” cell is between sales and technical resources. This division is driven by the need for both specialization and focus.

Engineering will specialize in building an excellent product and focus on the customer’s technical success. Sales will specialize in selling that excellent product and ensuring the customer realizes the benefits they hoped to achieve by purchasing the product. Figure 2 shows this first natural subdivision. 

We doubt there is a technology CEO who would debate the need for this initial subdivision. But, as we know, this isn’t where the process ends. The next natural subdivision occurs between the engineering and support functions. Again, this is driven by both specialization and focus.

Technical resources need to focus on building new features and on supporting existing customers. Additionally, customer support processes differ from product development processes. Figure 3 documents this subdivision. 

‍

Next, a technology company typically creates many separate organizations. From the TSIA 2022 Organizational Structure survey, Table 1 lists the percentage of technology companies with these distinct organizations.

‍

‍

So, it’s fair to say that a technology company typically has many distinct organizations. The catalyst for creating these distinct organizations is often born from a combination of specialization and focus. But let’s get back to the debate at hand.

Why would a technology company establish a separate customer success function? In the case of customer success, all three drivers for creating a distinct organization have come into play within a majority of technology providers:

• Focus: In the world of XaaS business models, where revenues are driven by renewal and expansion, technology leaders realized they needed a function focused on driving the adoption of their technology solution within the customer install base. Ideally, customers should be able to adopt technical solutions independently and easily. Unfortunately, that’s just not the reality of most B2B SaaS applications. Customers need help with adoption. 
• Specialization: Technology leaders also realized that the skills and process of driving customer adoption fundamentally differed from those of providing technical support. TSIA has numerous research studies showing the financial efficacy of leveraging customer success resources to drive adoption and retention instead of more expensive sales or technical support resources.
• Complexity: Finally, ensuring customers realize business value from complex solutions is complex. It requires coordination across multiple existing organizations, such as the engineering, sales, support, education, and professional services teams. It’s interesting to note that over 50% of the technology companies that TSIA benchmarks report that they monetize some of their customer success activities. In other words, customers see the value in having their technology provider help manage complexity.

This more recent subdivision and creation of customer success represents an overarching specialization that has been occurring in the technology industry. As enterprise technology companies have migrated away from simply providing feature functionality and toward value propositions focused on business outcomes, there has been a greater focus on service specialization. Figure 4 captures this organizational subdivision to support service specialization.

‍

So, what do you do with this information if you’re a technology leader? 

Do You Need a Customer Success Organization? 

This post addresses Mr. Slootman's assertion that technology companies can have distinct customer success organizations. His recommendation may be correct for your company. However, TSIA would counter that this is only the correct answer for some technology companies.

Are you curious about where your company lands? Here are seven statements to pose to yourself as a technology leader. If more than three of the following statements are true for your organization, your company may benefit from having a distinct customer success function.

1. We are struggling to understand why our customers are not successfully consuming and adopting our technology and/or services.
2. Our customers are demanding we help them achieve specific business goals by leveraging our technology and/or services.
3. We do not have enough resources focused on helping customers achieve their target outcomes—and, as a result, we are encountering renewal issues.
4. Our sales representatives are spending too much time on adoption activities that are helping existing customers realize the value of the technology we have already sold to them.
5. Our sales representatives need to spend more time pursuing new opportunities.
6. We need to reduce our overall sales cost. 
7. We can no longer afford to deliver all our customer success-related activities for free.

TSIA has a plethora of research demonstrating how a well-functioning customer success organization can help address the above challenges. Also, it’s important to note that organizations that cannot catch up on the lines between customer success, support, professional services, and education services still need to catch up. The exact structure of a “customer success” organization is still in play. 

Addressing all seven issues identified above is possible by demanding better coordination and commitment from your existing organizations. However, it’s hard to believe that many technology companies have created a distinct customer success organization simply because it’s “the cool thing to do.”

Mr. Slootman: Thank you for writing a killer book and a thought-provoking chapter on customer success.