The a16z Show - a16z Podcast: The Rise of the CCO

Episode Date: November 18, 2017

There's a new C-level role in town: the CCO, or Chief Customer Officer. This episode (based on a previous event) is all about the rise of this new role, why it's so important -- and what the actual scope and function of the role should be. a16z's Matt Levy, partner on the exec talent team, discusses with (CCOs all) Allison Pickens of Gainsight; Krista Anderson-Copperman from Okta; and Hatima Shafique from Databricks why it is that the Chief Customer Officer is becoming more prevalent across a number of different kinds of companies; what the strategic value of a CCO is (and how it's actually very different from a VP of Customer Success!); and finally, the career pathing of the Chief Customer Officer. Stay Updated:Find a16z on YouTube: YouTubeFind a16z on XFind a16z on LinkedInListen to the a16z Show on SpotifyListen to the a16z Show on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hi and welcome to the A16Z podcast. This conversation is all about the rise of the CCO or chief customer officer. The episode is a conversation with A16Z's Matt Levy, partner on the executive talent team, discussing the role with CCO's all, Alison Pickens of GameSite, Krista Anderson-Copperman from Acta and Hatem Shafik from Databricks. I hear the question a lot in working with folks like you. I want to be a chief customer officer one day. How do I do that?

What does that mean? It's a role that I think gets bandied around a lot in our portfolio, starting to become more and more prevalent just in the industry as a whole. So we're going to talk about, hey, why are companies creating these roles, what's the strategic value, the different definitions and compositions of these roles, and then finally the career path, the chief customer officer. Alison, how many of your customers do you see creating a chief customer officer role? It's definitely an emerging role.

I think there have been a couple reasons why it's grown up. One has been, I think people are realizing that customer success needs to report directly to the CEO. I think in doing that, folks are realizing customer success isn't just about customer success management. It's actually about other functions that need to work in tandem to drive value for clients. And so the CCO role becomes about ensuring really strong cross-functional coordination across the whole lifecycle for all of these functions that are involved. You operate kind of like a symphony orchestra, whereas everyone's looking at the same sheet music. You might be playing different instruments, but you're all playing the same general tune.

I think that's the role of a chief customer officer. to ensure that all these functions are actually playing the same sheet music, as well as advocating for other functions at your company to play according to that sheet music. So if that's the role of the chief customer officer, I mean, how is that different from an SVP of customer success or a VP of customer success? Why does the C title matter? Yeah. Customer success is a pretty broadly used term,

and it can mean many different things for different companies. It can signify a platform. It can signify a function. It can signify a person. So that in of itself is kind of a confusing title, so much so that our organization just stopped calling ourselves customer success. And now we call ourselves customer first in order to encompass all of these other things, kind of this concert playing in symphony. What I think is different and why it's so important is we all know customers have a bigger voice than they've ever had, right? Media, social, et cetera.

But we also know that in the SaaS model, they've got choice. And it's much easier to move and they don't have to make those investments that they've made. So ensuring that they have this experience that is cohesive and unified and they can move seamlessly within each function become so critical to your company's success. And I think that's why the role really is emerging because you can't survive without that. You can't not have that. So you actually ended up in this role from much more of a technical background. Did that help you hurt you coming into more of the customer-facing role?

I mean, regardless of where you come from, I think there's a big learning curve. What I also realize is from outside in, probably the role is over simplified. It's like, okay, like, what do you do? I make the customer successful. But there is a ton of stuff that actually goes into making that happen, really from understanding the DNA of the customer, what kind of life cycle are they going through? What is important? How do I structure my org based on that life cycle?

What kind of metrics do I want to measure? What is important? And how do I structure the org to actually? achieve that. How do I make sure these different functions are accountable to each other? There's a lot to be figured out. Growth is king. It's still king and will continue to be king. And the way you fuel your growth is through your current customers. You take any good growing company that is growing at whatever 50, 60 percent or higher, half or more than half of their revenue comes from existing customers, which means renewal is just not a part of the game.

it's actually how do I upsell this account? How do I grow this account? How do I make this a multimillion dollar account? And that's where the value of the post sales function comes in. And that's where you can articulate that in a very simple term, which is I'm sort of driving the top line. In App Dynamics, we coined that word, and I kind of take it with me wherever I go,

which is customer success driving the top line revenue. Like that's how you justify your role in the company. I'm curious if you guys agree with that? Does this role have to drive revenue? This is one of the most hotly debated topics. We don't have quotas for our CSMs at Gainesite. We're in the business of ultimately driving revenue by driving value for our clients.

On top of saying, well, we make the renewal happen, we make upsell happen. We also make advocacy happen, which I think is one of the most overlooked outcomes of the customer success team is that when you generate really strong outcomes for your clients and they go advocate to, respective clients in speaking at an event that prospects are attending or writing a case study with

you, a testimonial, serving as a sales reference. That's key. Every board meeting, I share a slide where I say, like, this is how much new business pipeline my team is influenced through advocacy. It's a super powerful metric to go into a board meeting with. And we also track something that we call like customer success qualified advocacy, which is the number of times that our customers actually engage in some form of advocacy. So I'm a huge proponent of the idea that we're driving revenue. I think in terms of how you divide responsibilities, I think it's probably just a matter of what your customer base is like

and the leaders at your company. This function exists ultimately to retain your customers and grow them. Right. So depending on what your role is, you will have different metrics. Specific to CSMs, they have a metric that's around qualified opportunities that get to a certain stage in the sales process. So depending on who they're,

accounts are, the size of their accounts that they're managing, we'll give them a metric that says, hey, if you've got five accounts, you have to toss four opportunities over the fence, every quarter that gets to a certain stage. That helps us understand how they are in their accounts and mining those accounts and looking for additional opportunity there because in many cases they know those accounts the best. They're the ones who are there all the time. They're the ones who say, yeah, this is the problem they're trying to solve. Yeah. Maybe we can talk a little bit more about metrics, because I think that might be one of the things that distinguishes the CCL from, sort of VP or SPP of customer success. What do you guys care about now that you're in these

C-suite roles that maybe you weren't paying as much attention to earlier? We measure three different leading indicators of the three different types of revenue that you can drive in a recurring revenue business. So we've got a predictor of the renewal. We've got a predictor of upsell, which is actually the CSQLs, customer success qualified leads. And then we have a predictor of new business, which is the CSQA's qualified advocacy I was talking about. The predictor of renewal is our health score. For each of these three metrics, our CSMs have targets every quarter. So they're held accountable for moving a certain number of customers into the green level of the health score every quarter, achieving a certain number of customer success qualified leads, and a certain number of

advocacy. We actually bonus them based on those metrics. So those are the three things that our CSMs are accountable for. Now, of course, there are other functions that I manage. And so there are certain certain metrics that I measure for professional services, certain metrics for customer support. And I think that's actually one of the most challenging jobs of a CCO is that you can have a scoreboard with like 15 metrics on it. And all of them are actually pretty important for like keeping this symphony going. For us, though, at the end of the day, we're in the business of driving outcomes that ultimately results in revenue growth. So the three metrics by which we measure our CSMs are also like the three metrics that, apart from gross renewal rate that I care the most about for our organization. How do you make space for another C-suite officer, right?

You have your CMO, you have your CRO. In some cases, you see a chief customer officer coming up, a more sort of traditional sales path or marketing path. How do you carve out room for a CCO in that boardroom? Again, we're here for retention and growth. So it's more of a why wouldn't you? There's not a single shareholder of any company that doesn't want that, right? So I don't know that it's about creating room.

It's about saying, hey, we're all here for the same thing. And that's retention and ultimately growing this. company and that's what this function's about. The other way of looking at it is somebody needs to own the post-sale cycle. So sales owns the sales cycle who owns the post-sale cycle. And the way actually a lot of founders, co-founder, CEOs are getting convinced is they are worried about the long-term view in the company. So, you know, the CRO, however good they are, their organization is very short-term focus.

Quarter after quarter, who actually is a real advocate of this customer, set that you have and who's taking the long-term view? Who's making sure you're sticking in the accounts? Who's actually holding the product accountable? Who's saying the product team is doing X, Y, Z, or not doing X, Y, Z that's impacting my customers? Or the sales team is not doing X, Y, Z, and that's impacting my customer. Who's like actually keeping the rest of the functions accountable speaking for the customer? And that's, I think, what the CCO does and finally needs to do is give the long-term view to the company. So we can continue growing at that same clip without It happens to companies where you're suddenly growing this way and then there's a cliff and you haven't really...

You were blindside and you didn't see it. The CCO should prevent that cliff from happening for that company. So at what point is it appropriate to start thinking about a chief customer officer and someone with that C-suite title? Is there a stage of company or a type of customer sales model, whatever, where it's maybe not appropriate? I think that having the voice of the customer, which is part of the role of the CCO, is such a important part of the DNA of a company that the earlier you start, the more likely it's going to be that customer's success in that context, the voice of the customer, is in the DNA of everyone in the organization so that you're not walking into situations where maybe

the product team or the engineering team or the sales team doesn't think of it that way. So the earlier, the better in order to really instill that in your company culture and company values. And the other thing is at some point in a high-growth company, that renewal number will be bigger then your new ARR every quarter every year. So from that context, you know. It's just math. It just works out the way. It's kind of beautiful.

One thing I would add is I think it's important to distinguish between the title and the responsibilities that are held by the role. It could be that you only have VP-level folks at your company because you're too small. And your VP of customer success might actually manage all the same functions that a CCO at a later-stage company would. What's important is sort of carving out an executive-level role. that someone who sits at the executive team who reports the CEO who manages these functions. And has the influence to actually make things happen. The other thing that I will also touch on is no matter what company the CCEO joins in,

there is another function which is actually building the culture of the company to be customer-obsessed. Really looking at your organization and figuring out whether not just a customer success team, but are the rest of the functions as excited, attached, informed about the business, the customer, do they celebrate success, right? In the customer's environment, do they know how the customers use your product? Do they know where we are falling short? I think it's the chief customer officer's job or the head of customer success, whatever you want to call them. One thing I used to say in my early days at Octa was, well, if the customer was sitting here in the room with us, what would they say? It can be a new thing to have that person at the executive table in larger companies that

are shifting from an on-prem business model to a SaaS business model. Often it's the customer success leader who is informing the other functions about how they need to change their jobs to adjust the fact that you're now in a recurring revenue business model. We're seeing the CCO having to take on this role of sort of evangelists in chief within the company for everyone to adjust a new business model, not even just to think about customers, but to recognize actually everyone's role needs to change because instead of thinking about sort of an upfront sales model and that's it, actually you need to be thinking about growth across the life cycle. So as a result, you know, marketing leaders need to be thinking about how can we generate leads from within our

customer base, not just, you know, cold at the top of the funnel. It's no longer a funnel. Actually, it's an hourglass. And sales leaders need to be thinking about expansion as being an important number that they should drive. Product teams need to be thinking about how do we gather feedback from customers, not just build shiny new features. So I do think we do see in a lot of companies that the CCO is a change agent. You guys just went through the IPO process, right, at ACTA. What was your role in that process, right? How are you kind of evangelizing that model or that sort of change in thinking when it comes to dealing with the street, dealing with investors, kind of going on that roadshow? Educating them on the model, helping them understand where we are in this cycle and how that renewals number and that growth number is so important in an X amount of time, it's going to be bigger than the new business we're bringing in.

And this is how our function supports that and makes that happen. was very powerful for the core DNA or values of ACTA being around customer success. You have to also show efficiency in your gross margins over period of time. I think a lot of investors care about it. They do care about sustainability of the business, profitability over time. And that's where a lot of the automation pieces help really making sure you can prove to the investors that you are running an efficient process and you have a formula behind. how you invest in the customers that can scale over time.

You exactly know which customers you invest in. They are tiered properly. You know how to actually make your teams efficient. You have a global model that scales. One of the components was actually the health score. As a predictor of renewal, we got some questions around that. I think it speaks to certainly your value as an organization and what you guys do.

It'll be interesting to see if that actually becomes something that gets valued by investors, right? I was actually curious to hear. from you guys, do you count customer success in cogs? And is that why gross margin was so critical for you? So different companies do it different ways. It finally all sits in cogs. If you're running a professional service and training organization, you know, you can report it of a different line item as long as your business is not running in negative 50% margin, you know, and can be shown as break-even target or, you know, moderate margins that you're making. But the rest of

the stuff like customer success was just considered. extension of just proactive support. We don't wait for a customer to file the ticket. We figure out how to help them. Early on, we build a plan for them. We figure out how you're going to actually drive growth in the account and it pays off. You could account for some of this as CAAC depending on how much of upsells they're driving. And if you actually have a formula that is put against the new ARR that they're able to drive

and you might be able to justify it as CAAC. But mostly it's COGS and you have to. have to worry about it over time as you scale. So this is your second go-around as the chief customer officer. How are you approaching the role differently? How are you doing it better? You know, what's sort of the growth curve for you? Outside of I now actually know what I'm doing.

Besides that, that might have something like. The journey now is a lot faster. I am very focused in really understanding the customer and what actually makes them buy more. And how can we actually double down on that function, right, or that piece of the journey. So we built a customer maturity model and App Dynamics, but I've done a version two of it in Databricks, and it actually allows to calculate the stickiness of our product in the account, which is a combination of a lot of things right from how much money have they spent to what kind of products are they building? Do those products actually drive revenue?

Are we a part of the revenue line for that customer? I always try to answer the question of, like, if there's a budget cut, will we get cut, or will some other tool get cut? You might be doing an awesome job, the customer loves you, right? Your champions love you, but like, are they actually going to, you know, put the money behind their loyalty with you? We're trying to figure out how much of that stickiness is there in the account, which is a combination of how much money they'll spend and what kind of features they're using, and how many people within the organization are actually using it. Why don't we transition a little bit and talk about career pathing, right? It's a relatively new role. It's very much not established how you actually get there.

So, you know, career pathing, do you think differently about, like, the DNA of the people you even hire into your organization? Are you looking for different things than maybe 10 years ago? Going into a situation, assessing it both technically and politically, what's going on in the room, who has power, who's making decisions, who's not, those skills are invaluable in any customer-facing organization. So I do look for that. I mean, my advice to anyone who wants to sit in a CCO role is go broad. You know, go broad and go spend some time. do a tour in each of these functions, and ultimately that's what's going to equip you for the role. Do you go do a tour in sales and marketing and product?

I mean, is that, yeah, to that point? And we have some people in my team right now who are, you know, starting to sort of rhythmically move them around and spending 18 to 24 months in a new function so that they can get that under their belt. Hottam, maybe looking at this from a little bit of a different angle, like your top performers, the folks you actually think who can make that leap into a C-suite role, what do they bring to the table? The long-term, more strategic view for the company is very, very important for all the metrics that we have spoken about in this discussion right from how do you grow the revenue to how do you actually break down the customer life cycle, what do you do to actually enhance it, and then figuring out how do you do it efficiently. You have to have a combination of great operational capabilities, understanding off what the customer life cycle looks like. You could come from a professional services function, a training function, a support function.

You could come from outside of the CS function, as long as you bring in those two or three qualities, which is the ability to manage and lead. That's very, very important because a lot of what the chief customer officer does is by influence. And the other parts of the organization, you actually lead without having direct reports, even if they don't have any. And then the third is really the analytical capability to understand make data-driven decisions. Having the actual data to make the decisions correctly for the long-term strategic views is super important. Looking back, would you have done anything differently of the course of your careers to make yourself more effective in the role now? One thing I learned is companies that are younger tend to be on the extreme ends.

Either they're not investing enough in customer success because they're like, what is this? I don't understand this. Is this just support? We have the sales team to actually go close the deal. So, like, you have to actually build an understanding. And, you know, sometimes they are underinvested. And sometimes they're way over-invested. And that could cause problems for you in the long term.

If you don't have a formula to really invest in customer success, how do you hold them accountable? Are they on a commissions model? Are they X percentage of spend on the ARR? Having that figured out really well and showing the CFO and the CEO that, that really you're able to impact that compression of the sales cycle, which, you know, helping your sales productivity, you know, the ability to actually grow faster in the existing accounts, right, as compared to quarter comparisons, which are net retention rates.

And the usage, overall usage growth, those formulas are very, very important. And that's what you trickle down then eventually into your teams, and that's how you hold it accountable. So not having a proper model and just, I'm customer obsessed, so I'm just doing it, doesn't really work at scale is one thing I kind of learned and we're doing it differently. My biggest mistakes over the past four years have been related to budget and giving up on a budget battle too early. You've got to prove that case that you're truly aligned to revenue. We have often the same challenges that the marketing team has where they're trying to like prove

attribution and who was it that drove the pipeline? Was it the rep or was it marketing? Well, probably it was both, you know, and I think that's often true in customer success too. So I honestly, I think as an industry, we need to figure out how to solve this question and be able to advocate to our CFOs better. You can solve that problem. You do. Yeah. Questions? Enterprise software company with large sort of Fortune 500 companies. What's your perspective on, you know, having a renewals function, which is like highly compensated account manager partnering with CS versus CS potentially owning the commercial responsibility? Tough question. I think it depends on what your sales model is, you know, do you have a named account model? Are you about Hunter? I mean, what is the function

of your sales team and really defining that? And based on that, then you can start to figure out what's the function of the CSM, should they own the renewal, should they not? Should there be a separate renewals team? And a lot of that is about the transaction. So who's putting together that data for the transaction and making that transaction? So it really depends on the sales team and what their function is. The other thing I would say is it also depends on the size of the company and what the size of your field is and what is the size of those accounts. You know, having a CSM owning the farming part of the equation is similar to you having multiple products and then you have one main salesperson and then product specialists. Layering works okay if you have a very large company and a very large

account where you can drive the amount of revenue you need to actually pay all of these people, right? If you don't, then you need to find a way to make them more productive and useful. I always ask the question, what is this person going to do in this account? So even if it's a CSM, are they doing project management? What is their job? Like, are they reporting day to day on how the customers are doing, adopting the product? Is that what they're doing? Are they actually going to own their transaction and walk the halls and build the relationships? And, you know, you know, take everybody out for dinner and figure out how much money they have and formulate a deal based on that, then they're doing a sales job and they should probably be doing the account management.

Having multiple people trying to do the same thing never worked out. And also, it's the general tendency of the sales rep to protect the account. I don't communicate anything to this customer without talking to me, especially, you know, as you get closer to the renewal of the transaction, they're trying to control every single piece of the communication. communication, having two, three people in that, you know, two three chefs in the kitchen, like, it just doesn't work out well. I was just curious about customer sad and MPS. I was curious where it sits in your orgs and whether ultimately you as a chief customer

officer are accountable to the improvement of that. Yeah, so NPS, super important metric. I think it's one of the most widely recognized customer satisfaction related metrics out there, for sure. and the benefit of that is that there's a lot of benchmarking data out there that can tell you whether your NPS is strong or not. A couple caveats. We found that NPS isn't always correlated with revenue outcomes. We use NPS as a very early indicator of how things are going with the client, meaning so much is going to happen after we get that NPS response.

So sometimes we might get a detractor response. When we get one, we're closing the loop right away and fixing that problem. and actually the response to the detractor score can sometimes result in such a great client experience that actually that customer becomes a super strong advocate and then they're renewing. So I think it's really important to think of it not necessarily as a predictor or a leading indicator of renewal, but more like an operational metric that you're leveraging to drive action. What we found is that NPS really varies depending on how you serve it to them and where you serve it to them. So if it's going out in our CSOps function, we do a customer.

sentiment survey quarterly. And if it goes out there, depending on the context of that, what the focus and who the focus group of that survey is, you'll get one score. If you put it in the product, you're going to get a wildly different score. So we don't track NPS at ACTA. We take a look at function by function. How are we doing? So how do you rate us in product? How do you rate us in your sales experience? How do you rate us transactionally for support, professional services, education? And then we take a look at those and where do we need to move those styles? I think the NPS is a company score. It's the CEO's score, not the CCO's score.

It could be because pricing is wrong. It could be because they had a bad experience in their billing. We overbilled them or whatever, right? So it's important to actually break that down really into functions and at the appropriate time because that really matters. And then correlate that back into where these guys respond. in general, what is happening with their overall product usage and so on, so that you're not just taking that one off and reacting to it, and you'd look at that holistically.

Thank you guys for coming. This has been a fantastic conversation.