4 Laws of Customer Success
How some of the most well known theoretical principles and laws apply so nicely to the world of Customer Success
One of the earliest, and best, books on Customer Success (‘Customer Success; How Innovative Companies are Reducing Churn and Growing Recurring Revenue’ written by Dan Steinman and Nick Mehta in 2016) lays out what the authors feel are the laws of Customer Success, and they do a fine job of it. What I find fascinating is how some of the theoretical laws, maxims, rules of thumb, theories, and principles that we know so well from other walks of life, have parallels to the world of Customer Success. As I read and learn about these, my mind often wanders, to my professional experience, to make a connection.
Here are 4 ‘laws’ which knit nicely together in explaining a perspective of Customer Success as a business function and discipline.
Pareto Principle
One of the most well known principles is that proposed by Vilfredo Pareto. Pareto was an Italian economist (among other things) who observed that 80% of Italy’s wealth came from 20% of its population.
The Pareto Principle, often also called the 80/20 rule, proposes that roughly 80% of the effect of something comes from 20% of the source of it.
‘Roughly’ is the key word here, but essentially provides for the conclusion that a large proportion of the outcome of something, comes from a small population of its constituents.
In a Customer Success function you would typically segment customers into a book of business. Many of those books of business get Customer Success Manager stewardship whilst others don’t or, perhaps, do but with less attention. This segmentation almost always has a commercial value element to it, which makes economic and business sense, in that your most valuable customers should warrant the most attention.
If you stack rank all of your customers in descending order, you’ll see the Pareto Principle in effect, in a very similar way to Pareto’s original observation. The book of business for your company, region, or even a CSM, typically has a large proportion of the annually recurring revenue (ARR) coming from a small proportion of the accounts.
I’ve seen 25–40% of the ARR come from the top 5%-10% of customers and, extended out further, 70%-80% of the ARR come from the top 10%-20%.
Understanding the application of the Pareto Principle to your Customer Success model will significantly influence the operation of your work. As a leader in a CS organisation it gives you strategic and operational context for planning and managing the business. For a CSM it gives you context for focus, in becoming the CEO of your own mini business.
Miller’s Law
Having formed the segmented book of business, and identified the value of the accounts in that book of business, Miller’s Law comes into play as you start to think about how to manage the accounts over which you have stewardship.
George Miller was an American psychologist who worked in, and established the field of, cognitive psychology at Harvard University, MIT and Princeton. In 1956 Miller asserted that there was a ‘magical number’, 7.
Miller’s law suggests that the average person can only keep 7 (plus or minus 2) items in their working memory at a time.
It’s rare that a Customer Success Manager will be fortunate enough to have as few as 7 accounts in their stewardship. Some do, in large Enterprises with high touch models, but I’d imagine to some extent Miller’s Law still applies to the fewer but more complex accounts.
If we assume that an individual CSM could have anywhere from 3 to 10 times the magic number in their field of vision, it creates a scenario where some ruthless prioritisation would need to take place.
Prioritisation is one of the most fundamental and essential necessities for being successful as a CSM.
Where you have fewer accounts to oversee, using a prioritisation based on any number of the following variables would be likely;
- Effort — a 2 x 2 grid with effort on one axis and return on another axis, each one ranked high to low.
- Focus — 4 categories of ‘Maintain, Adopt, Grow, Save’ or ‘Hyper Growth, Growth, BAU, Save’.
- Time — a 2 x 2 grid with time on one axis (Short term to Long term) and Impact or Complexity on the other.
- Proactive Value — evaluating proactive work that could be done, based on 4 categories of ‘Quick Wins, Value Add, Back Bruner, Long Term’.
For those CSMs who have a large book of business, or where they have commercial responsibility for a customer, it’s more likely customers will be prioritised based on the proximity to the next commercial milestone. For CSM’s with onboarding or implementation responsibility, the ‘magic 7’ will likely relate to when the customer purchased. Alternatively it could be defined based on the pace or urgency in relation to a deadline. CSM’s who have none of those elements to worry about will have time to plan more strategically, thinking about focus, growth or opportunity, relationships, or risk. Essentially factors that are not linked to reactive actions or tactics.
Parkinson’s Law
Every CSM I have ever spoken to has, at one time or another, said something to the effect of “If I had fewer accounts I would have much more time to…”. I think we all feel that about our work. ‘If I didn’t have as many meetings, I could spend more time planning’… or ‘If I didn’t have as much admin work to do, I could spend more time speaking with customers’. Its true, to an extent, but here’s where Parkinson’s Law comes in and, I can personally attest, that it explains a lot about why I am always busy.
Cyril Parkinson was a British historian who published many books, the most famous was that named after his adage. Parkinson’s Law was first published in the Economist in 1955, using a wonderfully nostalgic example of how an elderly lady of Bognor Regis could fill her day with a simple activity like sending a postcard. The Law was more widely used to explain activity rates in the British public sector.
In the opening sentence of the 1955 article, Parkinson’s Law states “It is a commonplace observation that work expands so as to fill the time available for its completion.”
Whether a CSM has 7, 21 or 70 customers in their stewardship, they will always be busy. If we narrow it down to the marginal, whether a CSM has 7 or 8 customers to care for, they will be busy because those customers will occupy all of their time.
If Parkinson’s Law is therefore to be believed, in this example, the CSM will be most successful if, after prioritising customers, they then seek out proactive activities and engagements that can scale across many customers, thus saving time in repetition or wasted rework, and in turn making better user of the time.
There will be some activities that can only be done one at a time. You can only attend one Customer Business Review at a time. If you find a way to make the activity repeatable, where the same structure or framework of value can be delivered again without much rework, it makes it much quicker and easier to apply when the scenario next arises.
For many, this will be the illusive playbook of programised activities. Something which happens over time and often takes several phases of growth and maturity to create.
Gall’s Law
Gall’s Law is a wonderful way of looking at that desire to have a well formed and mature way of operating. I’ve seen Customer Success organisations, and spoken to many CS leaders, who have expressed their desire to operate in the same way as ‘X’, seemingly mature organisation, or ‘Y’ apparently perfect model of operation.
“Gall’s Law states that all complex systems that work, evolved from simpler systems that worked. If you want to build a complex system that works, build a simpler system first, and then improve it over time.”
John Gall’s assertion is traditionally a rule of thumb applied to the design of systems but works really well when you look at the formation and evolution of companies. If I wanted to build a world renowned, globally successful, online retailer, it’s highly unlikely I would be able to build the next Amazon overnight, let alone in the next year. That’s because Amazon has evolved over the last 25 years to be what it is today.
Extend that principle to the evolution and maturity of the operation of a Customer Success organisation and, as mentioned previously, the existence of a repeatable playbook of programised activities doesn’t happen overnight. Nor do mature processes which interact with other departments, or documents or assets that you can pick up off the shelf and re-use, or supporting functions like Operations or Enablement.
The important thing to remember is that all these things can exist you just need to start today, then you are one step closer to your desired end state. There is a Chinese proverb that says “The best time to plant a tree was 20 years ago. The second best time is now.”
The first step is to establish the ‘simple system’ or minimum viable product of something that you are looking to create, and then iterate over time. That pace of change and evolution can certainly be fast and iterative in earlier stages of organisation maturity because the agility that comes with being small affords fast paced change. As the organisation becomes more mature evolution is likely to be more incremental and potentially less obvious.
CALL TO ACTION
👉 Review a list of all of your customers, in order of value. Calculate how much revenue the top 5, 10, and 15 customers generate for you as a proportion of all customers. Identify where the rough 80:20 rule applies to your book of business.
👉 From your highest value accounts, use one of the suggestions for prioritising accounts and look at how you will prioritise your accounts for this/next quarter or for the year ahead.
👉 Identify 1 or 2 activities that have added value or been highly successful with one of your customers, and plan for how those methods can be repeated across several customers in your book of business
👉 Share! If you have selected value add activities, share those with everyone in your team or CS org, and encourage reciprocated sharing. Sharing leads to innovation, innovation leads to evolution.
