Product Market Fit Is the Future for Customer Leaders

Who rolls their eyes every time they read a social post that shouts “Customer Success is everyone’s responsibility!”? Sure, everyone agrees that if customers aren’t successful using your widget, the business will stall or fail.  

What Customer leaders are really saying is “customers are churning and growing, and for the most part, that’s out of my control”.

And that’s largely true.  

Customers churn because of missing features, product reliability, bad ideal customer profile fit, unsuccessful professional services projects, product is a nice-to-have, pricing doesn’t encourage usage, competitive threats, and ultimately low value received.  

Customers grow because the Product and Services teams develop new offerings, they trust your team enough to upgrade their support package, and they adopt capabilities that lead to high value received and expand their licenses or other usage levers.  

Because Customer teams don’t control Sales, Product, Marketing, ProServ, or Engineering, they’ve focused on what they can control–running a more effective team. Some example annual initiatives for Customer leaders include:

• Streamline onboarding
• Reduce time to value
• Improve services attach rates
• Improve NPS scores
• Decrease issue resolution time
• Build better playbooks
• Implement Digital and Scaled Success programs
• Improve health score reliability
• Make CSMs more efficient with new tools
• Quantifying ROI of the CS team
• Implement success planning methodology

The trend: all of these initiatives are internally facing.  They don’t increase value delivered to customers. But what if Customer leaders could influence other parts of the organization with customer data? What if Customer leaders could drive how pricing happens, which customers are acquired, and how the product roadmap evolves? Not only is it possible, but it’s the most important role that Customer leaders can play for the next decade of SaaS.

Now, it’s time to talk about Product Market Fit (PMF).

Marc Andreessen, Founding Partner at a16z, says “When an entrepreneur identifies a need in the market and builds a solution that customers want to buy, that's product-market fit.”  

But, since most companies don’t have 140%+ Net Retention Rates, it’s clear that PMF is not a one-time event. Companies constantly add new features, products, geographies, buying personas, and since new competitors spawn frequently the PMF process must be ongoing.

Jennifer Dearman, CCO at Udacity and former CCO at Pendo, says “In order to prove and continually improve your company's Product Market Fit, you must balance product usage data with actually asking customers if they've received value.  Hearing directly from the customer keeps you connected to the human who is using your product.”  

The core of Product Market Fit is value delivered to customers. Great companies iterate on their PMF by increasing value over time. 

So more value delivered = better Product Market Fit. Now we have to explore the different ways that companies can deliver value to their customers.

Different types of value

Maxie Schmidt-Subramanian at Forrester shared the 4 types of value that companies can deliver:

• Economic value increases when the customer saves money or increases profit, but decreases when costs are too high or money is wasted.
• Functional value increases when the customer thinks the offering is useful and easy to use, but decreases when the offering has friction or wastes time.  
• Experiential value increases when the customer feels pleasure or has positive interactions with people, but decreases when they feel discomfort or when they have a negative interaction with someone.
• Symbolic value increases when the customer’s personal status increases or they add achievements, but decreases when they feel disconnected or failure.

While most companies focus on economic value, like ROI statements, the other methods of delivering value will create engaged, lasting champions and relationships.

Note: Bain published a more detailed, interactive model that shows the 40 different ways to deliver value.

Measure value delivered

A common trend today is to measure value by recording a customer’s desired outcomes. This is a long-term losing strategy because it usually leads to product usage-based outcomes. That’s a problem because product usage only measures if functional value was delivered – did the product fulfill its purpose?

Only a tiny percentage of vendors can prove that usage of the product directly impacts the customer's goals. For example, if a customer’s objective is “make employees more productive”, can Slack prove that 1000 more direct messages last week helped the customer get more work done? No.  It’s even possible the customer views those 1000 messages as unproductive distractions.

But let’s imagine a scenario where a vendor could directly prove that usage of their product saved the customer 20% of their annual Customer Support costs. Did the customer receive value?  Well, maybe…

The customer still may not feel that they received value for these common reasons:

• Saving on Support costs stopped being an objective
• High administrative costs to make changes in your product
• Product is unable scale as the company’s needs grow
• A competitor convinced the customer that they overpaid
• Technical problems wasted time and reduced value
• The CFO decided 20% savings isn’t enough to justify another vendor to manage
• The product is missing key features that they needed or the UX is annoying
• The Sales person promised 25% savings and the customer only got 20%

So even delivering on product commitments isn’t a guarantee that value was delivered.  Because the customer didn’t actually want to buy a product. They wanted to buy a solution to a problem. We’re human and that means our minds change and our emotions impact our decisions. So the thing that’s missing is a way to connect to the human who uses your product. We need to understand how their needs and feelings evolve over time.

The easiest and fastest way to do this is to take the customer’s pulse along their journey, and ask them about how their overall experience was with Sales, Marketing content, Product features and UX, Engineering product reliability, ProServ quality, Support helpfulness, etc. Are you delivering Economic, Functional, Experiential and Symbolic value?

A Pulse program is a strategy that directly asks customers about value delivered along their journey.  Questions are standardized for the entire customer portfolio so they can be normalized across product lines, geographies or business segments.  A basic Pulse program has these components:

• The right question - a library of customer questions that are not selfish (NPS is selfish)
• Asked of the right person - economic buyer, key contact, user, etc.
• At the right time - onboarding complete, product usage, upcoming renewal
• In the right place - email, in-meeting, in-app, chat
• With the right signal - level of risk or opportunity the response creates
• And the right action - playbooks to close the loop internally and with customer

A pulse question might look something like this:

As customers start responding to your pulse questions, you can create incredible visibility for your company.

Product Market Fit scorecard

When your Pulse program is set up correctly, you’re getting constant real-time feedback about value delivered across the customer journey.  Your Pulse questions will uncover how each department contributes to Product Market Fit (PMF): 

• Is Product doing a good job delivering impactful features that are easy to use?  
• Is Engineering building a stable, reliable product? 
• Is Sales acquiring the ICP and setting expectations correctly?  
• Is Marketing delivering high value content and effective pricing? 
• Is ProServe offering high quality, trustworthy consulting services?

You become the executive that owns PMF for your business. Youl scan across the entire customer journey, and direct other departments to fix the biggest problems and chase the biggest opportunities. For example, if the Sales team is overselling, show the Sales leader the 13 customers worth $2.8M are at risk.  Since this is customer-reported data, it’s difficult to ignore.

A great Pulse program leads to a great PMF scorecard that includes the following:

• Measurement of each important moment of the customer journey
• The number of churn risks detected for each moment
• The number of growth opportunities for each moment
• The revenue impact of each moment
• Status of actions taken to react to each risk or opportunity
  

Maturity model

The path to Level 5 maturity is a huge undertaking. Companies can use this model to plan out the steps they’ll take to level up the way they understand and act on value delivered to customers.

We improve Product Market Fit by doing a better job as a company measuring and taking action on value delivery, as follows:

LEVEL 1: USAGE METRICS

Our first baby steps are to measure the usage of the product. This is particularly useful for identifying customer usage changes, when there’s zero usage, or when the customer isn’t using our differentiated features (the features that prevent competitors from stealing them away).  As we become more sophisticated, we can use standard deviation calculations to determine how customers use the product.

LEVEL 2: STANDARD CUSTOMER METRICS

Now we added internal metrics that attempt to estimate value delivered. These include scores like NPS, CSAT, and health scores but also time-based assessments like time to value and ticket resolution time. These are useful to identify trends across the portfolio over time, but we still don’t know if the customer receives value.

LEVEL 3: MEASURE VALUE DELIVERED

Finally, we’re measuring value. It’s important to have deep relationships with customers via Customer advisory and interview programs, record the business problems that customers want to solve, and then use a Pulse program to score the value delivered across the whole portfolio, and along the entire journey.

LEVEL 4: EMBEDDED

Now that we understand where we succeed and fail delivering value, we can embed that information into how the company operates. Rather than setting goals around NRR, a selfish internal metric, the company sets goals to increase value delivered (measured via the pulse program). Cross-functional meetings are used to set major company initiatives and leaders are required to include customer value data when they make decisions.

LEVEL 5: CUSTOMER-LED GROWTH

The company is ready to pursue Customer-Led Growth, a predictable, low-cost method for driving ongoing business growth. The company’s deep understanding of how to deliver value through marketing, sales, services, product, and success allows the company to finally chase a consistent 140%+ Net Retention Rate.

PMF is your future

Delivering low value to customers leads to poor PMF, and poor PMF leads to weak Net Retention Rates (anything under 125% NRR is weak).

Value can be delivered in many ways across many touch points. Although Customer leaders don’t own most of those touch points, they’re the closest executive to the entire customer journey. Customer leaders can take advantage of this role by pulsing customers and measuring value delivered to customers at each touch point.

Today, no one on the executive team “owns” Product Market Fit. No one has stepped up for their investors, CEO, and employees. PMF is the enormous opportunity for Customer Leaders. Not reducing time to value by 10%, not optimizing health scores, not adding more product usage data, but instead scoring, analyzing, and reporting on the company’s Product Market Fit.  

And better PMF will lead to better NRR, and ultimately Customer-Led Growth will provide a new channel of predictable revenue at a lower cost.

That’s the path to become the SaaS superhero of the next decade. That’s how the Customer Leader becomes the most important executive on the team.

CONTRIBUTORS

This piece was a collaborative effort by Chris Hicken (CEO at ‘nuffsaid), Nick Mehta (CEO at Gainsight), David Sakamoto (VP of Customer Success at Gitlab), Mike Lee (Dir of Customer Success at PublicInput), Kristina Valkanoff (VP of Customer Success at TIME), and Ejieme Eromosele (VP of Customer Success and Account Management at Quiq).