When it comes to structuring customer success and sales teams – our ecosystem tends to be trendy. We gravitate toward whatever's “in vogue” at the moment, even though it might only be optimal in certain contexts.
now, most companies are opting to divide responsibilities between teams that are focused on new customer lands (new logos) and those dedicated to managing, retaining and growing the accounts. You have one team closing new revenue from new customers, and a separate team handling renewals and expansions. Sometimes we call them CSMs, sometimes account managers, or sometimes both.
But let's take a step back and analyze whether this strategy applies to the context of your business. The startup ecosystem suffers from a behavior I call the “inappropriate cut and paste”. Essentially a founder, executive, or board member hears about a strategy used at a successful company and assumes that is a universal best practice. They implement it at the new business without analysis of potential contextual differences that cause the strategy to be less optimal for this new business. Rather than assume that specialization is always the best approach, let’s walk through a framework to help us decide which approach is best for the unique context of our startup.
Decades ago, we didn't live in a specialization world. As a salesperson, you did everything – set up your own appointments, closed those appointments, and renewed those relationships. Then, maybe 20 years ago, companies started to pioneer the usage of specialization. Many folks credit Aaron Ross and his creation of the SDR/BDR role at Salesforce with this movement. It was great and changed the ecosystem, but here's the thing – it's not always right.
Here's what's common today:
What's good about this? Well, arguably the toughest part of that sequence is closing a new customer. If you're successful in hiring an amazing person who knows how to take a new appointment and close that customer, you don't want to waste that skill on arguably lower skill work like setting appointments.
But here's where it gets tricky. When you specialize these roles, you create what we call "local maximums":
As a working unit, you’re not actually trying to maximize revenue production. You are trying to maximize Lifetime Value (LTV) and unit economic production (as measured by Payback Period, LTV/CAC, and/or Magic Number). But when you specialize the roles, each person optimizes for their own metrics instead of the bigger picture. BDRs/SDRs optimize around appointment quality, often at the expense of appointment quality. AEs optimize on new customer and revenue acquisition, often at the expense of customer retention and LTV. CSMs focus on customer retention, which is probably the best holistic focus. However, they tend to have too high of a bar for a qualified customer, expecting them to be perfectly teed up with very little need for education and setup.
As a point of reference, in our Stage 2 Capital portfolio of about 45 companies, we've seen these roles specialized about 85% of the time. But don't let that number fool you – it's all about your specific context.
Here's the sequential questioning you need to go through:
Let's say you're selling customers for $30,000 ACV, and you might expand their contract by 5-10% every year – you're capturing a lot of the value in the first sale. But if you're signing up a customer at $30,000 ACV and they could become a million-dollar account? That's a different story.
Take a company like Klaviyo as an example. If it's just increasing email or SMS subscribers, that's not hard. But if it's expanding into new use cases – like they started with email marketing for their ecommerce team, and now we want to close them on SMS campaigns or customer retention initiatives – that means leapfrogging to a different decision maker in a different department. That's hard.
Here's your answer:
The reasons to not specialize in outcome #2 above and to keep the original Account Executive as the owner of the renewal and expansion are as follows:
Even if the above framework suggests you should specialize, you still need to have a strategy to mitigate against the local maximum risk discussed earlier. One of the most effective ways to address this risk is through the compensation model.
Don't simply compensate AEs on new customers and ARR. Instead, incorporate LTV. Here's why traditional approaches don't work:
The Solution: Use Leading Indicators of Retention (LIR)
For example, at Slack, their LIR is a customer that sends 2,000 team messages every month. Watch how quickly your salespeople start getting customers to use the product before they even sign if you pay half the commission when they sign and half when they send their 2000 messages (i.e Achieve their LIR). This simple adjustment moves your specialized roles away from local maximums to operating as a team with a common goal.
Avoid the inappropriate “cut and paste”. Don't just follow what's trendy or what other unicorn did in their early years a decade ago. Challenge supposed best practices as to whether they apply to your context.
In the case of sales specialization, use this framework to make the right decision for your context, then design your compensation and support structure to solve for the risks of whichever model you choose. Remember, we're not trying to hit local maximums – we're trying to build a system that optimizes for long-term customer success and company growth.
That's the science behind the decision. If you've got questions about this or want to dive deeper, drop them in the comments.
P.S. I explore this topic in detail on my podcast, Science of Scaling, in the episode: "How Do You Decide Whether CS or Sales Owns Revenue from Customers?" Give it a listen!