This post was co-authored by Nick Mehta and Allison Pickens. Nick Mehta is CEO at Gainsight. Allison Pickens is VP of Customer Success & Business Operations at Gainsight.
Rolling out company-wide segmentation was probably the most productive initiative that our executive team pursued in 2016.
In this post, we’ve documented how we did it. What follows is a ground-up approach to segmenting your customers.
From the start, our CEO believed it was critical to have the same definition of customer segments in every department – not just in Customer Success, but also in Sales, Marketing, and other functions. Consider huddling with your exec team while you read this!
Step #1: Start from First Principles
Anyone who has read this blog knows that we’re big believers in thinking from first principles. So when we decided to segment our customers, we didn’t base it on commonly adopted (but often arbitrary) thresholds for ARR, the customer’s revenue, or the customer’s employee size.
Instead, we started with raw data. The question was: At the root, what makes different customers different?
A bunch of us pooled our observations of our customers. We jotted down notes on what different customers needed from Gainsight across the lifecycle. Then we clustered those customers together into personas. At a high level, these were our personas:
Persona A: Need guidance on how to build a CSM function from the ground up, with limited budget to do so.
Persona B: Need help managing a CSM team using data, in the midst of many other distractions.
Persona C: Need to prove the value of CSM to the Sales team.
Persona D: Need help transforming one function (often Support or Account Management) into a CSM function, or otherwise re-organizing to create room for a CSM team.
What made some companies fall into one of these categories rather than another? Our goal was to identify an attribute that was intrinsic to the customer.
We wrote down common attributes of each of these personas – industry, growth rate, touch model (high/medium/low), sales strategy, type of leader, budget, data available on customers, and other information.
As our executive team reflected on the data, we realized that the core driver of differentiation was the number of reporting levels within the company.
- Persona A 3 levels: a couple of CSMs, reporting to a customer-facing leader (who may also manage a sales team), reporting to a CEO
- Persona B 4 levels: CSMs, reporting to a Director of CSM, reporting to a VP, reporting to a CEO
- Persona C 5 levels: CSMs, reporting to a Director of CSM, reporting to a VP of Customer Success, reporting to a Chief Customer Officer (who manages all of post-sales), reporting to a CEO
- Persona D 6+ levels: multiple Chief Customer Officers, each reporting into the General Manager of a business unit
The number of levels in a customer’s organization may not be the crucial differentiator for your customer base. We’d encourage the reader to think from first principles and identify your own differentiator. But the thinking process above can come in handy.
Step #2: Pick an Ex-Ante Attribute
We had identified the root cause of differentiation. But the number of levels in a company isn’t publicly available information. We needed our Sales and Marketing teams to know immediately to which segment a prospective customer belonged.
If you take the number of levels in a company, then assuming a certain ratio of direct reports to managers, you can infer the range of employee count – which IS a publicly available number (e.g. on LinkedIn). We assumed a ratio of 7 reports per manager.
For example, 3-level organizations have a maximum of 1 + 7 + (7 x 7) = 57 employees, and a minimum of 1 + 7 + 1 = 9 employees. 4-level organizations have minimum of 58, and a max of 1 + 7 + (7 x 7) + (7 x 7 x 7) = 400 employees.
Those calculations resulted in this table:
|Segment||# of Levels||Min||Max|
For simplicity, we rounded these ranges, and we named the segments after planets whose sizes corresponded to the employee sizes of the segments. (It wasn’t a coincidence that Nick is a huge sci-fi fan…and Allison has watched every Star Trek Next Generation episode at least twice.)
|Segment||# of Levels||Min||Max|
Step #3a: Re-Align Your CS Organization
We divided each Customer Success department into segment teams.
- Our Client Outcomes team now has 3 sub-teams
- Our Onboarding Project Management team has a sub-team for Jupiter and one for Venus; so does our Onboarding Solutions Architect team (more detail on that here)
- In Mars, we combined the CO, PM, and SA roles into a hybrid role for the first year, since Mars customers tend to want one point of contact.
We took the segmentation even further. Allison now has a direct report who leads each segment and coordinates across all functional sub-teams aligned to that segment. It’s a type of Customer Success GM role, in which each leader owns their segment’s Gross Renewal Rate, Services P&L, and operational metrics — including Habits, CSQLs, Advocacy, utilization for billable folks, and others.
Now, for each segment, Allison has a single person who (1) feels a strong sense of ownership over that segment’s success, and (2) is empowered to make changes to benefit that segment.
Some CS functions, such as Technical Success (including Support), CS Operations, and Services Operations, remain horizontal across the segments. This ensures consistency and prevents us from re-creating the wheel for certain processes in each segment. But the segment leaders are empowered to request resources and assistance from those horizontal teams.
Aligning customers to a new segmentation is tough. You’ve got to be extremely thoughtful whenever changing a customer’s CSM, PM, SA, or other designated point of contact. We created a large Gantt chart to coordinate when we’d shift customers, so as to minimize disruption to their experience with us. We spent hours and hours making these decisions. We can’t say this effort completely eliminated the pain for all customers, but it helped to minimize it.
Step #3b: Re-Align Other Departments
Our VP of Sales led a similar shift in his organization. We have 1 director managing the Mars Sales team, 2 RVPs managing pods of Venus AEs, and 2 RVPs managing pods of Jupiter AEs. In addition, our Marketing team, pre-sales Solutions Consulting team, and Product Marketing team are all divided into segment teams.
There’s a hidden benefit here. Before this common segmentation, whenever there was a cross-functional issue, the VPs had to get involved. Now, the directors across functions who focus on a given segment can resolve issues together, without my involvement. This empowerment of middle-managers has made our company far more scalable.
The remaining departments – e.g. Finance, Product, Engineering – haven’t sub-divided by segment. That said, they’re intimately familiar with the characteristics and financials of each segment. Our executive team meetings are significantly more productive because everyone is aligned on the same definition of different customer types.
If you’d like to learn more about this segmentation initiative, check out this recording of the PulseCheck session that our CEO Nick Mehta and DoubleDutch CCO Annie Tsai led.