2023 Customer Success Recap

Each month, I send my LPs, prospective LPs, and closest friends in Customer Success a recap of my fund, SuccessVP's, progress over the last month. For the final update of the year, I took a broader approach to the newsletter, and I suspect that my Substack followers will also enjoy some of the insights as well.

Thank you for following me in 2023, and cheers to a happy, healthy, and successful 2024 for you and your family.

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Hi Folks! 

As we approach the end of 2023, I want to extend my heartfelt gratitude to all those who have inspired, offered feedback, and believed in the vision of what I am trying to create at SuccessVP. While countless news articles have expressed how challenging it is to raise a venture capital fund in 2023 – and I would not disagree with them – I have never once felt unsupported in my journey. Thank you all!

2023 was a year of many firsts for me. The pace at which I learned was incredible and certainly matched the fervor I've experienced many times throughout my operating career in high-growth startups. I've relished the opportunity to explore a new side of the startup ecosystem and to leverage what I know while building on it from a fresh vantage point. I’m excited to begin to invest and execute on the fund's strategy after the first close in the new year.

From the start of SuccessVP in mid-February until now, I've connected with 702 people from the Customer Success world, potential LPs, individuals in venture, and, of course, emerging startups. According to my calendar (not including lawyers, accountants, and fund admin personnel), I had 1,318 phone or Zoom conversations, totaling almost 670 hours. I learn best by listening, and here's how I'm interpreting what I heard and some of my thoughts on Customer Success as we enter '24:

1. Customer Success is changing very quickly.

In 2023, Customer Success underwent its most significant evolution of the past decade, primarily driven by sustained macroeconomic pressures. Throughout the year, I observed how companies addressed the need to achieve their growth goals while conservatively allocating internal resources. Companies shifted more focus toward existing customers, but the changes made were not necessarily what many people in Customer Success might have expected; in some cases, it even resulted in significant reductions in the Customer Success department.

Heading into 2023, many companies were already experiencing high churn in their customer bases, largely due to customers downsizing their software subscriptions after headcount freezes and layoffs that began in 2022. As this trend of downsizing continued, there was a strong push toward more defensive measures. Many Customer Success teams redirected their efforts toward Gross Retention Rate (GRR) and even simple logo retention, rather than Net Revenue Retention (NRR), which had been gaining momentum in 2020 and 2021.

I observed that many Customer Success teams began consolidating under the Chief Revenue Officer (CRO) functions, with Customer Success often receiving a smaller headcount allocation and a narrower focus on renewals, which had increasingly become challenging. Concurrently, the Sales teams, which were grappling with the most difficult new customer acquisition market in recent memory, leaned more heavily on existing customer bases in hopes of finding expansion opportunities. Even as many accounts reduced their software seats, larger companies with multiple products were still able to expand accounts. Companies that were successful in 2023 made expansion a significant part of their strategy – it was both offensive and defensive in nature in that it drove top-line revenue and also helped to lock out competitors. In the end, many Customer Success and Sales teams grew closer, which I really appreciated, and Customer Success was also forced to innovate quickly to maintain the service customers had come to expect while doing so in many cases with fewer human resources. The winners of 2023 were Customer Success teams that embraced the shift in responsibilities, adopted innovation and were part of companies that had multiple product offerings.

In 2024, I expect a continued evolution. In discussions with Rev Ops and CRO leaders in the final weeks of the year, two things are clear: 1. New logos accounted for a smaller percentage of the sales mix in '23, causing concerns about long-term growth. And 2. Despite best efforts, customers, in general, are expressing less satisfaction with their vendor relationships. There's a growing recognition of the need for increased investment in Customer Success to not only free up sales capacity for acquiring new logos but also to enhance the overall customer experience. Most CROs I've spoken to are planning to slightly increase CS headcount and are doubling down on innovative scaling tactics that proved successful in '23. They are often expanding digital service strategies further up-market, persistently pursuing capacity gains through AI, and, in some cases, centralizing resources to achieve greater scalability.

1. Customer Success is a primary AI frontier.

As I mentioned earlier this year in a private post, I anticipated that AI innovation at the application layer would first impact customer-facing teams, and Customer Success would be one of the areas to undergo significant change. The unfolding reality reaffirms my belief: Customer Success, both as a job function and as a corporate ethos, is assuming a pivotal role in generating value in this transformation. The business landscape is now teeming with new companies, many of which are reimagining these post-sales and support functions from the ground up, hoping to capitalize on the possibilities AI offers. It's heartening to note that the initial hype around AI has given way to a more pragmatic approach among these emerging companies. My observation is that there is a renewed focus on prioritizing the fundamentals of good business development and investing time in comprehending customer needs and market dynamics in a way that wasn't as evident in 2021, 2022, and early in 2023. In the latter half of this year, I noticed a marked shift in startups focusing on customer discovery and returning to lean startup practices. The prospect of good companies emerging from the 2024 cohort is indeed exciting, given the progress witnessed in the past year.

1. The best way to navigate change is through community.

Amidst the whirlwind of change, one thing has become abundantly clear: practitioners in Customer Success are craving community like never before. In the face of layoffs, rapid innovation, and shifting organizational structures, the need for in-person guidance and camaraderie has never been more pronounced. In 2023, I had the privilege of hosting three Customer Success Meetups, in San Francisco and New York City, each drawing over 200 attendees, along with a dozen Customer Success dinners. The resounding sentiment from these gatherings was the yearning for connection and support. Looking ahead to 2024, I'm excited to continue bringing people together. We have meetups planned in San Francisco and New York City, along with the possibility of expanding to new locations. Additionally, we're organizing a conference in New York City, anchoring a week-long event that we're calling New York City Customer Success Week.

I can't wait to see you in 2024. There are so many wonderful things to look forward to, and I can't wait to share, learn, help, and experience all of what the future has to offer with each of you!

Thank you!

John