TSIA’s LAER model is a framework that breaks the supplier’s perspective of the traditional customer engagement journey into four distinct phases: Land, Adopt, Expand, and Renew. As more companies begin to make the pivot to managing annual recurring revenue streams, there’s an industry-wide increase in the creation of LAER initiatives in order to follow a customer engagement plan that works with a subscription-based business model. I recently wrote an upcoming paper for TSIA members called, “4 Phases of Becoming LAER Efficient” that aims to help them assess where they are in efforts to creating a customer engagement model that cost-effectively works with customers in each of the four phases of LAER. Here’s a quick look at those four phases that can help you start thinking about where your company is in this process and where you need to be.
TSIA Organizational Capabilities Framework
Before we get into the four stages of LAER efficiency, we need to quickly review a different framework. For every inquiry, we capture what business challenge the company is trying to address. Over the years, TSIA has codified and created relevant content for almost six-hundred distinct business challenges facing today’s technology companies. We map these business challenges to the organizational capabilities a company will need in place to successfully address that business challenge. These capabilities refer to people, processes, and technology that must be in place to address a specific challenge.
To understand the distinct phases that companies experience on their journey to becoming LAER Efficient, we inspect the following capability-related markers:
- KPIs: What are the key performance indicators the company measures during the phase?
- Practices: What are the key practices (which includes processes) a company establishes and masters during the phase?
- Compensation: How are key account roles compensated in this phase?
- Organizational Structure Activities: What changes does the company make to the structure of Sales and Service roles in this phase?
- Selling Culture: What are the distinct attributes of the customer engagement culture in this phase?
Using these five markers, we can identify at least four distinct phases companies experience as they transition from a traditional technology customer engagement model that is very transactional-oriented to a customer engagement model that is LAER Efficient. This chart provides a high-level summary of these four phases and their attributes on these five markers.
Now that we know more about what we’re measuring, let’s talk about what each of these four phases of being LAER Efficient mean.
Phase 1: Traditional Transactional
Traditionally, technology companies are optimized to have a very transactional relationship with customers. The customer is embarking on a massive technology refresh, and Sales engages to secure that transaction. When the customer has technical issues, they engage in Support transactions. It’s hard to argue that technology business models are not optimized to be transactional when the KPIs for these transactional relationships are measured in product bookings, total company revenues and profits, and support resolution times (the total time it took to solve a customer’s issue from start to finish), just to name a few. For anyone that has been part of the technology industry for more than a decade, this phase of LAER efficiency should be very familiar and most traditional technology suppliers find themselves in this phase.
Phase 2: LAER Experiment
This is where the real journey begins: A technology provider begins selling “as-a-service” offers, such as SaaS or multi-year managed service contracts. It then becomes painfully clear that the current customer engagement models are not optimized for these new offers. Customers that don’t use the technology don’t renew or expand their spending. In order for Sales and Product teams to continue doing their job, there needs to be a driver of customer adoption, which is why more executive teams are investing in some type of Customer Success capability.
TSIA observes these early-stage Customer Success capabilities as possessing the following traits:
- Laser focus on improving customer adoption and/or retention
- Relatively small team focused on the largest customers, often referred to as a high-touch customer success capability
- Operates relatively independently of existing service capabilities such as Professional Services and Support
- Unclear how the funding model will scale
Currently, the majority of incumbent technology providers that are pivoting toward XaaS offers are squarely in the LAER Experiment phase.
Phase 3: LAER Effective
The journey from LAER Experiment to LAER Effective can take several years, and it’s not always a linear path. Already, TSIA has witnessed companies enter the LAER Experiment phase and then exit by scrapping their Customer Success function, only to restart the function a year or two later.
In this phase, companies have learned (typically the hard way) which tactics are required to truly drive a customer through all four phases of LAER. Some of these key lessons include:
- Adoption is a data and process-driven effort, not an art form or a series of heroic events
- Expansion is just as important as adoption and retention
- If compensation models don’t change to prioritize all four phases of LAER, the company will not become LAER effective
- The Sales Executive must begin to partner with Customer Success. When the customer has any significant issue, they may contact the Sales Executive or they may contact the Customer Success Manager, which can cause tension between these two roles as the question of “who owns the account” becomes less clear. This critical stage is where the company begins to learn that the process owns the customer, and not any one person inside of the company
- Customer Success will not scale if it is funded exclusively from subscription COGS
Phase 4: LAER Efficient
There are companies in the technology industry that have successfully reached the LAER Effective phase, and there are few companies that have entered the LAER Efficient phase. How do we know? Because LAER Efficient companies are stabilizing or driving down their total cost of sales and marketing, while LAER Effective companies have demonstrated they can cost-effectively expand and renew existing customers.
In this phase, companies finally crack the code in the following areas:
- Reducing the cost of sales is not just a function of effectively managing the costs related to the traditional sales force
- Life Time Value of a customer (LTV) is more relevant than the size of the initial deal with the customer
- Everyone touching an account should care about expansion and renewal
- Not all accounts are created equal regarding profitability, so account resources should be applied appropriately
- Customer Success is not a standalone function, but a larger concept that integrates all the service capabilities of the company along with broad revenue responsibility
- Growing existing customer revenue is not the exclusive remit of a Sales executive focused on landing big deals but pairs with a chief customer officer (CCO) focused on retaining and growing existing customers
How to Know if You’re Successfully Moving Towards Being LAER Efficient
The journey from a transactional customer engagement model to a LAER Efficient model is not always a linear experience. There will be starts and stops and diversions along the way. However, there are a few road signs that confirm your company is on the right path:
- Sales team acknowledges that the current customer engagement model is not working. The first step in the journey to becoming LAER Efficient is realizing you need to take this journey. Specifically, the Sales leadership within the company needs to internalize the reality that the traditional tactic of hiring more highly skilled account executives is not resulting in cost-effective growth.
- Executive team realizes that lack of adoption kills. Investment in adoption activities does not occur at scale unless executive teams realize the investment is non-negotiable in XaaS business models.
- The topic of account ownership comes up for debate. Sales and Service leaders are realizing that the answer to “who owns the account” is not as simple as it once was.
- Effective communication across account facing roles: The company is investing in tools and processes that enable effective coordination across multiple account facing roles such as the account executive, the customer success manager, and a renewal specialist.
- Cultural shift from blame to continuous learning: LAER Efficient organizations abandon a culture where internal organizations spend too many cycles assigning blame for account failures. Instead, LAER Efficient organizations are fixated on continuous learning—what changes can we make in our customer engagement processes that accelerate customer success? When the customer succeeds, all economic boats rise.
The full explanation of each of these four phases, including a detailed step-by-step overview that examines the capabilities needed at each stage is included in my paper, “4 Phases of Becoming LAER Efficient,” which will be available to all current TSIA members in May, so stay tuned. If you’re not a member yet, please reach out to us today to learn how TSIA can help you create a data-driven plan of action for business optimization that can lead to new levels of success and profitability for your organization.
About the Author
Thomas Lah is executive director of TSIA. Since 1996, he has used his incisive analysis, strategic thinking, and creative solutions to help some of the world's largest technology companies improve the efficiency of their daily operations. He has authored several books, including, Bridging the Services Chasm (2009), Consumption Economics (2011), B4B (2013), and Technology-as-a-Service Playbook: How to Grow a Profitable Subscription Business (2016).