Stickiness is the lifeblood of B2B SaaS offerings; Losing focus on aspects that drive stickiness risks the entire plot.
Business-to-business (B2B) Technology companies have built their businesses around recurring revenue models that determine everything from company valuations to employee compensation. However, are all companies structured and operating in a manner that supports a recurring revenue model? Let’s take a deeper look at the most basic assumption behind this model – stickiness.
What Is Stickiness?
Stickiness can be quantified as the amount of value that a customer will lose if they stop using a solution. This loss of value can be grouped into two categories.
- Short-term stickiness via switching costs: Technology buying companies will have to put forward some incremental investment, such as additional implementation cost of a new solution and cost of breaking a contract, to swap out one B2B solution for a competing one. Such a cost can force customers to stay put for a while. However, emphasis on such tactics implies that the technology offering is focused on itself and not the customer, which never ends well.
- Sustainable value realization: A tangible or perceived incremental benefit (preferably quantifiable) from using the B2B solution as opposed to using a competitors’ or none at all is the path to long-term stickiness and loyalty. Every B2B technology offering should focus on this aspect as it is the natural win-win reason for a technology buying company to choose a vendor.
Switching Costs: Short-term Deterrents
Switching costs do not add any inherent value to the customer; it is a cost avoidance and generally fall under the commercial umbrella. There are several approaches to get a customer to stay a little while longer or stop them from leaving quickly. The additional time can be helpful to demonstrate true value. In the decreasing order of stickiness, examples include:
- Customer contracts: These are important because it gives the customer pause before pulling the plug and might require them to stay until the contract ends or incur significant fees. However, this sort of stickiness can backfire due to negative reputational impact through poor reviews or over investment in unhappy customers through customer support.
- High on boarding costs: Operating in a space where implementation and training costs for B2B solutions are high can keep customers in place because it costs too much to start using a new solution. But, if customers aren’t getting value, leaving is just a matter of getting a budget approved or finding a substitute with low onboarding costs.
- Personal relationships: Maintaining strong personal relationships with customers makes interactions less stressful and once in a while the customer contact might advocate for our company. But what happens when our primary contact changes jobs?
Although these commercial levers are very critical to ensure that the company has a strong pulse on customers’ needs and has some downside protection, these tactics only create short-term stickiness. Focus on keeping customers through switching cost has two negative side-effects: 1) it distracts from developing truly sticky solutions, and 2) it creates a false sense of security that customers can be held back from leaving which results in poor risk evaluation.
Value Realization: Sustainable Stickiness
B2B Technology companies will be well-served by allocating significant mind-share to understand what makes their customers sticky. True stickiness is unachievable without devising a way to positively impact key stakeholders at the customer each day in the specific area where customers have the need. How should a company think about stickiness of its B2B offering? To assess the strength of a B2B technology’s position, companies should answer two key questions:
- What is the relevance of the technology in a buying company’s ecosystem?
- Does the B2B technology offer operational frontline impact or periodic executive-level insights?
Stickiness Tip 1: B2B solutions should internalize their role in customers’ ecosystem and perfect their solution to the specific problem that customers want solved
Not all technologies are made equal; and that is fine. First step is to internalize the company’s position in the context of the customers’ ecosystem. Companies use a myriad of technologies to manage their operations and information needs. Irrespective of the industry or maturity level, technology buyers procure three categories of solutions:
- Core Technologies: A few technologies solve major and broad-based problems across multiple functions and teams. Examples include Customer Relationship Management (CRM) system, financial reporting system, etc.
- Niche Technologies: Vast majority of technologies used by companies fall in this second category where technology buyers are looking to solve very specific and narrowly-defined problems. Companies use dozens of such peripheral niche solutions and customers expect these solutions to seamlessly plug in with their core technologies and other niche technology solutions.
- Data / Visualization Platform: Most companies also use a central database that integrates information from all core and niche technologies and is considered the single source of data at the company. Such platforms offer strong capabilities to manipulate and visualize data in detailed and aggregated forms. Well-run companies use one such platform.
So, where does your B2B technology sit? It is absolutely critical for every company to know where they sit in this complex ecosystem. Core technologies and data / visualization platforms tend to be established brands and oligopolies. i.e. there are a few dominant solutions at any given point in time and most companies use them.
Most B2B technology offerings fall under the Niche Technology grouping, implying that they are expected to solve a specific problem very well, while being capable of operating in a symbiotic manner with other technologies in customers’ ecosystem. If niche technology companies confuse their position and solve for problems that are already solved by core technologies or data / visualization platforms, they are likely distracted from their niche. This is not a path to dominating their niche space and risk maintaining value for customers.
Stickiness Tip 2: Day-to-day operational impact is more sticky than periodic executive-level insights
Interviews with technology buying companies reveal that they generally categorize impact of niche technology vendors into two: 1) Improve day-to-day operational effectiveness of frontline resources, and 2) Enable periodic business-decision-making for senior executives. The former is sticky; the latter is not. Investing in components that do not bring everyday value to operational resources is an investment away from stickiness.
Pitfall 1: Too much focus on budget holders over operational stakeholders. It is tempting to serve and interact with senior executives at technology buying companies as they hold the purse strings. However, frontline roles and people who procure technology for them hold the key to stickiness. Senior executives pay for technologies to improve operational effectiveness and productivity of frontline roles that focus on day-to-day tasks i.e. improve processes. Value-creating and sticky B2B solutions articulate and quantify how operational processes are improved at technology buyers and how those improvements contribute to customers’ top-line or bottom-line.
Pitfall 2: Offering “strategic insights” is often the antithesis of sticky solutions. It is hard to not get swept up into the insights/machine learning/AI aspects around data. Data and related concepts drive decision-making. Technology buying companies do not make major strategic business decisions on a daily or weekly basis; but frontline resources make simple operational decisions every single day. If a B2B technology delivers “strategic insights” that do not change often, it is competing with management consultants and it creates the risk that customers will learn the insight generated and discontinuing the relationship. Technology solutions focused on data must deliver value-creating operational insights on a daily basis.
In summary, stickiness with technology buying customers is driven by understanding customers’ technology ecosystem and the B2B offering’s place in it to deliver day-to-day value by improving process and data quality. Although necessary, creating stickiness through commercial means is a short-term tactic and is not a substitute for true value creation to keep customers.