ArticleBest PracticesDecember 9, 2015
VCs Want You to Take Customer Success Seriously Image

VCs Want You to Take Customer Success Seriously

By Dan Steinman

http://vimeo.com/68816774

The recent Pulse conference, which took place on May 30, 2013, was designed to provide multiple lenses into the world of Customer Success.  This included a panel of CEOs offering their insights, along with a view from the CIO and also one from the CFO.  But one of the most interesting, and anticipated, sessions was the VC panel.  For anyone involved in technology anywhere in the world, it matters what Sand Hill Road thinks and, on this day, one of the discoveries was that the subject of Customer Success was as near and dear to Sand Hill’s hearts as it was to the audience’s.

Aaref Hilaly from Sequoia, Ping Li from Accel, Roger Lee from Battery, and Byron Deeter from Bessemer were the panelists and shared their thoughts on a variety of customer success-related subjects including churn, retention, valuations, and what is discussed behind the doors at board meetings.

A number of very interesting statistics were shared as part of the conversation.  For example, there was consensus agreement on what constitutes world-class with regard to retention.  With enterprise customers, 95% seems to be the magic number and on the SMB side, 85% is considered very good.  In both cases, the $$ retention, which includes both renewals and upsell, at the best companies was in the 115% to 120% range.

One of the questions on everyone’s mind was how the VCs view churn and retention when evaluating an investment.  This question was succinctly answered by this statement from Ping – “churn and retention are just as important as growth and are actually growth factors themselves.” 

Another stat that was shared by Byron reinforced Ping’s statement – “a 2% gain in retention rate equals a 20% bump in valuation.”  The chorus was joined by Aaref when he offered that “$$ retention rate is the cornerstone metric of a successful business.”  All of those statements, especially that 10-1 return that Byron mentioned, should provide courage to those who are headed to their CEO’s office to ask for additional, or initial, investments in Customer Success.

The most striking agreement coming from the panel was regarding the weapons available to fight the good fight regarding retention.  Or, should I say “weapon”?  And that weapon is data.  The path to building a high-retention customer base is through understanding your customers.  And understanding comes from data which, when combined with other data becomes information, which in turn can then trigger action.

This is especially true for SaaS companies where every click on every page of your application is tracked somewhere.  Or, at least, it’s trackable if you choose to do so.  And even many On-Premise applications now have a “phone home” capability to report back some level of usage data.  And that only scratches the surface of customer-related data that is available in an enterprise.  Somewhere in your company, someone knows how many times your customers are calling Customer Support, whether they are paying their bills on time, how they are responding to surveys, if they are doing references and how many, along with loads of other data points.

Combining these intelligently is the path to understanding your customer’s health and predicting churn.  Roger referred to this set of data as “footprints in the snow” which ultimately yield a full view of customer health.  He added that one company he recently talked to had improved their retention rate from 80% to 94% in 12 months by focusing on those footprints and taking action on those that were headed in the wrong direction.

Ping talked about the higher comfort level he gets at board meetings from his portfolio companies who come armed with dashboards and spreadsheets and all the data necessary to truly understand their customers.  That doesn’t necessarily translate into success as a company, but the process of measuring and tracking all the right things gives them the ability to see, understand, and take action on the information to improve their product or their processes. He contrasted those companies to others who were operating without real data and relying on “hypotheses.”

It really is all about the data.  That was the main message.  But data that sits in a silo, is simply just data.  Think about a seemingly significant slice of data that lives in a vacuum out of context of any other data.

A customer has logged into our application 3 times in the past 30 days, has run 14 reports, and has 1235 page views.  What does this data tell you?  Unless I miss my guess, you are saying “not a darn thing.”  Now let’s look at adding more data to that initial set and see if the picture becomes clearer.

  • The customer is General Electric.
  • They have been a customer for 3.5 years.
  • Their current contract value is $92K while the average customer is at $27K.
  • They have done two flat renewals but no upgrades since their initial purchase.
  • Their cohort of customers averages 14.3 logins, 174 reports run, and 11K page views each month.
  • They have opened 1 Support ticket in the past 30 days.
  • They paid both of their last two bills more than 30 days late.
  • They stopped doing references for us 18 months ago.
  • The average of their last 6 NPS survey scores is 4.5.
 

The picture of this customer becomes clearer and clearer with every single data point, right?  You can see red flags at several points along the way and you can also pick the time, in an ideal world, where you would have wanted to get notified that this customer might be off-track.  Somewhere in your enterprise, every piece of data listed above likely exists, and much more.  Combining that data together to create real information and then triggering red flags at the right time, which allow the passionate people who love to make customers happy, to go do their job, is the science of Customer Success.

It may sound like a pipe dream but it absolutely is not.  The data exists.  It is possible to bring it together.  And it’s abundantly feasible to apply analytics, triggers, and workflows to that information to provide early warning and risk mitigation.  If you aren’t pursuing some kind of solution that does some or all of this, whether home built or off-the-shelf, you are running the risk of incurring the wrath of your investors, at least if our VC Panel is a representative set of investors.

We’ll leave this with one last quote from Ping regarding gathering, understanding, and using data/information to get a grip on your customer’s health – “The ones (companies) doing well are the ones that are very data-driven.  The ones who are being very thoughtful, but anal, about the data are the ones that get to the right answer much quicker.  If there’s anything I’ve seen that worked well, it’s being incredibly religious about the data.”

Sand Hill Road is telling us that the key to success in today’s recurring revenue companies is being data-driven and not just religious, but incredibly religious, about the data.  Are you?

 
Picture of Dan Steinman
Dan Steinman GM, Gainsight EMEA GM, Gainsight EMEA

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