A CFO walks into the office of his CEO after days of analysis in preparation for an upcoming board meeting.
“I have some good news and some bad news,” the CFO said.
Figuring he should buffer the bad with the good, the CFO shares his findings.
“The good news is our new bookings rate is through the roof. We are exceeding our original target.”
“That’s fantastic,” the CEO responds, “What could possibly be the bad news?” “We have a churn problem,” the CFO responds soberly.
The CEO thinks for a moment and responds, “Thanks for the update. I will get my top sales people right on it.”
Surely, the story above is a retro tale of an organization responding to a leak in the revenue bucket? Sadly, I still hear versions of this story today. In spite of the current buzz, Customer Success is a nascent department and many organizations are trying to solve the issue of churn through Services, Support, and even Sales.
None of these departments are properly suited for handling growth in user adoption, reducing churn, and adding value to the customer’s journey. That’s why it’s vital to invest in Customer Success early.
Services teams are focused on managing a project. Their mode of work is transactional and their measure of success is project completion. They don’t stick around to address issues that happen once their work is complete.
Support is focused on issue resolution. Their mode of work is break-fix and their measure of success is tickets closed within SLAs. They don’t proactively engage customers outside the support queue.
So, that leaves Sales.
Sales is certainly focused on revenue, but there are three reasons why this option doesn’t work.
According to a recent report by Goldman Sachs, a 2% decrease in churn can improve valuation by up to 20%. It makes sense why.
There is plenty of analysis around the impact of churn. As I mentioned above, you have a limited window before a churn problem can start to inhibit your rate of growth.
The other nasty fact is the impact churn has on cash flow. Depending on your rate of spend to capture a new logo, the payback on that investment could be 18 months or more. The math doesn’t work if your customers leave before the payback on that investment.
You also need to consider the money you are leaving on the table. A healthy customer base means you are not only recapturing acquisition spend, but you are also generating new dollars via upsell & cross-sell opportunities. There’s also the network effect of happy customers evangelizing your product to their peers.
In all of my previous companies, I was hired a year or two after Sales sold its first deal. Every company was starting to experience churn to one degree or another, and every company invested in Customer Success way too late.
Reversing a churn problem takes time. Typically, new Customer Success folks spend many months in fire fighter mode while Customer Success leadership analyzes and addresses root cause issues with the organization. At best, your new team of resources will swarm at-risk customers and quickly get things back on track. At worst, you uncover product issues that will take years to resolve.
Given the impact of churn, a resource dedicated to the long-term success of your customers should be in place the moment you land your first customer. No different than your investment in Sales or Marketing, this early resource has the responsibility to not only protect but also grow.
The journey to success with an early product can be a bit stormy. A dedicated resource will help you navigate the chop, keep customers on the boat… and tell others they should get on board.
But what if you don’t have a churn problem? You will.
As companies grow, they lose intimacy with their customers. Swarming customer issues or maintaining close executive relationships can only scale so far. When you start to double or triple your customer count, you are going to have a problem. Accelerating your rate of growth will accelerate your rate of churn if you don’t have the proper Customer Success foundation in place.
A resource dedicated to the long-term success of your customers should be in place the moment you land your first customer.
Learn more at Bluenose.