Welcome to the 23rd episode of Customer Success Radio brought to you by Zuora, powering the Subscription Economy.
Tom: Hello everyone. I’m Tom Krackeler joined by Rachel English. We are in two separate conference rooms in the same building because we do not know how to record a podcast in the same room. We don’t have a fancy microphone yet. Rachel, you arrived from Austin this weekend, so can you give us a review on what to do in Foster City, Ca on a Sunday night?
Rachel: Well I wen’t on a very nice walk. There were geese but no people around. I think I was the only one in Foster City last night.
Tom: Ok, well live and learn.
Nick: Isn’t there like a killer Starbucks there?
Rachel: I don’t know, I didn’t find it.
Tom: Who’s that voice? So today we are welcoming Nick Mehta, CEO of Gainsight. Someone we’ve been looking forward to getting on this show since we started it. So, welcome Nick. Great to have you.
Nick: Super excited to be here, thank you!
Tom: Nick, here are Customer Success Radio we ask the hard questions. We never duck the controversial topics. I wanted to get you started with a zinger. Who would win the hypothetical match up 1979 Superbowl champions Pittsburgh Steelers led by Terry Bradshaw and the 2009 Superbowl champions Pittsburgh Steelers led by Ben Roethlisberger?
Nick: It’s funny, I have played that match up many times in my head. So, I’d say the 2009 only because I was fortunate enough to be at that game. One of the all time highlights of my life. My wife says I have to the birth of our children ahead of that. But after that, being at the 2009 Superbowl was pretty awesome. So, I’d give my vote to them because I think the offense these years is much more exciting.
Tom: So, we have to be your all time favorite interview now because we like to talk about two different Superbowl Steeler champs.
Nick: This is the best Customer Success Radio podcast I’ve ever done!
Rachel: Excellent. And I’m glad you think they would win because you were there. Great!
We actually asked out on twitter this time if there were some questions out there people had and we actually got a really great one we wanted start off with if you’re up for it from Yousef Kahn of Pure Storage. He wanted to ask about culture, something you’ve spoken and written a lot about but “How do you build a culture of customer success?”
Nick: First off, thanks Yousef for the question. I think it’s one of the most foundational question a CEO can be thinking of. Because obviously, if you’re a CEO of any size company and you want to implement a strategy that helps drive success for your clients you should hire people and implement systems and processes. But the reality is the biggest thing you can do is drive the culture.
For me, I there are some things you should do and some things you should not do. As a CEO, a lot of times the things you should do tend to be void or causing harm to the system. So, the positives are some of the things we think about a lot, maybe starting with defining what success is. Frankly, for a lot of companies it’s overwhelming to think about all the different ways your customers measure you. Is it about them being happy? Is it about them renewing or buying more? Or is it about them just using your service?
For different businesses success means different things. But I think the CEO should really come out front and center at the All Hands meetings, the Board Meetings, Annual gatherings and so on, and should be defining goals for customer success that should be right up there with the sales goals. So, that’s the first thing — defining what success means.
Now, the second thing I think is about promoting transparency. So, making sure throughout the year when things are going right or wrong, making sure you’re sharing that. Like Gainsight, we’re a fairly small company — when things go right, obviously we want to celebrate it. But when things don’t go well I don’t want to hide that. I want our teamates to know the barriers out there to our customer success. I don’t want to hide those. A lot of CEOs try to promote the good but you also have to promote the challenges.
On the flip side, the final thing I’d say is you really have think about how you celebrate those good times in customer success because customer success is a really challenging job, and you know this Rachel as well as anyone. It’s just really hard. There’s so many priorities between all the different customers, balancing all the different balls in the air, dealing with all the product changes. So, a lot of companies have become really good at celebrating sales. They’ve got parties, end of year trips, and gongs but a lot of customer milestones like the customer renewals, upsells — nothing happens. Or the customer does a reference, nothing happens. It’s funny because as a company we celebrate all the things we care about in our company but yet we’re not celebrating the things our customers care about. So, we should be celebrating those moments of customer success.
So, those are the positives. On the negative side, there’s a lot of things CEOs can do that counter the goals of customer success.
Just a couple of thoughts off the top of my head — some of the most customer-centric CEOs can also be the ones that hurt customer success the most because they dis-empower the team. Lots of times there are CEOs customers will email. It doesn’t matter if it’s a 5 employee customer or a 5,000 employee customer, the CEO is going to escalate that up the chain internally and try to be the hero, try to save the day. Meanwhile, that CSM has been working hard on understanding that customer for so long, knows everything about them and just got cut out. And the customer was taught that if you really need help you have to go to the CEO. So, as the CEO how do you empower your team when bad things happen?
Similarly, when bad things happen a lot of time CEOs will try to go right to that CSM or account manager and ask what they did to screw things up. Not realizing that behind that CSM or account manager there’s a systemic issue, a product issues — sales overselling them or a pricing issue. And so, they ignore the systemic issue and try to put all the blame on that customer facing person.
And then finally, a lot of times CEOs often will only meet with the senior executives at their client — the CIO, CMO, the COO. But never take the time to understand the real world experience of that user, that day to day person that your company is interacting and so a lot of times they miss a lot of these valuable insights from the client base.
Rachel: Very interesting. One quick follow up, when you see this shift happening, what are companies usually shifting from? What is the former dominant culture?
Nick: So, there’s a lot of CEOs out there who say I’m a Sales Oriented CEO or a product oriented CEO — those are probably the two most common. And in the Valley you see a lot of product oriented CEOs and historically before that you saw sales oriented CEOs. But you don’t see enough people saying they’re a customer success oriented CEO. Not that you’re only oriented towards the customer success team but you’re oriented towards the customers’ success. Which means the whole company is rallying around it. And I think a lot of times when CEOs say I’m sales oriented or product oriented they’re making all the other parts of the organizations feel as though they don’t matter.
Tom: Yeah, and you talk about the difference between meeting with the executives or meeting with the economic buyer versus meeting with one of many users. That was something we used to talk a lot about at previous companies and talk about how we thought about those two different personas would value the relationship with your company. We talked about the ROI and how one set of folks would look at it with an ROI lense — what’s the payback from the investment in this SaaS product? But with the users it was more of an emotional ROI. How does it feel to use this product everyday when you have no choice and is it something you’re delighted and excited about or is it something where you feel like you’re stuck using and frustrated? You can choose to look at only one or the other. But if you’re looking at both that puts you in a much stronger position to really understand the experience your customers are having.
Nick: That’s really well said.
Tom: Thanks! So coming off a few weeks ago, Gainsight’s Pulse conference! Congratulations, that was a huge success. I remember our first couple days here at Zuora, actually before we officially joined there was a little buzz around the office, that some of them had just got back from Pulse and they thought it was awesome. Subscribed was coming up the next week so you were sort of laying the gauntlet — a lot of sessions, a lot of thought leadership. So, I wanted to ask with all these smart people there what was your number one takeaway or number one learning and maybe what was your biggest surprise or something you didn’t expect to pick up from the folks there.
Nick: We did hire a Taylor Swift impersonator for the keynote…
Tom: I heard that…
Nick: That was both a learning and a surprise! I think many people actually thought it was Taylor Swift, so that’s pretty cool, too! But it’s interesting, Tom and Rachel you’ve been in the center of this from the beginning, so what’s amazing and what the biggest learning or surprise or continued excitement is just how far customer success is coming.
If you just look at both the number of people coming to this event and other events like this podcast — in our case we had 300 people attend our first Pulse in 2013, 930 at the second Pulse in 2014 and then 2070 a few weeks ago in San Francisco and that’s really a reflection of the fact that the profession of customer success has gone prime time — it’s a real job, it’s really really important. Pioneers like the folks hosting this podcast have been talking about this for awhile but I think mainstream America is just getting around to it.
The energy level is really high at this event which I think again reflects the excitement with the profession and a profession that’s getting more mindshare. And then diving in, I think whats happened since we’ve started our conference 3 years ago is that it has gone from the celebration of the profession then validation of the profession to then how do we optimize and grow the profession. And there were really 5 themes that we talked about saw at this year’s event.
The first one was all about segmentation. One of the things that’s probably talked about in this podcast and other places is that customer success is not the same thing when you have a million dollar customer relationship versus a thousand dollar customer relationship. And although they’re all customer success in the broadest definition of the word they actually mean different things when you have a high-touch business model or low touch or what we at Gainsight refer to as a tech-touch business where its more about touching customers through technology.
Tom: And just to interrupt, that’s so important because so many times you get ‘here’s a best practice’…
Rachel: Ha, yeah…
Tom: And you’re just like, I need to know if you’re talking about for Veeva or are you talking about for Netflix. The models are so different that unless you start thinking about that you almost don’t want to go any further because you might be heading off in the wrong direction
Nick: Yeah, that’s a really great point. It’s funny, in our slide deck when we talk about Gainsight and customer success we start with a pyramid. You have your large number of small customers at the bottom and your small number of large customers at the top. Everyone is always like, ‘oh that’s such a great slide, that’s amazing, it’s capturing everything we’re thinking.’ And I’m thinking, that’s just a triangle with lines on it.
But it’s amazing how powerful this triangle is because it helps people almost take the burden of their shoulders that they need to do all the customer success things possible for all customers. And in reality not every customer needs or wants the same customer success approach and not every business model merits the same customer success approach. That trend has really gone mainstream in customer success, giving people permission to have different best practices for different types of customers. So, that was the first big thing that came out.
The second theme that we saw, now that you’ve understand that you segment your customers. The innovative customer success teams are applying a more marketing like approach to their smaller customers where its not just about human one-to-one activity and more what people call one-to-many activities. Which often are emails or automated actions but basically an approach that is trying to actually move a cohort of customers right through a phase of the customer lifecycle versus thinking every customer requires a phone call and a meeting or an email individually.
That one-to-many concept or actually the idea that customer success teams should have somebody on their team that doesnt own individual customers but owns one-to-many engagement — we talked a lot about that. Don’t wait for your marketing team to create a customer marketing role. If they have one then work with them. But what we find is a lot of marketing teams are focused on new business. If they’re focused on new business you better get somebody on your team who can think like a marketer and apply a one-to-many approach to your customer base. That was the second theme we saw.
Tom: Each theme is so good! Rachel that’s essentially the insight you had 6 years ago at Convio where you said we have to a customer program person in customer success. Your sort of did what Nick just said, if I remember right.
Rachel: Yeah, and I’ve written about that a bit, too. In that type of model, that’s the approach you really need to start out.
Tom: So, there’s another theme, a third theme. Let’s hear it.
Nick: Yeah. Just one last thing on that second theme. Most of themes are not like rocket science, they’re things people have been talking about for a long time. In some cases I think people are afraid to implement them because they think they’re stepping on their organization’s toes, in this case Marketing. And I think what we said and what we heard was, ‘hey, look, in customer success you need to own your destiny if you need to hire someone to run these programs,’ as Rachel said, you need to go do that.
And that’s a good segway to the third theme we saw.
Which is customer success is it’s own proper operation function. A lot of companies, customer success started as this new off shoot and I’m sure this is something you guys have thought of a lot, as well. It started as an offshoot and therefore they’re begging and borrowing and stealing from the sales ops team to help them with things like analytics, reporting, processes, etc, right? But look at the name of the team. It’s sales ops so obviously at the end of the day the priority is going to be new sales. We did a survey before the conference we call the Customer Success Index and we found that 40% of customers already has a customer ops person. Their own person and that job category is expanding over time. We got a lot of interest in helping to shape that job category. You got to have that customer success manager but then you have to have an ops person to help those customer success managers be more effective. We think that’s a good trend.
Rachel: Yeah, we’ve seen a lot of that, too. And having those people more involved in the purchase decision and becoming one of our primary users. So, is there another theme?
Nick: Yeah, there’s actually two more. And good themes to wrap up on. Hiring. Obviously, everyone in the audience, they’re all looking for CSMs and we made a joke that if you only restrict yourself to people that are only CSMs you kind of have to have a fist fight to have any pull in the room. We need to grow the profession. We need to train people that are coming out of college, that are coming from other backgrounds like support or account management or coming from business school or management consulting. We talked a lot about that.
And finally, the last thing we talked about is continuing to help make the connection between customer success and revenue so that it’s easy to understand why you’re investing in this area. It’s not just actually about the revenue from renewals but its about the revenue from upsells and advocacy and we just talked about the fact that the connection to revenue is much stronger than people give it credit for it. We need as industry help to define that.
Rachel: It sounds like the general take-away is that customer success is pretty much taking over the world. Do you agree?
Nick: We’re totally unbiased!
Rachel: That’s right! Related to that at Frontleaf, we always saw the vision of customer success playing out across many different industries and business models whether its Internet of Things companies or Infrastructure companies, all kinds of different applications across the customer success mindset. We started with a focus on the Software as a Services (SaaS) business to business businesses for purely a need to focus somewhere and create opportunity there. In joinging Zuora, we’ve jumped in to providing analytics to all different types of companies across the Subscription Economy. And I know you’ve written about this as well but i’m interested in how you see that opportunity and what companies of all different types can learn from customer success and how they can use tools like Gainsight and Z-Insights.
Nick: Yeah, that’s a great question. It’s awesome to be talking to you in your new context because Zuora has really pioneered the thought process around the Subscription Economy. In a way, customer success and the Subscription Economy look at the same problems from slightly different lenses. The way we’ve seen it, which is part of how you articluateled it Rachel, is that SaaS is definitely where things started. Immediately right after that, all the other tech companies have all embraced customer success, as well.
In fact, we gave away awards which we call Customer Success Innovator awards where we talked about businesses that are really innnovating in their customer success approach and had a category for pure play SaaS companies like Box and Workday. But we had a category for diversified tech companies that are coming from more of a traditional business model so we recognized CA, BMC, and HP. So, we see it happening definitely in all parts of tech as much as SaaS.
But to your point, it really is the much broader economy, the mega trend is that effectively there’s a much lower cost to start companies that there’s ever been. What’s that created is that there’s a lot more competition in every single category. And the new competitors are always tryign to disrupt encumbents by lowering the barriers to entry and lowering the barriers to exit, right? So, introducing pricing models that are less lock-in oriented instead of per year, per month. Everyone is trying to introduce models that give the customer more flexibility. What that means is that customers now are paying for success. They’re not paying for software or hardware services. They’re paying for success, it’s what they’re buying, right?
Nick: In a way, you see the old economy being threatened. I saw a headline last week, where it was this big lawsuit between ADP and Zenefits which is really interesting. I don’t know anything about the details of who is right and who’s wrong but what I find interesting is that ADP, which is this gigantic company has gotten into an argument with Zenefits. It’s really just showing the power of the Subscription Economy business models. At Gainsight, we’ve seen people introducing customer success job titles in literally medical device manufacturers, giant pharmaceutical distributers, even giant oil companies. It’s interesting how this title is expanding way way beyond the technology world.
Tom: Yeah, I agree. I feel like there’s a couple things happening — there’s this business model innovation that’s happening and its following the customer that’s more and more saying ‘I don’t want to necessarily be burdened with all the responsibilities of ownership. I want to be able to subscribe, i want to be able to rent I want to be able to pay for outcomes and benefits and not for physical goods.’ And then everything that follows downstream from that. If you want to succeed in that world you need to put the customer first. How are you going to do that? Well, you’re going to have these new roles, you’re going to have new data insights, new sorts of organizational structures. It’s definitely opened our eyes to that it’s happening in every type of industry.
Nick: That’s right.
Tom: So it’s pretty cool. Switching subjects. Nick, you wrote an article last year about the myth of unavoidable churn. When I read it the first time I said, ‘no, I disagree with it.’ Then I read it the second time and I said, ‘i actually think you might be right.’ For folks who haven’t read it, basically you need to segment what’s avoidable churn and what’s unavoidable churn. For avoidable churn you need to get to the root causes. But then you said, lets go against conventional wisdom and lets question whether there’s such a thing as unavoidable churn or is it an excuse. Things like companies being acquired or going out of business, situtations where you’ve said, ‘there’s nothing we could do.’ Were you purposefully being controversial? What was behind that? I thought it was pretty cool and kind of forced me to hard about how to even approach such a question.
Nick: Yeah, I had fun with that one. Of course, like any blog post you’re trying to be a little controversial in the title. But I think what got me thinking about that is that I’m actually on a few SaaS boards and I invest in a bunch of SaaS companies and I see a lot of these pie charts illustrating the churn reason for the last quarter. I just find the whole churn analysis and coding to be BS.
Companies are chosing categories that not mutually exclusive. For example, I’ve seen companies that will say 25% of churn was because of price and 25% was because of value. And it’s like, ‘Isn’t price the same thing?’ And that general kind of hygiene around how you look at why customers churn and if you don’t get that right then how do you make any decisions.
I think its very healthy to look at avoidable and unavoidable and look at them differently. I do think unavoidable churn can become a bill in congress where you can throw anything you want on top of it so it doesn’t get passed. The reality is that there are a lot of companies that haven’t thought through what unavoidable means. Maybe a starting point is that any time you have a customer that buys from you and then churns quickly and lets assume you spend a lot of money to acquire them — its not a good thing. There’s no way to rationalize that it’s good. You spent a lot of moeny acquiring them. You spend a lot of time selling to them. They spent a lot of time evaluating you trying use you and didn’t realize value. They’ve become maybe a ditractor. Maybe they tell other people. Companies that will categorize that as unavoidable churn and say, ‘dont worry it’s not a big deal,’ is like sweeping it under the rug.
Then if you dive into it specifically there’s a few categories people often talk about in regards to unavoidable churn. There are some that are easier to categorize and others that are harder. One that is really bad to categorize as unavoidable churn is lost sponsor. When people say, ‘the customer churned because we lost the person that we sold to to a different company.’ But if your entire value proposition of your company is dependent on one person, I don’t know how sustainable your value proposition is anyways. How do you not get more advocates internally? Is the value really there or not?
A similar one like that is budget. Sometimes I hear, ‘it was unavoidable because they didnt have budget.’ Well, they have budget for other things but they’ve chosen to prioritize your value lower and what’s the learning from that? It still might be short-term unavoidable churn in that you can’t do anything about it right now but longterm maybe you can make your product more valuable or not sell to that type of customer.
Finally, if you think the ones that are really hard like a customer going out of business — of course you can’t control when a company goes out of business but you can control whether you should be selling to that customer. If you’re selling to just small retail operations maybe it’s unavoidable that you’ll have unavoidable churn. But if you’re a company selling to large enterprises and really small companies and the really small companies are going out business at a large rate maybe you shouldn’t be selling to those really small companies. So, I think unavoidable can be used a little too broadly you just have to be careful about it.
Tom: Or maybe you shouldn’t be selling to those really small companies the same heavy expensive model that you’re selling to the enterprise. And that there’s a more appropriate model for those customers.
Nick: Good point.
Tom: Cool. Awesome. Well, Nick I knew this was going to fly by and it was a real pleasure to talk. We’ll have to have you back and go through the next 15 questions…
Rachel: Yeah, we’ve got more lined up for you…
Nick: Well thanks so much for having me. And thanks for spreading the gospel around customer success. It’s awesome that you’ve created this format and the chance to be on it.
Tom: Alright, that brings us to the end of another episode of Customer Success Radio. Thanks Rachel. Thanks Nick. We’ll talk to everyone next time.