What do Venture Capitalists think about Customer Success?
As someone in the role daily, I think Customer Success is the most important thing that a SaaS company could be doing. How could it not? Customers are the most important thing! And I love customers and making them successful! Everyone should care about customers!!
But I often forget that successful customers aren’t the ones cutting the check — it’s the paying customers that keep the lights on. So I decided to go listen to some Venture Capitalists talk about what they think about Customer Success. Ultimately, they provide the funds — so they have a really good perspective on what’s important and what’s fluff.
I found myself at a meetup of Customer Success professionals from San Francisco. The event was hosted by KeepTruckin, a trucking logistics startup that recently raised $50M and moved into a new office in SF with free flowing alcoholic kombucha and dried fruit snacks. In other words, they’ve made it. The founder, a guy called Shoaib with a casual demeanor and an excellent man-bun, is a big believer in the Success function within a SaaS company, and hence graciously offered to host the event.
The goal of the event was to ask some VCs what they actually thought about the Customer Success function, and how important they consider it to the success of a startup. The moderator John Gleeson, one of the CS leads at KeepTruckin, invited three well rounded Venture Capitalists from the Bay Area with several successful startup investments under their belt.
Panelist #1 was Roseanne Wincek, a scientist turned VC who is currently principal at the $7bn IVP with a previous stint at Canaan Partners. She’s made investments in several successful companies like Turo, Glossier and MasterClass.
Panelist #2 was Naomi Pilosof Ionita, a new partner at Menlo Ventures who has previously helped two apps scale their growth (Evernote & Invoice2Go)
Panelist #3 was Ilya Fushman, a general partner at KPCB, with previous gigs at storied venture capital firms Index and Khosla Ventures. Ilya also was head of product at Dropbox and has a PhD in Applied Physics.
Below are the my running notes of the questions and answers that followed. Note: I probably misheard / mistyped some of this stuff
Moderator: What do you look for in early stage companies?
Roseanna: Laser focus on an amazing customer experience. Glossier does a phenomenal job of customer success — very unique in the B2C space
Naomi: Retention and Expansion. Evernote grew from 1m to 100m users without a real sales and marketing budget. Mostly just word of mouth and premium placement in the app store. We look for products that solve an icky problem and are easy to share
Ilya: Founders with tenacity and grit and founders that can tell stories. If you’re a good storyteller, you’ll have an easier time hiring the right people to join your mission and help you solve the problem.
Moderator: What about when a company is growing?
Roseanna: The Magic Number.
The Magic number = Gross Profit — Previous quarter sales and marketing spend (or x quarters on your average sales cycle length)
This number tells you how efficient is your Sales / Marketing spend is. Look out for saw tooth in magic number — up and down repetitions. This means you’re constantly over or under indexing on something that’s working well.
Moderator: What about softer numbers like NPS?
Ilya: NPS can be a lagging indicator instead of a leading indicator. For me, its very important to break down NPS. What is the NPS of paying vs non paying customers? If you’re an enterprise company, what is the NPS of decision makers vs users?
Roseanna: I love doing surveys myself. When I personally run NPS for potential portfolio companies, it usually turns out lower than what companies report themselves. Look for bias — if you only do your NPS surveys at the end of a support interaction, or product sale, it’s more likely to capture people who are already excited. There is so much bias in NPS, which tends to make it less reliable.
Moderator: CS product companies like Gainsight have raised more than $150M, while others have not had that success. Why is that? What is special about it?
Roseanna: Amazing job on branding. They made enterprise customer success sexy and built a giant community around it.
Ilya: Cant speak about Gainsight in particular, but companies like Intercom have taken a very special take on tailored customer success . The story goes that the founders hung around a coffee house where baristas knew customers by name along with their favorite coffee order. And they said, we want to build the same experience for enterprise technology.
Moderator: We were at WalkMe last month, and are seeing rapid dollars flowing into on boarding and “activation”. What do you tell your companies about adoption?
Naomi: Yes to all of it. How do you get to habit formation? It’s a very important question. Onboarding and onboarding flow is critical for tech products. If someone has downloaded your app or bought your product — they are giving your their trust and hope. They want the product to work for them, they want to be successful. Make it easy for them.
If you don’t see retention trend moving up over time, something isn’t working. Find out what it is (in the user experience) and fix it. Great companies talk about sales goals and customer success in the same breadth.
Moderator: What’s getting you excited right now?
Ilya: We live at the tip of the spear of tech in Silicon Valley. We have the best tech products all around us and can name a lot of them off the top of our heads. The rest of the world can be pretty far removed from all this innovation. Financial services, real estate, logistics all have opportunities to build horizontal solutions — pretty excited about all the opportunity there.
[Missed what Naomi said]
Roseanna: I get pretty excited about Step 2 businesses. Step 1 = make products. Step Naomi = use data / insights for additional services / products. Retail companies that are breaking out are all focusing on the consumer and creating exceptional businesses. We could use data in many ways — lets use it to make better customer experiences.
Moderator: What are skills [CS Professionals] should be developing?
Ilya: There are many. You will keep building a lot of skills in your job — customer empathy, domain knowledge, training etc. The key is to find great mentorship inside and outside the company. Someone who is two or three levels removed from where you currently are. As you go up the chain, it gets lonelier at the top, so it’s good to be surrounded by people who’ve been there before. As VCs, we sometimes try to fill that role.
Naomi: We are collecting an enormous amount of data about our customers. But data is only going to tell you the what, not the why. You need to do that. Bring narratives from spreadsheets into discussions. Be the customer voice inside your company at all times.
The other thing to do is to take initiatives — what is the most high impact thing at the company? What keeps your boss’ boss up at night? Figure out how to kick start new projects, get in on high impact projects and get your hands dirty trying to fix problems.
Roseanna: “The main thing is keeping the main thing the main thing” Hyper focus on what actually matters. Cut out the noise. Always be learning and always be listening. Every investment in a company I’ve made is because I learned something new that I didn’t know before.
Moderator: What is a note that we should put on our CEO’s desk?
[… lots of thinking]
Roseanna: Hire the smartest people you can. Stictchfix did an amazing job of hiring executives and getting out of their way.
Ilya: Tell your CEO to do a Customer Success job for one day. Dropbox does a Customer Breakfast — bring back the CEO to customer complaints over breakfast. At Transferwise, every person in every role has to take a few support tickets. Every startup CEO starts this way, but as the company grows, they can get pretty far removed from the customer experience and pain points.
Naomi: Keep empathy for customers top of mind. Find a way to send messages of empathy to the top of the chain.
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Q: How do you quantify customer success?
Naomi: Easier with high touch companies that have multiple interactions with a high volume of customers. As mentioned before, I’m a big fan of experimentation. You can run experiments around pricing and packaging of services. And see what impact it has on customers.
A cool test I came across was done by a company called Signifyd (fraud prevention) They asked their newest customers to give them their messiest problem (‘garbage man”) and said they would work together to fix it. It was a bold move, but it was proactive about time to value instead of reactive. Even if it’s not perfect or scientific, take an A/B testing approach for trying customer success ideas.
Q: What industries are you looking at? How do you view Customer Success?
We look at a broad range of technology across a large multitude of sectors.
Any time a business interacts with customers, you are generating an experience. Early on, CS means a focus on products and user experience. As you grow, CS roles change — you are talking about being responsible for a large fraction of revenue about churn or not. So CS moves from a product related to a sales / revenue related function
Q: Why is Legal tech so slow to innovate?
[Didn’t quite catch the answer, nor did I think the question was generally applicable]
Q: I work for a dinosaur industry. How do I switch to tech?
Naomi[?]: Leverage your sector expertise. Seriously, you might not have a tech background, but you know deeply about the sector you’re in and that can be super valuable.
Ilya: Sales / CS are great roles to get started in. But you will have to plug in to the system and learn daily tools like Jira, Slack so you speak the language Day 1 and start adding value immediately.
John: When hiring for CS roles, I tell recruiters I’m looking for 3 things -> deep empathy for the customer, deep domain expertise, understanding of the SaaS business model and how it is not a one time deal. I usually get candidates with 2 out of those 3. All 3 is the purple squirrel 🐿️
Q: What are some of the best practices for how to structure a CS team?
[Someone]: The most important thing is to start with the product and keep a retention first mindset across the company. At first, focus on building sticky products. Once you get a threshold where product is sticky, then you can focus of separating our CS function, and CS can even start to play more of an inside sales role.
Ilya: I think most companies begin with a generalist role — full cycle of implementation, onboarding, adoption, support, relationship etc. As your company grows and that role becomes too complex, you start to specialize. Maybe have a product specialist team vs onboarding team vs consulting services vs relationship management. Some companies also organize by size of customer (SMB vs Enterprise)
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What I learned
VCs care about Customer Success. But not as much as I would have expected, and definitely not as much as CS folks would like to believe.
Customer Success is important, but less important than nailing the customer experience from Day 1, so you don’t have to do too much success work. Amazing customer experience is proactive and built-in (they mentioned companies like Slack and Glossier), whereas Customer Success in most companies, frankly, is retroactive — trying to fix things that were broken a long time ago.
VCs basically want you to build an amazing product that is intuitive, sticky and easy to scale. So they can make 7–10x on their investments and everyone can go home happy. As CS professionals, this means we have to be louder and more vocal to the product org on what we see is and isn’t working for our customers. And make sure we’re actually shaping the customer experience.