Where is Customer Success going over the next 5 years?
Questions from the Customer Success meetup in San Francisco
Is Customer Success a matter of necessary evil? Or fundamental to the growth of the next big startup? Where is it headed in the next 5 years?
I went to the SF chapter of the Customer Success MeetUp to find out. Hosted at the gorgeous WeWork in downtown SF and sponsored by the lovely folks over at Intellum, the event attracted more than 150 folks who to wanted to know the same thing. The host, Junan Pang invited two Venture Capitalists who were former tech employees to discuss how their perspective has shifted now that they are in the investment seat 💸
Here are 7 🔥 questions that got asked in the panel:
1. How did you first interact with Customer Success before you were VCs?
2. From a VC perspective, how do you guide your companies about Customer Success?
3. What other metrics are you looking at?
4. What are your portfolio companies asking about customer success? Or are they at talking about it all?
5. Speaking of technical founders, can you teach a technical founder customer-centricity?
6. Is CS-focused technology a space that you see more money flowing into?
7. Where is CS going in the next 5 years?
Byran Offutt, Investor @ Index Ventures. Former PM at Palantir, MemSQL
Travis Bryant, Exec-in-Residence @ Redpoint Ventures. Former SVP @ Optimizely and VP @ Salesforce
The session was moderated by John Gleeson, head of Mid Market & Enterprise Success @ KeepTruckin
So read on to learn about
CaC, how the robots are coming and why VC is like Hollywood!
Q1: How did you first interact with Customer Success before you were VCs?
- TB: Back in 2006 at Salesforce, renewal revenue became a focus because it was going to become larger than new revenue and it didn't look good for us. The company had to make a dedicated push to make sure customers stayed, and that’s when I first learned about it.
- BO: From an engineering and product perspective, we look to the CSM as the quarterback of the post-sales org. In those scenarios, we definitely want to look to them for guidance on where there is most pain and potential loss for the company. So I’ve been familiar with CS for a while.
Q2: From a VC perspective, how do you guide your companies about Customer Success?
BO: I ask them — do you believe you can continue to extract value from customers over the next 4–5 years? One way is product enhancement and innovation (and the need for good UX). The other is great customer facing people, who are the human CX of companies. You need them to build long term relationships.
TB: Venture Capital is a Hollywood style biz — a few hits make all the money. It’s easy to get over excited in this space. So we really focus on — how are companies expanding
TAM (Total Addressable Market) as they continue to grow? One of the great ways to check for that is to look at
Net Retention. The difference between 120% and 140% is what sets apart good companies from hyper successes Zoom (which IPOs tomorrow!)
Q3: What other metrics are you looking at?
BO: We look at
Net Revenue Retention and logo retention. We further break it down by segment - if your enterprise clients are happy, that's a good sign because they are the hardest to please and have the most ability to spend. We also track higher level metrics like
CaC (see embed below) to monitor whether there is organic customer evangelism and if that
CaC number is naturally going down.
The Ultimate Guide to Calculating, Understanding, and Improving CAC in 2019
CAC stands for customer acquisition cost. A company's CAC is the total sales and marketing cost required to earn a new…
TB: I also like to see something higher level that’s associated with logo retention — how disciplined are they about their target client? Are they signing up every person that has a checkbook (which will imply a higher churn down the road) or are they customer focused and are narrow about their audience. It’s not exactly a metric but tells us a lot about the ability to focus and deliver great results for clients.
Q4: What are your portfolio companies asking about customer success? Or are they at talking about it all?
TB: I am generalizing here, but a lot of founders are technical and get into the business to solve a specific problem or exploit a particular opportunity. If they come from
B2C (direct-to-consumer) backgrounds, it’s hard to humanize your customers, because there are so many of them. If you are
B2B (business-to-business), then you cannot afford to think of your customers as rows on a spreadsheet. You need to nurture each client relationship. We definitely look to inject that attitude in the DNA of the companies we work with. What I find charming about Customer Success is, people know they need to have it, but they’re not sure how it fits into their model specifically.
BO: Exceptional founders make CS a priority from day one because frankly, they don't have a lot of customers, so they need to keep them around! We love it when founders are very involved with their early customers and know their pains in and out and are connected to them. We try to help them transition that energy and drive onto other members of their CS team.
Q5: Speaking of technical founders, can you teach a technical founder customer-centricity?
BO: To be honest, you have to be kind of neurotic to start a company — in a positive, world-changing kind of way. So there is definitely hope that they have enough neuroplasticity to accept they need to do things in a new way.
I can point to the graveyard of companies who had great tech, maybe some initial adoption but didn’t really understand their customers. And they got beaten by another competitor or wiped out. So you have to differentiate yourself on understanding and servicing your customers really, really well. Why would you start a company if you didn’t want to leave a mark? So it’s our sincere hope that smart founders keep customers central to whatever it is they are trying to build.
Q6: Is CS tech a space that you see more money into?
BO: I pay attention to two spaces: I invest in
A.I. because it’s a space I know well. I also look at domain-specific software — think Salesforce for salespeople. Lots of opportunities here. Think about how much growth there has been in tools for designers — companies like Sketch, Figma etc. In CS — there is an opportunity for workflow management, prioritization, using AI maybe to predict when something is at risk. I’m keeping my eye on it.
TB: If you go to Pulse [conference], it’s not about the tech anymore, it’s about the movement. I’m asking — is there a next generation of Gainsight, a next generation of CS focused products? There is always a chance to reinvent. The one that I am most excited about is surfacing insights — there is so much data nowadays on customers, so where should I focus? There are tools like Amplitude or Pendo may not be categorized as CS tools today, but they can surface a lot of great insights. So there is definitely room to be creative here and I’m sure there is lots more to come.
Q7: Where is Customer Success going over the next 5 years?
TB: Robots! We won’t have jobs! Jk, that’s not going to true (hopefully!) but there is going to be a lot of automation. So CS folks need to focus on where they generate the most value and learn to use the data they have intelligently.
BO: There will be a lot of growth of CS in organizations that don't currently have it. Large orgs will have to start focusing on product (which they haven’t always done), and as an extension — on the customer. Look at Goldman Sachs and their product Marcus. That’s not something they would have done 10 years ago, but they have to innovate. Most larger companies are going to want to compete on customer experience because they know they’ve been lacking it.
TB: If I could give one piece of advice, it would be to think of your role and career as a craft, and the willingness to focus on mastery of the craft. That’s what pays dividends in the long run.
BO: Check your bank statements for recurring charges since we’re all moving to recurring payments! 😅. In seriousness, keep in mind that you all are on the forefront. Think of this — are there industries that have typically not had CS, and can you take your skills and introduce them to a new place? Experiences like that don’t come very often. You are living during a golden age. If you see those opportunities, take them even if they might seem daunting at first.
Q: We are seeing a lot of new titles like the Chief Revenue Officer (CRO)- is that recognition that there is a need to focus on recurring revenue instead of one time sales?
Ans: If organized thoughtfully, I think it makes a lot of sense to roll up the client lifecycle functions like Sales, CS and Support. But I don’t like the term CRO specifically — why are we linking in terms of client dollars and not client outcomes?
Q: You mentioned that only a small percentage of startups are successful, and I have experienced that first hand. What advice would you give on how to evaluate prospective employers as we decide where to invest our time
This is really a very good question and I’m glad we’re thinking about this. No one has a magic ball (if we did, we’d be very rich!), but I think you can look at a few things — the first and foremost is the caliber and integrity of the founders. Are they really passionate about the domain and care about clients? That and how they interact with people in the company are great early indicators of whether a company is going to be successful.
Note: These notes are shorthands that I took during the meetup and may not reflect the exact words of the panelists.
What I learned
The maturity with which VCs think about customer success has evolved. I attended a similar event a year ago (see below), and the conversation was mostly — yes we love companies with great Customer Success and think it’s very important.
It’s slowly shifting to — everyone already agrees CS is critical, but how can they be more proactive and predictive about churn using data? That shift implies that although customer success is well accepted today, companies will continue to look for a high ROI from investing in these teams, and CS folks will have to become a lot more methodical and data-driven in how they show their value.
Ultimately, VCs care about Net Revenue growth, which combines attacking new clients and segments and defending (and expanding) existing revenue from current clients. If CS teams can show real ROI for the business using data, they will continue to flourish in the modern company landscape.
Thanks for reading! 👏🏽
What kind of questions do you have about Customer Succes? Or for VCs looking to invest in startups? Comment below and I’ll be sure to bring them up at the next event.
About me: I’m starting a new Customer Enablement role at Gong.io, a conversational intelligence platform that helps Sales and CS folks get the best insights from their customer conversations.
I also run a community of over 400 CS professionals focused on User Education and Enablement over at CustomerEducation.org. If this topic interests you, join us!