Proving the ROI of Customer Success is a hot topic 🔥
For other teams, things are much clearer:
Sales = attaining new business
Marketing = attaining MQLs
But with Success, it’s not so black and white. There’s a team behind every renewal. Sales closing on good-fit customers, Support providing a fast and effortless experience and a Product team that’s ensuring the product is reliable and continues to evolve.
But having a Customer Success team early on can help you with your go-to-market efforts and influence your company’s valuation.
The details
In this post, we are recapping an episode from The Customer Success Channel with Rav Dhaliwal, a VC investor at Crane Venture Partners.
Rav is a big deal, he helped Slack build its presence in the UK and led Customer Success in the EMEA. He’s also built and led Yammer and Zendesk’s European Customer Success organizations. Now, he’s a VC investor helping companies build long term revenue growth and customer value.
The Customer Success Channel is a podcast hosted by Planhat. They discuss customer success with SaaS entrepreneurs in the global start-up scene.
Three takeaways:
Why Investors are looking closely at Customer Success when evaluating a company
Demonstrating the value of Success with Investors
The metrics you need to show Investors around Success
Why Investors are looking closely at Customer Success when evaluating a company
A lot of what investors are looking for depends on what stage the company is at.
If a company is at the pre-production or pre-seed stage, they may not have many customers. But essentially what they’re looking for is repeatability. The first hurdle would be got-to-market where a repeatable sales motion has been established and the company is able to demonstrate the value here. But companies also need to have repeatability in how they retain, nurture, and grow their customers. When they demonstrate this, it shows that there’s longer viability in the business.
To investors, this is important because eventually, software companies follow the trajectory of all of the successful ones in that the vast majority of their revenue will be from their customer base. And if they don’t have a repeatable way to deploy, onboard, nurture, and grow their existing customer base, they can’t really accelerate to become a big company. It’s a very practical reason to understand and manage customers. Ultimately it’s very hard to accelerate if you’re trying to fix retention and growth.
But as many of us know, Customer Success is still not widely understood as much as it should be. Success is so critical for the early stages to understand product-market fit, help accelerate go-to-market fit, and then help scale as a business. Through his work, Rav has coached early-stage leaders to help them understand that this is a foundational pillar.
Demonstrating the value of Success to Investors
If you can demonstrate that the work you’re doing in Success has a direct correlation to headline metrics that are important to the business, you’re in!
Rav highlights that there’s an assumption that “accounts renew automatically”, and as companies get bigger there’s little awareness of the work that actually goes into nurturing and retaining customers.
The key thing is that we’re making sure we’re working in a deliberate way that not only helps our customers but demonstrably influences the core metrics that are important to the business. In the early stages that may be NPS and as we progress, it’s more likely to be logo retention and net dollar retention. If we could tie back the work that we’re doing to influence those metrics, that’s the key way to influence people.
Luckily for us, there are plenty of references out there showing that all the truly successful companies in SaaS have 50% to 70% of revenue is coming from their install base. So if we have an aspiration now as an early-stage company to become a Zendesk or a Salesforce, we have to build this foundation right now.
The metrics you need to show Investors around Success
Customer Success teams usually end up being in charge of driving 4 to 5 metrics but in the early stages, it’s important to keep things simples (like K.I.S.S.).
During this time, the company is probably still working on the developing the product and its go-to-market strategy. And the goal here is simple: document and improve customer’s first time to value.
For companies that are in series A and beyond, being able to show:
logo retention rate, you’re actually retaining customers in 95% or above, and as you’re increasing your customer base into double-triple digits
the net dollar retention of your paid customer base
Demonstrating this can help generate more revenue but it can also help you accelerate your pace.
Getting data around the product and usage for any SaaS solution should be reasonably straightforward and the product teams should already be doing this. Then they’ll need to define what is valuable data around usage and trends.
Another part of the data is sentiment. This can be captured through NPS or CSAT but if there aren’t many customers, the sentiment can alls be captured anecdotally through quotes. Essentially, we want to demonstrate a general trend that these users’ characteristics are consistent and solid.
On the flip side, the focus is on the maturity of Customer Success if the company has gone through series A or B funding.
The first time to value is still really important and hopefully, by this stage, driving customers towards that is much better understood and maybe even parts of it has been automated with tooling.
Also, during this stage, there should be a greater focus on the sentiment and the revenue. A company should have a material amount of customers, and an understanding of how much of that revenue Quarter over Quarter or Year over Year are they retaining and by how much are they creating the conditions for more growth revenue from those existing customers.
Summary
Without CS in place, it’s difficult to accelerate a companies growth since the majority of revenue comes from customers
You have to demonstrate how Customer Success influences core business metrics
Early-stage startups should focus on documenting first time to value, post-early-stage need to show the same + product usage & sentiment to investors
Shout outs
Thanks to The Customer Success Channel for hosting Rav on their podcast! You can go follow Planhat on Twitter. And if you want to hear more from Rav, follow him on LinkedIn.