The relationship between Success and Sales is a turbulent one.
On one hand, we both need each other to make things work but on the other hand, sometimes we don’t see eye to eye because our goals don’t always align.
A perfect Success <> Sales relationship would have things that even relationships outside of work need:
Communication
Clear expectations
Alignment on goals
But the reality is… this doesn’t happen often.
Behind this rocky relationship is one key driver:
Bad. Fit. Customers.
In this post, I will be recapping a podcast episode from Bowery Capital Startup Sales featuring Lincoln Murphy. The episode is filled with Lincoln’s past experience around bad fit customers and the need for alignment between Success <> Sales.
The Details
If you’re in the world of Customer Success, you probably know Lincoln. He’s the co-writer of the book Customer Success: How Innovative Companies Are Reducing Churn and Growing Recurring Revenue, He runs a consultation company called Sixteen Ventures and houses incredible content around CS in his blog.
Bowery Capital helps emerging B2B startups navigate through focused support across Growth, Business Development, and Talent. Their goal is to help companies be successful with their go-to-market strategy.
Alright, on to the takeaways:
What is customer success-driven sales
Identifying your bad fit customers
You brought on bad fit customers, now what
What is customer success-driven sales
It’s clear that Sales and Success are seen as two different functions but the goal should be the same. If the definition of success is “when a customer achieves their desired outcome through our product”, the underlying goal should be to acquire customers that are going to achieve success with us.
But sometimes because of short-term goals driving Sales, the goal around driving success is put on the back burner.
When bad fit customers are closed by Sales, Lincoln says that we often point the finger at the Sales team when in reality, it’s a leadership issue. If a company says “we’re a Customer Success-driven company” and they allow for things like this to happen, that’s undermining any other investment made in Customer Success.
One way Lincoln has been calling attention to this is straight-up telling CEOs that they are bad! Because if they are currently investing in Customer Success operations to handle everything that happens after the sale, they’re investing in something that they are guaranteeing won’t be successful.
It’s up to leadership to communicate what an ideal customer and a bad fit customer looks like and then from there, Success and Sales should constantly be touching base on what they’re seeing as characteristics that fit either segment.
Why you need to identify bad fit customers
There’s a lot on the line when we acquire a bad fit customer!
More than just losing out on revenue. This should be the least of our worries.
The negative sentiment around churning and burning these customers can have a silent rippling effect that can impact a business for months and even years to come. Lincoln shared a story of a client he was working with that signed three bad fit customers. All of those customers weren’t a technical fit and the client knew that they weren’t and still brought them on. Eventually, these customers churned.
Lincoln used a third-party survey company to collect feedback from churned customers––including the three mentioned above–– and it turns out that the name of those three customers showed up in thirteen of the surveys conducted!
13!
When the competitors got wind of why these three customers churned and signed with them, they didn’t just say “thanks for sharing that with us”, they propagated this story to successfully keep Lincoln’s clients out of the running for at least 18 months.
This is why identifying bad fit customers is so important! Lincoln shared a few resources during this episode on how to identify these bad fit customers so I’m adding those to the end of this post.
You brought on bad fit customers, now what?
First things first, identify the bad fit characteristics to make sure we’re not bringing in any more bad fit customers.
Then, Go see of your existing customer base to see if any more bad fit customers match the profile. The expectation, at the very least, is that 100% of these customers will eventually churn.
And now that we know that, we need to keep in mind how much time, energy and resources are being dedicated to these customers in trying to make them successful. The operating cost that goes into managing this customer makes the overall Success operation inefficient. Chances are, we’ll probably need to reconsider our offerings.
A step we can take is to quantify things like the cost to serve bad fit customers and future churn. Being able to say “80% of customers were a bad fit” can help accurately forecast our revenue.
This means that we’ll need to also start measuring churn in a different way. By separating churn into two buckets, bad fit customers and good fit customers, we can get an accurate view of reality and if we are backed by investors, this is a data point that can help us.
There is still a chance to save some bad fit customers (curveball). For example, if they entered the bad fit customer cohort because they weren’t a functional fit, meaning, we didn’t have a feature they needed and we now have space to add it on our roadmap. There’s still a chance to save these customers.
If we think back to the negative effect that bad fit customers can have on our business, we should also consider helping them find other solutions. Lincoln has seen this before especially with users who are part of a freemium model. The best way to go about this is to find a competitor and figure out offboarding for the customer. Instead of spending resources trying to make them successful with us, it’s better to figure out how to move them to the competitor.
As I was writing this post, I fell into the rabbit hole that is Lincoln’s blog! Here are a few resources that I want to share with you:
Summary
Leadership is ultimately responsible for ensuring Customer Success
Signing bad fit customers can end your business
If you have bad fit customers, measure churn differently
Shout outs
Thanks to Bowery Capital for hosting Lincoln on their podcast! Go follow them on Twitter