Chapter 6
Big Businesses Are Built after the Sale Is Closed
Figure 6.1 Retaining Your Customers
Keeping the Momentum Going
I love writing about this topic. I love it because I attribute a lot of my early success to realizing and identifying how important it is to develop an ongoing relationship with your customers, and more specifically creating some sort of client service department inside your company. It's my experience that a lot of the best salespeople and many founders miss this up front and it isn't until they realize that there is a churn issue that they do something about it—and often that's too late.
Developing an ongoing relationship with your customers is imperative and it's important for you, the reader, to understand that the growth of your company actually starts here! Even if you have the greatest salespeople in the world, if you don't care for your customers, listen to your customers, and appreciate your customers, they will know and they will leave when someone better comes along. If you do take the time to be a good vendor and partner, then your customers will help you grow in many ways, like being patient when things aren't going well, telling their friends and peers at other companies about you and most important staying a customer.
In this chapter we will cover (1) customer-centric cultures, (2) what a postsales process is, (3) retention, and (4) growing your revenue base (Figure 6.1). The goal for you is to start thinking about this early on and make this part of both your sales and company culture from day one.
I'm going to start with a story that touches directly on all four. This is my version of it and I am positive that my peers and superiors at this time have slightly different views or recollections of all this (it was 17 years ago), but this is how I remember it.
Paying Attention after the Sale
I had started with HotJobs in June of 1999 as one of the first 20 or so salespeople in the San Francisco office. At that time HotJobs was one of the pioneers in online recruiting. Today it's fairly standard for people to look for a job online at Indeed, Zip Recruiter or any other number of job websites but back in 1999 there were only a few companies doing that and HotJobs was one of the biggest.
We had our initial public offering that summer and by fall of 1999 I was asked, along with a peer, to join one of the managers in opening the Los Angeles office. We arrived in LA on January 2, 2000, prior to the infamous internet bubble popping of 2000, in which tons and tons of VC-backed, high-valuation companies all came crashing down and were going out of business. My two peers and I were crushing on the sales side. We were all closing record amounts of new customers each month, making boatloads of money in commissions, and (almost) everyone we hired came on and kicked ass as well. We were all very happy, going out for expensive dinners, driving nice cars and not really thinking about the happiness of our new customers.
After about 8 months of this (and 14 months of being a salesperson for HotJobs) I was starting to get bored with the same job day in and day out. As I started to slow down, I picked up my head and realized that many of our customers were not renewing their contracts when their term was up. We weren't really feeling it in our commission because we were replacing churned customers with new customers at a faster rate, but it was clearly a problem for HotJobs in the long term.
There were actually two problems, but only one that I solved. The first problem was the comp plan (this is not the one I solved at HotJobs, although I did learn a lot that I carried with me to Business.com and beyond), which was to say that the sales team compensation didn't encourage long-term customers. The way we were paid was for new sales in perpetuity with little regard for what happened after a prospect became a customer. Remember in Chapter 5 when I talked about early commission plans? This was the first example, which works well in the early days but as the company goals change to maintaining low churn and happy customers, this commission model no longer works and needs to be fixed.
The second problem, which is what I identified and eventually solved, was that the cause of customer churn was our lack of any real customer service. We did have a small, reactive, call center to work with unhappy customers; however, there was no person responsible for working with our customers once they signed a contract. That means that we did not have a process or dedicated person to onboard them. We didn't have any process for ongoing training and communication, and of course we had no structure to deal with unhappy customers. We had no indication of when a customer was unhappy, and when we had customer churn, we had no idea why. In fact, we lost many customers who were happy because one of our competitors promised them “dedicated help” in the form of personal attention.
Our product was great and even though I was clearly biased, I did think it was the best in class. However, it was a very competitive time for job search companies, with Monster, Careerbuilder, and many others on a land grab for new customers. Through all this we had literally no postsales process or even a team who focused on it. In the fall of 2000 I raised my hand and asked if I could create a team in Los Angeles focused not only on customer service but on owning renewals and up-sells. The CEO and VP of sales were open to the experiment and let me go.
I started by putting a basic postsales process in place in Los Angeles which was a series of simple touch points with new customers from day one through the first year. In the first few weeks those touch points were focused on onboarding, training, and making sure that the new customers were using our platform, finding success, and not getting hung up. As the customer matured, those touch points became a combination of check-ins to make sure we were meeting their goals, ongoing education, and new product training to keep them engaged and happy. I hired/trained a small team in Los Angeles and within just a few months we saw incredible results as our churn dramatically dropped and our up-sells dramatically grew. I can't remember all the specifics, but my boss and the CEO were pleased enough with the results that they immediately promoted me and turned me loose on the rest of the sales organization.
By this time we had opened up offices in several more cities including Austin, Boston, Washington, DC, Chicago, Miami, and of course we still had offices in San Francisco and New York. Many of the offices did have some sort of inbound customer service team, which I inherited and retrained. After roughly another quarter, the company's churn issue all but disappeared and the LTV (lifetime value) of our customer was increasing dramatically. It was obvious to my boss and the senior leadership team that the work we were doing was paying off, and I was given a big raise, new title, awards at our president's club, and was told that the company hit profitability several quarters earlier than planned because of this shift.
* * *
I felt this was a relevant story and a good way to introduce this chapter because I see time and time again that companies can get very good at selling and pay virtually no attention to what happens after the sale. And in many cases this can be the death of a company. Over the course of this chapter we spend a lot of time thinking and developing ways to deliver world-class customer service so that you can continue to grow compounding revenue and build a big company.
In the next few sections I talk about customer-centric cultures, the postsales process, retention, and growing your revenue base. I'm going to use a few titles interchangeably. I refer to employees who work with customers after a salesperson hands them off as customer service, client services, and account management. All of these employees have one thing in common, they typically work with paying customers, whereas a salesperson works with prospects as they become customers (and for some time after). In reality there are some important subtle and not-so-subtle differences between those titles and in some cases your business might have two or three of them. For the purposes of this book I'm using them as a marker for any person who works with your customers after a sales has been made and after the original salesperson is no longer the main point of contact.
Customer-Centric Cultures Win
How can you build an organization that is customer-centric and has high retention with growing lifetime value (LTV)? It starts with culture and it starts from day one.
First, you must understand that without customers you have no business and that your number one job is to provide value to your customers beyond what anyone else can. I know on the surface that sounds obvious but it needs to be something you believe way down in your core. Think back to the day you decided to start your business. It doesn't matter what your original motivation was for starting a business, you believed that you were solving a problem for a particular customer and that you could do that better than anyone. As you start to build your business, developing tech, hiring, fundraising, and all of the other things you need to do to get your business off the ground, it often is forgotten that really you are here to make your customer's life easier and allow them to make more money. Don't let that slip away—it needs to be your guiding light.
If you do truly believe this on day one and continue to remind yourself, it will permeate through your decision making and trickle down to all of your employees. It'll be a part of your root culture, which in turn will help ensure you are building products and a company which not only will delight your customers but will help them win—and help you win.
Your customers are the reason you exist, and this fact should be woven deep into your company culture. This doesn't mean “the customer is always right”—what it means is that your mission should be to deliver the highest quality product and service so that your customer screams from the mountaintops how awesome you and your company are! It starts with the CEO and trickles down. It needs be part of your company values. It even needs to be evident in your commission plans structure. Remember in Chapter 5 when I described the Business.com compensation structure? There were two main drivers for salespeople to make money. The first was bringing new customers onto the platform. The second was making sure they stayed over a specific time threshold, because we knew it meant we had a happy customer. Our sales team knew that long before their account was handed off to the postsales team, that customer had to be happy and set up for long-term success. That set up our account managers to start working with customers who were already happy and seeing success, which made the account managers happy and their job easier and in turn made it even easier to please our customers.
Simply put, having a customer-centric culture must be core to your business if you want to build a big, long-term, and sustainable business. When you do this well, sales becomes easier, revenue grows faster, investors write (bigger) checks and everyone makes more money. When you do this poorly, you fight an uphill battle with customer growth, people question the value of your product (even if it's great), and everyone makes less money.
The Postsales Process
In addition to building a culture from day one that is customer-centric, having a really solid postsale process sets the foundation for delighting your customer. There are a couple of reasons for this. First, this is your blueprint for how your team will work with your customers indefinitely. It might be hard to envision this before you have your first customer or in your first year of having customers, but as your business matures you should have a regular plan and cadence for how you will interact with your customers. When you have this plan it becomes much easier to hire, train, and project revenue for your existing book of business, which is critical in projecting the company's health. Likewise if you plan to raise venture money, having this plan in place will give you data and confidence that is critical to giving your future investors and board confidence in your company's health.
To explore that for a minute, start with hiring your customer service team. We can return to Chapter 1 and the discussion of W3. If you know who your customer is, what they are buying, and why they buy it, and you have a clear plan on how to work with them, it becomes very clear who you should be hiring to work with your existing and growing book of business. You'll learn the level of experience your postsales employees will need as well as their general characteristics, similar to how you thought about hiring for salespeople.
It also makes training a new postsales team easier because your postsales process is their job. Of course there will be nuances from customer to customer and they still need to learn about your product, but 80% of their job will be to go through a well-defined process with each one of your customers, based on where they are in their lifecycle. And as your business grows large, you'll even be able to start collecting data on the types of issues, challenges, and opportunities you will have with each individual customer based on the life of their business and how you impact their growth. And while this may seem far off now and certainly not on your current product roadmap, starting early by focusing on a postsales process will enable you and your team to help your customers be more successful, which means you win too.
This leads me to my last point, which is being able to project the revenue and health of your business. Stop and think about that pragmatically for a minute. In Chapter 4 we talk about early sales modeling as a means to understand and measure how your salespeople perform and your assumptions around customer growth. New customer growth is only half the equation—and in the long term, it is much less than half.
During the first year or maybe longer you will be heavily focused on acquiring new customers, and in many cases you'll have more new customer revenue than existing, but it sneaks up quickly. Once you start to find repeatability in your sales process, and especially once you start hiring more than one or two salespeople, suddenly your existing customer base (or “book of business”) quickly outweighs the new revenue that your salespeople are bringing in monthly. And just as in your sales process, which you need to be able to predict new revenue, you need to understand how your existing customers will perform so that you can project how your entire business is doing and will do in the future. Having a postsales process gives you the data to understand how your customers behave, so that you can project the future and plan for growth.
It's not only important for your company that your team has a clear blueprint, it's also important for your customers. In many ways, the relationship you are developing with your customers is no different from any relationship. When you first get to know someone, you want to like them and trust that everyone has the best intentions. As time goes on, if you don't stay in contact with that person, any familiarity fades away. The difference here is that with your customers you can (and should) take advantage of your business relationship, which allows you to set clear expectations.
I've managed both the sales and postsales teams at HotJobs, Business.com, BlackLocus, and Joust, and one thing that I did at all four which proved to be very successful for customer satisfaction was having a dedicated section of the training and onboarding part of the postsales process focused on what kind of communication each customer should expect and at what cadence for the life of their contract (and beyond). We did this both verbally and in writing so that if the customer ever had a question about “what's next,” they had an easy reference. Aside from great transparency into the process, a byproduct of sharing the communication cadence is that it cuts down on nonemergency service calls, because our customers knew there was a planned touchpoint at which they could talk about anything outside the ordinary.
Building a Postsales Process
In many ways, the fundamentals of building your postsales process are no different from building your sales process. As your company matures you need to go through all the same steps in identifying common items, issues, and opportunities for customer touch points. The one advantage to building our postsales process is that it's hard to guess wrong at your first one as long as you are being diligent. Over time every business will vary based on its unique characteristics, but in the beginning the act of simply putting a basic postsales process in place will give your team and your customers the highest probability for success.
To get you started, I'm sharing with you the process I implemented at Business.com. By the time I took over this department we had hundreds of customers and over $10 million in sales, which meant we had plenty of data to build this process fairly accurately from the start. Even so, starting with a structure something like this and then adapting as you learn more about your customers is a good place to start. We had six basic steps that allowed us to work with a customer indefinitely:
Step 1: Welcome Email within Two Hours after Sale Is Closed
I can't stress enough how important this first contact is. Someone just put themselves out there with their boss and agreed to give you money. Thank them and welcome them to your family. Make them feel, right away, that they are valued!
Keep this email short. Welcome them, thank them for their business, provide any immediate or urgent information, and tell them about next steps, which for us included someone reaching out to schedule onboarding training. It's okay for this email to be automated, but it shouldn't feel that way.
Step 2: Schedule Onboarding and Training
Depending on your product and company, onboarding and training could be as little as anything from a login and a few video links to a multiday onsite training. At Business.com we could typically onboard and train a client in an hour phone call. We made sure to reach out to every new customer, personally, within 12 hours to schedule this call. You want to do this quickly because your product is still new and exciting to your new customer and you want them to start using it right away. No matter how excited they are, building new habits is hard for anyone, and the more you can help your customer to build new, positive habits around your product, the higher the likelihood they will have success early on. Try to schedule this meeting as soon as possible after the sale closes, so that your new customer's excitement and enthusiasm around your product is still fresh. This will help with keeping them engaged and getting the most out of that meeting.
Step 3: Twenty-Four Hour Check-in after Your Training Meeting
This check-in, to me, is as important as your welcome email. You just took an hour or more of someone's time to get them onboarded, but for them it's all new. They probably retained the basics but also it's probable that many of the details, even important ones, about how to use your product are easily forgotten. This should be a nonintrusive and short email. Early on, before you have many customers, it will likely be more general and say something like, “I wanted to check in to see if you have any questions or are running into any roadblocks.” As your business matures and you add more customers and data, you can start to be more specific with follow-ups around areas that commonly need more help. This check-in continues to set the tone that you are a customer-centric organization and are here to help make sure your customer is successful.
Step 4: Day 7 and Day 14 Check-ins
These check-ins should be a little more in-depth than your 24-hour check-in. By this time, your new customer should be using your product and you should be able to see what they are doing and get a sense of how often they are using it, relative to your expectations. At Business.com these two check-ins were less scripted; over time we used actual data on how our customer was using the product to drive what we were checking in about.
Step 5: Month 1, 2, and 3 Account Reviews
At Business.com account reviews were much different than check-ins. They were more proactive and in the best cases more strategic. We essentially developed a process over time of preparing reports based on our customers goals to see how they did looking back and came up with a plan for improvement (even when goals were being met) going forward. In Chapter 5 I talk about our five-month threshold, we knew that if customers stayed at least five months that they would be with us for over 24 months. Because of this we explicitly built into our postsales process a monthly account review up until that point. This not only enabled us to help our customers continually improve over those first months but also developed relationships with our customers that showed we cared about the success of their business.
Step 6: Move to Quarterly Account Reviews and 45-Day Check-ins.
Once we crossed the third monthly account review, we would move to quarterly in-depth account reviews. We did this because our data suggested that after three months, most of our clients had a good understanding of how we work together and there was less movement and volatility in their accounts. Those quarterly reviews, like the monthly ones, were typically scheduled for an hour. Between those quarterly meetings, we would still generate spot reports and send them a check-in email every 45 days. This allowed us to have ongoing communication with our customers that was light but still kept us top of mind and also provided value on an ongoing basis.
This is just one example and your experience may vary greatly; the point is that a process is important (and expect your process to change as you collect data and learn more). As part of your process, there should always be an opportunity to collect feedback. All of this—the process, notes on each step, the feedback—should be housed in your CRM, the same one that your salespeople are using, and ideally in a way that you can pull data and evolve the process over time.
Retention and Growing Your Revenue Base
If there is one mistake that I most consistently see SaaS businesses making, it is not investing in the customer success function early enough. It is so natural to view ARR growth as the singular most important thing for your startup at the early stage (we all love growth!), but that is far from the truth and churn kills more business than a lack of growth.
Where most founders get into trouble is not understanding the complexity and volume of challenges that they will face as their customer base scales. Why does this happen so frequently? Early on, there are a small number of customers that you spent a greater than average amount of time selling and qualifying before getting on board. The growth continues and the customer base along with their needs becomes more diverse in nature. At the same time, on the other side of the house, your sales and marketing teams are becoming less careful in qualifying new customers because they now have these new lofty sales goals. All of the sudden churn picks up and you're being reactive with customer success hires and changes to your support and success processed. You now have a leaky bucket problem.
One thing that I try to impress upon founders early on is to reframe the churn number as a CAC [customer acquisition cost] number. Everyone understands CAC, and how expensive and challenging it is to get a new customer on, but churn mistakenly isn't viewed with as much importance or urgency. Let's use an example. Assume your startup as $1M of ARR and you just churned $100K last quarter (10% quarterly, 40% annualized). Let's also assume that your average contract value is $20K and your CAC is $12K. So, a $100K churn quarter is the equivalent of five customers ($100K/$20K). Therefore, your CAC just to maintain your current ARR in that quarter was $60K. Put differently, your sales team spent their time closing five new customers just to break even in that period. In many markets $60K is nearly the entire annual salary for one customer success rep that could have been working to prevent this churn, and also make many of your other customers even happier in the period.
—Michael Gilroy, partner at Canaan Ventures
Throughout the entire book I've referenced churn and customer retention as key factors in growing your business. And throughout this entire chapter I've described how building a customer-centric company enables you to grow your revenue base faster. Now we'll bring it all together.
When you build a customer-centric organization and you have a clearly defined postsales process, something magical happens—your customer retention becomes very strong, which in turn strengthens your revenue base and your LTV. The why is probably pretty obvious: you have happy customers who value your product and your company and they feel valued by you. But how will you know if your retention is good or great or bad? How can you tell if your revenue base is growing or shrinking?
Keep Being Metrics Driven
A common issue I see in companies of all stages is that while they know their top-line retention metrics, such as, “We lose X% of our customers per month,” that's where it ends. Too many founders and sales leaders don't pay close enough attention to downstream metrics early on. For example, which features of your product do your customers use, and how do individual customers differ from the norm on feature usage? Ask the same question for overall product engagement: how often do all your customers login or engage with your product, and how do your individual customers each engage, relative to the norm? Can you find commonalities around engagement and LTV? And what system do you have in place to measure customer sentiment?
Similar to how you are building out a metrics-driven business and metrics-driven sales organization, your client service organization also needs to be highly metrics focused. At maturity, you should be able to predict, by customer type, maximum spend, and time frame in which revenue will grow, potential churn points by customer type and product type, and any other data that helps drive your business. Not only do you need to know it, this should be a center point for your postsales team to focus on and these metrics should be known companywide.
Just like the weekly pipeline meeting you have with your salespeople, you will want to also set up a weekly book-of-business review. This meeting should be both quantitative and qualitative, meaning that from day one you should have a strong opinion about the metrics that matter most to predicting customer happiness and potential growth (the quantitative part), as well as anecdotal data on why customers are happy and why they use certain features or don't, as well as what enhancements they'd like to see. Each employee should know and be responsible for (along with their manager) their own actual book-of-business value, potential value of their book of business, time needed to maximize each account within their book of business, and all the potential hurdles specific to your business of achieving maximum book value.
This metrics-driven mindset starts on day one of your company, day one of your first customer sold, day one of your first client service hire, and should be prevalent inside of the entire organization.
Postsales Is Critical to Retention
The second part of developing strong customer retention and growing your revenue base is leveraging your postsales team as another sales channel. Some people might argue against this concept and even say it's contradictory to being customer-centric, however, I believe strongly that every person in your company who interfaces with a customer should have some responsibility around revenue growth. In my experience, the key to balancing revenue growth with happy customers is every piece in this book leading up to now:
- Have the right customers for your product— the who in W3.
- Your customers are buying the right product— the what in W3.
- Measure the value being traded—the why in W3.
- Develop the right process to identify, sell, and close those customers—Chapters 2, 3, 4.
- Have a customer-centric culture—knowing when, how, and why to engage with your customers.
- Understand how to measure both happiness and potential, through collected data and regular reviews.
Then when it comes time for your postsales team member to talk to your customers about renewals, up-sells, and new products, your customers will trust you, and “selling” them won't actually be “selling,” but working together to optimize your customer's own potential.
Let's go back to the story in Chapter 2 about my time at BlackLocus. Once we had identified our W3 at BlackLocus (A, B, and C), we quickly realized two things. The first was that our price points were going to be much higher than originally thought. When I joined, BlackLocus was charging between $100 and $1,000 per month based on customer size. Once we figured out our W3, our contract value went up and was $10,000 per month on the low end and $150,000 per month on the high end. With contract values that high, most customers wanted to test their way to full-scale, and understandably so, considering we were still a pretty young company.
Since we knew we were usually not optimizing account size on day one (which was typically mutually acknowledged and eventually became part of our sales and onboarding plan), it was imperative that we had a clear way for our customers and us to measure the value being traded as well as a clear process on how to work together to identify what worked, what didn't, and where there was opportunity for our customers to maximize the value they received from us (C, D, E, and F).
By working with our customers in this way, we knew on day one that if we didn't provide visibility into how our customer was doing and where they could make improvements to their business, we would never maximize that customer's potential—and we couldn't do that without working with our customers since ultimately they were the ones who knew how their business was being impacted. We set up regular account review and optimization meetings with every customer and, in the case of BlackLocus, biweekly and monthly for the first six months. This resulted in maximizing account opportunity with the majority of our customers within the first four months. And because we worked so closely with our customers we knew both what that maximum value would be and how we were impacting their business on a regular basis—because they'd tell us (again, C–F).
In the early days of your company, before you have any customers, all of your revenue comes from every new customer you bring into your organization. As time goes on, however, more and more of your revenue and revenue growth will come from your existing customer base. As a fully mature company it's not uncommon for 80% or more of your revenue to come from existing customers. Knowing this upfront, creating a culture that focuses on customer satisfaction, and putting systems in place early on to foster and maximize those relationships will set you up for building a long-term and highly valuable business!