The Importance of Investing in Customer Success

Video Title: Importance of Customer Success Strategy investments

Interview  Date: July 18, 2020

Host: Irit Eizips, Chief Customer Officer & CEO | CSM Practice

Guest: Nick Mehta, Chief Executive Officer | Gainsight

In this episode, Irit Eizips, Chief Customer Officer & CEO at CSM Practice interviews Nick Mehta, Chief Executive Officer at Gainsight, on the topic of the Importance of Customer Success Strategy Investments. Watch the full video below:

Full Transcript: 

Irit Eizips: (1:09)

Today I want to talk about a very important topic. We’re post-covid19, but this is a topic that’s not just relevant for this post-pandemic era, but it’s relevant for any year, any time: Why should companies invest in customer success strategies? But most and foremost after Covid-19, we see a great hit. Most companies experience like a dip, at the very least temporarily, in any kind of sales orders coming in, new business opportunities closed one and lowered and diminished.

See the full survey results here:

I mean we’ve done a survey back in April and closed at mid-May and we showed about 50% of the SaaS companies reduced their forecast or new business deals. Most of them either flattened the renewal rate projections or reduced it as well. So the GRR, expected gross retention revenues, are mostly expected to be lower. I know Gainsight has done a similar survey, did you get similar results?

Nick Mehta (2:17)  

Yeah, totally, and I’ll give you a little bit of context because a lot has happened in the last 4 months in the world. We’re sitting here in July and you know Covid-19 became a big deal in America in mid-March, although a big deal in the world or before that. And you know it we when sort of things started heating up in the US and in California where you and I live, we wrote several different blog posts and did some surveys and I’ll just take you through a little bit of the evolution of what we’ve seen.

So right away when everything started happening, I think we all knew that being able to preserve your customers went from important to existential. That was critical. I wrote this blog post kind of at the beginning of the crisis, where I said here’s what’s going to happen, your new sales are going to slow as you said Irit and that happened because, in times of crisis, customers don’t want to do new things. Everyone, whether individuals or customers that happen, but the existing customers needed more help than ever because they need they’re going through lots of changes and lots of challenges, and the existing customers, were going to kind of notice in some ways, which vendors were there for them, which ones weren’t and at the same time they were all looking at the list of all the things they’re spending money on saying do we need that, do we need that, and so the vendors that were doing a great job in outcomes and experiences like what you talk about all the time they were being able to retain and then finally the vendors that we’re able to be ahead of the curve were able to expand spend by the kind of almost consolidating in their customer and maybe knocking out other vendors. So there was this kind of share of vendors happening, the ones that were doing a good job with customer success were growing in their customers, the ones that weren’t were shrinking.

So that was the first thing we saw was it became existential, every CEO was focused on a big deal. The second thing we saw though then was as you said, despite good customer success we were all dealing with big challenges, just in our customer base, the macro forces. We surveyed people and said okay what’s the impact going to be in terms of retention, whatever your retention rate was going to be let’s say it was going to be 80% for the year, what’s it going to be now in this new world? And so we sent that survey in March asking them what they thought the new retention was going to be and then again at the end of May when we had some more data, what are you seeing. The bottom line and this is all detailed in our blog post was everyone was seeing an uptick in churn, everyone across the board whether you sold to small companies or big ones, whether you sold in multiple verticals or one vertical. But what happened was in March we thought the uptick was going to be huge and it turned out in May it’s still a big uptick but not as big as it would have been, not as big as we thought it was going to be. So the data is all in the blog post but you know enterprise-oriented companies thought there might be an uptick anywhere from 6 to 10 percentage points and they were seeing more like 3 to 5 percentage points in May.

As SMB or any companies, I thought there might be a 20 to 30 percent point uptick and they instead seeing more like 15 to 20 percentage points so still a lot, I mean that’s a big uptick but not as much as they thought and then the other thing we learned was that in general people weren’t losing their customers altogether, what was happening was the customers were shrinking their spend, you and I call that down-sell, like that maybe normally I would have renewed 100 licenses but I only need 80 licenses, I laid off some of my employees, I’m not hiring and so people are seeing shrinkage in the spending with the vendors, but not necessarily losing as many customers they would have thought and that’s so I guess the summary is that people knew there was going be a problem. The problem isn’t as big as they thought but it’s still really important and people are focused on getting ahead of it.

Irit Eizips: (5:55)

Yeah, we’ve seen similar results and I wanted to double click on that because the gross retention rate, net retention rate, all these key indicators impact a technology company’s ability to grow exponentially over the years. So the impact is compounded.

What are some of the trends that you’ve seen for cross-sell and upsell for existing customers? Were they even open to doing any of that at least?

Nick Mehta (6:25)

I think in March and April it was probably tough, some people saw it, if you had a business that was doing enabling virtual work then you saw right away across Zoom, Docusign. But if you’re in more mainstream business, in March and April it’s probably hard to do upsell but actually what’s interesting is I think in May and June things started picking up for a lot of vendors and more so in their installed base than new logos. So we saw that a lot of our customers saw that growth in your existing customers for sure. Now I think new business is opening up as well and the other thing I’ve seen a very specific kind of interesting anecdote is in addition to selling more licenses and software to your customers, we’re seeing vendors able to sell services to customers. Because the customers need more help than ever and in fact, they might be understaffed, so they’re probably seeing some of your customers, you do a great job in CS consulting and strategy and they probably don’t have as many people in their organization that they normally did and so they may need more help than ever. So we’re seeing consulting, recurring services, technical account management, administration on-demand, those services having a pickup in demand because the customers are a bit understaffed.

Irit Eizips: (7:40)

Correct, I’ve just read a blog about how companies are looking into increasing budgets for outsourcing and consulting services because they’re still a little bit nervous and they don’t want to necessarily open the doors to hiring a lot of people and it’s much easier to manage a temporary workforce otherwise.

Nick Mehta (8:00)

People are worried about the fact that things could get worse again, we all know that in America and probably globally and so, therefore, they’re reluctant to hire a lot of people that’s the underlying dynamic. I think the things they’re looking for are either technology to help them scale and automation all that and or services to help them scale in a more agile fashion, I think those are the two things.

Irit Eizips: (8:25)

Well you know one of the things that we’ve noted in our surveys that about 25% of the respondents said that there was a negative, sorry a positive impact on new pipeline conversions I think those were the ones that happened to be in the right industry that was booming during COVID, 19% said there was absolutely no change in their pipeline, lucky them, about 56% said that they did have a big hit, a negative hit in March and April.

See the full survey results here:

So, if you look at those two months when you were supposed to close new sales deals, you were supposed to have these revenues, when you have a subscription model the revenue doesn’t just impact that month, it impacts compoundedly over the next year or two in your ability to reach that revenue forecasts that you had for maybe 2 years from now, because you don’t have that compounded revenue anymore you need to catch up with it. So I think what we’ll see is that trajectory of growth that rate is going to be a little lower than expected.

Nick Mehta (9:23)

Totally, very well said in a subscription model, anytime you take a step back it affects you over time. And you alluded to this before, that’s true on the churn side as well because you lose that customer and now you can’t upsell anymore because they’re not a customer and it’s a big long-term impact.

Irit Eizips: (9:40)

I think all of this emphasizes the importance of customer success strategies right now. I have already lost the opportunity of new logos in March-April-May considering you’re in that type of industry that you sell into. Your best bet to catch up to your initial forecasts is by doing a great job at customer success so that you can maximize value for your clients and thereby maximize value for you through upsell, cross-sell, advocacy, and thereby accelerating new sales deals.

Nick Mehta (10:14)

It’s interesting because in that survey we sent out in May where we said okay what’s the expectation of churn now that you’ve had a few months, we also asked people to rank initiatives in their company around customers so we have put in new logo sales, expansion sales, retention, preventing churn and a couple of other things adoption as well and so here’s here are the results.

We asked them which of these are not important, somewhat important, very important. A hundred percent of the respondents are CXO’s at late-stage private and public companies, said preventing churn was very important, so number one. Number two was forecasting trends, because even if you can’t prevent it knowing it’s going to happen so you can plan for it. Number three was measuring adoption, so understanding how people are using it because especially around down sales I want to know are they using 80 seats out of 100 things like that and then number four was driving adoption.

So, the four things were preventing churn, reporting a churn, driving an option, and measuring adoption right and that’s interesting because new logo sales were kind of at the end of the chart, not because any of these people didn’t want a new logo so everyone wants new sales we all want new pipeline but just because things had slowed down so they had to redirect the resource towards customer success.

Irit Eizips: (11:29)

Do you believe that companies that focus on these four points would have a better chance of growing faster and if so, what do you expect the impact to be?

Nick Mehta (11:39)

Yeah, I mean you and I are we’re preaching to the choir because we both have believed this for a very long time since you were a very early Gainsight employee, but we think that the companies that are doing a great job of customer success now are going to get a many-fold benefiting growth because number one they’ll keep their customers, so they’re not losing that much revenue, number two because they’re close to their customers they’re going to expand them more and then number three the customers are going to be better advocates and that’s going to show up in new logo sales overtime when the economy comes back.

I think a lot of customers are going to remember the vendors that did a great job during this downturn and they’re going to be big fans and they’re going to help them and all that kind of stuff so yeah and I don’t think this is a controversial message being honest. I talk to a lot of CEOs and it’s almost at this point obvious they’re not always doing the right things to make it happen and you live that in your life right because you’re trying to help people go from strategy to action, but the CEOs I that I talked to bought into the concept now more than ever. I emailed a friend of mine who’s a CEO of a 500 person private company a couple of months ago and I said what are you doing around customer success and he said we’re finally doing the things that we always should have done. So you and I were telling CEOs like that “hey do x y and z” and now they’re finally doing it so I think people have come around in this new world.

Irit Eizips: (13:00)

If someone were to take on your advice about what’s the kind like the stage by stage phases you would recommend them to take that approach? So, if I’m a CEO or a COO I need to take that on, would you start with risk strategies? Would you start with something completely different? What would you recommend?

Nick Mehta (13:21)

I wrote a blog post on this a few weeks ago I called it the four-step playbook for a kind of reopening with your customers, so you’re reopening your business, how do you reopen to the customers and these are the four things I see most common on people’s minds and these are probably consistent with what you see. So, if you go to those 4 things that people are prioritizing, preventing churn, forecasting churn, measuring adoption, and driving adoption.

On preventing churn, I think one of the biggest things I’m seeing people do is move from just saying I need people to use my product to say I need them to drive value, see the value for my product. That’s none of us to buy products to log into them, we buy them to get value and the hottest thing in customer success is going from the value that was sold to the value that was implemented to the value that was delivered and measured and that end-to-end value process we call it success planning, and you do a lot of this with your clients, you can also call these outcomes and it’s all the same thing which is end and view of value. That is the biggest particularly for companies selling into high-value customers, enterprise type customers. That helps you prevent churn because if customers are seeing the value they’re more likely to stay with you so it’s not just about adoption it’s about value.

Number two, on forecasting churn one of the biggest things I’m seeing is being able to understand much more early what the current situation is around the renewal through what we call stakeholder alignment and this is basically like you know this is as old as it goes which is who are my stakeholders and have I talked to them recently but doing it in a very systematic way, in a very organized way, in a very automated way and you know again you’ve done work to help your customers on this, understanding the champions when was the last time we talked to them, who’s the sponsor on our side and so people are trying to get organized about across all your clients on what is the latest on their perception of us.

Number three is in terms of understanding usage; every company is saying: Okay for years I’ve said I don’t have good data about my customers. For years, they’ve told you and me you know I just don’t have very good data and 2020 is the year when that excuse runs out. You have to have good data about your customers, you’ve got to have product usage data, everyone’s investing in product analytics to even for on-premise companies they’re doing telemetry a super-hot area.

And then number four is driving product adoption. That was the fourth priority and everyone’s investing in what you and I call tech touch, automating that long tail through technology, reaching out both through emails through in-app communications, and all that kind of stuff. So those four areas of driving to value through success planning, doing a better job of reducing measuring turn and reducing it through stakeholder alignment, doing a better job of having product data on kind of how people are using your product, and then tech touch through scaling to your customer base, those are the four things I see the most commonly across our customers.

Irit Eizips: (16:13)

Yeah, I’ve got to say I agree with that it also showed up in our research as well and the queries that we get as a consulting firm are mainly related to value playbooks, risk mitigation strategies, and health scores as well as tech touch and digital engagements. So it’s aligned with them.

Nick Mehta (16:32)

Yeah and I’m not surprised either because I talk to a lot of the same people right so this is, I think very consistent with what we’re seeing more broadly.

Irit Eizips: (16:40)

You know another thing that showed up from our surveys that about 16% of the companies are planning on letting customer success managers go or shrink that team or completely close that team. What do you think about that? Why is this happening and what would you say to those CEOs that are considering that function?

Nick Mehta (17:00)

Well, one thing in context is that I think you know if you said 84% are keeping or growing their teams which are the rest of it right I think the reality is I think people are shrinking CS teams less than other teams from the data I’ve looked at and the data we’ve seen. They’re still shrinking because some businesses have evaporated in their business overall. So for example, you’re selling to an industry that themselves doesn’t have any business anymore, you know restaurants, etc. and so I think that’s been part of the layoffs that have happened but they’ve been less than sales marketing, other areas that are at one point but that being said I still think that some companies that are cutting are probably cutting a little too deep and we all know customer success is all about preserving recurring revenue and in in a downturn, what gets you through the downturn lets you survive is the recurring revenue, that’s what keeps you in business. So I’d say that the companies I talk to honestly the relatively thoughtful CEOs are experienced they’re not cutting CS at all. If people are cutting it, they’re cutting it because their business has been decimated or every now and then there’s a CEO that doesn’t get it, I have some seeing some CEOs who said oh yeah you know we’re just going to go back to sales and I guess I’d be honest and that’s just a very that’s the wrong playbook, that’s the playbook for 2010, not 2020.

Irit Eizips: (18:17)

Yeah exactly especially post COVID. I heard you came up recently with a new book, Congratulations! The Customer Success Economy with the lovely Allison Pickens. Tell me about that book, what inspired you to write it?

Nick Mehta (18:33)

As you know we had this first book called Customer Success which is written by Dan Steinman, myself, and Lincoln Murphy that came out 5 years ago, it’s a long time ago, you were still Gainsight then and that book did well like you know I think we’re 70-80 thousand. it’s all translated in so many languages in Mandarin and Portuguese and Spanish and it’s been amazing and um it’s the reason it did so well I there’s so much interest in customer success people learning about it a lot of management teams made that required reading for their team and what we realized was a lot happened in 5 years right? 5 years a few things will happen at a macro level.

One is customer success is not just for tech companies anymore, it’s showing up in healthcare, financial services, transportation, lots of different areas. The second thing is customer success isn’t just a function anymore it’s not just about the CSM, we all know to do it well, you need to rethink the way you do services and support and product management development and marketing and sales and so it’s much more cross-functional and then the third thing is we’re not so immature as an industry anymore, so, for example, the questions that are been asked the basic ones like who should own renewals or how should a CSM get compensated. The answers aren’t black and white, but there’s a well-defined menu of answers, there’s a pretty good framework and so we wrote the book for those three reasons to show customer success across different industries. So we interview people from lots of industries manage the area to show the playbook for customer success in different divisions, marketing sales etc. and then to talk about how customer success as a concept now has a framework for making decisions so we have a chapter about how you decide who owns renewals, how you decide how to compensate a CSM, how you decide how to measure customer success, again this mirror is probably with your experience where the first time you’re doing consulting you know you’re just figuring it out but you’ve now done this enough where you can probably predict the question the customer is going to ask, I’m guessing you can because you’ve done this so much and you’ve got a great framework for helping them figure it out so that’s why we wrote the book.

Irit Eizips: (20:40)

Excellent! Its brilliant sounds like anybody that’s not just necessarily from SaaS can enjoy that book and learn a lot, anyone that thinks about setting up the customer success organization can learn a lot, and anybody that already has a customer success organization, but is trying to get the entire organization to transform and embrace customer success concepts throughout the organization should read the Customer Success Economy, your new book with Allison Pickens and you’ve been so gracious Nick you’re going to offer this book for free to anyone that’s watching this video.

Nick Mehta (21:12)

That’s exactly right, if you go to Gainsight.com/freebook, you’ll be able to go in and get a copy for yourself fill out a short form that’ll actually give you a little evaluation of your customer success maturity so that’s another benefit and then you’ll get a copy of the book.

Irit Eizips: (24:33)

That’s awesome! Nick thank you so much. Guys I’m going to include the links to the to get the free book in the comments below in the description to this YouTube video, the links to the surveys that Gainsight performed and we have referenced here in this video, the link to the blog that you’ve mentioned earlier and so thank you very much for joining us. 

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