Lessons Scaling Customer Success from 1 Million to 300 Million in ARR with Success Venture Partners
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Lessons Scaling Customer Success from 1 Million to 300 Million in ARR with Success Venture Partners
- 1. UP NEXT: Lessons Scaling Customer Success from 1 Million to 300 Million in ARR with Success Venture Partners John Gleeson Managing Partner and Founder Success Venture Partners
- 2. Lessons Scaling Customer Success from 1 Million to 300 Million in ARR with Success Venture Partners John Gleeson Managing Partner and Founder Success Venture Partners
- 3. Customer Success is about outcomes Source: Meritech Capital, June 2023 Net Revenue Retention → Enterprise Value Multiple → Regression: Enterprise Value vs. NRR
- 4. Algebraically NRR is Starting Revenue - Churned Revenue + Expansion Starting Revenue
- 5. Said in another way… 1. Do my customers find value in my product and service? 2. Are they willing to trust me with more of their business?
- 6. Triple, triple, double, double, double
- 7. Three ways to grow 1. More new customers 2. Sell more to existing customers 3. Keep more of your existing customers
- 8. Existing customers drive growth
- 9. Well executed Customer Success is an accelerant to growth
- 10. Getting to the First Triple
- 11. Customer Success Supports Product Market Fit Source: The Four Steps to the Epiphany: Successful Strategies for Products that Win by Steve Blank
- 13. Renewals are the highest form of Customer Validation Source: The Four Steps to the Epiphany: Successful Strategies for Products that Win by Steve Blank
- 14. Founder-led Sales becomes founder-led Customer Success
- 15. The First Triple
- 16. The Numbers Cumulative ARR $2 Million $6 Million Full Time Sales Headcount 2-4 8-10 Sales Leadership Yes Yes New Customers per Quarter (Asm. ACV $50k) 6-10 20+ Customer Renewals per Quarter 3-6 20+ CSM Headcount 2 4 CS Leadership No Yes
- 17. Organizationally, what is happening? Everyone is about to go on their own journey to find Product Market Fit. 1. Big hires: You likely just hired your first Head of Sales 2. More people: Selling team will 3x 3. Sells becomes codified: Talk tracks, cadences, forecasts etc. You will see… ● Mis-hires ● Poor fit customers ● More demanding customers
- 18. Be Flexible Customer Success benefits customers but also supports the entire GTM Your first Customer Success team is an extension of the founders. ● Confirms Product-Market Fit (PMF) ● Feeds the product vision and roadmap ● Educates the organization about your customers Test and Iterate: ● Keep capacity to learn the experience your customers desire ● Build repeatable processes for onboarding and renewals
- 19. Timing Your Head of Customer Success Hire Variables to Consider: ● Your Head of Sales is observably ramping well ● Early sellers are meeting quotas The Math: ● Roughly $3M in ARR or about $1M in founder-led renewals ● Two founder-led CSMs ○ $1-1.5M per rep with the capacity to reach $2M each
- 20. Customer Success has evolved Core Competencies of Today's CS Leader: • Mastery of funnels: onboarding, usage, case studies, expansion, renewals • Deep customer insights akin to the product team • Cross-functional minded for holistic customer experience Key Interview Focus Areas: • A/B testing aptitude • Emphasis on a balanced approach: process, technology, and people
- 22. The Numbers Cumulative ARR $6 Million $18 Million Full Time Sales HC 8+ 20+ Sales Leadership Yes Yes & Managers New Customers per Quarter (Asm. ACV $50k) 20+ 50+ Customer Renewals per Quarter ~20 100+ Customer Success Headcount (Asm. $2M per rep) 3-4 9+ CS Leadership Yes Yes
- 23. Renewal vs. New Logos $6 Million in ARR Time → Total Logos → $18 Million in ARR
- 24. Onboarding: Throughput ● Reps gain capacity with every customer they successfully onboard ● Faster onboarding yields capacity gains Onboarding vs. Customer Success Manager CSM Role: Fully Loaded ● Limited capacity per rep. ● Capacity ranges: ○ 80-120 customers. ○ ARR: $2-3 Million (excluding enterprise). ● No added capacity until a customer churns.
- 25. Measure Time-to-Value How long does it take for my customers to find value in my product and service? Time-to-Value = |𝑎−𝑏| Time-to-value Onboarded Customer a. Contract Signed b. Proof of Value
- 26. Scale starts with great onboarding
- 27. Cohort Analysis Time (Months) → Date of Acquisition
- 28. What do you learn? ● Retro on your GTM to date ● What customer profiles are doing well, outcome of feature launches, seller performance Additional Views: ● Usage and feature adoption, expansion, support tickets etc. Use this to Drive: ● CSMs playbooks and outreach strategy ● Product Roadmap
- 29. The backbone of Customer Success is Cohort Analysis
- 30. The First Double
- 33. Funnels drive your coverage model Proactive Touches (CST) Account Renewals Expansion (CSQL) Feature Adoption
- 34. The Best Defense… is a Great Offense
- 36. The NRR Curve Time → Net Revenue Retention → Launch: Underprice value in an effort to gain traction Value Recoup: Accounts begin to renew at full price or with additional units. Seller Market Fit: Sellers gain confidence sell for higher prices, leaving less expansion. New Product Launch
- 37. Customer Success comes full circle Product Market Fit never STOPs
- 38. 5 Non-Obvious Learnings: 1. Product-market fit continues at every stage of growth – Customer Success plays a significant role in this from $0 to $300+ in ARR. 2. Customer Success supports both your customers and your entire GTM motion. 3. Onboarding is where the capacity to scale comes from. As such, Time-to-value is the most underrated metric in SaaS. 4. Issues can lurk behind impressive metrics – cohort analysis allows you to proactively address issues before they arise. 5. Customer Success proactively sells. The best defense is a great offense.
- 39. Thank You
- 40. UP NEXT: Embracing the Potential, Addressing the Challenges, and Pinpointing Proper Evaluation Criteria with Lightspeed Abhay Parasnis Founder & CEO Typeface Alex Kayyal Partner Lightspeed Julie Kainz Partner Lightspeed
Editor's Notes
- Where Are We Going? In Customer Success, we talk about outcomes, so let’s start with that end game. If you’ve raised any VC dollars , your end game is to eventually IPO – plain and simple. Even if you find liquidity in another way, when you raise VC dollars, you’re effectively signing up to build something that has the potential to be the scale of a public company – and as such, Net Revenue Retention will eventually become a metric that matters a lot to you. It’s clear that NRR is critical in building a very valuable SaaS company.
- Algebraically, NRR is Starting Recurring Revenue, less churn, plus expansion all over starting revenue. More important than the question is the NRR equations aims to answer.
- More important than the question is the NRR equation aims to answer. Said in another way, NRR is: Do my customers find value in my service? And; Are they willing to trust me with more of their business? At every stage, if you can answer “yes” to this – you’re on the right track. It should be your guiding principle no matter where you are in your journey.
- Framework: We moved through a lot of stages of growth at Motive very quickly. For simplicity, I’m going to break my learnings down into the classic "triple, triple, double, double, double" growth framework. While it’s rare that it breaks out perfectly like this in the real world, it’s important to measure yourself against the best, and this is what growth can look like for truly exceptional companies. I’ll spend most of my time on that first and second triple and leave you with some insights for when you begin to tackle the doubles. Putting numbers against this framework, once you find your first version of product-market fit, "triple, triple, double, double, double" is going from 2 million to 6 million, from 6 to 18, 18 to 36, 36 to 72, 72 to 100 million in ARR and beyond. That’s a tall order, but let’s break it down.
- In hitting your growth target you basically have three levers to pull. More new customers Sell more to existing customers Or, Keep more of your existing customers. Most of us stress most about number 1 – and rightfully so – but the only way I’ve seen companies really grow is if they are also great at 2 and 3.
- At Motive, as the VP of Customer Success, my comp plan was tied to NRR, and I became proficient in driving this number both tactically at the team and rep levels as well as strategically with my peers in product, sales, finance, and marketing. I have the unique perspective of seeing this metric through more stages than most and have come to appreciate how much the playbook behind managing NRR evolves as a company grows and progresses through stages of growth.
- Before coming to Motive, I thought Product Market Fit was a one-and-done thing; something you worry about when you're getting started, but once you get going, you forget about it. My observation became that PMF never really stops. At every funding round, we would pitch a vision for the next stage of growth based on new traction in a new corner of the market that we felt we had found fit in and could more aggressively tackle with a bit more funding. While certainly, there was always a fit, what I came to see was that our PMF in this new area was actually narrower than we had originally thought. There was always more nuance to what our potential customers needed and actually quite a bit more fit-finding that needed to happen. It's one thing to do this when you are small, but as our headcount grew to thousands, it became increasingly difficult . I found myself revising a lot of the materials I had read when I had been a first hire pre-Product Market Fit at another startup. I found myself repeatedly referencing classics like Steve Blank's "The Four Steps to the Epiphany." I credit my ability to work with our product team as one of the secrets to my longevity at Motive. Through my 6 year tenure I can count at least 3 CSMs who eventually became Product Managers. One even went on to become a Director.
- Founder Led-Customer Success: And this leads me to my first insight. Common wisdom dictates that founders should sell up to at least $1 million in ARR before hiring another person to sell. At a minimum, you need to close the first few logos, and you certainly are going to be very involved in every deal until you reach $2 million. But let's pause for a moment and think about the "why" behind this wisdom. In the beginning, as the founder, you have the deepest understanding of your product or service and its value proposition. It's you who holds the vision. However, as you get out there and actually start to sell, engaging directly with prospects, you gain valuable insights and feedback that inform product development and ultimately validate your vision and how you are actually going to get there. Much of this learning actually comes after you get the customer to sign. Feedback loop that allows you to iterate quickly and find fit in your market. Overall, I'd argue that this stage is as much about sales as it is about Customer Success. Furthermore, I'd argue that you really can't say you have product-market fit until your customers actually renew. It's one thing to get a customer to buy into your vision, but you really only have something if that same customer renews. To go back to part one of NRR, did our customer actually get what they bought the product for, and was that worth what they paid? A lot of learning happens at your first renewal that, if not fully addressed by the founder, can lead to some really big problems once you scale up your team. As a CEO and a CS leader, PMF should always be on your mind. It certainly was on my mind, even as we crossed $100M in ARR.
- Let’s pause for a moment and think about what your organization looks like at this point. You’re at ~$2 Million in ARR now. You have quite a few customers – 2 Million is 400 $5000 customers or 80 $25,000 customers. You and a few early sales people probably did this on your own. Without a doubt, you’re scrambling to help all of your customers, and everyone is carrying this weight. Now, if you’re at $2 Million, your goal is to hit 6 Million. There’s a good chance that you are looking to hire a Head of Sales or just made this hire. And it is not impossible to think that your selling team will be at least triple its current size very shortly between SDRs and AEs.
- On the selling side, you're about to undergo a massive transformation where, in short, your goal is to turn everything you've learned about selling into a codified and repeatable process. The intuition is to do the same on the Customer Success side.
- Customer Success Needs to Be Flexible The problem is that now it's not just you and a few direct reports selling anymore; it's now a leader with reps. In the same way that you went on a founder-led sales journey, each of these reps is about to go on their own journey to figure out how to sell your product. A great sales leader can certainly accelerate and support this, but it's never a straight line. Chances are you're going to see new profiles of customers come through the door. People who buy from founders tend to look a lot different than people who buy from Account Executives (AEs), and as such, the expectations are higher. Simply put, you have less margin for error for this vintage of customer that is about to come through the door. Previously, you might be able to get away with multiple bugs or use your founder charm to bridge a customer to that next roadmap launch, but that's not going to fly with this next batch of customers. And so as you go from 2 to 3 and even as far as 6 million, if you can swing it, I'd recommend that you find a way to manage your early Customer Success team as directly as you can.
- Timing the Hire is Key: As a general rule I feel comfortable with organizations making their first Head of Customer Success hire at about $3MM in ARR. Here is the math: Two founder led CSMs $1.5 per rep with capacity to $2M Here are the variable: Observationally you Head of Sales is ramping well Sellers can reach quota You have the PMF data to suggest that new reps will also be able to hit quota.
- Onboarding is a Throughput Motion And that is that Onboarding is a throughput motion, whereas the CSM role is a fully loaded function. With the CSM role, CSMs eventually reach capacity, and depending on account size this can range from 80-120 customers or ARR stretching from $2-3 Million, enterprise excluded. Once a rep is loaded, they really don’t have any more capacity until a customer churns. Onboarding, on the other hand, is a throughput motion. Customers have a start date, and they also have an end date when they become onboarded. There is always a customer coming in, and it’s actually a good thing when one exits – this means that they are fully onboarded and ready to go. Measuring onboarding, IMHO, is one of the best ways to increase capacity in your organization. In short, the faster you can get a customer up to speed, the more capacity goes back into your organization.
- How to Track Onboarding? One metric that I don’t hear organizations talk about enough is Time-to-Value. To track this, you basically need two things: 1. Contract Close Date and 2. You need to determine a thing that signifies that the customer has fully adopted the product. My preference is an output metric, i.e. You sell accounting software, and your customer does their first filing – they did the thing they bought the software for. This might not always be cut and dry; you might need to say something like X% of the users do a certain thing. Regardless, set that end thing and then count the days toward this.
- Here is the breakdown of everything in the table above: A row (from top to bottom) segments a cohort by their Acquisition Date by Month. A column (from left to right) indicates the amount of time that has passed the customers Acquisition Date. Each cell shows you the percentage of ARR that churned within a specific month of subscribing. So much has happened in your organization over the last years that this granularity is a needed look back to understand how each vintage of customer performs. As you do this, you’ll likely be able to make key inferences about critical decisions you have made: Product improvements, key hires’ ramping reps, etc. can often be seen here. If you have product telemetry data – even better. I’d also recommend doing this to dive into how customers use your product. You might find your older customers are not using it in the same way as new customers. One of my favorite things to do at Motive was to find pools of customers who were not using parts of the product and then do proactive sprints around helping customers in this area. Not like the just checking-in call, but if you can come to a customer with a “Hey, can I show you how you can use feature XYZ to make your life better,” you create a really special experience for that customer. Another fun thing you can do is build a chart like this to unpack where the expansion exists in your existing install base. At Motive, we sold to the trucking industry, and by law, every fleet has to share how many licensed vehicles they have at any given time. This was public data, and we knew how big each account could potentially become. We could precisely quantify the TAM that existed in our install base, and we could be thoughtful and proactive in our expansion efforts. TLDR, Cohort analysis can be the backbone of everything you do in Customer Success.
- The Best Defence is a Great Offense. Without a good expansion playbook, you end up churning customers despite them finding value, liking your service, and in some cases, even being an advocate for your company. We lost customers who were all of these things. Here's how this happens: The customer has a solution outside of the big thing you were initially known for and begins a conversation with an overlapping vendor. The competitor gets to know the terms of the contract and spots that they can also replace that thing that you do well. This is usually where they are also willing to deeply discount, especially for longer contract terms, knowing they can lock you out of even being able to touch this customer for three years! This is where you really need to watch the activity of your team and support them with playbooks to avoid this happening. Proactive Touches: Use data to find ways for you CSMs to continually help you customers. No one wants to talk to their vendor so find ways to endear yourself to them. Find ways to let you CSMs do this at scale. Two of my favorite ways are Sendoso and Matik for customer data driven one pagers. CSQLs (Customer Success Qualified Leads): When there is an expansion opportunity on the account, treat it like any other opportunity. There is certainly a delicate balance here. I like to use CSMs more like SDRs than Sales since they are in a great position to qualify and gather details around the expansion opportunity. The more you help a customer the more they will share about their business so lead with help and curiosity. Don’t forget to track CSQL in the same way you do SQL and MQLs. CSM at Motive had CSQL attribution on north of 85% of expansion ARR and we were taken very seriously as a revenue driving function (which was certainly valuable when asking for headcount to be approved.) Multi-thread Stakeholders: Know everyone at the account. In the early days our solution was bought by lower ranking employees at our customers. We’d often SPIF whoever could add the new relationships in a quarter or month. So much churn happens when stakeholder turnover so the more people you know the better. TLDR: Learn how the best SDR teams function and take a page out of their book.
- The Best Defence is a Great Offense. Without a good expansion playbook, you end up churning customers despite them finding value, liking your service, and in some cases, even being an advocate for your company. We lost customers who were all of these things. Here's how this happens: The customer has a solution outside of the big thing you were initially known for and begins a conversation with an overlapping vendor. The competitor gets to know the terms of the contract and spots that they can also replace that thing that you do well. This is usually where they are also willing to deeply discount, especially for longer contract terms, knowing they can lock you out of even being able to touch this customer for three years! This is where you really need to watch the activity of your team and support them with playbooks to avoid this happening. Proactive Touches: Use data to find ways for you CSMs to continually help you customers. No one wants to talk to their vendor so find ways to endear yourself to them. Find ways to let you CSMs do this at scale. Two of my favorite ways are Sendoso and Matik for customer data driven one pagers. CSQLs (Customer Success Qualified Leads): When there is an expansion opportunity on the account, treat it like any other opportunity. There is certainly a delicate balance here. I like to use CSMs more like SDRs than Sales since they are in a great position to qualify and gather details around the expansion opportunity. The more you help a customer the more they will share about their business so lead with help and curiosity. Don’t forget to track CSQL in the same way you do SQL and MQLs. CSM at Motive had CSQL attribution on north of 85% of expansion ARR and we were taken very seriously as a revenue driving function (which was certainly valuable when asking for headcount to be approved.) Multi-thread Stakeholders: Know everyone at the account. In the early days our solution was bought by lower ranking employees at our customers. We’d often SPIF whoever could add the new relationships in a quarter or month. So much churn happens when stakeholder turnover so the more people you know the better. TLDR: Learn how the best SDR teams function and take a page out of their book.
- The Best Defence is a Great Offense. Without a good expansion playbook, you end up churning customers despite them finding value, liking your service, and in some cases, even being an advocate for your company. We lost customers who were all of these things. Here's how this happens: The customer has a solution outside of the big thing you were initially known for and begins a conversation with an overlapping vendor. The competitor gets to know the terms of the contract and spots that they can also replace that thing that you do well. This is usually where they are also willing to deeply discount, especially for longer contract terms, knowing they can lock you out of even being able to touch this customer for three years! This is where you really need to watch the activity of your team and support them with playbooks to avoid this happening. Proactive Touches: Use data to find ways for you CSMs to continually help you customers. No one wants to talk to their vendor so find ways to endear yourself to them. Find ways to let you CSMs do this at scale. Two of my favorite ways are Sendoso and Matik for customer data driven one pagers. CSQLs (Customer Success Qualified Leads): When there is an expansion opportunity on the account, treat it like any other opportunity. There is certainly a delicate balance here. I like to use CSMs more like SDRs than Sales since they are in a great position to qualify and gather details around the expansion opportunity. The more you help a customer the more they will share about their business so lead with help and curiosity. Don’t forget to track CSQL in the same way you do SQL and MQLs. CSM at Motive had CSQL attribution on north of 85% of expansion ARR and we were taken very seriously as a revenue driving function (which was certainly valuable when asking for headcount to be approved.) Multi-thread Stakeholders: Know everyone at the account. In the early days our solution was bought by lower ranking employees at our customers. We’d often SPIF whoever could add the new relationships in a quarter or month. So much churn happens when stakeholder turnover so the more people you know the better. TLDR: Learn how the best SDR teams function and take a page out of their book.
- Here is what I came to realize, let’s call it the NRR Curve. Launch: You go to market with your product and you always undersell what it’s really worth. You as a founder did this early on and as you ramp the selling team they do too, particularly when you have bottoms up GTM Value Recoup – Next you have a recoup of value where at renewal you're able to capture more seats or get to full price. In cases where you do have churn, the churn is smaller because you're not fully penetrated. Seller Market Fit – Next sellers start to gain confidence. Rather than selling in chunks, you see your best reps have the confidence to sell at full price or to capture more seats or sell more of the product catalog at first close. When reps gain confidence “you see less land and expand.” NRR Declines – Because more deals have less expansion opportunity, even though you might find yourself hitting a high ARR number, proportionally to your install base it doesn’t have much impact. At the same time, accounts that churn have an even bigger impact you gross retention rate because they have a high ACV.