Focus on Higher Value, Lower Churn
Leaky bucket. That’s the phrase I heard more than any other at Saastr this year. From Mamoon Hamid of Social Capital to Mark Roberge, former CRO of Hubspot, the message was loud and clear: too often, business leaders focus exclusively on top-line growth and end up losing in the long run—due to churn.
You’ve probably heard the leaky bucket analogy before; but for those who haven’t, here’s the gist. You can pour a lot of water into a bucket and fill it up pretty quickly. However, if the bucket has many holes in it, it will continually lose water, and keeping it full will be impossible. The same is true when SaaS companies focus solely on growth, pouring gallons of leads and even closed-won deals into a bucket full of holes. Customers lose value, go unnoticed, and become unwilling to stay customers. Said another way, they fall out of holes in the business.
In his presentation, Mamoon talked about a SaaS company that slowly-but-surely reached a point where for every dollar that came in, one dollar was going out. That’s not just a hole in a bucket, that’s a bucket with no bottom. He called this experience a “treadmill” because the business was expending a lot of energy, but going absolutely nowhere.
The solution for a leaky bucket was also discussed across many talks, from Blake Bartlett at OpenView Ventures to Nick Mehta, CEO of Gainsight: create value as quickly as possible. Leaders’ foremost responsibility is to ensure that customers are not just happy, but also benefiting from their partnerships. If a company can’t check that box, they have no business pouring any new sales into their leaky bucket.
How to Measure Value
The logical response, then, is to ask, “How leaky is our bucket?” That question seems fairly straightforward; but oftentimes, deciphering which gauges deserve the most attention is less than obvious. This question was the topic of many discussions at Saastr this year, and—to my surprise—many people had the exact same answer, including Ajay Agarwal from Bain Capital.
The metric that experts say best indicates whether a customer is getting value is not NPS (Net Promoter Score). It’s whether (or not) that customer is willing to speak publicly on your behalf. To be clear, everyone speaking on this topic believes in the value of regularly measuring and evaluating NPS. It is a low-commitment, easy-on-the-user leading indicator of success, but it should not be the primary focus.
A public endorsement is the greatest commitment a customer can give a company. It can come in many forms, from a logo on the homepage to being the subject of a case study, to literally speaking with them on stage or integrating the product into their thought leadership. If customers are willing to speak on your behalf, you know they see value in your company, service, or product and are willing to help you grow.
Change the Definition of Customer
Beyond fixing churn and properly measuring value, it’s also worth taking a step back and reconsidering our definition of the word “customer."
Ask ten people what a customer is, and my guess is nine of them will say something to the effect of “someone who pays a company for a product or service.” Blake Bartlett suggests that’s close, but not quite accurate. Instead, he says a customer is someone who gets value from a product or service.
Notice the distinction there? He removed money from the equation. Blake argues that there are paying customers (those with a signed contract) and non-paying customers (leads and prospects who aren’t paying yet). They’re all customers.
Taking that concept, and adding it to the first two principles, means truly successful companies provide a level of value to both non-paying and paying customers. They treat each interaction “from brand introduction to renewal” as a crucial opportunity to create value and repair the holes in their bucket. Waiting until customers are paying to provide them with value is likely too late.
This concept has obvious ramifications for top-of-the-funnel lead generation and branding efforts. Consider each visitor to your website, each person who downloads your content, and even those who interact with you on Twitter, your customers. They may not be paying yet, but regardless of where they are in the sales funnel, or what medium they’re interacting on, the onus is on your brand to provide value.
Final Note
As a brief, final note, I listened to Hilarie Koplow-McAdams from New Relic discuss something I’d like to share for your encouragement. Working in SaaS is tough. It’s even tougher when you’re giving it your all, not seeing the results you want, but hearing about other companies' rockstar success.
Hilarie shared that literally every company she’s experienced, including Oracle, Salesforce, and even New Relic, has gone through what she calls “S curves.” Real growth charts are rarely—if ever—a straight shot up and to the right. They go up, they go down, and they go back up again. There are tough times and seasons of plenty. If you find yourself in one of those tough times, remember that every company you’ve heard of has gone through the same thing. Keep your head up, figure it out, and enjoy the ride.