B2B Revenue Acceleration
B2B Revenue Acceleration

Episode · 2 years ago

50: The Key to Recurring Revenue Growth w/ Dan Steinman

ABOUT THIS EPISODE

Do you hear that sound?

That’s the rumbling of a long-overlooked source of growth for recurring revenue businesses.

And it’s about to erupt. 

In this episode, we ask
Gainsight’s General Manager, EMEA Dan Steinman about his thoughts on the inevitable movement towards a more customer-centric approach to subscription-based business models. We chat customer success, increasing renewal rates, and more.

You were listening to be tob revenueacceleration, a podcast dedicated to helping software executive stay on the cutting edge ofsales and marketing in their industry. Let's get into the show. Welcome tobeat the revenue acceleration. My name is Dancy Brook and I'm here today withanother Dan, Dan Steiman, who is the general manager of a mayor atgame site. Dan, how are you today? Yeah, I'm doing reallywell. Thanks for having me down. Good. No, no, noproblem too. It's good to have you on the show so down. Thetopic for today's episode is its customer success, a growth engine for recurring revenue businesses. Before we go into that conversation down, could you please give usa little bit of background on yourself and your company, which, of course, is game site? Yeah, sure, I've I grew up in the technologyworld. It spent thirty plus here's in Silicon Valley, so I've seenlots of technology come and go. Almost all of my career has been onthe post sales side of the business, so I've been managing or dealing withcustomers almost all my life and then sometime in the middle of the year oftwo thousands, that role became named customer success. So it's a role I'vedone for a long time and now the terminology around it has changed and afew other things have changed as well, which will probably talk about. Butalong the way I came across game site when I was at Marquetto. Icame across game side as a technology to help recurring revenue business has managed theircustomers and I was in that spot at Marquetta where I needed something like that. I was thinking I might have to build my own solution. But Iactually, eight years ago now, became the insight's third customer because we hadalmost a thousand customers and I had for customer success managers and there was justno way to be efficient or effective in managing those customers without some kind ofa solution technology like the insight. So and then I joined the insight sevenyears ago and they've done a number of jobs since then. And, asyou mentioned, and now and living in London managing our European operation. Okay, now, that makes sense and I appreciate it. Background there and juston that point, around the time you spent at Marquetto and now, havingjoined against ign seen it from the other perspective well, sort of fot orleg work. Do you think a company like markets or any other company thatare thinking about having to go down that process of building solution himself to dowhat you were trying to achieve? How difficult would that be? I guesshow difficult would an organization find it to put in place what games I are, of course, doing on a every single day? Yeah, it's prettychallenging. We get kind of asked this pretty frequently, like couldn't I buildthis myself? And my very cheeky answer that question it is yes, ifyou have three hundred and twenty engineers who are working around the clock every singleday and several thousand years of effort over the last seven years, you coulddefinitely build it, because that's what we put into it. Now the noncheeky answer is you could approximate, you know, some reasonable percentage of gainsight by customizing your crm solution as an...

...example, or using a bi tooland then expanding that. But there's always going to be something missing and invariablywhen we show our product to someone who's tried to build it in whatever solution, they're always like, oh, yeah, we wanted that, but that wasreally hard to do and that's something we haven't ever thought of. Andthe rest of it is exactly what I've been trying to do. And Ithink the bottom line is every single new business that has a technology kind ofplatform goes through this where you have to establish that there's something different and there'senough difference that you can't build it in an existing tool. You actually haveto add something that was built specifically for this purpose. And I think we'realmost there. Are Probably in the customer success world today, you know,no one ever thinks about building their own crm system. I think in thenext few years will find the same thing. No one thinks about building their owncustomer success solution either. Yeah, that makes sense, and so I'mas you're talking about your background there and as your road is sort of involved, as the terminology for what the road in Taiois vot, it sounds if, course, over the years you've become an expert really in the voad ofcustomer success and that's led to, course, being a coath or of the bookcustomer success. How innovative company are reducing chant and growing requiring revenue.So you know the engine out. So if customer success and how companies areusing it to their advantage and to accelerate their growth objectives. Could you pleasesort of give us a little insight into that book and what some of thekey take white point so that the reader can can learn from it? Yeah, happy to do that. You know, we're obviously really proud of the book. We we see the book and the and the sales of the bookas a barometer for what's happening in the customer success movement. And it reallyis a movement. It's kind of an industry on to itself, and sowhen we see the book, in fact it's funny. Or my editor sentme an email a few weeks ago and he said this is the first businessbook I've ever seen, ever seen, that has sold more copies in thesecond year than it did in the first year and more copies in the thirdyear than it did in the second year, because most most business books have apretty accelerated start and then they kind of tapers off. But what's happenedin our world is that the industry of customer success has been growing so fastand it's a result of the movement into the subscription economy that the need forsome level of kind of working knowledge about what customer success is what it meansis so high that the book continues to kind of accelerate in sales, notso much as an indicator of the fact that it's like the best book everwritten. It's probably not, but just that the industry is moving and notonly is it moving, but there is a need, because customer success isso new, there's a real need for a community aspect, a place togo, if you will. That confirms that I'm not alone doing this andnot stupid. I'm not five years behind...

...the rest of the world, andthe book is one solution to that. Another solution is the conference that wedo every year, which is really an industry conference around customer success, andwe did it for the seventh time in May and San Francisco and had almostsix thousand people there. So that continues to be a barometer as far asthe whole customer success movement as well. Back to the book, I meanthe I did most of the typing of the book. People ask me howlong it took me to write it. My answer is thirty five years,because it's a it's an amalgamation of kind of everything I've learned during my entiretechnology career. The reality is, from the moment I sat down till Ifinish the final manuscript was about four months and the book was written specifically aimedat CEOS of non technology companies. And why did we do that? Well, our business for the most part today is technology companies. So they allkind of get it, because most software companies are moving towards the subscription modeland they kind of understand customer success and then the rest of technology kind offollows the software company's lead. So they're moving in that direction and we wantto write a book that said, Hey, this is bigger than just technology.Like every company in the world is probably going to move towards some kindof a subscription model and when you do that you need to think about YourBusiness, in your customers, in a very different way and, to thepoint of the podcast, primary piece of that is that over time your customersbecome one of your most important growth engines. It's not just about selling new customers, it's about renewing, if you have modest subscription renewing your existing customersand then selling more to the install base. And the bigger subscription based companies areproving that that's a model that works really, really well. That makesense. And in terms of games, you mentioned that the book in particularis focusing on CEOS, or is aimed at CEOS of non technology companies,and then you spoke about the the conference that you've just held. For theseventh year. We have six thousand attend days in terms of that conference,and where the bulk of those attendees are coming from? Who you really appealingto it against what? Who is your customers? That were yeah, ourcustomers today. I think about it as concentric circles. The middle concentric circleis SASS companies. All SASS companies by definition have their customers on a subscriptionand if you're a BOB SASS company, you're developing decks that are, Iwould say, at least relatively complex, if not very, very complex.And what every be tob software company has found in all of history is thatcomplex software product does not install itself, it does not drive adoption by itself, it's not typically viral, with very, very few exceptions, and all theway from the very beginning, when sales force was building their business,they discovered that customers weren't adopting and then...

...ultimately weren't renewing because they weren't gettingany value out of the product and it had to be solved with people.And then alongside those people comes technology. So sales force in two thousand andfour put together the very first customer success team because they had a major turnproblem and they needed people whose job was, by their definition, adoption and retention. Right. So they were needing to reduce the amount of churn thatthey were having and the way to do that was to get more users toadopt their software, therefore get more value therefore be much more likely to renewtheir contracts. And that's kind of directionally the way the entire business has goneand I think as as nonchech business has moved to subscription, they're going tofind some of those same challenges where you can't just assume, no matter howgood your product is, that the rest of the world is going to grabit and use it and use it intelligently and get maximum value either. Itjust ends up not working that way. Yeah, yeah, that's very relevantpoint. Now, one of the things that you mentioned there is are insales force in two thousand and four developed the first customer success team and ofcourse, a lot of others have followed suit since. That said, Ithink there is still a very much the trend. At least. What wesee is that organization, particularly in the early stage of the course of veryfocus on driving acquisition of exist net new clients and actually times can that canbe to the detriment of their existing current client base, where whereby they're notnecessarily focusing on not only renewing those customers, could also expanding those customers into intolarger accounts for them. Recent study showed that customer acquisition of net newclients it costs up upwards of five times more than customer retention. But butwe still do see that there's a lot of organizations aren't necessarily putting the sameamount of emphasis or focus on keeping or, well, I guess, investing properlyin their in their current client base. So what? Why do you believethat happens? And and and do you? I mean, it soundsif you do see a shift happening, but you see the shift happening ata farting that pace, whereby the people are really investing as much in theirand their customers success team as they are in their new business sales teams.If you like. Yeah, it's a great question. Down by the way, that the research that we use from Pacific crest so as that to acquirea dollar of annual recurring revenue costs about a dollar in eighteen cents. Somethings I've seen have that cost is size a dollar fifty. Then the thenext two numbers are really stark in contrast, and that is the cost of expandingand existing customer is fourteen cents for a dollar and the cost of renewingand existing customers nine cents for a dollar of rr. So it's almost anorder magnitude difference between the cost of getting additional money out of your install baseversus acquiring new customers. And I think...

...in a recurring revenue business one ofthe mantras that you have to just understand is that you can no longer acquireyour way to success. You can get customers in the front door as fastas possible and if you aren't, but if you aren't plugging the bottom ofthe bucket, so to speak, and getting those customers to get values sothey're buying more than you just don't have the chance. And in fact thesales force again is the perfect example. They had a terrible turn problem.They were really good at acquiring new customers. In fact their number of new customerswas quadrupling in two thousand and three versus two thousand and two. Butwhen are almost every single one of those customers was churning until they actually formulateda customer success plans. So it's absolutely critical to the long term viability ofa recurring revenue business. And answer your question, I think generally speaking,most companies are not investing as quickly as they probably should be in the intheir install base, and I think the main reason for that is that theythey have primarily built into their DNA this idea that sales drives everything, andmost of us who grew up in the technology industry at least more than fifteenyears ago, always have that on the top of our head, like salesis the only thing that matters. It's it's the driver of our business,it's our quarterly business imperative is to find x number of new customers and increaseour selling price to them. And it was all about acquisition. And soevery company kind of naturally has in their DNA the idea of sales, thecelebration of sales, etc. And only in the last I'd say, forany more than about fifteen companies, only in the last ten years, asthe post sales part of the business become much more meaningful as far as arevenue imperative. So it's not a surprise because it's still very, very newand a lot of the change is really hard because the people who become successfulin a world where sales was everything have to struggle to make the change tothinking about it very, very differently, and almost every every CEO, I'mthat almost is bent towards sales or product and not naturally bent towards customers,and part of this process is forcing them to bend towards customers just as muchas they been towards sales. And I think it's happening, and it's happeningbecause it's a hundred percent necessary or your business won't survive. But it's stilltaking long time and there's still a lot of education to be done and Ithink there's still a fair amount of frustration on the part of people like me, or people who are in customers success, who still see companies not driving withthis level of urgency that they probably should be. This idea of therevenue growth that can come from a from a good, solid, financially viablekind of install base. Yeah, yeah,...

...and I think well, there's there'sa couple of points in that. The first one is that I thinkit's probably companies struggle so or find it tricky to at least measure customer success, and whether that's just because of the sort of Kpis or metrics that theydo indeed use internally to do so. The second piece is, despite thethe stats that you described around it being much more cost effective to expand orrenew existing customers as it is to acquire new customers, I believe organization struggleto attribute revenue back to investments in customer success, whether that's building a team, whether that's investing in technology, but it is probably a challenge to atleast so that internally, if they're if they's of methodology or or, Iguess, process it. Internally, I've always been driven towards sales or product. It's tricky to build that business case internity. From your perspective, beingnow within a technology company in a Customer Success Road, how do you seethe technologies can help companies to measure it? Number One, and what are thereal key metrics or KPIS are you believe companies need to use to trulymeasure the success of that customers and, of course, then generate more revenuefrom that install base. Yeah, to to use an old analogy, historytends to repeat itself and I think what's happening today is is a very,very close analogy to what happened over the last fifteen years. The difference betweenwhat part of the customer life cycle are we talking about for this? Sofor the last fifteen or twenty years there's been literally billions and billions of dollarsspent in creating and selling and buying technology to help optimize the funnel. Right, everything was about the funnel, the funnel meeting the top part of thesales process. So, can we get more leads into the top of thefunnel? Can we get better leads into the top of the funnel? Canwe convert them at a higher rate every step down the way and ultimately,can that lead to more customers being acquired? And every CRM system and every marketingautomation tool and every lead optimization product, this was the goal, right,and literally, I mean just think about sales force plus marquetto plus,Microsoft Dynamics, plus eloqua, plus, you know a few other companies.I mean literally billions and billions of dollars were spent and at the end ofit, the reality, the reality of what that money was being spent on, was getting a better understanding of our prospects, not customers, but prospects. So what we think is happening now, it's clearly happening by the way,is that the same mentality, in the same processes are happening with regardactual customers versus prospects, and that is, if we understand more about our customers, will we not be more successful in giving them value, delivering Royto them, being able to sell them more, renewing them at higher rates? Right? So I think the process...

...that happened on the prospect side wherebywe as companies became like really, really intelligent about our prospects. Like,think about today's world. If you ask to seem, Oh hey, whatdo you know about your prospects, the answer is a lot. I knowevery time they've meant to our website, I know exactly how many minutes they'vespent on our pricing page. I know every meal email that we've sent tothem, whether it bounced to, whether it got opened up, whether theydownloaded what was in it. How many behind the paywall things have they lookedat our website, downloading white papers, etc. ETC, etc. Sothere's all of this information about prospects that's happ there. It's helped us tobe much smarter about how to deal with those prospects and our argument, Ithink in arguable, is there's way more information about customers than there is aboutprospects and if we can tap into that other load of information and use itto our advantage, we can have tremendous success with customers that we haven't beenhaving because think about the amount of stuff that as SASS company knows about theircustomers and versus their prospects. We know every single click they've ever made inour application. We know every invoice they've ever received and when they paid it. We know every support case they've ever opened and how long it was openand what priority it was, and every email we've ever sent them and whetherthey opened it, etcetera, etc. The Plethora of information, and ifyou can pull that all together and mind through it in an intelligent way,you can understand how healthy your customers are, and that's the heart of customer successis how healthy are my customers? And depending on how healthy they are, I want to intervene. And this is what drives, ultimately drives bottomline revenue, I think, because if you've done cut, if you've donea SASS company, as sales force did, without a customer success team, youknow that's a turn rates are really high and that you're up cell isimpossible, because if you don't have a satisfied customer, there's no way you'reselling them. More so, if we can pull that data together and saywe know how healthy our customers are, we know which ones are likely tobuy our next product when we have one to sell, we know which onesare in trouble and we should intervene with them to help get them back onthe right track. So they are going to be good advocates for us.By the way, advocacy is another component of this. We live in thisconnected world where prospects are calling customers all the time without going through our referenceprogram so we better make sure those customers are are actually getting value from us, so that those conversations with our prospects that are kind of blind reference checks, if you will, are positive conversations because it actually drives a new businesssales as well, not just retention. So at the end of all ofthat is this concept that customer success, much like the prospecting part of ourworld, has to become a process driven,...

...data driven organization in order to deliverthe results that we want, which is higher retention rates and more andmore upsell absolutely, and there's a lot of interesting points there and I guesswhat it comes down to is not on need from Games are, at leastfrom your perspective, not just selling them a technology, but helping oping customersperspective or opinion on where they should be investing them on a start to shifta little bit. I don't think it's going to be an easy to askto completely shift the mindset of a way from new business sells to customer successand, of course, as driving acquisition of new clients if vital. Butit sounds as if it's a shift happening, but it needs to sort of probablyaccelerate in terms of the pace of that shift. That's that's well said. There is a shift happening, for sure, but I think there isa need to accelerate the pace of that, especially as more and more companies moveinto the subscription economy or beyond. Absolutely, absolutely so. Damn,I think we're moving towards the end of our time today. Really appreciate yourinsights and for taking the time to speak with with us. I know I'vecertainly started to think about our own customers and how we can get more knowledgefrom them and and understand them better. If anyone wants to learn more aboutgainsite or continue this conversation offline or know more about you and your book aswell, what's the best way for them to get in touch with you andthe company? Yeah, anybody wants to, certainly can connect with me on Linkedinand easy to find down Steinman. The book is online. You canbuy that Amazon. Just search for customer success. It will typically be thefirst thing that POPs up. And if you're interested in Gainsay, go tothe website. Obviously againsaycom, request to be contacted or requested demo or whatmost people would do when they go to gainsaycom is actually go to our resourcespage and just start absorbing some of the part leadership. Right if you haven'tbought the book or you want more than the book. There are literally hundredsof blogs and webinars and sessions from pulse that will give people a really goodeducation in the world of customer success, and most of that is not benttowards trying to sell our product. It's just trying to educate people on whatcustomer successes and why it's important. And we believe if we do that,if we educate the world on how importness is, then obviously some of thosecompanies are probably going to need some software at some point. It will bethere to help if that time comes. Absolutely great. So well, manythanks once again. Done for Im you on the charts today, and that'sto look forward to hearing more from from Denis and itself in the future.Yeah, my pleasure, Dan, thanks for having me. operatics has redefinedthe meaning of revenue generation for technology companies worldwide. While the traditional concepts ofbuilding and managing inside sales teams inhouse has existed for many years, companies arestruggling with a lack of focus, agility and scale required in today's fast andcomplex world of enterprise technology sales. See How operatics can help your company acceleratepipeline at operatics dotnet. You've been listening...

...to be to be revenue acceleration.To ensure that you never miss an episode, subscribe to the show in your favoritepodcast player. Thank you so much for listening. Until next time.

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