GE 98: The 3 Ways Gainsight Uses Customer Success Followup to Reduce Churn & Improve Net Retention

nick mehta photoHi everyone, today we’re talking to Gainsight’s CEO Nick Mehta. Gainsight is a customer success company that helps businesses grow faster by reducing churn, increasing net retention, and driving customer advocacy. Nick’s last company, LiveOffice, sold to Symantec for $115 million.

Nick’s got some good insights on what it takes to be a successful entrepreneur even through the tough times, and how the old business model in favor of product and sales is being replaced by one that’s in favor of customer success.

Software Business Smarts from Childhood

Nick’s been around technology his entire life. His father ran some software companies in the 80s and 90s in Pittsburgh, and always told is son, “If you go into business, make sure you work in either sales or product. Because after the sales, everything else is overhead.”

Other fathers taught their sons how to play baseball and pick up girls. Nick’s father taught him how to run a software business.

He was destined to be a tech entrepreneur.

When the time came for him to get into business for himself, he did his own internet startup after college, but then got into enterprise software and worked for Symantec for a long time.

Even then, the model of business his father taught him was still true.

But once he went to run LiveOffice as a subscription-based SaaS company, he learned on the job that the old playbook of only focusing on product and sales was broken. Suddenly, customers weren’t committing for a lifetime, but only for a month or a year at a time.

He had taken for granted that their customers would stay, but saw their churn rate going up. So within LiveOffice, he got really deep into customer success and built a great team and custom internal systems to help customers and predict renewals… not realizing there would already be a company solving these problems.

He sold LiveOffice, took some time off to figure out what to do next, and met the founder of Gainsight who was passionate about the mission of customer success.

What is Customer Success? And How Can You Tell if It’s Working? 

A customer success team is a group of people who are proactively thinking about your customers and helping them get the most out of your solution… not just sitting behind a help screen responding to customer support inquiries.

Customer success is essential to any business with repeat or recurring revenue, and you can measure it by three things:

  • How fast you’re growing
  • Cost of customer acquisition
  • Net retention

Net retention is the key one. It’s the idea of churn (losing customers) vs. existing customers staying on and spending more.

By proactively understanding and defining what your customers want and mean by success, and working towards helping them achieve that, you’ll improve your net retention…. less people will drop off and more people will stay on and advance their use of your product.

What Gainsight Does for Customers

Beyond providing software to help their paying customers win at customer success, Gainsight does a handful of things to help their online and offline community (paying customers or not) advance their ability to improve their net retention via customer success:

  • Running an annual conference (Pulse) on customer success best practices
  • An online university to teach customer success & salary benchmarking
  • Creating an online community where people can learn about customer success from each other

For their paying customers, these are the services the Gainsight software provides:

  • Gathering data about high-value customers before meetings with them & helping them show data to those customers in auto-generated presentations.
  • Letting you know which customers you should reach out to that day based on who is coming up for renewal with a lot of risk, or who you have an opportunity to sell more to.
  • For small customers you might not be able to afford a human touch with every time, it helps you create automated communications at different points in the customer lifecycle and after different trigger events.

Gainsight’s Success

Gainsight has positioned themselves as a higher-end company that may not be affordable for startups who haven’t been able to start scaling their business yet.

However, they’ve just crossed 200 customer companies and have been fortunate to work with some of the best-in-class SaaS companies and some of the best traditional tech companies moving to the cloud.

How to Do Customer Success if You Can’t Afford Gainsight

If you’re just starting out, Nick recommends having an online community and engaging there.

Whether someone uses your product your not, you’ll still be helping them out… which is a great way to kickstart your customer success.

He also says that content marketing… in the sense that you create educational content that genuinely helps people and isn’t brand-focused… is a great strategy as well.

Once you scale, you can start looking into a software to help you do customer success.

Gainsight’s User Acquisition Stages

According to Nick, Gainsight went through a handful of user acquisition stages similar to those of most startups.

  • Phase 1: For customers 0-6, they were still in the development phase and didn’t have a full product built. They focused on finding customers based on people who believed in the idea and hoped they could figure it out along the way. Basically, people who bought for the concept as much (or more than) the actual product.
  • Phase 2: After customers 6-10, Nick said they started trying to find a repeatable sales motion. They began hiring sales people, trying marketing tactics, and experimenting with different types of representatives and events. (This was when they had their first conference.)
  • Phase 3: This was the early part of scaling their sales team, when they hired a VP of Sales and took themselves from only having two reps to having eight or nine.
  • Phase 4: This is the phase they’re in now. They’re getting more sophisticated with sales forecasting, multiple layers of sales management, and are talking about international expansion.

Pitching a Conference Internally – Convincing Everyone That the Investment is Worth It

The interesting argument about technology, says Nick, is that with it, there almost doesn’t seem to be much of a need to meet people in person.

But even though Nick says it’s the best thing they’ve ever done, he says that you can do whatever math you want, but you’re still going to be putting on a conference in faith. There’s absolutely no guarantee it will provide a good ROI.

But, he cites two main reasons why they keep hosting their Pulse conferences:

  1. In enterprise software, it’s not about the software, it’s about actually understanding the job and how to do a job really well.
    • For example, Gainsight isn’t a magical company that figured everything out on its own. Along the way, they talked to a lot of customer success people and encoded their knowledge into the software they provide.
  2. It’s amazing how much value people get from meeting each other, especially if they’ve got a shared pain point
    • As the host of the conference, you might not take place directly in those conversations, but you’re like the host of the party, which benefits you directly.

As you go along, says Nick, you can start to measure the secondary (monetary) impact of your conferences beyond the ability to meet people and share knowledge.

For example, you can track the number of new opportunities and new customers you get from people who attended the conference, and you can also look at the data of customers who come to your conference vs. those who don’t. Do the customers who come end up spending more over their customer lifetime?

Starting a Conference, Even When You’re Small

When you’re small, but you still want to reap the benefits of hosting a conference, Nick suggests starting as small as possible… even with just a dinner.

After a dinner, you can turn it into a late afternoon & drinks event. After that, a half-day. Then a full day. Then a day and a half.

As you build up, you’ll be earning credibility and building your fan base.

One thing he does suggest though, is to mix up the format… and for goodness sake, don’t do only panels.

If you do a panel, you need to make sure you’ve got a great moderator who asks good questions (not the same one to every person), and makes it funny. After a panel then, you could have a speaker, then an interactive session.

Two Big Struggles of Growing Gainsight

  1. Understanding their target market well
    • Though it sounds obvious, says Nick, you really do need to know your ideal deal size. This helps you know if your sales cycle will be longer or if it will be lower-friction and quicker.
    • It takes time to figure out, says Nick, because you never want to say no. But once you have it down, it changes your marketing, who you choose as your VP of Sales, and how you go to market.
  2. Nailing their internal culture
    • Understanding how you’re driven and what you care about in terms of how your company’s different departments work together is really important.
    • It’s all the Management 101 things that keeps all the pieces fitting together, making sure nothing falls apart.

On the Brink of Failure With LiveOffice

Fortunately, Gainsight hasn’t faced the brink of failure yet.

But, LiveOffice once ran out of money due to a billing issue. They were generating revenue, but not collecting it… which turned into a huge problem.

They had as low as $10,000 in the bank with 150 employees. (That’s less than $70 per person.)

It was the scariest thing he’d been through professionally, but fortunately, a Navy Seal stepped in to help them out. He put things in perspective, and was very diligent and organized about his approach to solving the problem.

Nick says when you face tough situations like that, you just gut through it and it gives you the realization that even if things get bad in the future, it will eventually be okay.

Gainsight’s Three Core Values

  1. The Golden Rule
  2. Success for All
  3. Childlike Joy

Even though the human reaction is to fight fire with fire (to be rude to those who are rude to you), Nick says that within Gainsight they try to realize that rude people are usually stressed about another issue that has nothing to do with the person they’re talking to.

To have great customer success themselves, they put themselves in the shoes of that person, and treat them the way they’d want to be treated if they were going through a similarly stressful situation.

Advice to His 25-Year-Old Self

“If Google calls, take the job offer.”

Just kidding.

“Don’t underestimate how much value your training and experience can bring to somebody else’s extensive experience.”

Nick says he’s not as young as he used to be, and has a lot of experience to show for it. But he encounters some 21-year-old entrepreneurs whose ideas are just as good as his because they’re not stuck in funnels.

“You might thank that person has it all figured out,” he says, “but you have just as much value to add. Don’t ever feel like you should defer to them or assume they’re right.”

Structuring His Day

Nick says he’s a creature of the calendar & loves to practice stacking.

For example, he puts all of his meetings on Monday. It can be mind-numbing by the end of the day, but it leaves Tuesday through Friday open for customers, product focus, and business advancement.

Three Must-Read Books

For fiction: The Martian

For a classic: Slaughterhouse Five

For a business book: The Hard Thing About Hard Things

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