Are scale-ups setting themselves up for failure?
In the dizzying heights of 2023, where technological advancements are increasing by the minute, we are left with a conundrum. As companies innovate faster than the layperson can keep up with, new strategic direction is announced almost every week, and an increasingly talented and tenacious workforce tackles problems that wouldn't even have been realized a year ago, it has become abundantly clear that our business and operating models still stuck. in 2011. Legacy churn principles, disparate customer data, and a relentless drive to acquire new customers at all costs are the creaking, crumbling pillars of a century-old sales-based business model.
However, this isn't just a housekeeping reminder to ensure your go-to-market system is up to date. We're talking about a real shake-up in the boardroom. With more scale-ups and category builders reaching the hyper-growth stage than ever before, even with muted investment appetite from the venture community, these tech unicorns have continued to secure investment decisions that we believe are built on a house of cards. And we're already starting to see the cracks.
It is not the lack of new business that is killing these hyper-growth scale-ups. It's the churn. And the way organizations measure churn today could be the Trojan horse that destroys their business.
Co-founder and CEO of CustomerOS, the customer-driven growth platform.
Customer success
There are clearly several mitigating factors at play here, not least the prevailing winds of an ailing global economy, revaluations of private companies, reduced investment activity and dramatic shifts in technology need and adoption. But the real missing piece of the puzzle is understanding the generally underappreciated role of customer success in your go-to-market movement. When moving the right way, Customer Success ensures that your customers realize tangible business results with your products and services. And tangible business results are exactly what is needed to bring about innovations in this economic environment.
The problem is that our Customer Success teams are typically the first to leave when growth rates stagnate. This is largely driven by the belief that churn is under control and that a smaller workforce is needed to proactively manage it. But this reasoning is based on flawed logic and misleading mathematics.
Churn is a lagging indicator. It is also an imperfect measure that is distorted by sales growth. This means that if you grow quickly, your churn will be artificially suppressed. So what happens when our growth slows, our mismatched customers seek innovation, and we've eliminated our teams responsible for leading them to tangible business results? Kaboom.
The way we work with our customer data therefore needs a total overhaul. And if SaaS companies want to survive and differentiate themselves, things need to change quite drastically. Companies need to rethink their projections and better understand their customer lifecycles, building longevity into their value proposition and driving longer-term success. When the average time to repay customer acquisition costs is almost four years, you need to do the calculations correctly.
Customer success remains vastly underexposed
SaaS is a winner-takes-all business. 87% of market returns are generated by just 10% of SaaS companies (ref: Andreessen Horowitz), so success requires growth. But growth does not mean that we have to put 100% of our focus on new pipelines, as is usual. Somehow, CROs like Chris Degnen of Snowflake seem to have forgotten that our existing customers generate 70-95% of all revenue, have a 12x higher conversion rate, and are 81% cheaper to sell to than new prospects. This is why Customer Success teams, armed with the right data, are the most critical part of our growth team, yet the least recognized.
Despite these facts, customer success in fast-growing, venture-backed companies remains vastly underutilized, and the missing piece to help them scale is data. The problem is that that data is disparate, spread across the organization in different systems and applications that don't talk to each other. It means that there is no system of record for customer data, even though customer data is the most important source of truth for operational decision making today. Decision makers need a comprehensive, current, and nuanced set of data about their customers to efficiently grow their businesses.
In theory, a data lake or data warehouse should have solved this, but these are technical solutions for technical users and require massive, ongoing expenditure to stay up to date and generate meaningful insights. Running and growing your business shouldn't require a technical project or a dedicated âOpsâ position armed with spreadsheets and SQL queries.
The formula is simple, but not easy
The way to consolidate all that data holistically is to build a data layer that is truly focused on providing business leaders with actionable data from across the organization, and to create insights that enable decision makers to efficiently allocate resources to what works. And for growing companies, innovations and expansions work more often than not.
This serves two purposes. As our existing customers grow, it creates a low-cost compounding effect for our business. It also helps us identify our best customers: those who truly realize the tangible benefits of our product. Then, using data and advanced modeling, we can identify other good-fit customers who are likely to be just as successful. And successful customers continue to innovate and grow their businesses at ever-increasing rates.
Sales, marketing and customer success must work together to retain, expand, acquire and convert new customers. When we break down silos and create a common data model that tracks growth throughout the customer lifecycle, the result is lower CAC, higher retention, and shorter sales cycles. Our growth flywheel spins faster. This is the secret to sustainable hypergrowth.
There's a reason why Customer Success and RevOps are the most in-demand jobs in SaaS: they're growing twice as fast as software development or sales. The best companies understand that the foundation for growth is based on innovation and data.
The formula is simple, but not easy. The top 10% of SaaS companies generate 87% of all market revenue. They retain and grow more customers. They focus on better-suited prospects. And they are data-driven. We call this customer-driven growth.
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