"To truly adopt new software, customers have to change their habits. Users must convert their aspiration into new routines." —Tomasz Tunguz

As a partner at Redpoint Ventures, Tomasz is no stranger to the challenges software companies face. As an experienced venture capital investor, Tomasz and Redpoint have studied a variety of factors to determine What is the most correlated business metric with Series A valuations?

The answer: negative churn.

For the uninitiated, negative churn means that your existing customers are paying you more (expansion) than they're paying you less (churn), over a given time period. Confusingly, there are many names for this metric, all referring to the same thing: account expansion, negative net churn, net retention, net expansion.

But the takeaway here is: whatever you call it, net retention is the #1 arbiter of Series A valuations.

In order for expansion to outpace churn, your customers have to adopt your software. And that's where habits come in. As Tomasz shares:

"I learned this selling billing and invoicing software to law firms. It was one thing to convince the managing director of a law firm to pay for the software over a 90 day sales cycle. But it was an entirely different matter to educate, convince and convert individual attorneys to use the software. That took far longer." Source: TomaszTunguz.com

But how?

That's the billion-dollar question that every software company is trying to figure out.

As we've cataloged in past DBT blog posts, achieving successful adoption usually starts with empowering a team to build new habits. Two key words here: 1) team, 2) habits.

It's no coincidence that Atlassian's ticker is TEAM. As I write the stock is trading at $22.82 with a market cap of $4.78 billion. Revenue and cash flow look like this:

Atlassian—a software company designed for teams—is growing substantially and kicking off plenty of cash because they've figured out something important: how to change customer habits.

But how does a company change customer habits? Based on five years of research, I've found the 3 best ways to change your customer habits are:

Keep the executive sponsor engaged post-sale
Make your product's value so undeniable they can't ignore it
Triggers

Before we unpack these strategies, let's revisit the formula for how habits are created in the first place:

Source:The Power of Habit, Charles Duhigg, 2014 — Source:*The Power of Habit,* Charles Duhigg, 2014

The formula, therefore. . . HABIT = cue + routine + reward

It's a virtuous cycle of a prompted action, the action itself, and then a Pavlovian shot of dopamine to keep the cycle going. Boom. Habit created. New routine established. But back to the how. . .

1. Keep the executive sponsor and developers engaged post-sale

You'd be surprise how frequently the executive who made a software purchase vanishes after the product is bought. Based our DBT research, this occurs in 40% of the time. It's not his or her fault—they're busy. Very busy. Therefore, the challenge is on the account team to keep them engaged post-sale. This strategy is both effective and within your control.

This is doubly true for Product-Led Growth (PLG) companies where the developer is a critical stakeholder and primary user. To keep them engaged you must provide: 1) regular feature & bug updates, 2) clear technical documentation, and 3) accessible feedback loop to help PROD/ENG accelerate product development.

Backstory: The dirty little secret of SaaS companies is that software is incredibly easy to start/buy, but much harder to fully adopt (and therefore harder to reap the benefit of why said software was bought in the first place). Without the executive sponsor's influence, the actual users of the software are faced with a choice: 1) do what they usually do, 2) change.

As you might have guessed, they often chose option one :|

If you focus on a tight Sales >> Customer Success handoff where the executive sponsor and developer stay involved, you will have greatly increased you chances to successfully deploy and change behavior. To do so, we recommend creating a workflow where the executive's goals are clearly documented in Salesforce so the Customer Success team can carry the torch:

2. Make the product's value so undeniable they can't ignore it

This really should be #1 but for the sake of practicality is is #2 because your product's value is (primarily) determined by your product and engineering team. If your product isn't valuable (accordingly to your customers), than this article doesn't really matter because your customers will eventually churn out.

But let's assume your product does create value. Then what?

A few things:

Think about the "Reward"—what makes your customers want to keep coming back and using the product? How does the product reward them for the routine the user has completed?*
Automate it: make that seminal value moment a thing. Celebrate it. Send them an email. A notification. Highlight the demonstrable show of value.
Schedule a Business Review. Pull the usage and results data from your software and showcase the value to the business user AND the Executive Sponsor.

*This is the "Reward" moment for MyFitnessPal (acquired by Under Armour for $475MM in Feb-2015).

3. Triggers

This is the step required to start the new routine. What brings your users back to the product? WHY do they come back? What prompts them to ditch their Gmail inbox and log into your software and DO STUFF?

It's kind of like running. Personally, if I don't set our my running shoes the night before, I likely won't run. It needs to be easy. I need a trigger to brave the foggy cold air at 6am and MAKE IT HAPPEN. The trigger is often simple, but nevertheless very effective is catalyzing action.

In closing:

“We are what we repeatedly do. Excellence, then, is not an act, but a habit.” —Aristotle

Hopefully you can influence your customers habits to help drive adoption and ultimately achieve negative net churn and thereby earn a lucrative valuation so that YOU = HAPPY.

Reposted from an interview with Aircall.io on August 8, 2015.

Optimizely is a San Francisco-based startup and the leader in A/B testing and experience optimization. I recently sat down with Luke Diaz, a manager on the Customer Success team—and founder of DBT Ventures—to share his experience and advice for organizing and measuring a customer success team.

Luke currently leads a 15-person Customer Success Manager (CSM) team in charge of over 80% of Optimizely’s revenue. The CSM team manages launch (onboarding), success management (adoption & value), renewals (retention) and expansion (account growth; in tandem with the Sales team).

The CSM team is one team within the larger 70-person Customer Success team at Optimizely which includes Technical Support, Strategy, Solutions Architects, and Education.

From my (personal) standpoint, Optimizely is very advanced on the topic. Yet every startup—whatever their stage of development or price point—can learn from Luke’s very actionable tips:

Measure the value customers extract from your product
Start customer success with the sales team
Transform your customer’s organization to achieve success

In order to effectively lead the CSM team, Optimizely focuses on 3 metrics:

Customer value derived from the product
Customer satisfaction
Revenue generation

Luke articulates below on how these objectives are translated into processes and culture.

Measure the value customers extract from your product

Optimizely tracks the activity of each Enterprise customer: usage logs, number of A/B tests run, etc. Seems obvious – all serious SaaS businesses (should) do that. To do so, Optimizely uses a blend of Totango (a Customer Success Intelligence software) and proprietary regression models built by their data science team, e.g. churn score, upsell score, account potential score, etc.

What’s more, they follow the number of successful experiments (in their case, delivering a clear A/B winner), and, as much as they can they can, actuallycompute the value in $ generated by successful experiments.

As Luke says:

“When I plan a customer business review, I hope to have a very clear, factual view of the $, or millions of $, we’ve helped them generate using Optimizely. If it doesn’t make dollars, it doesn’t make sense.”

ROI is most explicit when displayed in revenue for, say, a Retail or E-commerce site. But this information is not always easy to gather, especially when dealing with SaaS or media businesses. How do you measure the actual value of improving lead conversion on an optimized sign-up form, or additional clicks on a media module?

Optimizely’s team is considering adding such functionality and reporting into their product, or integrating with technologies like Moat (ad viewability) to convey ROI better.

Beyond this #1 metric, Optimizely measures customer satisfaction (metric #2) using NPS (Net Promoter Score) surveys. They run regular NPS surveys at brand level (4x a year), at the end of the onboarding phase (8-10 weeks), and after each interaction with the support team. The NPS results give an idea of the service quality, the perceived value, and a proxy for customer loyalty.

Finally, the #3 metric is revenue. Luke and his team are incentivized on the net retention rate of their portfolio. They’ve actually manage to have a negative net churn rate (reminder: net churn formula = gross churn – expansion + contraction), around (.5%), in recent months. One simple metric used for almost the entire CSM team.

Luke is currently experimenting with two additional functions on the CSM team:

Launch Manager: a new role dedicated exclusively to the enterprise onboarding process (measured by NPS and volume)
Mid-Market CSM: higher volume, lower touch account management approach (measured by renewal rates & net retention)

Start customer success with the sales team

As Luke shared with me:

“I feel lucky to work with the Sales team we have at Optimizely. They are some of the most empathetic and intelligent folks I’ve ever worked with, and they put the customer’s needs and goals first and foremost to ensure a proper fit. Sales and Customer Success have crafted a strong partnership which is imperative to achieve best-in-class net retention.”

Beyond the performance of the Customer Success team, the complementary process to ensure a negative churn rate is a sales validation process implemented by Optimizely’s VP of Sales, Travis Bryant: whenever a sales rep identifies a new account, he or she is required to populate a 45-question validation form before closing the deal. Simple, straightforward, objective, Yes/No questions designed to determine whether the new prospect is actually a good fit for Optimizely (Steli Efti, from Close.io, shares a similar philosophy although he uses different method).

According to Luke, the validation form by itself isn’t what guarantees the quality of new customers, but it sets the baseline for having a culture of customer success and retention inside the Sales team. It implies a shared agreement between the Sales and Customer Success teams that each customer is a good fit for Optimizely.

In addition, Luke personally screens every new customer and gives a special importance to validating their needs. According to Luke, with this process, truly “bad” enterprise customers are extremely rare.

It’s common practice in businesses to build retention metrics into Sales people’s incentives to avoid chasing customers without a longer term view. Optimizely’s approach is interesting in the sense that it clearly incentivizes Sales people on revenue generation, but ensures coordination with the Success team—which owns net retention—using a validation process, along with tight collaboration.

In the spirit of transparency, they entire Optimizely organization receives an email alert whenever an enterprise customer decides to churn.

“This simple workflow ensures that all employees—from the intern to the C-level—are in the loop when we fall short for a customer, and it often sparks internal dialogue about priorities and opportunities to change, iterate and refine.”

Transform your customer’s organization to achieve success

Believe it or not, a major part of the customer’s ultimate success does not rely on your customer success team, your sales team, or your product, but rather: in your customer’s organization. We came to this conclusion as Luke was sharing his best and worst customer success experiences.

Worst? The biggest challenge is when the customer lacks the skills or people to execute: generate ideas, setup experiments, QA, measure, rinse & repeat. According to Luke, the main reason for “customer failure” with Optimizely is a disconnect between a buying decision made by a senior executive and the actual resources available in the team to use it and get value out of Optimizely’s software. The help close this gap, Optimizely has curated a network of 80Solutions Partners to help their customer build—or accelerate— their optimization program.

Another challenge: earning executive mindshare at the VP and C-suite level. In a recent survey of 500 CMOs, optimization ranked #12 out of 17 various marketing priorities.

“We are crafting our sales and account management strategy to uplevel the conversation and earn executive sponsorship. This strategy, along with the coming product releases (e.g. personalization) will ultimately make Optimizely unturnoffable.”

Best? Luke’s most memorable customer success happened when one of the Customer Success team members managed to convince a client to make a hire in order to lead and improve optimization initiatives, after demonstrating that the first tests generated a 15% increase in revenue. Optimizely provided the data to help the customer’s Marketing Director make the case for net new headcount, thereby creating transformational change in the company. “In my opinion, it was one of our proudest moments,” Luke said.

Worst scenario, best scenario: both are related to the customers’ resource allocation, and that’s one key lesson for all SaaS out there: the ROI your customers derive from your software is correlated to the resources devoted to it. Convince your customers to organize for success!

http://blog.aircall.io/customer-success-optimizely/

Blog

The 3 best ways to change your customers habits

Thoughts on organizing & measuring a CSM team

Measure the value customers extract from your product

Start customer success with the sales team

Transform your customer’s organization to achieve success