- There are two kinds of failing SaaS businesses.
The first one is when you literally
cannot generate any revenues, there's no new revenues,
no one wants what you're selling.
The second one is you're generating revenues just fine,
but your customers leave you a few months later.
That's when you have a leaky bucket,
that's when you have churn.
And you could be putting in all your effort
to bring on amazing customers, amazing users, amazing deals,
but if they'll leave you a few months later,
it won't be worth it, because SaaS is recurring revenue.
If you don't have recurring revenue,
it means that you have a very leaky bucket,
you have high churn.
When I was running ToutApp and I was in Marketo,
two very different scale SaaS businesses,
we did some counterintuitive things
to actually improve churn.
Churn was always top of mind.
And we also did some things that were super simple
that I see founders today missing.
So in this episode, I'm gonna walk you through
my three principles on how to actually reduce churn
for your SaaS business, intro.
(energetic music)
What's up, everybody, welcome to Unstoppable.
On this channel, I bring you an episode every Sunday,
Wednesday, and Friday to help SaaS founders like you
navigate the path to the next stage of growth,
navigate the path to product market fit and beyond.
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be sure to hit the subscribe button and the bell icon
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I drop an episode with the TK energy.
And if you're already a member of the community
and you're back, welcome back, I'm so excited to have you.
Okay, I really am excited, so sorry if that was extra loud.
Anyway, in today's episode, I'm gonna be walking you
through the three principles that
will help you reduce churn for your SaaS business.
These are three things that a lot of founders miss,
because they either seem too simple or not important enough
and there are other things that are priorities.
So I'm gonna walk you through the three steps
so that you're forced to do them.
'Cause if you do them, this is something I've learned
in my ToutApp journey and my Marketo journey,
they're very different scale SaaS businesses
that I was part of.
If you do them, you will improve your churn and therefore,
you will accelerate your growth.
So if you're excited to dig in, go ahead
and smash that like button and let's dig right into it.
Principle number one is to define
and map out the customer's steps to success.
Now, you might know this, customer success is starting
to become more of an understood discipline,
especially with the amazing work that Nick Mehta
of Gainsight has been doing to build an incredible community
around customer success, especially for SaaS.
But in the early days, a lot of founders overlook this.
This is something that I was forced to learn
when I was building out ToutApp.
We were growing in revenues, everything was going well.
And I was like, okay, I need to hire a VP of sales.
And I remember I was talking to Jason Lemkin,
who's like the godfather of SaaS.
And he whispers to me, like a godfather would, he's like,
hire a VP of customer success first.
And I was like, what are you talking about,
I need to drive top level growth.
I need to get more customers, this is like a land grab.
And he was like, no, customer success first.
And I did that, I hired my VP of customer success,
Cliff Cate, and it was an amazing decision.
And when he came in, he really solidified
how we're gonna keep all the revenue
we've worked so hard to actually acquire.
And so he actually defined and mapped out
the customer's steps to success and he owned it.
There's a few different ways that you can actually do this.
Number one, we spent a lot of time on this
as early stage founders, you can make sure
that the product is good, that's kind of baseline.
You wanna make sure the product is good
and it's actually delivering value,
therefore your customers will stick around.
But there's some other things that feel counterintuitive
but you should do, you should invest in.
'Cause it will make your product stickier.
They include actually including training
on how to actually use your product and actually get
the success that people want out of it.
They include adding a customer success manager
if your deal sizes allow it.
And they also include adding services.
Now, I know services are a dirty word,
especially in the SaaS industry, but if you actually look
at some of the most amazing companies that are out there,
amazing SaaS businesses, they find a way
to actually include services, why?
They include services so that the customer success
is almost guaranteed.
And if the customer success is almost guaranteed,
then the software revenues are almost guaranteed.
So principle number one, you can do any one of those things,
but you wanna define and map out
the customer's steps to success.
And this doesn't mean that you just need a great product.
You need to surround that product with ways your customers
can learn how to extract the success
and value out of your product.
The second thing that you need to do,
the second principle that you need to constitute
for your SaaS business to reduce churn
is you wanna implement a system so you can predict churn
by monitoring usage.
So we did this at ToutApp, our core atomic unit,
every SaaS business should have a core atomic unit.
It's just one metric that shows,
that should be going up and to the right.
If it's going up and to the right, it means that more users,
more people are actually engaged in using the product more.
Okay.
And for us, we were an email engagement product.
So we looked at number of emails per user, right,
that was our core atomic unit.
And one of the things we did, this,
we've actually baked this into our admin tool,
we ran stats on this every night.
What we did was we looked at the number
of emails sent per user per account on a daily basis,
and we mapped that out.
We looked at that number and we compared it
to a two week rolling average.
We compared that to the two week rolling average
and we abstracted that out for the entire account.
And based on that, if the number of emails that
were being sent compared to the two week rolling average
was lower, then we would actually raise
a flag for that account.
If the number of emails being sent was going higher,
we put that account on green.
What that did for us and our customer success managers
and our salespeople and everyone involved, including Cliff,
was it would tell us when a customer would go at risk.
We would look at their average usage,
we would look at their average usage and based on that,
we would figure out, okay, are these people using us more
or are they using us less?
And because we did a two week rolling average,
it accounted for holidays or end of quarter,
times when they wouldn't use our product as naturally.
So because of the rolling average,
we looked at our one unit atomic metric
and we created this defense system
that would start predicting when customers
were in trouble with our product or they were looking
at a competitor or they just weren't using us,
which meant that we needed to go in and actually figure out
how do we get them to success, right?
So that's principle number two,
start predicting whether they're gonna churn
or not based on certain metrics,
because we get access to incredible metrics given
that we're a software platform, all right.
Now, before I go to number three, can I just get a yes
in the comments below if you're starting to see
how implementing just these two strategies
can not only reduce your churn,
but also increase your growth rates.
Also, if you're thinking about
how to grow your SaaS business, you've got to check out
my five point startup growth strategy guide.
I'll link to it below, I'll tell you more about it
at the end of this video, but let's go
to principle number three, and also,
if you're getting value from this,
smash that like button while you're at it
and let's go to principle number three.
Okay, principle number three is once you've actually defined
the path to success and created a program around it,
number two, once you've started
to predict churn based on the core unit atomic metric,
number three is you need to get
into the discipline of asking why.
- But why?
- Here's the reality with SaaS businesses.
You're gonna lose people, you're gonna lose users,
right, you're gonna lose customers, you're gonna lose logos.
Hopefully, for a successful SaaS business,
your net retention is gonna be over 100%.
What that means is even if you lose one or two accounts,
the accounts you do keep will hopefully grow
in usage, in seats or usage, and therefore will spend more.
So on a month by month basis or a year by year basis
or cohort by cohort basis, you will still grow
in revenue regardless of churn.
That's what a really great SaaS business looks like.
Now, the only way you're really gonna get this going
is if you incorporate these two things and also you start
to ask why, because the reality is, in every SaaS business,
there might be times where you did nothing wrong,
your product did nothing wrong,
but your customer may have gone out of business
or there was a change in leadership.
Or they did some deal, and because of that deal,
they got this one other product for free
and now they can't renew with you.
All kinds of weird reasons come up in SaaS,
trust me, I've seen them all.
So you have to, the third thing is you have
to establish a discipline to actually ask why.
When they leave, you need to ask why, why are you leaving?
And you just start slotting them into actual reason codes,
churn codes.
You need to codify, say, 5 or 10 core reasons
why customers leave.
You need to ask them like, hey, why are you leaving,
choose one of these, and if it's other, put other.
And also, you wanna get into the discipline
into doing a postmortem on the churn
and the losses that you took.
That way, the core people that are responsible
for retaining revenue and for the quality of the product
and the quality of support can get together,
look at it together and say, okay,
what are the biggest trends we're seeing in terms
of why people are leaving?
What are the biggest trends we're seeing in terms
of support tickets that came in before they left?
And these are all goldmines of information,
because when you actually double click on these things,
it will help you define your product roadmap,
it will help you define your sales process,
it'll help you define your customer success process
so that you never lose a customer again
or at least come close to that.
All right.
So to recap, in order to reduce churn,
get rid of the leaky bucket and therefore accelerate growth,
here are the three things you actually need to do.
Number one, you need to define and map out
the customer's steps to success.
That includes not only just the product,
but also thinking about training,
customer success managers, and also services.
By the way, if you don't wanna do services yourself,
find partners, it's a great way to do it.
Number two, you need to actually establish a discipline
around predicting churn by monitoring
the core unit atomic metric.
And number three, when they do leave,
you need to ask why and standardize them
into at least 5 to 10 reason codes, and then do postmortems.
(inspiring music)
Those are my three principles on how
to actually get customer success under control,
churn under control, so that you don't have
a leaky bucket and accelerate growth.
Speaking of growth, if you are working
on growing your SaaS business, you gotta check out
my five point startup growth strategy guide.
In that guide, I go into much more detail
on the key growth strategies, this is just one of them,
reducing churn, the key growth strategies
that will actually help you accelerate the path
to the next stage of growth, accelerate the path
to product market fit and the next stage
of funding, if you will.
So you can go to getunstoppable.com/strategy to download it,
I'll also link to it below, it's completely free.
Also, if you want to work with me
to actually accelerate the growth of your SaaS business,
I also run my SaaS go to market program.
We do have some spots available to add more founders.
So I'll link to that below as well
and you can learn more about it.
If you got value from this video,
please be sure to smash that like button.
If you're new, be sure to hit the subscribe button
and the bell icon so that you get notified
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And lastly, remember, everyone needs a strategy
for their life and their business, but when you are with us,
yours is gonna be unstoppable.
I'm TK, I'll see you in the next episode.