Ep#82: Strategizing Customer Retention and Expansion ft. Greg Daines (CEO, ChurnRx)

[00:00:03] Exploring Customer Retention with Greg Daines [00:00:03] Adil Saleh: Hey, greetings everybody. This is Adil from Hyperengage Podcast. I have Taylor Kenneson, my co host, and I'm super glad to have Greg with us. He's the CEO of Churnax. It's a retention analytics platform. It's more of a pretty much closed netting community for startup founders to learn more about how they can potentially retain their install base, how they can grow their installed base, and lifetime value for their customers. Prior to that, he's been a part of founding different startups in this space. He was also a part of Inside Sales, the VP of Client Success and Professional Services. So there is so much to explore with Greg. Thank you very much Greg, for taking the time. [00:00:44] Greg Daines: My pleasure. It's good to be that. [00:00:48] Adil Saleh: So, you know, we'll come back to chartnex later and how everything actually kind of led to you founding a platform that is pretty much one of the biggest communities in the space when it comes to customer retention. [00:01:03] Discussing the Journey Towards Founding Churnax [00:01:03] Adil Saleh: Prior to that, I would explore or touch on how you started founding these technologies, mostly in the Bay Area, and what kind of your key interests at that point, sort of a thought process throughout your career and how you ended up with Churnax. [00:01:21] Greg Daines: Yeah, no problem. So I started my career as a founder CEO. I did that four times and over the course of about 20 years really got involved in the startup world very deeply. Eventually, after exiting my last company, I joined Inside Sales and helped grow their customer success side and then left to become to start up my own thing. And that was all based on actually experiences that I had mostly as a founder CEO, where I was sort of reflecting at that point in my career, what would I like to do, what do I want to spend the rest of my career on? And I thought about what's the most interesting thing, right? What are the topics that are the most interesting? It's always the hard topics that are the interesting topics, right? It's always the things that are the hardest to do. And so I thought, gosh, what are the hard topics? And everything's hard in starting up, right? You come up with a product, you find a market, you raise money, you hire people, you build a company, you build a culture, you try not to run out of money, you sell customers, right? You do all these things. But actually it didn't take me long from asking that question to know what the answer was. The hardest thing that I ever did in business, in starting companies and everything else was to figure out how to make my customers successful consistently and at scale. That's really hard, right? And one of the reasons that it's hard is that it involves other people and there's so much variety, right? Like you'd notice one customer would come in and they'd get it and they'd take it on and do really well and brag about you. And it's just awesome. And then another customer would come in that looks just like the first customer, and they wouldn't and it wouldn't work, and it would go sideways and they'd eventually churn out. That variability drove me crazy because I couldn't see why, right? I'm doing the same thing. I'm giving them the same product. It's like, why so much variability in terms of outcomes? And that's what actually grabs me. So that's why I'm interested in this, right? That's why I'm focused on this. And if you connect that also with the fact that retaining customers over long periods of time is essentially the modern business model. We talk about business models. There's really just one at this point. And everybody in every business, even businesses you don't think are subscription businesses, they're all trying to figure out how to do that. I mean, Toyota wants to be the only car company that supplies cars to you for your life. They want to retain you. Everything's going that direction. So it's really interesting. It's hard, it's important. And that's why gosh, I love what I do. Seriously, this is the most interesting thing in business, at least as far as I'm concerned. [00:04:29] Taylor Kenerson: And that's super. [00:04:30] Rethinking Customer Retention: From Customer Happiness to Measurable Results [00:04:30] Taylor Kenerson: I'm really glad you brought that up, Greg. It's about retention. It's always been about retention. It's just maybe it's more highlighted and showcased now. And it's always been about providing value to your customers. I mean, that is the 101, the secret sauce to even getting into being a sustainable company. I mean, you know yourself, four time founder, you know, it's about providing value, retaining, and then how you grow that person. So I'm going to toss it back to you and the why. What have you figured out in diving into those questions and how you retain people and do this at scale and make them successful, even if they might look alike, a previous segment or customer, and they turn out they want different things. [00:05:18] Greg Daines: This is what's so interesting. If you go back to what I'm going to argue is that our basic theory of business is wrong for the longest time, right, business strategy was well, it sort of emerged after the second world war. And it sort of popped out of nowhere that there's this idea that maybe like military strategy, maybe there's something like that with business strategy, where we have a consistent theory as to why some companies win and others don't. And the theory came out and it was just a ripoff of military strategy. Everything was about competing. It was about me versus my competitors. And it was about it's funny because if you look at Porter's five forces, which is the most famous version of that business theory that's taught in all the business schools, it represents everything as a rivalry, right? Even the relationship to the customer is represented as a rivalry. Me versus the customer, their buying power versus my selling power. It's incredible, right? It's business as war. And then what happened is we evolved, right, because somebody noticed and then more people that there's something that's not even in the model that really matters. And that was the customer experience. So forever it was, the cheapest product wins or the best product wins. Then it became, wait, maybe it's the best experience that wins. And everybody in the world jumped on that. I mean, literally, if you look at the last 15 years or more in business, everything was focused on creating the best experience because everybody knows that the most satisfied customers stay and unsatisfied customers leave. So billions, trillions were poured into that. That's how we do business. But here's the crazy thing. I'm sitting here doing my little startups, and I'm noticing something that's strange. Every time a customer leaves, they were turning to me and saying what a great experience it was and how awesome it was to work with me. And I'm like, well, wait, then you wouldn't be leaving, because we all know if you're satisfied and had a good experience, you'd stay. And then I had these other customers who were pain, and they were unhappy and they were miserable and they were complaining, and they kept renewing. And I just thought, this doesn't make any sense, right? One of my clients was Apple for many years in the Bay Area, and I was over there all the time. It was a big client of mine. And so I would go over there, and they're the worst. Seriously. They are challenging and difficult, and they complain and they're miserable. And I got really frustrated one time, and I was sitting there and I said, why don't you just cancel if you hate us so much? This is such a bad experience. The guy looked at me, kind of confused and said, why would we cancel when you make us so much money? And I remember feeling, like, a little bit ashamed because why did I ever think it was about anything else? Where did we get this idea that we're in business together to make each other feel good? And this is crazy in a way, and yet it's our fundamental theory of business as of today. And I think that's got to change because what I noticed was that it didn't seem to matter when it came down to customer retention. And so we've now been able to accumulate this huge data set. We have this benchmark on customer churn data. You should check it out. It's at Churnrx.com. And we have massive amounts of data. And so one of the things we've done is to test do customers that say they're happy stay longer than customers that say they're unhappy? And it turns out, no, they don't. There's absolutely no statistical correlation between how happy customers report being and how long they stay. We use NPS data because everybody uses NPS data. But we've tested other satisfaction scales too. There's never a correlation, not even a little bit. It's not that it's a weak correlation. There's no correlation. And so we've got to challenge almost like our fundamental theory of business, why do some companies win? And I think the answer is much more compelling than just the experience. I think there's something much bigger. And our data shows that the customers that stay the longest are those that achieve measurable results with your product measurable results. [00:09:33] Taylor Kenerson: And on that point, it's not about making each other feel good because feel good doesn't always drive that result. You look at the best sports teams, some of the most successful companies. Friction is at the core of it. You need that competitive grittiness. And it doesn't come with a yes man, the yes man theory. I mean, it feels like absolutely business models that everyone was adopting was almost just ingrained following the herd, like, oh, this is what others say we should do, so we're going to do it, instead of truly being that curious person and really questioning what are we doing and why, and continuously asking the whys. Because when you ask why once, twice, you might not get anywhere. But if you keep unpeeling that onion and ask why 10 12 times on the same topic, you will then eventually get to the core of what you're trying. To achieve and push, right? [00:10:28] Adil Saleh: Yeah, absolutely. And just like Greg said, that happiness, it's good, it's always abstract, it's not tangible, it's not measurable. You cannot measure it NPS score. Like on a scale of ten, you cannot measure the, I would say relationship or satisfaction level of a customer to an extent so that they retain retention, which is more of an economic event. So how do you see retention elsewhere? Let's say talking about startups serving in the SMB, they have around 500 customers to look at. They have a bunch of three or four people having books of businesses pretty much segregated. How do you think that these businesses can apply themselves to be able to stay on top of their goals, measurable goals, which you said, how one can make it possible on a smaller scale and then you can make it touch more scalable. [00:11:27] Greg Daines: Yeah, so it's a great question and we work with a lot of startups too. And it's very interesting because let's just say that your goal in a startup, right, is to build a steadily growing base of customers who renew for long periods of time and expand. Now, the expansion part is really important. I want to come back to that because at least in theory, and it turns out in practice as well, you cannot endlessly sell more customers as a startup, you can't really hit that limit. So it's way down the road, it's way out into the future, but it is there. And there's something you can do very early on in a startup to really think all this through. [00:12:13] Understanding Customer Retention in Startups [00:12:13] Greg Daines: So back to the issue of what actually causes customers to retain. Our data shows that customers who have measurable results stay more than six times longer than those who don't. And this is interesting because the results themselves don't always have to be impressive. Customers who get poor results still stay twice as long as long as they're measuring those results as customers who are not measuring. So it turns out there's a very simple thing you can do. Number one as a startup, build measuring your customer results into your DNA. Build it into the product, build it into your culture. If you ever decide to upgrade and have a customer success function, make sure that their first job is to ensure that every customer's results are being measured. That we know what those results are and we know they're being measured and we know how good they are. Weaving the measurement of customer results into your company culture is the most important thing a startup can do. And there's always this reaction like, well, I don't know if I want to do that because what if they aren't very good? Well, my first answer to that is the one I just gave, which is actually we have data that shows if you measure results and it proves the customer is not getting results, they still stay more than twice as long as customers who aren't measuring. Why? What the heck is that about? That's one of those anomalies that I find interesting. So I dug into it and what we found is that when you measure customer results, you're sending a signal to your customer. That signal is, we're here not to sell you stuff and bank your checks. We're here to make you more successful. And we're so sincere about that that we're actually going to measure the results, whatever they are. Well, if you're getting poor results, how do they interpret that? And I asked customers this because I had customers on my own that were like, yes, we got terrible results, but we're going to renew. Why? Why are you renewing with us? The answer is, well, we know who the other vendors are and they don't measure our results. So what are we going to do? Leave you and go to a company that won't even bother measuring them? Won't even be honest with us about how they're turning out? No, we're sticking with you because you measure them. That means we will eventually get there. You see, it's a powerful signal. Okay, the second reason why that's so important at a startup is that you're also developing your product over a period of time. And which direction your product goes really depends on which signals you respond to. So as long as our basic theory of business is that happy customers stay and unhappy customers leave, what we're going to do is measure who's happy and then ask them what they want in the product. This is the standard way product management is done today and it's dead wrong because I'm telling you as many of those happy customers leave as anyone else. And so their signals, first of all, were very suspect. The second thing is asking them what they want is also not tied to what the real reason is for staying. So if you're measuring results and you built your company culture around that, then every signal that comes back up the chain that says this will improve results, gets highly prioritized in your product plan and everything which says this would be a nice to have, but it doesn't affect results, will get deprioritized. That's a completely different way to handle and manage product. But it's vastly more powerful because companies that do that get this flywheel going where they rapidly accelerate the results, measurable results of their product and pull ahead of the competition. So it's a very powerful sort of basic operating system in companies to essentially decide as early as possible to focus on the measurable results, not the affective emotional experience that we detect from our customers. [00:16:07] Adil Saleh: That's number one and generate that wishful thinking. That okay, these are good, they're filling the forms and of course they're going to stay while you're not just staying on top of the data and metrics, their behaviors, patterns inside the platform. [00:16:22] Data-Driven Decisions And Strategies In Startups [00:16:22] Adil Saleh: You have anything else on this? I have a question on this. [00:16:26] Greg Daines: No, go ahead. [00:16:28] Adil Saleh: Okay, so Greg talking from a startup standpoint. We've spoken to leadership at Gong at Flyer Sales lab product board HubSpot. We have gathered all the knowledge in the past 18 months and we were trying to figure out how they started their journey, how did now they're doing it at scale. What are the key ingredients for them to be a unicorn business in years to come? Like five, six years? It's still a very significantly, very small amounts of time to be a unicorn, multibillion dollar business, subscription business. So then we started exploring with startups what we have noticed that especially these front runners, you talk about support, technical support, customer support, sales and success, all of these pre and post sales operations that are serving the entire journey of the customer. Maybe they are staying on top of they know that renewals like all these mainstream metrics, but they're not making decisions on data, customer patterns and exceptional behaviors that they see that actually define their road to success or maybe indicates risk. So how did you apply it in one of the startups that you founded? And then how do you see this norm moving around in the startups? Because they don't tend to invest way too much into the data when it comes to post sales operations. [00:17:54] Greg Daines: Yeah, that's very interesting. I can't say that I understood this well enough in my own startups to have properly wired it in. Like I said, I actually was discovering as I went how wrong my ideas were kind of one at a time. So I'm sure I made every possible mistake. But I would say this one of the interesting things about what we measure and how we integrate metrics, just full stop. What we measure determines what we will be. Right? So we have to be very thoughtful about what we measure. And one of the things that I think, looking back, in retrospect, I used, like everyone else does, the standard metrics that matter at each stage. Right? And so we need to know how many leads are coming in and then how many of them qualify and how many of them close. And then, of course, post sell, we look at who renews and all that kind of stuff. Well, one of the fascinating things is, I'm convinced we sort of have the wrong idea of how this whole machine works. We think there are two fundamental questions. We don't really think about this consciously, but I think that unconsciously, this is what's going on. We think that if you first have to solve the question of who buys, right. Why do people buy? And we optimize that so we can sell more. Fair enough. That's very intuitive. Okay. And then on the other side, we're like, well, who leaves? And we try to optimize that so that we have less churn. Right? Okay. And then in the middle, we'll accumulate growth. Right. And I am coming back to the metrics, but both of those are the wrong question. They're both the wrong question. The first one's wrong because actually, not every reason to buy is a good reason. There are some reasons to buy your product that turn out to be bad reasons. How do we know that? Because those people leave usually pretty quickly. Okay, so only some reasons to buy are a good reason to buy. And on the leaving side, it turns out it doesn't really matter why people leave, because they might leave for thousands of reasons, some of which we might not even have any influence over. The question is why do people stay? If we understand why they stay, then we can optimize for that. So I think this affects our metrics in a very particular way in the modern business model, which I've asserted is essentially keeping customers for as long as possible. That's essentially our business model. The only question that matters is why do customers stay? That's the only question that matters. Right. And that's very interesting because it affects all that stuff up the chain marketing, sales, and everything else. Why? Well, it turns out that the reasons to buy that are good reasons are the reasons to stay. If something's a good reason to stay, then it's also a good reason to buy. So what we need to do is we need to spend more time carefully tuning our metrics around customer retention and expansion. Who stays and who expands is telling us who our real customer is. So you know all this stuff about customer personas. And we've got Jill, the classic customer over here, and Gary, the classic customer over here. I understand all that and I get it. It's very interesting stuff. But it's all based on fantasy. The reality is being spoken to us every single day loudly from our retention data. Who our true customer is, is whoever we can give the best results to and we know who that is because they stay. So I think that one of the most interesting opportunities as we shift into this new results economy is to really put at the center of our business retention data. I actually think that that's the most important data for marketing, that's the most important data for sales, for product, for everybody because what it's telling you is who the actual persona is. And so we do this a lot with our clients, right? We'll go in, we pull all their data together and we pull out what is it telling us about who our real customers? And it's very frequently meaningfully different than what they thought it was. Their ideal customer is frequently not who they thought it was, right? And what's fascinating is once you know who it is, you can absolutely blow away growth and retention just by knowing clearly who do we actually serve, what do we actually do for them, what matters, et cetera. So anyway, I know that's a kind of a big picture answer, but I think that's really a key shift that we need to make. [00:22:27] Adil Saleh: Absolutely. And it happens. [00:22:29] Taylor Kenerson: It's so much so like we focus on building this ideal customer persona but like you said, as soon as you begin to collect data from the people that are actually using your products or services, that is your customer, what are they liking, what are they not liking? Unpeeling that. But it goes beyond multiple things and just like living in a fantasy of what this assumed person that we're trying to chase is when you have the people right in front of you, right? [00:22:59] Adil Saleh: Yes. And besides the fact that you can definitely improve the experience of the product and service by just looking at why customers leaving, looking at the Churn rate. But it's even more important, as you suggested too, that the reasons people left your product they're not continuously using can be the same reasons people using the product for and why the other tier is leaving because they're just a bad customer. They are taking your product to something different and they're not aligning with your product vision. And that happens a lot with startups, by the way. They tend to close everybody, they try to serve everyone and since it's a pre product market fit, they're not so certain. In some ways it happens for a greater good. But again, for some of the teams that are not too technical or they have not maybe fully grind their entire product journey, they tend to close every customer and serve every customer, and they take the direction of technology to a slightly different path, which is, in a longer term, is not healthy for the business than they initially thought in the beginning. [00:24:10] Greg Daines: It's true. And as a startup, you're in an interesting position because you may not actually have enough data to really know. I've just said your data is telling you the answer. Well, what if you're a startup? What data? I have five customers or I have 50 customers. [00:24:23] The Importance of Identifying Your Target Market as a Startup [00:24:23] Greg Daines: That's fair. And I think we have to understand that startups are in a special position, which I actually think is really cool. You're in that moment and it won't last forever, when you can actually genuinely ask the question, I wonder who we're for? I wonder who we're for? I wonder what we're for. We have this thing, we think we know what it means, we built it after all. But now it's exposed to the world, I wonder where it will resonate. And so you have this period of time, particularly if you're venture funded, where you can kind of experiment, you can kind of sell several different use cases. You can see how they turn out. My thing is very few startups will properly take advantage of that opportunity. How do they do that? By watching carefully. When I was starting companies, at first it was just like, sell anyone, get any revenue we can, we've got to stay alive. I get that, I totally understand that. But I should have been watching carefully because there will come a point where you do grow up enough and now it's a question of, okay, what did we learn? We sold to 20 different use cases. Which ones actually worked? Which ones are compelling? And one of the ways to know that is those are the customers that are still around. That's one way to know and you can of course, look more deeply into what they're doing. But I think that's what's special about being a startup is that you can run that experiment. A lot of people imagine that when they grow up they'll sell to even more use cases. But it's actually just the opposite. As you mature, you discover where your Fit is and you narrow that fit, you narrow that target of the market and instead of opening the aperture, you actually close it up around that and then you go dominate that space. It's just the opposite of what most I would say, startup founders think is going to happen. They think it's going to widen, but it's actually going to narrow. And what you're going to do is become incredibly good at this target use case and you're going to dominate it and then you're going to build from there. [00:26:29] Adil Saleh: Absolutely. And this can be super powerful for startups to listen to their customers since day one and watching their behaviors. And whoever says that's good, whoever leaves, just try to see how they can better create a better experience for the product for maybe first year. And then they start chasing the product market fit, narrowing down the addressable market because a lot of them, they are thinking that their market cap addressable cap is face huge in the beginning, but years later they figure out, okay, there's this one segment that we can definitely scale, whether it's startup, SMB or just enterprise. So we've come across a lot of startups that are only serving enterprise since day mean it depends on the team and the vision and foresight of the founding team members. Great. [00:27:23] Discussing Churnx - An Innovative Startup with Results-Driven Approach [00:27:23] Adil Saleh: So tell us a bit about Is, because Hyperengage itself is a sport hub for startups so we kind of resonated there as well. So tell us a bit about Churnx, how you guys are making an impact. [00:27:38] Greg Daines: So, Churn RX was built on, first of all the research we did, which I've talked about, which really shifts the whole focus of how a company can turbocharge growth, building around retention and expansion. And so we have a bunch of analytical tools. In fact there's a whole free analysis you can get. If you go to our website you can get our free analysis of your Churn data and we'll show you what your primary churn drivers are and some indicators, key insights as to who your best customers are, all that kind of stuff. Starting with data really allows us to determine where's your fit and how will you drive long term growth. And then we have a set of playbooks for how to particularly on the customer success post sales side, how to operate in a results mindset, how to build results strategies for every customer you have at scale and how to keep those customers achieving results forever. And so it's a combination of data tools, consulting and training programs. So you can go check it all out on our website. [00:28:48] The New Dominant Business Model and Strategy Around Results [00:28:48] Greg Daines: And this brings me back to kind of one of the first things I said which was well if you're narrowing your market as you expand, doesn't that trap you? And the answer is actually no, because in the long run there's massive growth. In fact, I would say that if you think through this new business model that I'm arguing is kind of the new dominant model and the new strategy around results, I think what you'll find is that in the long run most of your growth can and will come from customer expansion. So you find that fit, they stay for a long time and then you keep driving more results for them. It turns out that has an unlimited ceiling. There's no ceiling, there's no limit how much you can do for your customers and that's what we believe. So anyway, that's how I answer that. [00:29:36] Adil Saleh: You cannot achieve results without, of course, as you mentioned, data retention, data, churn data. And apart from that, I was also thinking that it is essentially important for a startup even to make their even slightest tiniest little segment of their customers widely successful. And then once your customers win, once they grow just like product led growth. Models over the years, you generate, like, 30, 40% of your revenue stream from the expansion opportunities that you get with that small, tiny little segment that you thought that it's not enough in the first place. [00:30:18] Taylor Kenerson: Yep. Very true. [00:30:20] Adil Saleh: Absolutely. [00:30:21] In-Depth Discussion with Greg Daines [00:30:21] Adil Saleh: So, Greg, it was real nice having you. I know that it was a long time coming, and we really appreciate your precious time that you give today, and it was highly, highly insightful for audience, and we'll definitely touch back if we have some more topics to explore with you. And I'm sure the time that you have spent with us today will definitely miss. [00:30:43] Taylor Kenerson: All right, it was great. Terrific. Thank you for having me. [00:30:46] Greg Daines: Thank you so much. [00:30:47] Adil Saleh: Guy like best. Have a good rest of your day. [00:30:49] Taylor Kenerson: Bye.