This Week in Startups - Growth & Retention: Why Subscription is the Holy Grail | Customer Basics with Salesforce’s Tiffani Bova | E1311

Episode Date: October 25, 2021

This Startup Basics is all about growth & retention. Tiffani Bova from Salesforce joins to talk about how startups should measure customer health, the pitfalls of high churn, the best kind of growth, how to earn trust by saying "no" & more.

Hey, everybody, welcome back to this week in startups. We're doing our startup basics series. We do this series for people who are just getting into the startup game. Maybe you worked at a big company. Maybe you're just out of school. Maybe you're getting back into the workforce starting your own company. And you want to basically understand what are all the basics? There's legal basics. There's financial basics. And there are customer basics. And of course, yeah, one of the great companies we've had here in the Silicon Valley is Salesforce. And we're lucky enough to have Tiffany Bova, who is the global growth and innovation evangelist at Salesforce with us again, co-hosts this series with me, to really explain to you how to really cherish your

customers, not lose them, and to learn from them. We've had a great series so far. And in this, our fourth and final part in the series, we are going to talk about growth and retention. It's just such a critically important topic. Once you've got your engagement correct and you've got your experience, correct? You want to really start thinking about growing things. So let's jump right into that. SaaS businesses grow really nicely. They're unique in that. They're subscription businesses. You start every month basically plus or minus where you left off last month, correct? Absolutely. But I would say that SaaS businesses are not the only ones, right, that have recurring revenue. You think gym memberships, and I just saw something last few weeks ago

that Taco Bell is trying out a subscription in a few states for getting a taco every day. So, you know, everyone's looking for that recurring revenue business for a couple of reasons, right, to have more consistency in revenue, but also to get customers to come back and, you know, more and spend more. So, you know, subscription feels like the kind of holy grail for a startup for sure. But if you only capture, right, them and you lose them out the bottom of the bucket, you have to sell more in the top, you know, in order to make up for what you're losing. So, you know, it is a wonderful growth strategy if you make sure that you focus on the backside of that acquisition and not just the top line.

And so to make it clear to the audience as well, SaaS, software as a service generally means enterprise and business, as you correctly point out. But there is also this really vibrant consumer subscription space. And if you think about consumers, we had a couple of subscriptions in our life. Our mortgage or rent was the original subscription that many of us had. And then you had your, you know, utilities. Okay, those are subscriptions. But they're not like delightful subscriptions that you opted into.

But sure enough, TV became a subscription, not free over the air. We had cable. Mobile phones became a subscription. Music went from buying and consumption-based to a subscription. gym membership subscription, com.com, meditation subscription, video games. Now Apple has a subscription service

with Apple Arcade. And as you pointed out, even tacos becoming a subscription, tacos as a service. So one very interesting thing, I think, and I guess this doesn't really exist, maybe it does and consumer will have to unpack this,

is net negative churn. Let's talk a little bit about that. Why is this concept so hyped in our industry. So I'm going to give a little bit of a history lesson if you would so let indulge me. Of course. Yeah. So I began in the World Wide Web all the way back in 2000. I ran sales service and marketing for the U.S.'s largest web hosting company. We were actually four times the size of Rackspace. I was a loquas beta client. I was constant contacts beta client. And I was managing

a subscription business. We had built it to about $120 million. We were publicly traded. And 120 million, in an MRR, right? So a monthly recurring revenue. And we were selling domain names, you know, private label hosting. We were doing shared hosting and dedicated hosting. And back then, people were still sort of putting ads in the yellow pages. So it was a very different time. But all of a sudden, at the end of every month, we would get a spike and churn.

And it would be, you know, in the double digits. For a business like ours, it was catastrophic. because if it was 10, 11, 12%, I as running sales, I had to dump more in the top of the bucket because I was, so if I was selling $10,000 a month and I was losing $10,000 a month, I'd have to sell $20,000 a month just to get the same $10,000 lip. Went to find out what was going on in it, and it was people's credit cards were expiring. Something that simple. Yep.

So think Jim membership or any of the other. When your credit card expires, the service stops. Well, in those days, right, if your domain, your email would stop, your website, e-commerce would stop. And people would get very upset. I'd be like, well, the credit card expired. Well, how do I know that the credit card's going to expire 90 days in advance and start messaging to people? Sure enough.

You know that you know what date is that you already gave you the month in the year. You should be taking care of that three months out. So finally, right, on a very large Excel spreadsheet, because at the time, Salesforce was maybe a year old, you know, on a very large Excel spreadsheet, we found the issue. Sure enough, we took that from a double digit to very low single digits. And for a subscription-based business, that was a huge ability for us to earn, you know, sort of raise more capital to go and buy more companies. So once we took that down, it was sort of, you know, I don't want to say smooth sailing,

but it took that off the page for me to now focus in on, okay, how now do I upsell and cross-sell? And so that was really, or you have a domain name with us? Do you want to set up email? You have domain name and email. Do you want to set up web hosting? Okay, you have a static website. Do you want to actually set up e-commerce? And imagine in 2000 when we were selling this, people were like, what?

You do what? You sell what on what? What's it called? What's a W-W? You know, no sort of concept of it. But that same principle applies today in that subscription that you have to make sure some 21 years later, right, that ultimately the revenue you're taking at the top of the funnel, that you're not losing it at the bottom, that you're looking for, if I can sell 3x what I sold last month,

and I can continue to reduce churn, I might only need to sell 2x to get the same lift in my business. Makes total sense. If you're looking at the business on both sides, especially from a churn perspective, it goes a long way. But that requires you to have the technology in order to manage and set up a subscription business, looking for those pockets of upsell and cross-sell, also something as simple as the credit card expiring, which still happens today. You know,

somebody will maybe back to one of our earlier conversations that my way to not cancel stuff when it's such a hassle is just let it expire because, you know, they don't come to me and go, your credit card's about to expire. Still, not many do. They will then let it cancel and then come back and go,

we weren't able to charge your credit card. We weren't able to credit. Oh, you might have lost service. Something might have been disrupted in your world. It's about us. I'm trying to get the money. So you really have to think both sides of it. Yeah.

And the interesting thing I've seen happen with consumer subscription over and over again, and we're investors in Com, Steezy, musician, tone base, a bunch of these consumer subscription companies. They've all just said, you know what? They all wind up at the same place. We're going to give you a massive discount for being yearly. because we don't want you to have the cognitive overhead of thinking about this and the anxiety of a monthly subscription.

So instead of charging you $10 a month for $120 a year, they all wind up going $69, $59, $59, do the year. You don't have to worry about it. We don't have to worry about churn. And yeah, we're making half as much money. But you're going to stick around longer. And if you stick around longer, maybe if we engage you, as we talked about in a brief, previous episode, you'll get more value and you'll tell your friends about it and you'll renew

for next year. And we have 12 months to make that happen. Yeah. And going back to the conversation we had about my book Growth IQ and positive and then cautionary tales, the cautionary tale in the churn chapter was Blue Apron. Blue Apron was doing really well, right? And home delivery of meals and they had raised a ton of capital. They were a unicorn, whole nine yards. And then they had massive churn. And a lot of it was that, you know, sold too much. They couldn't hit delivery dates. They were having issues with food and the supply chain. Now, winning back those customers became kind of priority one. But what happens when you've already left someone and gone to another service that has a similar offering? Very difficult to get them to come back. So that's why the

goal here is through the other courses that we've talked about, you know, the previous three courses was engaging with them, knowing who they are, really focusing on that experience. And I know this is really hard for startups to think about, but not all growth is good growth. Meaning you put your foot on the gas too much, your infrastructure and not just technology, but your people in processes will crumble underneath the weight of what you've just put on top of it. So you want to grow smart, right? You want to outthink the competition. So, you know, don't just say, we want every customer, anyone we can get, bring them in the door,

because that might be increasing your turn into the 50% because 50% of them were people you shouldn't have acquired in the first place. You really want to make sure that you grow and you grow smartly. And the only way to do that, you know, once again, is to watch what your competition is doing, but don't be so fixated on it because you don't want to just replicate what they've done. You want to put your unique spin on it, but learn from those who have built really successful subscription businesses.

And most of them, most of them, if not all, have not rested on their laurel. But I will just say one last thing here is that, interestingly enough, also the last couple of weeks, Amazon just updated the UI to Kindle first time in five years. Oh, really? First time in five years. So you say, okay, hold on a second. Everybody else is on this rapid pace of always enhancing, enhancing, changing, changing, better, better. And now you have the behemoth, right, say, I've only changed my UI once in five years. So it isn't always change for the sake of changing.

It is making sure that the value remains constant for your customer to continue to come back to you. I think there's two important points to make here. One of them is the revenue expansion for a customer who does not churn is just magical for a business. And we really saw that with bottom up SaaS products. You have 10 seats. You're using this product. it provides value. The department next door gets addicted to it. Now you've got 17 people on it.

So you may not have added any new customers, but the ones you have, it's expanding inside the organization. It's spreading. That is, in terms of growth, the most delightful, yes? Yeah, I would say that, you know, sort of the first three or four months of the pandemic, the number one piece of advice I gave is I believe the next 12 months would be about the existing customer, not the net new customer, that your existing base was going to be the source for your growth, whether it's a restaurant going back to them, whether it's a gym, how do we get them to now join us virtually, whatever it is, going to the base of customers. And even if you look at cellular providers, I used to often joke that you'd see a commercial for a cellular offering,

it would be like, you know, buy this today, you get five phones, we'll come over and set it up for you, we'll massage your feet while we're doing it. You know, we're going to do all these things. And you call, and you're like, I want that. And they're like, no, no, no, sorry, sorry. It wasn't for you. It's only for new customers, right? But in the last 12 months, lo and behold, almost that, well, the three large have totally shifted that model because you have to take care of that existing base of customers.

One, they're more loyal. Two, they're more willing to try new products and services from you than a net new customer. Three, their average sort of wallet size and buying from you over the course of, let's say, lifetime value is higher. And they also are more willing to forgive you if something goes wrong. Those are really good attributes to have from a customer. So never ever forget those you've already acquired. You've spent a lot.

And depending on, I used CAQ earlier, right? The customer acquisition cost in a SaaS company, that is an indicator for those who want to invest in you. Do you know what you're doing? What's the lifetime value? What's your turn rate? All of that has to do with experience, engagement, and paying attention to them from a relationship standpoint and once again cannot do it without technology. There's something about being nickel and dined when you're already a customer and already

a fan that is even more heartbreaking than being a nickeled and dined by some new customer. The great example, I think, is if you look at Slack, which Salesforce acquired, congratulations, great acquisition. you know, if we have two less users active on the product, when we get billed, it says, oh, you were 18 seats, but you're only using 16, so we're just going to charge you for 16 because that's fair. And I'm like, you know what, I can afford to pay the $8 per seat, that's $16 extra, but it's kind of nice that you didn't charge me.

You know, just like if, you know, somebody doesn't bring something, you ordered something and they don't bring the cappuccino, oh, Yeah, of course it's not on the bill, and we're going to, you know, take the dessert off the bill as well. Oh, totally unnecessary, but it makes me feel good. And how you feel about a brand really does matter. Yes, you know, what you sell is interesting, how you sell is interesting, how a customer feels when they engage with your people or your product is what matters most. You know, that's sort of a spin on Maya Angelou. But, you know, I would ultimately say that that little thing, that little thing goes a long way.

So the other part of relationship is you have to make sure you empower your people, your sellers, your customer service agents, your marketers, not just by productivity metrics and things you can measure, but giving them the autonomy and flexibility to do what's right for the customer. So that example you just gave, oh, sorry, we left cappuccino off. I didn't order it. Let me bring it over. Let me take it off the bill.

If I had to go and get a manager's approval and then get someone else's approval in order to just give you a cappuccino, as a server, I wouldn't do it. But if I had the autonomy to give away that cappuccino for a reason or even comp the dessert, it goes a long way to make your employees also feel like they are invested as well. So, you know, the relationship is not just from you, the founder or the executives. It's from everybody in your organization playing a role towards delivering these compelling and meaningful experiences with your customers. And really understanding who your customer is, I think, has been a big change.

You talked earlier about, you know, if you want to grow, one of the ways to grow is to know that this product, even though you could sell it, you're so good at selling, you could sell it to this customer, but you actually know they don't need it. And you know they're going to churn. And the great example I saw about, I saw my own portfolio was superhuman, which is an email program that costs a dollar a day. It's not cheap to you superhuman unless you're in your email box for two or three hours a day like a venture capitalist is or, you know, or, you know, or a salesperson is. If you are in that category, you use it for two or three hours a day, they will sell it to you. But they do an onboarding interview. And if you're in your email for under an hour, they say, keep using Gmail for free, use Outlook, use Yahoo Mail, you're good. You don't need these advanced features. You're not going to, these quick keys and scripting, it's overkill for you. You're good the way you are. And they'll literally turn down people to use the product and tell them you probably shouldn't. And that is brilliance, right? Because now what has happened? You've actually earned trust from someone who has not purchased from you. And so they're going to try to find a way to buy from you at some point. So it goes a long way. And or you may work somewhere else and call them back and go, hey, remember me. I'm Jason or I'm Tiffany. And I didn't sell this to you. So I think there's a ton of value in actually, like I said, not all growth is good growth.

of walking away from deals you know are going to churn, it's the right thing to do. All right, listen, this has been great. You have been wonderful to co-host us with, Tiffany. Everybody should go check out this week in Startups.com slash basics. As you know, Salesforce is great at what they do. You may use Slack. You may use their CRM service.

You may use it for managing your sales process. They've got all the tools. They do a great job. Check out their app store. Tons of opportunities there to automate your business. Of course, check out Tiffany on Twitter, T-I-F-F-F-A-N-I-U-V-A. Go buy her book, Growth IQ. Get smarter about choices that will make or break your business.

Go ahead and buy that right now. Go to Amazon or your local bookseller. And go do a search in your podcasting app. If you're listening to a podcast right now, go search for What's Next Podcast and subscribe. Thank you so much, Tiffany, for doing this with us. Oh, thank you, Jason, for having me. It was a great conversation. All right.

We'll see you all next time. Bye-bye. Thank you so much to Tiffany and the team at Salesforce for helping make startup customer basics possible. Go to Salesforce.com slash twist to apply for Salesforce for startups. Qualified startups will get 50% off their first year of Salesforce essentials, 90 days of free support, coaching access, and much more. Once again, that's Salesforce.com slash twist to apply for Salesforce for startups today.