True vendor story courtesy of Mark Stouse:
Customer satisfaction numbers were all heading in the right direction. They were well measured and checked too. But churn kept climbing, and nobody could square it up.
Then the CEO of one of their customers called their CEO and cut to the chase:
“You’ve got a number of people in your accounts receivable department who are just a-holes dealing with my people.”
The AR team threatened to cut off service whenever a customer paid two or three days late, because that’s what their bonus targets rewarded. Nobody connected it to churn. The customer had to call and spell it out.
Paula Skaper saw a similar pattern at another company with very high satisfaction scores. When her team talked to its customers, the only complaint was slow invoices, and it was costing the company contracts.
Neither problem started in CS.
Mark, Paula, and I got into why on our last Causal Revenue Show. Here’s the recap.
Paula has a chapter on customer obsession in her book, Rethink, Realign, Reinvent, and it starts with something simple: a business delivers value to a customer, and the customer pays for it. Anything that gets in the way of that value wears down the relationship, usually without anyone meaning it to.
In a lot of companies, every team is paid to hit its own number. Delivery is paid to avoid scope creep and protect margin. By the time the customer gets what they bought, it can feel like a bait and switch.
“Sales is incentivized by their commission. And marketing is rewarded on their lead volume.”
Paula
Support is measured on how fast tickets close, so customers get a link to a knowledge article they’ve already read. Each of these teams can show a dashboard that says it’s doing well, but a dashboard is not your market. Efficiency goals end up hammering effectiveness, and effectiveness is what keeps customers.
When churn comes up in the boardroom, everyone looks at the head of CS.
“They tend to see CS as a band-aid. The wound has already occurred. And so, pretty much the best that CS can do, is to help it not to become infected.”
Mark
Churn needs to be owned by everybody at that table. Finance owns invoicing and collections, delivery owns scope, and sales owns who gets signed.
When customers bounce, I often hear that they just weren’t a fit. That sounds like an excuse to me, and in marketing, any excuse will work to justify a number.
One company I worked with said it had no churn. Customers “left.” Sales was closing small customers outside the ICP, because the job was to get the deal across the line. If a customer wasn’t a fit, someone decided to sell to them anyway.
And while the vendor blames the customer, the customer is out in the market blaming the vendor. Other buyers listen.
We often don’t know what the customer is saying, only what we think they’re saying. We assume we know why customers left, and more often than not, we’re wrong.
“If you have an ICP that’s too wide, or too inclusive, you’re going to have more churn.”
Mark
Mark learned that one at Proof. About three years in, they tightened their ICP to rule people out. Now they look for reasons early that a prospect isn’t a fit, and point them somewhere else.
A lot of the leaders I coach know this and still can’t do it. They’re afraid niching down means losing business, especially when the business was built on saying yes to everyone. Then they wonder why churn is through the roof, and why margins keep shrinking.
Another version of this is an ICP nobody has revisited in four, five, sometimes ten years. The people in those seats have changed, and so has the market.
So why doesn’t leadership fix it?
“If you are a leader and you’re making your main arguments around efficiency, what you’re not saying is something is not working.”
Mark
Admitting an effectiveness problem slams the brakes on everything, so people hide the ball, including from themselves. We got into that on an earlier episode, When GTM Defends the System That Fails It.
QBRs are a good example. I’m a big believer in quarterly business reviews with the 20% of customers who bring in 80% of the revenue, and I rarely see a CS team with the discipline to run them. The people who can run a good QBR aren’t cheap, and cutting them is a line item that makes someone’s margin look better (Paula’s explanation, and I think she’s right). I suspect VC-backed companies chasing a three-year return are built around the exit, and much less around what happens after it.
Does all this efficiency get in the way of winning?
“It depends on your definition of winning.”
Paula
An investor making money on money can be winning while the customer is losing. Those two goals don’t move together the way we’ve assumed.
Paula thinks privately held businesses have the edge here, because customer obsession is the fastest way to align a company and compete with bigger rivals. Mark thinks the squeeze runs both ways, and buyers chisel their vendors too. We didn’t settle it.
“You got to be able to understand that the reason why companies churned 10 years ago is not necessarily the reason why they’re churning now.”
Mark
Same goes for most GTM math, which is still grading a market that no longer exists. The fastest way to find out why customers leave today is to ask them.
FYI: this recap is a month late, and the September 24 session was cancelled. Why? Because my internet kept crapping out (old equipment on my ISP’s side caused “flapping”). It’s fixed… but what an ordeal. You’ll hear it in the recording, too. I dropped off for about twelve minutes and missed the story this article opens with. Sorry about that.
Missed the session? Watch it here.
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