It’s only recently that customer success has emerged from being a “nice-to-have.” Today, companies realize that a robust customer success function can help preempt churn and grow revenues without acquiring customers at an exponential pace. Yet, customer success is limited to growth-stage and mature SaaS companies, and only 9% of organizations have a Chief Success Officer and Chief Customer Officer roles. Are startups, then, losing out?
Recent market trends indicate that the answer is a definitive YES.
The startup landscape is highly competitive as it is (there’s only a 0.7% chance that a startup will attract investor attention for the long haul), and customer success arms these young companies with a powerful differentiator.
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Why Customer Success Can Help VC Attention
Before agreeing to fund, investors consider a few things – the core product idea, company culture, and user/customer sentiment. Combining the three makes an organization genuinely sustainable and capable of delivering high-value, profitable products to the market at scale. Unfortunately, startups may chase new customer acquisition a little too fiercely in the early days without focusing enough on retention. As Steve Fredrick from Grotech Ventures puts it, “In the frenzy that comes with finding early-stage product-market fit, the pattern I often see is that companies speed along, drinking from a firehose and closing new accounts. At some point, they unexpectedly experience significant churn, which serves as a wake-up call.”
Your customer success team is here to prevent this and ensure that your growth path is sustainable. While a formal and well-defined customer success function is still rare among startups, it should be a top priority and embedded in one’s cultural mindset as much as the traditional notion of growth (i.e., adding new customers).
Key Customer Success Metrics to Woo Investors
It’s important to understand that VCs do not look for demonstrated success – instead, they hunt leading KPIs that future signal potential. In this context, the following customer success metrics demand attention:
- Cost to acquire (CTA) – A customer success team reduces new customer acquisition costs by optimizing the onboarding process and inviting referrals.
- Net-promoter score (NPS) – Customer success strengthens and reinforces relationships and nips issues in the bud, leading to a higher NPS.
- Churn rate – While a slightly high churn rate in the early stages is acceptable, the presence of a customer success team indicates that there is a substantial effort to keep it to a bare minimum.
Ultimately, there is a clear connecting line between customer success, retention/churn, and a company’s mid to long-term growth rate. So even if a startup’s operational team is focused on the short term, investors want the assurance of long-term gains, which customer success will bring.10
The first step would be to adopt a simple but effective customer success platform to help you monitor the right KPIs and create reports for investors. Next, startups can assign a dedicated owner for customer success (if not an entire team) to ensure it remains a priority. Finally, one has to understand the role of customer success from both the product and leadership or CxO perspective to orchestrate it internally. Watch this space as I discuss these concepts in my next article.
Arvind Mehrotra is a well-known thought leader, Strategic Advisor, and Board Advisor helping start-ups and mid-size organizations to develop strategic plans, mitigate risks, develop platform strategies, and scale their business. You can connect with him on LinkedIn here.
Published December 20, 2021, Updated July 21, 2022