016: Customer Success with Lincoln Murphy

The SaaS (Software as a Service) Business Podcast

Lincoln Murphy’s focus is customer success. He’s currently the growth architect at Winning by Design, where he creates blueprints and playbooks for customer success managers and leaders. In the past, he founded Sixteen Ventures and led customer success at Gainsight. Using customer success to drive growth across the entire customer lifecycle, he has helped over four hundred SaaS and enterprise software companies accelerate growth and retain valuable customers.

Contents

On the website, click any timestamp to start listening to the episode at the noted location.

• Resources Mentioned in Episode
• Episode Transcript
  • [00:00] Intro [Read]
  • [02:27] Pre-SaaS Career in Supply Chain Management [Read]
  • [04:14] Early SaaS Company for Mail Center Management [Read]
  • [07:55] Early Days of SaaS [Read]
  • [11:12] Before SaaS Was SaaS [Read]
  • [12:56] Resistance to SaaS Adoption [Read]
  • [14:08] Role of Corporate IT in SaaS Adoption [Read]
  • [15:18] SaaS Business Model [Read]
    • [16:27] Business Architecture [Read]
    • [17:18] SaaS as a Business Architecture and SaaS Revenue Models [Read]
  • [19:13] Recent Career [Read]
  • [20:27] Sixteen Ventures [Read]
  • [21:44] “The SaaS Guy” [Read]
  • [22:16] Contrarian Views [Read]
  • [23:57] Freemium in SaaS [Read]
  • [25:10] Thought Leadership (or Getting Things Out of Your Head and Moving On)[Read]
  • [26:06] Facts and the Contrarian Point-of-View [Read]
  • [27:48] Customer Success Management [Read]
    • [28:37] Customer’s Desired Outcome [Read]
    • [29:01] Customer’s Required Outcome [Read]
    • [30:06] Customer’s Appropriate Experience [Read]
    • [31:39] Appropriate SaaS Experience [Read]
    • [33:26] Solve for Success Not Happiness [Read]
    • [33:59] Successful Customers Advocate But Want More [Read]
    • [34:49] Happy Customers May Not Be Getting Value and Then Churn [Read]
    • [35:15] The Appropriate Success Vector [Read]
    • [36:21] Customer Success and Company Valuation [Read]
    • [37:15] Churn [Read]
    • [37:50] Customers to Save and Customers to Let Go [Read]
    • [39:41] When Churn Becomes a Non-Issue [Read]
    • [42:03] Individual Contributions to the Customer’s Desired Outcome [Read]
  • [45:05] Personal Recommendations [Read]
  • [46:34] Make Your Customers Powerful [Read]
    • [47:20] Operationalize Customers Making you Powerful [Read]
    • [48:16] Proactively Convert on Success Milestones [Read]
    • [49:31] Customer Lifecycle Success [Read]
    • [50:07] Tools to Monitor Customer Progress [Read]
    • [51:01] Understand Desired Outcome Before You Operationalize [Read]
    • [51:31] Start with the Customers and Tools Will Become Apparent [Read]
  • [52:22] Saas Networking Recommendations [Read]
• Disclosure concerning affiliate links

[Contents]

Resources Mentioned in Episode

Please see Disclosure* (below transcript) concerning affiliate links on this page.

• 7 Ways Customer Success Drives Company Valuation – This blog post by Lincoln Murphy on Sixteen Ventures discusses how Customer Success can impact the valuation of your company. Listen or read at [36:21].
• ClientSuccess –Customer success management app mentioned by Lincoln Murphy as an alternative to Gainsight to measure customer success milestones. Listen or read at[50:18].
• Customer Success: How Innovative Companies are Reducing Churn and Growing Recurring Revenue* – Book by Nick Mehta, Dan Steinman, and Lincoln Murphy. Lincoln did not mention the book during the interview. I recommend you digest the information in this podcast episode, read Lincoln’s Customer Success: The Definitive Guide, and then read the book. The book is broken down into three parts: (1) Customer Success: The History, Organization, and Imperative; (2) The Ten Laws of Customer Success; and (3) Chief Customer Officer, Technology, and Future. Each of the Ten Laws is covered in a chapter.
• Customer Success: The Definitive Guide – This is a 2016 update to Lincoln’s original post The Definitive Guide to Customer Success. A PDF of the guide is available from the site. If this podcast episode interests you, I would recommend you read this next. I brought this up during the interview. Listen or read at [27:48].
• FlipMyFunnel – According to the website, FlipMyFunnel is a “B2B Marketing and Sales Conference.” Lincoln Murphy mentioned that he would be speaking at the 2016 conference in Austin, Texas, but the conference moves. Check the website for info. Listen or read at [52:22].
• Gainsight – Lincoln Murphy’s former employer. Gainsight is a customer success management platform to measure customer success milestones. According to the website, Gainsight is: “Community, Best Practices, and Platform to Drive Business Transformation.” If you scroll to the bottom of their homepage (as of this writing), you’ll see several useful guides listed. I have not checked them thoroughly, but they look good. Listen or read at [50:18].
• Heroku – PaaS (Platform as a Service) for web app development and deployment. Lincoln Murphy mentioned this during the interview because he was once involved with a startup that was a competitor. That statup is gone, but Heroku remains and is well-respected. Listen or read at [18:35].
• Influence: Science and Practice (5th Edition)* – Book by Robert Cialdini about the factors that influence us to say, “Yes.” According to his research, there are six such factors or principles: reciprocation, consistency, social proof, liking, authority, and scarcity. This is a well-written book and must-read for anyone interested in how people are influenced. Lincoln Murphy recommended this book. Listen or read at [45:33].
• Intercom – According to the website: “Intercom is a customer platform with a suite of products for live chat, marketing, feedback, and support.” Lincoln Murphy mentioned this with other tools to operationalize customer success. Listen or read at [50:18].
• Lincoln Murphy on Twitter @lincolnmurphy. Listen or read at [53:56].
• Ruby on Rails – Ruby on Rails is an MVC (model-view-controller) framework based on the Ruby programming language used for web development. Mentioned in passing by Lincoln Murphy. Listen or read at [18:35].
• SaaS Business Model [graphic] – SaaS Business Model graphic by Lincoln Murphy on Sixteen Ventures site. I mentioned this during the interview with Lincoln Murphy because it has his definition of customer success. Listen or read at [15:18].
• SaaStock – European B2B SaaS conference. Listen or read at [52:22].
• SaaStr – Annual conference, podcast, academy, and extensive blog about SaaS. According to the website: “SaaStr began in 2012 as a simple attempt via a WordPress blog, together with a few answers on Quora, to help share back Jason M. Lemkin’s learnings of going from $0 to $100m ARR with the next generation of great SaaS and B2B entrepreneurs.” Mentioned by Lincoln Murphy. Listen or read at [52:22].
• SIIA (Software & Information Industry Association) – According to the site: “SIIA is the principal trade association for the software and digital content industry.” Mentioned by Lincoln Murphy in passing at [23:23].
• Sixteen Ventures – Sixteen Ventures is a company founded by Lincoln Murphy. The site contains blog articles about SaaS back to 2007 and Lincoln’s current speaking. Mentioned in numerous places during the interview. Listen or read at [01:54], [19:13],[20:27], [20:41], [27:48], and [53:43].
• The Reality of Freemium in SaaS – PDF by Lincoln Murphy mentioned during interview. Listen or read at [23:57].
• Totango – Customer success management app mentioned by Lincoln Murphy as an alternative to Gainsight to measure customer success milestones. Listen or read at[50:18].
• Winning by Design – According to the website, Winning by Design has a “proven customer-centric SaaS process for sales organizations” to assist with the design, implementation, and scaling of SaaS sales organizations. See their How It Works tab for more information. This is Lincoln Murphy’s place of employment as of this writing.

[Contents]

Episode Transcript Intro

[00:00] Ron Gaver: This is the SaaS Business Podcast, episode 16, an interview with Lincoln Murphy.

[00:16] Lincoln Murphy: I’ll tell you what: this is one of the most powerful concepts that I’ve ever come across in business, and that’s kind of a big statement, but I believe it to be true If you understand what your customer’s desired outcome is, what they need to achieve, and the way they need to achieve it, I think it changes everything.

[00:45] Ron Gaver: Hello, welcome to the show. I’m your host, Ron Gaver. Thank you for listening. This is the podcast designed to help you put the pieces of the puzzle together to start, grow, and succeed in your SaaS business. Before we get started with the show, I would like to invite you to visit the podcast website. The URL is SaaSBusinessPodcast.com. On the website, the most important thing to do is to sign up to get your copy of the current free download. This will also put you on the list for future free downloads and updates. For your convenience, there’s also a page on the website for each episode, where you will find show notes for the episode. The show notes will contain links to resources mentioned in the episode. Just enter the base URL, a forward slash, and the three-digit episode number.

[01:33] If you enjoy this podcast and find the content to be valuable, please consider giving us a five-star rating on iTunes, Stitcher, or wherever you listen to podcasts. Five-star ratings help the show stay visible so that new listeners can easily find us.

[01:54] Ron Gaver: [Guest intro. See top of page for text.] Welcome, Lincoln.

[02:22] Lincoln Murphy: Hey, Ron. How are you?

[02:24] Ron Gaver: Fine! How are you?

[02:25] Lincoln Murphy: I’m doing well. Good to be here.

[Contents]

Pre-SaaS Career in Supply Chain Management

[02:27] Ron Gaver: Let’s move back to 2004, roughly. You’re getting ready to go to San Francisco, you’re about to board an airplane, and your task is to go out to San Francisco and lay off a bunch of employees (or at least give them the bad news).

[02:42] Lincoln Murphy: Yeah.

[02:44] Ron Gaver: I think you had it pretty much up to your eyebrows at that point. What did you do?

[02:50] Lincoln Murphy: I called my boss, and I told him that I wasn’t coming out and that I was done. That’s not what I signed on to do. It wasn’t what I wanted to do. I didn’t believe in the reason that we were laying off people, anyway. This was to move jobs—not the people, but to move jobs—from San Francisco to Dallas, and I knew that, fundamentally, the people were good people. I didn’t want to do that for them.

[03:17] Lincoln Murphy: But I also knew, fundamentally, this was the connection between us and our trading partners. This was in supply chain management, and if we lost these people with all this institutional knowledge—the systems were not great, we weren’t all working off of one centralized database of customer data or trading-partner data, we weren’t working off of one centralized form of documentation, processes weren’t documented—I knew if we lost these folks, we would lose the relationship with our trading partners. And even in a situation where you have two giant corporations coming together, it still relies on just a handful of human connections.

[03:50] Lincoln Murphy: And I thought it was a bad idea all around, and I had it at that point and was lucky enough (I don’t know how it played out like this), got off the phone with my boss, called the airline, got a full refund (I don’t know how that happened), and I said, “That’s a good sign; this was the right decision.” Then I decided, “Well, I quit my job. Let me figure out what to do.” So I started a company, and it turned out to be a SaaS company, at the time.

[Contents]

Early SaaS Company for Mail Center Management

[04:14] Ron Gaver: And you characterize that as a mail-center management for large businesses in the Texas area?

[04:21] Lincoln Murphy: Yeah. From a supply-chain-management standpoint, you have very structured data that moves between, what we call, trading partners; and it’s what allows products to flow from supplier to vendor, and invoices and purchase orders and everything else to flow; and it’s all structured, and it’s all heavily—I don’t want to say regulated, but there’re rules in place, and that’s cool.

[04:42] Lincoln Murphy: But then I saw a part of the organization that isn’t structured, yet a lot of really important information and other types of things—packages, things like that—flowed through this mail center. So you think of the mailroom at some companies, but your large companies actually have very sophisticated, very large mail centers, and there’s a whole industry out there involving mail-center management; and I said, “Look, I think that is an area of the enterprise that could be automated—not fully automated, but we could bring technology there and maybe provide visibility into the process and have it not be such a black box, where some really important information (things like checks and packages) are coming in.” And I said, “Let me just take that and run with it.” And—you know what—we did.

[05:29] Lincoln Murphy: I pulled in some partners and we built a product—very much a minimum, viable product based off of what we now know as customer development (didn’t really have the term for that), but I spent a lot of time going to industry meetups. I spent time with the post office, trying to understand how mail is routed through the U.S. Postal Service. I spent time with anybody that would let me go to their mail center and their mailroom. I remember Greyhound was nice enough to let me have some access. Pitney Bowes was a company that did a lot of outsourced mail-center management. I got to sort of piggyback on what they were doing for other companies. I went down to Exxon in Houston and toured there.

[06:09] Lincoln Murphy: Actually, I’ll tell you a little trick I used: I went to a company that does inbound mail-sorting automation; because I thought, “I want to, number one, be able to connect into their technology for our product.” But what I ended up doing was having them take me to some of their clients to show me their products in action, which also allowed me to get my foot in the door at ExxonMobil and at Frito-Lay, and a couple of other big companies, and so I met the right people based off of an interest in buying and also partnering with these makers of these really big, automated, mail-sorting machines. So that was a little hack that I used. But the bottom line is: I started understanding this market a little bit better and understanding what the needs were. And so you take a company like ExxonMobil that actually has a very distributed workforce, yet all of the mail comes in through their Houston mail center and then it has to be sent out. One of the things we did was created a way to view your mail. It comes in the mailroom, it goes on one of these sorters, those sorters actually have really high-speed cameras, we take the picture, and now that can be visible to somebody in Alaska, working on the North Slope above the Arctic Circle. They don’t actually have to get the physical mail sent to them; they can go through and say, “I don’t need that. I don’t need that. I actually do need that.” And that actually cuts down on the cost of sending mail across the world, which, for a company like that, is actually a pretty significant cost savings.

[07:30] Lincoln Murphy: Bottom line is: very interesting, lots of customer-development work, a lot of understanding of the market; and then, ultimately, the understanding that, no matter what, that market was not as exciting as I thought it was. It was just really slow to take up new technology—a lot slower than I was willing to or comfortable with waiting out—and we ended up selling to a competitor; I like to say I ended up not owing too many people too much money. But I learned a lot.

[Contents]

Early Days of SaaS

[07:55] Ron Gaver: This was in a time when SaaS was not as ubiquitous as it is now. How is it that you decided that that was the right place, that was the right thing to do, SaaS was the answer? How was it you even came to know about SaaS at that particular time?

[08:10] Lincoln Murphy: In all of the supply-chain-management stuff that I was doing—this will kind of go back to even the early ’90s, when I got into that world—it was a network-centric, business architecture. If you think about the way that information is passed between companies, none of that really matters if you can’t actually connect to the other companies. It absolutely relies on having this network centricity. And that was kind of the world that I grew up in. It was all about, ultimately, what we would refer to as B2B ecommerce. At the same time, of course, B2C ecommerce was coming up, and I was doing a lot of work with Web technologies. Even as the supply-chain world sort of evolved, we started taking on these dedicated networks and what we called value-added networks where—if you think about it—it was literally a server that two companies would dial in to—literally dial in to with old-school modems and things like that. You would have different types of computers, and we would have different format standards that we would use, and we’d upload a file to these systems. Those systems would translate the file into what the other company could use, and that was how we did business.

[09:13] Lincoln Murphy: Well, we started moving that to the Internet, started using more standard technologies, more standard formats and things like that. I was doing a lot of really hardcore business work, using Internet technologies, so when I decided to move outside of where I had been in the supply-chain management world into creating a startup, Web technologies—that was what I knew more than anything else. I really had no idea how you would even build an on-parameter client-server piece of software, and I had no real interest in that. And like you said, SaaS wasn’t a thing yet. And, certainly, ASPs—application service providers—had been around. People were “delivering” software over the Web. I saw this as a way to, not just deliver software, but if everybody signs into the same system (what we now know as multitenancy and things like that)—if everybody’s signing into the same product, the same system—now we have that network centricity. And I wasn’t really sure what we could do with that, but I did know what we’ve seen with companies like Workday that sort of upset or displaced previous types of products, like PeopleSoft in the human capital management space. One of the reasons Workday really took off is the fact that, for a distributed company, all they have to do is have Internet access to be able to get to the system. They don’t have to have a server set up in a room somewhere and then dedicated circuits, or even VPNs, to get to this centralized server that, for all of their remote offices, all they have to have is Internet access.

[10:44] Lincoln Murphy: Well, I saw that same thing in this case, where, at a company like Exxon, all they have to do is scan the content, put it on the server (which is on the Web), and then all the different remote locations could all log into that; and you don’t have to have any of that dedicated IT infrastructure. So I saw that as a real positive. It was kind of two-fold: (1) I didn’t come from an enterprise-software background, so that wasn’t even on my radar, and (2) I really saw the benefits of having everything on the Web. So that’s kind of how I went into that.

[Contents]

Before SaaS Was SaaS

[11:12] Lincoln Murphy: It was hard to find information, certainly, on this, because there wasn’t one thing that we called it. We didn’t call it SaaS, didn’t call it Cloud, so we kind of had to just feel around in the dark, but we eventually realized that this was a SaaS company. Right around the time we were getting ready to exit this venture, I think SaaS was becoming a term. But it was a real learning experience from all sorts of angles, and, you said it yourself: it wasn’t ubiquitous. Really going out and selling this stuff to very staid, old-school companies who were technologically forward in the places where it mattered to them—Exxon was technology forward when it came to drilling, and some of the other companies were really technologically forward when it came to supply-chain management—but when it came to things like this, especially in a part of the business that was kind of considered a cost center (not really that important), they were not really looking to take any chances; and, of course, the management of the mail centers were not looking to take any chances, so they would bring IT in, and IT would say, “We have a lot of concerns.” And it was all of the things that I’d heard. Later on, you heard there were challenges for SaaS. We went through all of those, and so it was not ubiquitous.

[12:22] Lincoln Murphy: But at that time, when SaaS was becoming a term, you would hear things from Silicon Valley (from investors and pundits and the press) that SaaS is everywhere and it’s the next big thing, which was true. It was absolutely the next big thing. But in terms of being everywhere, in terms of being the norm or the way that you do business, it was hard. It was rough. And so we had a major uphill battle. When I came out of that, it was hard, but we were able to sign a number of fairly sizeable accounts, even with all of those challenges. And I thought, “Man, I think I’ve learned something that other people might be able to benefit from.”

[Contents]

Resistance to SaaS Adoption

[12:56] Ron Gaver: You mention a variety of challenges. One of the challenges that I continue to read about is the disinterest on the part of corporate IT departments in adopting any kind of a SaaS infrastructure or a SaaS product. Do you see that still as a large problem, or do you think that that’s gradually eroding away?

[13:16] Lincoln Murphy: It depends on several things: everything from geography—I think in a lot of places in Europe, overseas markets are (I say this in the most kind way) a little bit behind where we are. They just haven’t adopted it as much. I think you’re still going to run into some of those things.

[13:32] Lincoln Murphy: Certainly, there are regulatory issues. There are probably going to be some markets in the U.S. that are more reluctant, but there was a time when banks, financial institutions of any kind, healthcare—these guys will never, never do SaaS, and now it’s basically in every market. Again, there may be some—and maybe there’re some that should be. I don’t know about building a SaaS product to run nuclear reactors, but save from that, maybe we’re not really seeing too many of those barriers in one entire vertical. But I think you’re still going to find that every once in a while. Certainly, older companies that haven’t evolved, I think, are going to be there.

[Contents]

Role of Corporate IT in SaaS Adoption

[14:08] Lincoln Murphy: That said, IT still plays a very important role, and the more your product is mission critical to the organization or to very important departments, I think, the more IT is there to vet your security. And so, you, as a vendor, need to know—when you’re selling into a particular type of company, into a particular market or vertical—you need to know if IT is going to be a part of the sales process and what they’re going to be looking for. Oftentimes it’s as easy as putting together a one-pager that just says, “Here is what we do for security. Here are all the things we have in place,” and just allowing IT to kind of look at it, check the boxes, and be good to go; or follow up from that, and you’ll have a much quicker conversation.

[14:54] Lincoln Murphy: If you understand your customers and their buying cycles and their buying process and everything, you should be able to be proactive in offering up those kinds of pieces of information to the different personas that are involved in the buying process. And where IT is involved, you want to make sure that you help them check those boxes. A lot of times, they can’t say “yes” to a product; all they can do is really say “no,” and so it falls on you to make sure that they have everything they can do to not say “no.”

[Contents]

SaaS Business Model

[15:18] Ron Gaver: Alright. Now you started by talking about your experience in supply-chain management, bringing that into what became known as SaaS. You have a graphicon your website, SixteenVentures.com, that shows your SaaS business model, or your model of what a SaaS business looks like, and at the very center of that is network centricity and surrounded, then, by four other balls—customer success, revenue model, technology and core IP, and marketing. So you went from supply-chain management, you had this realization that network centricity was sort of at the core of what you wanted to pursue, and you went into the mail-center management; but it didn’t turn out to be quite as much fun as you thought it would be, and so you got out of that, and then you started to do other things. What did you do from there?

[16:09] Lincoln Murphy: It wasn’t as much fun as I thought it would be, and what I mean by that is it was just really a slog to get these deals done, and they didn’t end up being that lucrative and so we weren’t really going to be able to build a very big business. I mean, we just had to be intellectually honest about that at some point.

[Contents]

Business Architecture

[16:27] Lincoln Murphy: But what I had learned, I thought was valuable, and so I just started consulting with different companies, and, really, I started thinking a lot about the business architecture. Where I was when I left my supply-chain-management career is I had gotten to the point where I was what we called a business architect, which was really just looking at all the different ways that we can make things work. The mandate I had at my last company was: get us as deep as you can into our vendors’, our suppliers’, and into our customers’ worlds. That was the coolest mandate I’d ever had. I mean, how do we infiltrate their business in really awesome ways, where it’s not a bad thing, but how can we make sure that we know what our suppliers are doing and make sure we know what our customers are doing and try to get ahead of the curve? I tried to apply that thinking to mail-center management, and then, once I left there, I spent a lot of time applying that thinking to SaaS.

[Contents]

SaaS as a Business Architecture and SaaS Revenue Models

[17:18] Lincoln Murphy: So SaaS had become a thing at that point, and I said, “Well, okay, it’s not just delivering software over the Web. This really is something new.” And, of course, the SaaS business model was kind of the way people were talking about it, but I looked at it as almost something different. It was really this architecture of a business: it’s how you would build a business; and the revenue-model part of it was one thing. I, from very early on, thought, “SaaS is not monthly subscriptions.” You can apply any revenue model to this architecture, which was fundamentally different than how everybody was thinking about it at the time. Most people were looking at SaaS as equaling subscriptions and a monthly fee; and today we’re at a point where SaaS is the architecture, and the revenue models run the gamut from pay-as-you-go, to subscriptions, to multi-year contracts—they’re just across the board. So SaaS today is kind of where I thought it would be a long time ago. I mean, I couldn’t have predicted exactly what it was, but I didn’t think it was just subscriptions. So I actually came up with seven different revenue models and that applied to SaaS. I did a lot of thinking about that, put that stuff out there, published that; and that got a lot of people interested in working with me, and so I would do a lot of consulting—and that was from, like, 2006 to 2008.

[18:35] Lincoln Murphy: I joined a startup at that point. It wasn’t one that I started; but, kind of early on, they built a platform as a service. At the time, you were starting to see you had SaaS and then platform as a service. Then you had infrastructure as a service, and all these different X-a-a-S things coming up. And this was one that was very much like Heroku is today. They were a competitor of ours. It was built for, at the time, Ruby on Rails apps to run, and since I had been doing so much around SaaS and had become kind of well-known as the SaaS guy, they wanted me to be the liaison or the evangelist to get SaaS companies to run their business, basically, off of our platform.

[Contents]

Recent Career

[19:13] Lincoln Murphy: So I did some consulting; I did that, moved over to Morph, and then Morph ran out of money about the time that everybody else did—the banks and everything—at the end of 2008. That’s when they shut down operations, and I decided to formalize my consulting with Sixteen Ventures. That’s the company name I came up with, which is a story in and of itself. Over the next eight years, I took a couple of years and worked with another startup called Gainsight the last few years; but along the way there, I kind of evolved with the market.

[19:45] Lincoln Murphy: I was talking a lot about the business architecture in the early days. Well, then, it kind of solidified, and we were all somewhat in agreement on what it was, and I kind of moved into pricing and conversion optimization, especially around free trials. I spent a lot of time talking about free-trial optimization, and it’s great to acquire customers, but what happens when they start to leave? Well, we need something to keep customers around. Once you eliminate churn—man, wouldn’t it be cool if we could actually grow those customers? And that’s where customer success comes into play, which is what I spend a lot of my time working on today. But I just kind of evolved with the whole market, when it comes to SaaS, over the last decade or more. Gosh, time flies.

[Contents]

Sixteen Ventures

[20:27] Ron Gaver: I really want to get into customer-success management, but you threw out a couple of things there that I’d like to explore first, quickly. First of all, you said Sixteen Ventures was “in and of itself” a story. Is there something you can quickly tell us about the story behind that?

[20:41] Lincoln Murphy: Yeah. I was coming to the end of 2008, and I wanted to formalize my company within that year, but we needed a name. So, it’s not a really exciting story, except some people would often wonder where that name comes from, and, honestly, I think I just said, “Well, you know, this is probably my sixteenth venture,” if you count all of the different things that I had tried over the years, and I think that’s what took. Now I can back into the fact that my name is Lincoln, and President Lincoln was the sixteenth president of the U.S.—that’s also one thing. Ultimately, it was just kind of a fluke that I chose that name, but I’ll tell you an interesting little side effect of calling it Sixteen Ventures is that, before that name became synonymous with just anything to do with SaaS and ultimately customer success, it got me into places because people thought I was a VC. I actually got access to things that I might not have otherwise had access to. So that was not planned, but it ended up being a pretty interesting side effect of calling it Sixteen Ventures.

[21:39] Ron Gaver: I can see how that would happen. When I first saw it, I was kind of wondering the same thing.

[21:43] Lincoln Murphy: Mm-hmm.

[Contents]

“The SaaS Guy”

[21:44] Ron Gaver: Before we get into customer-success management… You became “the SaaS guy,” you said. How did you become “the SaaS guy?” You’ve now, at this point in your career, consulted with four-hundred-some-odd companies; there was, obviously, some sort of growth, some sort of transition that happened along the way that you went from supply-chain management, into your own venture, into your mail center—I don’t remember the name of it.

[22:10] Lincoln Murphy: Global Mail Technology. It was a wonderful name.

[22:12] Ron Gaver: But then you became “the SaaS guy,” and I’m just interested: how did you become “the SaaS guy?”

[Contents]

Contrarian Views

[22:16] Lincoln Murphy: In 2006-ish (and these posts are—while they didn’t start out there—now at SixteenVentures.com; if you somehow get to the very first posts on the site, they are there), what I did is, after we sold the company and I took a few days (or weeks probably) and decompressed, I got kind of irritated, again, with all the noise that was coming out of Silicon Valley about how SaaS was ubiquitous. And I just wrote three or four pretty-lengthy blog posts. They were on Blogger at the time. It was easy to make noise back then because there wasn’t a lot of it, and I just laid it out there. I was like, look, you guys are saying this stuff. I believe what you’re saying will be true, but it’s not right now. If you go into Middle America, into actual, regular corporations—not the things that are happening in Silicon Valley—you are going to be hard-pressed to very easily close a SaaS deal. That’s what I laid out there, and I got a lot of people saying, “Interesting; thanks for sharing that.” I got a lot of people saying, “Who are you, and what right do you have to say anything?”

[23:23] Lincoln Murphy: It worked, and it kind of got my name out there. And I met a guy, Ken Boasso, of Keychain Logic, basically out of East Bay in San Francisco. He was one of the guys who was, like, “who are you?” and ended up becoming one of my best friends. He’d been a sales guy, and I remember there was an SIIA event, I believe; and he knew people there, and he kind of got me in, and I think I asked some tough questions of a few of the speakers and probably irritated people, but I just made noise. And it was easier then, but it’s certainly not impossible now.

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Freemium in SaaS

[23:57] Lincoln Murphy: Fast-forward a couple of years from there. I published a twenty-seven-page PDF that kind of went viral called The Reality of Freemium in SaaS—so, it was right at the beginning of 2009—and it just called out all of the things about freemium; and, based on companies that I’d been working with, why freemium was a cop-out. You didn’t want to sell, didn’t want to have to really try, so you just opened your product up for free and then hoped people become customers. And I laid it out there. That thing got some fifty thousand downloads, and it was being shared, and I think it’s just wild because it was a really ugly PDF. It got me a speaking gig at Freemium Summit, the only one there that was sort of a contrarian and the only consultant on the event. It was just another case of me making noise, but it wasn’t just noise for the sake of noise; these were things that I believed that people needed to hear that were not being put out there, that were not being said. And, of course, with the freemium paper, I wasn’t being contrarian to be contrarian; I was saying, “Look, if you’re going to do it, this is how you should do it.” Just like SaaS isn’t ubiquitous, back then, yet, but it will be, and here are some of the things that I learned along the way.

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Thought Leadership (or Getting Things Out of Your Head and Moving On)

[25:10] Lincoln Murphy: So, there’s making noise, and then there’s causing people to pay attention to you by saying real things but also maybe adding value. So, what I learned from that was, “Hey, you know what? I have experience that people can learn from.” It just caused me to really start sharing. And that’s what I’ve done. That’s the story of how I am anything—how I’ve been able to maintain whatever this is that I’m doing for the last ten years; it’s because, when I learn things from working with my clients, studying, and thinking, I put it out there. And some people refer to that as thought leadership—that’s cool—but, to me, I just share these things, and a lot of times it’s just to get it out of my own head. Once I get it out of my head, put it out there on the blog, then I can go move on to the next thing. But that’s how it works. You have a podcast. Now you’re getting to be known in this space. Everybody has a different way that they’re going to do this. It’s just a lot easier for me to write a bunch of words. Luckily, that still works pretty well.

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Facts and the Contrarian Point-of-View

[26:06] Ron Gaver: Even though you have a dissenting opinion—you are contrarian—you’re not really just making noise for the sake of making noise; you really are trying to lay out the facts and say, “Here’s a different way to look at this. You might not want to just buy into all the hype. This is the way I see it. You might want to consider this point of view.”

[26:24] Lincoln Murphy: Yeah.

[26:25] Ron Gaver: I like that.

[26:26] Lincoln Murphy: I appreciate that, and I like that, too. That’s how I like to learn. So the people that I—and I couldn’t name anybody right off the top of my head—but that I’ve know over the years, including when I was younger and growing up, I think those are the people that I gravitated to—that would say something that caught my attention but then add value. The people that just say things to be loud and obnoxious—I don’t like that. I don’t think anybody really likes that, and it’s certainly not something that’s built for longevity. I’ll tell you, there were times people have called me—one word that sticks out is bombastic. I make these bombastic statements, and I’m, like, “Well, yeah, but it’s true.” And then usually what happens is—this sounds weird—I like to make all this noise, but I’m not really good at bragging or tooting my own horn; but usually what happens is I get people that’ll react negatively to what I say and then, eventually, it comes true. That’s not to say that I’m a futurist and I can tell the future or anything like that, but it’s just that it was true all along; and eventually people start to gravitate to see that it was actually the right way. That doesn’t mean I’m always right, but when I am, that’s usually how it plays out. At first, people kind of react negatively and then they come around. So, that’s cool.

[27:38] Ron Gaver: Logic often prevails over illusion.

[27:40] Lincoln Murphy: Hopefully; usually.

[27:42] Ron Gaver: Not always. There are many exceptions in history where that has not come true.

[27:47] Lincoln Murphy: Exactly.

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Customer Success Management

[27:48] Ron Gaver: I would like to kind of get into the area that I said I was interested in—customer success management. I know that that’s something that you talk about a lot, and I mentioned that in terms of your business model earlier. You’ve got a quote—I think it’s your definition of what customer success is—and I’ll quote it. It’s: “Customer success is when customers achieve their desired outcome through their interactions with your company.” Not just with your product, but with your company. Maybe we could deconstruct that a little bit. I think you’ve deconstructed it in one post in particular that you’ve rewritten, which is the Definitive Guide to Customer Success, which is on Sixteen Ventures, and I’ll link to that. There’s a picture, also, there of you in front of a big screen, somewhere, with that definition behind you. So, the customers’ desired outcomes…

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Customer’s Desired Outcome

[28:37] Lincoln Murphy: Yeah. I’ll tell you what: this is one of the most powerful concepts that I’ve ever come across in business; that’s kind of a big statement, but I believe it to be true. If you understand what your customer’s desired outcome is, what they need to achieve, and the way they need to achieve it, I think it changes everything. Let me explain. Desired outcome is two pieces.

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Customer’s Required Outcome

[29:01] Lincoln Murphy: What they need to achieve—I refer to that as their required outcome. This is the thing that they need to do. This is not using your product. This isn’t even the job to be done. This is the outcome that they absolutely have to have. If I need to get from point A to point B, quickly, that’s my required outcome. Now, I might choose to do that through commercial airline travel. That’s one way. If I need to get more people to my event—that is my required outcome. I could do that in lots of different ways: I could print out flyers and hand them out, I could place ads on Facebook, I have a bunch of email addresses—maybe I could use email marketing. So if I choose to use email marketing, that’s what I’m choosing to use to achieve my required outcome. Vendors need to understand that a customer is coming to you because they have a required outcome that they absolutely have to achieve but that they could do that in lots of different ways. We need to keep that top-of-mind, if for no other reason than it keeps our ego in check.

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Customer’s Appropriate Experience

[30:06] Lincoln Murphy: Once they have chosen to do business with you, they’ve done so because they believe that you can help them achieve that required outcome; but they also believe—based on your sales and marketing, and how good you are at promoting your stuff—that you will help them achieve that required outcome in the appropriate way, giving them the appropriate experience. That’s the second part of desired outcome. So, it’s required outcome plus appropriate experience. And I use the termappropriate—you may have seen this in some of the articles where I write this out—I use the term appropriate because it’s the appropriate word. Our customers have an experience that is specific to them, which means we need to understand the different customer segments that are doing business with us, and we need to understand what the appropriate experience is for them. That’s why I don’t say “a great experience” or “a high-touch experience” or “modern” or whatever. It’s whatever is appropriate for that segment. So using the airline analogy, we have one airplane. There is a first-class cabin and there is the coach cabin. The first-class cabin—there’s a particular customer segment that is going to do business with the airline on a first-class basis—and there’s the rest of the airplane that’s going to be filled with people doing business from a coach standpoint. It’s the same required outcome: get me from point A to point B safely and quickly. But as soon as you understand that there are different customer segments that have a different appropriate experience, you understand why some people are going to pay a premium to sit in first-class and some people are going to try to save some money and sit in coach.

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Appropriate SaaS Experiences

[31:39] Lincoln Murphy: From a software standpoint or a SaaS standpoint, if I’m selling to very early-stage startups, I could probably get away with an API only. I don’t need a graphical interface. I could probably just have some lightweight documentation and maybe a Slack channel for support for that customer segment. If I’m selling that same thing, the same underlying product, to a department in a Fortune 500 company, I’m probably going to have to have a full-blown UI, probably going to need some better documentation, maybe 24/7 support, maybe I need to be able to sell it to them on a three-year contract. There’s going to be a different experience that is appropriate for each of those customer segments, but a lot of the time, companies don’t think like that. They think, “Well, I’m just going to create one experience and sort of normalize it for everybody”—in which case they don’t connect with really anybody and that’s why they’re struggling, or they just don’t take into consideration that different customer segments are going to need a different approach. In a worst case, they don’t resonate; best case in that scenario is that they actually overinvest resources. They throw a bunch of customer-success managers at these customers, and the lower-end customers that aren’t paying much—they don’t need that level of coverage—so we’re overinvesting where we don’t need to be overinvesting. The larger customers actually need a much greater level of touch, but we can’t do that because we don’t have enough people, and so we underinvest where we should be spending more. And so it just ends up being a problem. If we understand our product has different customer segments that use that product, and those different customer segments are going to have a different appropriate experience with us—again, not just in the product—then we can build out a strategy that really allows us to more effectively get those customers to be successful over time.

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Solve for Success Not Happiness

[33:26] Ron Gaver: Perhaps it’s a corollary to that, but when you talk about what a successful customer is, you do say that you’re not solving the equation for happiness; you’re solving it for them to be successful—for them to have the appropriate and the required outcomes—not necessarily happiness. And I think that, a lot of times, people think that a happy customer is a good customer, but that might not be the thing because a happy customer, as you write, might walk away and do business elsewhere, where they get a better experience or where their needs are met a little bit better.

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Successful Customers Advocate But Want More

[33:59] Lincoln Murphy: Totally. I think what happens is, a lot of times, happiness is the wrong approach. We look at things wrong. We say, “Okay, this customer is just opening a lot of support tickets, they’re always asking for different features, they’re always pushing back on us to do more, and they just never seem happy.” But if you look at the actual context of what’s going on—they’ve been around for a long time, they’re continually adding more and more seats or they’re buying more add-ons. They are our biggest advocates. They’re actually the ones that will be references for us. They leave reviews. They speak at our events. They’re actually the most successful customers. But if you ask, “Are these customers happy?”—you would probably say, “No, they never seem happy. They always want more.”

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Happy Customers May Not Be Getting Value and Then Churn

[34:49] Lincoln Murphy: On the flip side, customers that we never hear from, we might misinterpret that as being, “Well, they’re happy; they’re not complaining, so they’re fine.” Or maybe they’re even pleasant. When we do talk to them, they’re happy, but then they contact us and they say, “By the way, we’re going to cancel our account because we’re going over to this other vendor.” And you’re like, “I don’t understand; I thought you were happy.” “Oh, I’m definitely happy; we just weren’t getting any value from the relationship with you.”

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The Appropriate Success Vector

[35:15] Lincoln Murphy: So, if our customers are achieving their desired outcome—if they’re on the right path to achieving whatever that desired outcome is that they have—then that’s all that really matters. Customers that are doing that are, hopefully, emotionally happy. I have to be really clear: I don’t want to be around people that are unhappy. I don’t want people that I work with to not be happy. I just can’t solve for your happiness. I can solve for your success. I can ensure that you are on the right track to your desired outcome; and if you are, hopefully, that will make you happy. But those are two different things. And I think from that standpoint, when we look at our customers to know whether or not they are on the appropriate success vector, we have to look at, “Are they on the right path to achieving that desired outcome?” If they’re happy, great. If they’re not, that’s okay, too, because we’re human, and I can’t really solve for that. On the flip side, if we want to be taken seriously in customer success, or as a CEO we want customer success to be taken seriously by our board or anybody else within the organization, we have to get away from talking about fluffy metrics like “happiness” or “delight.”

I have to be really clear: I don’t want to be around people that are unhappy. I don’t want people that I work with to not be happy.

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Customer Success and Company Valuation

[36:21] Lincoln Murphy: We need to really understand that customer success—and I just published a post the other day that goes into seven ways that customer success actually directly impacts the valuation that investors or acquirers will apply to your company—the value of your company is directly impacted by customer success. We need to be talking about customer success in those terms, and not in “happiness” and “delight” and things like that. If we talk about it in the way of, “Look, if we have this net revenue retention at the end of the quarter that’s going to potentially impact the value of our company”—that is so much more powerful than “happiness” or “delight.” Again, I want people who I’m working with to be emotionally happy, but I just can’t solve for that, and it doesn’t actually end up moving the needle along the value of my company. This is too important to be thought of as just another way of creating happiness or delight.

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Churn

[37:15] Ron Gaver: You talked about customer retention. Well, one of the aspects that you often do refer to is churn; and, of course, churn is a topic, a subject, that comes up in the SaaS world all the time, but stopping churn when a customer is about to churn is like stopping a fire after it’s already started.

[37:34] Lincoln Murphy: Yeah.

[37:35] Ron Gaver: You need to attack that problem upstream. Customer-success management, I believe you say, is preventing that customer from ever wanting to churn, not looking at attacking the churn problem at the end.

[37:48] Lincoln Murphy: Right.

[37:49] Ron Gaver: I’m sure you can say it better that that.

[Contents] Customers to Save and Customers to Let Go

[37:50] Lincoln Murphy: From the conversation so far, you can see that I probably can’t say it any better than that. You’re absolutely right. I mean, if you have a fire, go put it out. We’ve got to put that fire out. If you have a customer who’s about to churn, do what you can to try to save them if they have success potential. Some customers do not have success potential. They never should have been signed in the first place, or they never should have signed up or whatever, so we probably need to let them go because there’s no way they will ever be successful. But if they have success potential, then do whatever you can to save them. That is not customer success, though. That’s usually going to involve begging, maybe some discounts, whatever. That’s not customer success. That’s just doing what we can to try to save a customer.

[38:33] Once they agree not to churn, then it’s customer-success management’s job to get them back on track. See, all we did was keep them from churning; we didn’t actually make them successful. So they’re still very much at risk. And where a lot of companies go wrong is they offer concessions and make promises and they keep the customer and then, a few months later, the customer—because nothing has changed—is still not successful, and so they churn out, only this time they’re actually angry because you wasted their time. So, only save a customer if you have a plan to get them back on the path to success. But again, that’s not customer success. And here’s the thing: churn is just a symptom of a greater disease. So if you have a churn problem right now, then we’ve got to do what we can to triage that, do what we can to keep them around, then get them back on track; and if we get them back on track—and we do that by having a very clear understanding of customer success, what their desired outcome is, understanding how to orchestrate and operationalize that—then churn will actually start to go down.

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When Churn Becomes a Non-Issue

[39:41] Lincoln Murphy: And then eventually—if we do things right, including making sure that we’re only signing customers that have success potential, we’re not bringing on customers that have no potential for being successful with us—we actually get to a point where churn is just not an issue anymore. Then what? Well, then customer success really starts to come into play because now we’re not only going to keep these customers around longer (which is great), but now we can actually start to grow customers and create an ascension model where customers not only stay with us but they actually expand their use. So whether that’s inviting us into other parts of their organization, whether that’s just buying more capacity, whatever that is, that’s where we need to be. So churn may be your initial catalyst for looking at customer success, but, eventually, if you do things right, churn won’t be something you even worry about anymore. Obviously, you want to make sure it doesn’t creep back up, but if we’re focused on the customers’ desired outcome, we’re ensuring that our customers are doing the things that they need to to get there. Churn won’t be an issue, and now we can focus on growth.

[40:42] Lincoln Murphy: So, I don’t talk a lot about churn as much as I used to because I think customer success is about so much more than that. If churn is your initial catalyst, obviously that’s going to be the thing you focus on. But, even then, you should look at customer success long-term as something that isn’t just about churn-busting or firefighting; it’s ultimately about getting your customers on that ascension path so that they’re always growing, to the extent that I say the real measure of success isn’t even having customers that are just sticking around—so it isn’t just retention. If I have customers that are only sticking around, but aren’t growing, to me that’s not successful. I want customers that are on that ascension path, that are moving up, that are growing, because that means I have created an environment that really allows my customers to thrive and one that I really understand—that customers are always evolving and that they should be growing. And I think that’s something, that, most of the time, when people are developing customer-journey maps and they’re thinking about the customer, they kind of think of the customer as a static entity, but the reality is our customers are always evolving and changing, and that’s good. That’s what we want. And so we should think about, “What is a customer that signs today? What do they look like in five years? Are they just going to be the same, or could they be ten times as big of a customer as they are today?” That’s how we need to be looking at that, and that’s, really, to me, the real power of customer success.

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Individual Contributions to the Customer’s Desired Outcome

[42:03] Ron Gaver: And as far as the customers’ desired outcome and what’s valuable to the customer, you say that, really, that’s a question you should begin to ask when you’re starting the company, when you’re dev