Nick Mehta CEO Gainsight + Jason Lemkin CEO SaaStr on "The Latest in Leveling Up Customer Success"

All right. Hello, Jason Lemkin. How you doing?

I am great, Nick. Thank you so much for having me join you. It's great to be here.

Awesome. So for those who don't know, Nick Mehta, CEO of Gainsight, and I'm here with my longtime friend Jason Lemkin, who needs no introduction. If you're in SaaS, I don't think you could possibly not know Jason Lemkin. But for the one person that doesn't, Jason is one of the original SaaS entrepreneurs. Became an investor, started SaaStr, and really has helped build this amazing SaaS community, which is going to culminate in a conference coming up very shortly called SaaStr Annual, which I'm very excited about. So it's awesome to have you here, Jason. Thanks so much.

Yeah, thanks. Thanks. And thanks, Nick, for being a very original part of the SaaStr Annual. You're at the very first one, which we literally— I just saw on my Facebook. You know, I really only use Facebook for the memories now. But it was 7 years ago today we launched the first SaaStr Annual and you were kind enough to come and be and be a host. And it was funny, you did a panel, you did it with 3 entrepreneurs that were at $1 million in ARR, and all 4 of you are unicorns and decacorns.

Wow.

So it's interesting. It was you, Tiago from Talkdesk, Nicholas from Algolia, and Daniel from Greenhouse. And all were growing well, right? But none of them were past more than a couple million in revenue. But it's interesting going to our talk to the predictability of recurring revenue, isn't it? Because all 4 of you, including our moderator, Nick, in 2015 all became unicorns. Sort of, there's not a lot of luck in that. There's a lot of hard work, but 4 out of 4 is not luck, is it?

That is insane. Well, that's a great stat. Yeah, it's funny when you look at all the speakers in general from SaaStr in the early days, it's amazing where they've all gone. So let's start there. I got an icebreaker question, 'cause first of all, give everyone the dates, the logistics for SaaStr Annual. What are the dates?

Yeah, it's September 27th through 29th. We are completely outdoors for the 7th annual. We're at the San Mateo County Fairgrounds where you guys did a Pulse, which was a lot of work to do outdoors. But the good news is we all know how to do this. So we're on 50 acres. We'll have 5,000 people. Everyone has to be vaccinated and tested.

Yeah.

And everything is outdoors. So it's tough to do much more than 50 acres. So it'll be fun. It'll be— we'll learn, right? I mean, you know, doing this festival style instead of in a building will be different with tents. you know, we're building $700,000 worth of tents and, um, there'll be weather, but it should be fun. It should— there should be probably more mentorship and more hanging out, um, and less sitting in windowless conference rooms. But, uh, but it'll be interesting.

It might make for a better conference potentially, huh? That's interesting.

Yeah, well, you know, I mean, here's the thing, like, the feedback loop since March of 2020, um, I don't know. I mean, we know what's happened in SaaS, right? Which is 95% of SaaS companies benefited, like either a little bit or a lot, right? A handful haven't. But the IRL world, I mean, we haven't gotten back, right? So we don't know. And not only we can talk about events, which matters for marketing and all this, but even we all became distributed companies, which take a pause for a minute. That's crazy. Yeah, it's crazy. It's crazy. I remember sitting, even our little team, sitting with Amelia, who runs most of Sastr now, kept before in 2020, I kept saying, how can we be distributed? This is so lame that we draw— we can only hire SF people and we drive to San Francisco every day. No one lives in San Francisco. How could we fix this? And I remember talking with Wade from Zapier. He's like, you got to lock the doors. He's like, you got to lock the doors for 2 weeks, not forever, but for 2 weeks, and not let anyone in, not let the CEO in. And then if you lock the door for 2 weeks, you'll learn. We lock— we all lock the doors for 20 months. Yeah, right. Not literally, but close, right?

That is such an interesting analogy. Yeah, it's interesting because you— I actually went to my first, uh, post— or not post-COVID because we're still in COVID, but, uh, in COVID, first conference, uh, this earlier this week. It was a smaller event, but, um, it is, you know, if you do it right, which you guys are definitely doing, it feels great. So I think folks that are watching, definitely go to Saastr Annual. It's going to be awesome. I'm going to be there, really excited. What are you most looking forward to at the event?

What's—

what are you excited about personally?

I just want to learn what the new world will look like. I want to learn what getting together means for 5,000— you know, it'd be 10,000 if the international wasn't blocked. That's interesting. But what will events mean? What will gatherings mean when we're all distributed? And intuitively, it should be more important, right? And our limited hints, I think, that we've seen recently suggest that, right? But we don't know. It's so new that the get-togethers we're doing, the lunches— Salesloft just had 500 people at their all-hands meeting, all tested. Lots of folks are kind of doing these smaller things. Intuitively, it seems if we're all distributed, we're all, we're all going to get together every quarter somewhere, and it's going to be more impactful, right? But I don't know. But what I do know is that things like events, which, which you and I have spent a lot of time on they do need to be completely rebooted for a distributed world, like completely rebooted, completely. And I, and I'll be honest with you, I do not have any of the answers, but we get— this is the only B2B event with 5,000+ people happening this year, and certainly in the Bay Area. Yes, forget maybe Vegas and Miami, but in the Bay Area. So we can use this as an experiment and we can all learn from it. What will the world look like? Because I— the only thing I don't think we're going to do because it's been so long, is all go back into these windowless rooms in Moscone, jammed in in the dark. I don't think we're going back to the dark, right? I'm not saying we're not going inside, but that paradigm is in the past.

I think we're not going back to the dark. That sounds like a song waiting to be written. I like this. Something— is there something?

I think it's all got to change. It's all got to change. And I'm excited what bringing people together can mean, right? When you were the first SaaStrangel in 2015, it wasn't meant to be an event. It was a community gathering. We said, hey, let's get 1,000 people like the Knicks and the Leilas and Tiger. Let's just get together for a whole, a whole day. That was a whole, and it was jaw-dropping for an entire day, right? So long ago. So now it's time to hit the reboot button and maybe see what do 10,000 founders and executives mean. And we'll learn, we'll learn September 27th, 29th, and then we'll redo it next summer.

Yeah.

And we'll learn, but I know it won't be the same. And I just, I'm not smart enough to know for sure, but we'll, we'll learn.

Well, kudos to you for being the brave first pioneer. We're gonna all learn together from you. Thank you. Thank you. And you know, one thing we'll definitely be talking about there, because I'll be there, is customer success. I can't not talk about it. Jason M. Lemkin was very kind enough to give me a session, and actually he inspired the title of the session, which is going to be about what's changing in customer success and why you should change too, because the truth is it is evolving, right? You think back to like 2013, 2014, 2015, and you know what customer success was then and what we think about it now. So I'd love to hear a little bit, maybe just give people some of the history. This isn't your first rodeo in terms of thinking about customer success. You've been writing about it and churn and all that from the beginning. So why did it matter to you early on in SaaS? Or why were you thinking about then? And then maybe how is it changing over time?

I mean, if you want to go, I've been writing SaaS content for 9 years. It's crazy, right? Since 2012. And you're right, some of the stuff and We did a lot with Gainsight, maybe 30% of the original content, which now is table stakes, but second-order revenue and champion change. People would read this and their jaws would drop. You're like, wow, you're right. Like, this does— the second-order revenue really does happen, and champions go to other companies, and how things scale and how NRR works. But there wasn't enough— we knew these, but there wasn't enough time to see it in practice, right? Because it takes years to see the impact. Of NDR, NRR, churn, and CS. It takes years, right? But my personal passion was, you know, very specific to me, which is after selling what's now Adobe Sign, EchoSign, to Adobe, some things went well after the acquisition, but some things did not go well. It was a big company and a small acquisition. And what I saw quickly, and it was sad in a way, but like certain things couldn't be killed. You could not kill reasonably happy large customers.

Yes.

The free edition was ripped out, terrible decision. Other features were ripped out the day I left. But the big ones, the ones that were 150, 250, even a couple approaching a million ACV that were reasonably happy, not only did they renew, which we used to worry about, but they would grow. Somehow you would think, hey, there can't be another seat left at some big insurer or cable company, and yet next year somehow there's 20 more seats, 20% more seats. And I didn't get it until I had the— and then I realized, my God, like You could get from $10 to $100 million in revenue. Now, this is somewhat obvious, I realized, when I had presence of mind. You get to $10 to $100 with almost no sales team. Not quickly. Not quickly.

If you have big customers and it's sticky, totally.

And high NRR. And high NRR. So I just started writing that because no one got it. No one actually even understood the power of recurring revenue, I don't think, till 2017.

No, I agree.

And, you know, in 2015, Aaron Levy came One week after the IPO, Box, which is very early in this wave.

I was there, totally. I remember that.

You were there, and I asked Aaron, of the folks on Wall Street, how many that you pitched understood recurring revenue? He was like, a few. A few, right? And now every prospectus that you read today, you know what the headline metric is? MRR, NDR, right? Totally. It's right there. Every single company, it's their headline metric, right?

You know, it's so interesting because I think recurring revenue is like a lot of things in life where I don't think people get it till they experience it. Like you talked about the second order revenue and all that. It's like when you experience your business, like slow down because churn's a headwind or speed up because of NRR, when you experience your renewal base being bigger than your new business, all the things that you've seen over and over, that's when you feel it, right?

I think—

I feel like there's a lot of CEOs who have felt it now firsthand, not just read about it, you know?

Yeah. Let me give you a crazy statistic. If you want to go back in time a little bit. So we sold EchoSign, Adobe Sign to Adobe in 2011. It was $10 million at the time we signed the deal. It was $12 million AR when it closed.

Yeah.

And we had 28% market share. Okay. Today I'm guessing it's less than half that, 13%. But okay, so that's a lot. That's a lot of— that's a tough drop, but it's $250 million of ARR. So think what 9 years does or 10 years does. So even if you lost market, you don't even have to gain market share if you have 120% NRR. That 120% NRR carried a $10 million business to $250 million, even with market share loss, right? This means you can like build, and you know, that would be at least a $10 billion company today on its own, right? And that's with a market share loss, but with high NRR, right? With high NRR. And so it's beyond powerful and it's It's why we, you know, I continue with the startups I work at now. I, you know, I continue the best advice is invest more in post-sales, not even— we can talk about customer success. Yeah, but really I think the next frontier is post-sales, customer marketing, customer success, account management. It doesn't matter. We're all underinvesting after the deal closes, right?

I totally agree. Well, let's talk about how you measure that, the advice you give people. So one of the questions is always, okay, do I focus on churn and the kind of leaky bucket, the loss side of it? Or net retention overall, which I get expansion, but sometimes net retention can hide a little bit of a churn issue. How do you talk about that at the board level?

Well, I mean, I could ask you the same question, but I will tell you the more tactical thing I've learned about this. Okay. So your question is, where should you focus on NRR or churn or like this trade-off? I'll tell you what I've learned. And it's true. And it's also true in sales, which we can chat about because they're related. You got the generals you got. Okay, and I would say in CS there's roughly two types of folks. There's the CS professionals that have a little bit of the salesman person in them, or a little bit of the fail-to, and they love to hunt, and they love to schmooze at the customer event, and fly the customers on the helicopters, and get the upsell, and they love being part of the sales team but not having to do sales, right? They love an NRR number. You say to them, listen, Linda Bobnick, 'Your job is to go from 110 to 120 NRR, okay? That's your job this year. When you hit that, you're going to get a $50K bonus, or you're going to get 5% of the upside.' That works, okay? There's another persona where they just— they— all they like to do is worry about the customer and make them happy. They hate sales. They think sales is yucky. They don't like these numbers. And if you give them an NRR number, they'll do it, but they'll melt.

Yes.

They'll melt, right? It doesn't work, and it doesn't work as a KPI, and it doesn't work for variable comp either. It just doesn't work. They don't internalize it, and they feel uncomfortable. That's not why they're not in sales. That's why they're in post-sales. So we could talk about the pros and cons, but it's your, it's your general, right? And the same thing in sales, like, should sales, should sales own customer success? I'm against that. Should sales own this or that? But you're general, like, some sales folks just want to close. Some want to get more into the lifecycle of the customer because they see the upsell, but you can't change a general too much, right? They already learned their playbook in the last war.

I love that. That's such a good, good leadership lesson in general, and I'll kind of tie it to what I think about this churn versus net retention, which is I think what ends up happening in a company's history is there's different periods where there's more to be gained on focusing on reducing loss versus increasing gain, and other times where it's more about It's about growth, right? And so it depends on where you are. So for example, you're a SaaS company, you're $20 million of AR, you're selling to enterprise and your retention is 78% gross. Work on your retention, right? Like, yeah, right. But if you're a SaaS company and you're selling to SMB and your retention is gross retention is 90%, 92%, work on expansion, right? Like you can't get that much better. So where are you in that efficient frontier, right?

Yeah.

And so I would say work on gross churn for a while and at some point then you've got good at that. Now you get the general who can do the expansion. I agree with you, by the way. Often it's a different person. Sometimes the person can change, but for the most part it might be a different person to take you into that growth phase. The worst thing you can do though is have the wrong playbook for where you're at. For example, you have a 77% gross retention and you're selling to big companies. And you're focused on— you have the sales-oriented general trying to expand some of those customers, but missing that like most of your customers are just bleeding out, right? That's bad, right? And the same way you've got this super sticky business and you can't really increase retention anymore. You got to expand, but you've got this protector type person who doesn't want to talk about sales at all. Meanwhile, R&D is shipping new modules and wondering why is nobody buying them, right? So you really need the right, like you said, the right general for the right battle.

I think the one thing, and I'll give one comment just to add on to you, but let me add the one thing we've learned the last couple years on this, this, this churn versus ARR. The one thing I would add is now that there's so many public SaaS companies, you know, 130, however you define it, you got to be top quartile. Yeah, what I mean is we can go, there's blog posts or on SaaS or all over the internet, figure out what your comp is. Are you like Squarespace? Are you like Datadog? Are you like whoever? It doesn't matter if your churn and all that is in the zone of theirs, focus on NRR, right?

Yeah.

If your churn is below the comps, and sometimes it's okay because you have time. Some of these companies did not have the wonderful churn they had before the S-1, right? Uh, you know, the HubSpots, even the HubSpots and the Shopify took a while to get to 100%, right? But if you're not there, get there, because it's the number one thing you can do. Focus engineering and time. And what I've learned is when you do that, what happens is, and I'll give you engineering gets involved.

Yes.

Okay, so the question is, does engineering get involved? And when you say, guys, look, our comp is Zendesk— Zendesk has hit 120% NRR. Now let's slice it. For the SMBs, it's 105%. Okay, how are we going to get to 105%? And I— and instead of it being, uh, something that support does, or you layer on top of Gainsight, it's like, now I get— I get 3 of my best engineers.

Totally.

That's when magic happens. But you have to have these comps to align the company, and then all of a sudden you, you do that, right? You figure it out with best-of-breed engineering. Um, and so figure out if you're in the top quartile and take action. Um, and then related to that, I think what we didn't intuitively know until there's more— so these companies went public and we could see what happened from $100 million to $1 billion ARR— is it's key for the vast majority of— not all, but the vast majority of SaaS companies is you need a second product to drive up NRR. OK, Box is one of the— actually, old, old Box is one of the most dramatic examples. Their NRR varies from 90 to 130 depending on how many modules and products you use. That's a big variance at Box. We see it with Datadog. We see it all across the board. And this is kind of the next frontier, especially with SMBs. When you talk about SMBs, what I've seen, both public but also private, is the way you get above 100% NRR with SMBs is multiple products. Look at Bill.com, look at folks like that, right? And that's the key. And so we got to think about this thoughtfully, but earlier than we used to, is that's the way we drive it all up, right? It's not all Zooms and steak dinners, it's multiple products adding exponentially more value for the customer, right?

Yeah, that's so right. And it's interesting because that's when people talk about who owns NRR, you know, sure, the customer success team is part of it for sure, but the product team and building new products is a bit, like you said, a big part of it. And then sales being able to sell those products. And I think that a lot of companies get stuck where they are a one-trick pony and that gets you so far, maybe gets you to $20 or $50 or $100 million of ARR, but you've got to find a way to have a portfolio. I also find, I don't know what you've seen, Jason, that it also helps your gross retention because you got multiple products in there. You're just more sticky. You know, you're just like you're unless the customer is less likely to abandon you altogether, you know?

Yeah, I mean, it is for, I think at least for CEOs, you gotta monitor your gross retention carefully, right? And it's interesting, I did, you know, I caught up, you know, one of my early investments was Salesloft too, right? I mean, pre-revenue. And when they crossed $100 million, Kyle, you might have heard the same thing. The number one thing Kyle was getting from Wall Street is what's your GRR? Your NRR is great, we get it. But we don't care, right? Because you're in the zone, right? You have enough bigger customers. What's your GRR? What, what, what, how well are you keeping these gross customers and how well are you bringing in new customers so that you're not masking, you're not masking, uh, a try to growth, right, with higher NRR, right? Um, and that is just, I don't know, I don't know how many KPIs a startup can handle. I think if you get, if you make everyone responsible for for gross retention and net retention, they're going to bang their heads on the table. You got to pick as CEO, like, what's more important? And it's got to be net retention, right? You have to pick. It has to be, right?

Yeah. And I also think that there's something of like, what's the long-term metric? And then you can still have for this year, we're going to focus on X, but what's the long-term thing we're focused on? One related point on that is you talked about obviously part of net retention and gross retention is customer experience, customer success. Part of it's how many products you have and if you're cross-selling them. Another part, though, is the pricing model.

Yeah.

And so, you know, some pricing models are usage-based pricing and they sort of naturally have this organic growth because your customers use more, Twilio being the ultimate example of that. And some of them are like you sell everything upfront, a whole bunch of licenses, and maybe there's a little bit of growth. So how do you think about pricing models fitting into net retention and what's changing about pricing models?

I think The first, where I saw this in practice, I'll give you a case study. So that first panel you were on in 2015 was with Algolia, search as a service API developer-focused, right? But developer-focused with multiple stakeholders, with marketers and other people buying, and they just crossed $100 million accelerating, okay, at about 60% growth. And Bernadette came in as the new CEO, and they did an incredible job before, but she had a fresh, she had a fresh perspective. Learned a couple things from her, one tactical and one strategic on this, right? First, she went and talked to Wall Street, you know, years out from IPO, but to get ready at $100+ and said, what do you think, how much of our revenue needs to be subscription versus per usage? And you know what they said? All we care is that your NRR is north of $130.

Yeah, that's interesting.

We don't care where it comes from. And this is the change from— it's not just Twilio, it's fintech, it's everything. Yeah, ARR doesn't— For better or worse, for old-timers like us, there's no R in the middle of ARR anymore, annual recurring revenue. The R is fake, right? And that still drives us nuts, right? But it's true because we're all— look at Bill.com. The majority of Bill.com's revenue is no longer from software. Same with Shopify. The majority of these companies are fintech-software hybrids. And but what's key is that the blended revenue, you know, Bill.com has gone from 110 to almost 130 since IPO. That's pretty fast. right, by having multiple products, but it's less if it's software. So that was a learning, and then what Bernadette did at Algolia, which is interesting, they had spent years debating as a developer-focused company whether to go all in on usage-based, right? And they'd done the opposite. We were a bit old school. They had— it was usage-based, but then you'd hit these tiers and you'd have to come in and see us, and sales would have to come in and kind of upsell you to the tiers. And what they saw in the data was Even though the overall NRR was good, the churn was very high at these tiers, very high. It was a natural point where not only did the pricing go up, but it created friction, right?

So the customer would say they wouldn't just do something different then. Yeah, that's interesting.

And Nick saw it for years and they debated it internally, but the data also said to be risky to change.

Yes, right.

And so Bernadette— it's just interesting because they're both great— Bernadette came in and said, look, I'm new here, I'll take the, I'll take the arrow in the back. We are abandoning these random tiers. We're going to go more developer-centric, and they're basically gone. And there was no downside.

Ah, wow.

No downside, right? So I think we're all moving to pricing that is more customer-centric, right? Every customer we have buys over 100 SaaS apps. They've demoed over 1,000 SaaS apps. And the person, you know, maybe this isn't the question you're asking, but you have to give the pricing model the customer wants. But just make sure it's easy and that you have that top quartile NRR, right? Even if it's not Really?

Yeah, exactly. Net revenue retention. There's no recurring in that. So yeah, I like that.

I mean, that recurs as a corpus, right? But it doesn't— the contract doesn't always recur, right?

Recurring is really a state of mind. It's not a—

it's a—

it's okay. So you also get to meet lots of like little new baby companies, you know, like the— just like Algolia and Gainsight were back in 2015. What do you see that's different about the way they talk about CS and stuff like that? When they're starting than way back when we were little companies? What's different about early stage companies?

You know, it's a good question. I was thinking about it. I would ask you. The main thing, I don't, I think only two things have really changed that I can think about. I'm sure there's more than I'm thinking. First of all is hyper-awareness early on of how critical CS is, right? I hired CS very early, but back in the day, I wasn't really sure what it did other than make my big customers happy, right?

Yeah.

CS, My view of CS, or in the early days when you got started at Gainsight, is it was an evolution of you got to make your big accounts happy. We've always had account managers, right? And now they need tools. And now we understand there's NRR. That was the difference. So we have account managers, we have NRR, now we have CS, which needs tools and systems. But everyone gets that, and everyone— the instrumentation that I see early stage is shocking. The data, the metrics, their insight, their cohort. I still don't even know how to do a cohort analysis myself. Their ability to do that in year 1, to segment churn by category, right? They get it. And that's the biggest benefit. The other challenges, I just think, is, you know, recruiting's tough and everything, right? So the biggest downside I see versus the old days is folks stick with too junior a team for too long.

Yes, totally. You talk about this all the time.

Junior team for too long.

And so it's so true. I see it all the time. I know we're almost up on time. I'll do a closeout word association just to get you out on time and everyone watching as well. I always like to do these. So first thing that comes to your mind when I say the word churn.

Fix it. Fixable.

Fixable.

Fixable.

Very much. You've seen people fix it.

Net, yeah.

NDR, net dollar retention.

Magic.

Magic. Yeah, it is like magic when it works. I'm throwing in a new one here, by the way, just listening to us talk. Product-led growth. We didn't talk about a lot, but obviously it's a hot word. What comes to mind when you hear product-led growth?

Um, is it real?

Is it real? Interesting, because it is a little bit of pixie dust right now. We'll get to learn more about that at SaaStr Annual. Customer success.

Um, not enough.

Not enough. People aren't doing enough and not investing enough in post-sales. I heard that. SaaStr Annual, last one. What's the thing we should think about with SaaStr Annual?

Have fun, you deserve it.

Yeah, what a great way to close out. Have fun, you deserve it. By the way, Jason, I hope you get to have fun there. You deserve it too. And I mean that for everyone in the SaaS community. Thanks so much for everything you do, man. Love seeing you as always, and I will see you in 2 weeks.

All right, man, thanks for all the time. We'll talk to you soon.

Thanks so much. Bye.