Churn and Sales Cycles. Adapting to Your New Normal.

Sam. So I wrote a post on Saster in the very early days and it was the first one I wrote that really confused people and I got a lot of pushback and I wrote that churn and sales cycles are two metrics that don't really matter. I just got hazed. On social media, such as it was back in the day, everyone talked about how important churn was and how terrible long sales cycles are. And of course I agree, high churn is worse than low churn and net negative churn. Growing your customer base, we've certainly learned even more over the years and is the key to going long. And SaaS is the key to building a deck of horn. And long sales cycles are hard on all of us, especially in the early days. And it's all even harder today. In this crazy world. All of our churn has gone up. And if you haven't seen churn go up yet, it's probably because you don't sell to enough SMBs and you have latent churn. If your churn is the same today as it was 60 days ago, what about the churn that's going to happen when customers move? What about downgrades? What about customers under pressure? All of us should see worse churn except the zooms, the slacks, the others that have special benefits from this crazy macro environment. And your sales cycle should be getting longer. If you're not seeing sales cycles lengthen, I'm not sure your sales team in the enterprise is being honest with you. Again, there will be some exceptions. There will be some healthcare products, some call center products, some collaboration products that benefit from work, from home or benefit from this crazy macro environment. But if you have a tool that is not one of the maybe 10 or 20% in SaaS that's getting a macro benefit and you think your sales cycles haven't lengthened, you have to have an honest chat with your sales team. Of course they are. And in fact, you may be seeing weird effects. You may be seeing in many cases your pipeline growing in this world because in a lot of cases prospects have more time at home, from work, from home. They have more time to talk to a vendor where they didn't have time two or three months ago. So your nominal pipeline may even be growing today. The discovery calls may be increasing, but that does not mean that they're going to close anytime soon. So even if pipeline's growing, even if discovery calls are up, you have to assume that your sales cycle, say it just doubled and you have to assume that your churn, one way or another has doubled. That's brutal. But my meta point is you can't control all of this. First of all, certain categories have certain inherent levels of churn. Even before this crazy time we're in, SMBs generally churn at higher rates. There are exceptions. We've seen Zoom, we've seen pagerduty, we've seen Slack, we've talked about them at sastr. So there are exceptions. But if you're selling to tiny merchants that are working from home, they have higher churn rates than large enterprises buying SMB. And there are certain categories that have massive churn today. So you can't take a net negative, a high churn type product and necessarily turn into net negative churn overnight. And you can't take a product that has a six to 12 month sales cycle and turn it into six days. You just can't. There are certain organic churn rates and certain organic sales cycles that come with each product. What you want to do right now is just power through it. What you want to do in this crazy world is deal with the higher churn and deal with the longer sales cycle and just adapt for churn. Especially for SMBs, one focus on logos instead of absolute churn. If you've only been tracking churn based on revenue, still do that of course, because at the end of the day, revenue is what matters along with your burn. But break it up into logos and revenue. Your upsells may be go on pause for a while. And if you sell to small businesses, the ones that don't go under may shrink, they may go through layoffs, so may no longer need 20 seats. They may need 10 or five. But again, as we've talked about on Saster, downgrade does not churn. So break your churn up into logos and into revenue so that downgrades do not count as pure churn. And then do a reset. Do a reset in Q2 and figure out what your new churn rate is, what the new normal is, and spend the rest of the year just trying to improve it. What can you do at the product level to add more value? What can you do so the customers are happier? Can you spend more time with them? Can you give them named account managers? Can you do better phone support, better intercom, better whatnot? So get a new normal intern in Q2 and then just try to incrementally improve in Q3 and Q4 every way you can. Because again, it's our existing customers that are going to pull us out of these crazy times and in sales cycles. Again, adapt in Q2. If your sales team's excited about all these net new discovery deals, great. Caution them. Caution them. They're gonna be hard to close. And we'll get through Q2 and we'll learn. And we'll learn the deals that used to close in three months, now they may take nine months to close. We may not even know. But adjust to the new normal and then just evolve your toolkit in Q3 so that you can at least bring them in a little bit. Do more pilots, for example. Maybe you hated pilots before, but maybe that's what makes customers comfortable in today's world. Maybe you used to torture them so that they'd sign a six figure deal to start. Maybe 10k is a good place to start in Q2 and Q3, 20k. But adapt. Adapt your toolkit so that you learn your new sales cycle in Q2 and then bring it down in Q3. And that's what we have to do. We have to push through this. We have to learn now. We have to drag our team through it and then we have to adapt to the new normal at the end of Q2. After that, drive your churn down a little bit. Drive your sales cycles down a little bit and push through them. It's our customers that will drag us through on the other side. And don't try to change the impossible. Churn and sell cycles will get more challenging. And it is what it is.