SaaStr CRO Confidential: Brex GM of Startups Lucas Fox on Customer Retention and Expansion

Foreign. Welcome to another episode of the Saster CRO Confidential podcast. I'm your host, Sam Blond. This is episode eight. Can't believe we have made it this far. Thank you for being here with me. And with us today we have another incredible guest. We have Lucas Fox, the GM of startups at Brex, a company I of course know incredibly well. I've had the pleasure of working with Lucas for about four years prior to my joining Founders Fund. Lucas remains at Brex where he's been for almost five years and just an unbelievable career trajectory. Lucas started in recruiting, which I think is an incredible place to start and just incredible experience for anybody in a leadership role. From there, Lucas came into the sales organization and built out a team that was focused on selling Brexit's second product which was what we call Brex Cash. It's a deposits product, evolved from that role into owning relationship management. So as the VP of relationship management, Lucas really owned revenue in our customer base. That's actually where we're going to be spending most of the time today is on customer expansion, retention, preventing churn, those sorts of things. And finally Lucas is current role is the GM of startups and the way that Brexit structured there are like two businesses within the company. One is the startup segment focused on technology startups and the other is the enterprise segment focused on more mature businesses. And Lucas is like the CEO of the startup segment with that long intro. My close friend Lucas, it's awesome to see you and thank you for being here 100%.

Sam, thank you. I've had the pleasure of working with you like you said for four years and at one point reporting to you and big fan of your work and excited to be here.

Awesome. Well, we will jump right in and as I mentioned in the intro, we're going to be spending most of our time today focused on serving customers. And before we even jump in, just as setting context, Brex was late to the game on this. We acquired a bunch of customers and we had a lot of focus on customer acquisition and before we knew it, we had hundreds, likely thousands of customers, huge upsell or expansion opportunity within our customer base, some customers starting to churn and very little attention. Focused on making customers successful and growing the spend within our customer base. And I think that that's something that in my experience is almost universally true and it happens organically where you start focusing go to market resources on acquiring customers because you don't have any customers in the beginning and it just sort of grows from there where you know, marketing Resources are generally demand gen focus versus customer market. A lot of your revenue or growth resources are focused on acquiring new customers versus on expanding revenue within your customer base. And so I would say especially for early stage startups, oftentimes the focus on making customers successful and expanding revenue comes too late. And oftentimes there isn't enough or aren't enough resources that are dedicated to expanding revenue mitigating churn, making customers successful when you look at the potential opportunity there. So with all of that said, Brex was certainly in that category. We had a ton of customers, a bunch of revenue and not much available by way of serving and expanding revenue within this customer base. Let's start there. You are the VP of rm. You were given this mandate of growing revenue within our existing customer base. There really, really two things that influence revenue in the base. One is Churn and one is this concept of upsell or expansion. Where did you focus first?

Yeah, it's a good question, Sam. I feel like I agree with your statement that most companies invest in this very late and Brex did do that pretty late in the journey. So the first thing that I did, you know, when evaluating whether to start in Churn, mitigation or upsell was to just look at our existing customer base. And you know, the nature of our customer base meant that the majority were fast growing venture backed companies that we would acquire at an early stage, primarily, you know, seed stage, series A stage. And the nature of these companies are such that they would grow a lot throughout their journey. And so we saw that, you know, about half of the seed companies that we acquired as customers would grow into series A companies and a half of those series A company who graduated into series B and a half of those series B into series C. And this would happen at sort of 12 month intervals. So we started to realize that a customer churning today was sort of really bad for the business because the value of that customer in the future was greater than that value present day. And so the first thing that I realized was we need to just stop Churn. That was the number one priority and the first thing that I really focus on makes sense.

And so Brecht specific, you sort of had to pick. I own both Churn and sort of expansion or upsell. I need to start somewhere. You started focusing on Churn. Do you believe that that was sort of unique to Brex or do you think that that's applicable to startups as well? Sort of focus on making your customers successful in mitigating Churn before you focus on expansion or how do you think about that?

Yeah, it's also a very good question. I definitely think that this is applicable to other startups as well. I mean, I definitely think that when you don't have customers, the focus should be on sales and acquiring customers. But as soon as you start having customers, I think your number one priority is making sure those existing customers are really happy and, and making sure that they do not leave your platform. And so I think that Churn should be sort of P0 after you have existing customers that you can actually understand and focus on. And like I said, I think a big learning lesson for us was I feel like we invested in this late, probably two years in, a year and a half in. And I think that we should have probably done that right from the beginning. And so the challenge with some of these high growth companies like Brex is that user acquisition, net new user acquisition, sort of obfuscates the problems of customers churning because you're still growing revenue a lot, month over month. And so despite having Churn, you just don't pay attention to it. But I think that was a big lesson, sort of focus on Churn first. And I think that's universal for many other startups, not just Brex.

Great learning. Okay, so you start to focus on Churn and you've articulated why that's the priority. Where do you start?

Yeah, and I'll try to get pretty tactical here. So I think the first step is just understanding and measuring Churn, right? Because it's very important to first understand sort of why customers are churning and if your Churn is regrettable or not regrettable. Right. And so it's important for you to understand, you know, are your customers churning because of a particular feature or service that is missing and they need or because something about the product experience is broken or because it's too expensive or because, you know, these are companies going out of business, which was our case since we served a lot of startups, et cetera. So it's really important to understand first, like what are the reasons for Churn? Right, that's number one. And then sort of the number two thing is how does that change depending on your Persona? Right. So for us, as an example, we served early stage startups, we served late stage startups, we also served the founder as the buyer, but also the controller and the cfo the more later stage that you would go. And so sort of the number one is understanding Churn, the reasons for Churn broken down by Personas. And really, you know, this isn't just about Sort of like a one time exercise to understand churn. Sort of the, the next step is sort of setting up the systems and the processes in place to track Churn moving forward. Right. So this meant adding the right fields to our CRM, which we use Salesforce for support reps and sales reps to input whenever they knew why a customer was churning. We also did a lot of sort of AUD automated surveys whenever we noticed the customer would stop spending on their BREX card or depositing funds on their Brex cash business account. And this was sort of automated asking customers to tell us why they were churning. And whenever we felt like we didn't know why particular customer had churned, we actually had a team that would manually audit and study that customer, look through their transaction history, understand their, the support tickets that they had, and really sort of like study and analyze through kind of like manual, manual deep dives and then tag that specific Churn. So repeating what I said, first step was understanding and measuring churn. Second step is setting up the systems and processes to do that on a recurring basis, not just on a one time basis. Then the next step that we started really doing was sharing this throughout the company. So we started to write a quarterly memo that would essentially break down monthly Churn bucketed by reason, by Persona. And we would size what the biggest reasons for Churn would be. And ultimately we would provide a direction to the rest of the company, to the product organization, engineering organization, to our support organization, to our operations, underwriting organizations on what we had to do differently to mitigate that churn. Right. And so that was kind of like, you know, the next step. I'd say that the step after that was we really tried to predict the user behavior that would lead to churn. So in our case, as an example, you know, we realize that things like, you know, your, your, your accounting or bank integrations breaking would lead to a bad customer experience and would lead to churn. Or if your credit limit would drop, that would lead to churn. Or if you had more than a certain number of support cases within 30 days that would lead to churn. Or if a user left a low NPS and we had sort of like a list of things that we modeled out and realized led to churn. And we built sort of a Churn score so that we could get ahead, identify the high Churn accounts before they churned, and sort of the final step to that was really just staffing a team that could cover a portfolio of accounts. Right. And so essentially what we did was we built out sort of a coverage model where some reps had as few as 50 accounts, some would have, you know, as many as 500 to 1,000 accounts. And essentially their responsibility was mitigating churn, getting ahead to prevent turn from happening. And ultimately the last step was sort of like just hiring great people pretty fast to be able to do that. Right. And so we built sort of a really great interview and recruiting process. To your point. You know, I started out in recruiting and sort of like hired hundreds of people during my time at Brecht. And the one thing that we did that I think really stuck out as a learning for post sales hires for customer success account management was we had this one interview that would assess a series of core values, right? Like deep personality traits, like core values. And the one that most correlated to a successful customer success rep or account manager was empathy. So we had an interview that the sole purpose of that interview was to measure the degree and the level of empathy that that person had. And we only hired people that had sort of like extremely high degrees levels of empathy because that made them extremely customer focused, that made them really care about the customer experience, that made them want to respond to emails at midnight because they didn't want to disappoint their customer. And so we ultimately realized that like hiring people with high degrees of empathy was extremely effective. And so that's really interesting. I'd say that the last takeaway was that as a result of doing this deep dive and understanding and measuring and fighting churning, we realized a couple of things. One of the things that we realized was that one of the biggest reasons why customers would churn was because they weren't properly set up on Brex, right? So you know, they would sign up to Brex and they would start using the, the Brex card. They would deposit some money into our Brex business account, but they wouldn't really get up and running and they wouldn't migrate 100% of their, their banking or their corporate card to Brex. And we realized that was actually like the, the number one reason my customers would ultimately churn is because like they never got set up properly. And so as a result of that, we actually decided to invest in building an implementation team that would just make sure that every single customer that signed up were properly set up first, guided through people reps. Then we really indicated how to do that in a more self serve, product driven way. But those are kind of like the high level steps on, on what we did first on Churn mixed on a.

Sense, very interesting double clicking on the last thing that you touched on, which is implementation, because I think it is potentially universally applicable beyond just Brex, but was certainly applicable at Brex too. I remember when we started looking into data and trying to diagnose certain actions or behaviors that ultimately led towards like the long term success of a customer. What we found was the first 30 to 60 days was the most critical time period in a customer's sort of existence on the platform. And if certain actions were performed, the lifetime value of the customer, the sort of stickiness of the customer was exponentially greater than if those actions weren't performed. And for Brex, those things were like, did they integrate their erp? So were they mapping the card data back to their accounting system? Did they issue a certain number of cards? And that certain number of cards was likely proportional to the total number of employees that they had. Did they migrate a certain number of recurring subscriptions? And we found these like milestones that ultimately became the framework for how the implementation team or implementation REPs were measured. One is revenue based, which is what is the share of wallet that you are capturing within this customer in their first 90 days. The second thing is, are these milestones, there was like a checklist, Are these milestones being achieved? And I think that the application here is almost universal for any startup where, you know, at the time that somebody buys the product, it's such a unique time in their evolution as a customer. We're really investing in making them successful will pay long term dividends. And there should be probably some sort of like onboarding checklist that is tracking some usage, whether it's adding a number of users or feature functionality usage, that is a really positive signal in terms of the long term success, stickiness, lifetime value, all of these things associated with customers. And so Lucas, just remind me from day one, did we separate out implementation to a separate function from relationship management or how did that evolve?

Yeah, it's a great question. And we did separate it. And the reason we separated was because we saw that the roles were very different, right. For implementation, we realized that it was really important to have kind of like a continuous motion of having net new customers that were signing up and you were sort of like incentivized to drive these specific behaviors that we built into a scorecard, right? Like specific number of recurring merchants and users and making sure that you had your accounting ERP integration set up. And you know, we realized that this would be different than kind of like building a long term relationship with a specific customer and really helping them sort of feel comfortable that they could scale with Brex. And and so we split that out. We had an implementation function, but the reason we built the implementation was because we first started understanding reasons for Churn. And we were, and we realized implementation is one of the ways to solve churn. And so implementation was a separate team. But it was born as a result of this insight that implementation was the most effective low hanging fruit path to mitigate churn. And so we had the implementation side of things and then we had sort of the account management, relationship management function. And within that function we bucketed and sort of combined churn, mitigation and upsell cross sell together. And then as a third part of that team's evolution, eventually we split out Churn, mitigation and Upsell. But we started out with, with both of those functions together and we can chat a little bit about that. But that was sort of like the dynamic of the team over time makes sense.

So you inherit this really large customer base, you own revenue within that customer base, you decide first order of business is making customers successful and preventing any any more churn than already exists. You start to address that. You focus a lot on the implementation. So the customer's first experience with Brex as a customer, the like first impression that they receive, eventually over time you start focusing on expansion and upsell. How did you know when to start shifting some of your attention and resources towards this concept of expansion and increasing revenue beyond just making customers successful?

Yeah, great, great question. And it's interesting because you know, we started out as you said, in understanding Churn, then you know, mitigating some of the churn. We set up implementation and then at some point we realized that we needed to focus on expansion and upsell. And before I get into that, it's important to know that when we had that team up and running, half of the net new revenue that we would bring to Brex came from net new sales, but the other half came from the existing base. And so this was sort of like half of the new revenue that we were bringing to the company. So very meaningful. The point that we realized we needed to start focusing on upsell and expansion was essentially as soon as we had a good grasp on churn. So P0 was let's focus on churn, let's understand it, let's build the systems and tools to make sure that on a monthly basis we're evaluating, let's share learnings to the rest of the company, let's make sure that other teams at the company are doing the right things to mitigate Churn. Let's build a team to then address churn. And as soon as we had a good pulse in Churn and we were tackling Churn, we started to organically focus on expansion Upsell. Because what we ultimately realized was that churn mitigation and upsell were two sides of the same coin. And what I mean by that is that we realized that, you know, the customers that were most likely to churn were those customers that were still using other competitor products, right? So they were using other credit cards, they were using other bank accounts. And we realized that when we would speak to these customers, they were the most likely to churn. And so as a way to mitigate the churn, we would convince them and show them the value of consolidating everything on one platform on Brex. And so we would, as a result of the mitigation of Churn, we would consolidate and bring more card spend to Brex and more deposits to Brex. And so that's why I say that this was sort of like two sides of the same coin. We realized that, you know, upsell and cross sell is not just, you know, a way to bring more revenue to the company. It's actually a way to improve the customer experience because they're consolidating everything in one place. As a result, the retention goes up, and obviously the revenue for that customer also goes up. And so that was kind of like a really important insight. And, you know, given that we were offering a lending product or we were underwriting customers and offering them a credit limit, our underwriting teams knew which accounts had multiple different credit lines, because that is a factor in our underwriting model. And so this really allowed us to narrow down on the customers that were using other corporate cards that had other credit lines with other banks. And what we could do is focus on those customers first and make sure that they understood the value of consolidating everything on Brex. And so that's a very interesting insight. Sort of like we organically started to focus on upsell and expansion because we saw it was a very effective way to mitigate churn and also a great way to bring new revenue. And as soon as we started launching new products, we saw that was also the case. Right. So as soon as we launched our business account product, we found that customers that had kind of all their banking needs met with us and their corporate card needs met with us, they were. They had higher retention than just card customers. And so that was also one of the reasons why we, you know, pushed the business Account product to our base. It improved retention, but it also obviously brought a lot of net new revenue. And the same thing happened when we launched Empower, or expense management software that competes specifically with Expensify and Concur. You know, we started to more heavily cross sell this because one increased our share of wallet, right. So primarily sort of like T and E spend, travel and entertainment spend that we weren't capturing. We would migrate that over to Brex. But also we realized that retention would go up for those customers because the product became a lot more sticky. And so in summary, we started focusing on Upsell as soon as we had a good pulse on Churn. And we saw that cross selling and upselling not only led to more, more revenue to the business, but also it improved our retention. And so overall, using multiple product solutions just made the product more sticky and the customer experience better. So that's why I say that sort of they come hand in hand.

That makes sense and I think decent segue into at least where my mind goes next, which is around. These are oftentimes, in fact, I would suggest, probably rightfully designed as separate people or separate functions. One is sort of like a customer success type function that is focused on things like retention and NPS just making customers successful. And then the second function is revenue expansion. Like a salesperson working within the customer base to add additional licenses, cross sell additional products were the same people in charge of retention and upsell to begin with. And how do you think about that? That just as a concept? Yeah, for sure.

So initially, yes, initially, because the priority was Churn mitigation, we staffed the team to cover our existing base. But as, as I mentioned, as a result of doing that, we realized that one of the most effective ways to mitigate Churn was to drive upselling and cross selling of. Of the products that we offered. And so it started out with the same role. So the same rep, the same account manager would oversee churn mitigation and also Upsell and cross sell. And especially for the first year or so, because it was the first time they were. That we were investing in this function, we saw a lot of dividends with that. There were a lot of kind of, there was a lot of opportunity with just mitigating Churn and winning business in the, in the existing base. And we saw, you know, a lot of success in having reps do both. However, as soon as we started scaling the team so, you know, when the team crossed 30, 40 people, we started to realize that it was harder to divide territories and, and to, you Know create a very simple compensation model. And also we realized that there was benefits in splitting out the function in terms of like the skill sets that required you to be successful to mitigate Churn versus convince someone on essentially using more of our products. So eventually we split out the team when we crossed kind of like 30, 40 people. And we had one team of customer success reps that only focused on Churn and they were sort of like the main point of contact with the customer and provided a really high level of service. And whenever an opportunity came to sell a new product or to increase our share of wallet with an existing product, we would loop in a client sales rep. And so the client sales rep was focused only on upsell and cross sell and both functions were still under the same leader. But we, we ultimately realized that eventually we'd have just more efficiencies by splitting the true, the two roles. There were different skill sets, compensation was different. And ultimately we realized that that was the best way to scale. But in the beginning, I think we wouldn't have been as successful if we hadn't combined that in the same role. So that was sort of like the.

Learning that makes sense. I think there's, there's probably a natural evolution that takes place here that is maybe the recommendation that based off of our, we would come away with and that is initially you have somebody focused on serving the customer that includes both mitigating churn, making them successful and also increasing the revenue. Because especially at an early stage as a startup, having this concept of over specialization where you have one person that's customer success and one person that's account management or sort of like upsell, it makes less sense for some reasons that you talked through at a very early stage. But as you get much larger as a business, you have more people in the business. This concept of specialization where you have dedicated implementation person, dedicated success relationship, the face of Brex for making the customer successful long term, and then the money person, the person that when we launch a new product, when there is an opportunity to acquire spend from a competitor, that person sort of deploys into the account and is the money person. But that probably that differentiation or specialization makes less sense from day one when things are just simpler across the board at a startup.

Yeah, 100%, that's, that's right.

Okay, so you were in this role I think for a couple of years and you were recently promoted into this GM role where you're, as we mentioned earlier, you're effectively the CEO of a business unit within Brex. And that Is startups sort of defined as I think companies, tech companies that are under 50 employees is probably the way that we defined it around the time that I left. Are there any interesting learnings you brought with you from this experience as VP of RM that make you more successful in this new role that you think would be interesting for founders potentially out there that like, you know, you have this unique experience and now you're sort of founder, like what are the advantages that you have because of being the VP of rm?

Yeah, that's a, that's a very good question. And, and I would say that for sure there are a lot of advantages and learnings because, you know, if you think about it, I went from leading a customer facing organization focused on implementation on upsell, cross sell and turn mitigation, to now overseeing a group of, you know, over 100 people across engineering, product design, operations, sales, marketing, partnerships, et cetera, et cetera. And the number one thing that, you know, allowed me to be successful was just having a better understanding than anyone el of the company of what the customer needed, right? And you know, as part of my mandate, you know, overseeing implementation, retention, upsell, cross sell, I ended up developing a really, really strong intuition on, on three things primarily. The first one is why every customer, why signing up to Brex, right? And you know, not at a superficial level, but at a very deep level, you know, broken down by Personas, you know, why were founders signing up for Rex, Why were CFO sign up for Brex, why were controllers signing up for Brex? You know, broken down by company size, you know, what's the difference between someone who was signing up to Brex, you know, who was a seed founder versus a series A founder versus a series C controller? And also by product, right? Why were they signing up for the card product for, you know, our banking product for spend management software. And so that's number one, sort of understanding why customers were signing up to Brex. Number two, why customers were leaving Brex, right? And in the same way, broken down by Personas by company size and by product, you know, why were customers leaving and churning, right? So developing that intuition number two and then number three is, you know, what did customers love about our product, right? What, what did each of these Personas, broken down by company size, broken down by product, what was the one thing that they loved the most about our product? And I felt like because I spent so much time with customers and I also spent so much time building the systems and tool to gather this data in a systematic way and share this with the company. I felt like I just had a really, really strong intuition and understanding. And, you know, having a deep understanding of these three things allowed me to step into my GM role and understand things like what do we need to solve in the product? What are the things that we need to double down on? Which customer Personas should we be focusing on to grow the fastest? And how can we position our product product based on the different Personas to have the most growth? And so I felt like, you know, it was much easier after having spent, you know, close to two years just gaining very deep in the trenches with customers. And also something that was really, really effective too was, you know, I built relationship with hundreds of customers over the years, right? So, you know, I have personal relationships with, you know, hundreds of founders of all sorts of companies and CFOs and controllers. And so whenever I wanted to bounce off ideas or test specific products or, you know, get opinions on specific product memos that I would write, I would simply share that with with the group of customers. You know, sort of what I started doing is I would write a memo and I would share with 20 customers and say, hey, do you mind reading this and sharing your your thoughts? And I would also just pick up the phone and text and call. So, so I had a really deep understanding of our customers, but I also had a lot of relationships with a lot of our customers. And one thing that's helpful as well is that I spend a lot of time with customers in my free time as well. I spend a lot of time with founders. I spend a lot of time with finance leaders because a lot of them are just my friends. And so it helped as well that I get a lot of energy from spending time with our customers, and it allows me to constantly bounce off ideas and refine my understanding of the customer. And so that was sort of like a really, really key takeaway where I continued having this deep relationship where I would still do five calls a week with customers in addition to serving also as an escalation point for frustrated customers. Like, to this day, I probably receive like a dozen emails a day of customers that reach out to me and share sort of an escalation point which came from my days of overseeing kind of the account management function. So I have a very good pulse on what's going on and our customers. And ultimately, you know, what I did was I started to translate this to the other engineering and product leaders in my organization, right? So the product managers and engineering managers that would be working on the startup. Org, I started to do the same thing, which is essentially like push them to spend more time with customers and develop the same intuition that I had, right? And so one of the things that we did was sort of centralized this function of helping set up calls for a lot of the engineers, engineering leaders and product leaders, so that we essentially just made it easy for them to do the right thing. I've noticed this pattern when speaking to a lot of founders that a lot of engineering and product leaders, they're expected to speak to customers, but they're also expected to do the work of reaching out and finding out the customer and sort of scheduling the call with the customer. And ultimately, because product managers and engineers and engineering managers are so busy busy, they just don't prioritize that. And so one of the things that we did was we just decided to make it easy for people to do the right things, which essentially was having almost, you know, this, this function of scheduling and reaching out to customers, centralized and having PMs and engineering managers just show up and do the calls. It was just much easier for them to just develop this intuition for what the customer needed. And so, in summary, you know, overseeing the relationship management, account management function made me the customer expert, and it showed me the value of being the customer expert. And ultimately that made me spend 10 times more time with customers. Until this day, if I hadn't had that experience, I would not be spending as much time with customers. And so I think that's the biggest learning that I would give to, to founders and to CEOs is, you know, just obsess about your customer and spend a lot of time with your customers and try to understand those three things that I said, which is why do customers sign up, why do customers leave, and what do they love about your product?

So takeaway for founders, and we've made the. Your role today is a little bit analogous to a founder role. And so takeaway for founders is spend probably more time than you are today with customers. There are very valuable learnings and insights that come from that time.

And.

Because of your experience and what may happen for other founders and brother businesses is it can become ingrained in the culture, especially on the technical side, PMs, engineering leaders. Spending more time with customers is so beneficial and manifests in better product and more customer focused product. And it starts with the leader. And so you sort of like set the tone of spending time with customers. You articulate the benefits of doing that, and then that spreads throughout the rest of the business, or at least for the folks that matter the most. Lucas it is lovely to see you. You know I'm used to seeing you on these zooms probably like three or four times a day in different forums and it's now been a few months so this was great to catch up up. Let's catch up again sometime soon. Thank you all that joined and are listening in. We'll see you back here in a week or two with the next episode and have a great rest of the day. Take care.

Bye.

Sam. Sa.