The Power of a Customer Centric Flywheel
Each referenceable customer provides 3x the opportunity to grow your SaaS business. How do you get there? Build a customer-centered flywheel and make your customers insanely successful.
The new take on “Land & Expand”
I recently spoke with a SaaS business that is experiencing an amazing amount of growth. Here are a few things that stood out to me:
This company grew to $100MM ARR without any outbound sales motion,
The company did not introduce an outbound lead gen motion until they grew to ~$120MM in ARR,
They have a well-defined ideal customer profile (ICP), which they adhere to during the entire pre-sales process. If the prospect doesn’t match the ICP, they don’t sell to them.
During pre-sales, they focused on solving just one initial use case,
Their average contract value (ACV) for new logos is around $50K. However, over time they have grown a significant percentage of customers to over $1 million ARR.
The company has very little churn. Net retention rates are well above 140%.
Their existing customers are huge advocates of their software. Customer acquisition costs are exceptionally low, as 60% of their leads come as referrals.
Sounds like a dream come true! Strong YoY growth, low CAC, high net revenue retention, great word of mouth, and a growing ACV. The company exemplifies perfect execution of the “land and expand” strategy in their ability to keep and grow customers. What makes them different is their approach goes far beyond simply asking Success or Account Management teams to sell more into the customer base. Their go-to-market teams are aligned around the success of their customers. Their business has momentum.
Flywheels generate momentum
In Good To Great, Jim Collins introduces the idea of a flywheel to fuel transformation. “The process resembles relentlessly pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond.” The flywheel effect is something SaaS leaders want to create, but it’s easier said than done. That relentless pushing requires GTM teams to align around the customer. In 2018, Hubspot threw out the traditional marketing funnel in favor of a flywheel model to illustrate the power customers have in fueling inbound marketing for businesses.
Hubspot states;“Today, customers are skeptical, knowledgeable, and have bigger expectations than ever before. And one of those expectations is that businesses should care about more than transactions. When companies make short-term decisions that sacrifice long-term relationships, compromise their values, and mislead, customers use their influence to share that information quickly and widely....When companies grow better, they meet even the highest of customer expectations, and the result is a better business, better relationships, and a better path to growth.”
The 3x opportunity
Better business, better relationships, and a better path to growth is admirable, but do customer-centric approaches pay off?
“As companies shift to recurring revenue business models, they’re realizing that the way they grow must change.” -Nick Mehta, The Customer Success Economy.
Nick Mehta’s latest book, The Customer Success Economy, explores the idea that each happy, referenceable customer leads to three potential revenue opportunities. The customer:
Will renew,
Have a higher propensity for expansion,
Share positive outcomes with their network, which can lead to new logo sales.
To generate these kinds of results, Mehta states that “every department needs to work across the customer journey.”For executive teams, this means breaking down silos and taking on new measures of success.Mehta suggests that Marketing drive pipeline, Sales drive leads, and Customer Success drive value. Handoffs between teams, strong communication, and a focus on building value into your product and into your customer interactions take on a new emphasis with these changes.
How to build your own customer flywheel
Customer-centricity alone is not “the answer,” but it is a common denominator for SaaS success, along with strong product-market fit. Hubspot and Gainsight have developed customer-focused business philosophies, and leading companies are hiring Customer Experience Officers. There’s tremendous power in C-level teams setting a north star for employees around the shared success of customers and regularly following up on that commitment. If you are an executive reading this, is your company ready to change?
What might be the impact if you don’t align teams around customer needs?
Does the collective organization understand how the company's success is tied to your customer’s success?
For go-to-market teams:
Start by talking with your customers. Regularly. Not just at renewals or when problems occur. Not just for NPS or CSAT surveys. Share what you learn with the company at an All Hands and with your executive team.
Find ways to reduce friction associated with acquisition by mapping your prospect to customer journey.
Focus on short initial sales cycles, and win based on a single use case.
Maniacally focus on reducing your customer’s time to value.
Make sure your roadmap has items that address product gaps, but also include items for expansion or add-ons.
Map potential features to the customer life cycle and level of sophistication.
If you only do one thing: Start by putting together a plan for 100% client referenceability. If you don’t have 100% referenceable customers, ask yourself what needs to change to make this a reality.