It seems logical—start raising capital when you need it now, or know you’ll need it soon. But by that time, you’ve missed out on the opportunity to build relationships with the investors you want to work with.
Nuffsaid’s CEO Chris Hicken recently joined the How I Raised It podcast to discuss this mistake and many others that founders commonly make in early-stage fundraising. He shares advice on building strong investor relationships, choosing the right partners, how COVID19 may alter the funding landscape, and more.
Listen to the full episode on Spotify, Soundcloud, or Apple Podcasts, or read the full transcript below.
Nathan: Hi, welcome to another episode of How I Raised It produced by foundersuite.com. Today, I have Chris Hicken of Nuffsaid coming to us from Salt Lake City in week two or three of Shelter in Place. How's it going there?
Chris: Well, because we're a software company, it's pretty much business as usual for us. We've started the company with employees in Canada, Atlanta, Salt Lake City, San Francisco and India. So, frankly, it hasn't impacted us that much yet. And because we're early stage, we're not spending a lot of our time selling. We were lucky. I guess we're lucky in that sense. But we're not seeing much of an impact on our business.
Nathan: It's interesting. Yeah. For us, we've been virtual pretty much from day one. We've got people in Norway, and Poland, and Ukraine, and San Francisco Bay Area, but the business is getting impacted because our customers are startups. And that's a lot of them are really scared right now, and freaking out, and cutting every cost they can. So, that's a little bit of a factor for us or headwind, but yeah.
Chris: Well, I think it's going to be pretty ugly, well, look, this is just one person's opinion, but I think it'll be probably pretty ugly for the next four to five months. But I also very much believe that the current leaders in the office of the president, and the leaders of the senate will do whatever they can to preserve their running office.
Which means passing all kinds of stimulus bill, loan forgiveness, mortgage postponement, all the things they can do to kickstart consumer spending and hiring, they're going to take advantage of those things. So, I maybe am overly optimistic, but I'm definitely optimistic that the economy will come online more quickly than it did in '08.
Nathan: I actually share that sentiment too, and I hope we're both right. I feel like yeah, people are freaking out and despondent. But there's still this larger momentum wave that even if you put up a barrier, it's still going to carry forward. So, I hope so. Well, let's not harp on that too much. What is Nuffsaid? What do you guys do?
Chris: So, maybe I'll start by describing the problem that we want to solve, and I noticed this problem when I was at UserTesting for about eight years. And over that time period, people were becoming increasingly overloaded with information and communication at work, and while people were spending more time in the office than ever. Sometimes we're working 10, 12, sometimes 14 hours a day. Certainly, by the end, it felt like people were spending less time doing their actual job than they ever had before.
And the problem, I think, will continue to get worse, as investors pump more and more money into software companies, you have really cool technologies coming out in augmented reality for the office, digital assistance voice, digital assistance for the office. So, given in a world where we're already overwhelmed, and it's going to continue to get worse, how do you solve that problem?
And our vision for solving that problem means building an AI brain that sits on your shoulder beside you at work. And it does two things. One, it filters out all the noise from your workspace, but more importantly, it helps to focus you on work that matters, work and tasks that matter. And so, that's what we're doing. We're building a brain for knowledge workers that helps you focus on work that will move the needle for your job.
Nathan: And give us just a simple scenario of a startup founder using this, how's it helped them prioritize, maybe a little use case?
Chris: Sure. So, we don't actually think about it quite like that. The way that we're thinking about this is, in order for an AI brain to be effective, it needs to understand who you are at work. And so, in order to understand who you are at work, we're tackling this problem on a department-by-department basis. So, we're saying okay, customer success, sales, marketing, engineering, what does it look like to be successful in that job?
What are the tasks that help you be successful? And what are the types of distractions that you're likely going to get in your day? And so, what we're doing is, and again, we're early stage so we can only tackle one of these at a time. So, we're starting with the customer success group, or the revenue retention group within a company, and we're building an AI that understands that you are someone who's responsible for maintaining revenue for your company.
We understand what your customers look like. We understand what types of activities you need to get done in your day. And we've built a whole model around detecting risk in your portfolio so that when we find that you have a customer that's potentially at risk of churning, or not renewing their subscription with you, we're able to identify that risk really early for you. Sometimes within a couple of weeks of the customer onboarding.
So that you every single day when you're sitting down in front of your portfolio, you're taking small actions every single day to reduce risk in the portfolio, and help your customers get to a place where they're realizing the value from the product.
Nathan: Okay, interesting. And the product is live, or it's in beta, or what's the status?
Chris: Yeah. The product is live right now, although it's very early days. We just launched the product three or four weeks ago. We're slowly onboarding new users onto the platform. The first version of the product centralizes all of your communication apps, your calendar, and your tasks into a single view. Obviously, we're going to add many more integrations in the future. But early days, it's going to be Gmail, Slack, Google Calendar, Google Chat, Zoom, all of those platforms will be pulled together into a single view.
Future versions of the product in order for this to be fully featured, it needs to be able to integrate data from your salesforce, and from your customer success manager, from your gain site, from your Zendesk, wherever you're doing your customer support, and customer success. And then from your product management tool, your JIRA, your Trello, et cetera. So, that's how we're thinking about the product.
Nathan: Cool. Sounds interesting sounds. Sounds cool. I'll check it out. Let's talk about raising money. How much have you guys raised, and over how many rooms?
Chris: Yeah. Enough about Nuffsaid. Let's get to the good stuff. So, we just raised, and we just announced about four weeks ago that we raised $4.3 million led by General Catalyst, and Google's AI focused fund called Gradient Ventures. We were fortunate to get a bunch of participation from other people who have been great partners for us already. We have Global Founders Capital, which is one of the biggest venture funds in Europe.
We have Chris Yeh from Wasabi Ventures. And then we also got Brianne Kimmel from Work Life Ventures, and Beth Turner from SV Angel. So, it was actually pretty amazing round with some truly, I think, truly exceptional people backing the company. And well, I'll pause there because I think you probably have a follow-up question to that.
Nathan: Yeah. Well, maybe talking about putting that round together. And I mean, you do have a blog post that describes the process. But take us through the process. I mean, you guys are so early and young. Talk about raising money from such a nascent business.
Chris: Sure. The seed round is an unusual round. So, I want to talk a little bit about this. When I was at UserTesting, our CEO, Darrell Benatar and I raised four rounds together, and my expectation of what it would be like to raise a seed round was similar to that, and that that process looks something like this. Do we have less than a year of cash left in the bank? Okay, time to start fundraising.
Then we start the process of reaching out to VCs. And then three or four months later, we get a term sheet. And I just thought maybe that's how seed round fundraising must go. But then, I actually spent a year at a firm called Inspiration Ventures, so I was a partner in Inspiration VC. They do exclusively early-stage pre-seed and seed stage deals are oftentimes the first professional money into the company.
And I got a real insider look at how investors make decisions in early-stage companies. And what I realized is that at the early stage, at the pre-seed or the seed round, there's so little evidence that your idea is going to work that VCs discount your product idea.
So, most founders go and spend a lot of time talking about how amazing their product is, and they have these screenshots. But VCs don't give a shit about their product because they know their product is probably going to iterate at least a couple of times before they get a good product market fit. So, they're looking for other factors and primarily, those two factors are number one, is can you convince me that a problem exists? It's severe enough that people will pay money for it, and that there's enough of these problems to justify a huge market.
So, and by the way, I think we can have an interesting conversation about both of these two factors. That's factor number one. Factor number two is the quality of the entrepreneur, and venture capitalists, like any human being, they have limited information. And so, they're trying to pattern match, they're looking for symbols of demonstrated success in the past.
They're looking for things like fancy badges, maybe a fancy title, or a big company logo on your resume, or a nice university badge on your LinkedIn. Some way to demonstrate a track record of success in previous work experiences. And so, what I realized raising the seed round was I couldn't just go in. And well, let me take a step back, I was confident that I could do number one, which was make a compelling case for the market size of this idea.
But I couldn't do a good job of... obviously, I think I have a decent track record in terms of success. But if I'm asking you to invest millions of dollars into me, I can't just introduce myself, and expect to get a term sheet from you within a couple of months. That's just not enough time. And so, what I realized is that the philosophy for early stage investing needs to be ABR, always be raising.
Which means that a constant part of your job as an early-stage founder is, of course, you have to build the product. Of course, you have to hire the team. But every single week, you have to be spending time on fundraising. It's just a part of the job. And you have to accept that it is a regular and ongoing part of building your company.
Nathan: Let's touch on that a little bit. I mean, so what were you doing specifically? And this is always like, where the more granular the better, right? I mean, some people on the show talk about their whole process for finding investors on LinkedIn, and their messaging to reach out to them, and get a coffee, or how are you raising before raising or?
Chris: So, this is the process that I ran. I started by building my list of dream team investors. So, this is my ideal list of people that I would... not firms, individuals that I wanted to invest in Nuffsaid. In a moment, I'm happy to talk about what that looks like for us because we have a very discreet way of defining what an ideal investor looks like. Then, again, we'll always be raising, so this is part of our process.
I started my fundraising process in January of 2019. So, what I did was I started by going to my dream team, and giving them a list of company ideas that I was thinking about starting. And I asked for their feedback about which one they would be most excited about investing in. And through that process, I got a good sense of what factors an investor would look for when making this investment decision.
But I also got an early feedback and advice about how to go about making my decision. And then what I was able to do is every month after meeting with them, I was able to give them meaningful progress that we had made in the company since our last meeting. Some of these updates were done in person, some of them were done over email, but for example, I first let them know, "Hey, after our discussion I've decided on this business, and here's why."
In the next meeting, I was able to show them early product mock-ups that I did on my own. And then the next meeting, I was able to tell them about that I just brought on two amazing cofounders. And then after that, we're able to show some technical validation that we had done on proving that the product could actually be built the way that we expected to build it. In the next meeting, we're able to show them early product designs, early product mock-ups.
And so, this whole time we were bringing investors along into our journey, so that when it was time to raise money, there was a track record of information coming their way. They could see that we were very good at executing on our plan, and that we had done a good job of building a compelling case for the business. And then when it was time to actually raise the money, we actually had our dream team, but we also have the B team as well, which is our second favorite list of investors. So, we lined up pitches with all of our B team investors first. And we just practice giving the company pitch. And we made all of our mistakes with those investors. And every time we made a lot of mistakes, we screwed up a lot, it didn't have as much of an impact on us because we were maybe less interested in raising money from those investors.
But we learned a lot. I mean, every no that we got, every piece of feedback helped us improve our pitch, helped us dial in our messaging. And so finally, when we were really excited, we went to our dream team, which was a very small list of investors, maybe four investors in total. And that's when we ended up getting our offer from Niko Bonatsos at General Catalyst was actually our number one person on the dream team.
So, we got an offer from him. And once we had our offer from him, all of the investors who we thought would also be great to add, came in with offer. So, I think we ended up getting 12 firms to make offers to join. The round unfortunately wasn't big enough to include everyone. But we had quite a bit of interest, because so many companies knew about us, and had seen our track record over time.
Nathan: Several follow up questions. There's a lot to that. It's pretty interesting. Obviously, I guess the B team, it must be frustrating to be the B team, right? Maybe you don't know you're the B team investor, but getting pitched and then losing-
Chris: You know. You know when you're the B team, but here's the thing. The B team, the way the B Team players get deals is by saying yes early, and giving you a really good valuation, and they know that. So, if there's something that really catches their eye and their attention, they can still get into those deals. It's just they know they have to act quickly, and they have to act before the A team gets involved.
Nathan: That's good. I guess one question I did have, I love this, bringing the investors along in that journey, and they can see your execution, all this good stuff. How do you tip that into getting them to put down a term sheet or something?
Because it seems like they would default to be like, "Hey, you're doing great, good job. Come back when you've got more product in market, more traction, more traction." I mean, there's always that goalpost that often moves when you're doing this. So, how do you turn it from a couple along on their journey to like, "All right, catalyst time, put down a term sheet?"
Chris: Great question. The way that we did it was, there was a point when the company just needed to raise some money. We needed to hire more engineers. We needed more resources. And so, when I went to the dream team, I said, "Look, we need money right now. I'm either going to raise a friends and family round, or I'm going to raise money from you. And my preference is to raise from you because," and by the way for everyone on the dream team, I told them and especially Niko, I told him he was on the dream team.
It's like, "Look, are we going to do it? You've seen the company's progress, are we going to do the deal here or not?" And the reality was, and I think most skilled investors know that, when there's a good company with a good product, after the seed round, if there's early traction, a lot of times companies can raise either a very large seed, or a small A.
So, getting in early gives you the benefit of really nice pricing so that as a seed investor, you get good ownership for placing that early bet. So, that was it. It's just like, "Look, we're going to raise money. So, are we going to do this together or not?" And of course, Niko and I had been in contact for quite a while, and he was ready at that point to place a bet.
Nathan: So, he'd seen what, like six or seven months of progress, I guess?
Chris: Yeah. At least six months. It's probably more than that. It was probably seven or eight months of total progress. I mentally had signed up for doing at least nine months of fundraising, if not 12.
Nathan: I've met him maybe once. I don't really know him. But he does a great job of marketing himself and his brand, right? He's got a brand on LinkedIn and social media.
Chris: And you know what? He's every bit as good as he projects. I mean, he's just a great guy, an entrepreneur at heart, and a wonderful partner. So, he's as good as he sounds to be.
Nathan: That's good. That's important. Very good. And then, I guess, so-
Chris: Let's talk a little about dream team. What does it mean to be on the dream team? I think every entrepreneur has to actually have this written down somewhere. What does it look like for me to have a good... what does a good partnership look like? And you have to have it written down. I think you have to have agreement with your cofounders of what you're looking for. So, for us, it was five things. Number one was we wanted to find investors who had matching risk profiles to us.
Nathan: And what's that mean?
Chris: Okay. Let's start with what our risk profiles are. We all have extremely high expectations for ourselves, and the company's performance. We want to build a company that leaves the world in a better place than we found it. We want to build something very big. And so, for us, we wanted to find someone who is trying to make a name for themselves. Someone who is ambitious, not someone who does a little bit of VC in between rounds of golf because everyone knows those investors.
So, we're looking for an up and coming, like let's build something together. Let's work hard together, and let's hustle hard together. And so, that's number one. Matching risk profiles. The second one was diversity of opinion. So, we wanted to bring on investors into this round, both men and women into the round. Frankly, we actually struggled with that in the early days, we sent out two dozen probably requests to women partners at different firms.
And we only ended up hearing back from one of those in our outreach. It's probably frankly because they're focused on helping enable other women entrepreneurs. So, I understand the situation. Frustrating in the early days for us to get some attention from women investors. Finally, we were lucky, we got Brianne Kimmel and Beth Turner to make investments in Nuffsaid, but certainly, we were not willing to close our round until we had at least two women invest in Nuffsaid.
Nathan: Interesting.
Chris: The third one was we're looking for people that are just genuinely good human beings. So, part of this is you pick this up from meeting with the investors, whether or not they're willing to spend time with you socially, when you're not just talking business. You can catch up personally before talking about fundraising. So, there's a human connection beyond just like, "You are my next investment, and what's the return?"
And so, I think this is probably, everyone has their own criteria of what great human being looks like. So, the fourth item was, we're looking for someone who's an entrepreneur at heart. So, what we mean by that is a partner who had either been an operator at a previous company, had founded their own company, or just in general, had an entrepreneurial spirit. We definitely now want to compare and contrast that.
We definitely were not looking for a partner who is formerly a finance person, a Wall Street banker, someone who runs their life off of spreadsheets and numbers. We want people to understand the process of building a company, hiring people, developing a product. And so, that's what we mean by an entrepreneur at heart. And then the last one is we wanted someone who was extremely direct without judgment.
So, we did not like meeting with VCs who beat around the bush, who weren't willing to tell us exactly how they saw it. We also don't want assholes who would belittle the team or the product. But we're looking for that nice in between balance, which is hard to find, who just tell you exactly how you see it without being judgmental, without belittling. And again, we found that I think every single one of our investors, especially Niko fits that criteria.
Nathan: How many of the folks that ended up writing checks did you know from before from UserTesting days, or are these all green contacts you've cultivated?
Chris: Every single one of them is new.
Nathan: Okay.
Chris: Yeah. I'm working my UserTesting connections for our Series A and B rounds. But the seed, it's a different profile of investor. So, I didn't have the deep connections from my time at UserTesting in seed.
Nathan: Yeah. And you mentioned on your blog post ways you initiated dialogues with them. Any comments there on how you got in touch with some of these folks?
Chris: Well, usually, your first introduction to a firm is usually through a more junior, associate or principal level person who's doing prospecting work. It's the equivalent of an SDR for sales. And I think if you rely on the principle to forward you to the right partner, they're unlikely to get it right just because they're not going to be as good as you are at filtering out the criteria that I just listed.
You know the profile of person that you're looking for. So, it's better if you go into those conversations knowing exactly which partner you want to meet up with. So, for example, it's very easy. You have a meeting scheduled with General Catalyst. Great, you go onto their website, you see who does early-stage investment deals, there's probably going to be three to four of them.
You can go look at their LinkedIn profiles and their backgrounds. You can search for the name on Google to figure out what postings they do on social media. And you can also talk to... you can see what boards they sit on, and just reach out to a couple of entrepreneurs that they've invested in to see what it's like working with them as they recommend it. So, it takes time. It's a pretty easy process to figure out which partner would be the best fit for you.
Nathan: So, one of the debates people always have is like, should you even spend time with associates or analysts? And do you take that meeting, or do you skip it? How do you tactfully skip it if you choose to skip it? I don't know. Any thoughts on that?
Chris: I mean, I like taking the meetings with the associates because the associates end up eventually being partners. So, I like building the early relationships, especially with the up and comers. He's not an associate level person, but one of the guys, the guy that we ended up raising money from, from Global Founders Capital, Max Mayer, he's not one of the managing partners, but this guy, he's just a total rock star.
I mean, he's helpful. He's good to bounce ideas off of, He's well connected. And so, when we raise money from them, we made part of the deal required that Max be our main point of contact for the deal, not one of the managing partners.
Nathan: Okay, interesting.
Chris: And so that actually probably worked out well for Max, but really great for us too. I mean, Max and I have a really great relationship. And it's a way I think away if Nuffsaid successful away for us to help him develop his career, but also gives us a wonderful daily, weekly point of contact with Global Founders Capital.
Nathan: Interesting. I guess there could be that argument that if you find someone who's up and coming, and on the ascent, or trying to make that career, maybe that's someone that's going to hustle harder for you than someone that's already made it, right, perhaps, I don't know.
Chris: Totally true. I mean, that's totally true. And that's true of a lot of these associate level people that are doing initial calls. They're hustling hard. They want to get that partner level position, and they're going to work. They're going to go the extra mile for you.
Nathan: Interesting. Very good. And so, here's a total tangent, I guess. How much do you think the user testing logo on your team side or your background side helped? If you didn't have that, how much harder? Because there's this perception rightly or wrongly that you get one successful company under the belt, fundraising is just easy, easy sledding, from here on out. If you didn't have that, how much harder do you think it would have been for you?
Chris: Oh, that's a tough question.
Nathan: I know it is. It's hard to answer, but-
Chris: Here's what I would say.
Nathan: I bet you that was a calling card, right? Or opening the doors.
Chris: It was not a calling card at all, first of all. I'll start with that. I think the reason why the logo was valuable was I was able to point to it as a demonstrated track record of functional discipline, mastery, and success. So, I was able to point to my time at UserTesting showing how I was able to successfully build a marketing and sales team, customer success team, professional services, and finance, build up those functions.
And I was able to speak in detail about how I built those from scratch, basically being the first person myself to do the role to eventually having a whole department and department leader overseeing it. And I think other founders can overcome not having that same level of experience by being able to demonstrate some functional expertise or mastery. So, maybe as a founder, you're an exceptional product manager, or an exceptional engineer, or an exceptional salesperson.
But you need to be able to point out, and have evidence of your success in that role. If you're just coming to the table with, "Hey, I was a salesperson X, Y, Z," not going to impress the investor. So, I guess it was helpful that I had success. It was helpful that I have success over a long period of time. I was at UserTesting for almost eight years.
Nathan: Just for context, were you one of the first X founders, or what was... yeah?
Chris: I was employee number five. And the company was doing about a couple hundred thousand at sales when I joined. And the founders, Darrell Benatar and Dave Garr, very gifted product minds. And kudos to them for building such an incredible product. Of course, I love product too, but I'm really driven by growth. And so, I functionally owned a lot of the go-to-market stuff, while they've spent most of their time thinking about product engineering.
Nathan: Interesting. Very good. All right. I won't keep you too much longer. Now, you mentioned that, are you already thinking about Series A? I know the ink is barely dry on the seed round, but talk about how you're preparing. You started off saying always be raising ABR. So, maybe how are you doing that?
Chris: I mean, every two weeks, I'm doing meetings with investors. I have a quarterly update email that I send out to people on my Series A target list, both the A team and the B team, letting them know what our progress is on the company. It's ABR, always be raising. It's a part of my weekly routine of thinking about what we need to do next to keep investors coming along in our journey.
So, when it comes time to raise the Series A, we're going to have a team of investors who know a lot about the company, and the product, and our traction to date, and what customers have said. So, I think we'll be really well positioned to raise our Series A, even in the current climate.
Nathan: Yeah. And any thoughts, just actually, before we get to thoughts on current climate, in this always be raising, is it just again, bringing them along, and talking about your progress, and different milestones that you're hitting or is there more to it?
Chris: Yeah. It's really that. It's giving investors confidence that you're thinking holistically about the business. And what I mean is giving them insight into how you're thinking about the competitive landscape, product development, and features on how we're selecting those proof of engineering expertise, and being able to deliver on product milestones. It's early go-to-market motions that you're putting in place, whether it's on the marketing, or the sales side, and I think maybe a combination of both would be good.
And then finally, in terms of finance, they're expecting you to have a pretty good sense of how you're budgeting, how you're managing cash runway, how you're thinking about new investments into the company, and what your plan is going to be for any future fundraising, relative to the financial plan that you've put in place.
Nathan: And you send this out, is it monthly or quarterly did you say, and about how many people are on your Series A dream team, and the B team list?
Chris: Well, okay, so yeah, we sent it out quarterly. The A team is small, it's seven people. The B team is another, I don't know, I'm looking at my list here. I mean, it's a lot. It's probably 25 people. But there are certain people, for example, I'm going to throw out a few names because I think they're just wonderful people, and I hope they hear this podcast.
Santi Subotovsky at Emergence Capital, I would actually say everyone at Emergence Capital is amazing. Mackey Craven at OpenView, another... actually, OpenView just in general, they're a Boston-based firm. Really great. And both of them are SaaS focused, especially enterprise SaaS focused. They're some really great people, Alex Bard at Redpoint. Grace and Naomi at Menlo.
Nathan: And one last question, because I think this is... I'm always telling founders to do this. So, I'm making you a repeat what I always-
Chris: Sure, go ahead.
Nathan: Did you or corroborating, I guess is the right word, did you already know these folks, or did you reach out to them through your network and say, "Hey, I'm doing this update. I'm going to be raising Series A in December, something like that, can I add you?" How did you get them on your distribution list?
Chris: Well, I follow the same process that I've always followed, which is I pick the person that I want to work with. I go through the normal channels, either through referrals or sometimes even through the associates, the junior associates. I get introductions to those people. I do the initial meeting to get them qualified of whether or not they even like the idea. And once they've bought in and they've said yes, then they go on to my ongoing nurture list, nurture campaign of bringing them along in the company's progress.
Nathan: Nurture campaign. Yup. I like that. I call it pre-marketing your deal a little bit, but yeah, nurture campaigns.
Chris: Same concept.
Nathan: Okay. Any thoughts or just advice or thoughts for folks raising in today's market, which as we go to print here, it's the middle of COVID lockdown? What would you do if you were having to raise right now, anything?
Chris: Well, I think just the first thing is be realistic with yourself and your team about what's possible right now. I think literally every firm that I've talked to is pausing all deals. In fact, a lot of firms you've seen are getting heat for not following through on deals that were already penciled as done. So, and it's not just venture capital. I've also talked to five or six banks recently, venture debt banks that basically said, they've put in place billions of dollars in debt facilities.
And now finally, everyone's starting to call in on those debt facilities. So, I think no one would actually say this, but I think actually, there's probably shortage of cash available for additional venture debt lines, especially for early-stage companies. So, I think we're going to see a shortage of debt, and a total pause on equity for at least a couple of months. And I think there's a lot of fear in the market right now, well, it drives the behavior that you would expect from investors.
And I think as a CEO and a founder, if you're trying to raise money today, and you're probably going to listen to this podcast sometime in early to mid-April, you probably got to give at least until the end of May, before you have enough evidence of what's going to happen with the Coronavirus, and when people are going to be allowed to come back into the office, and to see what's happening with the impact to the economy, consumer spending and hiring. So, yeah, I think basically put fundraising on-
Nathan: What would you do in the meantime? I mean, would you like-
Chris: Oh yeah, do the nurture.
Everyone's still doing meetings. So, absolutely, this is a great time to build relationships, bring investors along in your process. Let them know what your hopes are in terms of fundraising timelines. It's not going to be the time to make any closing pitches.
Nathan: Time to nurture, not necessarily close, right, maybe?
Chris: That's right. Yeah.
Nathan: Yeah, that's good. I don't know. I'm talking to a lot of founders. And one thing I try and keep them encouraged about is, there is perhaps an opportunity, you have all these investors. Yeah, I agree. They're freezing up and locking down, but they're also trapped at home, and probably bored. It's a little bit of a captive audience, right? If you can get on their Zoom schedule, you've got all the investors trapped at home. So, what else are they going to do other than listen to pitches, and possibly [inaudible] companies?
Chris: Well, here's the other maybe thing, if you are a founder of an early-stage company, you're actually much better positioned than companies that are already focused on growth and revenue. Because all of those companies have hired lots of resources on go-to-market, and sales marketing, et cetera, customer success. And suddenly, you've got this huge investment in go-to-market, and you're not going to be able to close deals for the next four or five months.
So, those companies are going to be under massive pressure to do staff reductions, cut costs, et cetera. Whereas, as at an early-stage company, especially if you're not selling very much yet, most of your investment is still in product and engineering. So, this is a great time to double down on your investment in the product. Invest maybe where you think competitors are not likely to invest, and use this opportunity to improve the quality, the experience of your product, to build additional features, et cetera.
Nathan: Yeah, yeah, very good. All right. This is really good. Lots of interesting stuff here. I love this process. I've got copious notes, which we'll reference. If people want to learn more though, go visit nuffsaid.com.
Chris: Yeah. The shameless plug at the end of the episode here. If you're feeling overwhelmed or overloaded with communication at work, go sign up at Nuffsaid. The product is amazing. It's going to change your life.
Nathan: All right, Chris, thank you so much. This is great and we'll catch you after your Series A round. We'll see how things would change.
Chris: Yeah. Looking forward to it, and very appreciative for the invite.
That means most Success leaders designed their own careers—and Carta’s Kristina Valkanoff is one of the exemplars.
Valkanoff has scaled world-class Customer Success, Implementation, and Support teams for more than a decade. She was an early employee at DemandTec from its early days clear through its IPO and subsequent acquisition by IBM. She then led Customer Success at companies like Lithium Technologies, MOVE Guides, and Webgility, Inc. Now she’s the Head of Customer Success at Carta—and while she acknowledges the fortune in her meteoric career, she also recognizes the importance of custom-built skill and strategy.
“There is no one-size-fits-all approach,” Valkanoff says. “You want to see a sparring match? Go to a CS event, drop that little nugget of ‘what’s the right way to structure a career in Customer Success,’ and watch people go bananas. Everyone has a different idea of the ‘right’ answer is.”
Still, motivated Success leaders and aspirational CSMs alike can learn much from Valkanoff’s path. She consistently drives recurring revenue growth, low churn, and high client satisfaction—but her advice on building a career focuses inward, on what you can make of yourself and your team.
In this exclusive interview, Valkanoff offers advice on establishing a career in Customer Success and making the transition to lead and define Success organizations, and she shares where she sees the function of Customer Success heading.
After nine years at Demandtec, Valkanoff joined Lithium and moved into a management role as Director of Customer Success. Since then, she’s continued to move rapidly up management levels to VP and Head of CS. For others who are aiming for a high-growth career trajectory, here’s her advice for making smart career moves.
Follow the call of your own curiosity
Customer Success, at least as long it’s been going by that name, is a relatively young function. Success leaders are still exploring different models and playbooks; in a sense, the function is still defining itself. This makes it a reliable path for ambitious people who want to quickly advance in their careers and help define the role of Customer Success. This is especially true in startups.
“A lot of people join early-stage companies because you get to define your role and wear a lot of different hats; I was lucky to stumble into an early-stage company that did exceptionally well. Through that experience I met a lot of phenomenal people, both at the IC and executive level” Valkanoff says.
She joined the startup DemandTec early in her career, long before it was acquired. She joined as an analyst, worked on training customers, then moved into Implementation (back when Implementation required six to eight months of time on-site with customers) and finally into Customer Success - back when the industry was very new. Valkanoff thrived in this environment where she had a wide range of responsibilities—and where she was able to define her role in a company that didn’t yet have strictly outlined areas of ownership.
“I got to be the one figuring out what our team’s post-sales, flat-fee account management support looked like at big Fortune 500 companies,” Valkanoff says. “That’s where I came of age from a career perspective.”
Valkanoff learned early on that knowing the right people wouldn’t advance her career by itself.
“Almost every role I’ve taken on happened through my network. But I had to pick up the phone.”
“Almost every role I’ve taken on happened through my network,” she says. “But I had to pick up the phone.”
She has continued to seek out those early-stage companies for the same reasons she started out in one. But as she progressed in her career, she knew people she could contact—the same people who were already well familiar with her work.
For instance, the CFO at DemandTec went on to become the CFO at Lithium. He did not call and offer Valkanoff a job, although when she reached out he was extremely accommodating. She had to spend the time and effort to thoughtfully reach out to her network. Her networking alone did not open up new opportunities for her. Instead, she researched this new company, decided it aligned with her interests and values, and then happened to ping him right when the company was starting to spin up a true CS role. She was one of the first hires in that function and she got to participate in its growth from 0 to 26 CSMs in less than two years—all because she took that initiative.
Growth doesn’t just happen when transitioning into a new role; CSMs should be looking for ways to develop their skills where they are now. It took me some time to really understand that you have to go after what you want - nobody is going to hand it to you - this is an especially important lesson for women in tech to learn”, she says. However, there are a few different “moves” someone in Success can make to position themselves well for career growth.
Valkanoff cut her teeth with big-name customers like Safeway and Kraft early in her role as an IC, and she recommends that other CSMs—even those who are managing customers a fraction of that size—develop the skills to handle larger and more strategic accounts. Here are her tips on how CSMs can do that:
These skills will help a more junior CSM graduate into a role that requires them to build strong relationships while providing their expertise and guidance, thus positioning themselves well for career growth.
While in some fields like Sales or Marketing the saying is “the best individual contributors don’t make the best managers,” but that’s not necessarily true in Success: the best CSMs often do make excellent managers. Great CSMs are patient, helpful, and have a coaching mindset—all traits that make for a good manager.
With that said, moving from the individual contributor role into management can be a drastic mindset shift. Management is less about great performance as an individual contributor and more about the ability to shape the function, define processes, set goals for the team and motivate people to stretch to achieve those goals. It helps to have great role models and mentors to model after.
Valkanoff identifies these strategies for honing and steering a Success organization toward continued progress and growth.
Define what Customer Success owns
Leadership roles extend beyond the CSM purview of helping customers reach their objectives. CS leaders must develop processes and set the strategy and vision for the team and organize the team and the rest of the company around this vision. Since Customer Success is still evolving as a function, Success leaders and their peers need to determine what the function owns and how it’s structured.
When Valkanoff first joined Carta, Customer Success sat in the Operations org, reporting to the COO. That placement (rather than in, say, Sales or on its own reporting to the CEO) shaped how she built and scaled the team, its infrastructure, and its strategy. “We focused entirely on retention, engagement, and customer health,” she says.
That focus extends through all layers of Carta’s Customer Success organization. Valkanoff says that because Carta has so many customers (and different types of customers), the way they structured post-sales support is by having an SMB and mid-market account management team that’s quota-based. Then there’s a smaller group of more tenured folks focused on “late-stage private” companies (formerly known internally as the “enterprise” tier).
But the different scales and strategies don’t shift the ultimate focus for CSMs; the entire Success org is focused on retention, engagement, and customer health.
Improve operations as early as possible
Valkanoff led several important initiatives upon starting at Carta. Two of the most foundational were building out a customer health score and remapping their customer journey. These strategic initiatives required months to design and implement. But Valkanoff says these initiatives have revamped how the Success organization works.
Once the team had mapped out all the different touchpoints, they identified and documented all the pain points the different types of customers would have at various stages. Then, they created a playbook and prioritized each pain point at each stage, so that we had a prioritized list of items to knock out over the coming quarters.
“This was a challenging and time-intensive initiative,” she says. “But the output has been phenomenal. The journey map and revamped health score were critical, foundational efforts to everything—they’re the underpinnings of everything post-sales today.”
Keep it simple: Stick to the fundamentals of Success
Today’s CS leaders need to be very metrics and data-oriented. Valkanoff’s customer journey map and health score provide qualitative and quantitative insights to inform her team’s direction. She has no shortage of data at her fingertips—in fact, she recognizes how easily this much information can lead to analysis paralysis.
“Sometimes we’re guilty of trying to over-engineer things,” she says. “So I often try to go the opposite route. Let’s boil this down and focus on the basics here; this is the only way to truly ensure that you’re building a solid foundation upon which to scale. Sticking to the fundamentals of Customer Success is very important.”
Ultimately, Success is about helping customers achieve their intended outcomes with the product. So as a leader, she needs to make sure her teams are paying attention to what customers are saying about their experience with our product and teams, and whether they feel like they’re accomplishing those. “It is so incredibly important to listen to your customers and make sure that success planning is a joint effort - not something done in isolation,” she says. “I want to know not just what the CSM decides ‘success’ means for a customer, but rather what do we, including the customer, jointly decide is the path to success? It should be a mutual decision - it’s not enough for you to decide - you need insight from the people that are actually using your solution. That gets to the core of what we’re all trying to solve.”
As Customer Success leaders like Valkanoff continue to explore new models for their organizations, it’s nearly certain that the function will continue to grow in prominence and emerge with more defined structures and playbooks in the next five to ten years. Average salaries should continue to climb, and more companies will shift to understand Success as a growth engine, and that CS should move to the center of your organization.
“I’ve heard this said before, that ‘CS leaders are the next Chief Revenue Officers,’” Valkanoff says. “I loved this when I first heard it! No longer should CS be considered similar in nature to a reactive support function; the true value of proactive Customer Success as a growth engine is finally starting to take hold. Personally I have indexed more heavily on the operational side, but I truly believe a focus on driving revenue and growth needs to be a part of every decision we make as CS leaders. A maniacal focus on customer retention, growth and health with a customer-first approach is how to fulfill that prophecy and grow into Chief Revenue Officer roles”
Valkanoff also believes there’s a playbook for enterprise sales. “There’s a playbook for what enterprise deals should look like in a B2B Enterprise model and I think there’s a real opportunity for Customer Success to follow suit; to put some traction and operational muscle behind that. Sales and CS should be very closely aligned.”
On the other hand, she also sees hurdles for the function. Among them: the industry needs to drive toward putting Customer Success in the center of the organization, and having other functions and departments spoke off around that. “After all, we are the voice of our customers, and without customers, where would any organization be? For example, part of my role as a CS leader is to provide actionable insights to R&D that should inform the product strategy and roadmap.”
"Customer Success, being so close to the customer’s needs and experience, can and should be influencing the rest of the organization."
“We can drive the biggest value by championing our customers' needs and driving the product strategy and vision and roadmap,” Valkanoff says. “One of the most important functions of any Customer Success Department should be to provide actionable insights to R&D that should inform the product strategy and roadmap.”
Valkanoff offers these insights for people establishing a career in Customer Success and those making the transition to lead and define Success organizations:
But “culture debt,” where workplace issues accrue over time, is no new concept. Like any other type of debt, a company’s culture has to be thoughtfully managed and reduced. The truth is, you’re going to end up with a company culture no matter what. There’s no avoiding it. So the companies who put off the process of building a strong foundation for the culture they want to build will end up with something unpredictable and much more difficult to manage.
Your culture is one of the reasons people will join your company. It’s also the reason people will leave. So if you’re going to end up with a company culture anyway, why not proactively define the culture you want to develop and share those values with your earliest employees?
The first handful of people that join your team will buy into your values more than any other person that you hire later on. These teammates end up being your cultural beacons within the company. So if you define your core values early, you can enable your first hires—the people who are the most passionate about the company and the culture—to adopt the values and become cultural ambassadors as the company grows.
At UserTesting, we had a few one-liners that we would use for core values but we didn’t actually codify them until we were several years in. We didn’t intentionally create the culture we wanted until we were around 50 people. And while I’m happy that we ended up with a good culture, I wish we had codified those values earlier to prevent several painful years of defining and reinforcing the culture we wanted. That’s one of the reasons why we started defining our values early at Nuffsaid when it was only me and my co-founders Nick and Hari.
Here’s a step-by-step on how we brainstormed, evaluated, and finally landed on Nuffsaid’s three core values. Then, how to leverage company values to create team-specific values.
When Nick and Hari first joined, we went to lunch and started the value-creation process by listing off the things that were important to us. It was a broad, messy list and we didn’t leave anything out that came to mind. We jotted down lessons learned, concepts we found important in our personal work lives, and company values we liked and didn’t like from previous experiences.
It also helped that I’d been casually doing this exercise for about ten years: when a mentor said something that struck me or when I read something that I found remarkable, I jotted it down in my notes. And about two years ago, before starting Nuffsaid, I started writing down values and behaviors that I would lead with if I started a company.
(For those that might find it helpful for inspiration, here’s an edited version of that document.)
We combined my list with the one Nick, Hari, and I created and ended up with a list of ~100 behaviors, ideas, and values that we could start evaluating. Then we grouped them into themes and began the process of narrowing the list down.
When you have more than five values (I’ve seen companies with 10+), your employees aren’t going to remember all of them. Unless there’s a poster with the values taped on each desk, the company’s codified values are probably going to be rendered useless. Same goes for having values that are a full sentence. It’s hard to remember and keep top-of-mind.
But companies also risk having values that are too ambiguous. Take the companies with values like “Integrity,” for example. Or “Humble” and “Hungry.” How does a core value like “integrity” change your behavior at work? Sure, we all have a general sense of what integrity means. But in practice, if I’m an employee at this company, how should I make decisions differently than I would in my normal life? Without that clarity, values won’t change or improve company culture.
For company values to be actionable, each one needs to be broken down into specific behaviors that underpin the overarching idea. If you have the core value of integrity, you should think about what outcome you’re actually trying to get at. Articulate the outcome (the value), then point out specific behaviors you want to see. And if you can’t come up with three or four behaviors that support a specific value, it might be more of a behavior—explore ways to incorporate it under a different overarching value.
Identifying which items on our list were behaviors and which ones were outcomes was the most important and helpful step in evaluating our list of values.
For example, one thing on the original list that’s important to me is being direct (with respect). I value people who don’t beat around the bush. They don’t mince words. They are able to, without negative emotion, communicate with directness—they can even criticize without being negative. That’s something I want to see at Nuffsaid, and if my co-founders and I hadn’t taken as hard of a look at each of our values, we’d probably have “be direct with respect” as a top-tier value.
But as we looked at “be direct with respect” alongside other values, we realized that being direct is really just a behavior. It’s not a value: it’s a behavior that you do in order to support an overarching outcome. What is the outcome we want when we tell people to be direct?
At the same time, Nick, Hari, and I agreed that we didn’t want to work with people who don’t listen to other people’s opinions. We don’t like people who spend all their time advocating for their own points of view. And while “listening” is certainly a positive behavior, it’s not actionable on its own and doesn’t really guide people toward the outcome we’re actually trying to get at.
We realized that “being direct” and “listening” were both about building lasting long-term relationships with each other. So that idea, the “build 30-year relationships,” became the value. Listening and being direct (now articulated in a more clear way) are listed as behaviors that underpin that value.
We also wanted to make sure we were clear about how decisions are made at Nuffsaid.
And I don’t mean what kind of decision-making framework the company uses like RACI, ARPA or RAPID. People need to know the company’s philosophy about who gets to make decisions, the required thinking before a decision is accepted, and what happens when there are disagreements.
When people don’t know how decisions are made, constant deadlocks and differing opinions prevent forward progress and results. When a new employee joins a company of a substantial size and isn’t told how decisions are made, they’re going to be wondering about things like how budget decisions are made, or who owns decisions around specific aspects of their job. There’s a good chance you’re setting them up for a lot of wasted time and failed attempts to move something forward in a way that doesn’t fit with how your company works.
For every decision that needs to be made, we provide a framework to make that decision in a Nuffsaid way. For example, we’ve prioritized the importance of different types of information used in decision making. Personal opinions and anecdotes are the least valuable data. We value the opinions and experience of the team over the individual. More valuable than our opinions are credible 3rd party data like research papers or industry reports. The most valuable data is actual customer data, and we try to get enough customer data to make every major company decision.
Equally as important, we outlined what happens when there are disagreements about decisions. When there are conflicts, how will the company overcome those quickly? For example, we have a philosophy that decisions should be pushed as close as possible to the people that are doing the actual work—we empower people closest to the customer and the product, and their team leads. But, that will ultimately cause disagreements, so we have an escalation process.
Teams should be able to leverage the company’s values in the interview process. If you can’t identify questions for each value to score candidates on how closely they match the culture you’re trying to foster, it’s worth spending a few more iterations to make the values more focused and clear.
Our hiring process has six steps, one of which is a cultural interview. We’ve listed questions for each value: we give candidates a question or scenario we want them to respond to, and we’ve documented what a poor, mediocre, and excellent response looks like for each question. (We also regularly revisit this scorecard to see if anything can be improved.)
Here’s an example scenario of what a good, mediocre, and excellent response looks like for our value, “We lead with good intent, and assume others do as well.”
With time and a lot of back-and-forth iterations, we’ve landed on three core values:
The above are our core company values, which serve as overarching, guiding themes for how we work. Departmental values tend to be more tactical; department heads need to take the company values and tailor them for the people who are doing specific categories of work.
Take a product designer as an example. A designer at Nuffsaid will probably look at our company values and say, “ok, I’m going to build 30-year relationships. That’s a great thing to keep in mind and work toward, but tell me how I should be doing my job.”
The department head, and in our case that’s Product, should design values that are much more focused on guiding the people in product roles, while still supporting the overarching company values. At Nuffsaid, our Product team has 1. product values, 2. design principles, and 3. customer-focused release process. Together, these explain how people working in this department are expected to work.
Our design principles are Simple, Fast, and Smart. Every feature we build must solve a customer problem using those three core principles. Each of these three principles are articulated clearly, with specific metrics to track how the team is doing across those values.
When designing team values, take things you believe in and want to see your team doing, and codify those.
Customer health scores are an example of that. Executives want to quickly know where there’s risk across their entire customer portfolio, and customer health scores are how they do that.
The problem is, customer health scores are often made up of inputs like product usage, which aren’t necessarily indicative of risk. (If your customer isn’t using the product, that is a sign of risk, but if they are using the product that doesn’t mean they’re “green.”) These variables aren’t enough to truly detect risk or prescribe targeted solutions.
Nuffsaid’s CEO, Chris Hicken, recently joined the Gain, Grow, Retain podcast to talk about customer health scores. He explains his thinking on why customer health scores often aren’t sufficient, and Success leaders can “feed” those scores data that makes those scores much more focused and actionable.
Listen to the full episode here, or read the lightly edited transcript below.
Jeff: Hello and welcome back to another episode of Gain, Grow, Retain. We have Chris Hicken with us today who is the co-founder and CEO of Nuffsaid, which helps to centralize the world's work apps and focuses people on the work that matters. And we got into a deep discussion with Chris around customer success and how people prioritize their time in that field, how we think about the technology that they have in terms of some AI and machine learning that they're building into Nuffsaid. And then the bulk of the conversation centered around the idea of health indicators, and how we're thinking about trying to make those as proactive as we can and what goes into that. So I hope you all enjoy.
Chris: So Nuffsaid started as an idea when I was working at UserTesting Enterprise Software Company that helps people build great customer experiences. I joined the company really early, I was employee number five. And what I saw over the course of my almost eight years at the company was that people were increasingly overloaded with information, distracted, and these were coming from all of our communication tools, email, chat, SMS, LinkedIn, weekly reports, every SAS platform wanted our attention. And what I found was, increasingly, people, well, they're spending more time at work. Some people were spending 12, 13, 14 hours a day at work, but especially towards the end of my time there, I felt like people were getting less done in their job than they ever had.
And this problem is going to continue to get worse as more investment dollars are going into software, more different communication channels are coming into our worldview. It's harder to spend time focusing. And so the idea for Nuffsaid and our vision for the future is that we create a brain that sits alongside you at work, and that's an AI-powered brain. And that brain, one, it filters out all of the noise and distractions of your day, but more importantly, it helps you focus on work that matters for your job and your position. So, it's not just about communication that matters, but it's tasks that you can do today to move the needle for your job or for your department.
So that's what started the whole concept of Nuffsaid. That's a big vision for a company. And so what we're doing is, we are building the AI, these brains, department by department. So we're building a brain, initially, for the customer success/revenue retention group within a company. But then we're going to develop one for sales, product management, engineering, marketing, et cetera.
Jeff: That's really awesome. So the idea then, too, is that you are sitting as kind of the sidecar to myself, whoever the customer success person is. As you're sitting alongside of that, then you essentially all the inputs from all these areas, and you're essentially helping me prioritize my day, think about the things that have to respond to, and really just helping me be most effective with my time at the office.
Chris: That's exactly right. Every day you're going to leave the office having accomplished the most important things you could have done each day.
Jeff: I like the vision. Well, I know as we were going back and forth, and somewhere, I think naturally that goes alongside of this is, in our world, and a lot of times in the customer success realm, is thinking about health scores and prioritization of accounts, and are we actually driving value for our customer? And knowing that a customer success individual contributor could have something from 100 customers, up to 500, up to 1,000.
The idea of a health score has become really prominent in the industry, and I think what we continue to see from our side of things is that they're trying to automate health scores. They're trying to get a lot of things crammed into it, so "I need relationships, I need product, I need feedback surveys," I need all these different things getting into that. So what are your initial thoughts? I don't know if you really feel strongly about an account health score or what you've seen, but what your initial thoughts just around trying to build some sort of score or metric that really helps somebody prioritize their accounts from the customer success side of things?
Chris: Well, at a high level I agree, especially if you're an executive. I understand the drive to simplify the overall portfolio health and get to a number or a metric that helps you understand where there's risk. So, I understand why people are driving towards that. The biggest problem with health scores, and I would actually go beyond health scores and say the biggest problem with how customer success is managed today, is that almost all decisions are driven off of lagging indicators or vanity metrics.
“The biggest problem with how customer success is managed today, is that almost all decisions are driven off of lagging indicators or vanity metrics.”
Typically, the four metrics that most companies are driving decisions off of our usage, retention rates, and by retention rates this could be net or gross retention rates, customer advocacy, which often comes in the form of NPS or referrals, or goals. "Have I added value to my customer, have I helped my customer achieve the goals that they set out to achieve?" All of those metrics can take 6 months, 9 months, 12 months to come to fruition. And in the meantime there's tons of data that the company can be collecting about that relationship with the customer to understand where there's risk in the portfolio.
So my take on health scores overall is that, in general, health scores are driven by usage data. Usage data is not a helpful metric in discovering whether or not your account has any risk. And we can go into specific examples of that in a moment if you'd like. And the result is that health scores end up... The VP of customer success or the chief customer officer is not able to leverage the health score today to drive improvement in the portfolio and reduce risk overall.
Jay: Let's go back to the idea of even just this whole notion of calling it a health score. That makes it sound like it's a single number. I really like to think about it as a set of indicators, health indicators, even like key health indicators, you could think of it as. Because the reality is we've seen so many of our clients and people in the marketplace just trying to build a score that tells you is the account healthy or not, and then nobody understands what it means.
There's two things I think that are important. One is being able to tell if you've got a problem, basically, predict whether you have a renewal risk. And then two is what are you going to do about it. And if the score is just some black magic number, then what are you going to do about that? You don't even know where to start looking. So we tend to think about it as a set of health indicators, I guess, so I'm wondering if you agree with that.
Chris: I wholeheartedly agree with that. And the buckets that I would use to... the data that I'd want to gather during the course of the relationship that are kind of more of the indicators are the different buckets of risk are around the customer's maturity, the product, the people, and the pricing. That's how I bucketed them. I've seen them bucketed in different ways. And I think there are questions that you want to answer under each of those four buckets to discover where the true risk is in the portfolio.
And to your point, Jay, it's not enough to detect risk. You also have to be able to trigger actions, meaningful actions, that a CSM can take to reduce risk. So these could be company-approved actions, these could be industry best practice actions, but in order to reduce risk there has to be a combination of detect risk, trigger an action. And I think that's kind of our philosophy on this kind of AI that we're building for CS. It has to be able to do both things.
Jeff: Yeah, absolutely. And that's something that we've seen, I think as well as you, we've seen some customers that have over engineered the score so much that there's literally confusion among the CSM team about like, "I don't even know what this word means. I don't know where it comes from and therefore I have no idea like what I should be even doing with the customer," which ended up itself as like the opposite of what you wanted in the first place. So it's just funny how they don't use it manifests itself.
Chris: The reality is, it might be overreaching to say this, but most customer success teams are not using their health score re effectively and regularly as a part of managing their business anymore. And, by the way, it's not because the health score tools are bad, it's just that we're not feeding the health score tools the right data, a complete set of data, that's needed to generate an accurate view of the overall customer risk.
Jay: Totally agree. I want to dig into your category for a second because the one that really stick out to me is pricing. I'm intrigued. Tell us a little bit more you think about that.
Chris: There's lots of different factors that go into pricing and I think the first question that you have to ask when going after pricing is, "Does the problem solve a severe and ongoing problem for the customer?" Usually you can connect to your product to some kind of problem that the customer's experiencing. But you need to understand how severe the customer thinks about that problem. Because you can't really come up with a price until you can answer that question effectively. So pricing starts with answering that question. By the way, that question is difficult because a lot of times customers aren't willing to give you an indication of how severe the problem is because they want the leverage to be able to negotiate price in the future.
But it definitely starts with understanding that question. And then the second question is, "Is the problem that's being solved by the product severe enough to justify the price?" So you need to get an understanding of a price banding. If someone rates the problem that they're experiencing a 5 out of 10, what does that problem mean for you in terms of your ability to price that product for them in the future and your ability to grow your ARR with that customer going forward? And then there are other kind of factors and pricing too. For example, discounting is a big one. And here's what I mean by that.
I'm going to go back to an example at UserTesting. We found that customers who are unwilling to invest a certain amount every year to install UserTesting probably weren't thinking about UserTesting as an ongoing product that they wanted to use. They're probably thinking about it more as a single project. Like, "Hey, we're releasing a website, we want to do some UserTesting. So help me solve some short term pain, and I don't want to pay a lot to solve that short term pain." So what would happen in the sales cycle is salespeople wanted to get deals done so they would offer discounts. And when we got below a certain threshold, we found that we were dipping into a clear indicator from the market that that customer was unwilling to invest in UserTesting as a longterm solution for their business. So I think discounting, there are actually three or four different vectors that you have to look at discounting to determine risk in the portfolio. But that's one of them.
And then the last one on pricing is around alternatives. So it's important for you to understand one, where's competitive pressure coming from? So not only which companies are you feeling pressure from, but what types of pressure are you feeling? Are you feeling pricing pressure? Are you feeling a feature set, total product pressure. So you need to understand what aspects of alternatives are creating price pressure for the customer success team. So those are kind of the four main items. And I think you can collect the data to answer these questions through analyzing communication that's going back and forth with the customer.
That's actually a big way to collect that data. I think you can do some clever surveying of customers throughout the course of the relationship, especially earlier when they're not thinking about renewal yet. You can kind of tease out some of how they're thinking about the problem set. Some of it will happen during quarterly business reviews (QBRs). Some of that you'll be able to get during onboarding, but they're kind of four maybe five different ways that you'll be able to answer these questions over the course of your relationship with them.
Jeff: So two things that really come to mind for me as you talked through that. One is, I like the way that you think about trying to gather those points of feedback at varying different areas. Because I think that, as we think about the customer journey, not only do we want to think about it from the customer lens, so how is the customer actually going through this, this journey and the flow, and how are they going to perceive handoffs? How are they going to perceive these communications? But I think an underlying element that's really missed, at least from what we've seen a lot of our work is the those points in time that we want to gather feedback from the customer and we feel like it's important. And I think a ton of companies have missed that from our perspective. After onboarding, it'd be great to understand how did our onboarding and implementation go? How was the configuration process? Was our team attentive and do we feel like it's the right process for them to go through?
And same thing at varying points. Like you said, even talking about pricing. The second thing that comes to mind is we did a really cool project a couple years ago for a company around pricing and their willingness to pay survey and really tried to align it. So they actually had a very similar challenge to what you described where they had a product that could be used on an ongoing basis for some large enterprise type clients. They also had a product that could be used by a small mom and pop, one time, for one project, and they allowed people to move in and out of their contracts on a monthly basis. So you'd see revenue spike and declined a lot in monthly cycles.
Literally, if I was their CFO, I would probably have a heart attack because you'd see a ton go up and go down, and you had no consistency. And so part of our project was to try and figure out what are those thresholds that people are willing to pay for certain features and for certain outcomes that they're looking to achieve. Actually talking to customers themselves about how they were using the product to actually deliver an outcome and what they were trying to achieve. So that was the second thing that comes to mind.
For us, the work that we did, I thought it was really cool project because you actually got to see these varying points of feedback come together, and really how the pricing mattered at the end of the day in order to drive the right packaging and deliver that to the customer appropriately. And then getting the sales team to buy into that. You can't sell this customer this type of package or product. So there's other things. Jay, I'm curious what you just thought of that too.
Jay: It is the most valuable project we've ever done, but we're not a pricing firm. But it had such a huge impact on customer success, we felt compelled to do it in that case. We'll probably never do another one. Although the ROI was so huge for that company looking back 18 months, we probably should do more of that work, but it's not just the price point, it's the structure of the agreements and how they factor into it with the rest of the marketplace is doing around that type of solution. So I like your categorization. I haven't ever thought about it, of putting all those things in a pricing category.
Chris: Yeah. It is. It's a product market fit, in a lot of ways, question. The pain that's being solved, how severe the pain is, what you're willing to spend to solve that pain. And the way that you ask the question, and I think you guys both brought this up, the way that you asked the question and the timing of asking the questions is very important because if you ask it the wrong time, if you ask that question too close to renewal, the customer will not give you honest feedback because they want to have pricing leverage come negotiation time. And so how you ask the question, when you asked the question, that's really important to get accurate data that you could take action on in the future. And the fact that you're doing, as a customer journey, customer success focused firm, the fact that you guys can do pricing as well is absolutely huge.
I think it's one of the few things that customer success teams can do to dramatically improve their results. And it's one of the last things that companies actually pay attention to because pricing is almost always created by the marketing team, driven largely by very vocal salespeople. And the salespeople are not thinking about what happens post sale once the product is being adopted and the levers that you can use to drive increased adoption and revenue growth within the team. So I guess what I'm saying is, I wholeheartedly agree with you that it's a huge opportunity, and it's awesome that you provide that service.
Jeff: You mentioned earlier just about usage and how it can largely be a lagging indicator. And also really you're measuring usage, you're associating more about logins and where they're using the tool and not necessarily what they're achieving being in the value that they're getting in terms of solving the problem. So right now, what are some of the categories you think of and you have as in terms of usage, and then how do you try and make that a category that is leading if it can be?
Chris: Well I don't, I don't think it can be leading, but the standard usage metrics, I think, are good, which is breadth, depth and frequency of usage. I think all companies have some flavors of those three categories when they're measuring usage. Here's the problem with usage, with respect to detecting health risk. And I found this to be true for most company I've spoken to, if the customer is not using the product, obviously you've got a problem. So red alert, figure out what went wrong with that customer. If the customer is using the product, who knows whether or not they're going to renew. Nick Mehta at Gainsight wrote an article in October last year kind of with a similar sentiment. And here's an example of what I'm talking about. This happened to us at UserTesting, especially in the early days, less so more recently.
We would have customers that were massive evangelists of the product. They were using it every day, multiple times per day. They would share the insights across the company, into the product and the marketing teams and the UX and design teams. And then one day we come to work and that person has left the company. And guess what? That account, that several hundred thousand dollar account, is gone all of a sudden, and my health score said it was green. So how did we go from a green account then suddenly gone? Those are the types of problems that happen when you are looking at usage. You're not actually identifying... The only time you're identifying risk is when the product is not being used. If their product is being used, you have to look at all of the other factors that are what I believe are true indicators of risk to detect whether or not you actually have a problem in that account.
Jay: Yeah. And everybody has different indicators of risk or success is what it sort of comes down to. Similar story, I used to work for a company, and we sold HR technology to companies that employed hourly workers. So if you didn't use the technology, you couldn't hire people to staff your business. So, literally, it was compulsory. You had to use it. So we would never know. Usage always look good. But then the company would get bought by somebody. So business changed dramatically. We'd lose the stakeholder, to your point, and all of a sudden there's a new competitive threat in there at renewal. So yeah, usage alone doesn't tell you anything.
Jeff: So I guess the question then is how do we layer in relationship indicators that... There's some account management things. We know there's a competitor in there, and we know that this account falls into a segment that is highly competitive with somebody that is in our space. But how you incorporate the relationship factor in there. Are we too dependent on a relationship and not dependent enough on the core value that the product provides? Do we not have enough relationships globally? That type of thing.
Chris: One of the four buckets that I mentioned at the beginning was customer maturity. The maturity of the customer is the customer's ability to adopt your product and get value out of it over the long haul. That's how I think about maturity. So one of the questions that you need to answer under maturity is, "Who advocates for the product, what's their authority, and has it changed?" And by the way, change could be new boss, company was acquired, any change in the authority of your main points of contact.
And so I think it's up to every company to decide what the playbooks are depending on whether or not you have a low influence stakeholder in the company, or you don't have enough stakeholders. Maybe two isn't enough. Maybe you need seven. Maybe you need at least a director in order for your product to renew because if you have a manager or below you don't renew. I've seen companies, I like the simple one, the one, two, three, which is a one executive spot-
Jay: Yeah.
Chris: You've seen that one?
Jay: I just saw that the other day. Say it though. It's really good.
Chris: One executive sponsor, two champions, and three power users. And if you have that structure in place you can suffer the loss of any one of those and still recover the account.
Jay: Yeah. It's like a nice solid teepee. Triangle or whatever.
Chris: And by the way, that's one example that companies are going after. I think every chief customer officer has to come up with their own kind of standards of what they expect upon renewal. And that would be one of the four or five questions that you'd want to answer under the maturity bucket to detect if you have maturity risk in the account.
Jay: I know we want to move on to a different topic, but how do you differentiate that from the people category then?
Chris: You actually brought up recently, Jay, actually, you both brought it up. The topics under people are the quality and speed to value of the onboarding. The quality of ongoing training. How the customer feels about their experience with the CSM, the services team and support. And then finally a big one is a trust factor, which I think largely goes missed by most companies, which is, "Does the product and service match or exceed the customer's expectations?" So this happens a lot when the salesperson has oversold the deal, and then they get to the customer success team and they realize, "Oh my gosh, this is not what I signed up for."
Talk about destroying trust in the relationship right off the bat. Same thing can happen at the renewal time. The CSM wants to get the renewal, they over promised that a feature could be delivered on time or that uptime will improve. And there you go, your trust is out the window, and, again, the account is at risk. So those are the buckets that I put under people. You might track those under a different bucket, but I put them under the people bucket.
Jay: I like it.
Jeff: And I think largely one of the things that I think we see as undervalued, that I like that you specifically call out to, is the time to value, and time to almost first value, realize value... But getting somebody through that process successfully. And then the training piece. We worked with a client recently, and they recognize that they had a large churn happening at year one renewals. And what they did is they actually track that back through a series of surveys back into the onboarding piece. And they had done surveys right around the onboarding and after these companies got implemented, and some of the questions were fairly simple and straight forward.
But it was like, "Do you feel like you're successfully trained in our product to achieve your desired outcome? Have we successfully delivered training? How quick was our time to value?" And pretty quickly what they realized is that they weren't delivering any of those things adequately enough, and in a timely enough manner, and onboarding. And so a really cool way though to dissect, I think you're getting at as well, that here's a kind of churn in year one renewals, and let's actually track that back to an onboarding activity, which seems kind of opposite. But it really was so impactful that they dedicated a session. We had 20 people going through a journey designed specifically around that onboarding piece and almost like, let's map the first 30, 60, 90 days a customer, and really what we're doing, how to coordinate all of these things and make sure it's working appropriately.
Chris: That is a perfect example of using a survey. Normally you have to wait 12 months to see whether or not the onboarding process worked. But here's an example of a company, you guys helped a company deploy a survey to get feedback about their onboarding process, immediately, that led to action to improve the overall customer experience and customer journey. So I love that. That's what Nuffsaid is all about: detect problems early and trigger actions. And that's what you did.
Jeff: So an interesting topic that we haven't really, or I feel very uneducated on, is around kind of the AI side, the artificial intelligence side of the world. And I know you called that out specifically as something that you guys are leveraging at Nuffsaid, and how you guys were thinking about rolling out the product. So maybe give me a little bit of a short education just on how you guys have gone to think about using AI and using that type of technology to really help drive some of the decision making and actioning that you can get from the data that you guys are pulling in.
Chris: AI, it's probably overused by most companies. A lot of times what's actually being deployed is machine learning. But in order for the computer to help you make decisions and help you focus, it needs to have a massive dataset to review to see what types of communication information leads to activities and outcomes for the role, the department. And so, for example, for our product, what we're doing in the early days is feeding the AI communication data, Salesforce data, Gainsight data, Zendesk, Mixpanel, all these places where data is being collected, we're feeding all that to the brain, and we're looking at what types of behaviors or activities each CSM is doing. And then we're comparing though that CSMs success longterm compared to other people that look like them. So other software companies or other large software companies or small SMBs.
So what we're doing is we're putting in some parameters into our machine learning algorithm to sort and compare different types of users with each other, with users from other industries. And then over time, and again, sometimes it takes months, it takes a year as to get it right, but over time the computer can do a good job of identifying trends, and then surfacing actions and activities that should happen based on other best practices that it has detected elsewhere. And so that's really all AI is doing. It's allowing the computer to learn from trends that it's seen across a large dataset.
Jeff: One of the things that Jay and I have been talking about recently too are just interesting industries or companies that are solving interesting problems is kind of in industries. So do you feel like, outside of what Nuffsaid is doing, have you thought about, I don't know, other applications for where AI is or machine learning whichever verbiage, that is maybe under leverage right now, where there's massive data sets that it's kind of green field.
Chris: Yeah, that's a great question. I would say just in general, this concept of AI is so new. There is no winning use case for AI yet. So I'd say everything is green field and everyone's trying to figure out what the killer use cases for AI will be. I think we have one of them. But I think AI, probably in the early days, will show up more in consumer products because the datasets are much larger for consumer companies than B2B companies. So things like self driving cars or Amazon with shopping algorithms, I think those companies are more likely to come up with early versions of AI.
By the way, Amazon right now doesn't run on AI at all. Their shopping algorithm is all rules-based, but they have an opportunity to introduce some AI into their platform in the future. So long story short, I don't think there is a killer use case today. I think if I was an entrepreneur thinking about just AI only and not other problems, I probably would do a B2C company first because of the access to massive data sets. So, I'm excited by the technology and we'll see where the road goes in the future.
Jay: And Chris, maybe you don't know this yet, maybe you're still figuring out, but who is your ideal client at Nuffsaid?
Chris: So early days it's probably similar to how you think about your target customer. It's going to be a mid size company, let's say 10 to 50 CSMs, and probably doing somewhere between 20 to $120 million in revenue. They're more likely to be a software company, but they could also be in financial services. Any company that manages a portfolio of customers would benefit from having this kind of brain helping you focus your time on different parts of the portfolio.
Jay: Got it. One of the things that we've started to both see, hear about and talk about and explore more is this idea that even companies that have not traditionally been software companies are becoming software companies. Maybe one of the most prominent examples that if you look on Zuora's website or some of the others is Briggs & Stratton. They're becoming a "lawn care company," not just a lawnmower company. They're thinking about the customer and not just the product.
And so, to me, maybe we have a biased view of this, but customer success gets way bigger from here, not smaller even in the B22C realm because the way that industries are thinking about the customer experience and the long tail of their customers and the lifetime value of their customers as being a really valuable thing and selling services not one time products. It's going to necessitate it. So I was just curious, that's why I asked you your ICP question because I'm curious if you guys have looked much outside of tech yet.
Chris: We haven't but only because we're early on. But I like your perspective that... We call customer success what it is today because it's born out of an account management function. It was traditionally a one-to-one relationship with the company for SMB companies or B2C companies, we called that function, customer support. But, functionally, they were responsible for creating the same types of delightful experiences as customer success. Just in a lower touch point way.
So that's a really interesting perspective that longterm customer success could be expanded to even low touch point experiences as well. I haven't spent much time, honestly, thinking about what that could look like, but it's a really, really interesting perspective. And even for a company like Briggs & Stratton, it's true. They don't want to sell snowblowers, they want to sell a clear driveway. That's the solution to the problem. And so, if you think about the problem that way, it's not just about selling a product with some support, it's "Let's provide a solution to the problem for customers."
Jay: And even companies like GE digital has... I think GE digital is not quite a thing anymore. But airplane engines, they're basically on lease, and there's all kinds of telemetry data that comes with those now. And there's a whole solution that comes with the hardware. So even a B2B. If you just go search LinkedIn, and I know there are some studies out there too, I think Gainsight did one of them on just the growth of customer success as a profession. It's sort of massive, and I agree with you. I think some of it is just a conversion. People are converting account management into customer success. But they're slowly starting to change the mindset around it as well, this whole customer centric mindset. And so the good news is, for what you're doing, it feels like your [Tam] is growing naturally, not staying stagnant, and for us to, I guess for that matter.
Chris: Yeah. And remember we're building a brain for each department in the company. So obviously we're starting with customer success, but the way that we grow our team longterm is by providing that same brain to other functions. But going back to this customer success concept, I'm curious, this is a very, very interesting idea that customer success... Customer support goes away completely. And the only function that you have in your company is customer success. And you have a low touch customer success team and you have a high touch customer success team. When you're thinking about it in your head, is that how you were positioning it?
Jay: Not quite so I don't think support goes away. I think we talk about support being, we use the word dial tone or the phrase dial tone all the time to talk about support, because half the time when we walk into a company, if they're trying to get more proactive with their customers and get more engaged and strategic in how they're driving that relationship forward, if support's busted or if engineering isn't able to fix things fast enough, the whole thing implodes and everybody becomes support.
We were working with a company the other day, and their CSMs have their own tracking spreadsheets and support tickets because they are having some challenges with support right now. They're all being drawn down. They're being knocked down a rung on the ladder. So they can't be strategic. So I actually think support is critical to having a great customer success strategy, and customer success strategy being, we're engaging with our largest customers one on one. We have strategic proactive engagement, one of the many in our mid tier and SMB tier, so that we can drive retention and growth in those accounts and advocacy in those accounts. And that's just wholly a different thing to me than support. So that's my strong opinion on it. I don't know if you'd agree on that or not.
Chris: Yeah, sorry I kind of took us off topic, but I was inspired by the idea that maybe, at some point, we think of all of our customers as being deserving of customer success, and that what we're all ultimately aspiring towards is solving a customer's problem. And that may be in the future we don't have a differentiation between support, which will oftentimes we think of as a cost center in the company, versus customer success which we think of as a revenue generation function in the company. So anyway, I took us way off topic here, but it's a kind of an interesting thought exercise.
Jeff: It's great. And I think if you're going to take the time to sell a customer, then, yes, they all deserve customer success. When we translate that, it doesn't mean you get a dedicated person with that title. It means you get the outcome however that gets delivered. And that may be through self-service, and we're feeding you programmatic tools to onboard appropriately, and it's going to come in a lot of different shapes and sizes. CSMs are just one small facet of a whole company focus on customer success. I know I'm preaching to the choir here.
Chris: And by the way, we might end up cutting a section out and that's fine. Where I'm going with this is, even at UserTesting, for example, in our SMB group, we couldn't justify the cost of having a full time dedicated CSM for all of our SMB clients. Financially it didn't make sense. So one CSM was responsible for 250, 300, sometimes 500 customers when we were stretching too far. So at that point, what is that job? Is that job customer success? Is that job customer support?
I don't know. The lines start to get blurred when you go from high touch enterprise, traditional CSM to SMB 500 accounts per CSM to support, where support might manage 1,000 or 2,000 customers over the course of a year. Interesting topic. Probably not more for today, but maybe there could be some interesting content there in the future.
To listen to more episodes with Jeff and Jay on the Gain, Grow, Retain podcast, subscribe here.
And if you liked this episode, you may also enjoy reading Chris’s post on Why Customer Success Leaders Aren’t Getting a Seat at the Table.
I’ll go into why I believe Success is a career worth betting on, but it’s helpful to first realize why we’re here. Why does the question of whether this is a good career come up more frequently in Success than in other functions?
The crux of it is this: Customer Success owns less budget than other departments in most companies. Their budget tends to be 5-12% of the company’s revenue, whereas Sales or Marketing could easily spend 50%+ of the total revenue. As a result, the average Success department can only afford to pay people who are willing to make a salary somewhere between 75k on the lower end and 125k (according to Paysa) on the high end.
Success orgs need to hire for potential and skill, not for experience. They need to find people who are ambitious and looking to grow their career.
But as expected, ambitious CSMs will eventually cap out on what the company can pay them. The path forward isn’t clear. This leads them to wonder if they can build a great career in Success, or if they need to move horizontally to a different function.
TLDR; Customer Success is trending upwards and I believe will continue on it's current trajectory for the next decade. With 3 existing paths for growth, ambitious CSMs can continue to pursue fulfilling, lucrative careers in the Success discipline.
When people pursue a career in Success, they’re placing a bet that the role and function of CS will continue to grow in prominence in the next 5 to 10 years.
In the last 10 years, I’ve seen Success average salaries more than double.
As the role grows in prominence, in other words, as companies realize the critical role that Success plays in the growth strategy of the company—and as Success leaders emerge as key strategic players in the enterprise—they’re going to be able to advocate for more budget for their teams. They’ll be able to pay people higher salaries overall.
So that’s the first question people need to answer for themselves when considering this career: Do they believe this role is growing in prominence or not? If the answer is yes, we can then move on to some of the ways that Success people can grow their income and exposure within the company.
There are three overarching “moves” someone in Success can make to progress in their career.
1. Grow the skills to manage bigger accounts
The lowest paid CSMs are those that do the most transactional work. If they’re managing SMBs, they’re going to make less money than if they were managing large accounts.
The path forward is to develop the skills needed to manage those larger accounts. People in this situation can:
2. Focus on the "solutions consultant" or "solutions architect" roles
A Solution Consultant is the person who deeply understands the industry, the product, and the different verticals of customers. They can talk at a strategic level not just about the company’s product, but the problems in the overall space—including the processes and best practices that other companies are implementing.
Then, they can explain how potential new customers can transform their current processes into more of a best in class process and explain where their company’s product fits.
For the CSM who wants to become a prominent individual contributor, the Solutions Consultant role can be a very flexible and high-paying path.
3. Get into management
The third way to progress in Success is to get into management.
For CSMs becoming managers
In a lot of fields—like Sales or Engineering—the saying is “the best individual contributors don’t make the best managers.” That’s not true in Success: the best CSMs often do make the best managers. The best CSMs are helpful, patient, and have a coaching mindset. They spend their days teaching people how to implement best practices.
To start testing whether management is a good next step, CSMs can:
If they perform well across those areas, they should be next in line for a management position.
For managers or team leads becoming directors
A director role is less about great performance as an individual contributor and more about the ability to set large team goals and develop processes from scratch. They need to be very metrics and data-oriented.
Directors also need to be able to put systems in place that keep them informed about what’s going on at the front lines, so they don’t become disconnected from the CSMs and the customers. This might look like blocking off time every week to listen to customer calls or taking time to read through qualitative data.
But product usage, unfortunately, is too high-level to be actionable for Customer Success leaders. It’s a binary indicator of renewal: If the customer is not using the product, they have a high risk of churn. If the customer is using the product, their churn risk is unpredictable.
Nuffsaid’s CEO Chris Hicken recently sat down with Ethan Beute for an episode on the Customer Experience podcast. They covered:
Listen to the full episode here, or read the transcript from the interview.
Short on time? Here are a few takeaways from the discussion:
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