Are scale-ups setting themselves up for failure?

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In the dizzy heights of 2023, where advances in technology are building by the minute, we have found ourselves in a bit of a conundrum. With companies innovating faster than the layperson can keep up, a new strategic direction announced almost every week and an increasingly talented and tenacious workforce tackling problems not even realized a year ago, what has become abundantly clear is that our business and operational models are still stuck in 2011. Legacy churn principles, disparate customer data and an unrelenting drive to acquire new business at all costs are the creaking, crumbling pillars of an ancient sales-led operating model.

This isn’t just a housekeeping reminder to make sure your go-to-market system is up to date, though. We’re talking about a real boardroom shake-up. With more scale-ups and category builders hitting the hypergrowth stage than ever before, even with dampened investment appetite from the venture community, these tech unicorns have continued to secure investment decisions that we believe are built on a house of cards. And we’re already starting to see the cracks.

It isn’t the lack of new business that kills these hypergrowth scale-ups. It’s the churn. And the way that organizations measure churn today could actually be the trojan horse that kills their business.

Matt Brown

Co-founder and CEO of CustomerOS, the customer driven growth platform.

Customer Success

There are obviously several mitigating factors at play here, not least the prevailing winds of an ailing global economy, private company revaluations, reduced investment activity and dramatic shifts in technology need and adoption. But the real missing piece of the puzzle is an understanding of the commonly underappreciated role of Customer Success in your go-to-market motion. When in motion correctly, Customer Success ensures that your customers are realizing tangible business results from your products and services. And tangible business results are exactly what’s required to drive renewals in this economic environment.

The problem is, our Customer Success teams are typically the first to go when the growth numbers stall. This is largely driven by the belief that churn is under control and a smaller headcount is required to manage it proactively. But this reasoning is based on flawed logic and misleading mathematics.

Churn is a lagging indicator. It’s also an imperfect metric that’s distorted by sales growth. This means when you’re growing fast, your churn numbers are suppressed artificially. So what happens when our growth slows, our poor fit customers start coming up for renewal, and we’ve eliminated our teams responsible for leading them to tangible business outcomes? Kaboom.

The way that we work with our customer data therefore needs a total overhaul. And for SaaS companies to survive and differentiate, things need to change pretty drastically. Businesses need to revamp their projections and build a better understanding of their customer lifecycle, building longevity into their value proposition and driving longer term success. When the average time to pay back your customer acquisition cost is closing in on 4 years, you must get the math right.

Customer Success remains massively underserved

SaaS is a winner-take-all business. 87% of market returns are generated by just 10% of SaaS companies (ref: Andreessen Horowitz), so success requires growth. But growth doesn’t mean we should put 100% of our focus on new pipeline, as is the standard thinking. Somewhere along the line CROs like Snowflake’s Chris Degnen seem to have forgotten that our existing customers drive 70-95% of all revenue, convert at a 12x higher rate, and are 81% cheaper to sell than new prospects. This is why Customer Success teams, armed with the right data, are the most critical part of our growth team, and yet the least recognized.

Despite these facts, Customer Success in high-growth, venture-backed companies remains massively underserved, and the missing piece to help them scale is data. The problem is that that data is disparate, spread across the organization in different systems and applications that don’t talk to each other. It means that there’s no system of record for customer data, even though customer data is the single most important source of truth for operational decision making today. Decision makers need a comprehensive, up-to-date, nuanced set of data about their customers in order to grow their businesses efficiently.

In theory, a data lake or a data warehouse should have solved this, but these are technical solutions for technical users and require massive, continuous spend to keep up to date and to generate meaningful insight. Running and growing your business shouldn’t require an engineering project or a special “Ops” function armed with spreadsheets and SQL queries.

The formula is simple, but it’s not easy

The way to consolidate all of that data together holistically is by building out a data layer which is truly focused on serving business leaders with actionable data from across the organization, and creating insights that allow decision makers to efficiently allocate resources into what’s working. And more often than not for growing companies, what’s working is renewals and expansions.

This serves two purposes. If our existing customers are growing, this creates a low-cost compounding effect to our business. It also helps us identify our best customers–the ones that truly realize the tangible benefits of our product. Then, using data and advanced modeling, we can identify other high-fit customers that are likely to be equally as successful. And successful customers continue to renew and grow their business at compounding rates.

Sales, Marketing, and Customer Success must work together to retain, expand, acquire, and convert new business. When we break down silos and create a common data model that tracks growth across the entire customer lifecycle, it results in lower CAC, increased retention, and shortened sales cycles. Our growth flywheel turns faster. This is the secret to sustainable hypergrowth.

There’s a reason Customer Success and RevOps are the most in demand jobs in SaaS–growing twice as fast as software development or sales. The best businesses understand that the foundations of growth are built on renewals and data.

The formula is simple, but it’s not easy. The top 10% of SaaS companies generate 87% of all market revenue. They retain and grow more customers. They target higher-fit prospects. And they’re data driven. We call this Customer-Driven Growth.

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