SaaS as a Predominant Model for Business w/ Richard Owen

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This is a podcast episode titled, SaaS as a Predominant Model for Business w/ Richard Owen. The summary for this episode is: <p>This week Richard Owen, Founder of OCX Coginition, joins the show to discuss SaaS, predictions, and customer success.</p><p><br></p><p>If you want to join the discussion with thousands of other customer success leaders, join Gain Grow Retain: <a href="http://gaingrowretain.com/" rel="noopener noreferrer" target="_blank">http://gaingrowretain.com/</a></p><p><br></p><p>This podcast is brought to you by Jay Nathan and Jeff Breunsbach...</p><p>Jay Nathan:<a href="https://www.linkedin.com/in/jaynathan/" rel="noopener noreferrer" target="_blank"> https://www.linkedin.com/in/jaynathan/</a></p><p>Jeff Breunsbach: <a href="https://www.linkedin.com/in/jeffreybreunsbach" rel="noopener noreferrer" target="_blank">https://www.linkedin.com/in/jeffreybreunsbach</a></p>
SaaS becoming a predominant model for business?
04:58 MIN
The love/hate relationship with customer success
02:45 MIN
Under-invested areas in customer success
01:42 MIN
Optimizing the end-to-end experience
01:29 MIN
Two problems rippling through customer experience
01:39 MIN
Avoiding just solving problems downstream
03:10 MIN

Speaker 1: Welcome to The Gain Grow Retain Podcast.

Jeff: Welcome back to another episode of Gain Grow Retain. For today, I've got Richard Owen, who is the founder at OCX Cognition, and coming to us from the West Coast today, I believe, out in Arizona. And so Richard, appreciate you hopping on and joining us today.

Richard Owen: Thank you very much. We like to think we're West Coast. There's not a lot of coast, but if California has a major earthquake, we'll be coastal probably.

Jeff: I like that. That's funny. Well, I like to start off, we can get to know you a little bit, and start off with some questions. I like to go off the cuff, not give you a lot of prep time. I'm noticing a chess board behind you in your office, it looks like in your office set up. Are you an avid chess player? Is that more of a decoration piece that you put in your office? What's the story?

Richard Owen: Well, it's a bit more of a decoration piece. I mean, I do play chess, but I wouldn't describe myself as terribly good. One of the things that's impressive about chess is how humbling it is because you might think you've played a while, and you might think you understand it, and then you always run into people who are so much better, and because it's a game without chance, you really have nothing to fall back on to when you are humiliated. I think it's a good thing. I mean, certainly the tendency in Zoom backdrops of course is to put up bookshelves and book inaudible, vanity collection there, so I think chess may be somewhere between vanity and practical.

Jeff: I like it. I'm definitely a novice chess player. I have a fascination with it though because I've always enjoyed games of strategy. Just like you said, you can read back in history about these famous games and there's certain moves that they pulled and those become famous and people study those. I mean, it's funny, the whole subculture that's come out of chess and how you really can start studying these things over time. I've always enjoyed that. But I'm definitely, like you said, novice chess player. I couldn't beat myself probably out of a paper bag, but I enjoy watching every once in a while. Random tidbit. There was a YouTube cross with Magnus Carlson who is a chess Grandmaster and it was fascinating. For three minutes they had a chessboard in front of him and they said, hey, we're going to put the chess pieces in a certain way and you tell us what game that's from, when it's from, all this stuff. I mean, he was reciting stuff from 1952's game of X, Y and Z. And then they were asking what's the next right move or what happened after that. He would actually go through and play the rest of this game. His mind is obviously crazy good and sure he's got some photographic memory, but just random tidbit. I watched that for a little bit and that was fascinating for me.

Richard Owen: Well, now there's, of course, the millennial era chess versions where they play very, very high speed chess. They have naturally YouTube personalities who will trash talk their way through these high speed chess games online. On one level it's like it's not your father's chess game, it seems very undignified, but I think in many ways it's incredibly entertaining to watch and I think it popularizes the game. It's now become one of the most popular online games amongst the under 30 group because of this. Bullet chess, it's good. Anything that advances these things, I think, are probably more healthy than just playing Call of Duty all day.

Jeff: I know what you mean. That's funny. It is interesting. I was reading an article too, recently, about how these sports leagues, NBA, Major League Baseball, they're all trying to figure out our attention spans are all getting less and less, so how do you create games that are quicker, that are shorter, that have more impact in shorter amounts of time. I think you're going to have to find that elsewhere too, which is interesting. Well, before this, as we were preparing, I think one of the things that we had talked about is just you've got such a plethora of experience across the spectrum in SaaS and some of your consulting work early on in your career as well. I think the thing that we kept coming back to was that SaaS is becoming a predominant model. And really though what maybe is sexy about SaaS is when you get unit economics, you actually get it working and you become profitable and it works in a way that is successful for the company. And so the word you used though is that we have to transform retention. I'm curious, as you think about good unit economics, this idea of transforming retention, what does that mean to you? What's the thing that comes to mind when you start looking at SaaS becoming a predominant model here for businesses?

Richard Owen: Well, I think that SaaS is an evolution of the software industry and there's the general motion in a lot of businesses towards thinking about lifetime value to customers. If you look at SaaS from a purely software industry perspective, the traditional on- premise software business had very favorable unit economics for software vendors. You sold people something, took all the money upfront, charged them 20% to basically provide tech support, and 50% of the time they never successfully implement it. I mean, that's not a customer friendly model, but it was a great way of building companies very quickly. And in the late'90s you had companies go from literally zero to a billion dollars in two or three years, which at the time was unfathomable using this very cashflow favorable sales model. Those of us who are old enough to remember that time, the end, of course, is a close ritual. You would be on the phone at 11 o'clock at night, selling things with a hour to go because you could recognize revenue opportunity. SaaS comes along and I think instinctively makes better sense for customers. Customers now have balanced the equation with vendors and software companies have to start to think about how do we actually deliver value, shock horror, and how do we make sure that customer who now is a long- term equation financially, not a short- term equation, keeps coming back and buying. And early SaaS economic models, I think, were very slow to recognize that. 2005, 2006, the banks, the venture capitalists even didn't really know how to organize and measure SaaS companies. And that all started changing, I would argue, the late part of that decade. Venture funds like Bessemer started coming up with really good thinking about how do you measure companies in SaaS. And the first instance was to measure acquisition. They invented customer acquisition cost. Let's see whether or not we're efficient at acquisition. That then started to switch as people realized that the real money wasn't in acquisition efficiency, the real money was in retention and that wasn't obvious for a long time. It certainly wasn't obvious amongst investors. Customer retention cost and the idea of net dollar retention, how do you actually grow accounts you're already in wasn't really fashionable amongst mainstream investors, I would argue, until five, six years ago. Right up to the current day where if you speak to the more progressive private equity companies or venture investors they'll say net dollar retention is the metric. It's the indicator of future success for a company. It's the predictor of not so much just growth, but profitable growth. And then you get the worlds most successful software IPO, Snowflake, come along and just blow us out the water and say, 200% net dollar retention and people's heads exploded. And said, don't worry, now we're scaling up to$ 800 million or whatever. Oh, it's down to 150 net dollar retention. And the unit economics bar just got raised from well, can we retain 80% of our contract value to oh, 95% of our contract value, to oh, maybe 100% net retention, to 120% net retention, to why aren't we doubling every year just from our existing customers. And that economic imperative, which of course is what makes the world go round, we can all talk about noble causes, but your venture investors or your private equity or your public market investors, they don't really care about a whole lot in the end except for economic value creation. As entrepreneurs, we care about, obviously, the mission of the business, but the investors want to know what's going to float the equity value of the company, and it's going to be net dollar retention. And Jeff, I think that's the backdrop for everything, is this changing mental model of how value gets created for shareholders. And that means any business in the software industry wakes up today and says acquiring customers, it's hard, but if I can't take a customer I acquire and not just retain them but grow them, I'm just not in a competitive economic model. And that spins off a lot of implications for how you run the operation. And to your point earlier, who you sell to, and what you sell to them, which are taboo topics amongst sales and marketers because the answer's always, anything I can and anybody who'll buy it, is the two traditional answers. And now you start to think is that a really good business model because if I care about lifetime value, what if I sell to people who are never going to use my product or who are going to hate me? Is that really a good deal? I think everything changes when you start to think about lifetime economics and net retention.

Jeff: There's so many things in there. I mean, I think the first thing that just pops into my mind is as you were talking, the idea that yes, we all have to believe the mission. We all have to believe in the company and believe that we're doing something that will positively impact our customers or positively impact society, or whatever it might be. You always want that to be at the forefront, but I do like your point. At the end of the day, there is a bottom line, and somebody, whether it's the founder of the business who still owns a majority, or whether it's the public shareholders or whether it's private markets, somebody at the end of the day is going to care about the bottom line, and so you still have to be pretty upfront about that. And I think that's been something that I've noticed and learned throughout my career is that it's okay to talk about and say. I think sometimes it's shied away or taboo, or it's like, we have 120% net retention, but we don't want to talk about it that much because we want to believe in the cause and the nobleness that we're doing. You need both, I think. The second thing that I thought was just really interesting too and something that we've noticed and talked about quite a bit, especially from when we were running our consulting firm, you talked about how this model is changing. We need to be thinking about customers for longer. We need to be delivering value because at the end of the day we don't get the full dollar upfront? We're getting the dollar over a number of years. The other thing I think has just become really interesting as well is that I feel like competition has never been higher either, right? Your switching cost is actually getting lower each year because it's easier to make software, it's easier to store data. We're making mechanisms and ways for this to... This is all coming down. And maybe the switching cost for me to change a Salesforce is going to be hard because of the institutional knowledge that that has and what happens, but by and large, most software companies are not your institutional ERPs or CRMs, right? You're looking at solutions that help you do a job, but at the same time the switching costs are low. Now, not only do I need to deliver value because I'm getting your dollar overtime, but now I also need to make sure I'm delivering value because there are seven other companies lining up at the door that say, hey, I can deliver the same amount of value or more than what you're already getting today. And it's still a software solution that's delivered via the web and via cloud based solutions, and so it's like, oh man, that also is becoming, I feel like, such a hard... for teams to grasp, especially when you start looking at customer success teams. Because you're saying, hey, the competition's becoming so high, we can't just be having check- in calls. We can't just be having events with our customers or meetings with our customers that aren't driving value because all of those moments are starting to matter more and more.

Richard Owen: I mean, look, if you're blessed enough to be selling people something like an accountant system which they really, really don't want to change, that's great, but for the vast majority of SaaS applications, you're absolutely right in the switching costs have declined, competition's increased. The amount of venture that goes now into SaaS is so high that almost every possible domain area has multiple competition. And every generation of technology brings a new generation of competitors along because people will look at the next generation application technologies and say I can do it better than the last bunch of guys. And so your customer has choice. Now, your customer doesn't really want to change. I mean, the good news here as an incumbent is very few enterprises wake up in the morning saying, boy, it'll be really fun to spend the next six months unplugging a system and putting an entirely new one in, speculatively, in the hope that we'll essentially end up in a better place. Incumbents have an advantage, but I think that they're perfectly capable of squandering it. And incumbents also have a slight disadvantage in that their pricing is essentially already transparent and locked. If you've been pricing a product at$ 20,000 a year to a customer and your competitor comes in and says, well, we're going to build a comparator product at$ 10,000 a year, it's hard for you to decline. Your economics don't favor you cutting price. Their economics favor them acquiring at a lower price. You have to often defend your position at a higher price point, and that means adding more value. I'm glad you mentioned customer success because I feel like one of the biggest innovations from the last decade was the creation of customer success. And on one hand I have a real love/ hate relationship with the whole idea of customer success, I have to admit. On one hand, the thing I love about it is organizations fully understanding that if their customers do not adopt the product and get value out of the product they will face an economic challenge. The customer will essentially wander off. And that's not a function of technical support. It's not just a function of product capability, although product capability matters a lot. There is an engagement element here and they need to engage customers continuously and that's a great story. And that's the love part of the story. The thing I don't quite understand about customer success is why in the technology industry our first instinct of solving a problem of retention is to throw human people at it, bodies at it. Let's just hire a bunch of humans and call customers continuously. Because that feels like exactly the solution we'd all want to automate away, and I think it stems from the initial instinct, which was let's put fingers in the dyke with customers. We're sprouting water everywhere, let's start bailing out faster. Let's put fingers in the holes, as opposed to asking ourselves more fundamental questions perhaps, like why is this happening in the first place and how do we basically fix the upstream problems that are causing these problems. And I go a step further, there's a risk that companies perceive customer success as the silver bullet. We solved all our problems of retention now, because we have our customer success team. And they're going to storm in and essentially improve net dollar retention all on their own, when in many ways they're an organization that is a sweeper. They're there to pick up the pieces. The problems usually lie somewhere else and it's impossible to expect them to solve every customer problem. And maybe just maybe, if we're not careful, we create an impression across the organization that we don't need to work the underlying problems because we now have this super team of people to go and solve them for us. That's inefficient and, frankly, ineffective, I think.

Jeff: Well, what's interesting too, I feel like is now we're actually to a point in the industry where a customer now almost expects there to be a CSM or a customer success manager who is playing a role. It's no longer, I don't know, even a question. Sometimes it's just an assumption that nobody really corrects in the sales cycle, and therefore you get into a lot of troubles where a customer then crosses the chasm. They purchase something and then they say, hey, I'm ready to talk to my CSM and you're like, well, actually you're part of our digital led program or you're part of these exercises that we're doing. And they're saying, whoa, I thought I was purchasing a... And so, we've actually tied, I think, incorrectly at some points, we've somehow tied value to a human person that needs to be coupled with the product always. And I think that's where you're just running into trouble now too and we're almost trying to backtrack. We're almost trying to go back now, saying, well, hey, let's start doing some marketing campaigns and some end product messaging and let's try and figure out digital ways to lead somebody to get value and into the products and all those kind of things. That's-

Richard Owen: Sure. Human economics won't work for every category of customer. If you say we've got our top 10 customers who we have$ 100,000 a year ARI, you're like I get it. You can build an economic case for putting humans on that. But I'm always amazed, running a business today, I'll buy a SaaS product that I pay two or$3, 000 a year for and I've got some CSM calling me. I'm like, does this work for you guys? I mean, I appreciate the attention, but really? I mean, is the economics there? And so I think that, as you said, the expectation can be there amongst customers that they're going to get more personalized support that is economically viable. I think companies don't get the economics right and to some extent that doesn't matter for them in a high growth phase when venture investors or whoever may be happy for them to keep buying growth. And look, at the end of the day they're throwing money at retention. That's okay. That's fine. But at some point in the lifecycle of these companies, they hit a point where some investor says, hey, can you become efficient at this, please? And at that moment, there's this thud as people realize that the economically efficient way to create lifetime value for customers isn't going to be throwing human beings at it late in the cycle to correct problems. They're going to have to get more sophisticated with digital, yes. With customer segmentation, yes. With much more intelligence around customers and product usage and problems. And so we have to back off that human capital investment and replace it with smarter humans. I don't think we're going to get away with eliminating these roles, but I do think we can make these roles massively more productive. And I think that's got to be our challenge.

Jeff: I actually love the way you just worded that too. I think there's two things that I think about maybe as being under- invested areas. I mean, one, just I think the investment in a customer data platform. Something that you can actually put all of this activity into. I think we just under- invest in that right now. I think people just automatically inherently think oh, Salesforce will take care of this for me, or whatever tool I use will just write back to Salesforce, and it's really not meant to be... I mean, Salesforce can be cobbled together to do it, but that's not really the sheer example of what it's supposed to be doing. I think just the team's earlier need to be thinking about we're starting to collect all this data on a contact level, how can I start organizing that in a customer data platform or some way? How can I start organizing point in the future? Maybe it's not today, but at some point in the future I can then start creating mechanisms to action off that. I think that's one that I've just noticed that we don't really invest in a lot early on. And I think the second one, which you just hit on too is, how can I make my CSM's time the most effective and most impactful that it can be? Is that QBR really the most impactful or the best thing that they can be doing with that customer at that time? Or is a check- in call really... whatever it is. But how do you really go optimize and start saying, like you said, if we are going to have a CSM on these accounts then I need to make sure that they're just doing the right activities at the right times and really trying to optimize for them. I think those would be the two areas that I've seen and thought about most as being areas to invest in that I think is getting more into the systems, the technology and almost the data intelligence side.

Richard Owen: And obviously look, I mean, that's a great tee up. I mean, it's certainly something, given our focus on exactly that from a technology perspective. We're big believers in it. What I would say is there are a lot of systems that companies need to execute up and down that customer value chain. I think customer success systems, which by and large do a great job of serving the needs of the CSM, are an instrumental plank in the overall technology architecture. I don't think anyone's suggesting you don't need trouble ticket systems, outstanding support systems. You're going to need systems to help implement and of course you're going to need all the sales and CRM infrastructure. All of those pockets are essential. To get to a point where everybody in that value chain is effective and efficient, you need to be able to integrate that data into a single viewpoint. And these silos are only useful so far because at the end of the day, customer experience is not determined by a single function within the company. Function's just our way of organizing human capital. I'm always amazed at how much talk around customer experience seems to center around the contact center. Now, look, I'll tell you, contact centers are useful, they're valuable. In many ways they're a cost of failure. People don't call contact centers because they want to, they call them because something else occurred that forced that necessity. We've built contact center solutions to remedy more fundamental problems we didn't want to solve or weren't economic to solve. But the notion that customer experiences deliver to the contact center is a fundamental fallacy. Customer experience is a cumulative impact across a whole range of things that the customer experiences. And that of course encompasses the sales experience, the early life experience, which is hugely important. What happens once they purchase that early experience. Often in SaaS it becomes implementation, onboarding. And then you switch into this product usage model where customers want to get value out of the technology. The rubber hits the road. And of course the software industry's beautiful because the product doesn't stand still. What they thought they bought isn't what they end up using and it's certainly not what the product is a year later. There's a constant evolution of product, and then there's natural support issues and there's renewal cycles. It's not an over- complication to say that customers have this journey which comprises all of these different elements. And if we're going to come up with optimal answers for customers and efficient answers for customers, we have to embrace the reality of pulling data from all these systems and making sense of it the way the customer makes sense of it. And the customer doesn't think of it as functional, they don't think of it as systematized, they think of it as their particular viewpoint. And their viewpoint isn't that you have functions and the functions do their jobs. Their viewpoint is they interact with the company as a totality. That reorientation towards the customer viewpoint is an achievable analytic exercise and I think it's where we're going to get most of the really smart intelligence. Jeff, it doesn't replace the need to optimize particular functions. It doesn't mean you shouldn't be great at tech support. It doesn't mean that you shouldn't build a customer success team that's highly productive in its own right. But it means you have to look at it the way the customer sees it, which isn't the same way. And the winners are the companies that understand how to optimize that end- to- end experience, and not just sub optimize by focusing on being really good at one part of this.

Jeff: I think it just reminds me. I think agile methodology got started in software, we're doing the grooming process, we're getting two weeks sprints, but really, if you take a step back and say, hey, can you apply this elsewhere, it's really just in this mindset of breaking work down into small enough pieces that we can get those things done systematically and as a unit. We're all working on things that essentially add up to a whole and we're getting those things done in a specific way or a specific order. And I think that's the thing you have to think about too when you start thinking about the customer doesn't see department. It doesn't matter if I reach out to a support rep and I ask a question. If you can answer it, I don't necessarily need you to tell me hey, you're going to go talk to the product team or the engineering team. All you need to tell me is hey, I don't have the answer, we're going to go find it. We're going to go get something done. I think to your point, the reason why I brought up agile though is thinking about that for customer experiences. How do you get those things and collaborate on those in more of a succinct way? How do you start moving on those and have a bias for action? I've thought about that quite a bit recently is, your customers just want to see action just happening and if it can get moment and get a bias reaction, your customers are going to respond to that. I like the point you made earlier too that the customer isn't going to see silos and they're not necessarily sitting there thinking, oh, I'm talking to my customer success manager, they're going to have to go talk to the product team or they're going to go talk to the marketing team or whatever. No, they're just going to be talking to who they know at the company and at that point then they're just relaying information or want something done about it.

Richard Owen: It's interesting you say that. I mean, I think agile is a term that gets bandied around a lot in this context. How do we build customer agile teams? And I think what people are digging at is what they don't want to be. They're conscious of the fact that if you're not careful, you set up all these operational performance objectives functionally that seem to create real impediments to solving customer problems. Well, we've run out of funding for the implementation phase, we're going to stop implementing and give the customer whatever was funded because hey, we're on a margin target here in professional services. This is as far as we could get, it's not the perfect implementation, but now let's topspin a lot of it over to tech support who have their sets of metrics that are efficiency based, or the success team that have their efficiency based metrics. And I think what we imagine agile to be is a world where these functions can somehow overcome that and find ways to solve a complex customer, multi- functional problem without breaking the bank, but also without creating these natural barriers and walls or sub optimizing. And I think that in the past there was this belief that you could have the one ring to rule them all. Let's just have one owner, let's have the golden person who is responsible for everything. It's too hard in a universe of specialization and skillset definition to accomplish that. We need hunters who are good at hunting. We need pre- sales engineers. We need professional services and onboarding and training experts. We need customer success managers and technical support experts. And if we're going to have a team that's going to ultimately have to coordinate very effectively and allocate assets and time and resource very effectively across this universe, we're going to have to get more agile, more flexible. Actually, the good news is that I think this is what most people working in these environments want. They want to work in an environment where handoffs are smoother, teams collaborate more effectively. There's less of a sense of how do we operate within our narrow definitions of success and we start to operate effectively as a collaborating team. It's not easy and it runs against a lot of the way companies structure their financials. And I hate to come back to that financial story again, but two simple problems that ripple through the customer experience. One is the wrong acquisition economics. If you create the wrong acquisition economics sales teams sell the wrong products. And if they sell the wrong products, customers, you'll be fighting that problem way down the road. If you get the wrong acquisition economics, you sell to the wrong customers. You sell to people who honestly shouldn't be buying your product. And then those customers are going to create big drag effects financially down the road. Acquisition economics actually effect lifetime value economics and very few sales and marketers, I think, tragically realize that a dollar is not a dollar in the selling cycle. Then you get into early life experiences when if customers don't get stood up properly, if they don't get onboarded properly, if they don't get trained properly, if they don't get deployed properly, if the integration's not done correctly or what have you with your product, then again, all you're doing is kicking a whole bunch of economic problems down the road and saying, let's solve it. And finally, and you get the gist here, a lot of problems downstream can track right back to product problems. If customers aren't getting value from the product, if customers are having, obviously, tech support problems, is that because we're trying to invest in fixing a problem downstream, or fixing a problem upstream? Why do you need all these resources downstream if the product's working as advertised?

Jeff: A couple things that come to mind to me that stand out, the point that you made about selling to the wrong customer and those unit economics. I've always found one great thing that customer success can do is be helping to sharped who the right target customer is overtime. We take it for granted. We think that that's done just between sales and marketing, behind a closed door, but as the customer leader, you've got a base of customers who are using your product and you can easily start saying, who are the ones who are renewing, who are using the product for the great things? What are those stories, what are they doing? And then how do you start boiling that into stories that you can then go back to your marketing and sales teams and say, look at these great customers. Here are the ones that are working well. If you start breaking those down, here's some of the meat on the bones. Here's some of the revenue targets they might be at or here's employee sizes that they might be. Here's where they are and what industries that they might be. It doesn't have to be perfect, but if you can even just start telling an ounce of that story, you can get your foot in the door with the sales and marketing leaders as they're looking at where are we going with the go to market for next quarter, for the quarter after that, for three quarters from now. That's how you start to turn the tide, just like you were saying, to say hey, we're missing the mark somewhere, but I think rarely do you see customer leaders take that mindset. But I do think it's starting to become much more of a reality because you're starting to get involved in that go- to- market, and if you're not bringing something to the table about your current customers then you're going to lose that seat pretty quickly.

Richard Owen: I mean, one of the most popular questions I got asked over the years was how do I build my company if I have an 80 point NPS or a 70 point NPS. And what should we do to our customers to get them up there? I said, no, 80 point NPS companies get there by never selling to customers who dislike their product or company. That's how they do it. They solve the problem upfront. They don't spend a fortune remedying downstream issues, because they don't have any. They understand who it is they're selling to, their target market. They understand what they do well, what they have optimized their entire value chain for. Look, I mean, Apple's obviously the most over- used example over the decade of a great customer experience leader, but I don't particularly like Apple product. I'm not their customer. They know who their customer is and they advertise pretty clearly who their customer is, what their products are like. You know what you're getting into in the Apple universe and so you don't get too many people going, wow, this wasn't what I expected. I do think you can learn downstream what works and refocus your upstream efforts, because if you're thinking about lifetime value economics, then that makes perfect economic sense because acquiring customers who aren't going to stick around or are going to be very expensive to service makes no financial sense. It doesn't work. And some SaaS companies have flat lined at scale. They hit 60, 70, 80 million of recurring and they flat lined because to some degree the leaky bucket's now catching up with the ability to pour water in the top. And it's very hard to turn that round, versus a company that's grown on the back of extremely satisfied, loyal customers who are buying more every year. It's extremely hard to slow that down. That business just keeps growing. I do think there's a sales and marketing narrative here that marketers need to embrace. And by implication, boards or management teams need to rethink is it just about acquiring customers or is it about acquiring customers who are going to stay with your business for decades? And I think if you take the latter point of view you're going to be much more successful.

Jeff: It's so interesting too because it's almost supreme focus on the front end. When you start thinking about the sales and marketing angle, far too often you think of this peanut butter spread that they're trying to spread too thin. They're trying to go so wide, they're trying to increase the TAM so much. Look it, we're increasing TAM because we're moving markets, we're going out. I think you're getting at honestly that starts to create more and more challenges and certain businesses can get around that because if you've been in it long enough you can maybe circumnavigate some of those things. But if you do that too much, yes, you're increasing your TAM, but now you're creating a lot of problems on the back end that you can't necessarily account for and the product might not even serve right as you start going.

Richard Owen: Well, and the software industry's hardly shrinking wallflowers when it comes to asserting business benefit. We're all taught as marketers a decade ago, hey, don't sell features, sell benefits, so we all decided to sell benefits. Every product solves world hunger. Your typical software company is going to double your rate of growth of revenue, massively improve net retention, cut costs in half. None of this is likely to be true. I mean, it's really hard to accomplish transformative results, but we're creating expectations we now have to make real post. And I think that that's a challenge for companies to balance the needs to be, how can I put it, aggressive in marketing, when at the same time, sensitive to the fact that we aren't in the old on- prem software universe anymore. The customer's still there and now we have to deliver on that. And that delivery, by the way, has implications for margins, which a lot of VCs don't like that conversation. Say, we want 80 point margins. Well, if you're going to service the customer effectively, maybe that's a pressure point. I think, Jeff, the industry is maturing and shaping itself out and people are getting more sophisticated. And I think we are starting to understand better the behavior of customers, how to analyze customer behavior, how to arm teams with data to make them more productive. How to avoid just solving problems downstream as opposed to upstream. My prediction, as a guy who's in the prediction business, I would say is that the winners of the next decade are going to be companies that exhibit some of these tendencies. First of all, they're going to really understand who their target customer is for a lifetime of success, and they're going to sell in a much more targeted fashion to them so there's much better fit upfront. And that's going to reduce downstream costs and efforts and those customers are going to have higher lifetime value. I think even an enterprise, there's increasing models of more and more landing and expanding. How do you avoid the tendency to have to embark on monstrous projects as opposed to expanding based on success? Which I think is Snowflake's story and it's going to be the story of every really successful SaaS business is that they get in efficiently and then they grow based on internal success narratives. And then I think to your other point, all of these customer- facing teams are going to get increasingly agile. Look, I don't want to be too Pollyannish about this. I think at the end of the day, everybody living in harmony and singing I Want to Buy the World a Coke up and down the entire value chain might be a stretch, but can we get a lot better? I don't see why not. And I think that will be productive for everybody and it will also be a hell of a lot better company to work for, by the way, where you feel like everyone's serving customers more efficiently.

Jeff: Man, that was a really good summarization of what we just hit on, and then also giving some predictions. I mean, I think I could talk to you definitely about I think there's couple of just underlying topics, too, that would just be so fun for future episodes. Especially around understanding unit economics in finance, the financials of a SaaS business. You actually get so much value as a leader. You can understand that really well because you start to understand if you're leading the customer teams, you know what that means to you. Like I said, is margin or for the business. What are we counting as CAC costs versus service costs? How do you start thinking about where some of these things live and how it impacts what you're doing? Recurring revenue, retention, renewals, there's a methodology, and so your finance leader's actually applying methodologies to those things and you need to be able to understand those. That would be fun. NPS seems like it would be another one to talk through too, but Richard, I appreciate you coming on today. It's been fun. If people want to find more about you inaudible, where's the best place to do that? Don't be bashful. This is the self- promotion piece.

Richard Owen: Well, obviously the new venture, OCX Cognition, we're there on the web, as you might expect, ocxcognition. com. That's a great place to learn a little bit more about the business. Obviously easiest way to reach me is Richard. owen @ ocxcognition. com or I'm now on LinkedIn, so feel free to connect. This business, our new business is all about bringing that analytic and data set to the entire end-to-end customer journey. We are predicting the level of performance of every customer in terms of loyalty, NPS, for every single customer every day using an operational data set. We're building this massive data set of how customers are performing, with the goal of giving these teams, these cross- functional teams, tools that they can really use. We spent a long time in the NPS industry measuring through surveys. We're now measuring through predictive analytics, and I think it's all just one step as companies start to get their arms around how to more efficiently and effectively achieve this golden objective of net dollar retention. Which I'm convinced, and I think a lot of investors are convinced, is going to be the metric of choice and currency for the next decade. Look, I think it's an exciting time to be in this space. Further to your comment, there's a lot we could talk about in the future about economics. The thing that everyone wants to bear in mind is that all of this is inaudible, and the bar just keeps getting higher. If you're like me, you might have been watching, jaw dropped last night, this Norwegian fellow break the 400 meter hurdle record by. 75 of a second. We're going to date stamp this podcast forever now with that statement, but what's interesting about that was he pointed to two pieces of technology that had changed the nature of competition: the track, which is an amazing innovation story which people miss, and shoes, which is an amazing technology story, and then of course you've got all the other things that have improved overtime; training protocols, diet protocols. A lot goes into moving the bar like that. This is what's going on in our industry. Lots of incremental subsequent innovations occurring, and to be competitive today you have to have the whole thing. You have to be on top of it. You have to have the track, the shoes, the diet, the training, or the new world record's going to be just too far out in front of you.

Jeff: Just like you said, . 75, it's not very much. I mean, when you're thinking about this as incremental wins over time and you have to be good with making incremental wins before you get big wins. I like that point.

Richard Owen: It might be incremental, but put the guy about 10, 15 feet ahead of the bronze medal.

Jeff: That's true.

Richard Owen: It's the difference between being on the podium and not, right?

Jeff: Yeah, for sure. Well, Richard, enjoyed it and we'll have to have you come back some time soon.

Richard Owen: Love to. Thanks, Jeff.

Jeff: Hey guys, thanks so much for taking the time to listen to the Gain Grow Retain Podcast. If you liked what you heard, please take a moment and share the podcast with your friends and colleagues and subscribe. We really appreciate it. Talk to you soon.

DESCRIPTION

This week Richard Owen, Founder of OCX Coginition, joins the show to discuss SaaS, predictions, and customer success.


If you want to join the discussion with thousands of other customer success leaders, join Gain Grow Retain: http://gaingrowretain.com/


This podcast is brought to you by Jay Nathan and Jeff Breunsbach...

Jay Nathan: https://www.linkedin.com/in/jaynathan/

Jeff Breunsbach: https://www.linkedin.com/in/jeffreybreunsbach

Today's Host

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Jeff Breunsbach

|Director of Customer Experience at Higher Logic
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Jay Nathan

|Chief Customer Officer at Higher Logic

Today's Guests

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Richard Owen

|Founder, OCX Coginition