24 June 2020

Startup Flight #8: Why You Should Be Thankful For Churn.

Hi there! My name is Charlotte and I’m Co-Founder & CEO of Equalture (a hiring software that leverages gamification to debias hiring for SMBs) and living in the most beautiful city in the world: Rotterdam. Being an entrepreneur for 4 years now and building my second company together with my twin sister, I get a lot of questions from other founders and people thinking about starting their own company.

Since I believe that every single founder experience can be helpful to other founders, I decided to translate these frequently asked questions into a blog series: Startup Flight.

In this eighth blog: Why you should be thankful for churn.

Thankful? You’re kidding me?!

Nope, not kidding you. But don’t worry, I’m not saying that you should be dancing on the table out of happiness when a customer churns. It’s okay to be sad when that happens. As long as you’re also thankful. Here’s why.

Churn vs. romance

Or well, let’s first start by explaining why churn is such an important metric in many companies.

I’m running a SaaS company myself. And just like many other SaaS companies, we are offering Equalture’s Team Composition Technology through a subscription model — so companies can pick a plan/package on the website, decide whether they prefer a monthly or yearly license and they’re ready for takeoff. Simply, plug and play, just like it should be for a company ‘selling subscriptions’.

Well, it might sound simple, but for tools that require a bit more education on what it does and why your company so desperately needs this product (which is the case for our product), the whole process of attracting, closing and retaining customers is way more complicated than just ‘selling a subscription’. So clients need to stay for a long time to at least earn back your Customer Acquisition Costs (CAC) and of course to eventually have a positive ROI.

I always compare this attract-close-retain cycle with gettng a relationship with someone you met in a bar.

Stage I. Flirting (Attract)

When you bump into someone at the bar who grabs your interest, you might start with some subtle eye contact. Maybe some chitchat. Or even getting this person something to drink. This is what I would call the flirting stage.

Comparing this to your company, this would be the marketing stage. You’re trying to grab a prospect’s attention through advertising, hoping to attract this prospect or at least triggers its interest.

Stage II. Dating (Close)

So that night at the bar turned out to be a good one, because your just-met Romeo or Julliet turned out to be your next date. And guess what: This date became a success, and after many dates following, it’s time for the next step.

Comparing this to your company, this would be your actual sales cycle with a prospect, from first meeting up to closing. Just like your Romeo or Julliet turned out to be the person you hoped (s)he would be, your company marketing and following sales process are inextricably linked. When forgetting about this link, closing your deals will become a tough challenge.

Stage III. Relationship (Retain)

So here you are, finding yourself ‘all of a sudden’ in a relationship. And that should be all about happiness. This is the stage in which you will find out whether you’re both in for the long run together.

And hopefully your expectations during the dating stage are in line with the impression of your partner now that you’re actually spending your life together. Because if it turns out that reality and expectations are too far apart to meet each other half way, I can’t promise you will live happily ever after.

Just like your customer signed up for a product with expectations. Expectations you have created when you were attracting this customer and flirting with him/her. And just like a love affair, not managing expectations will break you apart. Or in business terminology: Your customer will churn.

Alright, enough love talk. Back to being thankful.

Churn. We’re experiencing it quite a lot these days, just like most companies. And yes, we also blame COVID-19. Partly then. Because although 86% of our churned customers have churned as a result of financial issues, caused by this pandemic, it gives you a wake up call without a doubt. You know why? Well, because maybe we couldn’t fix that 86%, but we could for sure fix that other 14%. Customers who might not have been an ambassador prior to COVID-19 and decided that now is the time to say goodbye.

Our luxury and pitfall at the same time is the fact that we weren’t used to churn. And therefore we also weren’t ready for it. To give you an idea: normally we had maybe one or two churns a month. And with two churns it was actually a bad month.

The CS mindset: Preventing churn vs. Ensuring retention

We were a retention-focused SaaS business as a result of having these low churn statistics. So we were more focused on how we could make happy customers even more happy rather than solving unhappiness. And although it sounds logical to focus on turning your already fans into ambassadors, reality is that the ones who weren’t at the fan-stage yet are the ones you won’t hear from that much. Well, eventually you will hear from them, but at that point you’re too late.

From ensuring retention to preventing churn

COVID-19 forced us to respond quickly. We call it our Customer Success 2.0 Strategy. From retention-focused to churn-focused. So these are the main things that change:

  1. You briefly ask about the customer’s favourite feature. And you deeply ask about the customer’s least favourite feature.
  2. You briefly ask if they understand a feature. And you deeply ask if and how this feature helps the customer solve its problem that made him/her buy your product.
  3. You don’t respond to questions during the onboarding. You guide the customer through the onboarding to prevent these questions.
  4. It’s not the responsibility of the Sales Team to hand over any details that they expect to be important for you to know about a customer. It’s the responsibility of the CS team to make it crystal clear what details are a must have to understand the customer.

The golden rules of our CS 2.0 Strategy

  • A customer can only be successful when facilitating the perfect handover between Sales and CS. This means understanding the buyer persona cyrstal clear.
  • Time-to-onboard is something that we control instead of our customers, and that’s just to make their lives easier. The shorter, the better!
  • Support is about the ‘what’ of your product; success is about the ‘why’ of your product.
  • Feedback, feedback, feedback. Customers don’t mind working with a product that isn’t perfect. But they do mind working with a product that isn’t improving in their opinion.
  • Product churns should never happen.

Now, let’s get back to the bold statement I made that probably triggered you enough to start reading my blog. Being thankful for churns.

Yes, I’m extremely thankful. And no, I’m absolutely not happy. But what I actually started the realise last week is that every satback makes you think three times more critical than you would normally do. Best improvements and greatest ideas are born in rough times. Because in times where everything ‘just keeps running’, we tend forget that moving from A to C requires you to reach B first. And in our case, point B is the point on which our CS 2.0 strategy is so rocking good that, by the help of our amazing product, our customers have fallen in love with our company just as much as we all did from day one.

Thanks for the wake up call. Great improvements are on the way.

Cheers, Charlotte