Investing in Customer Success: a Venture Capital Perspective

There’s no question that customer success impacts today’s businesses. We know that unhappy customers will not only take their business elsewhere, they will share bad experiences with friends, family, and colleagues, on social media and with anyone else who will listen.

Do you know who else is listening? Venture capitalists. Investors take customer success seriously when assigning value to your business. NewVoiceMedia interviewed some VCs about their perspectives on this topic during our 2017 CloudFest for Service event in San Francisco. Anna Khan, an investor at Bessemer Venture Partners, and Scott Kirk, Vice President at Technology Crossover Ventures, shared their thoughts on how customer success factors in when they evaluate investments. Here’s what we learned.

Numbers are only one part of the narrative

Investors run a robust diligence process when evaluating an investment, Kahn says, and that includes hours of interviews with customers about product quality as well as service quality. That qualitative data helps tell the story of the metrics.  

“What we focus on is product superiority, and it really comes out through customer dialogue and conversations,” Kirk says. “The first thing I ask for when [evaluating] a company is the customer database. I want to understand customer spend over time. And we try to map a narrative that brings together what you hear in customer calls and that quantitative data.”

Instead of asking for customer service metrics outright, Kahn says it’s more important to see which KPIs the company is already tracking on a daily basis. She simply requests log-in information for company dashboards.

“If it’s a software company that has no idea if customers are churning, and it doesn’t track that KPI without me asking, it’s probably not a good sign,” she says.  

Success is also about mistakes

“True customer success is how you react when you make a mistake,” Kirk says.

To illustrate this point, he recalled the summer of 2011, when Netflix decoupled its DVD business and its streaming business while, at the same time, increasing the price of its subscriptions. Subscribers left and stocks went down.

But Netflix CEO Reed Hastings wrote an apologetic letter to subscribers explaining the rationale and promising to make it right. Owning up to the problem was key to righting the ship, Kirk says.  

Kahn added that it is essential for companies to prove to investors that they can learn from failures, and suggested performing regular “customer autopsies.”

“When I have a board meeting and we’re told [our investment company] lost a big customer, five smaller customers, and then we just move on to the next slide in the presentation, that’s not good enough,” she says. “We want to know who called the customer after they said they were going to leave. What product is the customer going to use instead? Was it a price issue or a technical problem? You need to know all of those things and, on the next slide, tell me how those things are going to be fixed.”

Creating a customer-centric culture

As Kirk points out, customer success is not new, but customer success in today’s world is very different.

“The means in which you retain and upsell customers and customer expectations are very different than 10, 15 years ago,” he says, adding that it’s important to have the right talent in place to create effective and adaptive customer success strategies.

For example, rather than picking a customer service KPI and telling your team it needs to be higher, look at the big picture around customer success when setting priorities, and make sure you have the talent – and leadership buy-in – to execute on your goals.    

For more on this topic, watch a video interview on Customer Success with NewVoiceMedia CEO Dennis Fois and Gainsight CEO Nick Mehta.

Written by Vonage Staff