BESSEMER CLOUD COMPUTING LAW #8: The Most Important Part of SaaS

October 2012
Related Companies: Lifelock and SendGrid
Related Strategies: Cloud Computing

The only acceptable reason to lose a customer is death (bankruptcy) or marriage (acquisition).  Every cloud company is in the service business, and therefore your customer service can be the difference between failure (churn) and huge success via high retention and upsells.  Reliable delivery of your core service is a necessary but not sufficient condition for delighted customers.  How your handle yourself in challenging or unique situations will truly define how they view you as a partner and a vendor.

Jim Franklin
CEO, SendGrid

“One of the things we do right is offer 24/7 support -- even if you're not a SendGrid customer. We just feel it's the best way to help companies in a bind. Whether their email infrastructure is falling over or they are struggling with deliverability, we are here to help without obligation. The level of trust this creates is incredible and has been a key ingredient of our success.”

On the positive side, when they experience a massive business spike are you able to handle it flawlessly and without interruption or hiccups?  When your customers launch new products or enjoy huge spikes in demand, are you able to stay at least one step ahead of them at all points?  Unfortunately, there are also disaster scenarios to watch out for, such as system bottlenecks that weren’t properly load tested.  There are painful examples where a customer received national TV coverage and experienced a flood of customer interest, only to have one key component of the customer facing system collapse under the load.  Even business processes can break down, as we have seen fatal examples of cloud companies actually intentionally capping the usage of their customers during these periods of hyper growth for fear of fraud, payables exposure, or system abuse.  Simple communication can usually quickly solve these problems, but account management and support processes without proper escalation protocols can often amplify these breakdowns, and result in immediate account churn and vocal ex-customer detractors in the market.

There are also service events that are significant negative events for you and your customers, but can be turned into positives if handled correctly.  Outages are the most notable, but bumpy product upgrades, faulty product configurations, and weak integrations can all create similar issues.  Amazon Web Services (AWS) is a fantastic IaaS platform, but has experienced several very public outages in its availability zones with very direct impact on customers.

When some of the AWS availability zones failed for four days in April 2011, hundreds of very visible web companies ranging from Reddit to the New York Times were taken down entirely.  Yet many AWS clients on these same availability zones – including Netflix, Twilio, Bizo, and SmugMug – were relatively unaffected because they had designed around the AWS architectural shortcomings with added controls in their own products.

Hundreds of articles have now been written on this single outage and the different ways companies handled the issue (just google “high scalability aws outage big list”), and the important thing is to realize that each crisis is also an opportunity.  Several sites that were taken down by the outage appeared frozen and confused, and provided almost no communication or transparency back to their users.  As a result they endured thousands of negative emails, tweets, and comments during the painful down days, and lost significant customer loyalty in the process.  In contrast, the most advanced of the sites that were down during this period became very transparent with their customers/users about the issues and timelines, and in many cases, actually created workarounds that allowed them to bring their sites and systems back online in other AWS zones or on other platforms, long before AWS themselves had fixed the issues.

Todd Davis
CEO, LifeLock
(NYSE:LOCK)

“Our business is all about trust and protecting your personal identity. We proactively monitor our member’s identities. If you are a LifeLock member and your identity is ever stolen, we are there to help and provide the support you need for your recovery.”

Even more impressive, however, were the sites like Twilio that had anticipated the issues and stayed up, and then went on to publish a blog post and take press calls to share their learnings and explain the best practices to others.  This not only helped to build significant credibility with their enterprise customers, but also helped attract even more smart developers who were like minded.  Salesforce.com responded to their own outage issues with an entire customer portal on www.trust.salesforce.com that is a model for late stage companies to follow, and simple transparent and honest communication with your customers in the early stages is enough to work magic.

It’s common knowledge in the cloud world, but still important to mention that these “silver lining” opportunities seldom exist in the case of data loss or leakage.  It is essential that cloud companies treat backup, disaster recovery, and security as a priority.  System or security failures that result in a loss of customer data, will very often be fatal to the relationship and in extreme cases, to your company.  How you handle these business challenges can either further endear you to your customers or send them running into the arms of your competitors. 

In terms of business and team management, as the “service” functions of your company continue to grow, you will likely want to (need to) separate client success, account management, and professional services.

Client success is the front line of customer support, and should be focused on resolving customer issues and driving broad adoption and happy users.  Account management is tasked with managing the ongoing sales part of the relationship, including renewals, upsells, and expansion.  These are the “farmers” in your organization who are sales executives at their core, but longer term relationship thinkers who will invest in the long term goals and objectives of your customers over time and help them use your products to get there.  Professional services groups are getting smaller in modern cloud companies – and even non-existent in some – but can still play a vital role in customer onboarding, configurations, and integrations, when needed.  The goals and objectives of these three functions are very different, and the skill sets of the top performers in these functions are typically very different, so it is likely a cloud company will want to split these functions out into 2 or 3 different organizational groups as you scale from 50 to 100+ people and can afford to hire specialists.

Each of these functions should work with the technical team to enable proactive monitoring of the product for likely churn or upsell opportunities.  You can easily check who logs into your product, how often, what they do inside the product, and what results they achieved.  So now you need to track the key usage metrics and measures, and create internal dashboards to know which customers are getting the most value (potential upsell candidates) and which are likely to churn (time to intervene proactively).  As you get more insight into the issues, you may want to consider techniques like expanded online training or even unlimited subscription-based training (as many leading SaaS companies are now doing) to drive adoption and awareness.  Cloud businesses can also learn from their consumer internet peers, by taking advantage of their web application architecture to analyze detailed customer usage data, use a/b test variations, iterate on small details of a page or a feature, and evolve the product each and every day. 

Given the growth of Employee Software and the fact that many customer orders are starting very small and growing very large over time, you may find that upsells from account management become more critical to your long term business model than the initial sale itself.

If, after all your efforts to satisfy the customer you find that you still face a churn situation and they want to transition off your product, recognize that it doesn’t need to be binary.  Some of our most creative SaaS portfolio companies have started offering archiving services for their customers where they offer a very limited use  (typically read only), single user license at ~20% of the prior MRR.  This offering has many positive results often including ongoing high margin revenue for the company, a slower migration plan due to the lack of a hard cutover date, an easier migration path back if the customer ultimately regrets their decision to churn, and higher satisfaction among former customers as well as current customers.

For a PDF of Bessemer's Top 10 Laws of Cloud Computing and SaaS please click here.