Why It Doesn’t Really Matter If Your App Is So Hard to Rip Out

And what were the signs you missed before you lost a major customer?

There are two things I see SaaS entrepreneurs who are post-Traction and post-Scale say again and again:

• “We’re So Sticky. Once we’re in, it’s so hard to rip us out.”

• “Our Churn is Basically Zero in the Enterprise. We’re doing great because No One Leaves.”

If you’re coming from a Freemium background, or B2C, that will sound amazing! Compare Freemium churn rates of 2-3% a month, to Enterprise SaaS net churn (including upsell / upgrades) that is often less than zero … man it sounds like those Enterprise customers don’t go anywhere.

And in truth, Enterprise customers usually don’t go anywhere for 1 or 2 or even 3 years. And if you’re not playing a Long Game, you can stop here. If you close Starbucks, and they invest 3 months getting up to speed on your product, and you see real usage — they’re not going anywhere for now.

But here’s the thing. That’s not enough. For two key reasons:

First, if your customers aren’t happy — They’re Prisoners. It’s a term well known to Net Promoter Score advocates. These are unhappy customers that aren’t willing to switch to another vendor. It’s too much work. But they won’t pay you another cent unless under duress. They won’t recommend you to anyone. And what happens is you’ll lose all your Second Order Revenue. You’ll lose 50-70% of the total direct + indirect revenue you could have gotten out of a truly happy customer. More on the huge revenue loss from Prisoners that doesn’t show up in the direct short-term numbers here.

Second, switching today is hard. But switching eventually is easier than you think. Even if you don’t have a great competitor today, you will in 2-3 years, or sooner. Eventually, there will be enough resources on your customer’s side to switch. Maybe not on a dime, or even in a year. In fact, a lot of times, due to deployment and renewal cycles, you don’t even see Enterprise churn until Year 3 — see more on that here. But switching is not as big a deal as you think it is, 90% of the time. You won’t see this if you’re focused on the short term. But it’s a big deal if you’re Going Long.

If you really think your app is so sticky, ask vendors of sticky apps what happens when their champion at a customer leaves, and a new VP comes in that prefers their competitor. You know what happens? They switch.

If your end users aren’t happy, even the most sticky enterprise app is at extra risk during Champion Change. When a new VP comes in that runs the division that uses your product, they’ll often prefer the vendor they used at their last company. You are already at risk if that isn’t you. You are even more at risk if the end-users don’t love you.

Here’s my only point, because I hear it again and again. Don’t take a false sense of confidence in the Enterprise just because your churn seems low / negative in the early and middle days. Or just because you’re automating a complex business process.

It’s easier to switch than you think, given enough time.

Your only choice is to make your customers truly happy. And see it rewarded in declining churn rates and increasing upgrade rates as measured over 3+ years. It will take you a long time to really see this. Your board and investors probably won’t even be able to see it. But if you’re Going Long — it’s almost all that matters.

I’d like to hear more about that, about quantitative customer happiness. Net promoter score is one vehicle. Tracking NRR helps a lot, too.  Be honest. Is your NRR top decile for your segment? 

And I’d like to hear a little less about gates on the way out. Because that captures exactly $0 of the second-order revenue.

And a lot less about how amazingly low your enterprise customer churn is. Because of course it is. In years 1 and 2.

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Just Seeing High App Usage Isn’t Enough. They May Still Be Preparing to Leave.

What were the signs you missed before you lost a major customer?

I remember the first time I lost a six-figure customer. It was a surprise:

• They used the product every day, and constantly.

• They had done a case study for us. In fact, they were on our homepage.

• They renewed the contract and added additional seats.

And then one day, we got a call. Our competitor had been there, on-site. And convinced them they had a better solution for a few critical 10x features. (More on that here: The 10x Feature is Real. At Least, for a While. What’s Yours? | SaaStr).

We lost a top logo customer with no quantitative flags.

What should we have done? We should have:

• Visited the customer. At least twice a year. We never did. It was all done over the phone.

• Mapped out and met all the stakeholders. The SVP of Sales that did the testimonial was just one stakeholder. If he was all that mattered, we would not have lost the account.

• Done quarterly QBRs. These would have highlighted any unknown feature gaps. Do these. Send out detailed quarterly reports to all customers at least at $20k+ ACV sharing all the metrics around usage, features used, value-added, ROI, etc. Everything you can measure. And you’ll get a bonus: they’ll send it around to promote themselves as heroes. And promote you internally.

• Done annual roadmap presentations from the CEO / VP Product.  You really can save customers if you engage them with an annual 1-on-1 roadmap review.

• Done monthly NPS surveys. This would have highlighted any hidden issues so we could have jumped on them earlier.

Instead, we just looked at our “Health Meter” which showed a high level of consistent usage.

That was necessary. But not sufficient.