The Importance of Churn and Retention: Lessons from the SaaS Market with Luke Diaz

[00:00:00] I think we can learn a lot from the SaaS market, particularly their focus on churn, because

[00:00:07] we're trying to retain customers as managed services providers.

[00:00:10] Luke Diaz is the founder of DBT Ventures, standing for Do Big Things, which has an amazing

[00:00:17] portfolio of angel and venture investments and advises on tech, software and other innovations.

[00:00:22] He's an expert in customer success and SaaS trends. through efficiency. Wanna know more? Visit coreview.com slash MSP and find out more. Luke, thanks for joining me today. Big fan of the show. Thank you so much, Dave, for having me. So Luke, you've been involved in scaling a bunch of different startups

[00:01:40] to over a hundred million dollars in ARR.

[00:01:42] Give me your lay of the land on sort of SaaS

[00:01:46] and where you see it heading in the next year, year and a half, as the continued price pressure comes in upon renewal time for like what have you done for me recently in getting more just this overall theme of scrutiny when it comes to getting the most bang for your buck from your software spend.

[00:03:04] And it's interesting you bring that up because if we're slowing a little bit and we're having less interested in the sustainable unit economics of the business. And so to your point, there's a direct correlation to fundraising and efficacy, all rooted in the basic unit economics.

[00:04:22] To the first part of your question,

[00:04:24] the renewal tactics that I've found most novel, So there's some really elegant ways nowadays using technology. This was a DocuSign Apex Salesforce workflow. And then with email communications guided by HubSpot, I don't know if this is too tactical, but the key is you made that renewal process much more streamlined and less, less human

[00:05:43] intervention. and they're focused first and foremost on dollars. And retaining the dollars, sure, but also expanding and selling into the customer base. And I'm actually seeing that flavor of customer success go down fairly dramatically.

[00:07:01] Because what I'm seeing is a pendulum shift

[00:07:05] from what I might call account management and revenue more and more data intensive, there's become this expectation and a need for customer success teams to be data ninjas and be very comfortable with SQL, leverage AI and generative AI tools like chat TPT, all in service of adding value for their customer. So that's been a second trend

[00:08:20] that I've been keeping a close eye on ands and other LLM models approach to data analysis. I think the days of customer success managers reading a 10K or getting really deep into the financials of a company,

[00:09:43] I think that that's gonna be upload, turnkey,

[00:09:46] here's a summary and some, it's an assistant helping the CSM versus some people that have talked about the idea of using them as chat agents and interacting with customers. Give me a little sense of where you fall on that. The pricing and the value of,

[00:11:01] for example, Microsoft's co-pilot is an interesting jump-off point.

[00:11:05] Because if you look at the base 365 license, is very optimistic in at least looking out at 2024. I do see, I actually, I think to answer your question more succinctly, I see generative AI replacing whole parts of the customer success and go to market workflows, not only being,

[00:12:21] you know, the proverbial co-pilot on your shoulder that's helping you

[00:12:25] throughout the day. I actually see it as a replacement,

[00:13:24] placeable by generative AI. But a lot of the content creation,

[00:13:26] and especially for like the long tail

[00:13:28] for customers managing thousands of smaller accounts,

[00:13:32] that's where I see it having the biggest impact

[00:13:35] to where it's not a heavy investment

[00:13:37] of relationship capital,

[00:13:39] but this is where the chat bots, the automated workflows,

[00:13:44] and even some of the automated product feedback loops

[00:13:47] we're starting to see, us understand more objectively, like where is the churn risk in the portfolio. And at the highest level, we just fed a machine learning model a ton of data. And we actually did a horse race between different approaches to machine learning. It was random forest was one type of model. And we did kind of a horse race versus XG boost, which is another kind of like Hegel

[00:15:04] prize winning machine learning model. What I might suggest is these churn prediction scores can be really useful to almost like nominate, put a red flag in the air, be like, hey, there might be some risk here. That if you do have customer success managers or humans that are in charge of this, they don't feel that their job's test. And it felt like that, that it was suggesting things to go test as higher priorities. And it felt like it might be that time encouraged to hear that that actually parallel does exist in what we're seeing with sort of customer success day.

[00:17:41] I think that's a great parallel of like, yeah, looking through

[00:18:49] customer success trait or skill. Because the more that you are willing to just stop talking and listen, I feel like customers want to tell you their story

[00:18:53] and where they're struggling and they're only able to do that if you ask really

[00:18:59] good questions, guide them down thatcom and there's a library there where you can check out some free book summaries if you're inclined. Otherwise I try and share some thoughts every week or so on LinkedIn where I think you found that chat GPT article. So just Luke, Luke R. Diaz on LinkedIn.

[00:20:21] Awesome.

[00:20:22] Luke, this has been a great conversation.

[00:20:24] I appreciate you joining me today.

[00:20:26] Thanks so much, Dave.

[00:20:27] Thanks for having me.

[00:20:28] It's been free and easy way to support the show and help us grow.

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