Episode 62 Transcript

Customer Retention Strategies: How to Improve Your Customer Lifespan by 6x w/ Greg Daines

    Banoo Behboodi:Hi, everyone. This is Banoo, and I'm happy to be joining you with my first recording of 2024. I'm especially delighted to have Greg Daines with me for my first session. Greg is the CEO of ChurnRX. Greg helps companies crush churn and scale customer results to reignite growth.

    I'm extremely excited about the topics we're going to be talking about. I've been part of Greg's classes for the last few weeks, and I've been learning a lot. I had to have him on the podcast to tap into his knowledge. I think it's going to be fantastic—a very informative session. Again, thanks for coming and welcome, Greg.

    Greg Daines : Thank you. It's my pleasure. Appreciate it.

    Banoo Behboodi:Before we get started, Greg, I think it's important that the audience know a little bit more about you and about ChurnRX, which Kantata is currently going through the program, extremely beneficial. But if you can just tell us a little bit about your background and ChurnRX, that’d be awesome.

    Greg Daines: My background is that I was actually a founder CEO in the SaaS world, always B2B at multiple times, and I loved the space and what we do, but I discovered something that has turned out to be a much bigger topic, bigger than SaaS, bigger than software, and that is that a lot of things that we are told and a lot of best practices in customer success are actually not right. In fact, one of the things that was fascinating to me as a leader and how it led me to be in this function was that one of the things that I noticed was that some customers would leave and then, on the way out, say, what a great experience they'd had. That just did not compute. We know happy customers stay and unhappy customers leave. That started me down this journey, and it's led me from one thing to another.

    Among other things, I now run ChurnRX, which helps companies reduce churn and improve retention.But among other things, we do this analysis, and the interesting thing about that is that it's allowed us to test a lot of our theories. One thing I get a lot of joy from, and I just love about what I do, is the chance to work with real data. One of the things that does is allow us to see new perspectives; hopefully, we'll talk about some of those.Some of those really go much broader than SaaS.

    That's the world we live in. I do this analysis. ChurnRX also runs training to help with just the core set of playbooks we found that are data-validated and really drive customer retention. That's what we do.It's a data analysis, consulting, and training company. I love what we do. We work with terrific companies like Kantata and love seeing their transformation.

    Banoo Behboodi:I know, Greg, an interesting fact for the listeners: you have three degrees in economics. You have amazing charts that you would share that would repeatedly bring out these aha moments, at least for me. I know you're going to insert a lot of your data as we have conversations. But again, a lot of the conclusions that you're going to draw are supported by data.

    But that being said, your philosophy, supported by data, is that despite the hype that there is around customer experience—not that it's not important—there's no direct correlation between good experience and retention or bad experience and churn.But there is a direct correlation with other factors that keep customers around.Please tell us what those are and what the data tells you.

    Greg Daines: That's all based on this thing that we have, which is that we more or less have one theory of business. That may sound like an exaggeration, but think about it for a minute. We've all known for a long time that, fundamentally, a business, in order to have a long-term relationship with a customer, has to make them satisfied and create a positive experience. We often hear that surprise and delight are very popular ways of expressing this.

    I saw cracks in this early on in my journey as a CEO founder in SaaS, where retention is everything.That first experience that I mentioned where they would leave and say what a great experience is has a matching one, which is that you'd have customers who are unhappy, who are constantly complaining, and yet keep renewing their contract. The combination of those two just did not map to our basic theory. At least it made me think maybe the theory is not complete. I really didn't appreciate at that time that it was just wrong.

    How do we know it's wrong? Where did that go? From there, I started to track it. I'm an economist by training.You mentioned that I'm obsessed with this thing that economists know. There are a lot of things they don't know, but one thing they do know is that it's called revealed preferences. Sometimes what people say doesn't match what they do.Where was all this data coming from about customer satisfaction? It’s coming from surveys.We asked customers, are you satisfied or not?

    I wonder if that's part of the problem, so I started to test it. About 11 years ago or so, there was a book that came out called The Effortless Experience. This was made by the same people who wrote The Challenger. It's very interesting, and I love the stuff they do because it's data-driven; it's research.They had this thing in there that was fascinating.They had a huge data set—100,000 data points, something like that—and they had the measurement of customer satisfaction and then a measure of loyalty, which is essentially how long did the customer stay?

    What they found was that there was literally no correlation at all between how satisfied customers reported being and how long they stayed.This was consumer data.I thought that matched my experience, but there was no correlation whatsoever.Anyway, we've been testing it. The good thing is that, in the meantime, the lucky thing, I guess, is that everyone decided to use more or less the same satisfaction scale. Everybody adopted NPS, which became the standard. Now, is it the satisfaction scale? No, actually, it asks you whether you would recommend the product or service. But everyone took that to mean satisfaction, and it turns out it does track satisfaction scores that we've measured as well.We've done hundreds of studies on this. We now have millions of records.

    We've tested it. The basic question is: does a higher NPS score predict the longer customer lifespan? The expectation, well, of course. But the answer is no. Not only does it not, but there's absolutely no correlation between how satisfied customers are, what their NPS is, and how long they stay.Zero, not even a little bit.It's not that it's a weak correlation.It has no correlation.This doesn't matter how many times we test it; we keep adding to it. It also doesn't matter if we test the other scales.There are other satisfaction scales that we think may be more like a conventional satisfaction score that also produce the same result; it doesn't matter which version we use.

    This is fascinating.I expected to think maybe it's not the whole story. No, it's not the story.This is fascinating because, like you said, we've actually tested lots of things. We've tested almost anything you can think of.What is the relationship between that thing and how long customers stay? The truth is, actually, most things have some correlation.Now, in some cases, it's weak or it's spurious, but the only thing we've ever tested that never correlates with customer retention is satisfaction. That just blows that whole thing up, and clearly, the customers are reporting something.

    By the way, we know satisfaction is a thing.We know customer experience is a real thing.The reason we know that is because we can consistently measure it.That's one way we know that it's a thing.We also know it's a thing because we've figured out roughly how to make it better or worse.There are some pretty consistent ways you can apply to any company to improve or decrease customer satisfaction.It’s a real thing.

    It's not even to say it's not important.What this data tells us is that whatever it is, it has nothing to do with their decision to stay or leave.That's a different thing. I think we should absolutely produce customer satisfaction, and shame on us if we don't.It's just that we can't assume, and this is the thing that's most important, that it has anything to do with long-term retention and that increasing customer satisfaction will increase our retention rate. It turns out that's not the case.

    That's fascinating. That, of course, leaves a giant gaping hole. If not that, then what is it? What else could it be?

    Banoo Behboodi:What is it? That's what I've been waiting for. Everyone’s holding their breath.

    Greg Daines: I said we'd tested tons of things. Some of them have a pretty strong relationship, but nothing even comes close to one particular thing. By far and away, the most predictive factor for how long customers stay is measurable results. Customers who achieve measurable results stay on average six times longer than customers who don't. If you think about it, the measurable part is really important because, actually, if you're not measuring, that doesn't mean you're not getting results. A lot of customers who are not measuring probably aren't getting good results. But it turns out that only if they measure those results will it have this impact.

    There's an attractive intuition here, which is that we had this idea that it was happiness, but it’s not. But it has to be something pretty compelling. They spent a lot of money. It's a lot of trouble.I hope it's intuitive. My reaction to that was, of course, I had this experience with one of my clients. It was actually Apple, and they were a very difficult client—maybe the worst client I've ever had.They're always unhappy, they're constantly dissatisfied, and they're frustrated and complaining. I worked over there for many years, and at some point, I just got frustrated, and I said, if you hate us so much, why don't you just cancel? The guy looked at me really funny, and he said, why would we cancel when you make us so much money?

    You see, my reaction to that was to feel a little bit embarrassed because, why did I ever think it was about anything else? Where did we get this idea that we were doing business together and going through all that trouble so that we could feel delight or joy? No, that's not what it's about.I think that really grounded me.It really brought me back to the fact that this makes more sense than the satisfaction hypothesis.Measurable results are the compelling through line that we see, and we've studied it over and over again. If you get good results, it's a ten- times longer lifespan.If you get zero results but still measure them, it still doubles customer lifespan.The combination of getting results and measuring them is the fundamental issue.It doesn't matter which business or what industry we look at; it’s the same across everything.

    Banoo Behboodi:As you know, Greg, our audience is professional services leaders, delivery individuals, etc. We've had sessions where we talk about it; it's like it makes a lot of sense, results, of course. If I'm getting results, then my investment makes sense. But what is the complexity around identifying the right results to measure? We've had sessions where we've talked about: how do we measure success? How do you get to the right results to measure? How many are too many results? What is the secret sauce there?

    Greg Daines: I love it. It's a great jumping-off point for the next series of places where I stubbed my toe on this journey. I feel like I've stubbed my toe on every rock along the path. What was the next one? All I have to do, this is my simplistic mind thinking, is just find out what their results are, and we'll just make sure we measure those if there's a problem.

    This exists across industries.This isn't just a SaaS or software thing. We've seen this in professional services.We've seen it in consumers over and over again, and that includes some customers. When you ask them what result they want, they will define it clearly enough that it can be thought of in terms of how would we measure that? Some customers can answer that, but the vast majority can't.There's your next problem. I just needed to know what your results were so we could measure them. It turns out that 70% of you don't even know what that is.

    How could they not know what their result is ? They just spent money, or they're using your services. They've created a contract.The point is, how is it possible that they don't know? The answer is that it's a little bit more subtle than that.They generally know, or they wouldn't have found their way there. The problem is, if we're going to get all the way to measuring it and materializing it—I call it M & M, measure and materialize—we have to have thought of it pretty carefully.It has to be defined.There's problem number one. A lot of companies have a general idea only but haven't taken it to where they've clearly thought exactly here's the kind of result we expect.

    Then there's another problem, which is that even with all that, they often don't know how much improvement they expect.Very frequently, it's because they haven't even gotten a clear understanding of how they're performing now. We have to have a baseline. This is why you brought this up. It ends up that we have to have a method for navigating from not really having the clarity we need to be able to operate on there to getting to that level of clarity. This is a result we actually impact that's important to the business that has to be there.Otherwise, if it's trivial, why would it be the basis for a long-term relationship? It's measurable, and we can clearly think through how we would achieve that.

    Actually, it's not as simple as just asking customers what they're hoping for.Sometimes, they're not even hoping for a thing that's realistic or that we even do, so we have to solve for that.There's a whole methodology around that, but guess what? You can do it, and you can do it reasonably quickly. The key is to know before you enter into that relationship: what are the results we produce? Because they're not infinite.There's not an infinite range of things we do. There's a limited number.There's an even smaller number that are important, and there's probably a smaller number from there that are measurable and compelling for the basis of our relationship.Reducing that tends to make this process quite a bit easier.

    Banoo Behboodi:Once you've identified those results and gotten alignment, I would assume that becomes your raison d'être. That's your purpose with that customer, and that formulates or provides a framework for your account strategy, and the entire organization, I guess, as needed, collaborates together to help the customer fulfill that result. But obviously, the customer themselves has ownership over what they need to do to get that result. How do you balance those to make sure that the customer is holding their part of that bargain?

    Greg Daines: This is really important because, actually, the discovery and the customer results are everything. It only begs the next question, which is: why do some customers get good results and others don't? What you find out when you start asking that question is that the customers who get good results succeed and stay because they change their behavior in specific ways that take advantage of the services, expertise, or product that you provide.

    Producing results isn't as simple as just measuring them. We had to figure out what they were, and we had to make them measurable. But even then, there's another step, which is that now I've got to get you to change in some way. I’ve got to get you to engage with our services, to take our advice, to use our data, or whatever it is you're doing with those clients.It's not as simple as they just do what you say or adopt your thing. It is actually more complicated. It's like the figuring out what they're trying to achieve; there's a little bit of complexity in that, but not too much.

    Let me just walk through that.The issue is that there are only so many benefits that you provide that we could call a measurable result that's worth working on. There's only so many things each of those clients needs to do, depending on which of those benefits they're trying to achieve. What we found is that some customers, some clients, show up, and they're ready.Not only did they know what their result was, how they were going to measure it, what their timeline was, and all those things, but they also had a pretty good idea of what they had to change, adopt, or do new in their business—processes they had to improve, change, or adopt.

    That's great. I wish they were all like that. The truth is, only a minority are like that. The majority don't know what to do.By the way, that's not so bad. That's such an insult because the reality is, if they knew exactly what to do, would they really need us ? Would they need your company ? Probably not.Actually, that's what we're in the business of doing.

    The next stage is that if we can get aligned around what the goal is, then what I need to do is clearly lay out what you, the client, need to do to get that result and get you to engage with that and even commit to it.I'm in a position to do the most important thing in the whole relationship, which is to leverage your behavior change and get you to change key behaviors. If there are 100 of them, I'm going to fail.It can only be a couple.Maybe if there are several, I might even parse them out a couple at a time so that we can work through that because change is hard.Let's not kid ourselves.

    The value of realigning our entire relationship instead of focusing on satisfaction, because what happens if I think it's all about satisfaction? What will I do? Well, I'm never going to challenge you.I'm never going to argue with you. I'm never going to contradict you.If you guys say we're doing it this way and that's the wrong way, well, I'm just going to let you do it because I don't want to jeopardize the satisfaction.But if it's all about results, now the details matter. If you, the client, are going about it the wrong way, we're going to have to have that conversation.I'll find a nice way to say it, but we really do need to address that.

    Leveraging customer behavior is everything.What I found from this is that I've derived three laws, as I call them, of customer retention. Number one, customers stay to get results. Number two, customers get results when they change their behavior. Number three: customers will change their behavior when they know why and how to change. We have to lay out that motivation by aligning around that goal, and then we have to show them what to do and help them do that. That's the magic formula right there.

    Banoo Behboodi:Throughout this whole customer success conversation, it seems like customer success may be tied to brand and other pieces of the success of a company, but not necessarily retention, as you mentioned. There was a whole aspect of the customer journey, and you look at the entire journey and make sure that there is satisfaction in every step. I wonder how that customer journey then fits into running results, meaning, does it start as early as prospecting? If someone was remodeling the journey and now fitting in the whole result conversation and approach, where would that start from your perspective? What makes sense?

    Greg Daines: The customer journey thing has been very popular, and the method, I think, fundamentally perfectly matches the theory of business based on customer satisfaction. Essentially, what you do is look at all your touchpoints with the customer, you can go as early as you want, you probably should, and you think about how to redesign that interaction, that experience to maximize the experience, improve the satisfaction, reduce the friction, all those things. Then you do that first, second, third, and fourth, and you go through that whole process.

    When you make this shift to thinking in terms of customer results, that actually changes.What we're doing then is that we're actually thinking about, well, I need an outcome.The theory basically says, and the data backs it up, that if they have a measurable result, they'll renew and probably expand, by the way. In this scenario, the journey approach just doesn't work very well.We need to take the opposite approach, which is to reverse engineer.Let's start with the end, the outcome, which is that I need a measurable result, and then we're going to win.Back out of it.What would need to happen for that to be true, and what would have to happen for that to be true ? Then I work backwards.

    That’s one consequence, and I think in a results - driven journey, you reverse engineer it backwards, even all the way up into marketing.The thing actually becomes very coherent when you think, what is the first thing I would want them to know ? After you've backed out of it, you can really come to appreciate that level of granularity, and it's very functional.

    The backwards engineering, I think this is a real key shift in the approach that we have to take.When you do that, you actually end up with a different journey.Instead of just saying I want to optimize this journey, you think, what’s the journey ? If, at that point, it's time to apply a customer experience mindset, which is perfectly valid, then you take those steps and say, how do I optimize those first, second, third, and fourth?

    Banoo Behboodi:We’d actually had a session, and I think the question that comes to mind is commercial models. We did a session last year with an IT consulting firm, and they introduced a value-based commercial model into their options for customers. I know it was a topic that was top of mind. There was a lot of belief that more companies may be moving that way, especially consulting professional services. Just your thoughts based on this result-based philosophy: do you have to go with value-based commercial models? How does it fit in?

    Greg Daines: It is a great question. Those have come and gone in terms of the energy around them, I think, for at least ten years that I've been paying attention, probably longer. The idea is just so intuitive and so appealing. If we're fundamentally designing what we do around producing measurable results for customers that have commercial value and are important to their business, then why not price it that way? There's a premium potentially for us in doing it that way. I would say, by the way, a side benefit is that when I've seen companies go down this road, they have found that, to a certain degree, they get more client attention around the key behaviors I talked about. They have to do certain things. In this scenario, I'm going to be very aggressive about pushing those behavioral changes on you because I'm not going to get paid unless you win. It has those benefits.

    One interesting thing, though, that we found in the data, and this ought to be apparent, but it didn't occur to me until we really dug into the data, and that is that it didn't actually matter what the payment structure was for the impact on customer longevity.Customers who had measurable results stayed six times longer, which can be much higher in some cases.Customers with good results, it's ten times. Customers, by the way, with exceptional results; it’s even higher. Virtually none of the companies we're talking about were using a value-based, results - based commercial model.That's interesting.

    My point of view on this is that I find them interesting.I think it's fascinating when companies do that. I think, only because I have some experience with it, that there are some challenges and complexities to doing that. It's not as obvious to customers that that's what they're asking for, by the way.That’s one of the downsides.It seems like, well, then every customer should want that.That should be the most attractive business model.It surprises me, and it's fairly consistent, how rarely customers think of it that way. They often react with—and this may be your experience or not—yes, we could do it that way. They really aren't expecting it.I think that's a downside in a sense because that would have been the biggest value. Well, now everyone should sign up. But actually, I don't think that's the experience many of them had. If you know one that's different, I think that would be very interesting.I am interested.

    But the other thing is, well, not only is it not just a complete game changer where you destroy all your competition and you get all the clients in the market, but also it doesn't seem to make that much of a difference in terms of the longevity. You get the kind of benefits I'm talking about even without shifting to that kind of a commercial model.Customers and clients are comfortable with a lot of the existing commercial models that have been around for a while.The reality is the transformation doesn't really come when you shift to that, although I think that's interesting and I'd like to see it happen more. The win is just getting to a point where you orient like you're operating that way.You orient like you will live or die on their results.If you operate that way, customers meet you there.They transform how they operate and the results are phenomenal.

    Banoo Behboodi:It comes back to authenticity. If you all believe truly in those results and you're acting in a way that reflects that, then that's significantly more important than any commercial model, which makes sense intuitively to me as well. It is complex. Value-based commercial models are not easy to administer, so in some ways, this is good news for me as a practitioner.

    But that being said, Greg, I never tire of having a conversation with you, and you know I have infinite questions, but I have to draw the line somewhere and just wanted to ask you if you have a message you want to leave with the audience before I get to my personal question on a personal level.

    Greg Daines: No, I think we covered a lot. I think it's fascinating. Whenever I talk about this, people share, oh, that's exactly my experience, and they give examples, and they also share things that are really fascinating about different aspects of this, so please reach out to me if you've heard this and think, there's something to share. I'm very interested in meeting people who are doing this or learning what they’ve shared.

    Banoo Behboodi:People can connect with you through LinkedIn; I'm assuming it's the best way to connect with you.

    Greg Daines: LinkedIn or my website, gregdaines.com. You can find my contact information and reach out.

    Banoo Behboodi:Fantastic. Now let's get to the special question. Can you tell us about a mentor, someone who's been influential in your life and your career and has gotten you to where you are today?

    Greg Daines: Interesting. Yes, actually. As a senior executive, I went back to school. I went to MIT, to the Sloan School of Management, and studied business, which is actually a combination of economics and business. I met the strangest, most fascinating character there, a guy named Arnoldo Hax. He's now passed away; I think it was just last year, and Hax is this fascinating Chilean. It was relatively late in his career, but he had some mind-blowingly brilliant insights. One of the core ideas that Arnoldo would explain was what was fundamentally wrong with our idea of business strategy. He would talk about how business strategy came out of World War II, and it was all based on war. It was like competing against each other; everything was a rivalry. You think about Porter's Five Forces and your rivalries with everything. It even characterizes your relationship with your customer as a rivalry, which is incredible.

    He talked about how this strategy isn't war; it's love.It was just as corny, but then he would get deep into what he called customer bonding, and it really changed my thinking because the idea of customer bonding was that you exist to make your customers successful, and therefore your business isn't really about the product that you sell; it's about the result you provide.The joke that he would tell, but it's kind of serious, is that if tomorrow you discover that a new shoe would make your client more successful and get better results, you've got to source those shoes and sell them to your customers because you're not a software company, an expertise company, or a professional; you're a results company.That shift creates that bonding, which is much more powerful than loyalty.

    That insight was really incredible, especially because Arnoldo was an old guy.He didn't actually know anything about tech. He didn't really foresee the way that SaaS or the whole subscription economy would really play out.But everything he said turned out to be incredibly prescient, and it just changed my point of view in amazing ways.His book, The Delta Model, is amazing.But anyway, fascinating guy.

    Banoo Behboodi:Fantastic. Thanks for sharing that, Greg. Thanks for being on our podcast, and I hope we'll have you again in the future. As always, thank you for listening to the show. If you have any follow-up questions for Greg or myself, please feel free to email them to podcast@kantata.com, and we would love to answer them and hear from you. Have a great day, everyone.

    Brent Trimble: If you enjoyed this podcast, let us know by giving the show a five-star review on your favorite podcast platform and leaving a comment. If you haven't already subscribed to the show, you could do so anywhere you get podcasts on any podcast app. To learn more about the power of Kantata’s purpose-built technology, go to kantata.com. Thanks again for listening.