ZT20 #010: Client Churn = Growth Accelerant*
How churn can and should fuel growth
Client churn is seen as the death knell of B2B SaaS startups, and get churn at the wrong time and it certainly could be, however, get churn at the right time and it’s the opposite, perhaps the most powerful accelerant in early-stage enterprise B2B SaaS.
The wrong time to get churn
The wrong time to routinely be seeing client churn is when you are primed to scale. When you have role specialised in your GTM org to create a sales machine, you will also have likely hired an executive team to scale out your GTM org and have told your board you’re looking to 2-3x ARR and set targets accordingly within your team.
fig 1: wrong time to see client churn image
In SaaS the real enterprise value comes with expansion. The opposite of churn. There is almost no chance you are going to hit such aggressive growth goals if churn is an issue at this stage of growth.
In fact, the opposite will happen. You’ll burn more capital, reducing runway and forcing reduction in workforce actions (RIFs), to desperately reduce burn and extend runway, however you’ll be no closer to the solution.
You’ll likely want to buy yourself more time, and to do that you’ll dilute yourself and your employees by raising more capital, and yet you’ll still be no closer to the solution.
Your dream will begin slipping from your grasp.
The solution at this point is to take the medicine and explain to your board that you are laden with a significant amount of go-to-market debt, and you are going to spend the next 6 months paying down that debt. From there, you have a shot at the venture-level growth you and your investors were expecting.
fig 2: go to market debt
The right time to get churn
The right time to get churn is early in your evolution during the product market fit phase of your growth (see fig 3 below) when you have low overheads, significant runway and are less concerned about revenue, but more concerned about gathering market intelligence.
fig 3: the right time to get churn
Using my framework, churn in the product market fit phase is expected, in fact, I pretty much encourage it!
----
Liking what you've read so far, need help scaling GTM?
Book a Strategy Call
----
The truth is, you are stress testing your hypothesized ideal customer profile (ICP) in the product market fit phase and I have yet to see a founder’s hypothesis play out 100% perfectly, unless they are cooking the books in which case that will come back to bite them on the ass further down the line.
In reality of the 10 or so beta customers you acquired in the product market fit phase, I would expect at least a few of them to churn. They’ll likely churn for one of a number reasons:
They didn't adopt the product
They logged in but they did not use the product
They used the product but not the features that were of the highest value
Not all stakeholders used the product
The value exchange was deemed to be too low in reality to justify the investment
They said they saw value, but you/they were unable to articulate it clearly
Digging into the adoption and value feedback is critical for your ICP iteration. You will likely reach the conclusion that whilst you may have been able to arrest some of this churn, in reality some or all of these churned beta clients are not ICP - and this conclusion plus iteration of your ICP in line with these findings is one of the most powerful accelerants of growth in early-stage enterprise B2B SaaS
----
Liking what you've read so far, need help scaling GTM?
Book a Strategy Call
----
Taking bets vs Legal Match Fixing
The acceptable logo churn window does not last for long in B2B, likely 6 months or less. Seeing 40% logo churn at any other time in your business will either see you stagnate or die
Fig 4: Impact of 40% logo churn
However, as detailed in a previous article, even with this level of churn in the PMF stage of growth you’re still likely to see >100% net revenue retention (NRR) if you’ve followed my framework.
So now imagine the rate of NRR you'll achieve if you have the courage to categorise and exclude the type of customers that made up the 40% of customers that churned in the PMF phase of growth!
The focus this brings to your whole GTM team, from marketing through to CS is the key accelerant for future growth.
Founders we work with have the courage to take such bets, because well, it’s not really a bet when following our framework. They have run a process using our framework that gives them empirical evidence about the bet.
It’s less a bet for them, and more a form of legal match-fixing! Cheat mode is fully activated!
Thanks for reading!
Wayne
Strategy call: If this resonates and you’d like to activate cheat mode, time to have a strategy call with me, please find time here
Testimonial: If you LOVED this newsletter, I’d be eternally grateful if you recorded a video testimonial here, it will help keep me writing, and help keep it free 🙏🏼
Peace & Love to you all ✌🏼💙
#sales #saas #startups #venturecapital #GTMdebt