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Venture Capital View of Customer SuccessAligning Software Vendor & Customer for Mutual Success

Greg GoldfarbManaging

Director, Summit Partners

#Pulse2017


Agenda

Intro

How We Got Here

Where We Are Going

Some Rules of Thumb


How We Got Here


Three Shifts

Toward Many Humans Toward Cloud Toward Recurring


From What Starting Point?


Shift 1: General Direction of Enterprise Software

Hardware Element

ManyOne

Human

PRIM

ARY

CO

NSU

MER

NUMBER OF CONSUMERS

©2017 Gainsight. All Rights Reserved.7

Shift 2: From Bespoke Assembly to Configurable Clouds

+

+

+

Simple picture, so many implications


Shift 3: From Upfront to Recurring

LicenseServices

Maintenance

5x to 10x Upfront Dollars to Future Dollars

Services

Subscription

5x to 10x Future Dollars to Upfront Dollars

License World SaaS World


A Corollary to #2 and #3


The Old Days: Get Back in There At Once and Sell, Sell!


Sell Mortimer! Philosophy

How software businesses were run


Sell Mortimer! Philosophy

How software businesses exited

Non-renewing addressable markets


And it was perfectly rationale…


• $100K license ASP• 18% maintenance • 95% dollar renewal• $20K cost to acquire• 10% COGS

LicenseCo

LicenseCo vs. SaaSCo

• $50K subscription ASP• 95% dollar renewal• $20K cost to acquire• 20% COGS

SaaSCo


60% 12%vs.

Transaction 1 as % of 7 Year Discounted CPLTV


Where We Are Going


The Prototype for the Future of Software

“Our business model is to turn software into an appreciating asset

for the customer.”


Operating Principles

Will not sign a contract longer than month-to-month

Will not accept a booking until customer has met CS rep / accepted CS plan and vice versa

All new engineers start in customer success

Mutually agreed one page value realization plan

Agile team dedicated to customer success / sits with CS team

CS team is boot camp for internal talent development

• Customers should be able to leave anytime

• “A reminder to be at our best every day”

• Never sell what product can’t already deliver

• Feature customer success as part of v prop

• Simple framework built prior to booking, then tracked going forward

• Customer intimacy is duty of eng too

• Product familiarity from Day 1

• Tight coupling of CS and engineering / everyday scrum across departments

• Develop product owners, sales experts, sales contributors, product marketing


The Appreciating Asset Philosophy

How software businesses will be run

COFFEE IS FOR VALUE

SUBSTANTIATORS


The Appreciating Asset Philosophy

How software businesses will exit

Annually renewing addressable markets


Some Rules of Thumb


Within a reasonable magic number boundary (say >0.75), moving CAC is

irrelevant if you have ways to move dollar retention.


1% 34%vs.

Effect of 10% Reduction in CAC vs. 10% Increase in $ Renewal


GPMaka Rule of 50

aka Golden Ratioaka Rule of 40


.59 .73vs.

R2 Forward Revenue Multiple & Revenue Growthvs

R2 Forward Revenue Multiple & Revenue Growth + FCF Margin


It is a mathematical impossibility to sustainably clear a GPM of 50 without best-in-class playbook & execution in

customer success.

[Unless you have a monopoly…if you do, that’s awesome and I am jealous.]

26


A New Concept for GPM Analysis: Amplitude

27

Zone of Durability

Revenue Growth 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%EBIT Margin 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50%Amplitude 50% 30% 10% 10% 30% 50% 70% 90% 110% 130% 150%

Nirvana of DurabilityIncreasing Volatility

(Equity Discount Rate)Increasing Volatility

(Credit Markets)


If you regularly run an NPS of 40+ and a GPM of 40+, the odds will ever be in your favor for a premium outcome at a time of

your choosing.

Greg’s 40 / 40 Rule


And if you run a 50+ / 50+, then you, like Alexander, can weep for you will have no worlds left to conquer and total control of

your destiny. Enjoy your top decile revenue multiple, good market or bad.

[…if you sustain this as you reach scale.]

Greg’s 40 / 40 Rule (or, if we are getting crazy, 50 / 50)


FOUR THOUGHT QUESTIONS TO ASSESS YOUR ORGANIZATION


What is your business process to substantiate value to the customer and

confirm the customer agrees?


How does your business educate the customer on how to get the most out of

the product as the product steadily improves (and often increases in

complexity)?


How many people in your CS org have moved into another group over the past

few years?


Have you mapped each of your core customer journeys and aligned every

department and person in the organization to those journeys, with systems and instrumentation to measure how that

customer is progressing at each step?


A FINAL THOUGHT


How many of your companies conceptualize themselves like this?


Standard Organizing Principle – Functional Department

CEO

Sales Marketing Customer Success Engineering Product CFO


Do you think that’s how customers conceptualize their experience with your

company?


Discover Educate Assess Purchase Onboard Use / Succeed

Optimize & Learn

This is how customers experience your organization


Software Organization as Symphony


Discover Educate Assess Purchase Onboard Use / Succeed

Optimize & Learn

Demand Marketing

Product Marketing

Lead Qual / Inside

Outside Sales

Product

Eng

CS

My dream sheet music (quarterly by customer persona or segment)

Objective / Initiative

KPI


KPI


KPI


KPI


KPI


KPI


KPI


Thank You

www.summitpartners.com

In the United States of America, Summit Partners operates as an SEC-registered investment advisor. In the United Kingdom, this document is issued by Summit Partners LLP, a firm authorized and regulated by the Financial Conduct Authority. Summit Partners LLP is a limited company registered in England and Wales with company number OC3881779, and its registered office is at 20-22 Bedford Row, London, WC1R 4JS, UK.

This document is intended solely to provide information regarding Summit Partners’ potential financing capabilities for prospective portfolio companies and is not an offer to sell to any person, or a solicitation from any person of any offer to buy, any securities.

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18th FloorBoston, MA 02116

United States(617) 824-1000

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Suite 200Menlo Park, CA 94025

United States(650) 321-1166

LONDONQueensberry House, 3rd Floor

3 Old Burlington StreetLondon W1S 3AEUnited Kingdom

+44 (0)20 7659 7500

@summitpartners

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