A few years ago, I started noticing a strange business problem plaguing some of the companies I worked with: They knew more about prospective customers they hadn’t yet signed, but were courting, than their existing base of users.
This didn’t make any sense to me. In fact, in many cases, the CEOs of these companies were incapable of answering critical questions about their current customer bases, such as which product features were driving the most usage and value; which customers were most likely to “churn” away; and which were good candidates for “upsells” through which they would spend more money on the company’s product. This was all problematic because it meant these CEOs were lacking crucial information that would help them allocate sales, marketing and other critical resources. They really were flying blind.
This conundrum spawned an internal research project at my investment firm, Battery Ventures. Initially called the “Lifetime Value (LTV) Optimization” project (which I know is a mouthful), it focused on figuring out how companies could best determine which types of customers would deliver them the most value (meaning contribution margin) over time, and not churn away to competing products. The more we looked into it, the more we realized that there weren’t a lot of tools out there that could solve this problem.
So we realized we’d have to help create a company to do this. One of my colleagues, Paul Morrissey, identified a potential vehicle for this venture after months of work. It was JBara, a software company in St. Louis co-founded by two great entrepreneurs, Jim Eberlin and Sreedhar Peddineni. They had the vision to build a product to help companies manage their “customer success” organizations. As soon as I heard the term “customer success”, a lightbulb went off in my head. We concluded that this product could solve our problem. After all, the role of “customer success” is to maximize customer satisfaction and increase the likelihood that customers will stick with you for a long, long time – thereby optimizing their lifetime value.
But JBara needed more-professional leadership, and also needed to be based in Silicon Valley to get access to top talent to realize its vision. That’s where Nick Mehta came in.
I had gotten to know Nick, a software entrepreneur himself, over the past few years; we were active in the same business-leadership group and both lived in the same town. Through these interactions, I had become convinced he was one of the top software CEOs in Silicon Valley. He is a skilled leader and a magnet for top talent, and also has great vision and seemingly unlimited energy. He was well-suited, in my mind, to building a company and even defining and leading an emerging industry.
At the time Battery found JBara, Nick had recently sold his last software company, LiveOffice, to Symantec. I pitched him on the idea of joining JBara over the holidays in late 2012, and it immediately resonated with him. He talked about the ‘customer success’ meetings he led at LiveOffice, and how little visibility the company had into its customers. Over the next six weeks, he conducted his diligence and ultimately concluded he wanted to join forces to tackle this opportunity. In fact, our first investment in JBara and Nick’s arrival as CEO, in February 2013, happened within 24 hours!
Within a few months of Nick’s joining, we invested additional capital into JBara and re-named it “Gainsight”. The company also held its first Pulse conference, which has become the de-facto industry event for customer-success professionals.
We were off to the races—and Gainsight’s customers quickly started to see distinct improvements in how they tracked, retained and upsold existing customers.
Today, I’m proud to say that customer success is a dynamic and fast-growing industry. Gainsight’s annual Pulse conference, which is taking place again this week in San Francisco, drew 1,000 people last year and more than 2,000 this year. Competitors in the space have sprung up. And many companies (including the majority of the Battery portfolio) are building out customer-success organizations to increase their customer satisfaction. .
Gainsight and customer success, you’ve come a long way, and I can’t wait to see what the next few years will bring!
Roger Lee is a general partner at Battery Ventures in Menlo Park, Calif., and a Gainsight board member. For a full list of all Battery investments and exits, please click here.