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A look back at entrepreneurial lessons learned and the rise of net revenue retention with ChurnZero CEO You Mon Tsang
Did you know ChurnZero CEO and co-founder You Mon Tsang built and exited three companies before starting ChurnZero? Suffice to say, he knows a thing or two about how to take an idea and turn it into a successful business.
You Mon joined the CHURN.FM podcast to talk about his pragmatic approach to entrepreneurship, the lessons he brought with him when founding ChurnZero, and the one thing he wish he knew before starting his career. He also discusses how the market’s perception of net revenue retention has shifted over the last decade and what companies can do to increase this red-hot metric.
It’s easier to build products that buyers have budgets for.
“Oftentimes, people build great products. Then in the end, it’s like, well, who’s going to buy it? Having a target buyer in mind with that pain is super important.”
Category creators face more challenges in B2B.
“I love innovation and being first. That’s easier to do in B2C. But in B2B, being first is terrible. You better gear yourself up for a long time. You have to change the way companies work. You have to convince buyers to do something different. Being first requires all of that.”
B2B products must impact ROI.
“If your product or service can have an impact on ROI, that’s what you really need to do. Slack is a productivity tool and did really well. But for productivity tools, which don’t have ROI measurements, it’s harder to get started.”
Subscription businesses have focused on new logos for too long.
“If there was a great SaaS company starting out 10 or 15 years ago that focused on renewal before growth, they’d have built an enduring, incredible company that’d be healthier than all the companies out there today. There was the realization that […] net revenue retention is the most important metric you can have and you better focus on that.”
Today’s investors ask about NRR within the first five minutes of conversation.
“Now, [NRR] is the second question [investors] ask. How is your growth? OK, that’s great. How’s your NRR? If it’s not good enough, nothing else matters. You can be growing 300% each year, but if your NRR is not good, investors will not invest in you.”
NRR can creep up on startups.
“As an entrepreneur starting out, NRR happens later. You have to get your customers now. But if you don’t focus on making customers happy with a good Customer Success team right away, that ‘later’ happens quickly. Product-market fit doesn’t mean you can sell customers. Product-market fit means you can keep customers. That’s an important distinction.”
Not all churn is bad.
“At different company stages, expectations change. In the beginning, you are selling to a lot of different companies. You can say, ‘Look, we found this cohort or ideal customer profile and these folks are going to stick with us and that’s how we’re focused.’ Then, [we have] a group we’re going to experiment with. We’re going to churn through them. That’s a good story to tell. But if five years into it, you’re still churning hard, you have a problem.”
As You Mon mentions, NRR is the metric SaaS leaders and investors can’t stop talking about. Find out what’s behind this trend in our blog, “Where is Customer Success headed in 2022?”