00:00:00 Andrew: Hey, it's Andrew, and today on the show we have Tony Sternberg, co-founder and CEO of ProsperStack. In this episode, Tony shared the challenges of selling a business and the importance of churn and retention in the review process and the final valuation they got. We then discussed how you can use tailored user experiences to reduce voluntary churn and leverage your company's data more effectively. As usual, I'm excited to hear what you think of this episode, and if you have any feedback, I would love to hear from you. You can email me directly on andrew@churnfm. Don't forget to follow us on Twitter and enjoy the episode.

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00:00:33 Intro: How do you build a habit-forming products?  How do you… Don't just guns for revenue in the door?

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00:00:41 Andrew: This is CHURN.FM, the podcast for subscription economy pros. Each week, we hear how the world's fastest growing companies are tackling churn and using retention to fuel their growth.

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00:00:54 VO: How do you build a habit forming products ? We crossed over that magic threshold to negative churn. You need to invest in customer success. It always comes down to retention and engagement. Completely bootstrap. Profitable and growing. 

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00:01:08 Andrew: Strategies, tactics and ideas brought together to help your business thrive in the subscription economy. I'm your host, Andrew Michael, and here's today's episode.

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00:01:19 Tony: Hey, Tony, welcome to the show.

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00:01:21 Hey, Andrew. Thanks for having me on.

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00:01:22 Andrew: It's a pleasure for the listeners. Tony is the co-founder and CEO of ProsperStack, a platform that automates and enhances subscriber acquisition and retention experiences. Prior to founding ProsperStack, Tony spent twelve years at CATS, a bootstrap startup in the HR space, where he joined as one of the first employees and saw the company grow from low thousands to $6 million while acting as president prior to the company being sold. So my first question for you, Tony is, what was the most challenging aspect of going through the acquisition period at CATS?

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00:01:55 Tony: Oh, wow. Yeah. That was a really new experience for me. So aside from just having to learn how that end of the business works, it was a lot of diligence and fact finding. And it really taught me that. As you go along the way, it's a lot easier to keep those numbers and those KPIs up to date, because having to go back and retroactively get them is oftentimes challenging. But it's really important on that side of the business when you're going through an acquisition to have those numbers right, so that the valuations get backed up and what you're saying you can show, and that is true and everything. So we spent a lot of time. As a bootstrap company, we didn't often have people to answer to in terms of a board or investors that would often request those kinds of things on a consistent basis. So that's something I've tried to instill in this company quite early, is discipline around those numbers.

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00:02:42 Andrew: Nice. So one of the aspects then from your side is really just having access to data and showing you the reporting to provide. How long did the actual process take going through the acquisition?

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00:02:53 Tony: I would say that the core of it was about six months. There were some things that led it to extend out beyond that, but I would say about six months was the process from putting together a pitch book and meeting with different people that were interested in the business to selecting the kind of the partner you want to move forward with and then going through that diligence process.

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00:03:10 Andrew: And how much would you say churn and retention came into the review process and the final valuation the company got?

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00:03:18 Tony: Oh yeah, it was one of the core things that was focused on because it really honed in on what our LTV to CAC ratios were in the way that we calculated. Churn was important to influence those numbers, which definitely backed up the valuation that we were getting. And not only that, for them to justify to their investors why they would pay a certain number for a company as well and then it gets into forecasting once the acquisition goes through, how can we reallocate dollars to work with these ratios that we've developed and really scale a business to the next level? And yeah, those numbers were absolutely core to everything that was worked on in that process.

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00:03:56 Andrew: Nice. And then following the acquisition, at some point you went off and you founded ProsperStack. How long did you last post acquisition at the company?

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00:04:06 Tony: Yeah, I actually left prior to it going officially through. I was just in there until it went through and it was acquired by another company that it was rolled into. So I didn't have to stay on or anything, but by that point, definitely had a lot of ideas. And the co-founder I wanted to jump into the startup space again with because I guess I never really left the startup space, but really wanted something of my own that I could hopefully grow into, something successful.

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00:04:31 Andrew: Very nice. And it sort of emerged as well out of your previous experience at CATS as well. So maybe give us a little bit about the origin story. I think it's always great to hear where you came up with the idea and how it evolved.

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00:04:47 Tony: Yeah, definitely. So CATS was, I guess you'd call it like an early SaaS company by SaaS standards, it was really technically founded in 2004. So at that time a lot of the stacks that everyone use now really weren't around. Languages were different, platforms like Stripe and Charge. We didn't exist, but we used a very, I would call it low touch, more of a product led approach to our user acquisition. So we would drive free trials of the website. They could basically sign up and try it for 30 days for free, which meant we didn't have a more direct sales process. It was more or less transactional in the way we sold it, which meant they could buy it and pay us without talking to us. But that also meant on the flip side of things, that they could cancel without talking to us. So we felt like we never really had that one to one connection to truly understand where did our product or service fall short in order to understand why people turned. 

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00:05:38 Tony: So it was always like this black hole that we could never really understand. And it was something that puzzled myself, puzzled the founder and other people at the company. Because we just like how are we going to ever truly understand this if we don't have that relationship with the customers? And we had ideas on how to do it, but we had a million things we wanted to build that were really core to the product and it was kind of like well, how much effort can we really put towards this whole retention offboarding experience? And that's where the light bulb kind of went off and we're like, if we're suffering from this problem, there's got to be a ton of other small to midsize businesses that also could benefit from a solution. And we've all experienced maybe like LinkedIn or Adobe's retention efforts or if you call your cable company, you know, they've invested tons of money into that retention experience and we just felt there had to be a way to unlock a similarly high quality automated experience for these kinds of companies.

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00:06:32 Andrew: Very cool. So maybe just give us a good overview of what the typical customer experience looks like. For partner stake, a company comes to you and what are their typical problems that they're having or challenges and then why do they stick around and stay?

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00:06:46 Tony: Yeah, I think when a company is out looking for a solution, they've already identified that churn is a problem. So they tend to be past like that initial first couple of years of startup space where they're really just focused on acquisition and learning from their customers and maybe push turn to the back burner until it becomes a thorn. Well, then it becomes a problem and maybe they're going through a round of funding or they want to go to fundraise and if their turn is not looking good, investors are going to look at that first and foremost. So they say, what can we do to improve it? Well, then they start looking around at the market and finding out here's some different things companies are doing, but we're not really experts in this area. So it's an emerging space in the sense of systems dedicated to just voluntary churn and offboarding. So they'll come to us and really have those goals in mind. 

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00:07:29 Tony: They want to show, they want a reduction in churn. They don't have the resources to invest into it to do it in a dynamic way that their growth teams or their success teams want them to do it. So they say, what are you different about? And we basically partner with the Stripe and charge Visa and all the other subscription billing management platforms of the world and make a low code way for them to plug it in and just create experiences as we call them flows to really tailor the operating experience to that customer, truly understand why they're leaving, and give them an alternative to cancellation when possible. That speaks to that reason. 

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00:08:04 Tony: It might be a service intervention, it might be a discount, it might be a plan alternative that better suits them. But all that is fed by data, all that is built within our product and automated and then scaled out by teams that don't require development resources to continually make changes and iterate and test. So that's really kind of a typical scenario. It tends to be like a direct consumer company or like I always call them like prosumers or really small businesses, ones that can behave more like a consumer to make those decisions more on a whim. And they tend to also be at a price point that I would call moderate, like sub $100 per account per month type of thing. 

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00:08:43 Andrew: Interesting. And customers then would come to really try to build out like a good exit flow for their customers either to learn as much as possible from them or retaining themselves. When it comes to offboarding best practices then, where do you recommend companies get started? Let's imagine I come to you today and whether I use your software or not, I want to start learning a little bit more from those that are churning. What would be your recommendation to get an MVP off the ground? What would be the very first step you'd say you need to do to get started?

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00:09:16 Tony: Yeah, I think the first step is always just trying to learn from churn and it might be I think introducing offers and alternatives is kind of a whole nother layer to it. But at a very simple thing, you could fire up a type form or a Google form or whatever internal survey tool you want to use and really just add a couple of steps in there and it's really just coming up with a reason of primary reasons they might leave. Maybe a handful. I recommend not going too far into it, just five, six, seven reasons that kind of boil down to the core of why your customers leave. 

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00:09:47 Tony: I always recommend asking for open ended feedback. You get a lot of unanticipated things. It's great to have to be able to put into a spreadsheet here's the primary reason why they left. But if you can get unsolicited, I would say unfiltered feedback from your customer, that's always best, too. And then you can surface keywords from there. That's really useful. And keeping that process consumer friendly is a big driving reason of what we always consult and try to have our clients do as well, because we do believe there's a balance between the customer experience and the data and the ability for you to retain them. 

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00:10:20 Tony: And then I think on the other hand of that is just paying attention to trends and laws that are coming in enforced. There are more consumer friendly laws coming in place. Basically the idea is, if you want to be safe, is if you acquire customers in an automated online channel, you have to let them cancel in an automated online channel. The general guidelines are if you acquire them in that way, let them cancel that way. So trying to put them into call centers when they can sign up online is technically illegal.

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00:10:47 Andrew: Yeah, I've experienced some bad experiences like that myself. And knowing the laws as well. It is one like, very off putting as well. Extremely. Like if you quick to take my card and quick to take my details, you should be quick to let me go and close the account itself. So the thing then as well is at this stage you mentioned like a type form or anything you can get started, you start collecting feedback. What would be the next step then? So now you've got your five, six options. You maybe have another so people can give you additional details. You started collecting feedback. Now what do you do from there?

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00:11:28 Tony: Yeah, assuming that feedback funneling to something you can act on would be a great step. Like I said, trying to surface common keywords and open ended feedback to really understand your users is great. If you can run them through any sort of analysis or automated tool like AWS has, that's a bonus. But then I think you start getting into like, all right, great, we're getting that feedback, now could we have prevented this cancellation through some sort of automated educational means? So we call them deflections and offers. So if somebody says, "Hey, I had this problem," or, "I'm canceling because you don't have this feature I need," but you actually do have the feature, you can basically have a conditional step that would link them to a resource that would help them overcome that problem. 

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00:12:08 Tony: Maybe it's booking a one to one call with a customer success rep or a support agent to try to overcome that kind of snap reaction to canceling. Understanding that people go through hardships, customers go through hardships. COVID-19 a couple of years ago was a great example. That's really when we launched. So it was kind of an interesting time to launch. And companies were scrambling because people were just canceling subscriptions left and right in that two month initial period there. But all they needed to do was have an alternative and say, "You know what, how about we just take a break? We'll pause your billing for one month, two months, just to help you get through this time." They never would have churned those customers. They would have come right back, they would have continued on with the billing, but now instead they have to go try to reactivate them. And as we know, getting someone to put their credit card in is one of the hardest things to do and they have to get them to do that again. So I think just looking at what can I introduce into my cancellation experience that's going to give an alternative to cancellation so I don't lose the customer in the first place. It's kind of that second layer you want to build on top of the informational gathering.

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00:13:03 Andrew: Yeah, I think that COVID example is very good example. I think most companies scrambled to do something similar. We ourselves as well did a Hotjar where we gave you the ability to pause your account and reactivate after three or six months. I think there's a few options. Interesting. The other thing as well, I think that was interesting is being able then to sort of measure the responses that you get. And something similar we also did at Hotjar was having those details we could then monitor month on month to see the progress we were making in specific areas. So if bugs was the issue, one month, there was like 20 % coming from bugs. We need to make sure that that was decreased the next month and the ratios accordingly as well and really helped to give you a pulse of which are sort of the areas that you need to maybe spending a little bit more product resources too from that side. 

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00:13:54 Andrew: The one thing I've always had this mixed feelings about incentivizing retention because especially when it comes to offering discounts and keeping things and I'm keen to hear your opinion on this, because there's several times where I've actually seen threads in different channels on Facebook and other social networks where it's like, "Hey, heads up. I just canceled my HubSpot subscription and got offered a 50% discount. If anyone's interested in a 50% discount, just go cancel your account and choose this as an option. And there you have it." Bing. So it gets me thinking that how much of this deflection actually helps versus actually losing revenue from customers who would have otherwise stuck around. I don't think this is probably something you could effectively measure, but how do you see this playing out in the companies you work with?

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00:14:50 Tony: Yeah, I think that's a really interesting point and it's something we've had discussions with potential clients and clients about and I've observed and had thoughts on myself, too. For example, I think everyone knows if you're subscribing to LinkedIn, like Sales Navigator, you can go and cancel and get an offer. At least you could for the longest time. And it was a fixed process that everyone could do. So obviously, you would think that a big company like LinkedIn would have done that measurement and obviously still outweighed that risk of people learning about that was greater than benefit. I think you have to be a pretty large brand in order to, like you said, like a HubSpot, like a big major unicorn player to really have the Internet start talking about this specific way to cancel. 

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00:15:31 Tony: But I think that's also where you can look to a dedicated platform to help you. So introducing things like randomization and making sure that even if everyone goes down the same path, that not everyone gets the same offer, or any offer for that matter is one way to kind of protect against people learning a pattern and then also just ways to leverage your user and their behavior and giving them that unique experience. So for example, on the onset of a cancellation experience, you basically identify a segment of customer that it applies to. So if it's a customer that's been around less than 90 days and you know that you need to incentivize them to get past that maybe magical threshold of six months where they become a lifetime customer, it might be worthwhile for you to even if it cost a temporary discount, to get them there and then get them back through automated ways or manual intervention to really see the value of that product. So we always recommend if you're going to lean on coupons, generally temporary is the way to go because you want to get them to a point  of realizing that value again where they want to pay you the full price. 

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00:16:30 Tony: And at the end of the day, any subscriber you can keep is really going to only increase LTV, which kind of circling back to your first question is one of the drivers of a lot of the core things you do in your business. So we feel like helping companies increase that is a certainly worthwhile endeavor and a lot of the strategies that we consult with and impose are not offering things. How can we optimize if offers were off the table and discounts and incentives, how could we optimize this experience to overcome that problem in more of an educational means so we call it a deflection versus a save to retain that customer without having to concede any revenue. And that's a win-win for us. And that's kind of how we look at it.

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00:17:11 Andrew: Nice. So first step you mentioned then getting a good offboarding experience is figuring out a way to collect the feedback. What are the reasons? Second way is to then understand those reasons, build in paths to enable deflection and try and retain some of those customers. Where do you go from there?

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00:17:30 Tony: Yeah, I think I was just maybe branching into a little bit, and I think that is really leveraging data from your customer base. And again, we call them segments, whatever you want to call them, but basically putting in different cohorts or groups or buckets and giving them unique experiences that speak to where they're at in the customer lifecycle. We never advertise ourselves as a be all and end all the turn. We look at ourselves as like a tool in the toolbox that's going to get you to optimize your retention. There's a lot of things you need to do on the onboarding stage, at the mid cycle stage, even with things like dunning and involuntary churn, you should be having solutions for that and then kind of at the end of the lifecycle relive, there's things to do and then even beyond that, win back campaigns. 

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00:18:13 Tony: But yeah, I think leveraging data specifically using data platforms like a segment.com and piping that information in and even showing the customer dynamic data, like, one of the things that we found useful would be to reinforce value like, "Hey, are you sure you want to leave?" Imagine if you're a CRM and you go to cancel it. You've got 10,000 contacts in here, 62,000 activities. Is this really what you want to leave behind? It kind of makes the person pause and say, you know, I have got a lot invested in this. I've got a lot of value in this product. I can't just cancel that and lose access to it. So just kind of reminding them in that moment what value they've got on your product with that leveraging, that data that we're talking about can be super powerful.

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00:18:54 Andrew: Very cool. Nice. So moving on a little bit, I want to ask you a question that asks every guest that joins the show. I have a feeling I know what your answer is going to be, but I'm going to ask it anyway. Let's imagine a hypothetical scenario. You join a new company. The CEO comes and says, hey, Tony, 90 days. You got to turn things around. You're in charge. The catch is you're not going to tell me. I'm going to look at data, or I'm going to speak to customers and figure out the biggest pain points and start there or speak to internal teams. You're just going to take a tactic that you've seen work at a previous company and run with it blindly, hoping it reduces churn within the 90 days. What would you do? 

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00:19:32 Tony: Yeah, all right. So the assumption here is that I have to have an automated solution, so I guess I'd make a leap. And if it is a type of company that has more of that price point that tends to be more product led, then, yeah, I would probably go down the path of really quick, easy wins, which would be like a cancellation flow or experience, because it's one of the more tangible things that you can do. I bought a lot of software in my day, and a lot of the software that you see and you have to buy into is the idea of ROI through time saved. Well, what's unique about a cancellation flow is its dollar saved because this person went to cancel. They did not cancel for this, for whatever reason. And now this is actual invoice revenue back to you and that' s a very easy way to tie back into making an impact. So that's why I would say go down that path first.

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00:20:18 Andrew: Good start there. Cool. What's one thing you know today about churn and retention that you wishing you when you got started with your career?

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00:20:26 Tony: Yeah, I mean, all the KPIs we've talked about today and learning how to calculate them and just having them at ready is something that's hugely important and that I've learned the importance of through the later stages of the bootstrap company I was with at CATS. And then even just now, being a company that has investors and is funded. And the importance of them are the core metrics, churn, LTV, acquisition costs and a few others from there. But those are definitely core that my investors are always asking about.

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00:20:54 Andrew: Nice. I was also interested, you mentioned like you launched when COVID started previously and the timing for that feels like a product like yours, like the perfect storm. How are you seeing the current market in terms from your business perspective? Because a lot of companies out there, they're feeling the pain now. They're like a pending recession upcoming. How is it for business like Prospertack where more and more companies now actually starting to think about how do we retain more of our customer base?

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00:21:26 Tony: Yeah, you're right. It was a very interesting time to launch. I would say that we were optimistic that retention would be a focus even during COVID as people were leaving, but it was still a scary time to just launch into the unknown. But as we've gone a couple of years since then, and now we're shifting into a recession, we've done a lot of customer interviews specifically with our own customer base lately and one overwhelming theme that everything seems to have shifted in the last three, six months to a year is really towards retention. Money is not as cheap right now. Investor dollars are tightening up, so it's not as easy just to go grab a lot of cash and throw that growth and acquisition. They have to be a lot smarter with that cash and invest in areas like retention, which is going to be five to seven X cheaper than an acquisition cost over the long haul. So, like I said, it seems to me that everyone is shifting towards that. 

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00:21:26 Tony: When we've had conversations with customers, a couple of them even said, it's funny you ask about where our focus is because at the end of last quarter we actually had kind of a quarter close and a new quarter kickoff and our theme is retained this quarter. And I think that speaks to the attitude and the shift of everything and where it's headed and people are going to be focusing a lot more on retention these days.

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00:22:40 Andrew:  Absolutely. Nice. Well, Tony, is there any sort of final thoughts you want to leave the listeners with before we wrap up today, anything they should be aware of relation to your work?

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00:22:49 Tony: I guess just as a general theme I touched on a little bit earlier, I don't think that there's ever any one silver bullet towards retention. I think you need to evaluate your own business, your type of customer, your price points and determine what solutions are best for you. But definitely investing in retention as a whole, no matter what area of the lifecycle, is going to be something that you're going to be want to do, wanting to do in the next, especially if you're not already doing it in the next three, six months, because I think you'll fall behind without proper investment into it.

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00:23:18 Andrew: Absolutely. And I think more so now, as you mentioned, in the climate we're in, businesses and metrics are going to become a lot more demanding all around, especially if you're a startup and you're in the venture space. Churn and retention is the number one metric, I think that's going to be talked about now over the next few months. So very nice, Tony. Well, it 's been a pleasure hosting you today. Thank you so much for joining the show and wish you best of luck now going forward into this new year, navigating through the climate.

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00:23:45 Tony: Yeah. Thanks again, Andrew, it was great to be on and best of luck to you as well.

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00:23:49 Andrew: Thanks, Tony, have a great day.

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00:23:51 Andrew:  And that's a wrap for the show today with me, Andrew Michael. I really hope you enjoyed it and you're able to pull out something valuable for your business. To keep up to date with CHURN.FM and be notified about new episodes, blog posts and more, subscribe to our mailing list by visiting CHURN.FM. Also, don't forget to subscribe to our show on iTunes, Google Play or wherever you listen to your podcast. If you have any feedback, good or bad, I would love to hear from you and you can provide your blunt, direct feedback by sending it to andrew@churn.fm. Lastly, but most importantly, if you enjoyed this episode, please share it and leave a review as it really helps get the word out and grow the community. Thanks again for listening. See you again next week.

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