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Churn is the silent killer

Brian Balfour | CEO and Founder of Reforge

  • | Activation | Engagement | Metrics | Retention
  • February 2019
  • EP1

Taking a look under the hood

Retention is the centre of any growth engine

Today we chatted with Brian Balfour, Founder and CEO at Reforge, previously VP of Growth at HubSpot. Tune in to hear what Brian learned by building, advising, and investing in over 40 different companies over the past 10 years.

We discussed his thoughts on why retention is the one metric that rules them all, why churn is the silent killer, and what metrics you should be tracking to measure retention and engagement correctly.

Highlights

Time
The center of almost every SaaS growth engine is retention and engagement. 00:01:30
Retention is the one metric that rules them all. 00:06:00
Organizations should focus on deepening engagement to solve retention and churn. 00:12:33
Retention killed them at the end and here’s why. 00:07:55
Retention is a cross-functional problem to solve. 00:09:28
What are the correct metrics to measure retention and engagement? 00:10:05

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Brian Balfour

CEO and Founder of Reforge

What Brian is reading right now

About the podcast

My name is Andrew Michael and I started CHURN.FM, as I was tired of hearing stories about some magical silver bullet that solved churn for company X.

In the real world tackling churn and increasing retention is one of the hardest problems a subscription business faces.

In this podcast, you will hear from founders and subscription economy pros who are taking a systematic approach to increase retention and engagement within their organizations.

Transcription

Andrew:
Hey Brian, it’s great to have you on the show. How are you doing today?

Brian:
Great, thanks for having me.

Andrew:
Exciting. It’s been really great to learn from you over the years as well. I think quite a few of the listeners as well have read a lot of your blog posts and I think you’ve been lucky as well, you’ve been part of building, advising, investing in over 40 different companies now over the past 10 years. And as you mentioned, in one of your blog posts, some of them have gone on to go past 100 million plus, others ended in failures.

Today, obviously what we want to touch on, is a little bit about your experience when it comes to retention engagement and what do you think some of these companies did right, and some of them did terribly wrong. So maybe we could just start off with the one topic I really liked and was sort of like an aha moments for me as well, reading in one of your posts was, why retention is the one metric that rules them all. And maybe you can just touch on that.

Brian:
Sure. Yeah. So like one way that I think about retention is that it’s just kind of the, or I guess one way that I like to think about growth overall is just like thinking about it as an engine, right? And more of like this overall system with all of these moving pieces. And when I start to think about it that way, then what I really want to know is kind of, well, what is the center of the system? What is like the center of the engine? The thing that is fueling everything out. And in pretty much all cases for companies, especially software companies, the center of that engine ends up being retention and engagement.

And so then the question is why? We need to look at how retention actually influences all of the other pieces of that growth engine and how it actually drives them.

So of course, the first thing when people think about growth is sort of acquisition. And so like, why does retention actually influence acquisition? Well, if you look at any sort of really scalable acquisition technique, that basically it access what we would call like a growth loop at Reforge where we’re like taking some input and then through some series of steps it generates an output, we reinvest it back in the input, and the cycle kind of repeats.

So when we look at like what the most common growth loops are, the ones that have driven the fastest growing companies, you’ll find that retention actually influences them all. So, if we think through something just more on the consumer side or let’s say in the B to B space, think of like a B to B SaaS with new site G2 crowd, right?

Their big acquisition mechanism is that they’ve got this user-generated content machine where like users come in, they generate content and attracts more users, more users sign up and it kind of repeats itself and then they convert a certain percentage of that them over to like their paid products. And so the more users you retain there, the more content that’s going to be generated, the more content that’s going to be generated, the more things that get indexed on Google and more things that get indexed on Google, the more users you’re going to acquire. So once again, the retention is sort of the center of that. If you don’t retain any of them, then that cycle actually never repeats.

It also works on things like paid acquisition or sales, right? Because the big thing that are driving those two loops are really the amount of capital you have and how quickly you can reinvest that capital into either hiring more salespeople or buying more ads. And so once again, retention and sort of sits at the center of those because the higher the retention is,

not only are you going to make a greater amount per customer but typically you’re going to earn that money faster or like recover your acquisition costs faster, which means you’re able to reinvest that capital back into more ads or sales or whatever it is to keep fueling that loop, right? So once again, retention ends up being the center of that engine.

We can also think about it from a couple of other perspectives where like retention actually ends up helping you build somewhat of a defensibility or a competitive edge. So kind of going back to that example in B to B SaaS space, you increase retention and as you increase the retention, your monetization increases, you earn more money from your customers of which extends your LTV. And in doing so, you can actually use that as kind of muscle to push out other competitors in the space. So, most acquisition channels are zero-sum games, right? Like you get a chunk, your competitors get a chunk, right? And you’re kind of constantly fighting.

Andrew:
There’s only so much space.

Brian:
That’s right. And so the greater your monetization LTV is, which is driven by retention, the more you can typically spend on cost of customer acquisition, which means like you can either push your competitors out of channels or it might even open up new channels for you that were previously like too expensive for you. As a result, once again, it goes back to fueling that machine even faster and it kind of compounds on itself. And so like, once again, like there’s, I think there’s some other ways that retention really is kind of the one metric that rules them all. But the point is, is if you look at growth as an engine of the fastest growing companies, what you always find that the center of that engine, the thing that is kind of influencing everything else, it’s always comes down to retention and engagement.

Andrew:
Yeah. It’s amazing how many different areas it touches and like you said, really helps you build that competitive advantage. It’s surprising as well, I think, then in another one of your blog posts, you highlighted this quite nicely, is that retention tends to be the silent killer. Since it has so much power in its ability to fuel growth, why do you think it is that so many companies end up leaving it on the back burner and stop thinking about it early on?

Brian:
Yeah, I mean, it’s a good question, right? It’s like, okay, like I get it, it’s the center of the engine, it’s so important. From most of the companies that I’ve been involved in, the ones that have died are for one of two reasons. One is they never reached product-market fit or two, retention killed them in the end and this is pretty common. It’s become a little less common thankfully because I think people are starting to realize the important of it but you know, we look back to some of like the biggest fundings and quickest shutdowns, things like Home Joy, Fab, Branch Out. You know, these are now like maybe like five or six years old. But if you look at really the core reason, all of them showed amazing top line growth, right? But if you look at the reason that they shut down, it’s because, underneath that surface, they didn’t really have retention.

And so the question is why? And you know, some of this is just kind of like human nature, some of it is just like kind of company politics, but the thing about retention is that it actually kind of takes a while to show up in your top line numbers. So a lot of companies kind of like look at just top-line numbers, whether it’s acquisition or revenue numbers, right? It’s kind of going up and to the right. And if you have a retention problem, it’s not going to actually show up right away, it could take months for it to show up. But the thing is, by the time it really shows up and starts causing problems in your top line numbers, it’s almost too late because now your growth starts to flatten and once growth starts to flatten and you lose that momentum, things like raising more capital, your momentum with customers in the marketplace, and like press internal team, like all that kinds of stuff just starts to slow down.

So part of it is just that retention due to the nature of it tends to take a while to show up and as a result, either like it’s ignored or kind of gets deprioritized within the company. I think that the second thing is like, out of all of the metrics you can move, it’s probably the toughest metric to move. I think, you know, a lot of times we just, we’ll kind of gravitate towards the easier problems, the easier problems to solve. But the reason that retention is a harder problem to solve is that it’s kind of a mixture of what I would call like core product, growth product, and like what in the B to B world, some might also believe lives in like the marketing or like customer success sort of teams as well. And so you’re talking about all of these like cross-functional initiatives. One team can’t solve it all. Right? And so that ends up typically being a really complicated thing as well.

And then I would say the third reason is that just in general there’s a big lack of understanding about how to properly set metrics around retention and engagement, especially in the SaaS space, actually. I would say in B to B SaaS, you know, almost all the time, I will talk with a company, I’m like, well, what’s your retention metric? And they immediately say like an MR number or revenue number. But the thing is like revenue is an output of usage of your product and if your customers aren’t actually using your product, in other words, they’re like zombie subscribers, as some people would call them, they’re going to eventually churn anyways. It’s a matter of time and so some people are like, “Oh, no, I’m not looking at just total revenue, I’m looking at like MRR.” And I’m like, but it’s still too much of a lagging indicator. Right? You’ve got to go one layer deeper to get to the leading indicators, which is much more around usage. And so, I think that’s probably like the third category of why it just ends up being like this lurking thing that ends up killing companies.

Andrew:
Yeah. So you touched on something as well, I definitely see it as like a common thing that I’ve also come across is in terms of like tackling churn really is a cross-functional effort amongst an organization. What are some of the things you’ve seen some of the successful organizations that have been able to tackle churn and increase retention do as an organization when it comes to it?

Brian:
Yeah, I mean, I think specifically when we’re talking about a churn problem, what we’re really talking about is like, how do we increase engagement? And so I think there’s a number of things you can do on the side of like, just things like credit card dunning and all that kinds of stuff, right? But it tends to be pretty quick, low hanging fruit, it’s incremental, only super impactful at massive scale. Right?

The bigger things that tend to be more impactful, tend to be more around just like deepening engagement. And so when I think about SaaS, if we had to just broaden like three huge areas of how you would increase engagement, which is going to flow through to retaining on like subscription dollars, it’s going to be either, basically increasing engagement in terms of like depth of feature usage of the product, it’s going to be increasing engagement across the organization, more people, or it’s going to be increasing embedding, which is like more products. So, the thing is about these three strategies is depending on your product, they have different levels of like natural depth. So if we think through something like slack, right? And we think about, what is it going to be like, the core of that retention and engagement engine?

What is going to most likely lead to retaining on like retention dollars? Well, it’s really going to be about increasing like usage and engagement across the breadth of the org, among users of the organization. Right? The more users that are using it, the more messages that are going to be generated, the more that’s going to be coming back from the product, more collaboration, more of that’s going to really reinforce the value prop. And this tends to be true for almost any product that that is heavily around collaboration or communication.

But then there’s products like HubSpot marketing for example. And so while we found that increasing usage across more users within the org did lead to increase retention, basically just going from like one to maybe like two or three users in the org, it did help increase retention because if that one person left the organization, there were more people who are already embedded on the product, you kind of didn’t lose that knowledge. It’s just we found massive diminishing returns, you know, past like a couple of users.

And that’s just because of the nature of the HubSpot product, it was like sold into a VP of marketing, mostly used amongst small marketing teams of like only a few people. Things of that nature. And so the bigger lever there is more about, well how do we increase depth of usage around the features? And so, you know, what we found was really well dividing our applications into like, if we viewed like our application almost as like a map, you know, dividing the features into like different territories or use cases is getting somebody going from like one feature to building a habit on a second feature and the second to a third and third to a fourth. We actually had much more depth than increasing kind of breadth of usage of the org. So you can use both of these like very high level, general strategies to start to think about, well, what has more in depth? How can I start to organize around this and start moving the triggers.

The third, which is like just increasing embedding, typically only, that strategy is really only about when you get to, you know, HubSpot size of like being a public company. And that’s where we started releasing, coming from the marketing product to the sales product, the sales product to the CRM and the CRM to the customer support product. And of course, you know, as we were able to leverage our customer base from a marketing product into those products, and just embedding in parts of the different org, it becomes harder for them to rip out any sort of piece of it. And that naturally increases retention as well. But that’s like a very kind of general late stage strategy. But that’s how I would generally think about three buckets of the strategy. And then of course the depth and the granularity in those three buckets is a mess. Right? And sort of depends on the product.

Andrew:
Yeah, definitely. Interesting you mentioned as well around HubSpot and how you started looking at transitioning different use cases. When you started going about that initial research, like what was some of the processes that you took to sort of identify what those use cases where? How did you know which ones to start testing first to transition users to? How did you go back to your initial understanding and where to get started?

Brian:
Yeah, I mean I think this depends on really how many customers you can have, right? Or you currently have. If you have enough customers then there’s like a certain set of correlation analyses and stuff that you can do to find out, well, what are the … Well, let me back up, actually. The first thing that I would do is initially like qualitatively sort of divide your product into different use cases or different features. What you would then do is, you could plot on some sort of two by two matrix about, I’m sorry, I’m trying to like visualize the graph in my head right now and to describe it. But what you would want to do is …

Okay. Yeah. So basically what you would do is, you would plot on the Y axis, basically the percentage of customers who use that use case.

And on the X axis you could do like frequency of that use case just to get sort of a general sense of for these use cases, kind of what percentage of my customer base is really using my product for this thing and how frequently are they using it? And that starts to start to identify like a couple of things will start to stick out to you in terms of like, whoa, like I can’t believe such few of our customers use this specific use case or the frequency might not line up with your expectations. And so that just like very simple analysis for a B to B product I think is a pretty useful one. You could then move on to things like looking at the use case and look how they individually correlate to kind of long term retention on dollars. And you could start to identify which ones might have the biggest impact on that long term retention? But you need a pretty decent sized customer base and easier to do for those targeting SMBs versus those that are lower customer base, higher AACV, stuff like that. So, it sorta depends from there. And then the third thing you can just do is that you can, once you qualitatively defined these certain use cases, you typically kind of, if you can’t do the correlation analysis, you can kind of qualitatively know or do a bunch of customer interviews to understand like what is the core starting point and what are the most common sort of paths up to like second and third use case.

That’s kind of like what you want to plot out or like what those common paths are and kind of once you have that, then you can then start to build a map for every single customer. And you can say, might even look like a heat map where it’s like, for this customer, this use case lights up in green, they’re using it, this use case like red and orange and based on this starting point, we know the most common path is to use case two and use case three.

And once you have like something simple like that, then you can rally everybody around it and you can say the product team, they can focus on, okay, well we know like this use case is heavily underused, but let’s target users using this use case, but not this use case. How do we deliver in product messages to them to try to move them over? And you can align the customer success team around the same thing. They can see this map, right? And they say, okay, I know they’re using this one. Here are the common paths, let me navigate that. You can align the marketing team around that, right?

So, that’s kind of like what I would do. And so there’s kind of a version that happened to that at HubSpot where we found like the massive correlation between moving somebody from one feature set to the second feature set and send them to whole rallying cry was like just like a percentage of our customer base that was using two or more of these use cases and the customer sticks test and the product team and that kind of stuff rallied around it.

Andrew:
It gives you an easy way to understand as well how the whole team can play a part in this transition and getting people through different use cases. One thing you touched on as well and you said earlier is that increasing retention is generally a hard metric to move and it’s a hard number to move, and another thing you touched on as well is that it’s actually getting harder over time. So, we see that increasing retention has become a lot harder of a job to do. Why do you see some of that happening now in the markets and why do you think it’s a bit hard enough for companies to actually retain their customers longer?

Brian:
Yeah, I mean, I think like a lot of things or just in general in growth are getting harder overall and I think there’s a number of reasons for it. I think the one that is like always a spouse for a bunch of reasons is just competition is basically getting harder or there’s just more and more SaaS applications out there within every single category as software becomes a little bit cheaper to build. There’s all these different tools. I mean, you think about anything, like I was playing around with this great tool recently called Marquee Learn and what they’ve done is they productize some of the most common like machine learning use cases, right? And are really simple API. So like if you think about it, it’s like kind of like Stripe for machine learning.

Now think about that right? Now, they basically enabled almost any SaaS application to start to very easily integrate machine learning without really needing like machine learning engineers, right? So, this stuff just like keeps happening, keeps becoming productized, which enables just more and more applications and more competitors. And so that’s just kind of part of it, is that you’re just, no matter what space you’re in, you’re competing against a more vicious crowd.

I think the other thing is that because of that, that flows through a bunch of other things. Channel fatigue, want to think about content marketing, profit well has some great data about how contact marketing amongst SaaS increased 60% over the past five years. The cost of customer acquisition on it. They also looked at like data acquisition and sales and like all these other things. And so a lot of those things have just become a lot more competitive, a lot more saturated. And then specifically like on retention. It’s interesting. It’s like we have more competition. There’s more of this channel fatigue. It’s just the bar in terms of impressing the user is getting higher and higher and building the habit, right? There’s just so little that users and customers are willing to kind of like put up with these days and that’s not going away.

It just makes, which means it puts more pressure on the product experience. Product experience is harder to move than creating an email campaign, right? Or pouring more dollars into sales, right? They’re just levers that are harder to pull than anything. So, if I actually was still, I think about it now, I think just like the center of growth machines in general, in the software space, has just been progressively marching more and more towards being centered around product and engineering.

And once again, those are just tougher, we see that in kind of the big like bottoms up motion and the move towards that. That’s also kind of a reaction to some of these older channels becoming more fatigued. It’s kind of like, well now I just can’t get the return that I used to out of there, so I got to get my users to do the work for me. And that really kind of informs the product strategy and what you build and the new players in the space.

Andrew:
And the users are not as forgiving as well. So, they’ve come to expect a standard now, and there’s no turning back from that and it’s only improving over time. So next thing I actually wanted to touch on a little bit, and for those that don’t know, obviously you’re the founder of Reforge and it’s a training program for growth professionals. I actually went through it twice. I did the retention and engagement series, which I thought was fantastic and the thing I think I love most about the course itself was actually the frameworks that you provide during this course. I’m wondering if you can just tell us a little bit about Reforge in general, what it does, and then maybe diving into a little bit about the retention engagement series and what that’s all about.

Brian:
Reforge really started at my time at HubSpot. I would sit in these one on ones with my team every week, somebody would be asking me about professional development and then I would spend a few hours trying to find them like resources or a chorus or a program or something that I felt was going to be really valuable for them and relevant to like what they were working on and what we were working on as a company. And nine times out of 10, I came up empty handled. It’s just things for people, that are like existing professionals in roles, it’s like our options aren’t great. You know, maybe at the high scenario somebody goes and gets a grad degree and an MBA, but the things you learn there are so generalized and so far removed from any kind of functional area software, right? It ends up being irrelevant.

That’s why you hear most people go to MBA justify with saying, but it was a good network. Right? And then on the other side of this scenario, yes there is more content on the web out there than ever, but I think what I’ve found is that the structure of the quality, the depth, and the credibility of that content has gotten worse. And so what you find is actually, you know, in a lot of the things that we’re working on in these technology companies, a lot of that information is still trapped in the head of a small group of like frontier practitioners who have just had happened to solve the problem already, and so Reforge has always been about how do we untrap that knowledge and package it in a way for emerging and existing leaders in various organizations to acquire that knowledge, implement it in their company and everything.

So essentially at the end of the day, we’re trying to build a more light continuous masterclass grad school like environment to learn like a lot of these frontier topics and so one of our programs is the retention engagement series. We built it out because we think this topic was so important. We spend eight weeks, I think there’s like 30 hours of dense material on just like all of the different strategies and analyses you use around retention, engagement. We have a couple of other programs. One, a more kind of general growth series, strategy program for product managers and marketers who are kind of venturing into this growth realm. And then more of an advanced strategy course for people who are kind of director and up and kind of really sort of paving the road, not for the overarching product and growth strategy. So, we’d love to have you, we’re gonna have a spring cohort coming up. I would love if everybody applied.

Andrew:
Yes. Highly, highly, highly recommended. As I mentioned, like one of the things that’s really struck me was the structure behind it and the systematic approach to it. And through the course you take us like through a few different phases. And I think one of the biggest areas as well that we looked at in the beginning was activation and really like, that’s where you need to be starting to get things right at an early stage. As a new company, now Reforge, how long have you been going for? Two to three years? Three years?

Brian:
Maybe like two and a half. Something like that now.

Andrew:
So how are you thinking about a retention engagement when it comes to Reforge and what are some of the things that you are teaching others that you’ve applied within your organization?

Brian:
Yeah, I mean Reforge is a very different scenario versus like some of the other products I’ve worked on. All the HubSpot products before that I worked on, like a lot of stuff in the social gaming and social space during the Facebook platform boom. So you know, what we’re working on now is a seasonal, high priced product, right?

And so retention engagement ends up being very, to us, ends up being very, very different and in the levers that we have to pull end up being very different as well. And so, when we think about somewhat of like the seasonal nature of our business and how our business works, our actual biggest lever that we can pull in terms of retention and getting students to stay with like the community and stay over a longer period of time is just having more topics and more courses and creating those. And that’s because, I’m sure you realized right, you worked on retention engagement for a while, but then X number of months or whenever later you get put onto a new problem in a new project, right?

And you want to get up to speed on the best strategies for that project as quickly as possible and so the best way for us to really keep people engaged over a long period of time is to be able to serve those new problems and projects. And so it ends up looking just so different from kind of the previous products that I’ve worked on because until we have that, we do do some things to try to like keep some lighter touch points in between our seasonal cohorts and stuff like that. But yeah, for those of you who are dealing with seasonal businesses out there, you’ve got an even bigger hill to climb on retention and engagement than others. Sorry to say that. Maybe somebody is putting their head against their best right now.

That’s kind of what we’re thinking about is just how do we keep people with lighter touch points engaged between seasonal cycles? And then our big lever is just really how do we fill all of those professional use cases as somebody on a product or a marketing function kind of evolves and grows throughout their career. We kind of want to be right there with them along the way.

Andrew:
Throughout their career. Yeah, I’ve actually, I’ve seen what you’ve said as well because I have regular calls with a couple other people in growth and I know they’ve all been through various courses at Reforge, they’ve done the retention engagement, they’ve done the growth series as well. So you can get definitely you see how they’ve stuck around because of the quality of the course.

And I think as well, one other thing that takes is the community in the course itself. So through the eight weeks or so, you get to interact with people from different companies, different stages, and it’s really refreshing actually to hear just how many others face the same problems and issues. And the same organizational challenges.

Brian:
I think that’s actually a really important point, that a lot of people kind of skip over, which is I think when you listen to a lot of podcasts like this, or maybe go to a conference, or even come a program like Reforge where we’ve spent hundreds and hundreds of hours talking to the best people in this space, we’re refining it into like an easy community.

You know, sometimes when it comes across like it’s communicated in an easy way, it feels like it’s easy to implement and apply. But at the end of the day, like all this stuff is hard. It takes time. Right? And I find a lot of teams might get frustrated, right? They’re like, oh, I heard this great thing at this conference or on this podcast and I went back and then I don’t know, it just didn’t happen. It’s like, no, stay with it. Everybody else out there is experiencing the same problem and grind as you. So whatever sort of humble brags you see on social media and stuff, don’t pay attention to it. Stay the course, do good work, and everything will work out.

Andrew:
Absolutely. What works for others, not necessarily going to work for you. I think we can wrap it up here, Brian. Thanks so much. It’s been a fantastic call. Really enjoyed chatting to and look forward to seeing what’s coming next for the Reforge and what courses are released coming soon.

Brian:
Awesome. Thanks for having me.

Andrew:
Thanks.