How Customer Success Drives Startup Success
Founder & Managing Partner
Success Venture Partners
Today on the show we have John Gleeson, founder of Success Venture Partners.
In this episode, John shares his journey from being a VP of Customer Success to embracing a role as a dedicated investor.
John reveals how his fund aids startups at various phases, serving as a valuable resource for early-stage founders. By offering customer success insights and assistance with recruitment, Success Venture Partners nurtures the growth of these startups.
We then dove into how John evaluates the startups he invests in and the key aspects he looks for in founders.
As usual, we're excited to hear what you think of this episode, and if you have any feedback, we would love to hear from you.
Disclaimer: The information provided on this podcast is for educational and informational purposes only. The statements made by our guest represent their own viewpoints – not those of Churn FM. The information provided and discussed does not constitute financial, legal, or other professional advice. Any investment decisions you make should be based on your own due diligence and in consultation with a licensed financial professional. We disclaim any liability for investment decisions based upon the content of this podcast.
00:00:00 John: The thing that I think customer success professionals really, really get is they can spot founders who are absolutely obsessed with their customers. And I believe that the best companies are the companies that are obsessed with their customers. I also believe that the best founders are founders that learn at a greater rate. And so I think, when those two things come together, you're absolutely obsessed with your customers learning their pain points at a greater rate, you're going to build a company that will, for sure, beat your competition.
00:00:35 VO: How do you build a habit? You need to invest. Don't just gun for revenue in the door.
00:00:42 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.
00:00:57 VO: How do you build a habit forming product? 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 bootstrapped, profitable, and growing.
00:01:08 Andrew: Strategies, tactics, and ideas both together to help your business thrive in the subscription economy. I'm your host, Andrew Michael, and here's today's episode. Hey, John, welcome to the show.
00:01:20 John: Hey, yeah. Long time no see. Long time no talk. I'm grateful to be here. Game on. Let's do this.
00:01:25 Andrew: It's nice to have you again. It's great for the listeners. Obviously, John was a previous guest number episode 20. So we chatted a long, long time ago. It's great to have him on the show again today. He's the founder and managing partner at Success Venture Partners, a precede and seed venture fund that supports founders with a post-sales journey through the early stages of growth. John is also the co-organizer of San Francisco Customer Success Meetup. And prior to this, John was the VP of Customer Success at Motive. So my first question for you, John, is what has it been like making this transition now from VP of Customer Success to investor full time?
00:02:00 John: Oh, wow. It's been a bit of a transition overall. I would say, though, I kind of eased my way into it. All the while, while I was at Motive, I had my sights on, one day, starting my own fund, my own venture fund. And so along the way, I was advising, I was writing Seed Checks for my personal capital, and then I was also investing alongside Index Ventures from their Scout Fund. And so my evenings, my weekends, my lunch breaks... It was really something that I was doing on the side, and so, doing that full time now. So I would say I eased my way into it, but just the day to day of the role itself is a little bit different.
00:02:49 Andrew: The next way I was going to say, what would you say is the biggest difference between the day to day of operating within an organization versus being on the outside trying to look into organizations?
00:02:57 John: Well, I'm just getting started right now, and so my day is really spent, I would say, in three areas. So one, certainly leaning into the pipeline that I have. So these are great founders, co-founders, coming to be different ideas, and trying to understand their business and form an opinion. So that would be one component of my day. That's, I would say, one of the most fun parts of my day.
00:03:22 John: Another piece to that has been the whole fund administration piece. So you're working with lawyers, initially, to get your fund documents all online. You're working with platforms like Carta and or AngelList to do the administration component. You're working on your pitch decks, your website, your story. What is the whole value add of it? So it's really like, part number two is the story and all of the work that goes into just standing up a fund. There's a lot there. And then, three, being in a startup, you're always fundraising.
00:04:01 John: And so first, when you raise a fund, you're raising from the people closest to you. So for me, that's motive. Employees who have said, "Hey, let's do this," that could be chief customer officers and VPs of customer success, CEOs of companies that know the power of customer success. And as you start to expand out and do a little bit more fundraising, then it becomes anything from a family office to a corporation, a fund of funds. The three components of my day are talking with startups, making the investments that go into that. Like I said, that's the most fun part. Everything that goes with operating a fund, and then, finally, always raising your fund has the capital to deploy.
00:04:48 Andrew: I think it's an interesting thing that founders don't often think about as well as the mechanics of investors needing to continuously be fundraising too. You would think there'd be a little bit more empathy between both sides as well on the process, but I don't think either of them really understands what goes into each other's struggles trying to raise capital in the markets.
00:05:07 John: And maybe that's a point of clarification on my side too. So you know how when you've worked in startups, you've had startups of your own. And so, generally, when you raise around, there's a big investor that comes in and they might buy up more than half of the round. And then there's smaller checks, funds just getting started, angels that go into that. And I think, actually on the angel side, or the smaller funds like myself, the ones we're not leading around, we're a strategic value add check into the fund. There probably is a lot of empathy, because there is a lot of overlap. I think the founders that I work with, they know that, like them, I'm setting aside maybe a high paying job somewhere else to do this. I want to make sure that it's wildly successful.
00:05:59 John: I think for founders, those types of investors, they get pretty good bang for their buck, and there is a mutual respect for the craft that both sides are perfecting and working on. And probably the big opportunities that anybody, who starts a fund or starts a startup, is foregoing in order to live and fulfill that dream. I would say, yeah. But definitely, if you were to log on to VC Twitter, you may not see that side of the story.
00:06:29 Andrew: Exactly. So then, tell us a little bit about the fund. What was the thesis behind it? Obviously the name, I think, gives away a little bit of what you're trying to achieve with it. But what makes you different from other funds, and why would startups founders be interested in working with you?
00:06:47 John: Yeah, definitely. So the whole premise of the fund is that customer success is a very strategic part of any SaaS business. When you think about it, the thing that customer success owns is the net revenue retention number. You've had many podcasts on NRR, and that's how you measure great customer success. And that's really important to a SaaS company. The value of a SaaS company is largely driven by the NRR number. In other words, the higher the NRR, the more valuable that company is going to be.
00:07:23 John: There's a direct correlation between enterprise value and NRR. So that's the backbone of my thesis overall, is that if you apply customer success help to a startup, and a startup has great NRR and great customer success, then you will create a great company on the other side. So that's the backbone of the entire fund. Now, when you look across the investor ecosystem, you have people who are offering marketing support. You have big funds that have a stack of different services, recruiting insight from founders who have done it before. Like I said, smaller funds offering, maybe, marketing or go to market strategies. But there's no one fund that's really specialized in the value add of customer success.
00:08:17 John: So I like to think Success Venture Partners is going to fill that gap in the investor ecosystem. So the backbone of customer success is really important. NRR is how you measure customer success, and great customer success leads to high NRR. And it's a very unique value add in the investor ecosystem, which means that we're able to really pick and work with great companies because of the rare and unique thing that we can give them. The best founders who are raising rounds from the top 1% of VCs, they want to raise from us as well, because of that unique value add. So it's pretty darn cool.
00:08:56 John: So that's the thesis of the fund overall. One of the things that we're not is, a lot of people see the name, and they say, "Oh, they are going to go out and they're going to find the next customer success tool." Certainly we love tools and platforms that can help those who are serving customers, or things that can make the lives of people who are serving those customers a little bit easier. But what we're not doing is we're not going out to find the next Catalyst or the next Gainsite. We're going out to find just great SaaS businesses in general, and then using customer success to make them better.
00:09:34 Andrew: That'll be incredibly like Narrow Pool if we're just purely focused on customer success [SaaS]. But I see your point that you make as well, because I know in the show previously we've had Mark Roberge who does, specifically, sales. We have [Julian Caban] who started a fund, specifically, growth. And I haven't personally seen in the markets, yet, anyone that specializes and focus on helping companies with custom success and really taking it. So, it feels like you've got a good niche that you're moving into now as well, from that perspective.
00:10:07 John: Thank you. Yeah. And by the way, like Mark Roberge and Jay Po over at Stage 2 Capital, they certainly are a little bit of inspiration for this fund. I really admire what they've done with their fund, and the sales leaders that they've pulled in as LPs, and the value that they offer the companies that they work with. Certainly, something... Jay and Mark inspired me in how I could build this fund.
00:10:33 Andrew: I think they're doing a fantastic job. And the next thing is all you mentioned... So you're looking at companies you work, and you help them get set up with their customer success and move forward. So what does a typical arrangement look like with you with a company when you come in? How are you working with them? How are you getting them set up for success?
00:10:51 John: So there's a couple of different layers to that. So first, like early stages in a company, there's so many things that the founders are figuring out on the fly. They may not even have a customer yet. They may have a handful of customers. They may be signing their first contracts.
00:11:09 John: And so during that stage, I can be on text, I can be on phone calls. And we're really just having a back-and-forth dialogue. I'm an extension of Google for them and I've been in an early stage. I was the first hire in another startup and joined Motive really early as well. So I know what some of those early growing pains look like.
00:11:28 John: I would say, phase number two would be as these founding teams start to sell, there's actually a lot of, probably, similarities between customer success and finding that early product market fit. And so when you think about finding product market fit, the motion is actually very similar to what a great CSM does, maybe at a company that's scaled up a little bit more. They're listening to their customers. They're understanding their pain points. They're trying to see what that commonality is between all of the companies that they work with. With that through line, they're transitioning that insight, that information back to the product team. So I tend to work a lot with the founding team as they are moving through that zero to one phase.
00:12:18 John: Early stage, founder-led sales, finding product market fit to make sure that they're doing all of the things so that (a) they get the most insight out of these listing customers, (b) they become big advocates for the platform. And then, three, most importantly, that they renew and expand. Because you really need your early customers to add a minimum renew, but hopefully expand and hopefully tell others about how great you are. So that would be... Let's call that phase two. And then, phase three is, as a company starts to get product traction, starts to have a repeatable sales process, I work with founders to help place their first customer success hire.
00:13:01 John: In some cases, that can be like a small C, customer success person. So maybe a CSM doesn't even have to be a formalized customer success department, but it's carrying that torch that the founder was. And in other cases, that can be a director of customer success through a VP of customer success, depending how far along the company gets. So, I love helping with hiring, and then I would say, maybe, the adjunct bullet point to that is not only do we help with hiring, but we also offer a platform for our companies to build a name for themselves. So, like you introduced me, I have this thing called the San Francisco Customer Success Meetup.
00:13:43 John: And so we can get our startups on stage there. They can become a sponsor and start to have a little bit of a platform so that they gain brand recognition. Should customer success professionals be, maybe, one of the groups that buys their software in the end? That's how we help them. That's the fun part though, too.
00:14:04 John: That's like a full time job. You're always on text, you're always working with founders. And probably why I do this overall as well, because there is an incredible amount of satisfaction and a rush from working with people at the earliest stages of building great things.
00:14:21 Andrew: I think it's fascinating being at a very early stage, and also just having the vantage point of being able to work with lots of different founders in different spaces, because I think you're exposed as well to a lot of new and different ideas. A lot of the same thing, I guess, is all you'll see over and over. But also, just being exposed to all these different ideas being thrown at you constantly, I think, is something that excites me a lot.
00:14:42 Andrew: And then obviously, being able to work with people that are passionate and motivated about solving a challenge or problem they see in the world of injustice. And you mentioned something about the LPs at Stage 2 Capital being very strategic and specific. Have you done some... try to follow a similar suit now with Success VP? How did you want to try and structure who invested in the fund?
00:15:06 John: Yeah, for sure. So we're still raising the fund, but a lot of our early LPs are customer success professionals. They're customer success professionals who have led through IPO or Chief Customer Officers at really big, well known companies. And that was really strategic by design. We wanted to bring in, or I wanted to bring in people that I thought were incredibly bright and that also were motivated to support the companies that raise capital from us. And some of our LPs come from the world of customer success.
00:15:42 John:And I think being an LP in a fund and then also working with some of the companies that are in the fund, there's just incredible incentive alignment there. Everybody is pulling in the same direction. Basically some of our LPs are customer success professionals, some are former colleagues that I've worked with, some are CEOs who innately know the power of customer success. And then beyond that, you start to get into things like family office, or fund of funds, and whatnot.
00:16:14 Andrew: And so you mentioned, obviously, a little bit about the structure, how you, today... like, breaking into this sort of niche. Where do you see Success Venture Partners going? What is the five year horizon or what is the ideal state? Let's put it there.
00:16:29 John: Well, I think first and foremost, you don't want to get too far ahead of your skis.
My mission critical right now is with Fund One, ensuring that we provide a great, fantastic, a best in class return for our LPs. That's the number one goal. So right now, not thinking too much beyond just making smart decisions for Fund One, and waking up every morning ensuring that you're working for your LPs to provide the greatest return on their capital. But I will say, I do have the vision to build an enduring fund. I would love, on Fund Two or Fund Three, to have a group of people to do this alongside.
00:17:13 John: Right now, it's just me. I'm a solo GP. but I would like to build it big enough to a place where there's multiple people in the fund, all with the same goal of helping companies. But there's a lot more that goes into that. The more capital you raise, the more your investment strategy has to change and evolve, the more ownership in companies that you need. So there's a lot that goes into it. So I'm thinking on the present right now, but for sure, I would love to build a fund that in 5, 10 years, people look to and say, "They're a great fund, and founders are very proud to raise from them."
00:17:50 John: And we can attract, also, the best in class talent to be part of our fund and work for us, alongside us. So that's the vision. It will be something big, a task at hand first.
00:18:01 Andrew: Yes. So you mentioned a little bit about strategy as well, and I was interested. So what do startups need to look like when they come for funding? What are you typically looking for? What does the strategy look like for you? Obviously, SaaS being very broad, is there anything specific in mind that you're looking for?
00:18:17 John: When you build a fund, you're really thinking about things. I would say, along, let's call it three columns. So number one, you're thinking about your deal flow overall. So how do you amplify or augment the deal flow that's already coming in? So that's just the sourcing component.
00:18:40 John: Then, there would be the picking. So that's the part that we'll talk about right now, the picking. And then, the third would be the winning. How do you make sure that you're in the best companies? But when it comes to the picking, the thing that, I think, customer success professionals really, really get is they can spot founders who are absolutely obsessed with their customers.
00:19:02 John: And I believe that the best companies are the companies that are obsessed with their customers. I also believe that the best founders are founders that learn at a greater rate. And so I think when those two things come together, you're absolutely obsessed with your customers learning their pain points at a greater rate. You're going to build a company that will, for sure, beat your competition.
00:19:25 John: I would say, the number one criteria that I'm looking for is just, CEOs who just know their customers cold, care about them deeply. And every time we talk, they've got a new, deeper, more robust thesis because they're just learning at such a rate and really understanding their customers. So that's what I'm looking for. The other thing, within that, I would say, there's lots of great ideas out there. There is lots of great founders too. The areas that I feel I'm probably in a position to invest in with, just like a strong background in, would be certainly SaaS and tools that would impact the customer themselves or people supporting those customers.
00:20:08 John: So it's a pretty broad area that could range from anything, from finding the next airtable, or finding the next notion, or finding the next gong. The other area that I really love is things impacting the physical economy. So I think, I came from a company called Motive. We brought the trucking industry online really for the first time. I love companies like that.
00:20:31 John: So think the next Flexport, the next ServiceTitan, those would fit into that thesis. But the overarching theme, like you said, all things SaaS. And then within that, founders who learn quickly and are obsessed with their customers.
00:20:46 Andrew: It's interesting, the physical world, one, because I think, previously, that was probably the less sexy space for investors to want to invest in. And I think now, with what's happening with AI and GPT, probably it's going to be gravitating more towards these service businesses that are not just purely software plays, at least, like we're chatting just before the show.
00:21:06 Andrew: I think with how much it's going to democratize development, I think there needs to be more than just pure software to build an enduring business these days. How do you see these things panning out? Still very early, but...
00:21:22 John: Yeah, it's incredibly early. And I would say I'm still forming my opinion on how things will shake out. And the thing that I really debate is, will it be a startup that leverages this technology and wins a market? Or will it be the incumbent to apply this technology to the great product that they already have and they have a breakaway already and nobody can catch them?
00:21:51 John: So I think TBD on that, I think it's going to be exciting. And I think there's still a lot of unknowns. I'm also curious where the technology clusters overall. Does it cluster in big enterprise? Is there a bottom at play that happens? I think a lot about it, and I would say there's probably a lot of TBDs in that. So we should do another podcast in two or three years and figure out how that one plays out.
00:22:23 Andrew: Yeah, I think it's interesting because really, 99% of the startups that are AI are just building on top of open AI's APIs at the moment. And they're building on top of somebody else's platform, essentially, which I guess most startups to some degree are, anyway. But I think it's an incredibly risky position to be in. Like myself, I felt the pain firsthand, where we were building something on top of GPT-3 itself, and then all of a sudden, ChatGPT came out, and now Chat GPT-4 basically does everything that we wanted to do without having to build software around it. And I think, similarly as well, back in the day with Facebook, when they said their ads platform... And everybody started building different products or services around it and they started cheering off and building anything.
00:23:05 Andrew: So I think it almost ends up gravitating, making more bigger companies more powerful. And then, little startups are fueling the ideas that are just coming in and then spinning out into products at these large organizations. But I find it very hard to believe that there'll be a really big success built up of OpenAI's APIs, at least today, the way it's sent. There's some companies that are considered big today, but I think they could come crashing down pretty fast as well. Like the likes of Jasper and others, they're creating copywriting, but then all of a sudden, Google and Microsoft and everyone's rolling these products and service out directly into their product. So it's going to be interesting to see, nonetheless, how things pan out over the next few years.
00:23:46 John: Yeah, I would say the thing that I would pull on there is, certainly, you really have to think hard and probably harder than ever about what is your [mote]? What is your core competency? What is unique about what you're doing? Because the bar has just been raised so high.
00:24:08 Andrew: Exactly. Nice. So I ask a couple of questions to every guest that joins the show. I can't remember if we started this back then, but let's go for it. So let's imagine a hypothetical scenario. You join a new company. Channel retention is not doing well at this company at all.
00:24:24 Andrew: The CEO comes to you and says, "Hey, John, you have 90 days to turn things around. You're in charge. What do you do? The trick is you're not going to tell me. I'm going to go speak to the customers and figure out their pain points, or look at the data.
00:24:34 Andrew: You're just going to take a tactic that you've seen work at a previous company and run with it blindly, hoping that it works. At this one, what would you do?
00:24:41 John: Oh, my God, that's a very hard question. So I can't talk to the customers?
00:24:46 Andrew: Yeah, it's a trick one in a way because 90 days is never really enough time. But nonetheless, what would you do, not speaking to customers and no data?
00:24:54 John: Well, I think I want to punt on this one because I think it's so contextual to your customer base, so maybe you can't even talk to them. But I think your strategies evolve and they change so much depending on... Do you have a long tail customer base? Is it a lot of SMBs? Or is it on the other end of the spectrum? Is it enterprise customers? Your taxes are going to change.
00:25:21 John: I'll tell you one thing that does work or can work, and maybe it's not the customer success way. There's a great platform out there called Brightback. They were acquired by Chargebee a while back. What they do is when customers go to cancel on the fly, they offer them either a promotion or some insight into maybe how they could better find value. They work really good in these scaled up businesses when you have hundreds of thousands of customers.
00:25:56 John: If it was a long tail business, the first thing that I would do is I would implement Brightback, because I've seen how that can move the needle on your retention by points in days. And so then I would probably get a raise because I beat that 90-day goal. So there we go. How's that for an answer?
00:26:13 Andrew: That's good. What's one thing that you know today about channel retention that you wish you knew when you got started with your career?
00:26:20 John: It's always your fault if you're in customer success. No, I mean that. In the beginning you think, "Oh man, this isn't my fault they got acquired," or, "Man, the sales team did a bad deal", or, "Our executive sponsor left." You can make excuses for, "Oh, here's why this one just got away." But when you own customer success in a large company that may be on the verge of going public, or has gone public, at the end of the day, your number is that churn and retention number.
00:26:58 John: You are likely getting paid on net revenue retention. And all of that is something that you own. And so maybe there's an excuse, maybe there's a bad macro, maybe there's nothing you couldn't have done, but you own that number. So that's something that I certainly know now because I've owned those numbers before.
00:27:18 Andrew: That's actually something that previous VP of operations at [Hotshot] said to me once, or said to the team once. Actually, somebody was asking in the leadership channels, "Can somebody give me some advice as a new team lead?" "What advice do you have for me?" And everybody was just posting different things and the VP of operations was like, "It's always your fault." And that sort of sat home to me at the end of the day. If you think about it, there was always something you could have done to help somebody within your team to be more successful or to achieve what the team set out to do. And it's just trying to figure out what you can do differently next time as well to improve and reduce those faults.
00:27:57 John: And similarly, I think as you said, it applies in customer success to the learnings along the way.
00:28:03 John: Yeah, 100%.
00:28:04 Andrew: Very nice. Well, John, it's been a pleasure having you on the show today. Is there any other final thought you want to leave the listeners with? Like, anything you want to share before we drop off?
00:28:13 John: If you come across a great company, make sure that I'm the first person that you talk to. I think selfish, shameless plug right there. But I would say, if there's founders tuning into this show, the value of customer success is incredible. And your customers are your lifeblood. And so take very good care of your customers, do right by your customers, and everything will likely fall into place for you.
00:28:43 John: Never stop listening, never stop seeking to understand their pain points and just strive for your very best with them every single day.
00:28:15 Andrew: We'll definitely make sure to leave links to Success VP in the show notes, and as well anything else that was discussed today. But John, thanks so much for joining and I wish you best of luck now on your new journey.
00:29:06 John: Cool, I love it. Well, I'm honored to be on the show again and thanks for the opportunity.
00:29:15 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 podcasts. 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 email@example.com. 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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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 this podcast, you will hear from founders and subscription economy pros working in product, marketing, customer success, support, and operations roles across different stages of company growth, who are taking a systematic approach to increase retention and engagement within their organizations.