How your churn and retention is impacted by your stage of growth
Best-selling author, Investor, and Advisor
Crossing The Chasm
Today on the show we have Geoffrey Moore, the best-selling author, investor, and advisor.
In this episode, Geoffrey shares the biggest takeaway from working with Regis Mckenna in the late 80s.
We then ran through an overview of the ‘crossing the chasm’ framework and how it was developed during a time of great innovation. We then dove into how the different stage of growth can impact churn and retention and we wrapped up by discussing the importance of focusing on power metrics over performance metrics.
[00:01:23] Andrew Michael: Hey Jeffrey, welcome to the. Well,
[00:01:26] Geoffrey Moore: thank you Andrew. It's a pleasure to be here.
[00:01:28] Andrew Michael: It's great to have you. For the listeners, I'm really excited to have Jeffrey today on the show. He is a bestselling author, speaker, and advisor, best known for Crossing the Chasm and Zone Tune with his latest book Being the Infinite Staircase.
Jeffrey's also a venture partner at Wild Cast Venture Partners and more David. Ventures and currently serves as a board member for Work Fusion and Enlight Neutronics. So Mark, first question for you, Jeffrey, is you got to work with Ridges McKenna between 1986 and 1991 from what I gathered on LinkedIn, [00:02:00] uh, he was also obviously very famous for the work he did with Apple and others.
What was your biggest takeaway and lesson that you took from Reggie's while working during that period?
[00:02:09] Geoffrey Moore: That was an amazing time. So that was the eighties and high tech marketing was really just coming into existence. There'd been consumer marketing forever and you could argue that Regis in some ways was the father of high tech marketing, cuz it was based on pr, not advertising.
And it was based on the idea that people wanna be educated, not just promoted too. So that, that was kind of a big deal. And the framework that we used and it became, the framework that shaped my whole career was called the technology adoption life cycle. And I probably, maybe I should just recap it very briefly to.
Kind of set the context, maybe further discussion. So the, it, all it says is that when you introduce disruptive technologies into any community, the community will segregate into a set of adoption strategies and they kind of go linearly. So like the first people that buy in, we call the technology enthusiasts, and they just are interested in how it works and what's doing, Kinda like laboratory folks, [00:03:00] uh, the first people that come in with big goggles are called the visionaries, and they want to use the, the disruption.
To leapfrog the competition. So they wanna go first. They're going to be the pioneer. They, they, they want, they'll go ahead of the herd, they'll lean in. Uh, the next group we call the pragmatist, they're saying, Well, hey, I'll do it, but only when it's ready for prime time. So basically, I'm gonna do it when I see other people doing it.
And it turns out that decision process where you're saying I'm not gonna do it to other people, do it. But when they do do it, I'm gonna do it too. Has a big impact on the, on the, on how high tech markets develop. Then the fourth and fifth were the conservatives who are saying, Well, I'm gonna postpone this as long as possible, but eventually I will capitulate.
And then the skeptics who are saying, I'm, I'm not gonna buy into this at all. And what, what was interesting on the, the thing that I added to the mix maybe, was that the first two groups, the visionaries and the technology enthusiasts, they created something we ended up calling the early market. Which are people who believe what you believe and they want, [00:04:00] they wanna succeed and you want them to succeed too, cuz you want references and what you're, particularly as a vendor, what you're interested in the early market is a marque account, a big brand name account who uses your technology in some really miraculous way, cuz that's gonna put you on the map that somebody's, they don't, they're not to write about you, They're gonna write about the big brand name, but they're, but you'll get mentioned because of what you.
Then the other thing was this thing called the chasm, and that was the pragmatist holding back saying, I don't think it's ready for prime time yet. And a lot of this is what I saw at Regis. A lot of companies would get these incredible early market successes, but then they would like just fall off the end of the earth and, and so what was going on?
And this chasm problem. And the problem was you needed to get Prag. Pragmatists want references, but you don't have references and they want them for their particular use case. And you've got, you know, maybe one use case like that, but you've got 12 different use cases. So the idea with crossing the Chasm was, Find a cohort of pragmatist with one use case in one industry, so they talk to each [00:05:00] other and that they can't solve that use case, but you can.
And then just laser focus on nailing that one use case and winning that, that group of Pragmas. Cuz once you win that group, that first group. Now you have what call the beachhead market. And now you can go from that beachhead to adjacent segments, adjacent use cases, and you and you can build out. And that was the, we called it the bowling alley because it was the idea, one pin will knock over, the next pin will knock over the next pin.
Both of those things, by the way, there's still no budget and the early market, there's none. I mean, you have to create the budget cuz nobody's ever heard of this thing in the Boeing Alley. There's. But it's budget for the old way of doing things, so you have to actually redirect the budget. So in both of those cases, it's very challenging selling.
This is why big companies don't like the early market in the Boeing LA because it's very hard. You can't use your scale, your Salesforce scale, either one of those places. But if you win over a few Boeing pins, all of a sudden everybody goes, Well, hang on. This is for everybody, and that's what we called the tornado.
And the second book was, First [00:06:00] book was called Crossing the Chasm. And the second ball is called Inside the Tornado. And that's just the opposite. That's when everybody has budget and they're all gonna spend it this year. And whoever gets the most market share is gonna be what we call the guerrilla. And so it was a huge, huge battle royal for that.
So we called that the tornado. And the tornado lasts less than a decade, more than a year, and less than 10 years, probably four to six years kind of thing. And then after that, People are still spending a lot of money in the category they're gonna be spending it for, for maybe decades. But we call that mainstream.
And, and the interesting thing about our world and this SaaS world that we're in today is in the old world in the eighties, if you won in the tornado, The customer was captive on Main Street. They couldn't leave. And frankly, customer support was, was horrible, but there was no churn because it was just, how are we, We had no place to go.
There was nothing else. But in the SaaS world, all of a sudden, Main Street became really important. And this word churn, which [00:07:00] never appeared. The, the word churn was never used in, in the 20th century, but it's become your, the title of your podcast in the 21st century. That's a main street, Phenomen. Yeah,
[00:07:10] Andrew Michael: for sure.
And I definitely see that as well. Like I've discussed this previously on the podcast, I can't remember the episode, but just the sheer amount of competition that we have today and the, the variety of choice and how the switching costs has become so much easier to switch between platform to platform versus back in the eighties, nineties, uh, two thousands when there was very, very limited.
Suppliers and software providers out there for you to go and choose. Uh, so I
[00:07:32] Geoffrey Moore: mean, you would say, I'm an HP shop, I'm an IBM shop. That meant you didn't use anybody else's hardware. Yeah, you didn't use anybody else's networks. You didn't use anybody else's dis drives. You didn't use anybody else's software.
I mean, it was a completely bespoke world, which was great at the, by the way, it was amazing. People do great. But the client server revolution, the internet and Unix, the, and the internet, I think, and then, and then Windows as the client kind of began to level and the [00:08:00] Oracle database began to level the playing field.
And that's when for customers started to have more choices. And now, and then the cloud, of course, cloud computing changed the whole game because now you really could have software as a service, which was not, that was not available in the 20th century.
[00:08:16] Andrew Michael: It must have been such a fascinating period, uh, like going through this transition and sort of figuring these things out and understanding sort of the innovations dilemma.
And then also, like, as you said, you introduced crossing the Chasm as a concept with the early adopters and the late majority. I don't like. Constantly how many times, like I've either heard the term crossing the chasm come up in previous roles and jobs, like it's just unbelievable in times or going to conferences and how many times I've seen those different slides on people's presentations.
What gave sort of the early inspiration and understanding, like where did this insight come from? Uh, because obviously you were in the center road, you're in San Francisco at the time. Innovation was right there. But really like at what point did [00:09:00] Reggie's and then yourself later sort of take a step back and say, Okay, like.
This is actually what's going on all around us because I think when you're in the thick of it, it's very hard to take a step back and see it from the outside. But then now seeing, like reading the book and seeing like the different retention, it all just makes so much sense and it, it's clear in one aspect.
But what are some of the early work that you did around there just to figure this out?
[00:09:19] Geoffrey Moore: Well, it's fine cause I had been at three software companies before I went to regs and in. Two of them, I took products into the chasm that didn't get up. So other, so I was carrying this sort of burden of guilt and sort of like, Oh my God, you know, And the feeling always was, was there was some mismanagement problem.
And then I got to Regis and I saw really good companies and the same thing was happening. Again, and again and again, and, and, and frankly other people because we just was, was so good at the communications and they had so many clients, People weren't, People were saying, Oh well, you know, they made a mistake or blah, blah blah, and I'm going, Nah, I'm partially cuz I probably carried this guilty conscience.
I said, No, I think there's something else going on. So I was the chasm guy [00:10:00] and, and so the privilege of being that company was, Virtually every major high tech company came through those doors in the five years I was there. Yeah, they were just, it was Mecca. And so you got to see it over and over and over again.
Both, you know, inside companies with a new product line or with startup companies. I mean both, both kinds of situations. And so that was, that was huge. And, and then once you began to look at it, and then you say, Well, what would it take? And initially it was more of a theoretical exercise. The idea. Well, what would it take theoretically across the chasm?
And so we sort of built the theory and then we started, you know, advising people to implement the theory and it worked. And so, which was, you know, very gratifying. Yeah. Uh, and then the more, the more we as people did it more and more, we learned a lot more about it, and we developed the whole playbook. So the playbook is now.
35 years old and, uh, there's an institute called Chasm [00:11:00] Institute that all it does is teach that playbook. So, you know, still around.
[00:11:03] Andrew Michael: Yeah. And it's probably in conversation now in some boardroom or some marketing meeting that's happening somewhere at this point in time. Yeah.
[00:11:10] Geoffrey Moore: Because we bet, you know, we, we have all this bets on this disruptive technology and we know damn well if we can get it to scale, it'll have huge impact.
Yeah. But getting over that hump, that pragmatist adoption hump, it's, it's one of the milestones. And I would say people, I would say people give it lip service a lot. When you actually have to sign up to do it, there's more work in it that sometimes people wanna acknowledge. Yeah. They kinda wanna wave some magic chasm wand.
It's like, no, you, you really have to actually do the real work. You figure
[00:11:40] Andrew Michael: it out. I, I think as well, one of the things, and you can correct me if wrong, but like early stage startups is, well, at least today, a lot of thing I see in the beginning is like you start to launch a product. You seem like really good traction in the beginning.
So as you're getting your early adopters excited about the product and you get to this point where now you're starting to. Um, get close to crossing keman, then you [00:12:00] start to see the cracks and things emerging. And I think most of the time startups at this stage don't really have a clear direction on who the ideal customer profile is, who they're building for.
They're a little bit reluctant to like have a laser focus, like go towards that, uh, bowling, um, pin strategy. Is there something that you've seen as well, like as a general practice, is it people just not focusing and it's really like, Feeling. I think it also, it's a little bit difficult in the beginning when you start to see like you have a lot of traction.
You Okay, which, where should I put my bets? Like, uh, which pin we going after first? Well, it,
[00:12:32] Geoffrey Moore: it's, it's so actually, because in the early market, first of all this, the success mode in the early market is to. To share your vision of the possibilities and the visionaries and the technology enthusiasts who believe what you believe kind of come, come toward you and, and, and you are, you do have successes.
You tend to do projects with them because, because we're all working on it together and they lean in and they're doing things and you're doing things, It's enormous fun. It's very, it's emotionally, hugely gratify [00:13:00] farming and it's, it produces amazing results. It doesn't. And so at some point you're going, Okay, if I'm gonna build a bigger business, how's that gonna work?
And with, to cross the chasm, The reason why people, it's not just that people can't focus, it's a whole new playbook when you're crossing the chasm. It's not about the technology, it's not even about you. In the early market, it is about the technology and it is about you. Yeah. But when you're crossing the chasm, it's not about the technology and it's not about you.
It's about a problem that a customer has. They don't care a darn about you. They care about their problem, and what you have to do to win their allegiance is you have to say, I am going to put my technology in service to your problem, your domain expertise. I'm gonna get very, very, very specific, much more specific than I had to with the visionaries, and I'm gonna build what we called the whole product, which is not just the core product that I've been building, but whatever else you need in order to solve that problem, so it feels very unnatural.
And, and, and the [00:14:00] entrepreneur. We said, I'll give you a great example with the Macintosh. This was Desktop publishing. So desktop publishing is what got the Macintosh across the chasm. It was a, a job function of a graphic arts department in a, in an enterprise that, you know, sold automobiles or whatever else, Steve Jobs.
Hated desktop publishing. He, he said, I did not create the Macintosh to improve the graphics department in General Motors. Right. But he, but because he was a visionary and so he saw the, the computer for the rest of us, So he saw the Macintosh today, I mean, today the Macintosh. A universal computing capability.
If you count gooey, you know, windows. It's all, it's all effectively magnetized style. But, But he couldn't cross the chasm? Well, he, the company did, but frankly, Steve had to leave at one at one point because he just wouldn't play that game. Then he had to come back and rescue the company. That was, That was a separate.
That was a separate,
[00:14:57] Andrew Michael: Yeah. It's very interesting cuz I think it is, it is a big [00:15:00] challenge in the beginning, just trying to figure out and. Because you start to see like that early interest from the visionaries and so forth, and you worry, okay, like if I take one bit in a single direction, like am I missing out on the other side?
And, uh, I've seen this as well, like previous roles that I've held, like really like heated discussions going on around like, which directions should we be taking? And um, but ultimately, like, and I've seen it firsthand when you start to understand, like, that's why I mentioned previously to this call, uh, where I was at Hot job previously.
At some point we realized, okay, there was a little bit of an issue that we had with churn retention at some points in the company's life cycle. And we were really hitting this point where we had like exhausted the visionaries. We were starting now to cross the chasm, going a little bit more towards mainstream.
And uh, we realized at that point like we had these discussions of crossing the chasm and we need to pick, uh, really dive into our ICPs and. Getting to the final results where the company was aligned and saying, Okay, yes, this is who we're serving. This is the problem, this is the use case, and this like, everybody needs [00:16:00] to align around these.
Uh, it took quite a while, but once we did that, like that again was like a step change in the business and you could really start to see like the impact on retention and on the business itself.
[00:16:10] Geoffrey Moore: And you know, the thing is, if you don't do it as long as you, because you, because you, you've raised some important points, who knows is rights what, Right?
Which is the right use case? Won't I miss out on this other use case if I do this? The problem is, if you don't do it, you'll just flounder in the chasm forever and you'll, and you'll, you'll, you will not scale and you will eventually lose funding and you'll eventually go away or get acquired for some very, very minimal amount of money.
So that's not what we. So, so the point is, any choice is better than no choice. Even. I mean, really, seriously, even a, even a third rate choice will have more success than no choice at all. And, and the game then is gonna be for this one time. You're gonna put the customer's use case at the center of your universe, which is a really, it's a game change.
Cause that's not what you've been doing as a startup. What you've doing as a startup is you put the technology at the [00:17:00] center of your universe and you were in service of the technology. Now all of a sudden you've really changed. It's almost like getting married, you know? It's like all of a sudden there's this other person in your world who's more important than you are.
And, and so, and by the way, that scales, but it does, but that also eventually doesn't scale either. I mean, eventually you do have to go back to horizontal. It's so, it's weird, but there's that weird moment where you've gotta be really, really tightly
[00:17:21] Andrew Michael: focused. Absolutely. And I definitely see that as well as like in the beginning you often hear like these really bad quotes as well of Henry Ford and if you'd asked them what they want through to say to foster horse and things like this.
And I think there's just different stages in the company's growth when you need to be visionary and when you really just need to be doubling down on the customer and their pain point and their problem and uh, and gardens. And you see on the other end, companies failing at this, where they get through the chasm.
They've built a great audience and then. Stop innovating and uh, they die death on the other end as
[00:17:51] Geoffrey Moore: well. Well, that, you know, I think that, so the two times when I think you get to be sort of self-centric are in the early market because really you are the [00:18:00] inventor and in the tornado, because if you don't grab market share, your competitor will and you'll end up being a marginal solution.
Most of the market is spent either crossing the chasm, but really the most of the time spent on what we call it main street. But in both those times, it's really important that you not be self-centric, that you be in service to your customers, Particularly now on Main Street, in the SaaS world, where the customer, as you point out, has a, has, you know, we call it ltv, lifetime value of the customer.
Well, the, and over time, if you don't invest in that relationship, just like again with your choose to get married or have a, have a, have a, have a romantic attachment, uh, you know, if you don't invest in the relationship, it deteriorates. Conversely, Turn attrition program through. If you do invest in the relationship and you don't have to invest a ton, but you do have to invest.
You have to show up, and you have to be there consistently, and you have to continually adopt the other side's point of view. And I'm saying, what does this look like? How are they? So we talked [00:19:00] about customer experience, by the way, in the 20th century, we never talked about the, we talked about the user interface.
We never talked about the customer experience, but now it's the customer experience because, They have the power and if they, if they choose to churn out, the SaaS business model is very punishing. If the whole point of the SaaS business model is you've gotta
[00:19:18] Andrew Michael: keep the customers, it's done. Yeah. You don't have, you don't have a business if you don't keep the customer.
Um, yeah. So the other thing is, all that I found fascinating as well, like going through the frameworks and the book itself, was the idea of how demanding the different audiences are. And uh, this is something as well I've seen and have had other discussions with founders around. Making the switch from the, the visionaries, uh, to the pragmatists and how less forgiving they tend to become.
So that's also like a typical time where we see churn increasing a little bit more in the business is because they're not gonna accept that little bug or that slight missing feature and things like this. And then they're just gonna leave the service and. How [00:20:00] have you seen this evolve, like through your career and with different companies?
[00:20:03] Geoffrey Moore: again, in the early market, there's a lot of forgiveness because they, they know it's early days, you know, it's early days. Everybody has goodwill. Hey, we'll find the bugs. We'll fix the bugs. Right? The pragmatist is going, even the early pragmas are going, Look, I have a business to run here. I, I mean, if you're gonna help me, I, I'm interested, but I'm not.
I don't wanna join your business. I, I wanna run my business. So all, every bug that shows up in your product is like, Well, you just slowed my business. Oh, you just slow my business down again. I mean, at some point I get pretty cranky about it. And by the time you get to conservatives who are basically not conservatives have never really made their piece with technology, so they, they, they tolerate it.
And the more invisible it is, the better. So the best technology in the world is some computer chip in their car that they don't even know about. Right? But as soon as, as soon as, as soon as anything can go wrong. They get very upset because they don't really know what's going on. [00:21:00] They can't, It's sort of magical.
It's like, what's, And so they just get very cranky and they, and they withdraw. So, and you have to assume that since we know that software products always have bugs in them, that we have to continually, proactively, Ping the customer and test the experience. And when we have a, when we get a piece of feedback that something screwed up, we wanna be all over it.
Because actually, if you respond to a bug in a, in a, in a quick and responsive and successful way, that you actually increase customer satisfaction over where it was before the bug was even seen because you, you did something about it so that, it's not that you can't have bugs, but what you can't do is let bugs linger and you can't be unresponsive.
And so all this, all this technology, About how to detect the customer experience through telemetry earlier and earlier. That's a big, big deal because customers aren't gonna always call. They're just gonna kind of go sideways or go quiet. You know, they're, and maybe they'll, they won't, maybe they subscribe for another whole [00:22:00] year without like using your product, but eventually they're gonna go, Wait a minute, we gotta kick these guys out.
And as I said, in a SaaS model, that's very painful.
[00:22:09] Andrew Michael: And those are sort of the interactions that you typically like. You'll hear about them if your customer is passionate about the product or service. But if it's just like another tool in their arsenal themselves, like they might see the bug once, twice.
They might still appear to be active cuz they need the service and they have the subscription. But at the end of that year, they're gonna be looking somewhere else and then you're gonna be scratching your head wondering. Why did they leave? It looked like they were using the product, but nobody ever reached out to us.
It's, uh, yeah, and
[00:22:35] Geoffrey Moore: I think, I think part of the thing also is there's really two business models that we're talking about. With one vocabulary. There's the consumer model and there's the enterprise model. So in the consumer model, literally when they stop, they stop. I mean, the, the, it's very transactional In the enterprise, there's this much more inertial momentum because there'll be, there'll be an, an enterprise license agreement or something like that.
And so when you look at, at the, at. [00:23:00] Techniques we have for managing a churn in the, in the consumer market, they're very data driven. You, you, you don't have a customer success department. You can't afford one. You can have product led growth. You can have little. Things inside your product that trigger when we see certain customer telemetry behaviors.
But other than that, it's gotta be all data driven. Whereas in the enterprise, you do have customer success managers and you can, in addition to telemetry, which will give you early signals, you can reach over the top of the system and talk to another person at the other end say, Hey, you know, we noticed that things have fallen off, but is there something that we need to do or blah, blah, blah, and, and reengage there.
So I. Listeners to this thing, when you're thinking about your churn problem, you have to ask yourself, Am I in a more B2B or in a more B2C model? Cuz the solutions to that problem are very different.
[00:23:49] Andrew Michael: Yeah. And typically the churn rates to those problems will be completely different as well. Yes. Yes. It's interesting you, you bring up like customer success as well because one of the things I noticed, you spent a little bit of [00:24:00] time at Salesforce at some point in your career as well, and I think Salesforce themselves were, uh, like that's basically where I think where customer success started, uh, and it really was born at that company.
How have you seen the landscape shift over time and what would you say is maybe like one of the biggest changes you've noticed in software companies? From the nineties, two thousands to today, like what has been the biggest shift that you would say, uh, you've
[00:24:25] Geoffrey Moore: noticed? Yeah, so, so I've been an advi. I've never actually, was never an employee at Salesforce, but I knew Mark from early days and, and then I became an advisor to the company about six or seven.
Well, the book Zoned the Win was written with Salesforce Mark's team at Salesforce and sat in Ella's team at m. So, so that was kind of, that was about seven years ago, and that we became very, I became an advisor to Salesforce and I've been very close working with the last seven years, which is a huge privilege, by the way.
They're really great company. Yeah. But if you see it, what's, what's changed because Mark was at Oracle in the nineties, right? And, and Sathi was at Microsoft in the nineties. So in, in, in the, [00:25:00] in those days it was, it was a vendor centric world and, and it was, it. A lot of, a lot of emphasis on product, and it was a lot of emphasis on sell and closing and, and, and selling big, big deals.
And, and it, it basically, you went to the top of the pyramid. So when Mark introduced softwares a service, and that was the beginning, I think of this whole discussion. Softwares a service allowed the next layer down on the pyramid. To have enterprise quality software when they didn't have their own data centers, they didn't have their own database administrators, all that kind of stuff.
That was like, Whoa, that, And it started with just departments, It was just sales departments using Salesforce. Cuz SBU was, SBU was for the vice president of sales, but it wasn't for the sales guy. So we were able to kind of do this sort of, Land and expand. There was no land and expand motion in the nineties.
It was just landed with a big thump, , but, but then it was land and expand and so it was, it was very interesting and, and all of this, all these little [00:26:00] changes had the effect of transferring power from the vendor to the customer. The customer could buy more incrementally, The customer could try and buy, we could, they could expand or land or whatever.
And so in terms of you start seeing technology come in from the bottom up as opposed to from the top down. So this was the, this was ibm, This was hp, This was Deck, Yeah, this was, this was Salesforce service, ServiceNow, you know, these guys coming up from, from the bottom. And so, um, and so that was, that, that was a, a big deal.
And, and then you built these relationships with end users. Where the end user productivity actually was kind of your signal. Of success. And that was before it used to be did the big boss, you know, write the big check? So it was, it just, it was a very different dynamic.
[00:26:49] Andrew Michael: Yeah. It almost like sounds as well, like at this point in time, that was Salesforce approach, like their bowling pin, uh, approaches that they were the IBMs at the time, they [00:27:00] had the on premise and then they realized they really need to like pick a strategy, focus on a specific customer and problem, uh, and go after that and.
Put the customer at the center of everything and putting the customer meant like, I'm not gonna do these big sales deals. I'm not gonna be trying to close. I'm gonna give them the power, Give them the ability to pick and choose as they wish, and really focus on them. And obviously the rest is history. I think it just,
[00:27:24] Geoffrey Moore: and and their initial segment was actually the tech sector.
It was the sales department, the district sales departments in high. Companies, it was kind of who were the, who were the first use case that was repeatable. And after a while it was like everybody, everybody in tech in the Salesforce had a thing and then they added it to the service department. That was their second use case, which the customer service, so was sales and service.
And then actually maybe as much as a 10 years later, Marketing came into the game cuz marketing initially was, was outboard of sales and service. And so that was, and that was crm and you know, [00:28:00] that, that, that whole, that whole thing. So it, it builds. I mean, I, I think we wanna be ambitious. We do wanna get to scale, but I think it's important not to, if you go too fast, too far.
You run out of you. It's like a general that outruns his own supply chain. So then you're, you're out in the middle of a battlefield, but you can't have any ammunition cuz you're, Well, I don't wanna talk about war not in Europe. Yeah, please be careful.
[00:28:24] Andrew Michael: Another great time to
[00:28:25] Geoffrey Moore: talk about that. Not a great time.
Military metaphors probably should be put away for a
[00:28:29] Andrew Michael: while from business as well. Like completely. We, we spoke about this previously in marketing as well, like. Many, uh, like military metaphors are used in business. It's crazy. And you wonder where they all came from. This all, uh, but
[00:28:43] Geoffrey Moore: so, well, they came from, they came from vendor centric marketing and they don't belong in customer centric marketing.
[00:28:49] Andrew Michael: Exactly. That's a nice way to phrase it. You've had a, a couple of really good ways of phrasing, uh, different things we've discussed today. I love it. Um, so the, the next thing that I was [00:29:00] interested as well is you, you mentioned tornadoes, uh, being the next step, like, and this was well, tends to be like a stage where companies can also end up fizzling and dying, even though they've got all this great momentum.
What are some of the areas where you end up seeing like churn, retention becoming an issue at this stage of growth for
[00:29:16] Geoffrey Moore: c. Well, what happens is because everybody's coming into the market at once, there's, there's a real, and you know that if a customer has budget this year, they're gonna spend it this year.
So your sales force is competing to get every sale they can get. Well, that means they start going after sales where your product is maybe a so, so fit, but not a great fit. Now, in, in, in the old days, if once you were in, you were. You could, you could make that work. But in a SaaS world, what happens is you actually land because people have got budget.
They'll spend it, but, but you don't expand. And in fact, you don't even land hard enough to have high switching costs. So the following year, you, you, you find yourself [00:30:00] churn out. Now you're in real trouble because, because you were, you made 5 million last year, you're gonna make 10 million this year. But, but right in the middle of the year, a $1 million, whether your business.
Turned out, so now you've gotta just make another million just to get back to where you wanted to. So, I mean, churn is just, it's just, it's like, it's like, it's like a heart disease. It's, it's really, really, really dangerous. And so, so it's much more important to be able to say, I can build reliably and sustainably, even if I'm going more slowly.
Now, when you go more slow in your tornado and other people jump ahead of you, if they are able to hold onto their, They're gonna be the gorilla and you're not. And that's a big deal because the gorilla gets most of the profits and the next person gets a good amount, and after that, it's everybody fighting for whatever's left.
So the Gorilla Game's a really important game to win, but if you can't win it, then the next best play is, is we call it the chimp game, the chimpanzee game, which is okay, retreat back into [00:31:00] some Boeing pins where you can be the local. The local winner and build your franchise there. If you think about it, that's what Macintosh did.
The PC one, the IBM PC one, The, the, the, uh, the gorilla game. Yeah, the Mac, but the Mac held on, and that allowed them ultimately to, to, you know, become the most valuable company in the world, uh, least two years ago. I don't know how they're doing now, but they were two years.
[00:31:24] Andrew Michael: Yeah, so they're retreated a little bit, but then innovated around that as well and introduce new product lines and product from there.
Uh, it's interesting, you also, you mentioned around like the sales. This is something we've discussed a few times on the show of misaligned sales incentives where you're just trying to close deals for the sake of closing deals and ultimately closing the wrong fit customers, and which ends up hurting you down the line because one you have in churn, but then you also have.
Like the added cost of additional support, supporting customers that aren't good fits, uh, building potential features from the feedback that comes in that are not the right fits. And ultimately like this also ends up slowing the company down, [00:32:00] uh, over time and allows your competitors to rise
[00:32:02] Geoffrey Moore: up. So this is a really important point you're making and, uh, we, the phrase we try to use for it in our consulting practice is performance metrics versus power metrics.
So the literal financial performance, any sale is a performance metric. If I sold $10, I got $10 in my performance scorecard. But the question is, is that a good sale or a bad sale? So I could get, I could make $10 worth of performance, but I might have lost. Points on my power score card cuz I sold it to the wrong customer or the wrong feature.
Conversely, if I can sell the same use case into the same customer base and build momentum and build local power, and an ecosystem starts to form around me, my power metrics are going up. And power is, is, is the best predictor of future performance. So in the venture capital world, we actually care only about.
We look at performance metrics, but all we're looking at cuz whether they made 5 million or 10 million, who that cares. But what matters is, yeah, but did they make five to 10 million of powerful [00:33:00] stuff so I can now predict that they're gonna double, double, triple, triple or whatever it is. That is a big deal.
And so I think anybody in this business needs to think about, look at your company through performance metrics cuz everybody will, but then look at your company through power metrics.
[00:33:15] Andrew Michael: Yeah, I love that. Uh, and really focusing on what matters. And ultimately, I think this is also one of the things like why Netara attention is such a strong predictor of a company's valuation that you see in the public markets.
And also where you get from, um, private investors too, is because ultimately it's like if you have really, really strong netara attention, if you've nurtured those relationships and, uh, as you mentioned as well, like previously, If you have a relationship romantic, like I'm married, it's my anniversary on Thursday when we're recording this.
Oh, is it by the way, how many
[00:33:43] Geoffrey Moore: years you can be married?
[00:33:44] Andrew Michael: How many years? She's putting me on the spot? Yeah, I'm gonna say four. Four years. And I know my wife can listen to the same Well, ok.
[00:33:50] Geoffrey Moore: By the way, I have 50, I have 50 years on you. 54 years. My
[00:33:53] Andrew Michael: end. Very nice. I'm surprising her. But the point was, Nurturing these relationships.
[00:34:00] It's important so you can grow that net tomorrow. Attention over time. And ultimately this is sort of what gives you that big, uh, big multiple. At the end of the day, it's what companies and investors are looking for. It's like, if you don't put another sentence to this business, will they continue to grow?
And that's the beautiful thing about like building a really, really strong,
[00:34:17] Geoffrey Moore: uh, well fact, when you talk about the multiple is a power metric. So your, your price to earnings ratio is, is a performance matrix. In other words, what you, That's a performance metric, but when you get, when you get a five to 10 to 15% multiple on something beyond what the, what say one to two is, like for industrial company, if you get one to three times revenue, somewhere in there, it depends on the category of course, but that's, that would be normal for a profitable.
You know, industrial thing where you start seeing 25 times revenue, That's a power metric. I mean, the people, what the people are saying is, by the way, when it was Uber two years ago now, By the way, the economy, in case you had notice, is changing . I love te [00:35:00] We'll separate that for a moment, but at least two years ago, Uber could be losing a billion dollars a quarter and it stock was crazily high because people said, Yeah, because look at their power.
They're so powerful. Yeah. And, and so I think, I think understanding that that metric's important, their
[00:35:14] Andrew Michael: dynamic, their retention rates that they have, the, the market that they've captured, and, um, At any point they could like shift to profitability and then you would start to see output
[00:35:25] Geoffrey Moore: there. And that is the SaaS model.
The SaaS model is very predictable for the next few years, so, so, but. But the, if you have churned, if as you said, if your net MRR starts going the wrong direction, Yeah, that's, There's a leak in the boat and you better patch it
[00:35:40] Andrew Michael: fast for sure. And I think that's also like the net tomorrow. Attention, if you take a look at the most valuable companies in SaaS that are public today, it's, it's.
The biggest indicator of, uh, what you're getting on multiples? Uh, yeah. Nice. So I see we're running up on time. I make sure I'll ask you a couple of questions, ask every guest that joins the show. Let's [00:36:00] imagine a hypothetical scenario that you join a new company and churn attention's not doing great at this company, and the CEO comes and says like, Hey Jeff, like you're only need to turn things around.
You're in charge. You have 90 days to do it. Uh, what do you. The catch. You're not gonna tell me that. I'm gonna go speak to customers, figure out the pain points or look at data. You're just gonna take something, a tactic that you've seen, be effective at another company and applied at this place and hope that it works and reduces for this company too.
What would you do? Besides leave the company. Uh, well,
[00:36:31] Geoffrey Moore: no, no, no. It's okay. We, we were at a firefight, right? Yeah. I think I would, I would assemble my, my best customer facing peoples. In other words, whoever's had the most give you their customer success job, customer support, whatever the heck it is. But these are people who were the last 90 days had.
In direct communication with customers, bring 'em into a room, say, Guys, what's the problem? And by the way, they know what the problem is. I mean, it's not, it's not like we don't know what the problems are. We just have [00:37:00] taboos about telling the big boss about what the problems are. So, so we get in a room, close the doors under the seal of the confessional, Okay, what the hell's going wrong here?
And then what's it gonna take to fix it? And we're gonna come up with a plan to fix it. And then we're just gonna go to the.
[00:37:13] Andrew Michael: So you're gonna focus on the team. Nice. So last question then is what's one thing that you know today about channel attention that you wish you knew when you got started with your career?
[00:37:25] Geoffrey Moore: Um, I think, I think what I didn't appreciate, well it was, it was the power of telemetry. In fact, not only me, virtually my entire client base. I mean, Microsoft didn't have telemetry with office until like, maybe seven years ago. So, so, and, and telemetry is just such a game changer because all of a sudden for the first time you had signal and once you, because otherwise you were reaching.
Anecdotally and anecdotes don't scale, but telemetry does scale. So I think they, And now by the way, telemetry is being built into everything. It's being built into washing machines, it's built into cars. It's being [00:38:00] built into, you know, air conditioning, the whole thing, and tele because then and now, now you can add machine learning on top of that.
But even before machine learning, just getting the signal itself was important.
[00:38:12] Andrew Michael: And important is to understand the signal. Nice. It's been a pleasure. Host you today. Uh, Jeff, is there any final thoughts you wanna leave the listeners with? Anything they should be aware of to keep up to speed with your.
[00:38:23] Geoffrey Moore: Well, no, but I do think we all have to be respect the fact that the world's about to go into a very different economic, uh, dynamic, probably for the next two years at least.
And so when you're playing in a downturn, churn is even more important. Because getting new logos is, is even harder. And so being, maintaining customer loyalty is even more important. And, and the chances to raise revenue by expanding are much greater than this Jones, uh, by, by landing. So, so all the things that we're talking about now that are kind of good health things in a boom economy become almost like life supporting [00:39:00] in a, in a, in a challenging.
[00:39:03] Andrew Michael: I think it's a great way to end the show as well. So thank you so much for joining today, Jeff. I really, really appreciate the time. It's been fantastic having you. And for the listeners, we'll make sure to leave all the show notes and anything that was discussed, uh, for you to catch up there. So thanks very much for joining Jeff, and uh, best luck for the Okay.
[00:39:20] Geoffrey Moore: Pleasure to be here, Andrew. Thanks a lot.
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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.