Venture Capital View of Customer Success

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1 CLICK TO EDIT MASTER TITLE STYLE Venture Capital View of Customer Success Aligning Software Vendor & Customer for Mutual Success Greg Goldfarb Managing Director, Summit Partners #Pulse2017

2 Agenda Intro How We Got Here Where We Are Going Some Rules of Thumb

3 How We Got Here

4 Three Shifts Toward Many Humans Toward Cloud Toward Recurring

5 From What Starting Point?

6 Shift 1: General Direction of Enterprise Software Human PRIMARY CONSUMER Hardware Element One Many NUMBER OF CONSUMERS

7 Shift 2: From Bespoke Assembly to Configurable Clouds Simple picture, so many implications 7

8 Shift 3: From Upfront to Recurring License World SaaS World Maintenance Services License Services Subscription 5x to 10x Upfront Dollars to Future Dollars 5x to 10x Future Dollars to Upfront Dollars

9 A Corollary to #2 and #3

10 The Old Days: Get Back in There At Once and Sell, Sell!

11 Sell Mortimer! Philosophy How software businesses were run

12 Sell Mortimer! Philosophy Non-renewing addressable markets How software businesses exited

13 And it was perfectly rationale

14 LicenseCo vs. SaaSCo LicenseCo $100K license ASP 18% maintenance 95% dollar renewal $20K cost to acquire 10% COGS SaaSCo $50K subscription ASP 95% dollar renewal $20K cost to acquire 20% COGS

15 Transaction 1 as % of 7 Year Discounted CPLTV 60% vs. 12%

16 Where We Are Going

17 The Prototype for the Future of Software Our business model is to turn software into an appreciating asset for the customer.

18 Operating Principles Will not sign a contract longer than month-tomonth Customers should be able to leave anytime A reminder to be at our best every day Will not accept a booking until customer has met CS rep / accepted CS plan and vice versa Never sell what product can t already deliver Feature customer success as part of v prop Mutually agreed one page value realization plan Simple framework built prior to booking, then tracked going forward All new engineers start in customer success Customer intimacy is duty of eng too Product familiarity from Day 1 Agile team dedicated to customer success / sits with CS team Tight coupling of CS and engineering / everyday scrum across departments CS team is boot camp for internal talent development Develop product owners, sales experts, sales contributors, product marketing

19 The Appreciating Asset Philosophy How software businesses will be run COFFEE IS FOR VALUE SUBSTANTIATORS

20 The Appreciating Asset Philosophy Annually renewing addressable markets How software businesses will exit

21 Some Rules of Thumb

22 Within a reasonable magic number boundary (say >0.75), moving CAC is irrelevant if you have ways to move dollar retention.

23 Effect of 10% Reduction in CAC vs. 10% Increase in $ Renewal 1% vs. 34%

24 GPM aka Rule of 50 aka Golden Ratio aka Rule of 40

25 R 2 Forward Revenue Multiple & Revenue Growth vs R 2 Forward Revenue Multiple & Revenue Growth + FCF Margin.59 vs..73

26 It is a mathematical impossibility to sustainably clear a GPM of 50 without best-in-class playbook & execution in customer success. [Unless you have a monopoly if you do, that s awesome and I am jealous.] 26

27 A New Concept for GPM Analysis: Amplitude Zone of Durability Increasing Volatility (Credit Markets) Nirvana of Durability Increasing Volatility (Equity Discount Rate) Revenue Growth 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% EBIT Margin 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% Amplitude 50% 30% 10% 10% 30% 50% 70% 90% 110% 130% 150% 27

28 Greg s 40 / 40 Rule If you regularly run an NPS of 40+ and a GPM of 40+, the odds will ever be in your favor for a premium outcome at a time of your choosing.

29 Greg s 40 / 40 Rule (or, if we are getting crazy, 50 / 50) And if you run a 50+ / 50+, then you, like Alexander, can weep for you will have no worlds left to conquer and total control of your destiny. Enjoy your top decile revenue multiple, good market or bad. [ if you sustain this as you reach scale.]

30 FOUR THOUGHT QUESTIONS TO ASSESS YOUR ORGANIZATION

31 What is your business process to substantiate value to the customer and confirm the customer agrees?

32 How does your business educate the customer on how to get the most out of the product as the product steadily improves (and often increases in complexity)?

33 How many people in your CS org have moved into another group over the past few years?

34 Have you mapped each of your core customer journeys and aligned every department and person in the organization to those journeys, with systems and instrumentation to measure how that customer is progressing at each step?

35 A FINAL THOUGHT

36 How many of your companies conceptualize themselves like this?

37 Standard Organizing Principle Functional Department CEO Sales Marketing Customer Success Engineering Product CFO

38 Do you think that s how customers conceptualize their experience with your company?

39 This is how customers experience your organization Discover Educate Assess Purchase Onboard Use / Succeed Optimize & Learn

40 Software Organization as Symphony

41 My dream sheet music (quarterly by customer persona or segment) Discover Educate Assess Purchase Onboard Use / Succeed Optimize & Learn Demand Marketing Objective / Initiative KPI Objective / Initiative KPI Objective / Initiative KPI Objective / Initiative KPI Objective / Initiative KPI Objective / Initiative KPI Objective / Initiative KPI Product Marketing Lead Qual / Inside Outside Sales Product Eng CS

Thank You BOSTON 222 Berkeley Street 18 th Floor Boston, MA 02116 United States (617) 824-1000 MENLO PARK 200 Middlefield Road Suite 200 Menlo Park, CA 94025 United States (650) 321-1166 LONDON

www.summitpartners.com In the United States of America, Summit Partners operates as an SEC-registered investment advisor.

42 Thank You BOSTON 222 Berkeley Street 18 th Floor Boston, MA United States (617) MENLO PARK 200 Middlefield Road Suite 200 Menlo Park, CA United States (650) LONDON Queensberry House, 3 rd Floor 3 Old Burlington Street London W1S 3AE United Kingdom +44 (0) In the United States of America, Summit Partners operates as an SEC-registered investment advisor. In the United Kingdom, this document is issued by Summit Partners LLP, a firm authorized and regulated by the Financial Conduct Authority. Summit Partners LLP is a limited company registered in England and Wales with company number OC , and its registered office is at Bedford Row, London, WC1R 4JS, UK. This document is intended solely to provide information regarding Summit Partners potential financing capabilities for prospective portfolio companies and is not an offer to sell to any person, or a solicitation from any person of any offer to buy, any securities.

Boston Menlo Park London. Summit Partners

Boston Menlo Park London. Summit Partners Boston Menlo Park London Summit Partners April 2018 Our Mission We seek to invest in the best growth companies worldwide, to be a valued and trusted partner to entrepreneurs and executives, and to deliver