For the third annual Pulse 2015 customer success conference produced by Gainsight in San Francisco, Michael Lewis, author of Moneyball, was the key draw to the thousands in attendance.
Drawing a parallel to his popular book about innovative uses of data in evaluating baseball major leaguers, he likened players to customers in keeping with the theme of the conference of ensuring the success of B2B enterprise customers.
Lewis opened with an anecdote of the first time he ever was in the locker room of the Oakland A’s when the players came in after a game and changed out of their baseball uniforms. “Naked players look physically defective,” he said. “They don’t look like pro athletes.” He added that they have love handles, bunions, hammer toes and other assorted bodily imperfections. Lewis’ point in making these observations is that even in baseball where there is more officially recorded statistical information about personnel than in any other sport—much less any other profession—employees can still be misvalued. The market for pro baseball players can get things wrong. So if baseball players can be badly misjudged, so can B2B customers.
Even though there are surefire ways to evaluate data, the evaluations are still conducted by people. According to Lewis, the Oakland A’s were able to compete with the most financially well-endowed major league teams on a budget one-fifth of theirs because they were willing look at data in new ways. They changed the way they looked at stats and at what stats they observed.
The competition was not looking to change how they did things because they were already successful. And since 2002, the time of Moneyball, Oakland has continued to do it and succeed against the odds.
“Innovation is a habit,” Lewis says. And it was not as if Oakland had a proprietary database. All the major league baseball teams had access to the all the same player data same as the Oakland A’s, according to Lewis. “The other organizations had the same insight but didn’t take the steps to act on it,” he says.
Today, the amount of publicly available data is even more impressive now. “Every major league GM knows every batted ball and at what angle it was hit,” Lewis says. And they know where every batted ball lands on any major league diamond on a grid of a thousand squares, according to Lewis.
Moneyball and Box
After Lewis’ Moneyball keynote discussion, the Pulse conference turned to Dan Levin, COO at Box, the popular online shared storage platform.
Levin started by asking—perhaps rhetorically, perhaps not—how are you supposed to do customer success management (CSM) with no people? Because he comes from the old school of training, in his mind B2B enterprises were always supposed to drive down costs in keeping with conventional accounting principles. So this CSM metric of the customer retention rate is “weird,” he said, compared alongside more conventional financial yardsticks such as revenue growth and non-GAAP gross margin. At the same time, customer retention is the most important metric, he added.
The longer the customer retention rate the more profitable customer renewals become over time. In fact, after five years customer renewals become “extremely profitable,” according to Levin, and your sales and marketing costs go way down.
“But if the customer isn’t around until the right side of the slide (at the end of the five year planned customer lifetime) Box would be in a world of hurt,” Levin said. “We’d lose our shirts.”
Levin discussed all these metrics in relation to Box going through its IPO when management showed the investment community that they could make revenue “with a CAGR (compound annual growth rate) going back five years growing roughly 30 percent CAGR.”
Based on a subscription model, Wall Street is able to readily understand this business model, especially compared to something like Verizon Wireless where the subscription base is an asset that wastes away as it shrinks and the customers move to other carriers. But Box is the opposite—it acquires subscribers all the time and continues to grow. Therefore, the lifetime value of a Box customer cannot be calculated, according to Levin.
So even though Box loses money in the first year of business with a new customer, by the second year it has a 40 percent contribution margin. Overall, Box maintains a 34 percent contribution margin based on customers in renewal and expansion phases. The key to this is customer success management (CSM) that keeps the customer engaged. With CSM, it makes it easier to upsell customers, according to Levin.
It’s all about finding incremental use cases. For example, at Eli Lilly the initial use case was to provide online shared storage for the pharmaceutical company’s 15,000 customer reps to access via their iPads. The next step was to add the incremental use of the company’s marketers.
