Engaging with Investors as a CS Leader
By Kristen Hayer
You just found out that you’ll be presenting at your next board meeting. This is exciting, in that it demonstrates the importance of customer success in your organization. However, it can also be nerve-wracking – you’ll be in front of your investors. What do they expect to hear from you? How should you approach the presentation? What if there are things that aren’t going very well? Knowing how to engage with your investors is a critical leadership skill. In the US alone there are over 1000 venture capital firms and over 5000 private equity funds who together are funding tens of thousands of companies. The odds of you working for an investor-funded company at some point in your career is high.
Board meetings aren’t the only time you’ll engage with investors. If your organization pursues additional rounds of funding, you’ll need to be involved in the due diligence process, providing important information to potential investors about your customer base and CS program. If your company acquires another organization, the investors will often be involved in integrating the two companies, and you’ll be involved in that project. Finally, if your investors drive some sort of exit, you’ll be involved in the due diligence related to that merger. By understanding what investors are looking for, CS leaders can be more prepared for all these conversations. Overall, investors just want to know that you are a solid CS leader who can tackle the challenges that inevitably arise while doing business. They aren’t looking for perfection, they are looking to you for transparency and a plan. Some of the specifics they will want to see are:
Metrics – I can’t stress this enough: Know your numbers. You need to eat, sleep and breathe your current metrics around customer retention, churned revenue, expansion revenue and customer satisfaction. Different business models and different finance professionals choose to measure these metrics in different ways. You need to understand how the finance team is looking at these numbers and make certain that you’re aligned with them, and you always have the answer to “How is churn looking this month?” When you get this question, you can also use the opportunity to educate your investor about the power of net recurring revenue.
Projections – Along with the current numbers, you need to be able to project logo churn, revenue retention and expansion revenue over the next month, quarter and year. The nearer the term, the more accurate the projection needs to be. Your mantra with projections should be “No surprises.” If you know that a large customer is going to churn, it is best to get that information in front of your investors quickly so they can plan for it, rather than holding out hope until the last minute that you’ll be able to save them.
Game Plan – What is your plan for the next quarter and year? How do you intend to continually improve those metrics? Your game plan should be a part of your regular board meetings, but if you’re going through any of the special situations I described above (due diligence, a merger) you’ll also need to have a plan for how you’re tackling things like blending two CS organizations, offshoring part of your team, adding technology or merging two customer experiences into one cohesive journey. Investors expect you to be able to pitch your plans effectively and concisely. If you’re not sure how to build a formal business case for your plan, Harvard Business Review has a great tool for developing business plans.
Success Stories – Sharing success stories is important to do across your organization, and don’t leave out your investors. Stories about how customers are benefiting from specific parts of your solution or using your offering in new and different ways can help your investors think creatively about ways to drive your company forward. They can also help you make the case for new features or service offerings that would benefit your customers. Success stories can also help balance out the bad news that you’ll need to share from time to time.
To that last point, what should you do if things aren’t going well? Will it put you in a bad position with the board if your numbers aren’t where they should be? The bottom line is yes, when your numbers don’t look good, you don’t look good. However, it looks even worse when you try to mask poor performance or aren’t candid about the reality of a challenge. I’d like to illustrate this point with a story about one of our customers.
We worked with a startup organization whose CS leader managed a large team of professional services specialists. The services this team provided were paid for in the contracts that customers signed. Over time, this team grew larger and larger because the customer base expanded significantly, and the product was not keeping up. Ultimately, the investors started to question the size of the team. Instead of admitting product challenges, the CEO capped the size of the CS team, which as the company continued to grow caused morale issues, high turnover, and burnout. Eventually, the founding CEO was replaced, and we were hired to help establish the right size of the team, which was clearly very understaffed. While the investors were disappointed by the cost of staffing the team appropriately, they ultimately agreed to do it because they saw the bigger picture. If the original CEO had been honest with the investors, he would probably still have a job, and the company could have avoided the morale issues and turnover that they are still battling today.
When things aren’t going well, be transparent and direct with your investors about it. As the CS leader, you’re accountable for your metrics and the leadership of your team. Even if you aren’t responsible for the problems, you will need to be the one to solve them. Come to the table with a plan that you can control. For example, you may not be able to control how quickly your product team releases features that your customers are waiting for, but you can control how your CS team will work with those customers to keep them from churning while they are waiting. If you are facing a large challenge or working through a long project, set up regular touchpoints with your investors to keep them in the loop on how things are progressing.
When you are aligned with investors, you’ll be more likely to be included in key decisions because you will have proven that you deserve a seat at the table. Most tech companies, at some point, are investor-led. Knowing how to engage with investors is a core skill for senior CS leaders. If you aren’t in front of investors much today, ask to be included in occasional board meetings so you can start to develop your skills in investor relations.