Analyzing and Managing Churn During Economic Downturns

Posted April 28, 2020 by Shasta Ventures

How can startups retain customers and plan for the future during these unprecedented times?

We brought together three experienced perspectives: Issac Roth, Partner at Shasta and creator of Red Hat OpenShift and StrongLoop, Ravi Mohan, Partner at Shasta and a 25 year venture investor through multiple downturns, and Michael Lock, Advisor at Shasta and co-founder of Google GSuite.

The webinar is a part of an ongoing series addressing challenges brought on by the severe demand shock that we’re facing.  

In this session we focused on three key topics:

  • Managing customers and potentially higher churn rates
  • Predicting what churn is going to be for planning purposes
  • Things that can be done to try to minimize churn

We opened up by asking, “Where should managing churn fall on executives’ priority lists?”

“It’s #1” says Lock. It’s always been the case keeping existing customers is easier than acquiring new ones, and that rings even more true during these times. 

After laying out the top three assets you need to manage in this crisis - your cash balance, people, and customers - the conversation dives deeper into explaining how. “The first thing to understand is how much your customers are affected by the environment.” Lock and Mohan suggest several actionable steps startups should take, from a data driven bottom-up analysis to tracking the quality of account maps. 

Michael and Ravi continue on to discuss key indicators to gauge how important your company currently is to customers, and the role of daily vs. monthly active users in challenging times. 

“If customers only use your product occasionally, it might be on the cut list.” Mohan suggests this is an opportunity to better instrument your product to find out now only how often people are using it but what they’re using it for. Roth suggests sending customers an email, “if they don’t have time to open your email, are they going to keep paying for your product?” Lock suggests engaging customers with a tips and techniques session for how to best use your product and adding in extra features for free.

What should SaaS providers expect?

For SaaS enterprise companies, what should they expect? “If your company doesn’t pass the toothbrush test, then you’re going to see churn,” meaning if they’re not using your product at least twice a day, they probably don’t need it. Mohan reiterates, “It’s more important to focus on retaining your customers than it is to focus on retaining all of their $$$ spend. They might cut back on spend during the downturn. That’s okay. But try to keep them as a customer.”

Checking in with customers

“This is a time where you want to be communicating with your customers.” The panelists agree that it’s more important than ever to understand what your customers challenges are and how you can provide value. Roth suggests a call-a-thon involving everyone in the company. Mohan even suggests helping them solve problems that are outside of your product offering. 

After expanding on topics including transparency with customers and ways to leverage all of your company resources during these unprecedented times, the panelists offer their final thoughts. “We know that the world economy is going to come back, we just don’t know how quickly. But having that optimism is very important. And being in the best place with your key assets – cash, product, people, customers, and processes is the way to keep focused on it … Set realistic goals and realize that we’re going to be running much harder but covering less ground, and that’s ok.” Concludes Ravi Mohan.

After emphasizing that reducing churn should be a company-wide effort, Lock adds, “If you can prove during what looks to be a very severe downturn that you can keep your customers, you're essentially proving the most important thing to your investors, which is that people like your product and they need it. And if you can get through that, you will be stronger”.

Stay tuned for upcoming webcasts as we continue focusing on the topics of most importance to startups during these challenging times. Check out the full video below: