The Guts and Glory of Category Creation

Customer Success is an established concept these days. Harvard Business Review has written about it. There are how-to guides online, and “Customer Success” even has its own Wikipedia page. Customer Success Manager positions, are among the fastest growing in the titles in the US. Customer Success is definitely a “thing” now.

The rise of Customer Success didn’t happen organically. Nick Mehta and the rest of the Gainsight team put the Customer Success category on the map through a deliberate and inspired effort.

In this Q&A, TCV GP David Yuan and Gainsight CEO Nick Mehta share lessons on the pros and cons, and the key success drivers of building an entirely new category of enterprise software.

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David Yuan: Let’s start with the basics. What is Customer Success, and what made you think it was a big enough problem space in which you could create a large company?

Nick Mehta: Most companies today either already have or are transitioning to a subscription-based business model, so that means retaining and providing value to your existing customers is more important than ever. That’s where Customer Success comes in—when you’re proactively engaging with customers, you’re able to stay ahead of customer churn and even discover other opportunities to provide more value and upsell. And you know all of that ends up increasing renewal rates and ARR. It’s really cool to see more and more businesses recognizing its value.

David Yuan: And why did you think it deserved its own category? You could have fit in a number of existing categories. Why try to create your own?

Nick Mehta: Yeah, Customer Success has been confused with customer support, customer service, professional services, or account management, but really, it’s a mash-up of those functions. Early on we didn’t know what to call it. Honestly, if you said “Customer Success Manager” to somebody back then, nobody would have any idea what you were talking about. But we knew we were looking at a new discipline for the next generation of businesses—something that’s at the intersection of customer support, service, customer analytics, customer machine learning, etc. They do share some similarities, but the fundamental shift is going from reactive (waiting for the phone call) to proactive (owning the customer’s outcome).

We could have attached ourselves to a category like account management and become a boring old company that’s somehow related to customer support. Many people actually tried to push us into those types of categories. Fortunately, we stuck to our gut because we knew none of those were a fit.

David Yuan:  To be honest, category creation is a little bit a of a flashback to the 1990’s when Ariba and i2 spent gobs of money making procurement and supply chain sexy. Hmm, must have been an interesting discussion with investors…

Nick Mehta: Yeah, people didn’t like it. Not only because of the potential expense with creating awareness, but also because they thought Customer Success was too much of a niche. That putting ourselves in the category would box us in.

David Yuan: Were they wrong?

Nick Mehta: Yes and no. It was certainly an obscure area, but we truly believed it could get big. So we went down that path and became very passionate about building the Customer Success company—we decided to go all in.

David Yuan: So how did you define scope? Define it tightly and you have 100% market share and no TAM, define it broadly and you have big TAM and you compete against everyone. In picking scope you get to pick who you compete with today and potential in the future, as well as who may view you as a strategic acquisition. Was this all in the plans, how intentional was your scope?

Nick Mehta: Really good question and we still wrestle with it. I think we embraced the concept early on of focusing on a very specific market (subscription) and persona (Customer Success). Many people said “your TAM will be limited” because of this. But the reality is that that market and persona have grown radically. So I think the lesson is there is a tradeoff to focus but it’s less of a tradeoff if the “niche” has a big tailwind behind it.

David Yuan: And how did you actually put on a name on the category. Customer Success actually feels really nature–simple and non-technical, yet distinctive.

Nick Mehta: We actually had a lot of debate about naming it because there were existing categories that we could have slotted into. Friends of the company suggested we call it “customer artificial intelligence.” Others told us we should call it “customer insights” or “customer machine learning.” But none of those fit for our vision.

We noticed Salesforce had a team of “Customer Success Managers” that had like 80 people in it and were starting to hire more, and when we saw this new job and description it made sense to us. There was also a small community of folks who met in online forums and around local offices in the Bay Area who really resonated with this Customer Success message.

David Yuan: It’s one thing to put a category name out there—most companies attempt to do that, but most are unsuccessful. How did you turn a Gainsight term into the category label?

Nick Mehta: We said to ourselves that we were going to create and really own the industry. We facilitated the creation of a community. With their help, we created best practices. We described what a Customer Success Manager does, how you pay them, and who they report to. We even published a book about the entire discipline. And we’re still helping define roles and titles based on the trends we’re seeing.

At first we wanted to do what a lot of enterprise software companies do: host a conference with our customers. The problem was that we didn’t have any customers, so a conference would have been depressing!  So instead of doing a company event, we decided to do an industry event. We focused on Customer Success Management, not our company per se. We said, let’s connect with other players in this still-young industry. We called the event “Pulse.” It was the most important thing we ever did as a company. When we sent out invites, we thought we’d get maybe 50 people to attend. Instead, 300 showed up the first year. Just to show you how fast this industry has grown, this year, our sixth year, we had over 5,000 people show up.

We’re not that big of a company, but our conference brand—Pulse—has become very big. We even expanded globally. We have a conference in London and we’re planning to continue that, and we’re hosting our first Pulse in Australia later this year.

David Yuan: Why do you think Pulse was so successful?

Nick Mehta: In order to create a category, we needed to create a community, and Pulse helped do just that. Fundamentally, in a new profession, people want to meet others “like them.” So Pulse has become in some ways like eHarmony for Customer Success.

David Yuan: Is it as expensive as it sounds?

Nick Mehta: Yeah, don’t do this if you’re bootstrapping. I don’t think it’d be possible since it’s not cheap. We raised $156 million in venture capital from investors who believed we could create this new marketplace. We were fortunate to receive their support because it allowed us to really distance ourselves from the little competition we had.

David Yuan: You’ve cultivated this community, so now what?

Nick Mehta: We try to put ourselves in the shoes of the people in the Pulse community. The terms “thought leadership” and “content marketing” have often been cheapened into thinly-veiled advertisement and we tried to change that. We strived to focus on the issues on the minds of people in Customer Success – from compensation to org models to career paths. We built a job board and an online university to help serve the career needs of our community.  At the end of the day, it’s fundamentally about the people.

David Yuan: How do you hire in an industry that’s so new?

Nick Mehta: Trying and failing. That’s the challenge. There is no playbook or existing job description to follow. So in the early days, we really focused on our value of “Shoshin” (Beginner’s Mind) – people that were creative and willing to learn.

David Yuan: You’ve said that you don’t sweat the competition. Why not?

Nick Mehta: In a new market, it’s not about the competition. It’s about creating the market. Our competition is inertia and ignorance.

David Yuan: Why don’t you have more competition?

Nick Mehta: In some new markets, the “friction” to get started is very high. In our example, you need to build a complex product AND a new profession!

David Yuan: You’ve put a lot of attention on your company’s culture. What have you done and why is it important?

Nick Mehta: When you’re creating a category, your culture is doubly important – it’s the framework for your company AND for your community. One of our core values is Childlike Joy, which basically means we want people to embrace their inner kid and bring the kid in you to work. We really lean into our community with that. We’ve done all kinds of fun things. We wrote a children’s storybook for CS professionals to explain to their kids what they do at work. We also do a lot of things with music, like create a Customer Success version of a Taylor Swift song, a rap song, a musical, and even carpool karaoke with Aaron Levie from Box and Keith Krach from Docusign. We also had Vanilla Ice at one of our Pulse conferences. Actually, there was a time that if you googled Gainsight, it literally listed our company as a musical artist in the hip-hop/rap genre. #lifegoal

David Yuan: Ha! I’ll have to check it out. Vanilla Ice, that’s when you know you’ve made it. You’ve come a long way from ‘nerding’ out at Harvard, my man!

Nick Mehta: Yeah!

David Yuan: Awesome, thanks Nick. Really proud of what you’re doing at Gainsight and appreciate your sharing some of your learnings!

Nick Mehta: Awesome! Thank you for having me.

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The views and opinions expressed in the transcript above are those of the speakers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). This transcript is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The companies discussed above are not necessarily TCV portfolio companies and are not necessarily representative of any TCV investments. For additional important disclaimers regarding this document, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.

 

 


Congratulations to the entire Avalara team on their IPO!

Avalara Announces Pricing of Initial Public Offering

The shares are expected to begin trading on the New York Stock Exchange on June 15, 2018, under the symbol “AVLR,” and the offering is expected to close on June 19, 2018, subject to customary closing conditions. Avalara has granted the underwriters a 30-day option to purchase up to an additional 1,125,000 shares of common stock to cover over-allotments, if any.

Goldman Sachs & Co. LLC, J.P. Morgan, and BofA Merrill Lynch are acting as book-running managers for the offering. JMP Securities, KeyBanc Capital Markets, and Stifel are acting as co-managers.

The offering is being made only by means of a prospectus. Copies of the final prospectus related to the offering, when available, may be obtained from Goldman Sachs & Co. LLC, Prospectus Department, 200 West Street, New York, NY 10282, or by telephone at 866-471-2526, or by email at prospectus-ny@ny.email.gs.com, or from J.P. Morgan Securities LLC, c/o Broadridge Financial Solutions, 1155 Long Island Avenue, Edgewood, NY 11717, or by telephone at 866-803-9204, or email at prospectus-eq_fi@jpmchase.com. A registration statement relating to these securities has been filed with, and declared effective by, the Securities and Exchange Commission. This press release does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

View source version on businesswire.comhttps://www.businesswire.com/news/home/20180614006357/en/

Investor Contact
ICR, LLC
Kevin Faulkner, 206-641-2425
investor@avalara.com
or
Media Contact
Avalara
Jesse Hamlin, 518-281-0631
media@avalara.com

Source: Avalara, Inc.


Watermark and TCV Close on Strategic Investment to Accelerate 2018 Growth

NEW YORKApril 17, 2018 /PRNewswire/ — Watermark, the largest provider of assessment software for higher education institutions worldwide, has announced the close of its agreement with TCV to acquire a controlling interest in the company. TCV is one of the largest providers of capital to growth-stage private and public companies in the technology industry and has backed industry-leading technology companies, including Airbnb, Capella Education, EA, EmbanetCompass, ExactTarget, HomeAway, Netflix, Spotify, and Zillow. In addition, Quad Partners and Watermark’s management team have reinvested alongside TCV and are joined by new investor Exceed Capital Partners.

Watermark provides educational intelligence systems to over 1,100 higher education institutions worldwide, including a majority of the top 200 U.S. News & World Report colleges. Watermark continues to grow rapidly, with over 50 institutions joining the Watermark community or expanding their use of Watermark across the institution so far this year, including top universities such as Syracuse UniversityPrinceton UniversityMichigan State University, and Prince Sattam Bin Abdulaziz University in Saudi Arabia. With over 300 employees supporting these partner institutions, Watermark will use TCV’s investment to continue its growth trajectory as well as accelerate development of its innovative educational intelligence platform.

“We’re excited to have TCV as a financial partner. With a deep understanding of and experience in the education technology and software/SaaS markets, TCV will help us to welcome more clients to our community and to continue building solutions these institutions need to drive meaningful improvements in institutional effectiveness, program quality, and student learning,” said Watermark CEO Kevin Michielsen.

Assisting in the close, global independent investment banking firm Evercore advised Quad Partners, and investment banking firm Tyton Partners advised TCV on the transaction.

About Watermark
Watermark’s mission is to put better data into the hands of administrators, educators, and learners everywhere in order to empower them to connect information and gain insights into learning which will drive meaningful improvements. Through its innovative educational intelligence platform, Watermark supports institutions in developing an intentional approach to learning and development based on data they can trust. For more information, visit www.watermarkinsights.com.

About TCV
Founded in 1995, TCV provides capital to growth-stage private and public companies in the technology industry. Since inception, TCV has invested over $10 billion in leading technology companies and has helped guide CEOs through more than 110 IPOs and strategic acquisitions. TCV’s investments include Airbnb, Altiris, AxiomSL, Dollar Shave Club, EmbanetCompass, EtQ, ExactTarget, Expedia, Facebook, Fandango, GoDaddy, HomeAway, LinkedIn, Netflix, OSIsoft, Rent the Runway, Sitecore, Splunk, Spotify, Varsity Tutors, and Zillow. TCV is headquartered in Menlo Park, California, with offices in New York and London. For more information about TCV, including a complete list of TCV investments, visit https://www.tcv.com/.

Contacts:
Victoria Guzzo
Director of Corporate Communications
708.588.1735
vguzzo@watermarkinsights.com

TCV
Katja Gagen
Marketing
415.690.6689
kgagen@tcv.com