The SaaS business model has risen to popularity for many reasons – it’s fast-paced, creates residual revenue streams, and well, the multiples are strong. However, while many are flocking to reap the benefits of the SaaS model, truly understanding how it works sustaining success over time is not as easy as some make it look. Rajesh is going to walk you through the key elements of winning the long game in SaaS – how to win customers, how to create long-term relationships, and how to avoid churn. He will also provide insights on the differences between commercial and enterprise customers and the key metrics to keep an eye on as you grow your business.
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Rajesh Ram | Co-Founder @ Egnyte
FULL TRANSCRIPT BELOW
My name is Rajesh Ram. I am Co-Founder and Chief Customer Officer at Egnyte. We offer a comprehensive solution for customers to manage all their unstructured data. We started Egnyte about 10 years back. For the first five or six years, we were convincing customers to move to the cloud. It was like going from zero to 60 in four hours. I look at the last three or four years, it’s like zero to 60 in five seconds. The pace is just unbelievable. This is where customers are going to go into the cloud.
So first off is what a pleasure to be here. Thank you to Jason and the SaaStr community for welcoming Egnyte and myself, and thank you to the wonderful city of Paris for hosting us. Over the next 30 minutes, my intent is to talk a bit about land, expand, and explode, which actually started as an internal keyword at Egnyte. It was just a catch phrase we would use but became the cornerstone, if you would, of our customer retention strategy. But before I talk about what land, expand, and explode means and why it’s sort of essential, at least in in our world, I want to give you a little bit of background about the company, what we do, what size and scale we’re at. Because what I’m about to do in the next 30 minutes is share our experiences, our lessons learned. And while every company is different, I do firmly believe that the ideas and constructs that I’m about to present might be applicable to some, if not all of you, trying to build a SaaS companies.
So with that said, I’d love to introduce you to Egnyte as a company. We’ve been in business for a little over a decade, and what we help our customers do is manage their content i.e., files and move them to the cloud. So back in the day, people used to have servers and backup and VPN and all these complex technologies in order to manage their files in their data center. We help retire that to the cloud and we add to that a dose of collaboration, data protection. So we like to think of ourselves as a modern content platform for businesses.
We’re headquartered in Silicon Valley, but we are global. Our customer base is global and our company is global in terms of how we operate. We’re over 600 employees, and we’re currently privately backed, and you could see the list of a lot of our venture capital backers who have some common Silicon Valley names. They are like Kleiner Perkins, Google Ventures. And recently we raised around from Goldman Sachs in September of last year to fuel our go-to-market expansion.
While I talk about some of our customers, you’ll see some names there … Our solution is very horizontal and it serves customers in different industries and verticals. So you’re going to see names like Red Bull, headquartered in Austria, that make the energy drink. Ikea, obviously everybody knows who they are, headquartered here in Netherlands, outside of Amsterdam. So lots and lots of customers, 15,000 of them. And they range all the way from real small businesses all the way to some of these giants whose names you recognize.
So what is our target market? We go after two market segments, and I think this is important because when you’re a young SaaS company, we would be happy to sell to anybody who had a pulse. But I think as you grow up, as you mature, you start to think a little bit more about what is the target market that makes most sense for your business, where are your acquisition costs manageable, where are your retention rates the best, what’s your DNA? Are you capable of serving the enterprise? Because everybody wants to sell to the enterprise if you’re a SaaS company, but is that something that you really need to do in order to be successful?
We’ve done a lot of soul searching in that area and so we decided that we’re going to focus on two segments, what we call the commercial segment and a mid market segment. And we said we’re not going to focus on these other segments, which is real large enterprises and also consumers. So we don’t offer a free solutions to consumers, nor do we go after really big blue elephants, as our CEO likes to call them. We kind of focus right in the middle. It’s proven to be a real good segment for us.
Since land, expand, and explode is really all about customer retention and building long term customer value. I want to tell you what those metrics are for Egnyte because you could go, “Well, this guy is up here talking for 30 minutes. What does he know about building customer value?” I think I want to let our metrics sort of speak on behalf of the company. And specifically since we’re privately held, I had to make sure that we could present a handful of these, but present the ones that were relevant to this discussion. So our annualized gross churn from a dollar perspective is under 6% and this is a number that we have worked steadily down from double digits over the course of the last three or four years.
Churn management is a journey. It’s not a one-stop shop and we’re fairly thrilled with that number, but we’re going to keep working that. We find a very interesting trend as SaaS adoption of the market is peaking, which is that the average life of the customer continues to keep increasing. So we’ve got customers that have stayed with us well over five years, and so the averages are approaching that number, at least in our customer base, just because of the nature of the solution we provide. And the other metric we maniacally track is what we talk about in terms of net retention. So a customer comes in and spends a dollar today, how much are they spending with you after a certain period of time? Whether that’s a year, that’s two years measured over the life of the customer. So obviously good SaaS companies need to have that number be above 100%. if you’re under 100% that means you’re bleeding customers, and that’s not a good sign.
So while we’re continuing to work on these metrics, we believe that these metrics have been a result of applying land, expand, and explode in the way we approach our market. So let me segue and talk a bit about why land, expand, and explode and how we define it.
The first thing I want to note is that the founders of Egnyte came from a traditional enterprise selling background. We were not SaaS guys. SaaS is roughly, I don’t know, take your pick five, seven, eight years old at most, and maybe 10 years. So anybody who’s got gray hair like me probably did something different than SaaS before we started doing SaaS. And so in that business you sell large deals, you sell them upfront, it takes them a long time, but once it’s done, it’s done. But that’s not the case with SaaS. Customers are very smart, they try before they buy, and big deals are few and far between.
And this is the moment of reckoning that you get to as a SaaS company is that a sale is not the end. You can be very happy when you sell someone, you can exalt, you can have the high fives, but a sale is really the beginning. You have to earn your business every year, every two years, every three years. And if you do stupid things along the way to make your customers upset, you know they’re going to walk out that back door. And this is not something early stage SaaS companies think about. You’re so keen on building a sales model that a lot of the stuff in terms of retention sort of goes out the door.
So when you put those dynamics together, we realized that the old lessons of traditional software, big deals upfront, locking in customers just wasn’t going to work. So land, expand, and explode was an adaptation strategy by Egnyte and became kind of a driving force for how we thought about customers. It’s okay if they buy small. How do you grow that customer? How do you grow that footprint? How do you retain that customer forever? And while that sounds self-serving, honestly this isn’t and shouldn’t be a self-serving strategy because if you can create mutual value for the customer and yourself, customer’s going to leave. This is not a game of tricks or gimmicks.
So let me explain how we thought about this. When we looked at a customer, we divided our value proposition into a set of use cases and the market within the customer’s business that we could attack. And so we boil down our value profit to six use cases. And for the sake of this discussion with 30 minutes, I’m not going to list what those use cases are. Those are very specific to our business. And let’s assume a typical company in the mid market has got about 1,500 employees. Egnyte solution is about managing files. Every employee in your company needs to have access to Egnyte. Well, when customers buy, they don’t come in and say, I want all 1,500 people having a license. They may start with a department that has 100 employees or maybe something less. So you’re landing very small, but we defined a target that said, if we can get all these six use cases and 100% of your employees, then we believe that we have created tremendous value for you and tremendous value for Egnyte.
So the big deal in traditional terms was not the beginning, it was sort of end game. And our entire strategy on retaining customers was around getting to that big deal from Egnyte’s perspective, but delivering the value to the customer that would accrue over time. So that’s our internal definition, right? But let’s look at this in terms of what the mutual value creation really represents. And by the way, I did want to highlight that even though we started horizontally, organically over time, we’ve had about a half a dozen industries that have surfaced, such as engineering and construction, advertising and media. So if you were a customer that was from a specific industry, we were vehement and kind of maniacal about getting that full use case universe and getting all your employees licensed. That to us represented a win in terms of our strategy.
What does all this translate to? What is the outcome that people really care about? That’s what I want to talk about because when you look at this world of use cases and employees and licenses and all of that, it looks very self-serving. So why does the customer really care? The customer cares because when I net out a customer journey in SaaS, sort of the dynamic of a vendor-customer relationship or an interaction, it’s really about this curve.
When you start that journey, those two points in terms of the value that the customer attains and the risk of the customer churning, they kind of meet. And we’ll talk about more about this in just a second. Our goal through land, expand, and explode was to create big divergence between the two. The more the value the customer gets from the solution, the less the risk of churn. And ultimately that’s what both people want. They want value. We, as providers want lower risk of churn. And we found that if land, expand, and explode was done well, then you would ultimately get to that end game and diverge these two curves from a value and a churn risk standpoint.
So with this defined, I’d like to talk a bit more about each of those steps and how we thought about it internally. First off, the land, this is your typical initial sale. I’m not going to have too much unique stuff to tell you other than to probably highlight some stories about, you know, we’ll do these bootcamps, we get a lot of these new sales recruits coming in and I’ll ask these sales recruits, “What do you think you have to do to win a customer’s business? The most important thing, what do you think it is?” And I’ll get everything under the sun; play golf with the customer or building a relationship, be professional, et cetera, et cetera. And occasionally I’ll get the right answer, which I’m looking for, which is solve the customer’s problem.
In enterprise software, buyers are buying outcomes. They’re not buying features and functions. In fact, in the first panel that Jason moderated, there was a lot of talk about feature parity and function feature parity. But as you mature as a SaaS company, I think it’s more important to focus on selling outcomes and value. And our sales process focuses a lot on selling value and outcomes, not on selling features and functions. So you have to have salespeople that can understand the customer’s need, articulate the solution.
I also find customers respond exceedingly well to companies that can educate and teach them new ways of doing things. So I think it’s important to have a brand and a vision that shows you as a leader in the market. Because when you combine that with being able to solve the customer’s problem, the customer starts to look at you as a trusted partner. It sounds very cliched, but I can tell you from having lived it, it’s very true. And so the initial sale to us in a SaaS situation is all about establishing that value contract. What is the value that the customer is going to see? Whether it’s operational metrics, financial metrics, what is the time to value?
When you think of a buyer, that’s really all they’re interested in. They don’t care about your features, they don’t care about the color of your shirt, they don’t care about the name of your company. That’s really what they’re buying. So the better you can articulate that as a sales team, the better off you’re going to be. But honestly, when you’ve done all that, you’re still at the starting point. I mean the greatest churn happens in those first few months after you’ve sold something because you haven’t delivered on that promise. So once you sell something, you have to deliver that value contract. That’s really the first key milestone towards achievement retention. That’s, you know, essentially was, was our experience. So in the early days we will put together a sales team, get very excited about selling deals, and then we didn’t focus on onboarding, we didn’t focus on customer success. And so we ended up losing a lot of customers because even though the promise was exciting, there was nothing that came around and actualize that promise.
So we started getting better with that and fulfilling that value contract. And when you fulfill that value contract, you are saying, here’s the value I promised you, here’s the value you got. And now what you’ve done is you’ve built a champion inside the customer. And a lot of companies talk about a virality in their business models. And I think external virality is a great thing. And I think there’s a lot of successful companies that use the combination of freemium and external virality to rapidly expand their business. But because we built our business around land, expand, and explode, we believe a lot in internal virality because when one department, one group really starts to like a solution, people talk at the water cooler. And by definition, other people are going to want something that works for someone else in the business.
So we started to build champions. These champions are internal references. Of course, they could be external references as well. What are the key ingredients of going from land, expand, and delivering that value contract? It’s the product experience being superior. I believe that in SaaS because the buyer is so smart and because services are available, people can try it, people can read reviews, I think the product experience has got to be really solid. You could sell them a great bill of goods, but if the product experience does not support that sale and it doesn’t support the delivery of value, it’s too bad. I mean you’re off to a huge disadvantage.
The second piece that’s very critical to us was that onboarding experience. Like I said, in the early days, we would focus a lot on selling and not onboarding. I find enterprise software to be fairly sophisticated in the sense that even though the use case you serve or the needs you serve might be fairly simple.
I believe that every company is different, every business function’s different. They have different workflows. How they deploy your software can vary a lot. So I think having a great onboarding experience, whatever you call it, you may call it customer success, you may call it professional services, you may call it consulting, doesn’t matter. It’s how do you take the promise you’ve promised and make that actual? How do you get their users adopting the solution? So we measure adoption, and we measure adoption three months from sale, six months from sale, nine months from sale. If you’re not 85% or so consumed of the services that you purchased, then we got alarm bells going off and trying to figure out how to rectify that situation because we know that’s a churn that is going to happen. It’s just a matter of time. It’s not a question of if, it’s a question of when. So onboarding experience is very important.
The other thing I find about enterprise software is that stuff happens. Customers end up in situations where unknowns occur and their business and your business, how do you respond to those? So I don’t think it’s a robotic process where you have a product, you have a repeatable onboarding experience, there’s about 5% or 10% variation from customer to customer, and you as a company have to be really good at addressing that. If you do those things and you can make that land successful, then I think you’ve moved that needle further down the curve, and your customer now will proactively start looking for ways to give you more business. I mean we saw that. We would organically get customers coming in and buying additional services, deploying more users, saying, “Oh, this other department’s really interested in what you’re doing. We want to go in and deploy that department next.”
So expand to us starts to move down that curve, and the divergence starts to occur, and it all starts with a successful land and a successful product and onboarding experience. While the expand is exciting, the explode to us is really kind of the fulfillment of our vision and the maximum achievement of value. But you have to go through the step before you can get there in terms of deploying the product. So let’s talk about explode because to us, a successful explode is possible when that reliability of product and customer experience continues and the customer is continuing to accrue value, whether it’s by adding more use cases, it’s adding more users, whatever their situation might be. But in our world, the explode was a big decision that the customer had to make. It wasn’t an easy decision. It wasn’t incremental.
The dollar spent when you go and standardize a solution like Egnyte across the entire company had to go up to the c-levels for funding. It probably needed IT committee or technology committee to bless it. It required multiple stakeholders to bless it. So it wasn’t sort of typical SaaS buying, it was more typical enterprise buying. So notice the shift from when you land, you’re kind of dealing with someone who might be having a credit card and the department going out and doing stuff, but when you start moving closer to explode, you have to shift the game a little bit because you’re starting to deal with more classic enterprise buying kind of behavior. So we felt that there were three key things that mattered in our success for explode.
First, continued education. I talked about this at the beginning. If you can’t show your customer where they are able to grow their business in unique ways, then I think you’re just being a technology provider. You’re really not being a partner. Do you have unique insights into their industry? For example, if you’re serving financial services, are there some new regulatory needs that are coming out in the market that you can help them achieve two years ahead of their competitors? That’s a great example of where you’re educating your customers and taking a lead in terms of industry presence and alignment. Let’s face it, people compare and want to keep up with the Joneses, right? So CIOs in every company want to know what their competitors are doing, what their peers are doing. And so this is where industry alignment mattered.
We started to set up industry groups and forums and bringing like-minded CIOs together from the same industry and they would feed off of each other. So obviously, it helped us allow in terms of our roadmap, but more importantly, it gave these buyers a sense of confidence that they were investing together in this company called Egnyte. And not that they were, you know, each one was sort of taking a risk. So at some level, we were helping mitigate the risk of the buyer because there was a sense of community in the way that they were investing in this technology. So all these construction, CIOs would talk to each other, they’d go, “Oh, hey, are you doing the same thing? Are you doing the same thing?” And that helped our cause.
And ultimately, you know, our DNA has been very much partnership and alignment with the customer. And I felt that for these big deals, the executive alignment matters a lot because ultimately people buy from people. You know when there’s a problem and your tech support, even though it’s 24/7 and you’ve got emails and phone calls, it doesn’t solve the problem. Who are they going to call? They want to call the leadership of the company.
I’ll give you a great example. When some of the ransomware attacks happened a few years back, thankfully we were able to ensure that none of our customers were affected because of just the security of our cloud operations. Not a single one of our customers paid a ransom. But I woke up one Saturday morning and I had six emails from six different CIOs, on Saturday morning, asking if their data was safe and if they had been impacted. To me, that accessibility is important when you’re doing larger deals and you’re going from a small land to a large explode. So that that transition is super important.
So if these elements align, we found that we were able to achieve 100% use case coverage and license every employee in the company. And that to us was a huge win because at that point Egnyte was the standard solution across the company and our definition of explode had been met. What does that mean for the customer? You’re all the way up there in terms of value attainment. So when you’ve got a department or one or two use cases being served, you’re kind of somewhere along that curve. It’s a little hard to say where you are, you’re just somewhere along that curve.
But with Egnyte, when you end up deploying it across the company and you solve multiple use cases and you end up deploying across all of your employees, specific to our solution and these use cases, the value attainment was so significant that we would be able to drop the cost of ownership of the customer’s environment in terms of their data center cost, in terms of their security, their governance, all of those key metrics financially and operationally were things we could impact. But it took a while to get there. It wasn’t an overnight journey. It wasn’t quick and nobody walks in opening up their wallets and saying, “I’m going to spend hundreds of thousands of dollars or millions of dollars on this software upfront.” You’ve got to prove your way to it, and land, expand, and explode was essentially our way of doing that.
With that said, I want to support this with an example. I want to give you guys an example of how this has played out sort of in real life. One of my favorite stories is that of a construction company called Balfour Beatty. This is actually their North American operations. There are about 3,000 employees. They do about $4 billion in revenue from construction. They build airports, highways, hospitals, theme parks. So they are a general purpose construction company.
A few years back, one project team from this company knocked on our door. They were trying to solve a specific problem for one project, and this project happened to be the renovation of Dallas Fort Worth airport. They were reconstructing some things on terminals A and C, and they were having a lot of issues with accessing their files in a performant manner. Otherwise, they were having to print paper. And the cost of printing that paper would’ve been fairly significant, millions of dollars because this is a project that ran about five years, and involved a lot of paper in terms of the blueprints that needed to be worked on.
When they came to us, we were able to outfit this particular project team, so it was a decision made by a project IT manager without the involvement of corporate IT. So CIO is not involved in his buying decision. So they fished out their credit card, put it on the project budget, implemented the solution. They ran it for almost a year and a half or two. And they were very pleased with the results. As you could see here, we delivered a solution to them that cut their printing costs just dramatically. So again, the point I’m trying to make here is localized decision delivered value and a key outcome around operational or financial savings. So a lot of lead time reduction and about $5 million in savings. That’s what they cared about. They didn’t care about the features and functions in our software.
However, this success was replicated very quickly because of this concept of internal vitality. Because these project managers, they hang out together at the water cooler, at the bar, when they go back to the office. And so they started talking to each other and this success spread to 12 other projects. And honestly between the land and the expand, we did hardly anything. This pretty much happened on its own. And so new projects would just surface and go, “Hey, we want this too.” And another project manager would go ahead and do this. At this time still there’s no involvement from corporate IT. And all along this way, we were starting to get smarter as a SaaS company and corporate IT was starting to take notice, but we decided to take sort of grab the bull by its horns and approach the CIO and said, “Look, you’ve got 12-13 projects running this, you’ve got lots of competitive solutions, you’ve got all these other areas we can impact, it absolutely makes no sense for you to have these multiple solutions. Well, you really should look into standardizing on Egnyte.” And of course, that wasn’t a simple overnight decision, but it took several months to get to that process. But then they ultimately ended up deploying Egnyte company-wide. And so it was a finally a CIO level decision.
So look at that example that I pointed out earlier where you switched from a local buyer who was a department or line of business buyer, moving all the way up to a c-level buyer. This is far more of an enterprise level decision. You had security folks involved, you had other folks involved. They had to construct the business value of going company-wide. And ultimately, we ended up eliminating all of the other competitor products and we got 100% penetration of the use cases as well as the addressable market within the company, which was 3,000 employees at the time. They have, of course grown since then, consumed additional products and services that Egnyte provides. And seven years on, this customer is still with us, and they come back and renew for about three years at a time every time they come back for a renewal.
So to me, this is a great example and we’ve got lots of lots of examples like this. And of course I would be remiss if I said that any of this was cooked overnight. It took a lot of mistakes. It took a lot of figuring out to get to this point, but for us, land, expand, and explode. Really that’s the end game of that strategy.
I know I got about two minutes or so here, so I’ll conclude this session just by talking about the fact that in SaaS it’s all about building customer value and retaining your customers through that value. If you can’t do that, you’re not going to exist as a SaaS company. You can keep selling upfront, but if you’re not going to successfully onboard, retain, and grow customers, and all of those costs don’t align at the end of the day, then you don’t have a SaaS company. You may have a different kind of company, but not a SaaS company.
So to us, this catch phrase, Land, Expand, and Explode was just an internal battle cry. I mean it just sort of ended up becoming the strategy for how we would grow customers. And it was about building mutual value. It’s not about us doing something self-serving, but both the customer wins and the provider wins in the process.
And lastly, as you could see from the discussion, there wasn’t like one big thing. It’s a lot of little things coming together. It was the product, it was the customer success and the onboarding experience, it was technical support, it was finance willing to work with the business in terms of understanding the cost and understanding that retention and customer life cycle was a long process. It wasn’t about getting big deals up front. So it’s a big shift in mindset and the way you think about your business. And we’re very pleased with the results. And of course, we continue to tweak and refine that. So that is sort of my last slide, and that’s kind of my key takeaway message. And we’ve got about a minute left. But I think at this point, I want to thank all of you for listening and if you have any thoughts or questions or would like to brainstorm or discuss any things, my contact information is over there. So thank you again.