Forecasting leaky buckets is super-helpful whether you’re adding new users to your mobile app or new customers to your SaaS startup. In this episode of Retention Masterclass, Peggy Anne Salz and John Koetsier chat with Lift founder and CEO Dan Hestbaek.
He works with companies in 90 countries to reduce church by an average of 30% and is able to predict church with astounding accuracy. But NPS is not a great measure, according to Dan.
We chat about why … the signs of churn … the causes … the solutions … and how to stop churn before it even starts.
Scroll down for full audio, video, and a transcript of our conversation.
Listen: why NPS is narcissistic
Watch: Achieving 95% accuracy in predicting churn
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Read: NPS, churn, and B2B retention (plus some lessons for mobile marketers)
(This transcript has been lightly edited for length and clarity).
John Koetsier: Can you achieve 96% accuracy in predicting churn? Hello and welcome to Retention Masterclass. My name is John Koetsier.
Peggy Anne Salz: And my name is Peggy Anne Salz. We’re your co-hosts for today’s show.
John Koetsier: Today we’re doing something a little different. Typically, of course, we’re talking about mobile, we’re talking about user acquisition, we’re talking about retention of mobile users in mobile apps. Today we’re going a little bit B2B.
Peggy Anne Salz: Yeah, because you know, it’s important. First of all, my favorite comment about that is: ‘business people are people too.’ But that’s not the only thing—
John Koetsier: Are they?
Peggy Anne Salz: I don’t know, this is a different show I think. But, it really is important because in these times — I hate to say it, ‘in these times,’ but it’s the truth — you know, companies are relying on guidance to sort of navigate out there and understand/predict profitability, retention.
And they have to understand that they are relying on metrics that are real and not — as our guest will tell you in a moment, perhaps, John — bogus, which is my favorite word left over from our great interview with Reforge. That’s it, you know, metrics are bogus.
John Koetsier: Bogus!
Peggy Anne Salz: Bogus metrics, absolutely.
John Koetsier: That’s so — I don’t even know if that’s eighties or nineties anymore, but I mean, yeah, bogus — I mean, that is really, that is back awhile. So to get the scoop, we are chatting with one of the founders of Lift. And of course, when I saw Lift and Peggy was sharing some of the show notes for me, we’re having a guest from Lift. I was like ‘Lyft?!’ and no, not that Lyft. A much more important Lift, a Lift that’s spelled a little differently than that Lyft. Not the Uber-type Lyft, a different type of Lift.
Peggy Anne Salz: But one you’ll probably be hearing about, John. I have a feeling, because you know, B2B, this is a space. There’s a lot of discussion about what are the north star metrics. We’re going to hear about it, right? Our company is Lift Relations and our guest is the CEO. He’s Dan Hestbaek, and I’m looking forward to this because it’s our first real dive into the enterprise world and all of these issues. So, great to have you here on Retention Masterclass!
Dan Hestbaek: Thank you guys. Real pleasure, for having me. Thanks, appreciate it.
John Koetsier: Awesome, and we’re super serious on this show, so no jokes, please. I mean, just seriously, you know … just joking. Welcome, Dan! Super happy to have you here.
Dan Hestbaek: Thank you, likewise.
John Koetsier: Let’s start right here: one of the things that you talk about is prediction. And you predict retention — predict retention of users, predict retention of customers, and you talk about being able to get 95% accurate prediction. How do you get that?
Dan Hestbaek: Well, you could argue first and foremost, is it even important to predict 95% accurate or not? I mean, if you can just predict in any form, whether something is at risk or at opportunity, right, then that’s a direction in itself that’s important. For many years that’s been sufficient, right? Is something red, amber, or green when you look at that from a dashboard perspective, ie: risk or not? 95% or other numbers are important once you start looking at predictions and linking that into your finance numbers, right?
So if you’re managing a plethora of clients across your enterprise organization the accuracy of predictions are important, because you are forecasting them and linking them into finance. And how do you get there? Of course it’s a combination of different things. At its time, you would do it through research or CSAT, or even NPS would be something that companies would use. But something that we’ve done to do more and more relevant predictions is to apply machine learning and AI. That’s something we’ve been working with since we commenced the business six years ago. And that’s, of course, something that fine-tunes your predictions even more so on the back of a thorough, well-proven methodology.
Now 95% that’s where we are today, it’s based on 1.4 billion data points. The more data points we have the better, and the more accurate we can predict. So, hopefully soon we’ll get to 96 and above. But that’s all about getting more data, right?
John Koetsier: Can you talk just briefly about what kind of data points you’re looking at?
Dan Hestbaek: Yeah. So at its core it’s relatively simple, you could say.
We look at client engagement — and don’t forget, we’re in the B2B space here. We look at how engaged are our buyers; the client in this case, of us as a vendor. What do they think of us? What do they feel of us as a vendor? But at the same time, on the other side, we actually also look at the employees within our organization that services those clients. What do they think and feel about servicing that client?
We don’t look at employee engagement, that’s a completely different thing. We look at their engagement into working and servicing that client. And those two data points are the foundation actually, to truly understand what’s the relationship looking like. Because truly a relationship in most instances, consists of minimum two parties. And that’s what it does in B2B as well, it consists of a client as well as a team servicing those two parties. Now what we do behind all of that is, of course, we go in and track a couple of different drivers or dimensions.
We look at how that progresses. We look at semantic analysis. There are a couple of different things that play into this. We even take third-party scrape data as part of weighting into these predictions of the individuals within the client organization.
John Koetsier: Very cool. And I know, Peggy, you’re going to ask about some of the background. It’s funny, I mean the two parties that you mentioned … I don’t know if you heard about the Kazakhstan weightlifter who just announced he’s marrying his doll. So there seems to be one there, but I generally agree with you.
Dan Hestbaek: Normally a relationship of one, we call that something else.
John Koetsier: Yes we do …
Dan Hestbaek: But that’s maybe for another show.
Peggy Anne Salz: John, I’m wondering what you read. [laughter] Just going to leave it there.
John Koetsier: Yes. Thank you.
Peggy Anne Salz: You’re welcome. But I did want to understand before I get into the whole idea of the retention, I just want to be very clear, you know, what can I do with this in a B2B scenario? I understand that there’s a retention mechanic, but what is it actually really allowing the B2B client to do?
Dan Hestbaek: I think that’s a great question. I mean, what we often tend to say, and keeping it a little bit simple, is it’s a little bit like having a weather forecast, right?
So imagine you have a weather forecast today and you’re going to put the right clothes on today. You wouldn’t look at what the weather was like the past week, right? You would look at what’s the weather like today or tomorrow when you’re going to go out into the woods wearing the right kind of gear, right? Well, it’s going to be thunderstorm and rain, or if it’s going to be really sunny.
It’s in a similar way, managing your businesses in B2B is very much about the now and the future. It’s not about the past necessarily. And the majority of systems out there are past-oriented, right? If you look at CSAT and NPS, that’s all about the past and not about the future.
So if you’re past-oriented then that works. If you’re future-oriented and running your businesses the next quarter, or the next six months, or also for the long term, then it’s much more relevant to work with predictions and forecasts. That’s when it becomes really applicable. And it’s also something where, when you tie it more into the business, ie: the finance stuff that I was talking about before, that’s when it’s relevant. If you keep it more as an occupational therapy as a check-off, we just asked our clients, we understand a little bit on that, then the other systems may work sufficiently fine.
Peggy Anne Salz: So where’s the jump to being a retention expert? Where did that start?
Dan Hestbaek: You mean for me as an individual?
Peggy Anne Salz: Yeah, as well.
Dan Hestbaek: I mean, yeah—
Peggy Anne Salz: You founded your company, so—
Dan Hestbaek: Yeah, I’ve been an entrepreneur for 17 years and I’m three businesses down the line. This is the third one I started, six years ago.
And every single business has been obsessed with customer experience and understanding everything related between buyer and vendor, and how that can be either optimized, or sourced better, or more transparently understood how that brings more value.
I guess, I mean the terminology ‘expert’ — which a number of people would call themselves — I don’t think I would call myself that, but that probably first came to life once we started moving the needle for some of our clients. I mean truly going in and making a difference for large enterprise companies, saving them millions of dollars on reducing their churn and their attrition rates, and actually enabling them to retain and grow client relationships, you know, I’m fortunate that I’m spearheading a company that does that. So I’m not so sure that it’s me who’s the expert, but I’m spearheading a company who are experts within that field, certainly.
Peggy Anne Salz: Okay. You’re not just an expert, however, you’re also a critic, Dan. You’re very critical of NPS. You’re not the only one, ’cause I’m reading tons of literature since connecting with you. It’s like, guess what? There are a lot of people who are not fond of NPS. But that’s in B2C mostly, we’re talking B2B. So I just want to unpack this and understand what the flaw is. One flaw that you’ve talked about, I can see it totally. You don’t want to look back, you want to look into the future. But what else are you thinking about here? What are the — I wouldn’t say the downfall — I mean, the shortcomings of NPS in the B2B space?
Dan Hestbaek: Yeah. It’s interesting because, I mean, I have some personal opinions on it, but I’d like to support it a little bit with data around this field. Because we’ve been tracking NPS the past six years on behalf of our clients as a sideway thing as well.
When I actually started this company, it was in the backdrop of the previous company where I was seeing that the traditional systems, including NPS an almost 20-year-old system launched in 2003, it was just not the right thing that was moving the needle for clients. But what we did was we had personal opinions, me and my co-founder, but we didn’t have the data to back up whether there was other ways to do that better. So we’ve in parallel, tracked both NPS as well as a number of other drivers that we believed in. And we’ve been fine-tuning that the past six years on what truly drives client engagement.
What retains a client? And what grows a client? You can’t grow a client if you can’t retain it, right? And NPS has a number of flaws the way that we see it within the B2B wall. That’s important for me to state. That’s where we have the data. That’s where we have the knowledge and experience.
And one of the key components, I think, is first and foremost it’s a quite narcissistic system, right? NPS, because it’s not about me as a client and my pains, whether they’re being solved. It’s about me unpromptedly promoting you as a vendor, right?
And I think that inherently is flawed.
I believed that personally, but when we were looking into the data sets, we could see that typically decision-makers would be asked this question and they would rate it relatively high. As a matter of fact, an average NPS rates 22% higher than any other driver when clients are churning.
And why is that? That is often because the buyer is not evaluating the vendor, but they’re evaluating their own choice of vendor.
Would they recommend that vendor? Yes they would, because they’ve selected that vendor themselves … up until the day where that vendor doesn’t fit into delivering towards the needs that my organization and my people have. So thereby, we could see it’s a quite inflated rating. That’s one part.
The other part, which is the really flawed part I think in B2B — and I think actually Bain who invented it themselves have been talking about this — is that NPS focuses on participation. The people who participate, that brings us out a score on [the] health of our organization. But the reality is that in B2B, on average, we’ll have maybe 60% response rate when we ask a client organization or teams that service them. So thereby, 40% of people who get invited to ask about us will not have a say.
Now when we dug into this data set, we could see that really disgruntled clients who participated, of those 60% … 25% of those would churn. But of the 40% that didn’t participate, 40% of those would churn.
John Koetsier: Wow.
Dan Hestbaek: What does this mean?
That means that the highest level of churn resides in disloyal and illoyal non-participators, and NPS does not calculate that in. NPS only uses participation, and the lower the response rate is, the higher your NPS score is. So if you’re directing and steering your business with NPS at your helmet, you’re actually deluding yourself of what’s really going on in your business.
John Koetsier: That’s really, really interesting and kind of amazing too. I mean, there’s a lot of psychology in there, right? Confirmation bias: I selected the company, I selected this vendor, so therefore they’re great, and therefore I’ll talk about them. And then just the avoidant as well, on the other side.
Peggy Anne Salz: We see that in election polls.
John Koetsier: Ahh, do we? [crosstalk] Is this relevant 🙂
Peggy Anne Salz: I was just thinking that the whole time, I was like—
John Koetsier: Okay, yeah, haha.
Peggy Anne Salz: Yeah. I think so, you know, do people — did you vote for him? ‘Oh no, never.’ But they do. So I get it, absolutely.
Dan Hestbaek: That’s another part, right? It’s very intention-based, right?
Peggy Anne Salz: Yeah.
Dan Hestbaek: And we all know intentions are, they are just that, right? Quite often when we look at intentions versus reality, there is a big discrepancy.
John Koetsier: Yes. Yes. So let’s dive in. You do this — you’re very European in your lack of pride, very humble. It’s a wonderful thing, very different than many of the Silicon Valley entrepreneurs that we interview. You run a company, you’re very successful, you’re doing this in 90 countries, you’re doing this for major companies — and yet hesitate to call yourself an expert. But, we’ll accept you as one, regardless of that. In any case, you’re doing this in a lot of places. What are the signs of churn that you’re seeing? Perhaps some of the obvious signs, but perhaps some of the not-so-obvious signs as well.
Dan Hestbaek: I think actually the area that I was just talking about is important to dwell upon, this thing about participation and non-participation.
It’s very often the obvious that we will look at very disgruntled people. Those are the ones that are at risk, right?
So we focus and put our attention towards that — and we should. We should have a system in place for that. But we should also be aware of the silent, right? The non-participating, and that’s the not-so-obvious one, I would say.
The other thing is, if we’re looking at more cultural factors, right?
NPS is a very Western system, right, about recommendation as an example. That would never work in China. As a matter of fact, you see less than 5% response rates in B2B in China when you drive NPS, which is a very emotional recommendation side, right? Whereas, if you ask about much more rational elements in China, you will understand much more the engagement level there. So I think there are some cultural factors playing in here as well. The same goes for Korea, as an example.
So obvious versus not-so-obvious, I think there are methodology things, but then there are also some things related to culture.
Peggy Anne Salz: I’d have never thought of that, but that’s true, you know, it’s that thankful culture. You’re very understated, so to say, would you recommend that sort of really putting yourself out there, which I could see wouldn’t work in many cultures or just wouldn’t be the way you would say it, it would be based on capabilities—
Dan Hestbaek: Correct.
Peggy Anne Salz: Not on recommendation, not on emotion.
Dan Hestbaek: Yeah. Things that they perceive as facts like, you know, so it could be things related to how is our chemistry? How — I mean, they can have a subjective opinion on that that may not be correct, but they can have an opinion that’s strong on that.
How are my capabilities? Are we proactive? Are we competitive? And so forth, other elements where you can sort of warm them up and understand even better. And those kinds of cultural nuances give you the opportunity to harvest that data and build predictions.
Peggy Anne Salz: Great. So I’d like to run with the data. So, you do the data, you do the math rather, you bring it all together. You know, you’ve done the prediction, understood what the lurkers were thinking, and everyone is accounted for. What do you do now? You found out that someone, a specific customer is liable to churn. What’s the next step?
Dan Hestbaek: Well, I really think that depends on how well prepared you are. I see this quite often. It’s a little bit like martial arts, right? I mean, if you don’t expect that people are going to attack you, you missed the point of martial art. In martial arts, you know someone will attack you, so it’s all about how well-prepared are you for that, right?
Peggy Anne Salz: Mm-hmm.
Dan Hestbaek: And it’s in a similar way with here. Organizations that are well-prepared can quickly absorb information and build an action plan towards that, and deliver into that systemically — those are the ones that will thrive the most.
But the interesting part here, Peggy, is actually that we’re in a world where we’re used to instant feedback, but actually we’re not used to instant responses, right? And at its time, we would always talk about, hey, think about it a little bit. I mean, don’t act immediately heated, hot-headed or whatever, right?
But this is one of the values I think that AI can bring into the play around predictions. Because the participant who shares feedback — and we all know this when we share it on LinkedIn or Facebook or whatever, even in the consumer world — we expect that to be part of the reality that we’re part of. The reality in the world we live in should encompass that feedback, and it should be responded towards that. So what companies that are smart, who have systems in place and maybe even supported by some sort of AI, they will have response systems in play — like the martial arts person, who can then play directly into that — they may not solve the problem immediately, but they will manage it certainly, very well.
And I think forward-looking companies, they’re thinking about being ready for these kinds of actions to be taken, being proactive rather than reactive.
John Koetsier: That’s a really good segue because where I wanted to go is the churn that doesn’t happen, right? The best churn is the churn that never even starts to be at risk for churn, right? What’s the key there, besides the obvious, right? I mean, obviously everybody knows you’ve got to fill a need, you have to have a great product, that sort of thing, all the sort of default stuff which frankly often doesn’t happen. But what are some of the keys to getting rid of the risk of churn?
Dan Hestbaek: Yeah, I think that’s another great question, John. I appreciate that. I think that within the space that we operate in as a SaaS company and a lot of other businesses as well, they’re super product-focused, right?
Product is the new marketing. We’ve heard this before.
And I think that’s potentially a challenge as a company to think in that way. I think the way that you can diminish risk is by understanding the client’s pain points and delivering into that even more so. Understanding how competitive you are versus the marketplace. Understanding whether you are growing with that client relationship or if you are stagnating, because if you’re stagnating, you’re actually almost losing a little bit.
I think if you operate with a mindset that there is no risk, then you missed the point. There’s always risk in every relationship, from, you know, in our personal relationships, to business-to-business relationships.
But it’s about understanding what’s the level of that risk and working towards managing that level of risk. And low churn in my world comes from understanding the client, understanding their pain points, delivering into that, being competitive, and building solid ROI around that.
Now, if product is a part of that mix to solve any of those steps, that’s just great. And it should be, of course, but I don’t think that product is the one that leads it to reducing churn. Because if that’s the case, products are becoming more and more commoditized, right. And we’d have to be aware of this, so it’s challenging if we rely only on product.
Peggy Anne Salz: That’s a great segue, because I always look at experience. I’m very focused on that because I believe that that’s very critical. It’s critical to long-term success. It’s critical to retention. It’s about human-ness and I’m seeing it, hearing it all the time.
So, part of that experience is with the employees, the customer-facing employees. You know, how loyal or engaged, or how much I love or want to recommend your product or service, may be linked to my engagement with your employee — not with your product. So how do we factor that into the equation, Dan?
Dan Hestbaek: Great question again. I mean, at its time, I think it was in Harvard Business Review, there was this report about the service profit chain where they were sort of theoretically talking about the connectivity between employee engagement and profits, right?
If you have happy employees, you get great products. If you get great products, you get happy clients. If you get happy clients, you get higher profits. And it was like an inwards out process.
We built the data behind that, that now talks about the profitability on connecting client and team engagement. And there is a direct correlation now that we understand, specifically, if you have a very engaged client but you have a very disengaged team servicing that client. We can now see that if that’s the case, a ‘green client’ we call it and a ‘red team’ — basically a risky team and a very happy client — within three to four months, based on data we can see that the client will start dropping into the amber or in the red zone.
So teams become an early indicator warning of the progress of a client. So, if you’re so focused on only one side of the coin of the relationship, ie: only the client, you’re missing what truly a client relationship is all about today. And then you could argue isn’t this only for professional services at its time? Well, if you look at the investment levels that’s happening on executive business reviews, quarterly business reviews, even within SaaS companies on enterprise level, there is a massive glue now being built between buyers and sellers, even within the technology space.
So there is a big effect between understanding clients, of course, but actually also the teams that service those clients.
John Koetsier: Really interesting. So, of course you’re mostly SaaS, not exclusively, but mostly. And we mostly talk about mobile and in a couple ways they’re pretty similar, right? No matter how fast you fill the funnel at the top, if the bucket’s leaky you’re pretty much screwed, right? So if someone has a big churn problem, what are the most important things to do first?
Dan Hestbaek: I would, I mean depending on strategy and investors and all these kinds of things that can be — but if we look at it like theoretically, I think it’s very much about focusing on your existing clients and maybe cutting down on acquisition costs, right, and buying new.
And by the way, right now the market is, you know, retention is the new acquisition. Retention is the new growth engine.
John Koetsier: Didn’t we invent that phrase, Peggy? Come on. [crosstalk]
Peggy Anne Salz: I was going to say, John—
Dan Hestbaek: I’m sure you did. I mean, I’ll tell you this: I’ve been in this space for so many years when it was not sexy and now it is sexy. It’s like, it’s a peculiar thing, right? But to answer your question, I think, you know, looking at your existing client base and focusing on them, that’s where the leaky bucket is.
And I would probably reduce my acquisition costs significantly. And we see this happening now also in the world out there, right? But I would invest them into retaining better and growing better, right? So the whole ‘land, retain, and expand’ I think the retain and expansion, that’s where the focus is right now.
And you should be much more focused around the customer centricity and much more on the client side.
John Koetsier: That’s a great answer, because we recently had Nick Hobbs on the show. He’s a former Google product manager for the iOS app and their self-driving team, and he builds a very cool news subscription product. And they’re entirely focused on retention, they’re entirely focused on their current customers, they’re entirely focused on that. And the growth has been phenomenal, the growth has come.
But the other reason to do that is that you’re just throwing money away if you’re investing in acquisition [and] you haven’t solved retention, right? Rory Sutherland told us about that, right, Peggy? Probably 10 episodes ago.
Peggy Anne Salz: Absolutely. I was just thinking, just our last episode, you know, design with retention in mind. This is really becoming like the business mantra. That’s why we’re where we are, John, people want to hear this stuff.
And I want to leave this with like a bit of a stretch goal.
So let’s say everything happens, you know, you’re doing it right, you’re addressing retention, you are on your way to even becoming world-class at it, right? What is the next step? We’re saying retention is the new growth, but what is the next step to preparing for it, to actually actioning? I’d like to understand what you do once you think you are approaching that, and what the goal needs to be.
Dan Hestbaek: Yeah. Maybe I’m echoing a little bit what I was just talking about, but what we see now is that organic growth is a clear area that majority of enterprise companies are looking at, right? Not just in the professional services, but across the spectrum.
But how can you do organic growth? How can you grow existing client relationships?
That is by having world-class retention systems in place, right? So, I think the next goal after retention is actually growing those client relationships. And you could argue that that’s maybe even more an indicator of how likely it is that the client will stay there, ie: growing the basket size with you as a vendor. And I ought to share here, we’re focusing a lot on the vendor here and retention. And sometimes it’s a little bit like, you know, retention and the words towards clients and everything, but we forget sometimes that there is a reason that these clients they go to this vendor. They’re reaching out to this vendor to get help, to get support, to get their needs being met, right? So a client is actually equally interested in strategic important relationships to work.
But who should own the experience around service? Who should own the experience around client/vendor management?
Clearly it’s the service provider that should own the service experience. But the client also often goes to that service provider because they’re hoping that they can solve it. Like switching costs are so high for clients as well — we always talk about the vendor — but are so high for clients as well, that retention in the space between those two parties makes really, really good sense, I think. So having transparent, open conversations with your clients around why it is so important that you pan out that organization so that you can deliver better into them, quicker into them, is something that most forward-thinking clients should understand as well.
Peggy Anne Salz: This has been very interesting, Dan. Above all, it’s giving us a different perspective. As I said, you know, it’s about mobile, or we talk about ‘retention is the new growth,’ yes, John. But we talk about it from a different perspective, we’re always thinking B2C, but B2B is really enabling the enabler, if you will.
You know, it all happens if we’re all sort of on the same page. And therefore, it’s so critical to understand the relationship management in something like a B2B relationship, which I didn’t think about before, but now I’m thinking about differently. I think we’ll have more guests on, in this space as well, John.
John Koetsier: Could be, could be. Thank you so much, Dan, for being with us. It was a real pleasure.
Dan Hestbaek: You’re welcome. Thank you for your time, guys. Incredible questions.
John Koetsier: For everybody else, hey, thank you for joining us as well. You might’ve caught this live, that’s wonderful. We’re live on LinkedIn, we’re live on Twitter, we’re live on Facebook, we’re live in lots of places, including YouTube. And also later on, guess what? There’ll be a full transcript available on both our websites. If you love this podcast, guess what? Some of you probably listen on audio. In fact, a lot of you are listening on audio given our stats growth in the last few months. If you love it, hey, please rate it, review it. That’d be a massive help.
Peggy Anne Salz: Absolutely. And look for some articles, we write articles on the back of this.
John Koetsier: Do we?
Peggy Anne Salz: Yes we do indeed. And I think there’s one here as well, so stay tuned for that as well. And that’s a wrap. So until next time … keep well, keep safe. This is Peggy Anne Salz, signing off for Retention Masterclass.
John Koetsier: And I’m John Koetsier. Have a wonderful day.
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