Will 'Open The Door' For Customer Success Startups Like Gainsight

Posted: Feb 19 2014, 12:31pm CST | by , Updated: Feb 19 2014, 10:31pm CST, in Technology News


This story may contain affiliate links. Will 'Open The Door' For Customer Success Startups Like Gainsight

Gainsight is a company that fights churn. It does that by helping its clients like Adobe, Box and EMC keep tabs on their own existing customers. Know how happy a company is with your software and you can make sure they don’t discontinue their service out of misunderstanding or neglect. And happy customers are more likely to buy more products or services on top of what they already pay.

That model helped Gainsight, which rebranded early last year and took on Nick Mehta as CEO, to gain customers like Box and Adobe, as well as to raise $20 million in November on top of a Series A just months before., however, is now the biggest player backing what Mehta is trying to do.

Gainsight has been a Salesforce partner for months, one of hundreds the company supports within the broader CRM ecosystem. But that relationship has deepened since the summer, when Mehta sent a team to spend time with Salesforce’s own internal customer success staff.

That led to Salesforce tacking on at the end of Gainsight’s fundraising, what was likely up to, but not more than, a couple million dollars, to prove its faith in Mehta’s team.

“You want to prove your company is valuable in the future, but I like to be level-headed about the impact of news,” Mehta says. “Salesforce invests in a lot of companies. But it gives you a little credibility with the field.”

How it works to be a promising minnow in Marc Benioff’s pond: you assign a staffer to focus on business development that can be done alongside the massive partner. You go to the partner’s industry event—in this case Dreamforce—and you wave the flag as much as you can. You play ball by being a customer, too: Gainsight is going to be using Salesforce’s Heroku1 platform internally. And then you sell as hard as you can with the Salesforce logo at your back.

Customer success and analytics are areas of priority to Salesforce right now, as Benioff himself confirmed in a meeting with reporters last month. Last year, Salesforce aggressively purchased cross-channel marketer ExactTarget for $2.5 billion, while SAP responded by dropping $1.5 billion on competitor Responsys.

Could customer success companies be the next wave of sales? Speaking to reporters last month, Benioff suggested that the market was still too early there for a sweep of acquisitions. Mehta agrees. “There’s a phase where you can buy a small company where you are just technology and people, but Gainsight is way past that stage. You’ve pitched investors, you believe yourself that you are worth all this money, you just don’t have the business yet.”

Those deals often don’t work, Mehta says, if the company isn’t mature enough to handle an acquisition. As for Gainsight, Mehta says he’s already sold a company and doesn’t want to do so again. “[Selling] is great but it leaves you longing for more,” the CEO says about hopes for an eventual public offering.

So that means that Gainsight and a crop of others are still in the stage of big ambitions, small revenues. Gainsight’s grown Q4 revenue 560% from 2012 to 2013, but we are still talking a couple million dollars, not a profitable or as-yet significant stream of cash.

The key for founders within the enterprise space right now, Mehta argues, is to know your practical trajectory. There are some who can take on $1 million per year customers, like Workday. Others like Marketo can charge $20,000 or so in the mid-market. But it’s tough to see $100 million annual revenues in the future for those who only get a couple thousand yearly per client. (Mehta would put Gainsight in the second category.)

“This is stilla new market, a new category,” says Mehta. Salesforce’s recognition, however, is a sign that 2014 could be a year of significant growth for the entire field.

“It opens the door slightly” to large customers, Gainsight’s CEO says. “The door’s not locked anymore.”

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Source: Forbes

This story may contain affiliate links.


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