I like to think that customer success is so important in the 0 to 1 because it revs the engine of growth. Not only do you find product market fit through it, but you also start that motion for growing your business. As soon as a founder lets the customer kinda slide out of their purview, that's a really dangerous thing. When we were scaling at Motive, it was a series of launches throughout our journey. You generally won't make it to becoming a $1,000,000,000 company on one product alone.
And so you're always testing and retesting your product market fit. Henry Ford famously said, if I had asked people what they wanted, they would have said faster horses. Are you in the Henry Ford camp regarding product market fit and discussing products with customers? Are you in the Steve Blank camp who started the lean startup movement and who advocates for constantly iterating and constantly testing with customers before releasing products?
You can go back and you can read, like, Apple's marketing philosophy from the very beginning, like, 1977. And, you know, the first word in that is empathy. You work and collaborate with Jason Lemkin. Tell me about your collaboration together. I've known Jason for a long time now. I've been part of his network for over 10 years now. You could probably go back in the vaults and find a podcast with me and Harry Stebbings when Harry was probably 16. Harry used to do Jason's SaaStr podcast for him.
So Jason and I have known each other for a long time. He's been really kind to me as I've started SuccessVP. He's probably one of the biggest proponents of customer success there ever was. And so we're collaborating actually this year at SaaStr. I host the world's largest meetup now for customer success. San Francisco customer success meetup is over 5,000 people now. We do events in New York City as well, and we're gonna combine forces. How do you get in the top deals?
And tell me about how you know that you're not being adversely selected. John, I've been really looking forward to chat. Welcome to 10X Capital podcast. Yeah. Thanks, David. I'm stoked. What was the impetus for starting SuccessVP? Yeah. So, you know, the insight for SuccessVP actually came from when I was investing with Index Ventures. So as an operator, I was a scout with Index. I led customer success at a company called Motive from less than $1,000,000 in ARR to over $300,000,000 in ARR.
As a scout with index, I noticed that I could win allocation in these really competitive deals. Founders were basically raising their hand to work with me, and the founders I was already working with were pulling me into the startups that their friends were starting. And so when I step back for a minute and I looked across that entire angel ecosystem, I noticed that there was no fund that existed that was investing with the value prop of customer success.
Nobody had seen the depth and breadth of scale and the function that I had, and that was incredibly compelling to entrepreneurs. And so, you know, the more I thought about that, the more that, like, kinda gnawed away at me. I just, like it sat in the pit of my belly, really, and I couldn't stop thinking about it. And so eventually, I left Motive, which is, you know, a really hard thing to do and started SuccessVP.
So SuccessVP helps founders with everything that comes after they get their first customer. Our LPs are, you know, some of the best and brightest customer success people in the world. We're talking, you know, GitHub, Slack, Notion, Aurora Solar, MuleSoft, monday.com, which is, you know, growing at 30% even as it approaches, you know, $1,000,000,000 in ARR. Yeah. We're there to help founders with what we call founder led customer success. Everything that comes after they get that first customer.
How does customer success actually lead to increased value in a start up? Let's zoom out for a second. Right? So, you know, the thing that I was gold on at Motive was net revenue retention. Right? NRR, it's one of the more important metrics in subscription businesses. So NRR is just like this incredible thing. I like to think of it almost as, like, the 7th wonder of the world. Right?
When you have NRR of a 120%, that's how the compounding piece of subscription businesses really starts to come together. So at the highest level, you know, it's just this incredible value creation function. At the earliest stages though of building companies, maybe what's not obvious is just how early customer success starts. Right? I would argue that you probably don't have product market fit unless those early customers are renewing. That starts the second you get a customer.
And so I like to think that customer success is so important in the 0 to 1 because it revs the engine or it revs the engine of growth. Not only do you find product market fit through it, but you also start that motion for growing your business. When we were talking, you mentioned that customer success starts to matter at the c stage. Why does it matter so early? Yeah. So we like to think of our product in really, like, 3 stages. Alright.
So stage number 1 is this concept that we have, and we call it founder led customer success. Right? It's the process where the founder is, you know, doing the sales and also supporting the customers. So early on in my career, you know, I was the first hire. I was hire number 1 at a company and went through that finding product market fit, doing the first sales, building the first sales team, and eventually, you know, found my way into customer success. The founders were like, hey, dude.
You're the figure it out guy. And so we're uniquely positioned to support founders with that early part of their journey, you know, starting the flywheel for the entire go to market motion. You probably don't get customer number 2 unless customer number 1 is really successful. You probably don't get, you know, customer number 3 unless the first two are reference calls. You know, it's those first three logos that go on your website. Right?
So really customer success starts this, you know, this engine of growth. So step number 1 is just supporting founders with that entire motion. What are some mistakes that top founders make when they build out their customer success function? Oh, man. There's so much nuance to that. I think, like, first and foremost, like, as soon as a founder lets the customer kind of slide out of their purview, that's a really dangerous thing. Right?
You know, one of the impetus for SuccessVP actually came through 2022 and into 2023. You know, I got a call from a lot of my friends in venture and and the the conversation went like this. Hey. You know, we've got this startup. It's experiencing some churn. Can you talk to the CEO? We think that, you know, maybe they've got a customer success problem.
And in a lot of cases, it had nothing to do actually with the leader, and it was more through the fact that they were starting to slide out a product market fit. You know, the founder had raised a lot of money. When you raise a lot of money, there's lots of other jobs that start to come up. And right before their eyes, they started to lose some of their product market fit. And the thing that, you know, founders really just have to create space for is being close to their customers.
The other thing though is, like, customer success is, you know, such a nuance function. You can almost break it into a series of funnels. Right? First, you have onboarding, which is one motion. You might have expansion, which is another function. Renewal, certainly, are a funnel. You know, it takes quite the leader to keep their finger on the pulse of all of those funnels. Right?
And so in a lot of cases, you know, customer success, you get the higher wrong because the breadth of things you need to do in that role is just so broad. And so I see a lot of folks fail with their customer success higher because they optimize maybe for the wrong funnel at the wrong time or they don't get somebody who can scale through as many stages of growth.
Is there frequent bias when hiring for customer success where somebody looks for an all around player versus hiring the best in class athlete for a specific customer success function? So let me tell you a story. So at Motive, like, we grew incredibly fast. At one point in my journey at Motive, we went from less than $1,000,000 in ARR to $60,000,000 in ARR in the span of 6 months. Right? Hypergrowth in the truest sense of the word.
And what you find is that because there's so many funnels in that function, onboarding, expansion, renewal, your team starts to break down. Right? Somebody cannot be great at onboarding, supporting, renewing, and expanding. Right? That's a really diverse skill set. And so you're right. Yeah. We you in order to have a successful customer success function, you have to have specialization on each of these roles.
And so in order for us to, like, you know, scale and serve our customers, what we ended up doing is we unbundled onboarding from the rest of the customer success motion. Right? Onboarding looks a little bit different than expansion and renewal. Using specific metrics, when the founder is looking at the continuum between sales and customer success, when does the founder know that it's time to increase sales, and when does the founder know that it's time to improve customer success?
So at every stage of growth, like, you wanna be really in tune with your customers, and you wanna be very honest with yourself as a founder. Right? I think, again, like, through 2022, 2023, you saw a lot of founders step on the gas, start to scale their selling team before I feel like in their bones, they they truly, you know, had product market fit. Right? Product market fit isn't, you know, a one and done thing.
You know, when we're scaling at Motive, it was a series of of launches throughout our journey. Right? You generally, you know, won't make it to becoming a $1,000,000,000 company on on one product alone. Right? And so you're always testing and retesting your product market fit. You gotta be honest with yourself on this. You have to stay close with your customers to ensure that, you know, you truly are delivering, on the value that you promised them.
And so, you know, churn is a a lagging indicator of that. Generally, like, you don't know that you have a problem until customers start to to churn or that metric really starts to go red once there's, like, a full fully fledged problem at hand. And so the only way that you can, you know, really assess that as a founder is just, like, staying close. It's through those ride along calls. It's through, you know, spending time with your customers, your VP of customer success.
I would say, you know, be hesitant before you throw that log on the fire. Really be honest with yourself. You know, if you see things like incongruencies or customers saying different things, you might wanna hit pause for for a second and and align there before adding more sellers. I'll tell you, you know, it's one thing to find product market fit when you're small, and it's a room of 10 people or a room of a 100 people.
But, you know, in a 1000 person organization or a 2000 person organization, you know, it gets pretty noisy. Right? And so, you really wanna be in tune. You really wanna have somebody who you can turn to in the organization, who is that voice of of the customer. I'll tell you a really cool story about this. A couple weeks ago, I was in New York and I hosted a dinner with Cassie Young at primary. She's a GP over there. And we had a room full of, you know, exceptional chief customer officers.
And, you know, one of the things that was really interesting was actually, like, how many leaders in this room had actually scaled through so many phases of growth. Tom Ronan at monday.com. I think he was, like, higher number 20. We had Spencer Burke who was higher number 2 at Braze. We had Jillian Burnett, CCO at mparticle. Right? She joined at series a. She's now CCO and, you know, a multibillion dollar company.
Anyways, you know, it's abnormal or it's like it's not normal for folks to stick at a company for for that long. Right? Most people in tech aren't gonna be at a company for 6, 7, 8 years like these people. And so when I asked them, like, hey, what's the secret to your longevity? There's actually a surprising answer, which was all of them just, like, felt so appreciated in their businesses.
Tom basically said to me, he's like, I think, you know, I think they keep me around at the senior leadership level because, you know, they can keep a Tom in the room. Like, I know our customers better than anybody else in in the organization. You know, Monday is growing incredibly fast though. They really value this connection to their customers, and that's been a secret to their their success. Henry Ford famously said, if I had asked people what they wanted, they would have said faster horses.
Are you in the Henry Ford camp regarding product market fit and discussing products with customers? Are you in the Steve Blank camp who started the lean startup movement and who advocates for constantly iterating and constantly testing with customers before releasing products? Yeah. I love this question. So I came to this wonderful world of startups actually through Steve Blank's course.
You know, I've been an entrepreneur my my entire life, but it was only, when I found my way into the the lean Canvas class that this whole world of software startups clicked with me. So I'm, you know, credit where credit's due. I'm a massive Steve Blank fan, and I, you know, I think it's incredibly important to be close to your customers, to learn with your customers at every step of the journey. The Henry Ford piece, you know, it's a little bit like the the Steve Jobs piece. Right?
We didn't know that we needed an iPad until Steve Jobs brought that to the world. And I think sometimes, like, people misunderstand, you know, the whole mantra of, you know, Steve Steve Jobs. Right? I actually think, like, Jobs was incredibly customer centric. Like, you can go back and you can read, like, Apple's marketing, philosophy from the very beginning, like, 1977. And, you know, the first word in that is empathy.
The quote is, like, we truly know our customers' needs, you know, better than the the competition. Right? That's incredibly centric. So I think you need to have that jobs like mantra. Like, you need to have a vision for how the world ought to be or what something should look like, but you also have to keep your customer front and center. Steve Jobs is known for spending hours observing how people, you know, interacted with the Apple Store in in Palo Alto.
And so I just think, like, the the jobs piece and the blank piece, they really actually go hand in hand. That's probably, like, the core thesis of SuccessVP. Right? I believe that, you know, founders who know their customers, learn about their customers at a greater pace than their competition are are the ones that are gonna win in the end. This world of AI, you know, we can build, we can write code at a faster pace than ever before.
And so really, like, the only mode the only way to stay relevant is to simply learn your customers at a more rapid pace than your competitors. Right? Shamant talks about this all the time. And we talk about this actually in in one of our, you know, prior calls, you know, the 80, 90 piece where, you know, you can now build the functionality of a competitor really, really quickly and deliver most of that value.
And so I think the value of customer success, the value of understanding your customers is probably more relevant than it's ever been as this pace of innovation only accelerates. 80 90 stands for 80% of the value for a 90 90% less cost. I think as we see the proliferation of of AI in product development, you could argue what becomes the value channel.
1 is distribution, of course, and the second one is customer intelligence and how do you deliver the right product and the nuances and the and the segmentation of the customer. When it comes to sales and customer success, why do you think customer success does not get as much attention in Silicon Valley? You know, I always joke that customer success is a little bit like being a hockey goalie. Right?
Nobody really pays attention to the goalie until a goal happens, until, you know, you get scored on, and now there's this big red light over your head. We celebrate scoring goals. We stand up and cheer when a goal is scored, And sales is a little bit like that. In a lot of cases, we take for granted that our customers are going to stick around. The value of customer success has really risen in in recent years.
And the reason for that is, like, it's not a given anymore that you're just gonna keep your your customers. It's not a given that you can just, you know, hire more salespeople to, you know, fill the leaky bucket. Customers falling out the bottom of that churn. Really through 2022 and 2023, we saw companies falling out of product market fit. And, you know, it's because they had lost touch with their existing install pace.
They had covered up for gaps in their product and problems that they were having by simply selling more, and you just can't do that anymore. The only way that you can efficiently grow is if you keep your existing customer. If you look at, you know, that proverbial hockey stick curve that every startup is after. It's actually a series of stacked things. It's your new sales, it's your retained customers, and it's the expansion. Sometimes we take that for granted.
It's only when it starts to go away that you really appreciate it. And so the reason we celebrate sales more is the same reason that we celebrate, you know, somebody who scores a goal. That's exciting. It's net new logo. We ring a gong for it.
But the backbone of a company, the thing that, you know, really makes a a company turnover compound, you know, that compounding value of a subscription business, it only comes from high net revenue retention, and that only comes when you have successful customers. So in some ways, like, it's, yeah, it's fun to be the hockey goalie. It's fun to be in the background.
But anybody in the know, anybody who really understands the fundamentals of how a subscription business operates knows just how important renewing successful customers are. Think it's also a function of the macro economy in a bull market where you have companies raising every 12, 18 months. There's more an incentive to get revenue at all costs. I would even call revenue that's not sticky a vanity metric of sorts where it looks good, but doesn't actually lead to long term value in the company.
And as you go into a bear market, you start to think, how do I build a business that's sustainable? How do I build a business that leads to profitability? And so I think it's also a function of the macro market. So let's talk about SuccessVP, the fund. So what is the thesis for the fund? The core of the thesis is that founders who understand their customers at, you know, a greater pace than their competitors are the ones that are ultimately gonna win.
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And tell me about how you know that you're not being adversely selected. Yeah. I love that question. So what we offer is so valuable to so many different types of companies. If you're a company, you have customers. If you have customers, you need to make them successful. The function that's gonna do that is, you know, is customer success. When I look across our LP base, we have VPs of customer success at, you know, every type of software business imaginable.
We've got folks at GitHub, Slack, MuleSoft, Notion, Aurora Solar. Right? We're we're covering everything from, you know, legal tech to Fintech to developer software, security, Motive and Mercado. Those are hardware enabled businesses. We've got Waymo, Dusty Robotics, right, hard tech solutions. So what we offer is really accretive to a wide variety of companies, and investors know that retention is really, really important. And so we tend to get tagged in to these incredible deals.
I'm looking over at my other monitor here, and there's an email from Gaurav Jain. Gaurav started a 4 Capital. It's one of the best pre seed funds out there. He he championed that term pre seed. And it's basically like, hey, dude. You know, this is the fastest company in our portfolio to ever reach $1,000,000 in ARR. They're looking for customer success help. Can I tag you in? Right? I'm getting emails like that every single day.
And so I really think that, you know, customer success is so valuable. It spans so many types of businesses, and I'm getting tagged in by my smartest friends in in venture to work alongside their portfolio companies. How much are you able to get in these rounds? Yeah. So we rated 200 to 300 k check. And so, you know, I'm a meaningful size. You know, obviously, we we can't compete with the folks who are bringing us into the deals. And so our strategy is built around that 200 to to 300k check.
I'll tell you a really cool story about just, like, how valuable this is. I mentioned Cassie over at Primary a little while ago. Recently, we both invested in this company called One Mind. The founder of that company is this woman by the name of Amanda Kahlo. Amanda is exceptional. Previously, she'd started the company 6¢. It's a $5,200,000,000 business, and, you know, Amanda willed the intense sales category into existence for the first time. I got to know Amanda late in her process.
She'd already closed the round. She opened up the round to include Success VP in, in her company. She's a 2nd time founder. Afterwards, she I asked her, like, you know, why did why did you do this? And she said, hey. Look. Like, I know marketing. I know sales. I'm best in the world at that. Now as a 2nd time founder, the thing that I know I need to be better at is customer success. I need you on my cap table. So that's pretty powerful stuff. Right?
When you have, you know, some of the best investors in the world tagging you into their very best deals. Not to rain on your parade, but today you're a $10,000,000 fund. You're able to get into all these great deals. How how in the world do you go about scaling that platform for a fund 2, fund 3? The way to have longevity in venture is to produce funds time and time again that are top decile. And so you have to leverage every advantage that you have in order to get there.
And the thing that will, you know, give you longevity, give you scale over time is producing those those great funds. So right now, the thing that we offer is exceptional support when it comes to everything that comes after you get that first customer. That tags us into these fantastic deals. You know, over time though, we're going to build a brand as an exceptional investor. Our companies will go on to be generation defining companies.
Our leaders, our LPs will, you know, only get more prolific. The way I think about things is, like, I wanna do this for the rest of my life. I was at the top of my game as an as an operator, as a chief customer officer, you know, at the top of my game. And I'm leaving that behind to do this because I wanna do it for the rest of my life.
And so, you know, I really just focus on the 6 inches in front of my face and like mission number 1 right now is to create a fund that outperforms the vintage in a in a absolutely meaningful way. It reminds me of something I once read from Keith Raboy, which is the purpose of the startup is to get the resources in order to unlock the next level of growth. So you don't have to solve if you're starting SpaceX, you don't have to build a rocket that goes to Mars.
You have to build a prototype that raises you the 10, the $100,000,000 to build the next prototype, to hire the engineers. They'll figure out all the specifications. So they could get really overwhelming on any task if you think about how do I get from 0 to 100 versus incrementalism, I guess, versus thinking of everything as a resource game in order to get the next milestone.
I'm looking over at my bookshelf here and, you know, one of the things that we read at Motive, Shoaib was a big fan of it was the Bill Walsh book, The Score Takes Care of Itself. I really think of this as, you know, as that. You know, game number 1 is produce the very best fund you possibly can. And if you do well at that, the score will take care of itself. Absolutely.
A lot of other fund managers would want to emulate what you did with your LPs and that you brought in operators and people that provide value out to your portfolio companies. How did you go about building that capacity? This is not an overnight thing. Right? It it might seem like it is, but I started the customer success meetup in 2016. Right? I was, you know, scaling in my function at Motive.
I I knew what an opportunity I had on my hands, and I just wanted to learn from, you know, the very best people in the world. So we started the same San Francisco customer success meetup, gave me a chance to become friends with some of the best vice presidents of customer success in Silicon Valley. When it came time to raise my fund, you know, I had, you know, relationships that were, you know, over 5 years up to 10 years in some cases with some of these folks.
So it's just like this really natural progression to call on your friends to become your LPs. Spencer Burke, for example, at at Braze. I knew him when Braze was called that boy, and, you know, they were less than 25 people. We used to get together in New York City and and talk shop. We were both early stage, you know, start up people at that point in time. We wouldn't even call ourselves, you know, true customer success people.
And so, I've really leveraged my network and I've been lucky enough that a lot of people in my network have grown into, you know, these really high profile positions in customer success. So that was like step number 1 of, you know, bringing in these world class operators into the fund. If you look at your fund as a product for these world class operators, what are they getting outside of financial return? We have two classes of LPs in the fund.
So we have operator LPs who are the best and brightest people in customer success. We waive, you know, our minimum for them. We want, you know, the smartest people to be part of our fund. Our our class number 2 is no more institutional capital. Right? These are fund of funds, family offices, high net worth individuals, folks like that. For the operators, like, certainly they're in it for further return. Don't get me wrong on that.
You know, we we have that conversation and this is real money, hard earned money for these people. And, you know, they're expecting a return. They probably push me as much as anybody else, but they're also in it because there was people on their journey who were helpful to them. They have seen, you know, how these companies are built. They have something to say, and they wanna roll up their sleeves and and help.
I also think too, like you mentioned earlier, you know, why does customer success maybe not get their recognition that sales does? You know, a lot of my LPs have a little bit of a chip on their shoulder. They're chief customer officers. They're the highest ranking, you know, function there is for the post sales motion.
They've got a chip on their shoulders though because they know that businesses tick with exceptional retention rates, exceptional expansion, and they wanna make sure that, you know, that credit gets out there in the world. And so SuccessVP is just, you know, one of their ways to beat the drum of of customer success. Talk to me about your portfolio construction for your fund. I wanna play in the deals that my smartest friends in venture are doing. Right?
I mentioned, you know, that email from Gaurav a moment ago. In order to do that, I really think that your strategy and your fund size have to align. Right? So our fund is $10,000,000, and that's by design. Right? It's proportional to the size of check-in the ownership that we can get in in these, companies. And so it's very, very straightforward. We want to, you know, own as much as we can early with the check size that we can write. It's a highly concentrated fund, so we write 30 investments.
And like I said, we wanna make sure that we're the most helpful people on their cap table. I think of this actually in a lot of ways like customer success. I want those first 30 entrepreneurs to step back and say, hey. The most valuable person on our cap table was John. NPS score 10 out of 10. Fantastic. It's only if that first cohort, that first vintage is wildly successful that we ever get to fund 2.
So it's very straightforward exactly how you think maybe a $10,000,000 fund should allocate 30 checks, 200 to 300 k a pop. Not a lot for reserves, of course, a little bit for for the very best, but it's really to will this incredible thing into existence. You work and collaborate with Jason Lemkin. Tell me about your collaboration together. I've known Jason for a long time now. You know, I've been part of his network for over 10 years now.
In fact, you could probably go back in the vaults and find a podcast with me and Harry Stebbings when Harry was probably 16. Harry used to do Jason's, SaaStr podcast for him. So Jason and I have known each other for a long time. He's been really kind to me as I've started SuccessVP. He's probably one of the biggest proponents of customer success there ever was. And so we're collaborating actually this year at SaaStr. I host the world's largest meetup now for customer success.
San Francisco customer success meetup is over 5,000 people now. We do events in New York City as well, and we're gonna combine forces. So we're running a chief customer officer summit inside of SaaStr this year. I admire Jason a lot. He's a 10 x investor. Right? He's he's remarkable. I really admire. Very humble guy as well. He'll never tell you that. Sorry, Jason. This has been a master class on customer success.
What would you like our audience to know about you, about Success VP, or anything else you'd like to shine a light on? I scaled at Motive, like, in a way that a lot of leaders, you know, don't get. You know, it's unnatural. I really, you know, value community. I really value having, you know, a clan of mentors that you can lean on. So if you're, you know, if you if you're craving community, I would say definitely come out to, customer success meetup.
We're hosting New York City customer success week this fall in in New York, 1st week of October. Email me at john@ successvp.com. I'd love to plug you into our network. On top of that, like, maybe just like hats off to you, David. You know, I feel like I've accelerated my growth in this space through your podcast, through through the friendship with you.
Like, you know, the amount of learning that I've got out of your podcast listening to, you know, folks like, you know, Hunter at Step Stone or Michael Kim or Chris Devos or, you know, Jamie at Screen Doors is absolutely incredible. So, yeah, really value that. Really stoked. Thank you. Thank you, John, for the kind words, and look forward to sitting down very soon. For more ideas on how to raise venture capital in this market, make sure to subscribe below.