Welcome to the 22nd episode of Customer Success Radio brought to you by Zuora, powering the Subscription Economy.
Tom: Hello everyone. I’m Tom Krackeler, joined as always by Rachel English. This is our first episode in a couple of weeks, since Frontleaf has joined forces with Zuora. Today we are welcoming Tien Tzuo, CEO of Zuora, pioneer of the subscription economy, and also our new boss. So Tien We’re psyched to join Zuora, but yeah, what was your thinking in terms of what we brought to the table or what you saw as the opportunity?
Tien: Well, we just think there is this massive shift that we call the subscription economy, this whole idea that people, you and I will find ourselves buying less and less stuff to manage our everyday needs, both personally and professionally. Instead we’ll be subscribing to services to meet those needs. This is a massive shift. We’re working with really some of the best companies in the world and the leaders of this shift to the subscription economy. Consistently what we hear back from them is what Zuora does today is really on the business operations side, the ability to price and scale up your billing and payment operations and figure out your financial metrics and handle complex use cases.
But they wanted more insights. They started using our system and they’re saying, “Look, you’ve got a wealth of information here. How could I really marry that with my behavior and the actions of my subscribers to get better insights on how to drive my business?” When we started talking to you guys we realized that you guys had a fairly unique piece of technology that can really make this joint vision that we have much, much stronger.
Rachel: That’s awesome. Can you tell us a little bit, Tien, about what made you start Zuora and how you picked up on that subscription economy trend back then?
Tien: Well, I know the whole customer success trend is really driven by the SaaS sector, or the SaSS sector’s really at the leading edge on focusing about talking about customer success, and the grand-daddy of the SaaS companies is Salesforce.com. The roots really of the customer success industry starts with Salesforce.com and the roots for Zuora really start with Salesforce.com as well. We always knew that we had a very different business model, this subscription-based, pay as you go business model that really forced in some sense, the need for us to focus on customer success.
The reason we started this company is that all those things that we had to do at Salesforce, all the systems that we had to build so that we can do the professional edition pricing, the Enterprise edition pricing, the per user pricing, so that we can go into Japan, we can go into Europe, we can handle revenue recognition, we can go public, we can scale our quoting operations, those things were not just limited to SaaS companies. That really was a universal trend that all companies call it, music companies, moving companies, the Internet of Things companies, newspaper companies, they’re all going to go through the shift, this shift to the Subscription Economy and that created a really big idea for us.
Tom: Tien, you’ve been speaking a lot recently, certainly at the Subscribed Conference, which was a pretty incredible experience, about the subscriber experience. You talked a little bit about what’s missing today, and how many companies are approaching the whole subscription experience from end to end. I wonder if you could share a little bit about what you see as the gap and what you see as that opportunity.
Tien: I think a lot of companies approach this thing called the Subscription Economy really from their own perspective. They think that this is a great thing to do because they like the recurring revenue model, or because by offering it as a service, they can actually go address a different market perhaps they use to sell the big companies and by creating a lighter SaaS version of what they do, they can chase after small to medium size businesses.
Perhaps they’re realizing that Wall Street is actually valuing similar companies as them, but have a recurring revenue model higher. They assign a greater multiple to a dollar of revenue that’s a recurring piece of revenue versus a one-time piece of revenue, and that’s all true. That’s all true, but the real reason to do this is there’s an opportunity to create something that has greater value to customers.
You think about what you and I use on a day-to-day basis. More and more our lives are being governed or serviced by Netflix, by Spotify, by Uber, by the services that we can access on our phones. The common thing about these things is they go way beyond what a product can do. These services are personalized and tailored to our specific needs. You customize Salesforce.com to meet your specific needs. These things get better and better. There’s a next version of the app. You know that there’s somebody on the other side that’s dedicated to improving any app on an ongoing basis and that you’re going to get those improvements and those innovations for free, simply by subscribing to the service.
The movie library’s going to grow, the next version of Salesforce.com is going to get better and better. The next push of the app is going to have more and more features, and we’re getting really used to this. Companies are realizing that this whole shift to the Subscription Economy is not just about a better business model, a business model based on recurring revenue, but it’s based on being able to do something unique and differentiated, a subscription experience if you will, that provides a much, much greater value to customers and it’s what customers more and more are moving towards. Customers today, they don’t want to buy products anymore. They’re demanding a subscription experience.
Tom: Well, it’s funny, and it actually reminds me of a story you told in your keynote about when you got a phone call from your wife. I don’t know if you want to recount that, but I think that is a memorable subscription experience in my mind.
Tien: Yeah. That was a really interesting story. My wife and my daughter, my 6-year old daughter, were in Shanghai, and it was 10:00 a.m. over there, maybe 5 or 6:00 p.m. I’m sitting in my kitchen and I just decided to text her to see how things were going, and she texted back to saying, “They’re not going well. It’s pouring rain down here. I can’t get a taxi. We’ve been waiting here 20 minutes to get a taxi and I have an appointment that I have to get to in 15 minutes. If I don’t get there, the office is going to be closed and this trip that we just took would have been for nothing.” I said, “Well, that’s not good. What street are you on?” She texted me back her street corner. I go to Uber. I actually find the street corner on the map.
Turns out that Uber’s in Shanghai, who knew? Turns out there were 5 or 6 cars surrounding her and so I simply requested a car. There I am sitting 6,000 miles away in my kitchen basically remote controlling this infrastructure, this infrastructure that Uber’s put in as a service, as an experience. Long story short, the car picked her up and she made her appointment with just a few minutes to spare, but just the possibility of the things that you can do now, now that you have these services, these subscription experiences out there that you just couldn’t do when it was about owning a car sitting in your garage, are pretty amazing. It’s pretty mind blowing how much the world is going to change.
Rachel: That’s great. Tom and I heard you speak last year at the Customer Success Summit and you talked there about the nine keys to subscription success as you call them, and we’ve been diving deep into those for the past few weeks since joining Zuora. It’s really taken hold in every aspect of the Zuora business. I’m wondering if you’d be up for sharing just a little bit about what those are. Why are there nine and how did you arrive at those nine?
Tien: Yeah, well let me just preface that with a little bit of context. We’re talking to our customers, starter companies, growth companies, Fortune 500 companies, 20, 30, 40 billion dollar global companies. They’re all wrestling with this thing. They’re saying, “Look, if we move to a Subscription Economy, if the goal is to build a subscription experience for our customers, to turn our customers into subscribers, then that really requires us to rethink how we organize the company. We have to build a subscription culture. What does that really mean?”
Well, you think about a product culture where a product can go through phases, from department to department. It can go through the design department, to the manufacturing department, to the logistics department to the retail department and then perhaps to co-sales, technical support, and it doesn’t need to be a lot of integration across these things because they’re just simply hand offs from group to group.
If you think about a subscription experience, and you think about how do you allow your entire company to participate in creating a unified experience for your customers, you really have to break down the silos. You really have to have a common way of interacting with customers, a common way of understanding customer success versus having the sales people just think about, “Well how do I sell a customer?” The marketing people think about, “Well, how do I acquire a lead?” The services people think about, “Well, how do I get them live?” They become disconnected experiences. What you learn about a customer each step of the way is lost. We found ourselves as we were growing our company, we were about probably 200 people at the time, started to get a little bit more functionally siloed and really not presenting the right unified space for the customer.
Tom: Yeah. It’s like if you’re talking about a subscriber experience it’s like the last thing the subscriber wants to experience is having to repeat the same story four times to each different team.
Tien: That’s what our customers were finding themselves doing. They would tell the sales team what their issues were, they would sign the contract, and then our implementation team would come in and they had to start with square one.
We said, “Look, we need a unified structure, a unified framework that defines what customer success means to us, to our customers and then carry that throughout the whole customer engagement process forever, including all the downstream customer success management issues and the support calls.” We started listing on a piece of paper what are the things that our customers need from us? It wound up being nine things. We help our customers price, we help our customers acquire customers, we help our customers bill their customers, collect money, collect the invoices from their customers.
We help them nurture their customer relationships, process renewals, process add-ons, deepen those relationships. We help them account for bookings, billings, cash and revenue, really, really important to close the books. We help them measure return and retention rate and customer acquisition costs, the key metrics that they care about as a subscription business. We help them iterate. A big, big part of the Subscription Economy is learning what your customers want and launching new price plans and new products and new add-ons, ways of deepening the relationship, and we help them scale their businesses.
All nine things were truly important, so we stepped back and said, “Look, if that’s the case, how do we now weave all nine things across the entire company, every point that touches a customer, but also how we build a product?” Every time we build a feature, we map it back to one of the nine keys that we do for our customers and this has been transformational. Our customers come to tell us that ever since we’ve done that, we provide a much more unified front to them and they feel like they’re engaging with one company, not a whole bunch of separate silo teams.
Tom: I remember hearing that. I remember thinking, “Wow. That is really impressive and I wonder how much of this is actually being embellished,” when I heard it the first time, because I don’t know, I just thought that. I actually can say, now I have access to Zuora, Salesforce.com, and met the team, it’s actually is true that if you look at and you look up an account, every single thing is broken down into those nine pieces: has a customer been implemented? Have we sold it? Are they live? It’s like what did they expect across each of those nine areas and are we actually meeting that? I think that’s pretty neat and I don’t think there are a lot of companies that really have gone to that level to actually say, “Here are exactly every aspect of customer success that we can talk about from end to end?”
Rachel: They should, though. I think every company needs it. Just a little plug for our listeners, if you want to learn more about the nine keys, there’s a great guide on Zuora’s academy that describes each one.
Tom: Yeah, so Tien you mentioned a little bit about the different industries and that’s probably been one of the things that my eyes have opened to recently is the diversity of industries that are making this shift to subscriptions. Frontleaf and before that, I was very focused on a offer as a service model around customer success in that model, but I’m seeing things like huge industries that have dozens of different product lines and hardware and software, are converting to this. You mentioned Internet of Things. I wonder if you could talk a little bit about either a few off the wall type of companies that you never imagined in a million years when you were starting Zuora, that they would be running subscription businesses on your platform or just something more about the wide diversity of companies that are going through this shift.
Tien: Yeah, so our first dozen customers were certainly other software as a service companies. Being a software service company ourselves, and coming from Salesforce and WebEx where we had to build our systems for a software service company, the vision of the company was always fairly broad, though, so fairly soon we wound up with lots of publishing companies. Today, for instance, we have car companies trying to define what their connecting car experience should be and wanting to be the company that offers not just diagnostic services but also infotainment services, GPS services, all part of a connecting car experience. They’re expecting that in 3, 5, 6 years you might not buy the car anymore. These cars might even be self-driving. You’ll simply subscribe to the car, it’ll diagnose itself and if it ever breaks down, they’ll just send you another self-driving car.
You just think about these transformative environments. Schneider Electric came to Subscribed and talked about how you think about Nest and the thermostat in your house and those of us that have Nest, you can actually control your thermostat from your phone even if you’re 6,000 miles away, well, Schneider’s doing this on an industrial scale. They’ll go into a collection of buildings, a building complex and put the entire energy management infrastructure in, the thermostats, the power, the solar, the generators, the monitoring tools, and they’ll operate it as a service remotely.
Instead of having their customers actually have to buy all this capital equipment, they’ll say, “Look, you don’t have to buy it all. We’ll own it all, we’ll depreciate it and our price to you will be actually based on how much energy we can actually save you.” Again, all these principles that we learned over the last 10, 15 years as we built up the software as a service industry, you’re seeing these other industries truly adopt these things. We see pet-tracking services, we see fleet management services, we see nutrition services, membership organizations. The diversity really of our customer base is pretty mind-boggling.
Tom: The one I noticed when I was first reading the case studies, there’s also toothbrush as a service. It’s big and small and different aspects of your life.
Tien: Yeah. You think about it and that’s exactly right, because the toothbrush category, you know you’re supposed to replace your toothbrush every 60 days, but you never do. You never do and this is actually a fairly widespread health problem and so now they just send you a new toothbrush every 2 months and just throw away the old one and you always have a fresh new toothbrush.
Rachel: I think I need that one. One of the questions, Tien, that we’ve heard a bunch in the last few weeks since joining Zuora is whether Zuora is going to use Frontleaf and Zuora Insights to go and compete against those customer success technology companies like the Gainsights and Totangos of the world. This is something that we’ve all talked together a lot about, but are you up for sharing your take on that?
Tien: Yeah, Rachel. Well, you know, we’ve really had the pleasure of working with all the customer success vendors, yourself at Frontleaf and Gainsight and Totango and Preact and others. We want to continue, we really expect and hope those partnerships will continue. Our goal, when we wake up in the morning, we think about what we do for our customers and the technology we’re building and the innovations we’re creating, we’re more thinking about how companies build subscription businesses. Where we get really excited about the technology is to really provide a subscriber analytics platform to sit side by side with our execution platform, the Z business or the Relationship Business Management that helps you price and take orders and automate billing and payments.
We really see that these two things together are really what allows companies to build a great subscription experience. We want to continue to integrate with customer success tools, we want to continue to integrate with CRM tools, marketing automation tools, and that really continues to be the vision of the company. I think the combination of this technology and the data that we have will actually make us that much more valuable to the customer success vendors and we look forward to continuing to partner with them to create a compelling experience for our joint customers.
Tom: Yeah, and maybe having more of them on to this podcast as well. Tien, let’s ask you to look into your crystal ball and what do you see for over the next 5 years in this subscription economy? Call out a trend or something that you think is a key emerging factor.
Tien: I think we’re just going to be blown away by the type of services and experiences that are going to be created. I think companies are really starting to learn that success in the subscription economy truly is about one question: what is the difference between the customer and a subscriber? The way we see it is if the customer is somebody that might buy something from you in the future or maybe perhaps purchased something from you in the past and a subscriber is somebody you have an ongoing relationship with. The way to truly build a strong relationship is to learn from the relationship. We’re going to see companies spend more and more time trying to understand how their customers are using the service, what is the value they’re providing from their service, and then go deeper into creating win-win relationships.
That’s how companies are truly going to think. When you think about Uber, when you think about why Uber wants to let you play your Spotify playlist when you step into that car, again they’re trying to recreate that personal experience that you have when you step into your own car, but without having to require you to have your own car, deal with the hassles of ownership, have it sit in the garage versus being able to do things like control cars 6,000 miles away. I think the next few years just the type of services that we’re going to see, food delivery services, banking services, financial services, education services, even government services, it’s going to be truly mind-boggling.
Tom: Yeah, government services, that’s actually for another conversation, but that would be one of the last and biggest impact categories that would convert over, but yeah, I could see it happening.
Tien: We used to sit around and think about what industry will not go subscription. We would talk about things like the cement industry or marble tiles. The point is not to think about how do you transform that product, but think about what as a customer, what do we as people really want from that? Is it about construction? Is there construction as a service? Is there home as a service? Is there security as a service? We have actually a furniture retailer that’s starting to sell Espresso machines as a service. Today they sell sofas, they sell appliances, they sell refrigerators, they sell dining room tables, and now they just started a service that’s basically they’ll give you an Espresso machine and you simply pay by the month and every month they’ll send you the Espresso beans that you need.
They’re seeing this as a first step into building an ongoing relationship with the customer. From there they would like to sell you perhaps your washing machine as a service, or your appliances, your dishwasher as a service. Over time they’ll learn more about your behavior. They’ll say, “Well, look, I know based on our relationship, what kind of furniture that you have. Well, we just got this new furniture that would actually look perfect with the setup that you have. Would you like me to send it over? Would you like to try it out for a few months?” You can sort of see they’re thinking not about “Well how do I move some products, some Italian designed furniture perhaps through my retail channel, but how do I build an ongoing relationship with my customers, know what their needs are, and provide a differentiated service that they find valuable?” That’s really where the world is going.
Tom: Yeah. What I love about it is it’s all about the outcome and it’s all about the value. It’s not about the good or the physical thing or the acquisition of it, it’s did you actually get value, get benefits from it? Then we can monetize that.
Tien: That’s exactly right.
Tom: That’s just like the fun mindset once you get into it to think about where it goes.
Rachel: Yeah. My head is swimming right now with how easy it would be to move if you had furniture as a subscription.
Rachel: Cool, so we had just so much excitement coming our way, Tien, a couple weeks ago with the Zuora announcement of the Frontleaf acquisition and hopefully I think, you did, too. One of the questions that we got a lot was will be keeping up this podcast? I wanted to ask you, now that you’ve done it with us once, what do you think? Should we keep it going at Zuora?
Tien: Oh, absolutely. First of all, we were truly excited when we met the Frontleaf team. We just felt a sense of shared culture, a set of shared values, shared values of what the future’s going to look like, the innovations that we wanted to create, and the focus on creating our own customers, creating success for our own customers. That’s a really, really important part of the DNA of Zuora, the DNA of our company and so we’re really, really excited about working with the Frontleaf team. We love what you guys are doing with the podcast. We do a lot of work around putting thought leadership out there, putting best practices out there. We call these guides that we put in our Subscribed Academy and we would love to see us creating a customer success channel, if you will, in the Subscribed Academy and really finding a continued home for these podcasts. We’re super excited about this.
Tom: Awesome. All right. Well that brings us to the end of another episode of Customer Success Radio. Tien, thank you. It was great fun talking with you today and Rachel, always a pleasure.
Rachel: Yeah. Thanks a lot, Tien.
Tien: Great. Thank you.
Tom: All right everyone. We’ll see you next time.