scorecardThis $400 million startup saw most of its growth in the last 2 years by focusing on one area
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This $400 million startup saw most of its growth in the last 2 years by focusing on one area

This $400 million startup saw most of its growth in the last 2 years by focusing on one area
Enterprise4 min read

Gainsight CEO Nick Mehta


Gainsight CEO Nick Mehta

When Nick Mehta first joined Gainsight as the new CEO in February 2013, the company was still relatively small.

It raised only $250,000 at that point, and had just about 10 customers booking $125,000 in annual recurring revenue.

Fast forward two years, and Gainsight is at a completely different scale: more than 260 enterprise customers have signed up for its software, and the company's raised more than $104 million. It's now estimated to be worth $400 million.

Gainsight's breakneck growth is a result of its laser focus on a single area: customer success management (CSM), the term used to describe how companies manage and optimize customer retention.

Its software lets businesses measure their customers' level of engagement and helps take actions to further grow their contracts. The end goal is to keep and expand contracts that you've already landed.

And with the proliferation of subscription-based businesses, in which customer retention is a top priority, CSM software like Gainsight's is only expected to grow in importance across the board.

"Every business is less locked in with their customers now," Mehta told Business Insider. "It's not about the initial sale any more. You really got to fight to keep and grow your customers."

The SaaS-model is leading the growth

Gainsight's 2-year growth spurt has a lot do with the rise of cloud software, also known as software-as-a-service (SaaS).

Unlike old IT software that charge huge upfront fees for long contracts, SaaS follows a subscription model that bills short monthly or annual fees. That means SaaS vendors have to work extra hard to make sure their customers renew subscriptions, or otherwise they risk losing them because it's become so much easier to replace enterprise software.

But once that relationship gets established, they can start counting on recurring revenue, which is when big profits start adding up. Also, most SaaS contracts start small, meaning there's much more opportunities to upsell as you build up the relationship.

In order to do that, SaaS companies are paying a lot more attention to CSM software because it helps identify the most active customers and the ones least likely to stay. Most SaaS companies now have separate teams entirely focused on "customer success" within their organizations.

"The shift toward software-as-a-service models has led to the rise of customer success organizations inside software companies. Given the ease with which customers can change vendors, ensuring that they receive superior ongoing value from products is critical," Michael E. Porter, a professor at Harvard Business School, wrote in a column for HBR in October.

Gainsight isn't the only CSM vendor, but it's certainly one of the leaders in the space. It's also one of the few companies that's been able to grow to its size with a software that only provides CSM services. Some of its largest customers include Marketo, Workday, and Adobe.

Pacific Crest SaaS

Pacific Crest

The fastest growing companies are constantly looking for opportunities to sell more to existing customers, and Gainsight helps them do that.

Not a new concept, but much more important now

Mehta pointed out the concept of customer success isn't entirely new, but is much more important in the SaaS space.

In the old IT world, there's something called maintenance, which is essentially similar to CSM because it supports and updates the software on an on-going basis. But most of the revenue gets booked upfront for old software through what's called the perpetual license fee, meaning the revenue derived from maintenance is usually much smaller and less important.

But in the SaaS world, the future growth of the business really relies on the on-going ability to retain customers. Since customers are not locked in to long, multi-year contracts as they did in the old world, they can move to a different vendor anytime. SaaS vendors always have to make sure customers are happy and earn their long term trust.

"It's much more important now [with SaaS] because it's responsible for a lot more of the company's revenue, whereas before it was just that kind of smaller maintenance stream," Mehta said.

Plus, almost every industry, from video streaming to healthcare, is starting adopt the subscription model, which means Gainsight has a much broader market to go after.

"In every industry, there's more competition and less stickiness," Mehta said. "Now, it's important for every business to go through this redoubling down on their existing customers."

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