The Scary Six: Executive Change

Steve Hazelton
January 26, 2024
6 Minutes
Customer Churn

At the end of last year, I shared a regular expression (regex) that identifies "contract requests." That's a scary signal for people who like to keep customers.

Today, I want to discuss the scariest of the Scary Six, "Executive Change."

At my last company, Newton, this signal had the highest correlation to churn and initially resulted in a loss about 50% of the time (for many of Sturdy's customers, this is also true).

So what is it? Let's say you sell accounting services, and this happens:

"Hi, I am the new CFO, and I would like a quick rundown of your capabilities."

The response is often,

"So nice to meet you! LMK when you have 30 minutes for a quick call!"

(By the way, usage will be high during this time, and their Health Score will be green.)

On to the regex…

The first two are specific to HR services/tech, so replace "hr" with "e-commerce," "accounting," "logistics," or whatever business you're in.

Here's what they do:

1. The first detects when someone says, "Hey, we have a new VP of HR coming on board soon."
2. The second, "I will be taking over the Admin role for this account."
3. The third, "Hey, I wanted to let you know that I will be leaving at the end of January."

Remember that they return a fair number of false positives (FPs). FPs are not included in the churn rate calculation.

The frequency of "Executive Change" varies depending on the industry and segment. In the SMB cohort, it occurs in about .1% to .2% of customer conversations. In huge enterprises, around .04%.

Interestingly, this signal is much more common in the HR space, firing at .3% per conversation.

There is also a lot of variation in the severity. Still, the correlation to cancellation is the 2nd highest of any signal we currently detect at Sturdy ("I want to cancel" being the highest, obviously). For SMB customers, the churn rate for this signal, if untreated, will approach 70%. It will be lower for enterprise customers.

Another critical point is that this is a leading indicator. It often occurs long before the cancellation event.

Why is this signal such a strong indicator? At the beginning of the post, we showed a sample trigger-sequence that ended something like, "Let's do a quick demo!"

What's wrong here? I think it is because one or all of the following is happening:

1. The value of your service can't be communicated in a "quick demo."
2. The new contact has undoubtedly used and trusts a competing solution.
3. The person conducting the demo has not been trained to sell your product, overcome objections, and destroy your competition's product.

This is a perfect recipe for failure. Here's a scenario...

Acme Corp sells HR Software on M2M and yearly contracts; it receives:

10k emails and tickets per month (items).
10k items equals to about 2k conversations (1 convo = ~ 4.4 items)
.3% detection per conversation = 6 Exec Changes
Two false-positive (30% FP rate)
50% churn x 4 = 2 losses

If untreated, Acme loses two customers to this signal per month.

The good news is that, in my experience, treatment will save about one of these customers each month. How?

1. Train everyone who touches customers, billing, CS, and marketing to identify the signal.

2. Immediately send the signal to your sales AND marketing teams.
Someone should attempt to discover the product the new contact used at their former company.

3. A salesperson must schedule a demo as soon as possible. (At Newton, our KPI was to conduct the demo within ten days). The seller should come armed with useful information, like usage data candidates hired (e.g.), and be prepared to sell against the new contact's previous solution.

4. In parallel, the marketing team checks LinkedIn to see if the previous contact has landed a new job. If not, someone should reach out and see if they need help in their job search (after all, you sell to companies that hire these people). If the person has landed somewhere, send them a note, a gift basket, or whatever you think is appropriate.

5. Send the previous contact to the Sales team as an SQL.

(Shameless plug: Sturdy has AI-language models that find 1, automatically route 2, and can tell you if 3 and 4 happened.)

The result of this process is a successful "double-dip". You may save a customer and gain a lead for your sales team. Ironically, if your competition is not tracking the Executive Change signal, your chance of closing that deal is very high.

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