Help Scout CEO Nick Francis

As you can imagine, we have a very strict vacation policy here at the bigger narrative, but I'm happy to report that after five years, my mom, who I usually call to start these episodes, has finally accrued some rare, well-earned time off. So while she's visiting Alaska with my dad, my sister Michelle has agreed to take the intro call in her place. Hello. Hey Michelle, so I sent you the recording of my talk with Nick Francis. Love this. Listen twice. He talks about how for a lot of companies, their customer support team, like the goal is deflection. Have you experienced that? A hundred percent. Yes. When I call my phone company, I know Joe have heard myself in the car streaming customer service, trying to get to a human. The idea that they want to deflect us, that the company wants to blow me off without actually talking to somebody is sad. Have you ever had any good experiences with automated customer service or AI? I never mind a little AI when it's successful. If it works smoothly, great. I get my answer and I hang up, but when they give you the wrong answer repetitively and the frustration elevates to the point where I feel like I need therapy. So Nick is saying, maybe there's a way we can use all these tools, but still get to do a human if you need it. Right. That's fabulous. And I think the idea that he's changing the way his company is approaching pricing makes so much sense for the customer because you're allowing anybody capable to be available to us. Yeah. That's genius. Well, that's a great intro to our conversation because yeah, a big pillar of the narrative we built is about pricing. Well, I thought you did a great job, subbing for mom. Well, I hope they're having fun going on a helicopter and while they're inventions. They're going on a helicopter? She told me she was going on a helicopter to go dog sledding. Really? I didn't know that. I don't see her in a helicopter. Can you believe that? I know. Crazy. This is the bigger narrative I'm Andy Raskin and I'm delighted to have as my guest for this episode Nick Francis, CEO of Help Scout. Help Scout makes customer support software to serve small and medium-sized companies. Nick has raised nearly $30 million for investors. But about a year ago, he realized he needed to make a major change to help Scout's revenue model the way it charges customers. And to roll that out, he wanted not to just announce it but to leverage it as a pillar for constructing a new high-level story that would more effectively position the company. As Nick told me, we were going through a crucible moment. For 14 years, we and pretty much everybody in our market has charged for customer support software per user. For every user you add to the tool, you pay for that seat. That's how our business has run for a very long time and the economic fundamentals have been very strong. However, we're in the middle of an innovator's dilemma. You mean AI? Yeah, AI. Meaning we now have the tools to enable customer support teams to do a lot more with less. And the more we deploy those tools, the more we made our product better, it actually hasten the demise of our own business model. You're charting per seat, but all these new tools are allowing your customers to do so much more or less that they're having to buy fewer and fewer seats. Right. So our product was better than it's ever been. And yet, the fundamentals of our business model were deteriorating. And so we ended up having to compensate for that by adding complexity to the price. And so it would be per seat. And then you add on more for AI and you add on more for these other tools, the pricing ended up getting really complicated. So tell me what you decided to do. If you're in the middle of an innovator's dilemma, I'm a big clay Christian Sins fan. It's important that you take some day one thinking and say, what can we do that the incumbents in the market are going to have a really hard time doing? And if we were founding Help Scout today, we would not charge per seat. So it led to a line of questioning where we just started to dig into the business model and figure out, well, if we didn't charge per seat, how would we do it? What would be the way that we could come up with a metric that was more resonant with our customer base? That was about a 16 month process. Could you talk about where you got to? Yeah, we now charge for contacts. We call it contacts help. So that's the number of people that you've helped through the platform over the course of a month. So that could be AI resolved the conversation. That could be a human resolved the conversation. But effectively, we only look at a contact so you can have multiple conversations with the same person across multiple channels. It's still just one contact. And while it is a usage based metric, it's pretty consistent. It's actually 34% less variable than our per seat business model was. Right. Because you would think if it's seats, I have like an idea of how much I'll be paying around. But actually, you might have variation in the team. And with contacts, that can be fairly state. I think you do a several monthly trailing average. Is that right? Yeah, we determine the contact tier based on a three month rolling average. And that smoothens out any bumps and seasonality that you have. So that really helped us find something consistent predictable for customers. So you've changed the business model and you want to tell that story. One had just go out to, okay, we've changed our pricing model. Yeah, the business model is not a strategy in itself. So I came to you and said, look, this is basically day one for our business. We see that as an opportunity to differentiate, but we need to build on top of the business model. We want to reposition the business in a totally new way. Even before we made a change to the business model, if we were really honest, we said, look, our positioning in the market doesn't feel differentiated enough. We had three positioning pillars, which were simple, powerful, personal. But when we kind of put those out into the market, it was really hard for us to say things that our competitors couldn't say. We knew coming into this conversation with you that we were really struggling to find the things that we could say that our competitors couldn't say. And so a business model was an aspect of that, but there was more to it as well. Yeah, so you were looking at, I know this from our work, like a kind of bigger umbrella story that the new pricing model would fit into, but not just like, hey, that's the top story. You know, where we got to was a point of view that you have about how great customer support teams have changed or the goal for them has changed. Do you want to tell me about that? Yeah, when you look at today's most beloved brands and companies, you find something in common and how they treat the customer, how they operate from a customer support lens. We've actually seen the data to support the fact that companies who optimize for delight instead of deflection end up outperforming their competitors. Just for people who aren't in the industry, what does deflection mean? Deflection really is like calling up the cable company and you encounter all of these different mechanisms that are designed to get you to go away. That's how customer support has always been thought of as just a cost center to be optimized. And ultimately you just put up all these barriers. What you're saying is within the world of customer support, often the goal is how much can we deflect people from interacting with a human? Right. There's a lot of tools in our market, a lot of platforms that simply market on, here's how we can help you deflect more of your customer service inquiries. And I bet a lot of the AI tools are marketed around this too. Right. So we look at the AI hype cycle and I actually got pretty excited by it because everybody's going one way and saying, now we can be AI first, now we can help you deflect more and we get to Zach and say, nope, actually this is going to enable you to provide a better customer experience at scale. We want to go that way. So you're narrative in the purest sense is, hey, the best companies have shifted from focusing on deflection to focusing on delight as their primary goal. Of course, you can't go all out on delight. There's got to be some deflection, but I guess it's about the balance of those two. Well, and the truth is you can have an interaction with a chatbot or an AI system that's delightful. If I can ask a question and get an answer that enables me to move on with my day, that's an outstanding experience. So we want to enable our customers to leverage these tools and these technologies to delight customers. But at the end of the day, that doesn't actually mean it has to be a human. It just means it, you know, tools like this need to back up to a human. So what we like to say with the chatbot that we've built is you're always too clicks away from a human. In case it doesn't work out, you're always too clicks away. So the too clicks away from human at all times, that's a pillar now of this story about that's what you do if you want to choose delight over deflection. How does the pricing model change fit into delight over deflection? That's the thing when you're paying per seat, the incentives are aligned for you to minimize the number of seats. When companies try to minimize the number of seats that they're buying, they're actually siloing off customer feedback. Right, because when you're buying fewer seats, you're maybe not buying seats for people outside of the customer support department who might be able to help solve a problem like someone in engineering or something like that. Yeah. So that the rest of the organization can't really learn from what the customer is saying. They have a really hard time collaborating. If somebody reports a bug, they have to go through all these weird workflows because the person who's fixing the bug doesn't have access to the system to just say, hey, the bug's fixed. So there's all these issues where customer feedback and the voice of the customer sort of locked down in this silo that you're trying to minimize access to. How does unlimited seat pricing change that dynamic? It makes it a lot easier for everyone to have access to the voice of the customer first and foremost. So if a bug comes in, I can assign it to an engineer, the engineer can just get back to the customer. It's much simpler and more free flowing in terms of the workflow behind the scenes. But also, it compensates for, hey, if there's a lot of our competitors who are charging for AI resolutions. And a resolution is very thinly defined, or somewhat subjective in terms of whether AI actually resolved a question. But in some cases, you're paying up to a dollar per resolution. And so in our case, a contact is cross-channel. So if I have an interaction with the AI chatbot, it doesn't work out for me. I send an email the next day. We're still just charging you for that one contact. This business model aligns help scouts incentive with the customer incentive, because you're getting paid for a resolution no matter how many people at your customers' company have contributed to that, or how much AI has contributed to that. We are in revenue only when the platform drives value. And that's not really the case in a per-seat business model. Believe it or not, 15% to 20% of the users that people buy are not even logging into the tool. And so we felt much better about the idea of aligning our business model with results that we're driving for our customer. AI is a big topic for every company working on. How do we tell people about ourselves? You're no exception. You want to talk about how you talk about AI within this narrative of lifting from deflection focus to delight focus. We talk about it just in terms of, we're going to give you all the tools that it takes to delight customers. So in some cases, that means a customer facing chat bot. In other cases, that means a copilot that's sitting next to your team. We have a tool that when you open up a conversation, it can automatically draft a response for you. And that means there's a human in the middle, reading that response, making sure it's accurate. At the end of the day, AI is just a tool. And we're here to help you optimize for delight, regardless of the tools it's powering things by in the scenes. Some of your competitors have some similar things, but I think in a lot of cases, they're charging extra for resolutions that somehow relied on an AI feature. That's correct. And what I've seen is a lot of folks are reticent to use those tools because they're just going to spend a lot more. And it's not actually tied to the results that they're generating for the business or for the team. You started off by saying you didn't want to have just the seats be the narrative that you wanted it within this umbrella thing. The umbrella thing is deflection versus delight. When you present that to people, how does that create context for selling or other things you're doing? How's it going? It's going really well. It's been a long time since we had such clear differentiation in the market. Just being able to tell that story and see people light up and see people get it. And lucky for us, we've seen results from the narrative. So we measure 10K deals. So we're still in the SMB space, but a $10,000 ARR deal for us is a pretty high price tag. And we measure those. And we are on pace to more than double what we did last year. Well, that's incredible. You're Q1. And so I think that's really the power of the narrative at play. That's great. And how do they react? We're hearing, hey, you used to be about deflection. What do they say? I think that it just makes sense. The platforms that we've created to solve these challenges have sort of led them astray, just in terms of that deflection mindset saying, hey, by implementing all these tools and all these complex workflows, we can save you dollars. Well, that wasn't actually the goal to begin with. The goal to begin with was to make customer support your most effective marketing. Like, ultimately, the foundation of success for every business is retention referral. And so this becomes a growth channel and a growth center for the business, unlike it's ever been in the past. Another potential setup we could have used. And I think we even considered it was like, hey, it used to be, it was a cost center. Now it's a growth thing. Do you remember why we didn't go there? Like, why we didn't do that one? It's still sort of at the core of our narrative is that, hey, there's tools that the optimist for customer support is a cost center. And there's tools that optimize for it as a growth center. We make it about delight over deflection, just to kind of contextualize it in the current moment that we're in and the current movement that we're in, particularly with all of these AI tools, prompting deflect, deflect, deflect. It's a really great opportunity for us to say, nope, we, like, there's a business case for you to delight instead. I think you made the case in your pitch, this narrative that deflection had a different metric than delight. What is a deflection metric versus delight metric? Yeah, so deflection metrics would be thought of as just overall cost, right, deflection rate or resolution rate, or even CSAT, right? So customer satisfaction scores, customer support teams love to talk about their customer satisfaction score. But at the end of the day, that can be somewhat misleading. You could explain what CSAT is and why it might be misleading. Because it sounds like it sounds pretty good, like, what, why is it misleading? Yeah, it's like the survey that you get at the end of a customer support interaction where it's like, hey, how was the service today? And ultimately, if you don't get an answer, you like, you're going to rate it bad. And if you get an answer, you like, you're going to rate it good. But it's really about that interaction and a vacuum and not so much, hey, how do I feel about the company? Am I willing to refer this company to other people in my circle? So CSAT works speed to resolution, these are deflection metrics. Right. And I'm not saying these metrics are not important. It is important to look at resolution rates and things like that. I just don't think they should be the North Star for measuring the success of the function. Because ultimately, the function should drive upward momentum for the business. It should drive retention and referrals. That's why we like NPS. How likely are you to refer this business or recommend this business to someone else on a scale of 1 to 10? Yeah, even great teams are doing some deflection. This is something that often people ask about. It's like, when we make the narrative, hey, deflection is bad, delight is good. There's gray areas in there. But if we were to talk about all the gray areas, it becomes so complicated. It's not simple enough to be clear as a guiding North Star principle. And a lot of CEOs, I think, have trouble with that. Like, wait a minute. There's still a little bit of deflection. So can we really say this? Maybe you had a little of that. But I think you were able to get comfort with that pretty fast. Yeah, I think so. Like I'll just use an example. So we dog food our own product. We have a customer facing chatbot that's currently resolving 72% of the questions that it gets from customers. That's fantastic. We know that if they don't get the answer that they need right away, then there's an easy escalation to our world class support team. So does that impact their response times? Absolutely. Does that impact some of these other downstream metrics absolutely? But we believe this is an investment and delight across the board, whether they interacted with a chatbot or a human being. So if you're bought into the delight movement away from deflection, then you have all these pillars of how you have to act, which is human help within a couple of clicks, that the entire company really is responsible for customer happiness and therefore unlimited seats pick sense. And I guess the last one might be AI included that that's part of delight. And why should we have an incentive not to use it? Right. It's just included platform. I remember shortly after we got clear on the narrative, you did a post on LinkedIn where you announced this change in the business model. And you talked about the why behind it being this delight deflection thing. And I thought it was really interesting how so many people picked up on the bought leadership part of it. As you know, I was pretty nervous about that post. I thought it could have been somewhat polarizing. I didn't really know how people were going to think about this big shift in our business model. And it was overwhelmingly positive what we got back from folks just in terms of resonance with this narrative. Like I said, every business aspires to be customer centric and deliver a great customer experience. But it's been difficult over the years to find platforms that really align with those values. You were calling out that a lot of the platforms are really built for deflection, even if they talk about being customer centric. And look like the local cable company needs that platform. There's a lot of businesses in the world that actually want to take a more deflection oriented approach to customer support. And we just want to put a stake in the ground and say, we're not for them. For the companies that really want to deliver world-class experiences and grow their business through that channel. Anything that was difficult in getting your team aligned in this process that you want to talk about maybe alert other CEOs to if they're thinking about doing something similar. I really have a lot of confidence in the narrative team that we put together. So we went on this journey as a group. Although you and I were creating the narrative and kind of bringing it back to the team on an ongoing basis, I really enjoyed working with that team. However, I'm continually kind of bringing it back to the team saying, look, this has to be infused in everything that we do. I just saw what was it, a listing on a marketplace this week. And I said, hey, that's not our narrative. So believe it or not, your narrative exists in like 100 places. It exists in so many documents, internal or external that represent your brand and your business. And ultimately, you need to cover off all of those and infuse the narrative in everything that you say and do in order for this to be a worthwhile pursuit. And I think you made that pretty clear to me early on, but it's been difficult, even as a CEO, to just hammer that every single day, every single meeting. Like this has to be infused with our narrative. Are they like, don't hammer me or like, I think they just, it's easy to just move on to the next thing. By the next thing, you mean like the next idea for what we should be talking about ourselves. Right. Even I get tempted and you called me out a little bit on it. Like I think with our homepage, like we diverged a little bit. Even I didn't see it and you're like, "Yeah, this doesn't feel like the narrative to me." Like it's so easy to get bored with the words because there's the same words over and over and to start refining them and changing them and ultimately that dilutes the power of the narrative. So really developing some discipline and rigor around how you talk about your business and trying to do so consistently across every channel. At least in my experience, the CEO has to be driving a lot of that in order to happen. Yeah. This is something I hear a lot. And I think it's harder, easier, sometimes based on how ingrained the old story was. Sometimes it's almost like weeds, you have to kind of kill them. And you know, the bit of advice I'd have for any CEOs considering this process is to commit to it fully. So I tracked my time with regard to this project. And just between, let's see, like the three month period in which we were working together, I spent more than 40 dedicated hours thinking about the pitch. Wow. That's incredible. Practicing it, pitching it to other people, pitching it to customers, pitching it to you and the team. There was 40 plus hours just ideating on this stuff. And that's really the sort of commitment that at least in my opinion is sort of required because man, this is not something that you want to have to come back and do again in a year or two. You really want this to be something that stands the test of time. Yeah. And so put the time in and I think that, you know, if you really infuse it and end everything that you do as a business, then it can pay big dividends. I always do my best to make sure CEOs I work with are committed to getting in the trenches with me to build a draft of the narrative, rebuild it, tweak it as we get feedback from their team in the market. But Nick was just really on it. We do a one-on-one session where we get to a good place. And a few hours later, I'd see him in our shared slides docked, like noodling with it, making it better. I just love that. I also wanted to call out what Nick said at the end there about how he didn't want to have to do this again in two years. It's funny because I'm now working with the CEO of another company much larger for the third time in five years. The first time he came back to me, I was like, I guess I failed the first time. But he said, no, like his market is changing so fast that it would be a fail. If he didn't update the narrative every two years. So yes, we want the narrative to have legs, but it might not be forever. I often cite Mark Benioff as a great practitioner of this. He listened to his dream force keynotes. Every few years, he changes the narrative, essentially repositions the company. The bigger narrative is produced and edited by me, Andy Raskin, with music by Steven Emerson and podcast cover art by Angela Maychen. Carla Burrelli inspired the show by telling me I should do it over coffee. Thanks to Nick Francis, Andrea Kyle, Hillary Noble. Scott Rocher, Abigail Phillips, Katie Cross, and everyone at Help Scout. Special thanks also to Michelle Miller, Emily Raskin, Eli Raskin, Tomofu Jita, and Carol Wasserman. And remember, the company story is the company strategy.