Macroeconomic uncertainty | Ep. 241

[Dillon] (0:00 - 0:37)

So that is exactly what I did. I asked ChatGPT, based on the federal interest rate, what should the Fed's customer success strategy be? And the very first line back is, this is a beautifully weird question, but let's move on.

What's up, Lifers, and welcome to The Daily Standup with Lifetime Value, where we're giving you fresh new customer success ideas every single day. I got my man, JP with us. JP, do you want to say hi?

[JP] (0:38 - 0:39)

What's up?

[Dillon] (0:43 - 0:48)

Rob with us. Just won a beauty contest.

Rob, you say hi.

[Rob] (0:48 - 0:49)

I'm feeling cute today.

[Dillon] (0:52 - 1:00)

Feeling cute. And I am your host. My name is Dillon Young.

Boys, it's just the three of us, and JP, I think you said you've got something to talk about.

[JP] (1:01 - 2:20)

Yeah, yeah. Something that's been brewing with me is, so as I've continued my career, I've begun to see how certain factors can affect my job somehow. I've had a lot of IC roles, non-manager roles, and a couple of manager roles as well, but I'm thinking about this topic, which is obviously timely, which is how some macroeconomic factors can affect our work, because customer success, the first word is customer.

So if your customer is working for the National Institute of Health or something, shout out to y'all, and funding or something gets cut to them, right? It's not new for certain people to get their funding cut. So if their funding gets cut, then how does that affect you?

At the minimum, it means maybe they don't have as much disposable cash. We zoom out a little bit more. I don't know what they're talking about when they're like, the Fed raised the rates by da-da-da-da, and I'm like, I don't know what that means.

People are all like, oh, venture capitalism, that's why you can't have these BC-backed places. So you both have at least a little more sort of experience in this. So I wanted to hear what you got to say about that.

[Dillon] (2:22 - 2:31)

Do we want to break down what the Fed interest rate is really quick? Rob, do you know? You're on mute.

[Rob] (2:36 - 2:38)

I said it's the interest rate set by the Fed.

[JP] (2:40 - 2:42)

This guy, that's rich.

[Rob] (2:44 - 2:59)

That's it? That's all you got? It's 4.25 to 4.5% currently on average. All right. It's the rate that banks charge each other for overnight.

[JP] (2:59 - 3:04)

Ooh, wait, banks charging each other? That's like AI talking to AI. What's going on?

[Rob] (3:06 - 3:09)

It's just a circle of banks. Yeah.

[JP] (3:10 - 3:15)

Circle of banks? Wait, Dillon, jump in.

[Dillon] (3:16 - 3:32)

That's not really important, but basically the way to think about it, it is the rate, it is the floor rate at which most banks set interest rates. So you'll notice when a federal interest rate goes up, so do savings account rates.

[JP] (3:33 - 3:35)

Oh, yeah, yeah, yeah.

[Dillon] (3:35 - 4:40)

But also, so do mortgage interest rates. So a lot of the economy, when you consider how much debt is passed around, is based off of or is built on top of actually the federal interest rate. And historically, it's been around like 3% to 5%, sometimes much more, particularly in the 80s.

It is not normal for it to be zero, which is what it was for a really long time, particularly after like 07, 08, the mortgage crisis. It is not normal for it to be that low. It is also the main lever used by the government to control inflation.

It's really one of the only things that they can do to manipulate inflation. They can't do anything about jobs necessarily unless they sign bills for like infrastructure plans and things like that. The only thing they can do is control the cost of money, basically.

[JP] (4:42 - 4:43)

The cost of money.

[Dillon] (4:45 - 4:46)

Interesting, right?

[JP] (4:46 - 4:47)

Yeah. Cool.

[Dillon] (4:47 - 5:29)

All right. So let's recap what your question was about. We're in this crazy world, right?

Where at the time of this recording, we're a couple of weeks, like a month and a half past Liberation Day, the big day that all these tariffs were going to go into effect and many of them did. Some of them got walked back and we're starting to see that even though a jobs report just came out today, still pretty healthy. That wouldn't probably show yet, but there's a lot of other ways in which the economy is showing a little bit of scratch and dent from the economic decisions we're making.

So is that the crux of your question or do you want to dig any deeper there?

[JP] (5:30 - 6:09)

Well, you know, basically based on that, how does that affect us in customer success? You know, adding some layer to understanding company strategies to navigate that. What are some of the implications of raising the rate or lowering the rate?

I'm assuming lowering is usually good and raising is usually bad because that's interest. Usually lower interest is good, although I know that there's always a good for someone. So...

[Rob] (6:09 - 6:28)

Yeah. Yeah. I think there's two ways to look at it.

There's the ways to look at it from the perspective of our customers' wallets and then also from our own company's wallets, particularly those of us in the startup world who might have investors who are watching these numbers a lot closer than we are.

[JP] (6:30 - 6:53)

So you're saying, Rob, let's say that there's a board for a company and they may see some sort of market fluctuation and have a reaction, like have a level of sensitivity where they are now asking people who work at the company to make some sort of adjustment?

[Rob] (6:54 - 7:22)

Yeah. I think the simplest way to think of it, well, actually, if I look at it from the lens of like boards and investors and their portfolio companies, kind of like we're kids asking for an allowance, you know? So if the cost of money goes up, you can't buy as many toys with our allowance.

And then I think we see that on the customer side as well, right? I mean, I think customers are less likely to expand, for example, because their cash might be a bit tighter.

-: 10:11

I think another way to look at it, JP, is when interest rates go up, it in many ways creates more friction in the transfer of money. And I don't mean that literally like the systems are like weighed down or anything like that, but the decisions become weightier about where to distribute your money. Consider property investing, right?

Back when I could get an interest rate for an investment property, which is considered riskier to a bank, I could get an interest rate for 6%. That's pretty dang good. But now it's 12%.

Okay. Well, all that cash I was getting ready, and I had to deploy that cash because interest rates were so low, savings accounts were at 0% interest. I couldn't make any money parking my cash.

But other opportunities arise when interest rates go up. So as I said before, I could now park all that cash in a savings account because that's getting 5%, 6%. That's not the same return I could get for a more risky investment, like a property, but it's better than nothing.

And so you can start to see how the scales move in that way. This is also why we talk about the zero interest environment, right? Or we talk about it nostalgically now because it no longer exists.

In many ways, you think about a lot of VCs. Not all of it, but a lot of their cash comes from debt. Maybe not directly, but maybe their limited partners, the cash they're putting into those VCs could be coming from debt.

But now debt costs more money. They need a greater return. So when they give it to the VC, they put stipulations on it.

They say, I need X, Y, or Z return if I'm going to give you this money. So now the VC is saying, okay, I got these dollars, but they're earmarked to make 15% in a five-year time horizon instead of 10% in a 10-year time horizon. So they can't give it to a company that isn't performing at the level that they think is going to deliver the return.

So you start to see how all of these pieces, there's more friction at every step in the process. And so you think about that in a startup where we are largely fueled by VC money, we've got to find a way to show that better return. So that's why you hear so much about durable growth, sustainable growth.

You hear about margins a lot more now, and everybody's got to be responsible for a revenue number. It's because when we talk to VCs, we've got to be able to show our ability to give that return on investment.

[Rob] (: 10:12

A couple of trends I've been seeing lately, from what I hear, there's still a lot of dry powder out there, money that could be invested, not that kind of dry powder.

[JP] (: 10:23

What? I beg your absolute pardon. What did you say?

Some dry powder?

[Rob] (: 10:34

I don't know. It's a VC term. It's an investment term.

Investment term, yeah.

[JP] (: 10:39

Yeah, investment term.

[Rob] (: 10:40

These investment folks are- I mean, I know some people are investing.

[JP] (: 10:43

Yeah, go ahead.

[Rob] (: 10:44

Into the dry powder. They're going to be in the dry powder business.

[JP] (: 10:48

Yeah, yeah. Johnson and Johnson, holla at your boy.

[Rob] (: 10:52

Anyway. Yeah, so from what I hear, it's not that the money's not out there. It's just being deployed very carefully.

[JP] (: 11:00

Tighten the strings on the purse. Got it.

[Rob] (: 11:04

So I think investors are looking for things that they'd consider to, well, a more proven bet. Yeah. More proven bets, rather.

It used to be the case that you could raise a million dollars on a slide deck for the better part of the last decade or so, say for the last two or three years. You could raise a million dollars on a deck and no product, no team, a couple of founders, and an idea, and a story. And to be honest with you, I don't think that was ever really sustainable anyway.

I don't know if it'll bounce back to that. I still think it's a good time to be a software business and to start a software business. I think the expectations are still just higher.

And what it means for us in customer success, specifically, not just from the founder lens, is that, as Dillon was saying, the onus on us to prove ROI is just not there. The expectations are just so much higher.

[Dillon] (: 12:07

Here's an interesting counterpoint, though. Consider it's harder to make a million bucks off of a slide deck, but it's way easier to build now. You think about all of these AI tools that could, you know, let's be a little bit cavalier with the example, but you could take that slide deck, punch it into ChatGPT, and it could create an MVP of a software for you easily.

Not easily, right? I mean, it's going to be a ton of iteration. You're going to be at your computer for a while.

But it's way better than paying $100,000, $200,000, $300,000 for an engineering team, even if they're offshore.

[JP] (: 12:46

Okay, I just got one question in. So how are we going to get this money?

[Dillon] (: 12:55

You got to get further in the process, basically, now. You can't do it with an idea anymore. And these are probably all interrelated, right?

Like, you don't need the money to build a business necessarily anymore than the MVP product and to go out and sell it a couple times to people. And I hear that over and over again from founders that are like, yeah, I got three people on my team and we're at two and a half million ARR. Like, insane stuff like that.

Because the tools are now available to do it before you go and get money. And it's probably better for both sides. Founders don't want to give away their ownership of the company.

They need to in order to grow and to grow at a rate that they can outrun the competition that they know or assume is out there or is coming. You don't necessarily need that anymore.

[JP] (: 13:48

So Rob, you're in the consultant space. What are you going to do that the AI consultant cannot do?

[Rob] (: 13:57

What's to say I'm not the AI consultant? I mean, honestly, a lot of value that I can provide my customers is to bridge the gap between this scary, rapidly changing world of AI where they're like, I know stuff is changing. I know I have to pay attention to it.

I don't know where to start. I need a tutor. So I can bridge the gap between the world where they're like, I've got this pain that the world is moving beneath me faster than I can keep up with.

Oh, and guess what? I've got this nine to five with customers yelling at me. How am I going to take the time to go do my research on the latest and greatest tooling when I'm living firefighting every day?

Help bridge the gap between that world and the world where I personally can help hold people accountable and say, we're going to set up a schedule, a syllabus. A calendar of learnings that we're going to go through and a method that we're going to go through so you can learn. Here's how AI affects my support function.

Here's down to every basic, like this is what it means to deflect a ticket and how that workflow works, how to measure it at scale, how to implement it. Then we move into how to implement AI and onboarding, how to implement AI and health scoring, how to implement AI and expansion or referrals or advocacy, that kind of thing. Basically, my goal is actually to be the vehicle by which people can move elegantly with that change and in an affordable way.

[JP] (: 15:27

So you're serving the human, not necessarily the problem. You serve the human to help them solve the problem, which is great because sometimes you can give a human a tool to solve a problem, but then they still have an incline with how do I use this tool? What's the best way to use this tool?

But if we come to serve, the human can then use the tool more effectively. Go ahead, Dillon, let me step on it.

[Dillon] (: 15:48

Well, I think so there's definitely a part of it that is the rigorous approach that Rob is describing. But I think another piece of it is still today, even with the most advanced models that we have at our disposal as consumers, AI still requires input. And in many ways, what founders actually lack is understanding what all the inputs need to be.

And that's where you need a subject matter expert in a lot of ways. You cannot extract. It's like energy.

You got to give energy to get energy. And I mean that literally in like a physics way, not anything spiritual or hippy dippy. If you don't give the information to the AI, it can't give it back to you.

So unless you know how to describe your scenario and you know how to describe exactly what you need from it, and you also give a modicum of guardrails around your scenario, AI cannot answer your question. And that's where subject matter experts like consultants still live and always will. I mean, that's what a consultant does.

[JP] (: 16:58

And this is why we can't just rely on plugging in the federal interest rate to some sort of AI machine and having to deliver a customer success strategy, right? We still need folks to go out there. I want to try that.

You know, I mean... Let's do this. Because part of my interest in this topic is contextualizing like what we're actually dealing with.

You know, people sometimes have something on the surface that seems to be the issue. And there's a whole lot of talking on the surface. We're not getting at the real issue.

What are you laughing about?

[Dillon] (: 17:37

So I understand your analogy was meant to be wacky. But you said, we can't just plug in the federal interest rate and ask for a customer success strategy. So that is exactly what I did.

I asked ChatGPT, based on the federal interest rate, what should the Fed's customer success strategy be? And the very first line back is, this is a beautifully weird question, but let's go with it. If we treat the Federal Reserve as a SaaS company and the federal interest rate as its most important product lever, then the customers are commercial banks, the broader economy, and arguably the American public.

What would a customer success strategy look like in that context? And then it just started to devolve. It just said the same thing.

Segment the customer base. There you go. Live, baby.

[JP] (: 18:32

We live, baby. We live with it. You see that?

But this is kind of wild though. But this is why I want to take the conversation a little deeper because it's easy to get caught up in the frustration. It's easy to get caught up in the doom bait, right?

That's out there. And I wanted to think more about living in the solution in a very practical way. Trying to see like, hey, how are decisions being made?

Let's not say people are just inherently stupid or people are just inherently evil. Let's think like, what is driving people? And I'm not getting at the capitalism being underneath.

We're ignoring that. We're just looking at the service. Okay, if we're here, we're working, we're trying to work together, figure out how we move forward.

Why do things happen the way that they do? Is there some explanations for things the way that they go? Because I think that we probably have a lot of listeners, including myself, right?

I just got educated and I'm sure we have some listeners that are maybe just have been feeling, I don't know, like real down. I don't want to say hopeless. I don't want to put that on people, but it's easy to get pessimistic looking at the job market and everything.

I think it can really help to at least have some understanding about why things happen the way they do, but how we can react as individuals, that's a subject maybe for another time.

[Dillon] (: 20:03

Great, great segue. That is our time, boys. I like this.

I think it does dovetail nicely into the conversation we've been having a lot lately, which is let's take the wool off of our eyes that every startup company we work for is destined for success. We can try our hardest, but sometimes there are things outside of our control or the control of the company overall.

[VO] (: 20:44

Until next time.