When it comes to IPOs, 2021 was an excellent year for SaaS companies. Accelerated digital transformation across industries put SaaS companies firmly on the hypergrowth path. Compared to 2020, the number of SaaS enterprises that IPOed in 2021 has surged by a whopping 121%, and there is little doubt why Saas companies are getting so much investor interest. According to Gartner, the SaaS industry has grown from $35 billion in 2015 to $145 billion in 2021. That’s a 5x growth in six years, and it is estimated to reach $171 billion in 2022, continuing to dominate the cloud services market.
But this kind of hypergrowth doesn’t happen overnight. It takes timely strategy execution while managing growth versus cost. To do this, companies need to be agile to leverage growth opportunities. And, as a CFO, you need to be at the forefront of building that agility across the organization by making informed decisions to adapt to constant changes.
In recent years, the CFO role has evolved from being guardians of the compliance, accounting, F&PA, and forecasting functions to someone who can view and understand metrics to make data-driven decisions for scalable near and long-term strategy,
As you plan for 2022, here are three things to help you prepare for hypergrowth.
Focus on a multi-year horizon
As a rule of thumb, I focus on the two-year horizon, asking questions like these:
What does success look like in the next two years?
What people, processes, and infrastructure do you need, and why not have them in place now?
What are the blockers in the path?
What is the financial envelope we want to operate within?
Most strategic initiatives take shape after nailing down the answer to these types of questions. It is important to plan ahead so you’re not constantly trying to catch up. The right team members and infrastructure at the right time can be a game-changer, accelerating growth. I spend a lot of time thinking about what is on the horizon and challenge other departments to do the same to be prepared by asking: Two years from now, what does your organization need to look like? What do you need to accomplish? And what are the things that you need to do today to achieve those things over the next two years? Often that lends itself to people and processes, and systems.
As a CFO in a high-growth SaaS business, you need to have the ability to look at the business cross-functionally. You also need to challenge other functions to have a multi-year perspective. It is not just a finance focus, but your job is to facilitate the view through every aspect of your business. This gives a holistic perspective of the decisions you need to make to drive long-term business growth and helps leaders connect the dots.
Automate to future-proof your business
Once you have your multi-year growth plan in place, it is all about being ready for it. When structured correctly, finance can improve overall operational efficiency by helping all the operators be more thoughtful about their business. Automate processes that help you drive growth faster and help you make time for more strategic initiatives. When it comes to your tech stack, other than feasibility and ROI, you need to focus on two main things:
- Does it scale with growth?
- Does it enable the business to unlock new growth opportunities?
Automating the right finance processes means future-proofing your business to scale while saving costs and reducing the burden on your finance team. The billing system is where most customer interaction occurs throughout the organization. It becomes the system of record, even more so today than the CRM or the back-end ERP, because it has the most real-time, accurate, and up-to-date information on the revenue lifecycle. An automated billing system can help you manage account receivables and cash flow, reconcile payments, streamline collections, track revenue and generate reports, all in real-time, even as your business continues to see rapid growth.
A robust tech stack lays the foundation for future growth, providing the regulatory and reporting framework you need, as well as automated data management to increase the flexibility and scalability your business requires. As your business expands across geographies and market segments, you must also contend with multiple pricing models and handle subscription accounting and revenue recognition complexities as SaaS finance leaders. A robust recurring billing and revenue management system in place helps you meet these compliance requirements, automating tax management, revenue recognition, and reconciliations.
Finance leaders who recognize the importance of building a sound tech stack play a strategic role in their company’s growth.
Measure what matters and invest appropriately
You want to define and obsess over your unit economics and critical SaaS metrics. We look at many metrics that evaluate how efficiently we are selling new customers, renewing existing customers, deploying our marketing dollars, and customer satisfaction.
Analytics builds a deep understanding of the efficiency in the business and where you can do better by benchmarking against the best in class. Subscription businesses have the unique advantage of having the visibility and predictability of future revenue, with ARR (annual recurring revenue) being a leading indicator of future growth. That is great, but looking at the underlying metrics is essential to ensure you are operating as efficiently as possible and can identify problems or opportunities in the business as early as possible.
When in hypergrowth, the focus is and should be on revenue growth with healthy unit economics. However, you do not want to lose sight of balancing growth and costs. While you don’t want to starve the company from not investing on time, keep a close eye on the unit economics of the business. As mentioned earlier, think about where your costs need to be two or more years out to determine if you are on the right trajectory.
Hypergrowth has changed the way CFOs work today, and they now play a crucial role in shaping the business’ growth trajectory.
As you may also have the informal title of the ‘Chief Growth Officer’ role, you must think long-term and leverage data and technology to identify opportunities to fuel growth or even adapt to new business models.
This article was written by Mike Beach, Chargebee’s CFO, and originally published on CFO Dive, and republished with permission.