How the Finance Function Changes as a SaaS Company Grows

building out the finance function  

We had a great discussion with Andrew Setness, VP Finance at DialSource this week on evolving the Finance organization as a SaaS company grows.  We talked about the processes, metrics and systems that change as a company goes from a Series A, to B, to C and beyond.

Andrew, based in Sacramento, CA, highlighted that investors are asking for more metrics today at earlier stages than a few years ago, and doing more due diligence on how the metrics are calculated.

We had some excellent questions from the audience, such as:

  • How do you measure R&D productivity other than “R&D as a % of revenue”?
  • Do you think that metrics like CAC should live with SalesOps or finance?
  • Do you recognize setup revenue over the contract period monthly?
  • We are on track for our series B and get the feeling that investors trust our Salesforce data less than our financial system data. e.g. they see finance as gold standard, not SalesOps. How do we bridge the gap?
  • What are budgeting best practices in a quickly growing company?
  • How do you account for benchmark bias?
  • Do you see a greater emergence of “revenue ops” in the future?

Here’s the podcast of the SaaS Conversation, followed by a transcription.  Want to watch the webinar on demand? Click here.

SaaS Conversations with Lauren Kelley: Building Out the Finance Function as SaaS Companies Grow

Lauren Kelley:   Welcome everyone. Thanks for joining us this afternoon on the east coast, and morning on the west coast for SaaS Conversations. We are lucky today to have Andrew Setness, VP of Finance at DialSource to discuss how finance evolves as a department, as an organization, as a function with the growth of a SaaS company. So before we do that, I’m going to move to asking everyone to do a little bit of housekeeping. Everyone’s phones are on mute. If anyone’s having trouble hearing anything, just shoot something through chat and it would actually be good if a few people could tell me that the sound is coming through. I’m always checking; I’ve been on plenty of webinars, run by some of the biggest companies in the world, where things didn’t work out.

Anybody who has any questions, just let me know, we’re going to have lots of questions, so please send questions through chat. We’re looking forward to answering as many as we can. I’m going to get started. I am Lauren Kelley, CEO and founder of OPEXengine. OPEXengine’s an independent SaaS benchmarking community for software and SaaS companies and a finance community for software and SaaS companies. We’ve been doing it for over 12 years now. We work with hundreds of companies, almost entirely B2B software and SaaS companies with revenues between a $million and about $500 million. We have a lot of fun and we love our community. Andrew, if you could introduce yourself, I’d appreciate that.

Andrew Setness:  So, my name is Andrew Setness. I am VP of finance for DialSource. I have previously worked in audit, worked at private companies. And then my most recent position has been working as an outsourced accounting consultant. I came to DialSource at the end of 2017 and for me it has been a great fit because most of my experience has previously been with B2B SaaS startups. And so being able to find one in Sacramento where I live now was a great opportunity.

Lauren Kelley:  Thank you. I’m going to launch a poll here and while I’m doing that I’m going to ask everybody to participate in the poll just so we get a little bit of a sense of what your company looks like, how big your finance department is and what stage you’re at. Because we’re going look at finance departments in comparison to companies stages. And meanwhile I’m going to ask Andrew, what’s the funniest thing that’s ever happened to you in the finance organization? Maybe pick a different company than DialSource.

Andrew Setness: I’ll try to think of a previous employer for that. So, while I was previously working at PolyComm in their order audit department, I was trying to make the transition from being a contract employee to a full time employee because this was when I just started out in my career. So I was able to get a contract role. However, the CEO at that time had some inappropriate expenses on their expense report that was discovered by the audit committee. I mean naturally they let the CEO go with a golden parachute, but they also put a hiring freeze for all new employees. So if that did not happen, I probably would not be where I am today. I may still be there. So a silver lining and also taught me a lot about integrity and making sure that we all take our roles very seriously because we do have a responsibility not only to the company, but to the investors and the employees as well.

Lauren Kelley:  Great points. It’s good to hear that finance can bring down the great leaders. I remember reading about that. So that’s pretty funny. So we have sort of a range, but it looks like the bulk of the people on line have about a two to five people in their finance organization, little more heavily weighted towards a round B, C, D and a couple of public companies.

We are going to move on. Andrew and I have been talking together. We actually met, I think, last year at the AdaptiveLive user conference and, Andrew, you’ve been benchmarking with OPEXengine and have some interesting thoughts about building out the finance organization. We wanted to focus on process metrics and systems and how that changes and I want you to talk a little bit just at this point about how important it is to have overreaching goals like aligning systems, automation and then, universalizing some of the processes so they’re not dependent on that one person who can really rejigger the Excel spreadsheet every weekend just before the report’s due.

Andrew Setness:  I have experienced that in a wide range of companies in my previous experience as an outsourced accounting consultant. And so I’ve seen small companies have great systems that are very aligned and I’ve seen more companies that don’t have great systems that don’t talk to each other. It’s not necessarily based on how large you are it’s how much time and effort you’ve put to bring together those systems, which is basically bringing the departments together. Bringing in sales and marketing and if you have any kind of manufacturing, bringing that in as well. So finance is holding them responsible for everything, but is letting go of some of that control and allowing the other departments to feed the model that you have that finance controls.

Lauren Kelley: I think that’s a good point and I’ve heard it from other finance leaders is just making sure that you think about it and don’t get so caught up in the daily work, always invest a percentage of your management time to aligning systems, process automation and it’ll pay off in the long run. Let’s talk about Series A, and that’s where you’ve been what for the past year. I think you’ve been at DialSource now for two years approximately?

Andrew Setness: Yeah, I’ve been there for almost two years and during that time when I first started, we received our Series A financing before then. And given that we’re in Sacramento, we were able to have a much cheaper cost than our competitors in the Bay Area. So we’ve been able to make that money last much longer than some of the other companies that have had to constantly raise. So we’re trying to be very careful about as we expand, try and make sure that we keep track of the cash that we have and that we’re growing in line with our revenue.

Lauren Kelley: Tell me what are the key metrics that you track at Series A?

Andrew Setness: Today it’s about just having the core finance function built out. So that’s usually having a month end close process that includes financial statements with budget versus actuals. This is the basics that most investors will want to see on a monthly basis and they want to make sure that you can have some kind of process to give them that basic for that information. However, the more the metrics that they’re looking for are things like MRR and ARR. And then also what’s your AR for 90 plus days receivables, because a lot of companies, you may get a lot of orders in, but if most of your orders was all in just AR balances that go on forever, then there’s something wrong either with your sale cycle or your collection process. So just making sure that you are managing cash, that you’re tracking your revenue and growth, and that you are able to report budget purchase actions.

Lauren Kelley: What have you seen in some of the companies you’ve gone into at the A round, or early stage, what are some of the biggest problems?

Andrew Setness: For companies, actually B2B companies, where you have known standard contracts, contract management tends to be a very big issue. So without clear controls about what’s in the contract sales people may be incentivized to put in less favorable terms for finance. Things like opt-out clauses, monthly billings, special instructions where they get three months, just any kind of nonstandard term that they’ll try to put in to get the deal closed, but may end up being worse in the end.

And then also some of the challenges we’ve had is around commission tracking. So depending on the organization, either finance or sales can control commissions. However, it’s hard to make that available for all the employees so that way you’re doing what the commission plan is supposed to do, which is incentivizing to sell more.

Lauren Kelley: And typically, what systems is the company using at this stage?

Andrew Setness: Usually at this time cash is the biggest concerns so they try to go with the cheapest route. So it’s usually a QuickBooks, some kind of CRM system, and then pretty much all plannings is in Excel.  Excel is filling the hole of the other systems and the lack of integration, it’s trying to put things together, but that quickly becomes unmanageable as you grow.

Lauren Kelley:  So then going into Series B, and I think you said you’re currently fundraising, so you’re doing the prep for Series B right now.

Andrew Setness: Correct. We recently had our audit done and we are going and pulling together all of our due diligence. From what I’ve seen in the last few years is that investors have started demanding more earlier. So where you could get away with having information makes you cash basis as you go into Series A, they’re now really looking at you having those metrics and being able to compare them against your peers. So I think as the systems have gotten better, investors have gotten more spoiled. And so there again, pushing departments to get them the information that they have because most of these VC’s have a lot of portfolio companies and they want to collect all the information from all the portfolio companies and then roll them up so that way they have an idea of how their investments are doing.

Lauren Kelley: So they’re looking for more of the SaaS metrics like CAC and retention rates and customer lifetime value maybe at least at an early level.

Andrew Setness: Yeah.  I mean usually Series A it’s hard to calculate things like cost of acquiring customers. You may or may not know where all the costs should go. So it’s questions; Do you include customer success costs? Do you include presales implementation? And so these are metrics that require more mature processes and definitions. And usually you can’t get them in those earlier rounds. You have to wait till your system are more mature and you can calculate these metrics.

Lauren Kelley: And I think you mentioned when we were talking about this, that you actually did an audit, even though you were at the end of the Series A, you just wanted to get that done. Can you talk about that a little bit?

Andrew Setness: So for most of the companies that I’ve worked at, they won’t get an audit until they’re required to, and usually when they’re required to it’s the last minute thing you have to do, it and it’s rushed and you’re already trying to fundraise or do other things at the same time. So it becomes extremely challenging. And having been on both sides of an audit, I can understand, I wanted to go through that process earlier when things weren’t as crazy so that way we could make sure to have clean, smooth audits all years going forward. So that was definitely a big priority for me to get done because even if no one was requiring it of you, now someone at some point will require it, especially if you’re planning to go public or exit.

Lauren Kelley: You’d recommend doing it a year in advance from when you really need it because the first year takes a lot of resource and it’s complicated to get it all in place.

Andrew Setness: Yeah. So the first year they’re not only checking what happened during that year, but all things that happened in the company. So they’re going through basically, since the company started, all of the documents, all the paperwork. So getting that done makes it so when you’re doing future audits you’re just doing those transactions that occurred in that last year. So it’s definitely easier to get through.

Lauren Kelley:  Let’s talk a little bit about SalesOps. Because it sounds like in Series A, oftentimes finance is handling some of the commission management and some of the things that typically get split off for SalesOps. Have you ever seen SalesOps stay within finance sort of through C rounds or beyond? Or do you think it’s always splitting off for the most of the companies you’ve worked with?

Andrew Setness: I think that SalesOps usually sits with sales and will go there depending on what the compensation plan is. If it’s relatively simple, they’ll actually calculate it and then give those numbers to finance, or finance is just the ones paying out the money, not necessarily calculating it out. However, what I’ve seen historically is sales people tend to come up with very complex commission plans because they think it will incentivize their employees more. However, they tend to be very difficult to actually implement. And so things like having tiered commission rates, having different commission rates for different people, having bonuses for reaching certain milestones, so all those things, while they are great for trying to motivate employees, can be very difficult to actually carry out and to track and to provide transparency to the sales employees. So what I have seen is as companies get larger, you tend to separate out commission from being in finance to being in SalesOps. However, finance has always evolved as the kind of creation of implementing the creative plans, that sales ends up with.

Lauren Kelley: And at what point do you separate accounting from FP&A do you think?

Andrew Setness: I think you start always with the accounting. So usually FP&A doesn’t exist before then, it’s more about just getting the historicals, being able to do it, creating a budget which may or may not be a FP&A function. And then as you grow, you start having someone go and every month you’re updating a budget, you’re trying to make it dynamic. So that way if someone changes the prior period or something changes, it’s not a week’s worth of work to try to go through and to make everything balance again. And then it’s about trying to bring in all these other departments into the planning process as well. So part of the finance planning is again, you’re moving away from the accounting and then you’re trying to bring in the rest of the stakeholders to get their input, to make the model and to update it.

Lauren Kelley: Let’s talk about the systems that you use at the Series B stage when you have to produce metrics and you’re moving, maybe adding QuickBooks and out of Excel, but you’re not ready for the systems of a $100 million company. So what have you seen mostly?

Andrew Setness: So there are a few stop gap systems that people can use to kind of make QuickBooks last longer.  We use SaaSOptics for our revenue recognition. So defining the bookings, the invoices, and revenue for each contract. And that works very nicely with both Salesforce and with QuickBooks. So as we’ve grown as a company, we’ve kind of tried to plug the holes of QuickBooks with these other systems that integrate with it. However, at a certain point you have to move away from QuickBooks. Depending on what companies want to do, some may just say we’re going to get rid of QuickBooks, get like an Intacct or a NetSuite, and we’re going to do it all in there while other companies will take more marginal steps to get there. Again, a new ERP can cost more than all of your other system combined it depending on which one you get. So it’s a big commitment to make.

Lauren Kelley: We see different situations with different companies. Also, a lot of investors have technology stacks that they tend to recommend. It just depends on the company and the situation that they’re in. Let’s talk about Series C. So now the organization starts getting a little more complex and more functions that are needing to be handled and the metrics are expanding, but starting off, what do you see investors asking for? When you start fundraising for Series C?

Andrew Setness: They’re really looking at, not only, net and logo retention, but they’re looking at more complex metrics like customer lifetime value, a time to value for customer, what each departments expenses as a percentage of revenue, because these are all things that as the company grows, will give good insight to what their long term prospects are. So if you’re spending a massive amount of sales marketing and you’re not generating new sale, then there is something wrong with your sales process or you should go and focus on something like channel sales or partner sales to see what your right fit is. You’ve gotten money, they want to make sure that you’re spending it effectively and you have something to show for it. So these more complex metrics tend to show up. And then you also have more known finance metrics. Things like ramp time for new sales employees, net promoter score, quota attainment, how much time you’re spending on tech debt. So you’re starting to expand it past just those finance metrics to more company metrics that that impact everyone.

Lauren Kelley: We’ve talked a little bit about FP&A and the evolution of FP&A and separating more from accounting per se. And you hear more and more companies at about this stage are a little bit bigger, developing separate people or a separate organizations and oftentimes it doesn’t even sit within finance anymore or report to the CFO.  Now you have an organization called BizOps. And I know a lot of west coast companies that’s pretty far advanced as a function. Do you want to talk about that a little bit?

Andrew Setness: From what I’ve seen for BizOps, it’s usually a hybrid of IT and finance. So they’re kind of managing the entire tech stack that you have, making sure that they’re integrated. You have to make sure that you have common objects between the systems. So when you’re talking about a customer in your CRM system, that should also equal the customer in your ERP system, things like products. And so it’s taking all of these business objects, and aligning them, making sure that your systems integrate and then trying to pull all of that information usually into a BI tool or FP&A tool to go and drive your forecast.

Lauren Kelley: Where do you see BizOps reporting in? When I said before that you see it evolving more on the West Coast, I think it’s evolving everywhere. We just had an OPEXEngine SaaS finance meetup, here in the Boston area. We do them once or twice a year in the Boston area and the Bay Area. And this one was completely focused on BizOps and the span of control and the systems of people are using and discussing issues. A lot of it ended up talking just about definitions and figuring out the definitions of the various metrics. Cause that’s complicated. And as you say, you have to have a similar objects or the same object, consistent objects, from system to system and you have to have consistent definitions. Could you talk a little bit about, IT, especially if you start branching off and BizOps is a separate organization then it’s even that much more important to have consistent definitions.

Andrew Setness: Yeah. So I would say that in smaller organizations, I’ve more seen Biz ops reports to CFO to get into finances, controlling everything. However, as you get larger into the later Series fundraising, it tends to be under a chief information officer. So it is almost a different department, and some companies may call it chief data officer, but it’s pretty much trying to take all of this data that we’re all trying to collect from different sources and then bringing them all together into a data warehouse.

Lauren Kelley:  And so with things like definitions it is very important because if customer success and finance have different ones, if you ask them, hey, how many customers do we have this month, you can get very different answers depending on the definitions for each of those. So the most common thing is, hey, when does the customer start? Do they start when they actually sign the contract, or is the start the actual subscription start date that it says in there, you can have some of these gray areas that you don’t really know. And unless you’re all going to sit together and have clear definitions for each you, you will have differences which makes you look like you don’t know what you’re talking about.

You can’t get the data right unless it’s consistent. I think the key point is to have that conversation and to set in stone what the definitions are and you may have to evolve it once a year, or tweak it a little bit as your model changes. But for some companies, a subscription starts when the customer pays. Especially for earlier stage companies where cash really is important. The most important thing when you’re big and you have a lot more momentum and accounts receivable is a well managed function, then maybe it’s when the contract’s signed. Other companies, it could be a month or two before our customer is live. So their subscription doesn’t really start until they’re live and others, a customer is live effectively as soon as they pay or they signed the contract. It is complicated, not consistent from one company to another. I have a question here from one of the attendees.

How do you measure R&D productivity other than R&D as a percentage of revenue? And I have some thoughts about that, but I’d like to hear what you have to say.

Andrew Setness: Other R&D metrics are just uptime. So a lot of companies have platforms and they want to measure how long the platform is up compared down. That should be a relatively easy one that they can get. And then if your company has any kind of capitalized software development that you’re doing, is being able to separate the time that they spend on tech debt versus new features so that you know what to capitalize and over what period. And then things like how many releases are you going to do a year, how many bugs fixes are needed for each new product. And so there’s a wealth of information that is probably already being captured by development. And it’s more of just getting that information into whatever system you want to use, kind of drive your insights and forecasts.

Lauren Kelley: R&D productivity and measuring R&D ROI is something we’ve thought about and talked to a lot of SaaS companies about with some really thoughtful CFOs and business leaders. There’s a couple of other measures that we’ve seen successful companies use, and finance is tracking.   First is tracking tech debt and that’s something we just started benchmarking about two years ago. So the percentage of R&D spend spent on tech debt is important and you can look at the benchmark.  Over time, there may be periods when you’re above the benchmark for tech debt and below the benchmark. But it’s one of those things where you don’t necessarily want to spend too much, but you also don’t want to be spending too little because every company’s got some tech debt.

And then another way that companies measure productivity is kind of like the magic number taking R&D spend against new revenue, so the change in revenue in the next period. So depending on sort of your development cycles, if you took last year’s R&D spend and compared it to new revenue in the next year, there’s certain benchmarks for what that should look like as well. Because if you’re not driving revenue with your R&D spend and increasing revenue, then there’s an issue there. So those are some of the things that we’ve seen.

Another question that we got is, do you see a greater emergence of revenue ops in the future? That’s an interesting question because obviously it’s all about revenue, but, how do you track that and manage it?

Andrew Setness: I would say definitely revenue operations has been taking off more in recent years, mainly because investors care way more about revenues than they do about expenses most of the time. So in the Finance Pharma, we of course have to control the cost. However, when you talk to most investors, the vast majority of their questions are going to be about revenue. And so it’s not only having a great quote to cash cycle, but being able to take your customers segmented, segment them, do analysis on them to be able to see what the best path going forward is. Because not all deals are good deals, especially in SaaS companies because with SaaS companies, it’s not only about getting new customers, but about keeping those customers. So if you get a customer, there are a ton of work to set up and they turn them, they probably cost your company more than if you just didn’t book them in the first place. And so it seemed which customers have been successful, what type? And then being able to continually, retarget the company to get those kind of customers that are working with your product.

Lauren Kelley: So for example, customer cohort analysis and segmentation, would you see that done in SalesOps or would you see that done in revenue ops?

Andrew Setness: Mainly done in revenue ops. You can do booking by customer and on the CRM side. However, in your ERP or revenue recognition system, that’s where most of the data’s going to be generated and most of the metrics can actually be calculated. It can be very challenging to try and make some of these calculations in Salesforce or other CRM systems where they’re easier to do in an ERP.

Lauren Kelley: Here’s another good question. Do you think that metrics like tech should live with SalesOps and not finance? Because sometimes skill sets and sales sometimes struggles a little bit with cost side metrics and might be better to the revenue metrics or the sales and bookings and, and customer metrics. what do you think about that?

Andrew Setness: Yes, I think sales ops should be very involved in defining definitions, having a plan on how it’s actually calculated. However, finances the one who ultimately has control over all the expenses and the reporting for it. So they’re usually the ones who end up calculating the actual metrics. Again, with things like customer acquisition costs we can have some ambiguity with, with what’s included and what’s not included. That’s where sales ops will be helpful because you guys can work together, see what definitions are going to work best for your company and then continually analyzing those as you grow.

Lauren Kelley: We’re going to go into another poll here. We are going to launch this looking at what systems the audience is using, and then also what BI Apps the audience is using. I think we work together in the benchmarking, and you’re sort of a super user of benchmarks and, and different systems. Maybe you could talk a little bit about how you use the benchmarking and how you integrate that with your other systems so that you can present, you know, the whole point of benchmarking is to get the context of your own internal metrics in front of executives so that you can improve and increase your efficiency.

Andrew Setness: We currently import OPEXengine benchmarking data into Adaptive Insights. And we create a sheet which stores all the data, so it’s very easy to update, it’s very easy to add multiple sheets, so that way you’re comparing yourself to not only similarly sized customers but also larger companies. So to not only where are we today, but where are we need to get to tomorrow. And then we’ll go and we’ll calculate our actual performance and then compare the two so we’re able to say, hey, here’s how we did, here’s how similar other companies have done. And then seeing either are we doing well or are we not doing well on any of these? And then we can focus on those ones where we have significant variances to see where we need to focus our efforts.

Lauren Kelley: From the poll we just took it looks like the majority of companies are still using Excel for budgeting and planning, which kind of makes sense because it sounded like the audience was a little more weighted towards early stage companies. And then in terms of BI Apps, again it was other, I don’t know if that’s also Excel. I’m going to move back to the slides and just talk a little bit more about best practices. We didn’t finish on the BizOps because this is kind of an interesting question. When you think about building out finance and FP&A and then you have BizOps, what kind of profile person would you hire and how hard is that defined in your area?

Andrew Setness: We’re relatively close to the Bay Area, so we get the advantage of having a relatively large outcome pool. However, where you’re usually able to snag them up as significantly cheaper prices. However, we look for more IT experience and then hopefully some finance experience when trying to define what the BizOp is, because it is a role that you’re working with multiple departments. Having some sales and marketing, development, finance, IT experience is very helpful to have because you’re managing multiple systems and you have to, even if you aren’t a power user in each of them, you have to kind of understand how they work and how they’re set up and how they integrate with each other to try to bring in all that data.

Lauren Kelley: I should mention some folks also use Chartio as a BI tool to analyze some of their data and information. Where do you see BizOps reporting up to? Is it staying under the CFO? I think we had a meeting last December, the SaaS finance meetup in the Bay Area, and a couple of companies said they had new customer organization. So you have a chief customer officer and that BizOps was sitting under that. So you have sales and revenue, which was more focused on new customer acquisition, and then you had the customer organization which had product management as well as customer success and BizOps. And then you had, under the CFO, you have finance and FP&A. What kinds of things are you seeing at newer, earlier stage companies?

Andrew Setness: At smaller companies it tends to be finance who really pushes the new systems and bringing things together and wanting insights, usually because they’re the ones who are asked for the information. So people ask finance, Hey, can you give me a report of x? Can we make a dashboard of it? And so usually finance doesn’t want to do all these ad hoc reports. So it’s putting systems together that can automate a lot of that. But then as you get to larger orders, depending on, say the role of the CEO has or the CIO has, it could report to a different department. So, I’ve seen it part of sales, I’ve seen it part of just the general management teams who are reporting pretty much directly to the CEO and serving as somewhat as a chief data officer role. But other than that I’ve mainly seen it as part of finance.

Lauren Kelley: It is so complicated. I’m sure everybody’s seen these studies that show the number of fast business applications that typical companies are using. We did one of these webinars on growing systems and processes growing from 20 million to 200 million. And one of the key issues that everyone talks about is just getting your hands around all the business applications that are being used by the company and making sure you have some central management of that. And I just learned about a new SaaS company or relatively new SaaS company that actually has kind of a cool product, but it’s another application that you can, you can buy to identify all SaaS applications, all cloud based applications within the company and then track their subscription and how many users are using it. But typical companies are using anywhere from 20 different business applications up to 200 different ones. When you start thinking about the marketing stack, the sales stack, the R&D stack, the project management stack, the user login management, and all the different snacks. And for the CFO it’s an issue of risk, it’s an issue of just who has access to what systems. And then a lot of what you’ve been talking about today is also to get effective use you’ve got to make sure that the systems are talking to each other and that they match up because it’s just crazy when you have different numbers coming for the same thing coming out of different systems. So maybe you could talk a little bit about some of the best practices and why you do that?

Andrew Setness: We already kind of talked about creating common definitions for terms. Things like true date, start date, cancellation date, that tends to be a big one too, cause if someone’s paying a year contract upfront and they cancel six months through, when’s the actual cancellation date, are they a current customer until the end of the contract? Because you are recognizing revenue for that time, even though they canceled, because they payed you for that, or do you go and use the cancellation date, which may be something that the CSM tend to use more as well. And then another thing I’ve seen as well is just trying to put together a FP&A system. So most people use Excel. We implemented Adaptive Insights to be able to do that, and it’s proved very helpful for trying to get more cross department collaboration and then being able to automate a lot of these tasks and reports that previously took a very long time to be able to do.

One of the things I would recommend is to try to learn some of these other systems that your company is using. For example, I’ve never used the CRM before I started this job, however, me ignoring the CRM, then it doesn’t make my job any easier because I’m relying on information from there. So I really had to dig into Salesforce to see how it was being used and help tailor it for finance because all the issues that companies have tend to go from sales down. So if someone has a bad deal, it’s going to be hard to implement them. It’s going to be hard to collect the cash, it’s going to be hard to renew them. So trying to deal with those issues before and getting into this year and making sure that by the time it actually gets to finance that is correct will make all of our life a lot easier. And so that’s one of the things that I really tried to do is to work with other departments, seeing what to some system that they’re going to use, which ones they liked, which ones they don’t like, and put something together that will work for, for everyone. I mean, you’re not going make everyone happy, but you can at least make your life easier.

Lauren Kelley: The system should follow the processes and sometimes companies buy systems thinking the system will solve all the issues because everybody’s marketing system is solving all problems, but you really have to have the process in place and then just automate it through the system. And so it still takes a lot of work to get the processes defined and be consistent about it and make sure everybody’s a stakeholder and is on board with whatever the system is. And you just have to make some choices.

I have a question here. It says, we’re on track for our Series B and get the feeling that investors trust our Salesforce data less than our ERP system. They see finances, the gold standard, not SalesOps. How do we bridge that gap? What I’ve seen is that it is really critical from an early stage too.

Even in Series A finance really needs to make sure that the data integrity is there. And that means working with the CRM and making sure that the data integrity and the processes to keep it clean and that the investments get made, not just in some like Hail Mary effort to clean up the CRM, but on a consistent basis. It’s got to be there from the start. And that’s something that you can show to your investors that’s what you’ve found.

Andrew Setness: We actually use Intacct now. We’re migrating over from QuickBooks. I understand what the investors are feeling because we in finance tend to take much more care into what goes into the accounting system then sales people make care what goes \ into Salesforce. And also you tend to have a lot less hands in the ERP system. So you may have one, two, three, four people in your ERP system, but you may have 20, 50, a hundred people in your CRM system. Any one of those people could go and put in something like a massive opportunity closing in the next month that would throw everything off. So I mean there’s some extremely common, that’s not just a small company, it’s all companies. A lot of investors that I talked to, they don’t even want to see what you have in the pipeline or they want to see what you’ve done historically and be able to plan based on that because finance usually has the trust and we go and spend the time to make sure it’s correct. And that same level of care is not usually put into the CRM system.

Lauren Kelley: It always does come back to the fact that finance is the one source of truth and has to be sort of the neutral arbiter among the different systems because you can only have one number go up to the top. We have another question, something that we didn’t talk about, which is starting the process a little bit earlier, but if you were at seed stage and you’re moving, if we go all the way back to the beginning, when you’re preparing to raise your A round, what do you think’s important that at that stage? I’ve captured some of that back question. What do you, what do you see when you’re raising Series A in terms of metrics, processes, what’s expected from Series A investors?

Andrew Setness: The bar’s definitely lowered than in later rounds, they more want to know that you’re tracking what cash is coming in, tracking what cash is coming out, you’re recognizing the revenue correctly, because there’s nothing worse than having a massive revenue change months later for previous periods. So they want to see some kind of consistency. It’s you being able to get them the information that they’re asking for. Usually financial related metrics on a monthly cadence. And if you can do that, you’re usually in good shape. Again, going back to what I previously said, investors have been getting more demanding with what they’re asking and so a lot of things that you were seeing demand is in Series B and Series C are being demanded earlier and earlier because they want to know that your team invested in their finance department and that they have the processes to take it to the next place. And it’s extremely easy to get bogged down in just transactional quantity depending on your business model. And that’s very heads down instead of being the more heads up a business partner that finance should become.

Lauren Kelley: We even see Series A companies needing benchmarks when they’re presenting to investors, which it used to be only larger companies that needed benchmarks to set the context because they were at momentum and they were scaling the business and the thought was that early stage companies are all, you know, all over the map and they’re sort of inventing the wheel and they don’t have a product market fit and they’re trying to figure out the sales process. But because SaaS has evolved and it’s almost 20 years old now, and the processes of building out a SaaS company are lot better established. We see really small companies being expected to show what they’re spending and what they’re producing and what their productivity is. Even at the A round. Have you had investors ask you for benchmarks and comparisons for, for your business model?

Andrew Setness: Our investors want to know things like, Hey, what’s gross margin for other companies in your space? What’s the cost of acquiring customers? A lot of these metrics come up very early and they’re demanding more. And when you’re able to invest in your finance function, you can usually demand a premium from investors for it and they’re willing to pay it. Where on the flip side, if you don’t do very well and don’t have good management of it, they’ll usually want a discount on your valuation because they can’t rely on the information that you’re giving them.

Lauren Kelley: It’s interesting that you said VC’s aren’t as interested in anything beyond the revenue metrics and probably the unit economics and those kinds of metrics.   We see with PE firms coming into the market and working with smaller and smaller companies. PE firms are primarily focused on expense management and growth as well. But we see smaller companies, or at least in the $20 to $50 million range, which we didn’t use to see, being asked questions about expenses and certainly about CAC, and also knowing how to calculate it and understanding what goes into CAC and what goes into gross margin, at earlier stages.

Do you have any final thoughts in terms of best practices in running an efficient finance organization as you’re, as you’re growing the company?

Andrew Setness: I’ve worked with a lot of Bay Area tech startups where I’ve seen a huge amount of turnover. And so one of the things that we really tried to do is invest in our employees and cross train them so that way they were not only able to cover each other when one of us is out, but we have different perspectives on processes and how things work. We are continually evaluating how we’re doing, what we can do going forward. It’s really about just investing in your employees, making sure that they have a plan for what they’re going to be doing, what they’re going to be learning. Because most of us spend most of our waking hours using these applications. Not knowing them is not going to do you any favors. So really learning how they work and understand them, it’s going to make your life a lot easier.

Lauren Kelley: So investing in training on the systems as well as cross training employees I think makes a lot of sense. And I’ve seen that work really well both because you have somebody to back you up when people are out or if somebody leaves for some reason.  Also, not everybody is automatically in the position that is their dream position and they may not know that they’re actually good at something else, that they’re more productive at, they get more sort of positive feeling from. And by being exposed to doing more parts of the job or have the responsibilities, it lets you shift people who might not be as good in one place, but they turn out to be really good in another position.

Andrew Setness: I would say just again, if you’re a senior person within department, ideally you want to train people how to do your job because if you’re the only one who knows how to do something, you’re stuck doing it and you can’t do what you may be best at or want to do. So, I mean, my greatest accomplishment that I can do is to have my team be able to replace me and do all the work that I do. I mean, I know it might not be great for job security, but if you’re able to do that, you probably are good enough to, for them to want to keep you.

Lauren Kelley: I have a last question here. What are budgeting best practices in a quickly growing company? And I know you’re very focused on the budgeting and planning process, so that would be great to have you run through that and what your process is and what some of your best practices are there.

Andrew Setness: With any growing company, especially if you’re trying to fundraise, trying to do long term planning is almost impossible. So you’re trying to plan for some unforeseen or unknown amount of money to come at some time and then at that time you’re going to kind of ramp up. Having monthly forecasts that you are updating and being able to continually update is very important. It’s more about being agile than it is about having some three year forecast that’s going to be old within a month or two. And so just really being able to have it be a continual process where you’re bringing in other departments and you’re trying to make things as transparent as possible. Because when there isn’t that transparency within the company, at least with the budget owners, they’re just going to spend whatever they want. If you’re not holding them accountable, they’re going to do whatever is in their best interest.

Lauren Kelley: I think what we’ve seen is that in the budgeting and planning process, SaaS companies are all about a lot more operational areas of the company coming together and working in unison. So the old traditional world of traditional software companies where you have these silos, does the income statement and balance sheet and it doesn’t really check the forecast, but the forecast comes out of sales and marketing as a separate organization. And when it comes to budgeting and planning each organization operates in a silo and sort of up to finance what their requirements are or what their needs are. And in the SaaS world, you’re not doing it once a year, you’re doing it all through the year but also each lever in the sales and customer relationship process has to work together.

That’s one of the hardest things when you go from Excel to using Adaptive or something else. The whole point is that you’ve got all the key stakeholders working together and seeing, okay, if we apply more resources here, then it’s going to take away from here and that’s going to impact this other thing. And, and that’s why we see so many more companies also benchmarking because benchmarking gives you across the board a better sort of layout of the resources for the company and where you’re placing your bets and whether you have imbalances to and where you’re investing.

Andrew Setness: One thing that’s helpful is if you’re particularly good in an area, say revenue per employee, it is a great reason to go and highlight that and give that to your investor. Then we have to take the good with the bad. He may not be as good on some things, but you have to learn from the things you’re not good at and then you publicize and you really work on things that you’re great at.

Lauren Kelley: We have the confidential “give-to-get” benchmarking platform. We have  monthly finance webinars, we have biannual meetups in the Boston area and the Bay Area, and then we also do additional informational surveys. We just finished the Sales Planning survey, which was sponsored by InsightSquared and Adaptive and everybody who participated in that will be getting the report either this afternoon or tomorrow. So we’re excited about that. And then we also do Comp Expense reports at the end of the year. Compensation, expense benchmarks, and comparisons, both of the whole company and for each individual department.

We have one more question, which is a great benchmarking question. How do you account for benchmarking bias? Companies tend to misreport data in surveys, so that’s a great question. We’re a little bit different because we’re an independent organization. We don’t do anything else or sell anything else. Everybody whose data we use pays a subscription for the give to get. We only work with the finance organization. We know that finance is the one source of truth on the numbers and we have automated processes that we run the data through that checks all the data you put in.  For example, I’ll take an absurd situation, but you put in that your cost of customer acquisition is $100,000 and your average contract value is $2000. We would definitely come back to you and that would get highlighted and we’d come back to you and say, is this correct?

And if that is your sales model, we probably wouldn’t use it in the benchmarking because it’s such an outlier. We’ve been cleaning data and working with Finance organizations for 10, 12 years. The software and SaaS industry is not a commodity industry, so it’s not like we’re counting widgets, but on the other hand, we have a lot of experience with it and hopefully people are happy with the data because our mission is to serve the operating executives to get the best data.  Then what you do with it, either for investors or for stakeholders is your issue. We just want to get you the best information so you’re not basing it all on anecdotal info, calling up your network and hey, what’s your funnel metric, that kind of thing where you really can’t benchmark it.

So with that, we’ll wrap up. Thank you so much, Andrew. Really appreciate your taking the time and sharing some of your best practices and it’s a lot of fun to work on this with you. So thank you again and thank you to the audience for being there.

 

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