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Revenge of the Bean Counters

September 2, 2015

We love accountants and CFOs.  Since we lend money to early-stage SaaS businesses, we certainly spend a lot of time with CEOs, but it is the CFOs who speak our language.  What is more fun than discussing the nuances of deferred revenue recognition!

Good SaaS CFOs realize that this particular business model affords them, and in fact demands from them, a much greater role in the business than interpreting GAAP or raising money.  In traditional software businesses, this was not the case.  A business model consisting of five sales reps hired from Oracle who are selling large perpetual software licenses did not require much financial insight or analysis.  The answer to every business question in that model is: “close more deals.”

The SaaS business, however, is much more data driven and subject to analysis.  Much of that data, and the analytical skills to interpret and communicate it, are in the domain of the CFO.   CAC Ratios, contribution margins, retention rates, conversion rates, cohort analysis, etc. are all metrics that a SaaS business needs to understand and communicate effectively both internally and externally.  If the CFO does not take the leading role in delivering these metrics, someone else in the company will fill the void.  Inevitably, if there are multiple folks involved in collecting and reporting this data, it will not only be confusing and possibly contradictory, but it is much more likely to simply be wrong. We have all seen the ad-hoc, distributed, approach to metric reporting which typically leads to “how come Jim’s spreadsheet is so different from Kelly’s?”

In a SaaS model, the CFO can be much more connected to managing the business.

SaaS metrics are, by design, more actionable than pure financial metrics, and can help lead a company to data-driven action plans like:  “increase pricing on large customers”, “hire two more customer success people”, “stop selling the ‘light’ version of the product”, “shorten the free trial to 15 days”, or “spend more money on Linkedin.”

Traditionally, theses may have not been CFO type recommendations, but armed with good financial numbers and customer level retention metrics, these are just the kind of questions CFOs should be asking and answering.

It is the availability and the granularity of data that has allowed this shift in finance as well as marketing.  Along with the CMO, the CFO should be one of the top few folks in a SaaS organization helping to drive data-driven operating and strategic decisions.  Tell the sales team to just sit down and be quiet for a minute while you and the CEO figure out which way to go.

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