Metrics that Measure Up

Imagine being a senior product leader at Microsoft for one of the leading "cloud products" in the industry, Azure Data Factory, and deciding to leave the stability, security, and prestige behind to launch your own B2B SaaS company. This is exactly the decision and journey that Anand Subbaraj began five years ago.

Anand spent 13 years at Microsoft but was fortunate to be involved with five different product launches (V1) over 13 years, with a primary focus on understanding the market and customer requirements. By being part of the founding team at Azure Data Factory, Anand learned what it took to take on established industry leaders, with a product that had not previously been introduced to the market.

Anand's experience with new product introductions at Microsoft, Anand had a personal experience in servicing his refrigerator at home, which served as the catalyst that customer service was ripe for transformation. After having three different service technicians have to make six visits to fix the issue, Anand was sure there had to be a better way to leverage automation to transform field service.

As a result, Zuper was launched. What learnings has Anand had starting, growing, and leading his own company? First, Anand gained an understanding that Marketing is about investing to build a brand and market awareness, and is more science than art.

Anand also learned a lot about cold calling, and what is required to make the first sales in a newly formed B2B SaaS company. By taking the lead on all initial outreach for Zuper, Anand was able to directly hear from the market on what they wanted and/or needed to consider transforming how they were managing the field service process. 

Anand also learned that without the "Microsoft" brand, that persistence in cold calling was critical to gaining early traction.

Anand executive the "founder-led sales" model from $0 to $1M ARR. By taking this responsibility himself, not only did he have direct access to product requirement input from the market, but he could also hand over a "sales process" that worked to acquire the first $1M ARR. Anand leaned on "Marketing" first to create awareness and demand before hiring his first professional Sale resource.

Identifying a gap in the marketplace is a key ingredient to the idea to launch a new company. At Zuper, Anand identified that many companies were viewing field service management automation as an extension of CRM. Second, consumers now expect a seamless experience like Uber, while companies require the ability to configure their processes within an automation platform, not to force their process to adapt to take advantage of the B2B SaaS platform.

Understanding and being able to measure the business value delivered to the customer is critical for early-stage B2B SaaS companies. First, the ability to improve efficiency in the business process being automated, second is improving the productivity of the field service workforce, such as spending less time on driving to the next appointment and more time on fixing the customer's issue. In the Zuper example, measuring the "first-time fix rate" of new service tickets is a key benefit, and the Zuper customers see a 30% increase in the first-time fix rate by having the right technician, the right parts, and the right tools.

When asked what "SaaS metrics" Anand uses, here is what he shared:

Top Lagging Indicators Used:

1. ARR and ARR Growth
2. Customer Churn
3. Burn Rate
4. Cash runway

Top Leading Indicators Used:

1. Product Usage
2. Customer Acquisition Cost
3. Customer Lifetime Value
4. CAC Payback Period (new)

If you are a product leader or in a large stable company today, but considering launching your own B2B Saas company, this conversation with Anand Subbaraj is a great listen!

Excel is the #1 tool B2B SaaS companies use for many financial tasks, including calculating SaaS metrics to surface insights for operating decisions and investor updates.

Ali started his career in tech as an auditor at Ernst and Young, with a priority focus on revenue recognition and reporting. While auditing a top tier B2B SaaS company, he was provided multiple spreadsheets with thousands of rows of data, and it even required almost 10 minutes to just open the Excel file, and almost 6 months to complete the audit. The primary challenge, finding all of the data required for the audit in an extremely large and poorly structured Excel model.

What are the top signs that a founder/CEO will see to know it might be time to move beyond Excel? Ali suggests at $1M and above that Quickbooks is a fine General Ledger, but the initial issues are associated with revenue recognition and the associated reporting. Often, this is due to not having the right human resources who truly understand revenue recognition policy, and then the manual required to create a model and the appropriate formulas for revenue recognition.

One sign that Excel might not be doing the job, is if revenue is being recognized on a cash basis. Another sign might be when an investor asks what your "MRR or ARR" is, and you realize it includes professional services or one-time fees. Why is getting revenue recognition important to an early-stage company? It becomes important when external stakeholders, like existing or potential investors, ask for things like GAAP revenue growth rates, and ARR growth rates and you cannot provide the answers because the financial foundation and reporting infrastructure have not been established.

Inevitably if you are quickly heading to $1M ARR or already above that level, founders and CEOs are expected to know their numbers. One common tactic is to hire an external accountant, and ask them to set up revenue recognition and other financial reporting in Excel - the challenge with this is that it is not scalable, and if the "rent an accountant" goes away, it is hard for the next resource to understand the excel model.

Next, we discussed the reality of ASC 606 (GAAP accounting policy), and how it impacts the need for more advanced financial reporting capabilities. ASC 606 includes very complex and nuanced accounting rules that Excel is just not well positioned to be the primary solution for modeling and reporting GAAP revenue and the associated financial metrics such as Gross Profit, EBITDA, and Net Income.

The most important initial SaaS metric is Contracted ARR, and ARR including growth rates. Quickly following is the ability to understand Sales and Marketing expenses and the associated customer acquisition cost efficiency metrics including Customer Acquisition Cost, and CAC Payback Period. Cash burn and cash runway are other critical insights that a founder/CEO needs to ensure are available and accurate early on.

When I asked Ali about other SaaS Metrics, he highlighted a recent example where a company wanted to start reporting their CARR and ARR, and they close a majority of deals mid-month. They were confused about how they report ARR for the month the contract was signed, and how those decisions impact the associated recognized revenue (GAAP revenue).

If you are an early-stage SaaS company and are having challenges with Excel to capture, calculate and report basis SaaS financials including GAAP revenue, CARR, ARR and the associated SaaS performance metrics the conversation with Ali Rizvi is highly informative.

The Alexander Group works with many of the leading companies in the B2B SaaS industry, and I was recently joined by Ted Grossman, their co-lead of the technology industry practice, and Davis Giedt, Director of Research and Analytics.

Based upon Ted and Davis' unique insights and understanding of B2B SaaS due to the discussions and data from over one hundred customers, coupled with their historic Sales Compensation research and benchmarks with has become an industry standard.

My first question was how has the use of SaaS metrics evolved. Ted's perspective is the core metrics have not changed that much over the past few years - rather it is the weight that is placed on specific metrics, especially growth vs profitability. As an example in 2021 and the first half of 2022, the weight was much higher on growth rate versus profitability metrics. One example is the Rule of 40 has increased in importance as measured by R-Squared by 3x over the last 6 months. As such "Margin + Growth" is much more balanced in 2023.

Ted highlighted "expense to revenue" as a top priority at the macro level. This is also a very easy metric to benchmark against the industry. Then you can dive down into more granular revenue growth efficiency metrics such as "Profitability by Sales rep. Other things like the CAC Payback Period which measures the amount of time to pay back the acquisition of a new customer. Net and Gross Retention Rates are also high-priority metrics to understand the efficacy of retaining and expanding revenue with existing customers.

What about the importance of changing the mix of revenue growth from new customers versus existing customers? The story varies in every company and depends on company-specific attributes such as do they have multiple products, or do they have a product that can expand usage to additional users, departments, or business units within an existing customer.

When I asked Davis the "top" metrics he prefers, they included:

• Sales and Marketing expense to revenue which tests for every dollar invested in revenue growth, how much is returned on both a new and top-line revenue basis. Davis shared a 35% - 40% S&M expense to revenue as a good benchmark for growth companies
• Cost of Growth, sometimes known as the SaaS Magic number measures the top-line revenue growth versus

Sales and Marketing investment, which has a range of .5 (poor), .75 - 1 (good), and > 1 (best)

• CLTV:CAC measures the amount of Gross Profit (or Revenue minus Cost of Goods Sold) generated against the revenue a new customer generates over the life of a customer. A CLTV:CAC ratio of 3x is good, though has been increasing over the past 2-3 years. CLTV:CAC ratio is a long-term ROI measurement

Next, we discussed the topic of "consistency of metric calculation" when using industry benchmarks. Davis highlighted that for their clients they use one standard metric calculation formula to ensure when they are benchmarking it is an apples-to-apples comparison. One specific example was if you are trying to measure the efficiency of growing new customer ARR versus existing customer growth ARR, things like a "time study" may need to be conducted to properly allocate expenses to the pursuit of each growth ARR type.

If you are a B2B SaaS company leader, the discussion with Ted and Davis provides some unique insights and perspectives that only come with the unique visibility they have across hundreds of leading B2B companies.

In Episode #1 of this 2-episode conversation, Ray discusses the key findings from the Bessemer Venture Partners (BVP) annual "State of the Cloud" report for 2023 with Janelle Teng, Vice President and co-author of this year's report.

Janelle is involved in many different research programs at BVP, including the "State of the Cloud" and the "Scaling to $100M ARR" reports.

In this first episode of the "State of the Cloud 2023" report, we focus on the change in B2B Cloud company valuations in 2022 and the current state of the industry.

Public cloud companies experienced the "SaaSacre" of 2022. Interest rates shocked the cloud industry in 2022 resulting in a greater than 40% reduction in public cloud company value. The forward trading multiple of public cloud companies is now below the long-term average and were halved in 2022.

There are glimmers of hope from the Q123 timeframe. One example is Microsoft reported better than expected earnings in Q1, fueled by the interest in AI. These large tech companies are a great index for the smaller, private Cloud companies. The Cloud index is up about 5% in Q123, which provides hope for the re-emergence of Cloud valuations.

Even with the aggressive pullback in public cloud company valuations, the average BVP Index cloud company has grown 50% faster than a traditional company - over a 10-year horizon.

When will "Venture Capital" funding return to a more normalized state? Janelle asked the 60 investment professionals at BVP when will be the best time for a founder to raise VC money? The top timeframe forecasted was 2H24' with 1H24' being the second forecasted period for raising a round from Venture Capital. However, 1H23' was still in the running - highlighting the excitement around the current AI boom.

The number of VC deals and the amount of VC funding in Q123 was down from the previous year and the previous quarter, so the turnaround in VC deal velocity is still in front of us.

In the second half of my conversation, Episode 2 with Janelle, she shares the TOP 5 predictions for the Cloud in 2023!

State of the Cloud 2023: Top Five Predictions:

#1: Efficient Growth

Adopt new solutions to gain control of their Cloud and SaaS spend, including the infrastructure cost to deliver SaaS Solutions. Tools include Cloud FinOps tools, SaaS Spend Solutions, and engineering productivity tools to improve R&D processes.

One of the areas of focus is on Cloud Spend as a way to manage the Cost of Goods Sold and thus increase Gross Margin which sets the ceiling for Saas profitability. Public SaaS companies with Gross Margins under 50% have a hard time driving Free Cash Flow of 20% or greater which is critical to enterprise value multiples.

Some examples of tools to gain control of Cloud Spend are included in the Bessemer Ventures technical playbook of 40 tactics to drive profitable growth - this playbook can be found on Atlas on the BVP.com website - the report is called the "CEOs tactical guide to drive profitable growth".

#2: Climate Software will drive the Green Energy Transition

With the increase in consumer activism and government regulation, the green energy revolution is here. To support this green economy, cloud software that is tailored made to power the transition to green energy will explode. Examples are software dedicated to solar, infrastructure, sustainable design, and fossil fuel infrastructure transition.

#3: Initial value of AI will be to the user

The AI and Large Language Model business ecosystems are evolving quickly. Bessemer believes the ultimate winner is the user to increase individual productivity at work and in their personal lives. AI research is now democratized so end users can have access to and build upon the latest AI capabilities.

One example is ChatGPT being released to the general public and acquiring over 100 million users in the first three months - the faster-growing internet site ever!!!

Bessemer calls the current AI revolution a B2C2B motion. This highlights the consumer excitement about the benefits of AI, which will in return bring these tools and techniques to the corporate workplace.

#4: The application layer is where the most impact from AI will happen first

Due to the democratization of access to AI, the power of AI will be available to any company, that can embed AI without their own AI team. This will make horizontal B2B SaaS companies to provide AI driven workflows and processes without the need for a large internal AI development team.

With the number of transactions in many SaaS platforms, the opportunity to accelerate the insights to enhance business process efficiency.

#5: AI companies will grow twice as fast as traditional B2B Cloud companies

Bessemer predicts the time the best AI companies will require to grow from $100M to $1B will be 50% faster than the historic fastest growers like Canva, Zoom, and Twilio. That is truly impressive as these companies scaled from $100M to $1B in four years or less!

If you are a student of the Cloud industry or just SaaS-curious about where the industry is heading - the Bessemer Venture Partners "State of the Cloud 2023" is a great read and this podcast discussing the top five predictions is a must-listen!

Matt Wolach is the founder of Xsellus and host of the Scale your SaaS podcast. Matt is one of those guests that have taken over a year to be on the Metrics that Measure Up podcast. Matt has hosted over 250 episodes of "Scale your SaaS" and was one of the inspirations for this podcast.

The first question I asked Matt was about the common attributes that successful SaaS founders exhibited. By being a podcast host, Matt found he often learned more than he shares. However, one of the common themes of the most successful founders was the amount of time they invest in getting to know and understand their potential customers. Those discussions to dive into the mind of their potential customers was a key to success, and Matt recommends the goal should be to have about 50 of those discussions, versus the 3-5 that far too many founders conduct.

What are the top three challenges that Matt sees early-stage companies face:

1) Lead generation/Pipeline which often early-stage companies over-index on one or two channels. Matt recommends finding 4 - 5 channels that work, and then continuously optimize each channel. Matt says there are 18 ways to generate leads in a B2B Saa company, including commonly missed lead sources such as a defined lead referral process with current customers. Other missed lead sources such as influencers and affiliate programs are undervalued.

2) Ability to close qualified leads is another inconsistent competency of many early-stage companies, which is especially dangerous if significant money is being invested in Marketing and lead generation activities. Matt suggests fixing the qualified lead to Closed-Won process before investing more in additional lead generation.

3) Lead form/demo form to demo completed is surprisingly a big leak for many early-stage companies. Matt shared the story that one of his new customers did not even measure the number of people requesting to be contacted or have a demo. 

The inbound demo request-to-demo completed ratio is a critical conversion rate that far too many companies do not measure. Matt said that an average of 42% of people who request a meeting or demo actually end up having a meeting with the vendor - meaning 58% of high-intent leads are not actually being followed up with timely.

What metric does Matt like for B2B Saas companies in the $1M - $5M ARR range? Matt said the Customer Lifetime Value to Customer Acquisition Cost Ratio (CLTV:CAC Ratio) is one of his favorite metrics. Essentially with the industry standards that Matt shared a 3:1 CLTV:CAC ratio is a good goal, it means that for every dollar you invest in Sales and Marketing, $3 of gross profit is generated. The latest RevOps Squared benchmarks show that a 4:1 CLTV:CAC Ratio is the new benchmark.

If you are an early-stage B2B SaaS company, this conversation with Matt Wolach, the founder of Xsellus is a great listen

In 2023 many SaaS companies are searching for what market(s) are going to drive their next phase of growth - and international markets, especially English-speaking countries are often considered by U.S. B2B SaaS companies.

Rick Pizzoli, moved to Europe over 25 years ago to launch the European presence for U.S. based software companies. Based upon that experience, Rick and Sales Force Europe has helped over 500 companies enter and/or expand their presence beyond the United States or a single country in Europe.

Rick shared that the majority of U.S. companies first start to consider entering the European market in the $5M - $10M ARR range. European companies begin to expand beyond their home country a little earlier, often in the $2M - $3M ARR range due to the more limited breadth of each country in Europe.

Understanding your positioning, messaging, value proposition, and efficiency of your "home market" customer acquisition motion as measured by metrics are critical foundational elements to planning for an entry into a new country. If a company has not captured and documented the keys to success in its home country, it will be impossible to be successful in a new country.

Another key factor to consider when entering into the European market is do you have a "lighthouse" account in a country you can build upon, and/or do you have a product that is localized for countries beyond English speaking? Rick's perspective is conducting market research to determine the "best" initial country is a better strategy than just saying let's just go to the United Kingdom, as it is the most like the US market and they speak English. At the same time, the UK market, especially in London is probably the most competitive market to enter, as so many U.S. based companies use the same "we similar" mentality.

Bringing on local talent that understands the local market, has relationships in the local market, and can translate the "messaging and positioning" that works well in the U.S. to the local European country. There are nuances of the "talent profile" that works in one country versus another, which suggests having a local team with local leadership will yield a faster return on investment than parachuting in one or two resources from the home country.

One key to success is seeding the market awareness and engagement with top-of-funnel activities beginning with a digital marketing strategy 3-6 months before having a local, on-the-ground presence. Having local Sales Development resources in place for at least 3 months before having a local Account Executive will also increase the productivity of those first 1-2 AEs. Having a local presence shows a true "commitment" to the local market and will make the majority of in-country buyers more comfortable with purchasing from a recent entrant to the local market.

Should a company start with a single or at least two resources when first entering into a new country? Two resources are always better, and could also allow for additional language skills for the second target country that is being considered in a pan-European presence. It also eliminates the "resource" vs "market" specific challenges.

If you are considering or just beginning the evaluation process to expand your U.S. or single European country B2B SaaS company into or across Europe, this conversation with Rick Pizzoli and Sales Force Europe is highly informative.

Eric Christopher, the founder, and CEO of Zylo is sitting on top of one of the industry's largest SaaS spend data repositories and thus benchmarks, a key reason I knew I needed to have Eric as a guest on the podcast.

What was the catalyst for founding Zylo? It started with Eric's experience as a revenue leader in two social media platform companies. Eric realized that by introducing new solutions directly to the Marketing department, it was becoming difficult for companies to manage and govern SaaS spend.

"A business idea with complexity is worth pursuing" - the words an advisor shared with Eric which was part of the motivation to founding Zylo! 

Since anyone in a company can be a buyer of a SaaS solution, coupled with the existence of thousands of vendors with very different features and pricing, buying a SaaS product is complex. Moreover, measuring the value is very difficult and often, ill-defined.

How does Eric define SaaS Spend Management? "Helping companies manage, measure and maximize value from every SaaS application purchased". 

The lifecycle of a SaaS solution starts with understanding how to receive the best price, and then how to optimize the value received. Questions to ask include, are employees using the product, are they receiving value, and how does the value compare to other solutions with similar functionality? 

Zylo uses a "value framework" that starts with understanding every application being used through a discovery process. Next, is being able to manage adoption and usage, which may be as much about maximizing value versus reducing costs. Next, identify opportunities for cost avoidance, while considering the renewal process to know the best terms based on the current utilization rates. Finally, gaining visibility into the existence and usage of every SaaS product in a company materially increases the ability to have the governance and controls in place to purchase, utilize, renew, and purchase the right products in the future.

One surprising aspect of SaaS sprawl is that many organizations do not know what SaaS solutions are being used by their employees and the associated expenses! The best SaaS Spend management programs start with the ability to conduct "discovery" to identify all the SaaS tools being used in a company....but when is it the right time to consider implementing a SaaS Spend Management solution?

Eric highlighted that when you are hitting $1M - $2M in annual SaaS spend is one milestone. Another milestone is that at 500 employees if you do not have a SaaS Spend Management program in place - alarms should be sounding. ...however, Eric shared that it is never too early to introduce a more structured SaaS purchasing, management, and governance process.

Zylo is sitting on a treasure trove of "SaaS Spend Management" data from over $30B in annual SaaS spending across industries including a few of the below :

• SaaS spend by employee has increased by 50% over the last 2 years
• SaaS spend has been increasing by over 20% per year for several years
• Total SaaS spend is underreported by 50% due to decentralized purchasing 
• The average company has over 300 "paid" SaaS subscriptions
  • This increases to > 1,000 in Enterprise companies

Interestingly, the cost of the SaaS spend may not be the primary opportunity for many companies, it may be minimizing the risk of not managing and governing the flow of data outside of the company!

Several new trends in SaaS spend will be disclosed in the Zylo Benchmark report being published on April 4th, 2023!

If you are interested in the evolution of purchasing and managing SaaS spend in your company, this product with Eric is a great listen!

SaaS Spend Management is an emerging and rapidly evolving category - yet Ryan Neu, Co-Founder, and CEO of Vendr has a unique vision for how the category needs to evolve.

Ryan has a background in public accounting, and then transitioned to software sales, including a role in the early days at Hubspot. During his career selling, he realized that selling great products is hard, takes too much time and the distribution is quite inefficient - thus the catalyst to founding Vendr in 2018.

Vendr was created as a new way to buy and sell software....and it is the "SELL" comment that is unique amongst SaaS Spend Management 

If you have ever been frustrated with the forecasting process and accuracy at your company - this episode is for you!

Guy Rubin is the founder and CEO of ebsta, a leading provider of Revenue Intelligence - the next generation of forecast management.

Guy founded ebsta to automate the logging of sales rep activity directly into their Customer Relationship Management (CRM) like Salesforce and Hubspot. Over 50,000 companies have used ebsta in this environment which is when the breakthrough happened to begin scoring target buyer relationships - essentially a "relationship score".

The strength of relationships is a key factor in an opportunity's probability to convert into a new customer....and thus making the revenue forecast more accurate. More on that later in the episode.

Back to the core problem, ebsta has been solving for years - having timely and accurate account, contact, and opportunity data in their CRM. Since most of this data is captured in their email, and/or calendar. By using technology to capture every email, event, and meeting with an account or opportunity, it can be automatically imported into the CRM. Then, a company can use AI to determine the frequency of communications with an opportunity and begin to create an "opportunity score" based on the recency, frequency, and level of activities with specific opportunities.

What about including insights from "conversational intelligence" platforms? This is another signal that ebsta uses to evolve the "engagement score", but Guy highlighted that CI is only one signal that informs their platform.

Intent data is another signal that ebsta uses to inform and evolve their engagement and thus opportunity score. In a recent research report that ebsta published, one of the challenges is to determine what is the actual impact of intent data on the opportunity "win rate". In this report, ebsta was able to identify the level of influence that intent data has on win rates.

Forecast accuracy is a challenge for every company. Initially, Guy felt the "ebsta" internal forecasts were superior to those of a "bottoms-up" process that begins with the AE or front-line sales manager. Those customers still require the ability to include the sales "bottoms-up" forecast, the ebsta automated forecast is typically within a +/- 5% error of margin - which is superior to the 69% of companies that miss the forecast by +/- 10% or greater.

If you are involved in your company's "forecasting process" this conversation with Guy provides great insights and ideas to enhance your forecast accuracy!!!

Friday, March 10th, 2023 - a moment in B2B Technology and Start-Up ecosystem history that many will never forget and hopefully provides a foundation for learning the risks and rewards of venture-backed, early-stage entrepreneurship.

Todd Gardner founded SaaS Capital in 2007, the industry's first "recurring revenue credit facility".  Before names like Salesforce, Workday, and Snowflake were well-known names, Todd experienced the financial crisis of 2008 and experienced firsthand the impact of a systemic banking issue including the meltdown of his financial partners.

Our goal for this episode of the podcast is to provide practical insights and advice that SaaS founders, CEOs, and CFOs can apply to decrease the risks associated with their financial related decisions and banking decisions.

We started with the basic, summary facts surrounding the collapse of Silicon Valley Bank (SVB):

December 31, 2022, SVB financial disclosure:
  - $209 B in total assets
- $175.4B in total deposits

March 8th: SVB disclosed a $1.8B loss on the fire sale of $21B in long-term assets
March 8th - 10th: ~ $42B in deposit withdraws were made by SVB customersFriday, March 10th: SVB was declared insolvent and closed by U.S regulatorsSunday, March 12th: U.S. government including the FDIC, US Treasury, and Federal Reserve announced that all deposits (100%) would be backstopped - made good because SVB had more than enough assets to cover the outstanding liabilities, primarily customer deposits. Essentially the US government is managing the risk which is primarily a "time-based" issue versus a balance sheet issue.

Todd next provided an industry backdrop that lead to the run on SVB. Due to the accelerated ramp of venture capital investing in 2020 - 2021, the deposits on hand at SVB doubles. As standard bank operating practice, SVB invested a significant portion of those deposits in long-term bonds and treasuries, which had a low return due to the low-interest rates of the moment.

During the second half of 2022, interest rates began to increase dramatically, and the result was that the value of the long-term bonds decreased in value. Simultaneously many customers were moving their deposits at SVB into higher interest-rate instruments outside of SVB - forcing SVB to sell some long-term assets to support the decrease in deposits.

Due to the above macroeconomic interest rate dynamics, coupled with the short-term issues created by a handful of Venture Capital firms quietly recommending their portfolio companies move their deposits out of SVB.

We next discussed the "financial ecosystem" that has been the foundation that fueled the amazing growth of the technology industry which includes:

  - Over half of the technology start-ups banked with SVB
 - Over half of Venture Capital firms in technology banked with SVB for Capital Call - Line of Credit

Having the primary source of assets and liabilities from the same industry ultimately becomes a material issue for SVB.

The above is a backdrop to the insights and advice that Todd shared for how this experience can inform future financial and banking decisions by SaaS founders, CEOs, and CFOs which include:

#1: Diversify banking relationships including checking, savings, and credit facilities      
            - have at least 2 banks and/or treasury based money-market account
#2: Understand the banking relationships that your payables and payroll firms use
#3. Maintain fiscal discipline throughout the start-up journey to change the narrative from "cash runway" to ongoing operating profit as early as possible

If you are interested in learning more about the Silicon Valley Bank collapse and what it means to the financial strategy of SaaS CEOs and CFOs going forward, this conversation with Todd is a great listen.

Over February and March 2023, we spoke with several founders, CEOs, and executives at SaaS Spend Management vendors.

In this episode of the Metrics that Measure Up podcast, we discussed the evolution, best practices, and ideas on how to introduce a SaaS Spend Management program with Brad Van Leeuwen, Co-Founder and COO at Cledara.

Brad stated that his own experience as an entrepreneur with the challenges associated with SaaS spend was the catalyst to founding Cledara. When a company is small, a manual process such as using the founders' credit card for all expenses is fine, but when you scale to 100+ employees that process does not provide the level of control and capital efficiency required to build a sustainable, durable growth company.

Spend management solutions have been around for 20+ years - why is SaaS Spend Management so popular in 2023? First, the technology solutions have evolved significantly, and are much easier to use. Secondly, almost every company requires technology (software) to operate efficiently so the demand for SaaS solutions has exploded. Third, no longer is IT guarding the "data center or servers" so the procurement of software has become a decentralized process.

SaaS Spend Management goes far beyond issuing a "corporate credit card" for all purchases, and includes a more proactive identification and then usage monitoring of the most relevant and used SaaS solutions in a company - thus providing centralized visibility and control.

When should a company evaluate introducing a SaaS Spend Management solution - early on the focus needs to be 100% focused on developing and selling your product to establish Product Market Fit. Then, as a company evolves to 30 -50 companies, a general spend management tool centered on corporate credit cards is a good place to start. Once a company hits 50 - 100 employees, the SaaS Spend sprawl becomes harder to control and is a good time to consider introducing a corporate SaaS Spend Management solution.

One of the key benefits of a SaaS Spend Management solution is that decentralized buyers can now have access to a pre-approved list of solutions. This empowers the employee to engage with the solution category of their choice, and the approved vendors without having to deal with a difficult procurement process. 

One of the trends in SaaS pricing and billing is the increased use of "Usage-Based Billing". One of the benefits of using a SaaS spend management solution is to have real-time insights into billing trends measured against budget and provide an early warning signal or even stop the use of a specific solution when the costs exceed the budgeted or contracted amount.

One other benefit of SaaS Spend Management is to provide a pre-vetted list of vendors and the associated "realized pricing" that should guide a new solution purchase and/or renewal.

If you are interested in learning more about how your company could gain increased visibility, control and reduced costs of your SaaS Spend while improving your employee experience in buying new SaaS software - this discussion with Brad Van Leeuwen is a great listen.

Planning in 2020 continues to be chalked full of uncertainty based on the current macroeconomic reality. Assuch, being a finance leader in 2023 is even more challenging, and unpredictable -  but developing an operating plan and budget is an important and critical component of the CFO's job.

First, is being "hyper-realistic" is the theme of the year, especially on top-line revenue. Understanding revenue drivers like pipeline generation and conversion is critical to informing the 23' budget and operating plan. Factoring in longer sales cycles closed lost - no decision and buyer hesitancy is part of the art in building the 23' plan.

Second is being "hyper-responsible" in managing costs. 

Third is "running multiple scenarios" highlighting the goal of profitable growth, which should always be in style, but even more imperative in 2023. Though Net Income is always interesting, in the B2B SaaS industry revenue growth is still a key driver, while EBITDA and Free Cash Flow are key indicators of profitable growth.

Fourth is "obsessing on the leading indicators" impacting revenue trends.

How have the relationships between CFOs and CROs changed heading into 2023? Dan highlighted he is lucky as both his head of revenue and head of customer success are metrics focused, and they collaborate closely on planning and forecasting - using over 80 metrics to continuously monitor their progress toward their operating plan.

Next, we discussed the challenges of forecasting - especially in today's uncertain environment. Dan shared that hitting a +/- 5% accuracy is probably best in class, while Planful targets 3% - 5% forecast accuracy. Then we discussed the "triangulation methodology" which evolved into using Machine Learning and Artificial Intelligence. However, Dan started by ensuring front-line sales professionals need to see forecast accuracy as a priority. 

Dan shared a few tips to improve forecast accuracy. First, sales managers should provide a weekly forecast update as they are the closest to the pipeline, Second, Finance should be monitoring pipeline generation and conversion rates to continuously update the forecast. Third, using AI to capture the signals that impact opportunity conversion rates to provide an automated forecast to be combined with the first and second manual forecast management processes.

What are the top 3-5 performance metrics that Dan is focusing on in 2023? Dan highlighted ARR growth is still a top metric. However, Dan focused on "leading indicators" including outbound pipeline development trends - including the pipeline from SDRs. Other leading indicators Dan tracks include outbound connect rates, conversation rates, opportunity conversion rates, and sales team acceptance rates. Start by looking for "trends" which can serve as very important pipeline trend insights. Next, looking at the opportunity funnel conversion rates in concert with analyzing conversational intelligence insights is very helpful to understanding "early signals" impacting revenue growth.

A strong financial operations capability starts with instrumenting the infrastructure that can quickly surface leading and lagging indicators to inform decision-making. Dan highlighted the importance of technology to compress time from activity to insights to a decision. Being buttoned up on the CRM infrastructure and data are table stakes to fully leverage automated planning, forecasting and reporting.

At what stage of company evolution should a SaaS company start the "instrumentation and automation" journey for planning, forecasting, and metrics reporting. "Complexity" of business operations is a critical factor to determine when to begin the automation journey.  

If you are considering how to increase your planning and forecasting accuracy, the conversation with Dan is very insightful and full of great ideas

How does writing a 400-page novel lead to founding a SaaS Spend Management company? It was the start of David Campbell's journey which including breaking into B2B technology sales where he saw the challenges companies of all sizes have with buying technology.

What is the definition of "SaaS Spend Management" according to David? David defines it as "spend management for the most important asset category in business today and tomorrow". Most companies are becoming software companies, and thus why SaaS spend management will become the top spend in most companies.

Where investors focused primarily on revenue growth over the last few years, today the focus is now on efficiency and profitability, and as such "procurement and efficiency is the new Sales". A hot take, but a comment that is intentionally provocative to move the pendulum closing to an equal balance of revenue growth and profitability.

Over the past 12 months, Tropic has grown over 3x, due to the outsized demand for "efficiency levels" beginning in 2022 and continuing into 2023. One of the trends David has seen, is that company CEOs and CFOs were so focused on revenue growth, that they were comfortable with outsourcing SaaS procurement management to a third party.

There are three components to a successful SaaS Spend Management deployment:

1. Identify SaaS products in use today and optimize current spend
2. Deploy an infrastructure and process to increase visibility and control 
3. Ensure the process uses automation to make the SaaS procurement process easier not more difficult for employees

Making the process of buying a SaaS tool needs to continue to be decentralized and easy, but powered by a process and infrastructure that also centralizes control and visibility into the SaaS purchase and usage analytics.

When should a company implement a SaaS Spend Management program? David suggests 100 employees is a good place to start. By implementing a solution early, the culture of a structured SaaS procurement process is much easier to scale as companies hit 500 and 1000 employees. Attempting to introduce a formal SaaS Spend Management below 50 employees is most likely to meet significant resistance..

In today's evolving world, software is often either the number two or number three expense category after compensation and benefits. For companies in this category, introducing a SaaS spend program prior to a full fledge "procurement function" can provide early financial wins without needed to invest in a larger purchasing infrastructure and organization.

SaaS spend management does often include a "managed buying service" and technology to automate SaaS purchasing while simulatenousy increasing ease of purchasing and control the on-going expense and risk of SaaS sprawl.

Procurement Paradise is the primary goal of Tropic.ai and is a unique approach to gaining company wide adoption of a process targetted at providing greater control of the SaaS spend, while empowering every employee to purchase sofware that increased their job productivity within the approved framework and process of a well defined SaaS Spend Management program.

If you are responsible or interested in controlling SaaS spend in your company, or a B2B SaaS sales professionals looking to sell into companies with a formal SaaS Spending Management program in place - this conversation with David Campbell provdies a good lens into procurement paradise.

Oded Zehavi has global payment experience from his time as an executive at leaders including PayPal and Payoneer.

With Spend Management, especially SaaS Spend Management, becoming such a hot topic in 2023 - we wanted to start our conversation with Oded to understand his definition of "Spend Management"?

Oded defines spend management as enabling finance teams to automate, control, and increase visibility into non-payroll spending. Spend Management has been around for 20+ years - why is it trendy again? 

Before Covid - spend management was primarily about travel and entertainment, including how to collect manual receipts and reimburse employees for those expenses incurred. During Covid, travel and entertainment expenses were reduced materially and provided finance a chance to pivot to new strategic financial control opportunities. Covid also increased the decentralization of the majority of employees and added another level of complexity to traditional expense receive collection, review, and payment processes.

Finally, the maturation of SaaS adoption across all sizes of companies introduced new challenges for finance teams to gain visibility into the distributed procurement, usage, and individual expensing of cloud-based software.

Oded also highlighted that traditionally the expense submission, reporting, and payment processes were not integrated. Specifically, first-generation expense management solutions were not integrated with the financial payment infrastructure. With today's more sophisticated spend management technology, companies can identify in real-time expenses and even expense payment attempts and ensure they are adhering to internal expense policies and controls.

Next, we pivoted to "when should a company consider implementing a spend management program"? In a company's early days, there are general-purpose tools that can handle the majority of financial transactions, including non-payroll expenses. Beginning at 50 employees is when finance processes being to have more complexity and is a good time to begin considering a spend management program. At 150 employees implementing a spend management program becomes more important and at 1,000 employees a more sophisticated spend management program that integrates expense management and financial payment infrastructure becomes imperative.

98% of US-based companies are not using advanced technology and process to manage and control expenses. A growing trend is the evolution of dedicated, vertical spend management solutions such as "SaaS Spend Management". One of Oded's "aha" moments was when he was speaking with a CFO when a corporate credit card linked to 40+ SaaS vendors expired, and one by one SaaS vendors started to terminate their access to their platform. As such, SaaS Spend Management was an area of top focus for Mesh Payment early in their evolution.

If you are evaluating spend management in your company, or just want to better understand how next-generation spend management solutions can increase visibility and control of all your non-payroll expenses, including your SaaS expenses, this episode with Oded Zehavi is a highly informative listen.

Have you ever met someone in their "early career" that you just knew was going to be successful? That was my feeling when I first met Guy Yalif, Founder and CEO of Intellimize almost 20 years ago!

Guy has been both a Marketing and Product leader, which led to his creation of a company focused on optimizing full funnel conversion. Guy's vision is to personalize each website visit at the moment to create high-converting websites to optimize conversion and revenue. 

1:1 web personalization has been discussed and evangelized as the holy grail of web experiences for over 20 years - so why is it just happening now? First, the technology is finally available to make this vision a reality, second marketers have been conditioned to create "segments" and then create custom lead routing rules for each segment due to the limitations of the technology.

The reality is that humans max at 10-20 different business rules, and we cannot scale to the ultimate goal of 1:1 marketing which can combine thousands of different signals to show a user, in real-time content that is highlighted relevant to a market of one.

The common trends of the day include defining Ideal Customer Profile segments and then combining that with different content and paths for each buyer persona(s). Third-party information such as "intent data" has been a recent development to further "segment" content to visitors based upon their intent, but still does not get us down to a unique website experience for each and every visitor - resulting in increased conversion rates.

When asked if the technology is now available to convert this vision into reality, Guy said that before Intellimize the technology did not yet exist. Couple that with the need for scale and volume of traffic to train the machine learning, the infrastructure, and capabilities were not yet available for the masses.

Large scale B2C companies, such as Amazon and Netflix have the resources and scale to build their own highly personalized 1:1 engagement methods. Unfortunately, smaller scale companies did not have access to a similar capability with similar capabilities but bundled as an easy-to-use, out-of-the-box solution for B2B Marketers.

The conversation pivoted to the signals being used to enhance full-funnel, continuous conversion optimization? Signals can include data from any source including internal sources such as the marketing automation system, CRM system, and external signals such as time of day, day of week, location, previous activity/behavior on the website, and what content has previously led to conversion and revenue.

Next, we discussed the measurements (metrics) that B2B Marketers should be measuring - limited to the top three. First, pipeline ($) generated, second was "cost per Lead (actually cost per MQL) and third was "share of voice".  

MQL to opportunity and MQL to Closed-Won conversion rates should also be a high priority. When I pushed on "cost per $ revenue", Guy highlighted that this was a great "quality" measurement to determine the quality of Marketing Qualified Leads and their conversion rates to revenue generated.

I had to go to my favorite topic - and that is the time spent on "attribution". Guy said Marketers must be able to highlight the value that Marketing delivers, and though the ultimate focus needs to be placed on the ultimate outcomes of pipeline ($) and revenue ($), it is important to understand the touch points and engagement levels that lead to new customers. 

If you are interested in how to optimize the conversion rate starting at the first point of engagement on your website, this conversation with Guy Yalif is a great listen!

How many times have you visited a B2B website and cringed at being asked to provide your contact information, including your email just to download a white paper or watch a video?

Why is this a reality in 2023 on most B2B SaaS websites? Because "leads" are still a primary measurement of Marketing success and marketers have not yet invested in the processes and instrumentation to focus on both the "pre-opportunity process" and then the ultimate outcomes of pipeline and revenue.

One of the first topics we discussed was the "buying journey" which in the 6sense land is focused on the "pre-buying" or pre-opportunity journey which is often the area that is understood the least. A majority of the pre-opportunity journey is anonymous, most B2B companies will have multiple resources touching the early phase of the journey and there is real friction and resistance for buyers to reveal their identity early in the process.

However, by understanding the pre-opportunity journey, a company is better positioned to engage with potential buyers in a more personalized and impactful way. 

Latane' defines the pre-opportunity buying journey into 5 phases including:
- Target
- Awareness
- Consideration
- Decision
- Purchase (meaning they are ready to enter the active opportunity phase)

Once a company moves into the "decision" of which company a buyer wants to engage in a sales process is the best time for B2B marketers to proactively reach out to a potential future customer. 

The concept of "IICP" takes the Ideal Customer Profile to another level by introducing the "in-market" Ideal Customer Profile. By understanding that an account is actively researching and evaluating a specific market category that your company plays in. Taking this concept to something that "Sales" cares about includes being able to provide the Sales organization with real-time leads that are actively "in-market" and thus have a much higher conversion rate to qualified opportunities.

Next, we double-clicked into why a minority of B2B companies are not actively using "intent data" to determine when an "ICP" account is actively in-market. Latane highlights that a major obstacle is that a well-defined "workflow" is not often in place to ensure that the Sales Development team comes in each morning with a complete, prioritized list available for them to start the day off productively...versus spending their time researching and building a prioritized list for outreach.

If you are responsible for engaging a target market and buyer to generate high-quality leads, and/or are interested in how to take advantage of intent data, account-based programs, and the dark web to increase pipeline quality - Latane is a great listen and her book NO FORMS, NO SPAM, NO COLD CALLS is a great read!

Media-Led Growth (MLG) is a term first introduced here on the Metrics that Measure Up podcast and the central theme of this episode.

Who better to discuss this topic than Patrick Campbell, Founder, and CEO of ProfitWell, recently purchased by Paddle for an unofficial $180M+

Patrick was a pioneer in building brand media assets inside a B2B SaaS company at ProfitWell - what led to the decision to invest in media properties?

ProfitWell was facing a common challenge that most B2B SaaS companies face, how to sustain growth and generate "outsized" gains in a very competitive landscape. Eight (8) years ago the macro-level environment was different. Early on, email open rates were much higher, Google ads were much lower, and social media channels were just beginning to gain relevance. Over the last 3 - 5 years, those digital channels become noisy and much less effective.

Resultantly, Patrick was looking for a more innovative, and more efficient marketing channels. ProfitWell was bootstrapped, which made efficient growth an even higher imperative. Early on, Patrick started posting information on churn rates, retention rates, and pricing which was a less saturated topic.

Quickly, Patrick found the content was resonating, and based upon research discovered that traditional inbound marketing strategy (blogs/ebooks/whitepapers) averaged 1.6 touches per week from a qualified lead and traditional media companies average 5+ touches per week. With Customer Acquisition Cost increasing, Patrick had a hypothesis that media might be a "marketing secret weapon" within ProfitWell.

On an economic basis, Patrick discovered they could produce a media asset like a podcast or video series with 13 episodes for the same or even less money than a traditional content marketing asset. As such - ProfitWell created multiple media assets - a media company inside a B2B SaaS company. Moreover, this "pool" of media properties provided an opportunity to engage potential buyers and influencers weekly. Additionally, Patrick didn't stop at a single media asset, at one point in time ProfitWell had 9 different media properties that engaged different buyers with different subjects.

Patrick framed the value like this "imagine having 500 people attend a webinar you sponsor every week!" Having "shows based on the "problem and/or role" that ProfitWell was trying to reach as potential buyers of their SaaS product was the primary focus. This resulted in a "grid" of content and buyer personas that informed the decision to create multiple media properties. Patrick also highlighted the importance to measure performance early and continuously to end any properties that are not producing positive returns as measured listeners, downloads, and engagement.

I asked Patrick "is audio or video the best place to start?" Patrick highlighted that audio is an easier and cheaper way to start, but introducing a video asset is a natural evolution.

Finally, we pivoted to ProfitWell's use of "benchmarks" as another asset. Patrick started with his belief that benchmarks are not used properly. Benchmarks provide a "focus" on which metrics to review and where to prioritize focus. Those areas where your internal metrics are far off the benchmarks are a great place to start. 

If you are a B2B SaaS founder/CEO, Chief Marketing Officer, or other Go-to-Market executive looking for innovative and differentiated ways to reach your target audience and increase the frequency of engagement, this podcast is a GREAT listen that is chalked full of thought-provoking ideas from an expert!!!

Product-Led Growth is one of the hottest topics and trends in the B2B SaaS industry. Heading into 2023, most company will be evaluating their usage of every SaaS tool, and as a vendor understanding how customers are using your product is foundational to understanding and forecast customer retention metrics.

Todd Olso founded Pendo, the leading Product Analytics solution provider, over 9 years ago. His vision was to combine product analytics and product utilization to enhance the user experience.

Todd highlighted that as "software eats the world" the Pendo customer base has expanded far beyond software companies to mainstream industries such as retail.

The first macro industry term we discussed was "Product-Led Growth". Todd re-framed the question to be a "product-centric" company and that product-led growth is just one aspect of a company's culture. 

Todd explained that when selling to highly regulated industries like governmental entities, that product-centric may be more about enhancing the user's experience in a digital-led model, even though the sale of the product was executed by and with humans.

Todd highlighted the phrase "is this a feature or a bug". The context of the phrase is that when the user experience requires a human being to train users, this is a bug that needs to be fixed by being a product-led company.

Pendo has recently launched a "product-led certification course", to teach professionals, including product managers and any other leader looking to learn more about how to introduce product-led concepts into their company.

We pivoted to the concept of the Chief Product Officer (CPO) and their role in a product-centric organization. The CPO should own the strategic goals of how the product directly drives the company strategy and goals including how to connect the product to market/customer needs.

Todd's personal belief is that a product-led company requires having both a Chief Technical Officer and a Chief Product Officer. The primary difference is the CTO is more conservative and focuses on the "-bilities" of technical products while the CPO is looking for strategic growth advantages that have a higher risk profile. This differentiation provides a healthy friction between the two different primary goals.

If you are currently using a product-centric, customer facing process, or considering a product-led growth strategy, this conversation with Todd Olson, Founder, and CEO of Pendo is a great listen!