SaaS Founders Keys to Pragmatic Growth

By: Jason Kruger, President & Founder at Signature Analytics

In October I appeared as a guest on the “SaaS Scaled” podcast, hosted by Arman Eshraghi, CEO and Founder of Qrvey, provider of embedded analytics for SaaS applications. Arman and I discussed common accounting mistakes, developing KPIs collaboratively, where successful SaaS CEOs spend most time, and more.

You can watch or listen to the podcast here and I covered some highlights of our discussion below.

What accounting mistakes do SaaS founders commonly make?

A common mistake is that business owners are living day by day without adequate forward-looking planning.

 

If the goal of a business is to grow and eventually have some level of exit, we always want to focus on maximizing enterprise value. Think not only about where we are today, but where we’ll be in the future. I often see that accounting is an afterthought or the metrics of the business and how they evaluate success are afterthoughts because they’re just trying to grow and retain the client base.

 

Client growth and retention are big metrics, but ideally, we should identify all the metrics up front, and really understand cash flows, specifically:

• How much cash do you have now and how long will it last?
• Do you have a cash burn rate or is cash depleting over time?
  • If so, we need to start thinking about that now and how we’re going to manage it.
• Do you need a capital infusion?
• Do you need to bring in additional investors?
• Can you get financing in some way, or will your revenue growth be enough? 

 

Cash flow management is critical. We must understand that in advance so we can plan for the future.

What’s forecasting looking like so we can appropriately manage and grow the business? Let’s make sure we have the metrics in place now to evaluate the business. That creates enterprise value, so when we go to a third party, we look like a competent, well-run business that investors and third parties will be interested in partnering with.

 

How do you balance CEO optimism with necessary pragmatism?

At Signature Analytics, we want to understand and evaluate risk, but we also want to have an entrepreneurial mindset like our clients. We don’t want to come in and say, “Well, here are all the risky things and you can’t do anything,” because that’s the opposite of an entrepreneur mindset. 

 

Our mindset is, here we are today and here’s where we want to go. How are we going to accomplish that? Let’s make sure we have a roadmap where we can see growth and success. And so, on our team, we have CFO-level support and business advisory support to be that sounding board for our CEO and entrepreneur clients, so they can leverage expertise that they don’t have. 

 

What’s important for any business is also scalability. We want the business owner to be focused on what they know best. Many business owners and CEOs are caught up in spending time in accounting and finance, operations, or HR which is not the best use of their time. And they know it, but they have nobody else to support them. So, financial leadership is important. We want to provide financial leadership to take that off the plate of the CEO so they can focus on what they do best. Their expertise really is in achieving the goals of the business.

 

Where do successful SaaS CEOs spend the most time?

Most companies don’t have the resources to hire full-time C-level experts in sales, finance, marketing, HR, operations, etc. and so we want to make sure we understand the best path forward. Can we leverage certain resources on a part-time or fractional basis? What’s the skill set of the CEO? And then over time, we can build out the support team based on the performance of the business in alignment with leadership’s goals.

 

Ideally, it’s a slow process of delegation. Know every aspect of your business, but bring in expertise in every area to help you to grow to the next level.

 

How do you avoid viewing metrics in silos?

Sales, marketing, and operations should all work collaboratively with the CEO to develop metrics that define success. The metrics then define the activities moving forward. We have to understand the financial impact to make sure the businesses can support the activities. For example, if sales decides we want X level of growth in the next 6 months, and we need to hire 5 more salespeople, that’s a cost to the business. So, we need to then decide when to hire them, what activities they’ll perform, and when we should expect to see the impacts.

 

We want to be able to model it out so we understand from a financial perspective, can the business support that? If the business can support that through current cash flows, how long is the runway? And we have to measure against those expectations. If the expected returns are slower, then we have to adjust our financial model to make sure we have the necessary cash flow.

 

We also need to consider when to bring in additional investors, if at all. So, the metrics and the decisions that are made need to be modeled out in a forecast or a budget so we can see the impacts. We can then measure the success of what’s happening in each department and measure success against what we anticipated and then continue to make decisions accordingly. 

 

And I don’t like to use a strategy of hope when running a business. We want to understand how we’re going to react in different situations, so we have the time and the runway to react in a positive way to keep things moving forward.

Overall, building and running any company is a tough job.  You need insights into so many different areas and so much expertise to support you.  I started Signature Analytics because finance and accounting is my area of passion and expertise and providing that to companies as an outsourced partner is a great way to share that. It’s really interesting working side by side with founders and seeing their passion, and their drive and helping them grow.