Make sure you plan ahead; it’s going to be a bumpy ride no matter what.
“Plans are worthless, but planning is everything.”- Dwight Eisenhower
Developing a financial plan is one of the most beneficial actions you can take as an entrepreneur when starting a business. A financial plan is like a spec for your company; it forces you to translate business strategy into a concrete business plan and to establish an operating roadmap that identifies the timeline for your key business milestones. As you develop your plan, your team and your investors will align on the goals and objectives to move your business forward.
A financial plan is also an essential tool for raising capital. Your projections enable you to determine your business’ funding requirements and communicate the financial opportunity to investors. In discussing your plan with prospective investors, you can demonstrate the financial literacy that investors expect from executive teams.
There are three types of financial plans that every start-up needs: a Long-range Plan, an Annual Budget, and an Intra-year Forecast. Here are some details on each.
1. Long-range Plan
A Long-range Plan is the first financial model a start-up should build. The Long-range Plan should include a 3-5 year outlook, with the number of years determined by how long it will take to prove and scale your business model. You should build the plan with monthly detail for at least the first 2 years, and you can plan the remaining years quarterly or annually.
The Long-range Plan should set your vision for the business model and help you to test the sensitivities of your key business drivers. It is helpful to prepare different scenarios of the model so you can anticipate and plan for different outcomes. I generally recommend preparing a base-case, a best-case and a worst-case scenario.
Investors expect to see your projected funding needs and the business milestones that can be reached in advance of each funding round so that they see a path to scale. You should target enough cash raised between rounds to last at least 12 to 18 months. Think of this plan as building blocks and create it as a detailed bottoms-up plan while keeping a top-down view as a reality check (e.g. what % of the market can we reasonably expect to capture?)
One crucial detail that many new CEOs overlook (sometimes fatally) is to ensure you forecast your cash flow, not just your income. Make sure to account for the timing of working capital (accounts receivable, inventory, accounts payable) collections and payments as well as capital expenditures. Poor working capital management causes many early-stage companies to fail.
2. Annual Budget
The second type of financial projection you should prepare is an Annual Budget, which is a detailed monthly plan for the coming year, generally prepared in the quarter prior to the upcoming fiscal year. The Annual Budget is presented to and approved by your Board of Directors.
It is always a good idea to preview your thinking, assumptions and high-level numbers with your investors before you send them the budget and ask for their approval. Sit down with members of the board that are willing to brainstorm scenarios for the year with you to ensure you get good advice and the buy-in from your board members before the actual board meeting.
Once your Board approves your Annual Budget, it becomes your North Star to measure performance throughout the year. Ensure that every executive team member is involved in the process of creating the Annual Budget, as their input and buy-in to the process is crucial to their performance. I recommend you share the Budget with the entire company to ensure everyone is aligned with the organization’s goals (although some executives prefer to omit sensitive details, such as the timing of cash running out).
3. Intra-year Forecast
As its name suggests, an Intra-year Forecast is simply an update of the budget completed during the year to reflect actual performance to date and an updated view of what is expected for the balance of the year. An Intra-year Forecast is an important tool to manage your cash and make the necessary adjustments to stay as close to the Annual Budget as you can. I recommend preparing an Intra-year Forecast at least 3 times per year – at the beginning of the 2nd, 3rd and 4th quarters.
As the quote at the beginning of this article says, “plans are worthless but planning is everything.” In general, reality significantly deviates from your plans. By having a plan, you will quickly identify when business and market conditions have diverged from expectations and you will be prompted to quickly react and adapt. One of the most useful things that on-demand CFOs like us can help you with is to develop Long-range Plans, Annual Budgets and Intra-year Forecasts to help you plan, monitor and grow your business with confidence.
Here are some useful articles that dive deeper on these three essential types of financial projections.
Photo courtesy of Silicon Valley entrepreneur Christopher Michel.
Pay-as-you go or subscribe?
Have you ever wondered why managed service providers usually hesitate to offer subscriptions?
What my experience as an on-demand strategic CFO for several managed services tells me is that the reason is rooted in the concern over the need to change customer behavior, as the traditional financial transaction for the industry has been on-demand, pay-as-you-go. Therefore, selling services requires consumers – both individuals and businesses – to buy into a completely new way of acquiring services.
Interestingly, both your customers and your organization need to change your behavior in order to have a subscription model that sticks. The White Paper, linked at the bottom of this article, we just published gives some hints on how to do this successfully.
Slow to subscribe
The managed services sector has been slow to adopt subscription business models despite the success of product companies in doing so. Recent subscription model pioneers include software developer Pivotal Labs, medical services provider OneMedical, mobile application QA tester Testlio and airline operator Surf Air. However, using a subscription model to sell services is still a new concept. The main concern seems to be the need to change behavior of the consumer of these services, which includes both individuals and enterprises. Importantly, this model also requires your company and your people to change behavior, as managing a subscription model is a different game that requires different skills.
The 4 keys to a sticky subscription model
In this White Paper, I’ve drawn upon my experience to identify several key success factors common to managed services providers using the subscription model. Pioneers will lead the charge in changing consumer behavior and reap first-mover benefits. Their success will depend on their ability to activate four key success factors:
Download the White Paper to get the full insight into activating a subscription model that sticks.
GET THE WHITE PAPER HERE:
Photo courtesy of Silicon Valley photographer and entrepreneur Chris Michel.
Your CFO: A co-pilot you often need to rely on for handling a healthy HR process.
Photo courtesy of Christopher Michel.
Sometimes in a startup, your CFO will need to step up to handle non-financial duties and act as an informal COO. The reasons can range from fast growth to a key VP leaving to the need to establish processes, or even to simply not having the team/bandwidth to complete the needed work. Because of his or her familiarity with the daily pulse of the company, the CFO is often in the best position to assist, especially in matters regarding HR.
Several of us at Burkland Associates have been required to take over the HR processes of our clients for some periods of time. This can look like a trial by fire for a CFO, so we created a framework that helps us evaluate the company’s HR options and choose the best path. Limited resources are usually the norm, and the priorities often start with ensuring you can secure payroll and benefits, closely followed by the need to find an HR partner who can handle the recurring process of compensation and give you strategic HR cover.
There’s no quick fix for a function as central to success as HR, which touches everybody in your company. However, you need to find a balance between the urgent and the important so that the path takes you to a well-functioning HR practice. Here are some guidelines you may find useful as you evaluate partners, whether it be your part-time CFO, a 3rd party resource, or a combination of both, who can help you run HR without a glitch in the short and long run.
The ability to set and run compensation & benefits must be at the top of the list when you are evaluating an HR partner/service provider. The five things we look for are: a) does the partner have an employee help desk for all HR/benefits/payroll questions & issues? b) Can they create employee communication materials? c) Will they help you set compensation levels and stock option programs with relevant benchmark data? d) Can they support you regarding compensation and benefits compliance? and d) As you grow, do they have the capacity to organize, coordinate, and run open enrollment meetings and health fairs for your people?
A solid HR partner needs to help you establish written HR policies and procedures that can accommodate your startup’s team growth and help you attract the right talent. In addition, their HR policies and procedures capabilities must include a sound and clear process for hiring, on-boarding and also one for termination. Finally, make sure their policies and procedures include compliance with regulations in your market.
HR is one of the areas where technology has made a huge difference for companies of all sizes over the last few years. A partner needs to have a good Human Resource Management System (HRIS) with integrated HR, benefits and payroll functionality, and benefits enrollment software. It also helps if the system has an employee on boarding self-services portal, and gives you the ability to easily implement and manage payroll.
As you grow, you need a partner who can provide expert guidance on recruiting strategy, not just short-term tactics and practices. This strategy often includes a hiring plan and a pipeline of the positions you need to fill over time. Ideally, they will manage this hiring plan and the recruiting pipeline for you. Expert guidance also includes giving you access and helping you make sense of compensation benchmark data that is relevant to your industry and to the stage of your company.
Finally, an important but not urgent task for a good HR partner includes an initial strategic HR audit and a review of the big picture with you and your executives. As time goes by, your partner should be able to provide guidance on the strategic HR road map they help you develop, while giving you sound advice and expert guidance with setting the crucial cultural tone for the business that reflects the unique essence of who you are, often, this essence is found through interviews with management and well-designed employee surveys.
These five elements are by no means exhaustive. HR is a complex task. However, evaluating HR help using these five areas as a guide provides the cover you need to have a well-run, healthy HR function that accommodates growth and supports recruitment and retention. Most importantly, solid HR practices designed early on can ensure you nurture and maintain your culture through time, no matter your size.
A consumer play not yet served by Amazon. Photo courtesy of Christopher Michel.
“Warren Buffet just confirmed the death of retail as we know it,” – that’s the headline of an article published by Business Insider last week. If your startup is in the consumer retail space, you should take notice.
Warren Buffet is usually spot on when it comes to having long-term vision. To illuminate this long-term view and how it applies to the consumer retail outlook, here is an exchange he and Charlie Munger, vice chairman of Berkshire Hathaway, had at their most recent annual meeting earlier this month:
Warren Buffet: “The department store is online now, I have no illusion that 10 years from now will look the same as today, and there will be a few things along the way that surprise us, the world has evolved, and it’s going to keep evolving, but the speed is increasing.”
Charlie Munger: “It would certainly be unpleasant if we were in the department-store business.”
As strategic CFOs for consumer startups, we’ve learned 3 lessons we’d like to share in order to help you position your startup to attract the investment that will bring success in the evolving retail landscape that Mr. Buffett refers to.
People love Amazon. Consumers are used to finding and ordering on their site or app in a painless and quick way. You do not want to be solving a problem they don’t have. You therefore will have a hard time raising money for an online business selling things that can be easily found and bought on Amazon, like regular books, toys, and small electronics. If you focus on these types of commodity items, investors will have a hard time believing you can source your products for less, or get them to the customer faster, or even get people to visit your site in the first place and transact there when they already have Amazon Prime.
Yet, there is hope for your startup. Although it may seem like they already sell everything, Amazon didn’t get to every category at once (for instance, they are just now getting to furniture and groceries). They didn’t do every category well on the first shot either (case in point: fashion). Your opportunity to play alongside this online giant is by focusing on a niche they are presently not choosing to focus on or have historically had execution challenges with because of obstacles related to merchandising, vendor relations, or other factors. A complex selling process also opens up a window of opportunity, for instance, a market where you need to customize the product online (like glasses), or a market where regulatory compliance makes Amazon’s standard checkout process insufficient (think pet RX), or areas where merchandising is key (like designer fashion).
If all it took to imagine the future of retail was visualizing empty malls and a world where every purchase is made on a mobile app, a sharp guy like Buffet would not have said that “there will be a few things along the way that surprise us.” Although news about the death of bricks-and-mortar retail and retailer Chapter 11 notices surrounds us, many local shops are doing quite well. Online brands are building and emerging faster than ever. One of their “secrets” seems to be to open physical retail along the way for brand support, and for retail “showroom-ing”. This term is used when an online brand (like Warby Parker or Bonobos) opens a bricks-and-mortar location that is open to the public in order to let the customer touch and feel the product. This allows the company to get closer to their end customer and acquire feedback that will be essential for future product development. Often these new retail showrooms carry very limited or even no inventory for purchase, and customers need to wait for their purchases to be mailed to them, as if they had purchased online, while they have had the benefit of a physical try on.
The destruction in legacy retail is a naturally occurring forest fire; it is creative-destruction that opens up space, and creates opportunities for new brands in the form of short- and long-term and pop up leases in premium, high street locations and malls. These opportunities would have been unthinkable just a few years ago. If you think bricks-and-mortar are dead, think of millennials; as connected as they are, they also like to stroll their local neighborhood on weekends and find stuff they can buy. Tourists from areas of the country less dense with early adopters, and international arrivals in particular, can also be introduced to new, emerging brands – in fashion, home, electronics, even food & beverage and health & wellness – through strategically placed physical outposts in high traffic locations. Physical space is here to stay for those startups that are creative and use it to augment their digitally-driven business models.
The model invented by Zara and H&M has put many former titans of the mall on the brink of irrelevance – and they did not do it by shifting consumers online. Fast fashion companies like Zara, H&M, and Forever 21 know that consumers are fickle and what is hot now can become old news next month. Their entire model is designed to take new styles from the designer’s desk to the shelf in just a few weeks, without squeezing their suppliers. As a result, their initial buys are shallow and frequent, and stores only carry current stuff that will not need to be heavily discounted because it went out of fashion while sitting in a warehouse waiting to be shipped – which is a huge issue their competitors have.
Having a lite – or even zero inventory – business model reduces the investment in working capital, which in consumer businesses, is often a risky asset. Getting to inventory-lite requires high inventory turns. High inventory turns are made possible by a kick-ass concept-to-shelf design process, aided by superior logistics. Even better than inventory-lite is inventory-zero. Inventory-zero is inherently less risky, requires the least working capital, results in the highest operating margins, and has a tendency to translate into a free cash flow machine. VCs know this. Think eBay, MercadoLibre, Grubhub, and Opentable, who don’t even own anything they sell. They are the toll-takers of the internet, taking a piece of other people’s transactions, but never actually taking the risk of owning anything or the expense of warehousing or shipping anything. These agency businesses are fantastic business models, but they tend to be winner-take-all because of the importance of scale and network effects, so when attempting to build a toll-taker business, be prepared to answer questions about how you will acquire your customers, how much it will cost to do so, and who your competitors are.
Use them to fine-tune your value proposition
These three things to have in mind when formulating the plan for your consumer startup are by no means exhaustive… the comprehensive list of potential ways to maximize the value of your consumer startup would be a very long one. These are however three key things you should keep in mind as you try to define your value proposition for VCs. They are also key items to keep in mind as you prepare your strategic plan and do your long-term modeling to ensure you have an attractive beachfront to compete supported by smarter finance.
To grow faster, follow their footsteps and learn from their mistakes.
For this article, I found a quote from Steven Dunn that says that “You can never make the same mistake twice because the second time you make it, it’s not a mistake, it’s a choice.” Quite fitting regarding how we can learn strategic finance lessons from second-time CEOs and avoid some of the mistakes they made in their startups the first time around. At Burkland Associates, we give strategic finance cover to many CEOs that have been there before, here are some of the lessons we’ve learned from them:
A few years ago, RedRocketVC came up with a checklist for startup success. One of the items on their list is “Flexibility to fine-tune model and navigate challenges.” We see it and hear it from our CEOs time and again: modeling is one of the very few “must haves” for any startup. For a startup, business modeling and finance modeling is exactly the same thing. It may seem like a theoretically painful process, especially early on, but it is definitely one that will yield many benefits. A sound financial model that you can iterate over time, provides clarity on the current business and also illuminates the strategic choices available. Furthermore, this model will focus product, sales, business development and management on the same strategic plan and the levers available to make it viable.
Another reason to invest time in modeling is that a sound financial model will help you see the holes in your go-to-market approach that an experienced investor will detect at first sight, enabling you to bulletproof your investor pitches. Also, strong financial modeling will help a founder show investors the tangible steps to transform their idea first into a successful revenue model (generates revenue but burns cash) and eventually into a successful business (generates both revenue AND cash!).
Although good accounting is a basic skill every startup needs, its role needs to be understood. It is natural for a good accountant to become a “right-hand” guy for a CEO early on. After all, the accounting person usually knows more about the overall business than other management team members. Thus the CEO will often use them as a sounding board for discussing future plans for the business.
This is where things can go wrong. Good accountants are trained to look in the rearview mirror to make sure you do not leave out anything from the financial scorecard that provides an honest assessment of historical company performance. What they are not trained to do, however, is look out the front windshield and see what’s coming and/or which strategic turn the company should take.
That is the role of a strategic finance professional, who can use both the rearview mirror as well as look out the front windshield to help a company navigate around the obstacles and find the opportunities in the road ahead. Accounting and strategic financial professional are very complimentary and should be brought in as early as possible in a startup’s life — and remember, they are more affordable than ever since you can rent both in the new sharing economy!
The third lesson in finance we can learn from second-time CEOs concerns financial discipline. Financial discipline implies running your business based on both your financial model (which is forward-looking) and your accounting (which is backward-looking). Take these two extremes. First, most first-time CEOs have a good innate sense of their monthly burn (they usually are signing the checks!) and yet they are often surprised when the money runs out.
Why? Often founders do not want to really think about what is happening to their dwindling cash and without a true cash flow statement it is easier to not think about what is coming. Real financial statements with a solid cash flow statement provides founders with an unambiguous picture of what is happening to their cash including how important payment terms and collections are to making your payroll in the coming months before that next fund-raising round. This becomes especially important with the big-name clients that often will only accept 60-day payment terms when most of your own expenses need to be paid in less than 30 days.
Strategic finance as an early partner to grow with confidence
Like second-time CEOs, most successful first-time entrepreneurs eventually come to realize the finance function is more than just parental supervision required by their institutional investors. The only question is how much time (and opportunity cost) passes before they recognize that strategic finance is a vital ongoing partner in company success…just like development, sales, marketing, and customer success.
Photo courtesy of Christopher Michel.
Timing is everything when it comes to finance talent.
Nowadays, when startups raise money from VCs, especially in the early stages, line items in their financial projections do matter. For instance, in an era when all marketing tools give you freemiums or super low entry price points, and social media rules over mass media, your marketing budget can’t be what it was for startups a few years ago. Some VCs will go as far as saying you don’t need money to do good marketing until you grow the business on a dime. The same is true for finance. Why would you need a CFO when you can rent one? After financing is complete, what would a CFO do all day anyway?
Last week I was invited to do a talk at the inaugural Veterans Conference in San Francisco. When thinking how to make my talk useful and memorable to veteran founders and CEOs of early stage companies, I came up with the 2×2 matrix below (I’m an HBS graduate – we’re required to do a 2×2 matrix at least once a week for life!). Anyways, the chart provides a framework to help CEOs and founders distinguish between various finance and accounting roles, and to understand when and how to engage the right resource along their journey.
Framework for Finance Talent
The first thing to note are the axes. The progression to a full time CFO is natural as the level of help you need depends on the age of your startup. In an era when you can rent and not buy everything, finance talent is no exception. You need to strike a balance between looking at the past to ensure everything is in order (bookkeeping) and looking at the future to ensure you grow in the right direction (strategic finance).
The good news is that you can have your cake and eat it too!
Timing is everything
Here’s how it can play out. At the beginning, pre-seed and pre-revenue, you only need a bookkeeper. I recommend you to hire yourself as this guy – it will help you get a good handle on the levers that drive your business, and it will not take more than a couple of hours of your time every week. Then you start growing, the dogs eat the dog food so you raise a seed. At this point, your attention needs to focus on revenue and you need a professional bookkeeper. It is at this point that you also need to rent a CFO who can help you, giving you just a few hours per week, to lay the foundations of your business model so you can think about the future from a finance perspective (remember, bookkeepers are trained to look at the past).
Then comes the point when you will need more CFO cover. From Series A through D you will need to cover all bases. You need your bookkeeper. You also need more time from your on-demand CFO, who can help you with historical and pro forma financial statements, unit economics, raising capital and business modeling. Eventually you need to complete this team with a controller to build and improve processes and systems and ensure GAAP accounting), and maybe FP&A Analysts to support detailed and compressive operational metrics and dashboards and with corporate performance management tools.
Ideally, there comes a point in this journey, usually close to an IPO or an exit, when you stop renting your CFO and buy one. You should feel good – you’ve graduated to the next level and you need not only the full time of a CFO, but her undivided attention and a deep knowledge of what makes your company tick.
There’s a time for everything. Like in all graduations, you’ll have mixed feelings. You’re not a startup anymore.
Renting a CFO can help you have a strategic partner to realize your vision (photo courtesy of Silicon Valley entrepreneur and photographer Christopher Michel).
Startups are hard. Most fail. Even ones with great ideas. So, how do you maximize your odds of success? Hire the best team you can afford. Including a Strategic Chief Financial Officer with the skills, experience and vision to be your business partner and trusted advisor. Muhammad Ali had Angelo Dundee. King Henry VIII had Thomas Cromwell. Luke Skywalker had Obi-Wan Kenobe. Who’s got your back? It could be your part-time CFO.
Can’t you get away with just an accountant? In a word, “no”. Accountants are important and help you figure out what’s happened in the past and report the same to your internal and external stakeholders. But you are an early-stage company. You need to drive the bus by looking ahead through the windshield, not behind in the rear-view mirror. Smarter finance is forward looking – it helps you chart the best course.
Shouldn’t you be doing this yourself as the CEO? Again, “no”. Best case, you are actually capable of filling this role. But this isn’t the best use of your precious time. You need to drive the company’s product and sales, build the team and be the company’s face to the outside world. Time spent in finance is time spent away from your highest and best purpose. Worst case, you screw it up.
But can you afford and attract a top-quality CFO? Yes! Because you don’t need this resource full-time and can pay only for what you need. We live in an on-demand world. Don’t buy servers – rent time from AWS. Don’t buy a car – book an Uber. Don’t buy a vacation home – go on Airbnb. And don’t hire a full-time CFO (yet) – rent one from a reputable On-demand CFO firm. You probably only need 0.5-2.0 days per week, can find A-list talent with expertise in your field and be up and running in days. And when you’re ready to make a change, it’s simple to move on or upgrade to a full-time resource.
Here are 5 key things you get from a part-time Strategic CFO:
Rent the CFO cover you need. No-brainer.
Are your sales people farmers or hunters (or maybe both)? Photo courtesy of Silicon Valley entrepreneur and photographer Christopher Michel.
A few weeks ago, our friends at Norwest Venture Partners (NVP) wrote an interesting article on how CFOs should approach sales compensation (Sales Compensation Leading Practices: Tips for Entrepreneurs Building Recurring Revenue Businesses, by Terri McFadden). We’ve seen how our portfolio companies share the pain of modeling for recurring revenue that Terri talks about when it comes to compensating their business development team. In her words, “recurring revenue can be a minefield for CFOs who are trying to figure out how to compensate their sales forces, she goes on to indicate that, “one false step can explode the ambitions of a company trying to establish itself in the market.”
You definitely don’t want to be DOA by not paying close attention to how to create a compensation plan that makes your SaaS recurring revenue business model one your team can sell effectively. We’ve come across clients who created a plan on the fly by relying on their accountants to model it, and undoing it is not fun. That’s why I found the NVP post quite useful to share and expand on in this article.
NVP wrote their article following a round table with two experts from Accenture – Kevin Dobbs, Everything-as-a-Service Practice Lead, and Mark Wachter, Managing Director of Sales Strategy. Below is what they learned.
Sounds straightforward, right? You would be surprised how many times this obvious action is ignored. I think the culprit is speed: your time as a CEO in a young company is spent on product and actual selling, so thinking strategically about compensation seems like a luxury you have no time for. Terri writes that “the complexity comes from defining your key success metrics, how they are tracked, setting goals, what success looks like and then how do you want to pay for these results.” This is exactly where you can use cover from a part-time CFO – all the points their article refers to are part of financial planning and support to tie your incentives and strategies to the fabric of your business model, and keep a close eye as they progress.
For most SaaS companies, hunters are their sales people and farmers are their customer success people. Even if they start out the same, eventually, you need to separate these two groups in your financials and then operationally. How can a part-time CFO help you here? Hunters and farmers need completely different incentives. Hunters go for the big fish; farmers nurture that catch and make sure they reproduce (think renewals). A CFO can help you model compensation to reward both groups differently, according to their incentives, and evolve that model over time as your business grows and your customer success people become more specialized. In practice, the process of designing incentives for different sales behaviors is one of trial and error, so that it can be evolved as these roles change. At certain stages in your trajectory, hunters farm and farmers hunt, and you have to track and evolve incentives around this dynamic with cover from a seasoned CFO that can see the world from the eyes of your sales team.
You don’t need to go to a round table to know that. However, our experience helping CEOs with strategic finance actually coincides with what the Accenture experts told NVP: “When it comes to setting quotas, most organizations don’t set sales quotas correctly.” Correctly is the key term here. All companies set sales quotas, but setting them in a way that works – and keeps working over time – is actually tricky. Low base/high commission? The reverse? On total ARR? New ARR? What level of quota? When to change them? Well thought-out quotas reflect key elements of actual performance such as the length of your sales cycle, how much control do your reps have on the sale, whether you price low to go in, the importance of renewals, etc. To add complexity to this, all these elements evolve over time, so they need to be fine-tuned to keep sales quotas effective at driving sales. A part-time CFO with experience working with sales teams can ensure you keep your eye on the ball regarding setting up and fine-tuning sales quotas for your team.
Thinking strategically regarding your sales machine from day one will result in more confident growth and will attract the best people to your team. Terri at NVP puts it well when she writes that, “If you want your own recurring revenue business to drive a smooth path to success, you must set up a sales and commission plan that works in synchromesh with your strategy and goals.” I would only add that a CEO and a VP of Sales can do it with less pain and more effectiveness with the help of a CFO who thinks about the long-term implications of sales compensation and helps them model incentives, compensation and quotas to grow with confidence.
The CEO & Co-founder of Front wrote about her experience raising their Series A. It contains several insights such as:
We’ve been closely following the emerging trends in the SaaS business model. Several of our customers businesses revolve around it and, as most other tech models, it is going through a transformative change. One of the most insightful articles we’ve read lately about this transformation comes from Techcrunch. On November 13, our good friend and business school classmate, Sequoia partner Aaref Hilaly wrote a story smartly titled “Why the next great SaaS company will look nothing like Salesforce.” In it, Aaref points out that the newest crop of SaaS models turns the notion that to be sticky, a SaaS model has to become the “System of Record” (SoR) which used to be “the single source of truth, for customers’ most valuable information, such as customer records or employee data” like Salesforce. He adds that the emerging opportunity for SaaS is to become “Systems of Engagement” (SoE), meaning apps that employees actually use to get their work done” like Slack, one of the most “sticky” business applications, now the most valuable private cloud company according to Forbes.
Check it out here. Aaref’s article is quite interesting and goes deep regarding how this new business model for SaaS not only makes sense, it solves the real problem of “creating systems of engagement that get users and revenue, by leveraging data in the systems of record.”