Make sure you understand what lies underneath the data you use to make big decisions.
You’ve heard it many times and in many different contexts: garbage in, garbage out. This universal truth can have serious consequences for CEOs of young companies when it comes to financial reporting. The devil is in the database that provides the data that affects the numbers you rely on to take all kinds of decisions – from sales forecasting to modeling to pricing.
Sound financial planning requires data science to ensure data definition, design and governance support data analysis and ultimately, reporting. A CFO must understand more than their ERP (Enterprise Resource Planning) system such as Quickbooks or NetSuite. They must understand numerous data sources, how they relate to each other and how to reconcile them, because at the end of the day, a spreadsheet as a reporting tool will only be effective with proper data definitions and a solid database design.
Good CFOs start with design
To do proper reporting for bookings, revenue and SaaS metrics, it is critical to first design the data sources. I can’t understate the fact that database design is a critical step of any serious financial planning and analysis (FP&A) that can provide executives the knowledge then need to make decisions about their startup. If the data is poorly structured, incomplete, or inaccurate, the tools for analysis (i.e. a spreadsheet, Looker, SaaSOptics, etc.) will be at best limited in their usefulness; at worst, it will provide wrong information that can lead to poor decisions.
The Devil is in the Data
For example, let’s focus on SaaS bookings – whose reporting often seems to be controversial within the organization. To design an accurate spreadsheet to reflect sales, your CFO needs to determine, first, what is the definition and data source for a booking. For many startups, the data source is the Salesforce.com opportunity (either maintained there or replicated in an ERP system such as Zuora or SaaSOptics or held in a reporting database such as Redshift). The key here needs to be a total agreement on the database object or table that defines the booking. If you select the Salesforce opportunity, and export to Excel, then you can setup the opportunity to include the data element (field on record) for type with the possible values of (new, expansion, renewal or churn) and then use that data element or column in Excel to filter or build a report or a pivot table.
Another approach for designing the bookings database for SaaS could be to use a more granular level of detail, such as a contract or a subscription. Then, if the team needs to query the contract, they need to determine what is the definition and data source for a contract. In most Salesforce configurations, there is not a contract object – this is where sound design comes handy. Your CFO can create a contract object in a subscription management solution such as Zuora, SaaSOptics, and even on an Excel spreadsheet.
If you are creating reports based on the contracts or subscription, then you will need to ensure that your data table includes the following: a) common reference such as a customer ID, b) unique contracts or subscriptions id, c) subscription data such as start date, end date, item, amount, etc. With this data table, you can apply logic to determine if new, expansion or renewal. For example, if there is a subscription with a customer ID and new prior subscription (use start and end dates) with the same customer ID, then the subscription is new. If the start date is coterminous with the end data of a subscription with the same customer ID, then it is a renewal.
If there is a period with no revenue but revenue in the same period, then the amount of the previous period is churn. It should be obvious that a proper data structure will make the logic easier and you didn’t ask about re-activations (contract ends, there is a lag period, contract begins at a later period….is this churn, new, renewal or none of the above such as re-activation).
CFOs should offer Strategic and Tactical Skills
In a technology startup, CFOs are needed for many strategic efforts such as long-term planning, raising capital, assessing buy- and sell- side acquisitions, and hiring top talent. However, at times, many startup CFO’s must also lead data design and analysis. Often times, it is data and financial insight that helps to ensure success in the strategic efforts.
Photo courtesy of Christopher Michel.
A trove of profitable information may be hiding under your horizon.
Photo courtesy of Christopher Michel.
Are you overlooking a revenue opportunity?
In the past you could identify a location, sink a well and black gold would flow from the ground. Today, all you need to access these riches is to identify data sources that already exist in your business and drill down into it, or information you could have access to, but have yet to collect. With a bit of analysis and help, you can create new revenue streams by monetizing your un-tapped data, by thinking of it as “liquid gold,” while creating rules of engagement with your customers so that all this is transparent and safe for everybody.
A lesson from Facebook
Facebook founder Mark Zuckerberg, who hopefully just learned the hard way that data presents huge opportunities provided you use it responsibly, recently described his business before Congress as a “community” (with 2.2 billion members), a vehicle to connect people all over the world. In reality, Facebook is a data / advertising company whose currency is your information. It collects hundreds and sometimes thousands of data points from its users, aggregating and monetizing them by offering targeted advertising to various companies while maintaining control over them and making a fortune! Mark’s net worth is currently $66 billion – all built with my information and yours.
You too may be sitting on a wealth of untapped data or the opportunity to collect it. Most of us don’t like to stray from our core businesses; however, in today’s environment it’s imperative to grow and diversify. Plus, having this additional revenue stream may allow you to give your customers lower prices, just as Facebook can afford to be free as long as it can monetize information collected from their customers. Mining existing data (customer lists, buying patterns, preferences, etc.) or creating simple mechanisms to capture it (apps, websites, discount and loyalty programs, collection of email addresses that access Wi-Fi at retail locations, etc.), enables you to collect, aggregate and monetize it.
Lose your fear of data
Many companies are reluctant to monetize the information they control for fear of breaching customer confidentiality. However, if the problems Facebook is facing can teach us a lesson, data collection and data use can be part of a ‘covenant’ with our customers where they get some benefit in exchange for the rights to use their information to generate revenue via ads. This, when done properly, allows a company to maintain control over the data without losing customer trust.
One way to monetize your data is by focusing in your core industry and utilizing it to enhance your sales or offerings to assist industry partners in enhancing their sales, at a price. Another is to think out-of-the-box and look at other verticals that may be interested in reaching the companies or consumers in your data base. The one thing to remember is that the goal is to facilitate the marketing effort while maintaining control over your data so that your customers’ trust is not weakened by having third parties misuse their information – which has contributed to Facebook’s current trust problems. Ensuring this takes considerable planning and dedicated resources but enables you to continuously monetize data with confidence. By following simple rules of engagement on third-party use of your information, each time a vendor needs to initiate a new marketing campaign, you create a new revenue opportunity without compromising it. This is the Facebook model: each bite of the apple generates additional revenue for your company and enables you to offer your customers lower prices or even a free service!
Your CFO can help
Like oil, data can be a blessing or a curse, depending on how careful you are when monetizing it. One of the ways a strategic CFO can help you is by applying some out-of-the-box thinking so that you can identify and collect it in a way that maintains your customers’ trust and monetize it with confidence.