Uncertain. Challenging. Tumultuous.
By now, we’ve all become familiar with the terms used to describe our current world. They’ve become part of finance and planning professionals’ vocabulary.
While the landscape today is certainly unique, over my career, I’ve learned having the right processes in place can make challenging and tumultuous times more certain. Every time the market takes a significant hit, we, as CFOs, find ourselves evaluating every aspect of the landscape — searching for ways to deal with the situation and return to growth. We look for ways to forecast what’s coming, and develop best practices that will help us pivot when needed to continue to thrive.
Navigating those changes means tearing down data silos and creating an agile business planning approach that incorporates finance and operations departments from the start.
Many businesses have filed for bankruptcy or liquidation since the COVID-19 closures began. I expect financial challenges to continue into the next budgeting season. To thrive, businesses will need to adjust their course and move forward confidently.
When the pandemic hit, our priority at Vena was to shift our focus, pivoting from creating growth strategies to ensuring we have enough cash to outlast this extended period of change. We did this using integrated, bottom-up planning, which we run quarterly through our rolling forecasting process.
To make the necessary decisions, we revised our multi-year financial plan to see past the economic downturn. We ran multiple scenarios and reallocated resources, starting with sales. Lower growth expectations would mean our sales team would earn less.
We could have justified a furlough or a layoff; given sales’ variable pay component, we would have automatically generated cash savings. But such a move wouldn’t have reflected our values. We wanted a positive, energized and experienced team in place after the pandemic. So, we chose to reduce sales quotas instead. That way, sales’ take-home pay would be maintained despite reduced activity.
Undoubtedly, we were walking into a much higher unit cost of acquisition during this period by taking the approach we did, but in the long term, the move made perfect sense to us.
Based on our new multi-year plan, we recut a fully integrated, bottom-up and agile 12-month plan based on multiple scenarios. Some of the assumptions we tested: what if sales and cash inflow for the year were 20% down versus our operating plan? What if they were 50% or 80% down? What would the impact be on the rest of the year, and when would things turn around into the following year and the year after?
We chose a mid-level scenario we felt was prudent, while also keeping our long-term growth objectives in mind. We took this wireframe of a plan and colored in the details to determine how we might best achieve it. Everyone was invested in this process.
Running a full process like this maximizes whole-team engagement, thereby ensuring everyone has ownership of the forecast numbers, and feels fully responsible in achieving them.
To be sure, it can take a lot of time. But the process gets easier if your organization is investing in business automation tools and planning technology. Vena Solutions runs a regular rolling planning process, which helps us stay ahead on growth and cash, and that helped us act quickly when the pandemic hit.
Eye on metrics
Throughout this period, our finance team has kept a close eye on our core metrics for signs that we will need to adjust our course forward.
Like any SaaS company, we keep a close eye on our cost of acquisition, churn, customer lifetime value, and other core annual recurring measures. These metrics help us see whether we’re building a good business into the future. GAAP financials on their own are not enough for us to go on; they don’t get to the essence of what we’re trying to do.
Churn is a case in point. It measures how long a customer is expected to be with us. A user of our service might churn because they go out of business, or they have a bad experience with our service, and switch to a different provider.
We keep a close eye on the reasons our customers are churning. Losing a customer for uncontrollable reasons, such as their going out of business, is terrible. On the other hand, if the reason is customer service, and we see a trend of customers leaving us for that reason, we would take a hard look at increasing investment in the product or customer support.
We can normally spot problems like these before they become widespread by measuring against our leading indicators. Our automation tools give us access to critical, real-time data at a moment’s notice.
Return to growth
Agile finance-led business planning — carefully aligned to company-wide objectives — will be a critical part of the return-to-normal process. It will allow leaders to pivot quickly, detect issues early, and make appropriate changes. Any plan can go wrong at some point, which is why you must anticipate change and adapt so that you can move forward.
One of the best examples of agile planning is Netflix. Early in its history, Netflix focused on renting physical movies instead of selling them. As the world around them developed, Netflix pivoted, nixing the original business model in favor of streaming services through a subscription-based plan. If Netflix hadn’t made this move, the business would have likely gone the way of Blockbuster.
Pivoting can be an excellent business strategy, but giving it the best chance of success means optimizing your plan from beginning to end. To help my team do this, I set up processes in which we monitor early warning signs and measure where we are relative to our plan. Each week, we meet in what we call our go-to-market meeting and evaluate our performance. We walk through a series of dashboards that include these leading indicators, discussing actions in real time.
If leads are going up or down, we can estimate how our sales are going to go up or down, and we have time to adjust our course forward. We’ve been able to maintain a high degree of activity in our funnel.
The new question is how long can we maintain that, and whether the conversion rate timeline will stretch out or change. What we observe and hypothesize will influence whether, and when, we add more resources to the marketing and sales teams.
I also loop in various stakeholders, including our board, to get their input and allow time for discussion.
As a growth-stage SaaS company, we burn cash, because we are, effectively, a software-finance combination. We lease our software to our customers, and it costs us to build and improve our product and acquire customers, while our customers pay us over time.
In a situation like COVID-19, we don’t know how much we’re going to grow, or what the environment will be like to raise funds to fund the business and grow in the future. How do we stay in a position for long-term growth but not run out of cash in the short-term? Our board has engaged in discussions about this and other crucial planning matters.
I often refer to my role as “Chief Storytelling Officer” because I’m tasked with telling management and the board a compelling story about Vena: where we stand, where we’re headed and where we should be going. All of that relies on agile finance-led business planning to make smart, confident decisions and prepare for future growth.
by Darrell Cox