Fast churn rate was key to learning software was too complex for small organizations, SaaS executive says.
Years ago, when Paul Willson was overseeing the financial planning and analysis (FP&A) function at a software-as-a-service (SaaS) company that sold business-to-business software to large enterprises, the executive team sought to expand revenue by making the product available to smaller companies. The strategy backfired.
“The companies we were selling to were not very successful,” Willson, a veteran finance professional, said in a CFO Thought Leader podcast last week. “It’s because it was an enterprise product, and they just didn’t have the sophistication to run it.”
Willson ran reports on churn rates, compared lifetime customer value to the acquisition cost, and scanned other financial and non-financial metrics. These exposed the core of the problem: It took small companies the same amount of time to implement the software as large companies. “So, implementation costs weren’t scaling down, and the customers were churning at a higher rate than large companies,” he said.
The executive team pulled the software out of the small-company market and returned to the drawing board. “We needed to actually develop a much lighter-weight product to address this market,” he said.
Today, Willson is CFO at Compeat, a SaaS company providing a back-office platform for the restaurant industry. He’s building an FP&A operation that will generate the metrics that let executives make critical strategic decisions.
“My priority over next 12 months is to establish this FP&A function as a tool that’s very valuable to this organization as we make decisions,” said Willson, who joined Compeat in July. “Right now, we’re laying the groundwork, and need to execute well on it, and start providing this data.”
The company’s accounting and finance function is Excel-based, and Willson is sticking with that, for the time being, rather than transitioning to cloud-based technology.
“I’ve used [cloud] planning systems, which are good, and we’re approaching a point where we’ll [use] that instead of […] Excel, but right now, it’s just about getting the data and getting it out,” he said.
He said he expects that data to include nonfinance metrics like bookings, churn, pipeline coverage, sales productivity, usage, time-to-value, lifetime value, cost of acquisition, customer satisfaction and net promoter score, among others.
Earlier in his career, when SaaS was a new model, there were few ways to know which metrics were important and which weren’t. His go-to source at the time was a report by Bessemer, a Silicon Valley venture capital firm.
“We were just devouring that, and finding all the metrics we could to help understand a SaaS business, profitability-type things that hadn’t been done before,” he said. “Where are we making money? Where are we not?”
It’s this data explosion that makes being a CFO today so exciting, he said. “That can become a bit of a curse; you can get overwhelmed with it. But for somebody who really likes to measure a business, and use those metrics to make a decision, it’s great to have more, rather than less, data.”
The data allows for CFOs to become increasingly operations-focused. “It’s not just, get the books closed and publish everything,” he said. “It’s, how do we make this company more efficient? How do we make better decisions?”
Listen to more podcasts: