Sage's David Appel at SaaSOpen 2023: Three Frameworks to Forecast and Inform Your Board at Every Growth Stage

Introduction and Sage Overview

David Appel

00:00>> Thank you, Ray, for kicking this off. Because we're recording, thank you, Nathan, and all the Founderpath for pulling this together. It's a great community I've been part of for several years. I wanna talk about three frameworks to help you forecast and inform your board and make this interactive and come into it. As I said, my name is David Appel. I run the global sage sage, and Sage is the world's largest provider of solutions to the office

00:22>> of the CFO. And I've been part of winning the business over 2,000 clients. A lot of this is amalgamation about what's come from those discussions because we wanna pay it forward to everybody. So over the next twenty minutes, we're gonna cover three different things. How to identify your targets, how to identify your metrics, set your targets, and how to track progress. It comes over to the top. I wanna make this interactive to everybody how the pieces

Identifying Your Metrics

David Appel

00:47>> come together. So let's get started and talk about identifying the metrics. But just really quickly, I'd like to know who is everybody. Who here is in sales and go to market or marketing? K. Who here is in finance? Thank you. Who here is a CEO or founder? K. Great. So I'm sure for everybody that's coming in. The first thing I wanna just talk about is I wanna put this in a story because what you really ultimately

The Cathedral Building Story

David Appel

01:13>> wanna do is just in your story that you're telling, what's your meaningful underlying business dynamic that you're telling across these different metrics that are here? I wanna tell the story of the French cathedral building. In the fourteenth century in medieval France, there was a cathedral building hustling down the dirt road. He passed three people stacking bricks. He said to the first one, what are you doing? He said, oh, I'm stacking bricks. Okay. He passes the second

01:35>> one. What are you doing? I'm stacking bricks to build a wall. Okay. He passes the third person. What are you doing? I'm stacking bricks to build a wall in order to learn how to build a cathedral one day. Fast forward to the future, first person's dead, second person's barely scraping by. Anybody wanna take a guess what the third person's doing?

Meaningful Underlying Business Dynamic

David Appel

01:53>> Thank you. Building cathedrals. And so you earn your client's business through automating some core process and in return, close deals. Critical, but it's only stacking bricks. If you've done it right, you put in the data intelligence layer based on the information that you created in the firm. Critical. It's only building the wall. If you really have understood from your product market fit what's happening in the market, you understand how to help them prosecute permission and

02:22>> have a shared consciousness with its executive team on the process that you're helping optimize in a way that quantifies that. That's how you help build your clients'cathedrals. And it's so critical to be thinking that way with today's market uncertainty when so many contracts are getting cut, budgets getting lowered, negotiations are rehappening. So you think about what is your cathedral building mud, meaningful underlying business dynamic. For stacking bricks, there's the core six c's. If anybody has

02:51>> anybody taken Ben's SaaS metrics academy? Of course. Thank you. There's always one at least one customer in every room, Ben. If you have it, Ben's world class at helping educate you on what's happening here. But underneath all this, there's the core metrics that the investors are gonna look at. I'm happy to send the slides to anybody who wants to see it coming afterwards. But then there's a lot underneath this based upon your billing model that's critical

03:20>> to what's actually gonna happen. What's the quantity of your customers? What's the length of your contracts? Usage billing or subscription transaction? Land and expand or a simple deal that comes through. Are you young, high growth? Are you private equity buyout with a slower growth model? You just have to constantly pick red pill or blue pill on what it is that's gonna be unique about your business. But whatever you're doing to tell the story, it needs to

KeyBanc: 12 Ways to Calculate Churn

David Appel

03:47>> be tied back to this and how revenue is coming in to what's happening with trying to how we're trying to help build a cathedral. I wanna share underneath this. We do a lot of work with KeyBanc Capital Markets. They are the number one IPO investment bank for IPOs. And this is 12 different firms that went public at how they calculate churn. Look at the different ways that people are calculating how the numbers come in. The point

04:15>> here is you can create it your own way. Because right now, we're about identifying what the metrics are that you want. It's and it's almost a journey as opposed to the destination on coming together as an executive team on how are you gonna define walls or bricks walls and cathedral with the clients. And the thing I love about about just point out the box. You can see that in the back. Implied ACV. Does anybody know what

04:41>> implied ACV is? Customers have spent over $5,000 a year in ARR with them. They drew that line, but there's that kind of flexibility in the metric that you build as long as you've done it together. And I see Ray smiling because part of the SaaS metrics board is to try to standard board is to bring some continuity and consistency to this, how it all comes together. Underneath all this is your cohorts. Because as you grow as

Cohorts and Investor Storytelling

David Appel

05:08>> a company, there's different stages upon the maturity that you have that we're gonna talk about in the next section. And as you win clients, there's different reasons on why you won the business, but you wanna stack right then. So you're back to what's the meaningful underlying business dynamic tied to financial metrics, but against the cohorts of the customer that you have. And this is the underpinnings of the story. Every year, I go to the large investment

05:34>> banks annual investor conferences. So we just had them two weeks ago in San Francisco, Morgan Stanley, Goldman Sachs, GMP, KeyBanc. And because I work with a lot of the the boards and directors of our clients, trying to understand how they tell their story. And this is the pattern upon which how they're really telling the story. We we could leave in TAM and a couple other things for the purpose of getting this done. So I just wanna

05:57>> ask everybody to make this interactive, whether you wanna write it down for yourself or bring it up into the group, what is your cathedral building key underlying business measure that you have? Does anybody wanna volunteer it? Or if you just wanna think to yourself and write it down, or if you don't know, think about how you can those of you that go to market leaders, CEOs, how can you lead that conversation with your executive team or

06:25>> with your board? Because when everything is important, nothing's important. So how do you really know what that one measure is in order to guide everybody? And that's a central part of your story. Humans forget facts. You'll forget most of this presentation. I hope you remember the cathedral building story, and I hope you think about how you apply that as the one thing in that story. The metric is stack and price. What's the metric for you? For

06:50>> our business, it's how do we win the billing model of our clients. That's the number one thing we can do is they can build an entire process of building model with us, and that's where things manage around. Hey, Drew. How's it going? Thanks for coming.

Setting Your Targets by Stage

David Appel

07:04>> Let's get into section two, setting your targets.

07:09>> So we've done a lot of work and found a pattern on how companies grow or simplifying it. But see, product market fit. Series a, prove you can sell it. Series b, prove you can expand and keep those customers. Series c and beyond, make it repeatable, profitable, and predictable. And then the big milestone, take a capital efficient model and move it to adjacent product products and geographies. This is the continuum that whatever it is you sell, whatever

07:36>> your billing model is, this is what your smart astute investors, whether it's debt, Founderpath, or Venture, or private equity. This is the it encapsulated just the one simple theme what it is they're looking for you to do that you need to then be able to forecast against. So who here is zero to 3,000,000?

Zero to 3M ARR Stage

David Appel

07:57>> Okay. Good. Half half of you. Just wanna go in-depth a little bit on this. Again, I'm happy to send the deck out. And I'm oversimplifying the world because running the business could get put in a lot of variables. But there's three things that folks are looking for. Do you have a good value prop as defined in the revenue growth? Do you understand your customer as defined as good sales cycle and starting to build a repeatable model?

08:22>> And then can you demonstrate the value of your customer, which is the average sales price, the ability to dictate what you think the growth of sales is gonna be based upon the sales price? This is what investors are looking for in this stage in order to get to the next level of what it is you need to forecast for what your what is.

08:42>> For everybody, for each of these, I'm just gonna ask of you, based upon the stage, which of these three you think you're strongest on? I don't you don't need to tell me unless somebody wants to volunteer. But wherever you're taking notes or something like that, which of the three you strong are you strongest on? Which of the three do you think you could take the most amount of work to improve and ensure you're clear as a

Series A and B Stage Metrics

David Appel

09:02>> team. So I wanna make this a good takeaway for everybody from having attended this session. Then next stage in ARR that's coming up. How are you different is defined by the win rate. How are you repeatable based upon the sales cycle to get to the revenue that you have? And then how are you demonstrating the economics with what your CAC is, and then what your LTV to CAC ratio is. So back to whatever makes you specific

09:30>> and unique, this is what people are looking for at this stage. The forecast against to be able to put in, but the trick the trick is is because there's so much variability always in certain and right now, it's all the economic uncertainty that's out there. What's happening with the pieces that come together? 10,000,000 plus, are you starting to get some good traction in your space as the market's starting to coalesce? Everybody's right in Geoffrey Moore crossing

10M Plus ARR and Rule of 40

David Appel

09:57>> the chasm, right, in the bowling alley. Everybody's beating each other's heads in. Who's coming out as the market leader? We're trying to subtract that as a growth rate over the benchmark. Are you ready to scale based upon have you figured out your sales velocity curve with the efficiency out of your sales team? And then if you have a good financial profile, rule of 40 kinda comes and goes and how critical it is, but it's still so

10:21>> important to track and profitability. Who here is profitable right now, by the way? K. Congratulations. For the video people, half the room, profitable. So if you're listening, are you profitable or not? This is the pieces that you wanna do. And, again, think to yourself, if you're getting into this stage, which of these are you strong on, and which of these are you not as strong as you could be on in order to get together and come

10:47>> together. You don't necessarily, as a leader, always have to have the answers, but you do need to facilitate the process to have people come together to think about how they are gonna measure this.

Three Types of Forecasts

David Appel

10:59>> So back to this, where are you strong? Where are you concerned on setting your targets? Then let's move to the last one, forecasting, tracking progress. There's different types of forecasts. The plan, your stretch, and your BHAG. Your plan is 60% likely to hit. And this is what you wanna do in building what your evaluation is coming from against these metrics that we've talked about. But this is what you want to guide the team on. This is

11:26>> what you wanna talk about the company meetings. This is where the pieces are. The stretch is 30% chance of beating. This is the rally target for the company. We're on a big milestone, and I wanna encourage something. Because in so many different company cultures that come together over time, this is how you reward folks for trying new things, for taking a risk. This is where the job becomes fun. So instead of beating people over the head

11:52>> that experiments don't work, for those who saw a non presentation of CB Insights, don't reward failure and, like, make failure fun, but also don't punish failure for trying to take a shot in order to make the business more successful. And then you've got your be, hey. The 10% likely to beat. This is dream big. You've already taken the risk. You're not working for AT&T or Coca Cola or something like that to work at a

12:19>> start up.

12:21>> What is truly if you can really move the needle, but have this, talk about this, reward the experiments that are coming in order to put out this. And these are the three forecasts that you want against your bricks, walls, cathedral building, underlying dynamics based upon the stage that you're having, the strengths and the weaknesses that you've got. And here's a classic model. Different funnel mechanics based on what your billing model is. It's hard to put everything

Forecasting Methods and Silicon Valley Bank

David Appel

12:52>> in one slide, so just start here. Essentially, visitors, the closing, the MRR, understanding what your underlying costs are. And there's here's five classic ways that people can forecast. Historical data, opportunity stage, the length of the sales forecasting. The world's changed so much. And, you know, I've been on calls constantly every day since Wednesday about Silicon Valley Bank for their many of our customers bank with them or have debt from them. We use them as payment rails

13:24>> for one of our business lines. And so underlying pieces, there's so much change that's happening right now. And what does that possibly indicate for the what the underlying issues were to have in Silicon Valley that are kind of structural issues potentially in the fundraising and technology markets? I'm not gonna get into that publicly publicly on recorded discussion, but if anybody wants to talk about it afterwards, I have to spend some time because I've spent a lot

Multivariable Forecasting Models

David Appel

13:51>> of time in Silicon Valley Bank and invested on this. And so I've got this because it's this is what you really need to try to apply right now. The multivariable analysis, because there's so much fluidity on the metrics that you've got in your business, but external factors that are coming around, including cost of capital. And I wanna pull out a spreadsheet. This is one of Ben's spreadsheets because I'm really a big fan of the stuff that

14:17>> he's created over time.

14:27>> For those of who haven't seen it, Ben's put a lot of different forecasts that are out there and a big proponent of his, so I have a chance to download it and take a look at it. This is his multiyear forecast model that's out there. And as you can see, there's multiple tabs based upon the inputs that are coming in here. Put the pieces in. All kinds of data that you can put in to have the

14:53>> data come in. This is where, so I know this is the third part of the presentation on tracking progress. You've identified what your measures are, try to set some of the targets are that you wanna go after, and here's where you wanna track the progress that comes out of this. And I wanna share, though, back to as powerful as this is,

Tech Stack Reconciliation Challenges

David Appel

15:16>> and it's a good spreadsheet that Ben has built, the rub is when you're pulling data from so many different places, your tech stack becomes just a big colossal mess. And you might not have to do it as the senior folks, but it's people on your staff underneath. Someone has to do all the reconciliation across all the systems, and then you just don't know everything's delayed. There's a chance of error, and you don't know which system is

15:45>> the accurate and correct one. And this is where forecasts start to get blown up. I just put this in as an example of a tool that's out there is the ability to take the best of what Ben's model was, and this is you scale up a little bit bigger and the company becomes more sophisticated and much more variable to the third pieces that are out there. The ability to add in assumptions that adjust for what you

16:10>> think your big measures are and what your stages are is where real sophisticated modeling comes in. But this is only effective if we've done those first two things upfront. What are the metrics that people have mostly given consensus on that are back to tactical execution, but then also really making the mission of the company come together, and then put those in and then test them on a sixty forty plan, a thirty seventy plan, a ten ninety

16:36>> plan. Have You something to to be measured against because the first in the first part of our talk, little bit of high level strategy. This is where the operational execution occurs. And there's so many different ways that you can put the assumptions in, but you wanna make sure you're tracking all of those because the black swan events and things happen outside of the parameters of your control. Anybody seen movie Margin Call came out? Right? So funny.

17:02>> I just a variety of reasons. I just rewatched it last weekend before everything happened this week. But that's that's a classic

17:12>> black swan event. And so you're the leaders. How are you managing against a sixty forty, thirty seventy, ten ninety plan when there's so much variability? And it's so hard to do it in your head, and it's so hard to do it in a spreadsheet.

Benchmarks and Wrapping Up

David Appel

17:29>> And there's some benchmarks you can do. We work with KeyBanc on their annual SaaS survey. We also work quite a bit with Ray. Everybody has been involved with his performance benchmarks that's coming on. He's got the next set of data that's coming in in order to participate in that, and it's a very powerful thing participate and get the data. But the point of all this is is you're trying to pull all this together. There's benchmarks that

17:54>> you can compare yourself against to guide the team in how we're doing. Again, knowing that how people calculate these are very different from that slide we showed about how the 12 different companies calculate revenue, about gross dollar churn, and that dollar retention. So kind of wrapping all this up. We talked about three things, identifying your metrics, setting your targets, and tracking progress, and where the business came came together. Well, if anybody's interested, feel free to email

18:24>> me at [email protected]. And we built a large Slack community of hundreds of your peers who all come together to try to help each other out. Just go to bit.ly/modernsaasfinance, one word, meaning that community.