SaaS Interviews with CEOs, Startups, Founders
3 Frameworks to Help Forecast & Inform your Board in Your First Three Year
24 Jul 2023
Chapter 1: What is the main topic discussed in this episode?
I'm very excited to share this recording with you guys, which happened at our conference, sasopen.com, with over 100 speakers, all founders of B2B SaaS companies. We have a very high bar for what speakers share on stage, so you're going to enjoy this episode where we dive deep into revenue graphs, real tactics, and real growth metrics.
It's like a big Excel sheet for all of these podcast interviews. Check it out right now at getlatka.com. Thank you, Ray, for kicking this off. Because we're recording, thank you, Nathan, and all the founder path for pulling this together. It's a great community we've been part of for several years. I want to talk about three frameworks to help you forecast and inform your board.
Chapter 2: What frameworks can help forecast and inform your board?
And make this interactive to come into it. As it says, my name is David Apple. I run the global SaaS vertical at Sage. And Sage is the world's largest provider of solutions to the office of the CFO. and have been part of winning the business of over 2,000 clients. And a lot of this is the amalgamation about what's come from those discussions because we want to pay it forward to everybody.
So over the next 20 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 the time, and I wanna make this interactive for everybody, how the pieces come together. So let's get started talking 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? Okay, who here is in finance? Thank you, who here is CEO or founder? Okay, great, just gonna feel 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 wanna do in your story that you're telling is 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 builder.
In the 14th century in medieval France, there was a cathedral builder 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. Passes the second one, what are you doing? I'm stacking bricks to build a wall. Okay. 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 in the future, first person's dead, second person's barely scraping by. Anybody want to take a guess what the third person's doing? 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 upon the information that you've created in the firm. Critical, but it's only building a wall.
If you really have understood from your product market fit what's happening in the market, you understand how to help them prosecute the mission and have a shared consciousness amongst the executive team on the process that you're helping optimize in a way that quantifies that. And 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 re-happening. Think about what is your cathedral building mud, meaningful underlying business dynamic. For stack and bricks, there's the core six Cs. Has anybody taken Ben's SAS Metrics Academy? Of course, thank you.
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Chapter 3: How do you identify your targets in a business?
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 bricks. What's the metric for you? For our business, it's how do we win the billing model of our clients?
That's the number one thing we can do is do they build their entire process and building model with us? And that's what everything's managed around. Hey, Drew, how's it going? Thanks for coming. Let's get into section two, setting your targets. So we've done a lot of work and found a pattern on how companies grow, and we're simplifying it.
But seed, 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 a big milestone, take a capital efficient model, move it to adjacent products and geographies.
This is the continuum that whatever it is you sell, whatever your billing model is, this is what your smart, astute investors, whether it's debt or founder path or venture or private equity, this is encapsulated in just a 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 three million? Okay, good, half of you.
Just wanna go in depth a little bit on this. And again, I'm happy to send the deck out. And I'm oversimplifying the world, because running a business can get pulled into 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? And then can you demonstrate the value of your customers, which is the average sales price and 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 on what it is you need to forecast for what your MUD is. 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?
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 are you strongest on, and which of the three do you think you could take the most amount of work to improve and ensure you're clear as a team? Because I want to make this a good takeaway for everybody from having attended this session.
Then next stage, an ARR that's coming up. How are you different is defined by the win rate.
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Chapter 4: What metrics should you track for business growth?
How are you repeatable? Based upon the sales cycle to get to the revenue nut that you have. And then how are you demonstrating the unit economics with what your CAC is, and then what your LTV to CAC ratio is underneath. So back to whatever makes you specific and unique, This is what people are looking for at this stage, to forecast against, to be able to put in.
But the trick is, because there's so much variability always, and certainly right now with all the economic uncertainty that's out there, what's happening with the pieces that come together? Ten million plus? Are you starting to get some good traction in your space as the market's starting to coalesce? Everybody's read Jeffrey Moore, Crossing the Chasm, right?
In the bowling alley, everybody's beating each other's heads in. Who's coming out as the market leader? They're trying to track that as the growth rate over the benchmark. Are you ready to scale?
Chapter 5: How can storytelling enhance your business metrics?
based upon have you figured out your sales velocity curve with the efficiency out of your sales team? And then do you have a good financial profile? And rule of 40 kind of comes and goes on how critical it is, but it's still so important in tracking profitability. Who here is profitable right now, by the way? Okay, congratulations. for the video people, half the room is profitable.
So as 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 together?
You don't necessarily as the 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. So back to this, where are you strong, where are you concerned on setting your targets? Then let's move into the last one, forecasting, track and progress.
There's different types of forecasts that plan your stretch and your BHAG. Your plan is 60% likely to hit. And this is what you want to do in building what your valuation is coming from against these metrics that we've talked about. But this is what you want to guide the team on. This is what you want to talk about in company meetings. This is where the pieces are.
The stretch is 30% chance of beating. This is the rally target for the company around a big milestone. And I want to encourage something because I've seen so many different company cultures that have 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 that experiments don't work, for those who saw Anand's presentation about CB Insights, don't reward failure and 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 BHAG, the 10%. likely to beat, but let's just dream big.
You've already taken the risk in not working for AT&T or Coca-Cola or something like that to work at a startup. What is truly, if you could 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, and cathedral building underlying dynamics based upon the stage that you're at and the strengths and the weaknesses that you've got. And here's a classic model. There's different funnel mechanics based upon what your billing model is. It's hard to put everything on one slide, so just start here.
But essentially, visitors to closing, to MRR, to understanding what your underlying costs are. And 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.
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