In the last year, we have seen many SaaS businesses that have managed to stay on the hypergrowth path despite the economic downturn. In fact, in 2020, we saw 16 SaaS IPOs, vs. 12 in 2019. Publicly traded SaaS companies saw their stock prices more than double over the past year.
What’s more, some of the most successful SaaS IPOs came with impressive growth rates as high as 76%+. How did these companies manage to stay on the path of sustained hypergrowth despite the curve balls thrown at them? Research shows that these companies:
Walked the line between retention and acquisition beautifully, maintaining high NRR and CAC payback periods
Were agile and adaptable in their GTM strategies.
Rode the digital transformation wave seamlessly
But a high-growth market inevitably attracts high competition. Doubling your growth rate is relatively easier when you’re a startup, but sustaining such high growth rates gets progressively more challenging as you scale up.
As a CFO of a scale-up SaaS that has already achieved product-market fit and is scaling rapidly, what should you do to sustain this hypergrowth?
Traditionally, a CFO’s duties have included bookkeeping, financial reporting, budget planning, and compliance. But over the years, the CFOs role has transformed from a behind-the-scenes function to a role more strategic in nature.
While there’s no denying that historical duties such as budgets, resource planning, and regulatory best practices are critical to business operations, a hypergrowth CFO needs to go above and beyond.
“Today’s CFOs must break away from the number-cruncher stereotype and think of themselves as more of a strategic player in the company. There will always be a need for someone to balance the books, crunch the numbers, and perform critical routine tasks but the CFO role is much more dynamic today.”
(LLR Partners’ Managing Director of Strategic Finance)
In today’s competitive world and unpredictable environment, businesses that outperform are those that are agile, adaptable, and ready for uncertainties. In a recent McKinsey survey with CFOs of leading companies, an overwhelming 90% of CFOs use at least three scenarios in planning their strategic initiatives.
“We have observed a sharp increase in the number of organizations applying scenario-based planning approaches to manage the uncertainty and ensure they have sufficient cash reserves.”
Modern SaaS CFOs need to predict the next wave proactively and steer the ship on the path of hypergrowth. They need to be a strategic business partner and work closely with other functions in the organization, such as CRO and GTM functions.
To achieve hypergrowth and sustain it, you have to expand across markets, products, experiment with pricing, and drive data-driven decisions while staying agile and adaptable.
The answer is short and simple - Time!
Making the transition to the modern CFO isn’t without a myriad of roadblocks. Traditional systems can slow you down. Inflexible systems and broken workflows mean you spend a lot of time fixing leaks in activities like book-closing, compliance, reconciliation.
The average CFO loses 25% of their time every week to activities that can be automated.
Automating these tasks will enable you to spend more time on strategy and transformation to stay on the hypergrowth path. Interestingly, a McKinsey study suggested that 4 in 10 CFOs are spending time on strategic initiatives.
Russell Lester, CFO of Calendly who played a pivotal role in the company’s hypergrowth says the ability to innovate and reinvent in midst of constant change sets apart the winners from the rest of the pack. (You can listen to the full talk about the makings of a modern CFO here.)
“One of the most important growth drivers is the resiliency of operating under a lot of change and dealing with a lot of adversity. Another one is the ability to thrive in the midst of that change and to innovate and reinvent our business models, reinvent our engagement models.”
- Russell Lester, CFO, Calendly
To be able to adapt and innovate quickly, you need is a robust revenue infrastructure to match your revenue ambitions. A system that is agile, helps you get rid of the existing FinOps inefficiencies plaguing you and also enables you to unlock new growth opportunities.
Sounds too good to be true, so let’s break it down a little more.
How can a SaaS CFO unlock hypergrowth opportunities? You can do that in two parts:
1. Improve the efficiency of existing revenue streams
Identify and reduce revenue leakage
Improve the efficiency of the team with automation
2. Unlock new revenue streams
Focus on expansion revenue
Maximize revenue with pricing experiments
Pivot to new business models
Drive decisions with in-depth reporting
As a CFO of a hypergrowth SaaS, the two growth pillars for your business are improving existing revenue streams and unlocking new revenue streams. Let’s look at the first part - how can you plug the leaks in your revenue flow?
SaaS revenue cycles are unique and ensuring that there are no inefficiencies and leakages is critically important. A CFO should partner with the revenue org to increase the efficiency of the revenue streams as well as your team.
CFOs should take a deep dive into retention and churn and partner with customer success teams. In a conversation with KS, the Director of Finance at Chargebee, he suggests that it is best to have at least three different retention forecasts and scenarios at any given time and always be ready to hatch out a new one if the situation calls for it.
TravelPerk’s CFO, Huw Slater prioritizes churn reduction to drive growth. He says churn and retention are two of his most important metrics to look at and recommends analyzing and measuring churn in cohorts or customer segments. For example, segmenting customers by revenue size and then analyzing churn can unlock some insights that can be used in future strategies.
Similarly, churn can be seen from the lens of time - how soon did it occur in the customer’s lifecycle? A breakdown of early-stage vs late-stage churn can be useful in deciding the stage at which teams can implement churn prevention/reduction strategies and effectively, improve revenue. For example, the MRR retention cohort gives you an insight into customers and any changes in how long it takes them to grow or churn.
Research shows that minimizing churn, even in small quantities but consistently, can accrue for significant revenue gains in the long run.
To be able to do so efficiently, finance teams need to be armed with robust dunning mechanisms with automated follow-ups, updates on the status of your customer’s subscription in a regular time gap would help recover lost revenue.
Takeaway: Even incremental reduction in churn can significantly impact revenue maximization. CFOs equipped to tackle churn proactively are well on their way to leading their organizations on the hypergrowth track.
As the business grows, the burden of redundant tasks increases. There are more invoices to process, more accounts, and more projects that individuals need to take care of. This can dampen productivity and lead to more manual errors.
The new and strategic CFO needs to look into automation solutions for finance operations and optimized Quote-to-cash workflows.
In the CFO Thought Leader podcast, John Collins, who joined LivePerson in 2019 as senior vice president of quantitative strategy, was tasked with automating back-office functions and setting up a system to clean and collect all the data. A year later, when he was promoted to the role of CFO, the company achieved 40% growth and profitability.
He claims that this revenue acceleration was mainly due to the automation of finance operations workflows.
Another example of automation as a vehicle of growth is Coorpacademy. They were losing a chunk of time and efficiency to siloed processes between sales, success, and finance teams. Automation helped their teams smoothly navigate the quote-to-cash workflows without any costly errors.
Today when you see a legacy finance system, such as ERP accounting systems or tax automation software, it is vital to understand that it was created to support one-time transactions for product-centered models. Organizations relying on these legacy systems suffer from their bulkiness and have blind spots that lead to scalability issues.
By automating tedious tasks, the finance team has more time to work on things beyond spreadsheets which empowers them and makes their work more growth-centric.
Takeaway: CFOs can now rely on automation as an ally to help optimize processes, save time, improve productivity, and reduce costs.
To get on the hypergrowth path, CFOs need to take a step back, understand the current revenue trajectory, and forge new revenue streams while partnering strategically with the GTM functions. Here are some strategies to help you achieve that:
A quick look at SaaS IPOs in 2020 tells us that the average net retention rate of these companies was 126%. Gone are the days when 100% was considered as a ‘good enough’ NRR, hypergrowth companies can and are achieving much higher retention rates.
There’s an incredible revenue expansion opportunity in your existing customer base in the form of upsells and cross-sells. According to research, companies that focus on revenue expansion with existing customers grow significantly faster:
Another option is to look at expanding over geographical boundaries. But here, businesses might face complexities such as price localization, support to currencies, payment gateways, and tax & compliance regulations.
That sounds like a multi-quarter project, doesn’t it? But with a scalable revenue architecture, revenue expansion using these strategies can be done with agility and efficiency, giving the businesses a competitive advantage on the journey of hypergrowth.
Takeaway: Growth strategies like upselling, cross-selling, and geographical expansion are excellent ways to start your journey of hypergrowth. CFOs should play the role of a co-pilot in navigating through these territories, assessing risks, and guiding the business to make a decision that drives consistent and predictable growth. The right tech stack will help you achieve that in a matter of days.
PwC’s CFO Pulse Survey suggests that two out of five CFOs feel that growth opportunities can come from pricing changes. Since pricing can make or break a business, it is usually an iterative process, and until you find the pricing that works for you, you should experiment with different models. Continual pricing improvements have a significant impact on revenue growth in the longer run, according to research.
CFOs should make informed decisions about,
Geography based portfolio
Feasibility of premiums affecting working capital
Risk analysis of potential pricing changes
For example, Superfoods Company, a top-selling effervescent tablet globally, has 200,000 subscribers and a growing subscriber base for its product. The company achieved 4x growth in revenue within 12 months because of its effective planning and efficient execution.
“Our philosophy as a company is to not spend months deciding the right price prior to launching a new product. We go with what we think makes sense initially and then use the Chargebee platform to A/B test and decide on the optimal price.”
- Paul Kapsner, Director of Finance, Superfoods Company
Pricing experiments shouldn’t have to be long-haul projects. The right tech stack should enable you to run pricing experiments at the flip of a switch and, more importantly, allow you to make mistakes and course correct. This agility aids in growth as you can identify the correct pricing points to service up-market or down-market whenever necessary to meet market demands and increase revenue.
Takeaway: The CFOs should focus on the strategy behind pricing decisions and adopt an agile tech stack that helps them scale to meet market demands.
Pivoting business models can help growing businesses adapt to existing market turbulence, switch to more profitable business models, and make way into new markets.
Startups are often known to pivot quickly and capitalize on new opportunities owing to their agility. However, as a business scales, it is challenging to maintain that agility while you walk towards hypergrowth. Sophistication comes with scale but it doesn’t have to be at the cost of your agility - in fact, this agility to capture new markets can in fact be a differentiator for your business.
As a CFO of a scaling business, you should evaluate new market opportunities and gauge your business’s ability to act with agility. For example, is the technology stack scalable? Are existing processes fluid enough to accommodate changes? Say your SaaS currently has a sales-driven workflow, you should be able to scale confidently by setting your entire subscription workflow on autopilot with a self-serve capability without affecting your revenue workflows.
A Cloud Guru, an e-learning platform, leveraged self-serve workflows and automated them completely to open a new revenue stream. A Cloud Guru has joined the $100 million revenue club just five years after launching.
Takeaway: CFOs should evaluate new business models to open up revenue streams that can be captured. If your SaaS is agile enough to pivot business models and do so quickly, it gives the business a competitive advantage to stay ahead of the curve.
Gartner says that 41% of decision-makers wish management reports gave them more information relevant to their part of the business. A recent report by Accenture states that only one-fifth of CFOs (20%) include macroeconomic data in their forecasts. Either way, it sets back these leaders to excavate data-driven insights to help the CEOs wade through the digital transformations.
As a CFO, you’re not only responsible for the financial wellbeing of your organization, but you are also responsible for the growth strategy and sharing accurate reports to your stakeholders.
But acquiring the required financial data is no easy task. With more metrics to gauge, choosing the right metrics to track growth and share it with the C-suite becomes challenging.
CFOs need to have a dashboard designed to help them gauge the business’s health with real-time insights and provide instant forecasts.
Financial reports offer a wealth of insight that can streamline your business’s fiscal activities. This report should be built from the basics, with primary KPIs covering costs, sales goals, gross profits, and customer satisfaction figures and further followed with deeper metrics such as working capital, cash flow, and budgets. You should also closely track metrics that highlight the return on investment in the form of return on equity, return on assets, debt-equity ratio, working capital ratio, P/E ratio, and so on.
CFOs need a well-integrated dashboard that can cover all of these metrics and bring them up with just a single click.
Takeaway: Financial reporting is crucial because it acts as a checkpoint for the CFO to gauge the company’s health and take measures to course-correct if required.
Gone are the days when the finance function was considered a back-office function. Today’s CFOs have a new role to play, and their part is the most prominent in deciding the company’s direction.
CFOs, are you ready to be in the driver’s seat of a hypergrowth business?