Steve and Jack discuss how FP&A functions vary in size and mission, private vs public metrics, “decomposing” your metrics. Featuring FP&A Insights & Commentary from Planning Aces Ross Tennenbaum, CFO, Avalara, Waifa Chau, CFO, Nylas Brad Kinnish, CFO, Aryaka.
Unedited Transcript
Speaker 0 (0s): Hi, it’s Jack. And I’m here with Steve Player. Steve, you mentioned you’re doing some writing lately. What are you up to exactly?
Speaker 1 (8s): Well, it’s been interesting. I’ve been reading, I had done a blog with a buddy of mine up there in Boston on rolling forecast. And I had used some quotes from Jack Welch and he was doing the reference. He was filling in the references, trying to get it, you know, where exactly it’s coming. And he couldn’t find this Welch. Coach budgeting is an invented writing exercise and minimalization, and he couldn’t find it. So I okay. I’ll find it. So I started looking and I went online and I could never find, I could find exercise in minimalization, but I couldn’t find in venerating.
Read MoreOkay. And so, but I knew where I knew exactly it came. It comes out of nuts. No. Cause it’s Jack straight from the gut. And then I remember when I read it the first time and you know, I know exactly where it was, but my books, when I moved offices, a lot of stuff went into the storage and it hadn’t made it back out of storage yet. I got a copy right there, Jack straight from the gut. Yeah. Page 3 43. Go to read me the third paragraph.
I’m sorry. The fourth paragraph one line.
Speaker 0 (1m 16s): It’s an innervating exercise in minimal legalization
Speaker 1 (1m 23s): Since I knew it was from that, that book. I couldn’t get it because I couldn’t find it in my storage locker, my storage building, I went to half price books. I local use book place and I called and they had one at the main store. So I drove across town to the main store and I went in there and I took a picture of it. And I literally have the picture you’re looking at. I have a picture of that book anyway, in finding the book and half price books. Of course, I got to go through the shelf and forgot where it is on the shelves. So looking through there, you know, I believe in karma is working with me.
I’m going to find this thing. And I found a book about the Koch brothers and I found out the Koch brothers don’t budget either. Well, I had to buy their book 666 pages of it. I mean, it is a tool it’s called co-planned anyway, but I also saw a book by Scott, Scott Adams of Dilbert fame. And that book is called, have a fail at almost everything and still win big sort of my life’s kind of my life story.
So I thought, okay, I got to get this one too. Cause you know, once you got karma working for you, you gotta, you gotta pay karma. You gotta, you gotta buy those extra books that are orphaned at the half price bookstore. Long story short. I come out with six books. Okay. Now half of those came off the, off the clearance. I was okay. So I didn’t spend the fortune. Okay. I think $10 was the most expensive book I bought there, which was coconut.
Speaker 0 (2m 47s): Well, they sound outstanding. Those are, those are all great books. Dilbert can be our patron saints. You know, it’ll be a 20 years for Jack straight from the get. I can remember with the anniversary coming up nine 11, that book was being released. I think at nine 11 might have been its official release and Jack Welch who was going to be signing copies in Manhattan. I was on 40 S working on 42nd street at the time, but he was going to be at the Barnes and noble at Rockefeller center signing, signing books that day.
And of course everything, everything changed. I was going to try to step out for, for lunch early and see if I could get a book signed. I remember thinking that early in the day.
Speaker 1 (3m 30s): Yeah. I was at a camera meeting in Jackson hole, Wyoming. I waited until about Thursday and you know, by Thursday I decided I gotta, I gotta get home. So I went over and I ran the car. The only thing they had was a Lincoln town car
Speaker 0 (3m 44s): Off you go barreling back to Texas in your town car. Yeah. Just, just interesting to know that it’s 20 years and, and budgeting is still such a pain in the, you know what, Hey, or let me put it this way as Jack Wells did the late Jack Wells, we should say innervating it’s as innovating as ever. All right. So Steve, I have three finance leaders for you this episode, and I want to tee up this one quickly so we can get things rolling here.
Last fall, actually Ross Tanenbaum, who is CFO of Avalara, the tax compliance software company. He came on CFO thought leader for the first time and he always has something interesting to share with this clip. He’s looking back at the time he was an investment banker and he’s gone to a conference where a pre IPO slack, the company slack is a gathering analysts and you know, different influential people to discuss their business model.
And here here’s the anecdote. I think you’ll enjoy it.
Speaker 2 (5m 4s): And for me, and I’ve alluded to some of this already. This goes back to I’d say 2018. I was in San Francisco working with slack, who I think you all know, and you probably use every day. And what I noticed as I was working with the company before I left banking to go to Avalara, I was working on their IPO. And what I noticed was like pretty much every executive, whether it was their CEO, CFO, product, officer CTO, whoever, what was like most of them had a psych.
And at first I thought this was some kind of chief of staff type role. But then I realized like when there were meaningful questions, you know, about the business, the executive would really turn to the sidekick for answers. And, you know, I learned about the sidekicks were part of what they call their BizOps team, you know, which, which, which were cousins with the FP and a team and the finance team, but really focused on the key metrics and, and special projects and analytics. And this team was so incredible Jack. I mean, I really wanted to be on this team.
They literally had an analytical answer to every question about their business. They had their business just really so dialed in and such a deep understanding in numbers. It was super, super impressive. And what I learned was, you know, they were partnered with their execs and they had the ability to quickly make data driven, driven decisions and, and, and quickly, you know, come up with answers to really complex problem and is a very powerful capability.
So as I alluded to before, when I think of FP and a, a lot of people think about internal reporting, external reporting, the budget process, you know, really, really important things and some forward looking things. But what I think about is that slack is ops team. How can I work with our partners across the business to really dial in the business in an analytical way, go back to, you know, creating, not just budgets, but operational plans that tie strategies and tactics to key metrics that we can constantly report out on and be very visible on a dashboard real-time dashboard type way so that we can see when things are trending up or trending down and be able to more quickly take action.
I think that painting that picture for our team and setting that as a goal to what we want to develop too, we’re not there now, but that’s where we want to go because it’s super exciting mission that can really take finance from a point of being a partner, the business really.
Speaker 0 (7m 50s): Okay. There’s the wish Steve, we can stop there. So, so what do you think Steve sidekicks and they’re part of the business ops team and he’s making a distinction, these aren’t your traditional FP and a people, or are they
Speaker 1 (8m 5s): Well, I think what he’s describing is what he saw early in his career when they really didn’t have an FP and a team out there doing it. He saw people that were essentially doing as he started. Let’s share it later in the conversation, what FP and a traditionally, a good FP and a team traditionally does a good FP and a team really understands what the key metrics are. And so when you really get down to it, what you’re trying to tackle is do we really understand what happens and how the plans, how the physical things we’re going to do affect those metrics.
And so when you were thinking about a new vision for FP and a think about being that key business partner, that key support for the biz ops. So you’re out there hand in hand, in some respect, you become that sidekick, that right-hand person for your business leader in terms of what’s out there because you’re working, not because you’re in competition with the ops people, but because you’re joined with the ops people, you’re part of that same team, part of that, that translation. And I’ll give, I’ll give our listeners a quick metric to see if you really doing that. If you’re really doing that, what you’ll begin to understand is you can break away from finances, paradigm of being driven by the calendar.
You know, in finance, we look at month end quarter end year end, okay. We’re driven by these artificial dates in the calendar, which is how we’re doing our reporting operationally. It doesn’t work that way. We don’t hit those. It’s not those spikes. It’s how we do over time. So if you’re working on key metrics, what you’re going to be able to see is how those physical metrics are moving and you’ll get daily reports or even hourly in some cases of what’s happening. And you’ll be able to watch those key metrics and you’ll watch a move and trend and you’ll watch them almost like you’d watch a gauge or a line report.
You don’t have to wait till the month. And if you’re really good, you could not know how to dollarize any one of those metrics. So you’ll be able to predict what the month and the quarter in the year are going to be simply because you’re watching it happen. So, you know, at that point, when you’re, when you’ve got those key things talked about, and then what you begin to realize is watching that sound like kind of an indicator. What you really want to watch is how are our plans coming? Are we getting the people hired? We need, are we getting them trained? Are they making the sales calls they need to, is the sales campaign going the way we had hoped you start working on improving the operation?
Because the operation delivers the financial result.
Speaker 0 (10m 26s): I liked the sort of the dynamic he described at the conference, which was the business leaders would continue to turn as if this was their chief of staff. They were so dependent before they shared information or what have you. It was like they went to the sidekick or the, as he said, he, I, I thought they might be chief of staff the way they were always being turned to. But you get a sense of how, you know, dependent and how well thought out, you know, these business ops folks.
Speaker 1 (10m 59s): But when you think about a, jacket’s almost like, you know, the military now is you, I think a patent is, and his staff, yes. Patent was always a very out-front person. The patent was always the, the general was always thinking strategically, your leader is thinking strategically about what we could do. And then they set a tactical strategy of, this is how we’re going to do this, how we’re going to execute and achieve the strategy. And then the staff operate. They go out and implement the strategy. Okay. So what he’s looking at, he’s looking for that tactical execution to say, how are we doing on what we set out to do?
And so he’s relying on that key chief of staff, right-hand person to be monitoring. Are we achieving the tactics to implement the strategy that we all agree to and how’s it going? So it’s almost that kind of thing. And what it does is it frees the leader up to keep thinking about the strategy, keep looking at the big picture, keep having plan B and plan C ready in case plan a deliver. So it’s really in, it’s a partnership kind of thing. Okay. It’s the kind of thing where everybody has their role in that. And they partner together and the people that partner, yeah.
They’re going to be much more effective.
Speaker 0 (12m 7s): Well, I have a second clip of some commentary from Ross Tannenbaum of Avalara that I planned to play at the end of today’s episode. I know you’ll find it interesting as well, but right now I wanted to play a clip from our interview with Brad ten-ish, who is CFO of Aryaka, rather fast growing tech firm. And I was trying to get a sense of just how big his FP and a team was and whether he was trying to take it to the next level.
I forget what my opening question to him was, but he gives this nice overview. And so this is Brad Kentish, CFO of Aryaka.
Speaker 3 (12m 58s): I was very fortunate. I walked in, when I joined Aryaka, I walked into a company that was highly functional from an FP and a perspective and highly functional from an accounting perspective. All right, rock has been around for 11 years, which means that there are people and processes in place. And so my exercise was a little bit different. My exercise was, was not about building out a team and building out processes. My exercise was about how to improve. And so our FP and a team is three people.
As I mentioned, very functional. Our accounting team has a very high quality leader. Who’s been with us for three years. And so if that’s your situation that you walk into, then, then you kind of gotta be of two minds, which is one mind, which is w what can I do to improve this? But there’s another part of your mind, which is how do I not disrupt what’s working, right. And how do I, how do I learn? What’s working? What’s not working who’s highly functional or, or who is not highly functional and potentially needs help.
So I was very mindful of not disrupting the things that were working well, when I arrived,
Speaker 0 (14m 6s): Just given the vantage point, you enjoyed for many years as a banker, did, did you pay a lot attention to FP and a functions? I’m sorry, I’m getting off a little chorus, but I actually think you might be able to say no. You know what? It really wasn’t relevant to, to our investments or no, you would, you, you wanted to make sure they had the, the in house smarts to, to read the market and do their planning correctly. Anything. Yeah.
Speaker 3 (14m 36s): Oh, so you’re saying as a banker, did I pay attention to the finance, the FP and a function? And how good was it at a company before I took a public? Yes. Yeah, yeah, of course. Yeah. That’s a big part of the diligence that you do, because, you know, as an underwriter, you’ve got some reputational, which is, if you take a company public and it does really poorly, or they miss their numbers or they underperform that then hurts you because as a bank, you’re kind of serving two constituencies. One is you’re selling stock to investors and you have relationships with those investors.
And so if you sell them a bad stock that hurts you reputationally with those investors, the other constituency you’re serving as the company that you’re taking public, that you’re raising money for. And so you have to be, you have to keep that in mind as you’re going out and doing an IPO, because it, it goes to your point, Jack, which is you need to be sure that the company that you’re taking public is ready to go public. And so when you’re talking with that FP and a group, and that CFO, part of what you’re trying to figure out is, is this a realistic two year projection?
Are they going to be able to meet and beat? Because in many parts of the market, particularly part of the market software where I was involved, the expectation from investors is that you’ll come out and you’ll have a baseline two year projection. And that each quarter, each of the first few quarters, you’re public, you’re going to have a knowledge need, but you’re also going to, you’re going to beat your numbers and then you’re going to raise your forecast. So that’s part of what you’re evaluating is does that FP and a team and CFO know enough, are they, are they, do they understand their projections and business well enough to lay out those forecast to be able to meet me because you want, you want the company to do well when it’s out, hopefully launched,
Speaker 0 (16m 25s): Okay. Planning a spread, Kenny ish, CFO of . So, Steve, what did you make of what Brad shared with us?
Speaker 1 (16m 36s): Well, what’d, you gotta understand here, Jack. This is really where you’re getting into the great debate between publicly held companies and privately held companies. You know, we are very clear on defining that we want the forecast to be what you think is going to have happened, but what’s happening here is the process is not really a forecast of what you think is going to have happen, or you’re trying, what he’s trying to say here is because it’s a company going public. The expectation of a public company is I’m going to invest in your stock. And therefore, I want to, I pretty much as an investor would want you to make sure you’re going to hit that.
So most of the situation, what he’s doing as an investment banker is trying to assess, do these guys really know what they’re doing, how much, how back to the conversation we had just a little bit earlier about assumptions and kind of what, how well they really know what’s driving their business and how much I’ve heard. It explained to me by a CFO that I knew really, really well, how much landing room do they have? How much margin of error do they have to be able to continue to hit those numbers? And if you’ve been in accounting know, you know, accounting is, it’s got a lot of estimates and there’s a lot of things that are not as precise as some people might think mass should be.
But what he’s really saying is make sure you can always under promise and over deliver in a, in a going public role. He’s talking has an investment banker. Who’s got these dual responsibilities raise money, but also protect the guys that I’m getting to invest in you. Okay? And so a public CFO always has that kind of looming over their head. They always want that. They always, I’ve heard people talking about having to forecast, what do I think is really going to happen? And then what am I going to tell the street? And the one I’m going to tell the streets always hedge with a whole bunch of protective caution or cushions to try to make sure that nothing bad happens to us, that we can’t absorb.
Okay. The problem is was when everybody starts putting in cushion, then you wind up with a budget. That’s nothing more than a sandbag target is what Jack Welch said in venerating exercise and minimalization, where everybody’s trying to negotiate the minimal acceptable return. And the problem with that is what everybody’s trying to focus on Kush, and they lose sight of what the operation can really do. So you gotta be real careful when you’re giving that two year. I know I can make it. I really know what I think this ought to do. And everybody’s really the expectation I’m communicating and setting within the company, at least internally is this is what we’re going to do, and this is why we’re going to do it.
And this is the metrics we’re going to watch to be able to show it. And so it’s being able to include in that management discussion analysis, the MD and a, what are the risk factors that we’re really walking on and so done? Well, a good FP and a department can help management really communicate how well you understand the business and how well, how well you are and what levers you can pull to adjust. And you can have a candid conversation, but that’s, that’s one of the things there’s a lot written about that public versus private approach.
In fact, many situations, private companies are often viewed as having a competitive advantage in not having to meet those, those kinds of outside investor requirements.
Speaker 0 (19m 38s): Okay, well, permit me to mention that Brad ten-ish joined us on episode 6 67, and that was part of a longer discussion regarding FP and a, I thought he had shared some great insights. And again, he was had an investment banking background, not unlike a Ross Tannenbaum. So he has been looking in to the FP and a function for quite a few years, both as an operator on the operation side, as well as the investment banking side.
Our next planning ACE is wafer chow, who is today CFO of Nilus a technology firm based in San Francisco. He just had such a FP and a rich career behind him. Wafer worked at gap. He worked at a banana Republic, and then he joins walmart.com on the e-commerce side of a Walmart, every step of the way planning and financial analysis was part of his daily regimen.
And he had such a great, I thought mindset for an FP and a executive. And I, or I should say a, an FP and a veteran perhaps, and today, a finance leader. I thought I’d share it with you, Steve, just to see what you make of wafer ciao. Here he is.
Speaker 2 (21m 10s): Yeah. You know, you really have to have a good understanding of the operations and what’s happening to be able to speak to it, to be able to speak to variances, to be able to speak to, Hey, this is why I’m changing my guidance. This is why I’m saying, this is what we’re going to do in, you know, 12 to 18 months as a business. So, so I, I would say it really kind of started right off the bat. You know, I, I started to learn and really understand how critical that business partnership is to, to the finance function, to be able to drive that forecast.
And, and so, yeah, I, I would say it actually started there one other piece, if I may add, I think, you know, I did a sin and corporate sourcing went into merchandising and then I went into true kind of corporate FP and a really supporting marketing at banana Republic. You know, that’s where I, I really understood the power of what FP and a truly is and, and how it’s important to make sure your business partners understands it, you know, back then, I feel like traditionally people think, oh, my FP and a partner is just here to tell me, tell me how I am doing to budget.
You know, am I under, am I over? And, you know, really just kind of reporting those types of facts, but in reality, what, what I think to build and to be a good FP and a partner, is to educate them and to get them to understand, look, I’m here to get your story and understand what’s happening in the future so that I can roll everything up and provide that to our CFO to do guidance, right? It’s about what it’s about what we’re going to do in the future.
And we’re going to say, we’re, this is what we’re projecting. And then being credible about it to say, Hey, yes, we said we were going to do 2 cents earnings per share. And we actually did it well. Why, because we have the correct information from a forecasting perspective. And a lot of times, you know, even at the, when I was an analyst at that point, my business partners would that’s, that’s what really built that relationship. It was that education to tell them, look, this is how you, you, you know, your part fits into the overall, you know, cause we all want the company to be successful.
We all want the company to be seen in a great light out there in the finance community, in the investor community. And this is how your part plays into it. A lot of they might think, oh, you know what? I just control the small budget in marketing, no, every dollar counts. And it really is what we’re doing with it, how we’re forecasting with it. And how does that fit in with the overarching financials that’s going to be going forward from a forecast perspective. Now I’m wondering, I, you know, these
Speaker 0 (24m 7s): Three retailers, you know, that I keep you’ve mentioned, already mentioned gap banana Republic, Walmart. And again, I’m wondering if you can make a point of comparison for us about FP and a as an FP and a professional at that place in time, whether you were organized differently from one company to the next,
Speaker 2 (24m 31s): You know, what, for the most part, a lot of them operated very similarly, the, the FPA structure has been, has been kind of the same, you know, pretty much so both of those or all three of those are retailers. And so from an FP and a structure standpoint, we were structured very similarly across the board where, where, yeah. So for example, you know, because FP and a is so ingrained in business partnership, you know, you would have a team or a leader or a group of finance professionals that would support merchandising.
You know, you might have a group that’s supporting marketing that supporting operations, you know, like, like, and then you would have a corporate FP and a kind of group that kind of rolls everything up, you know, does a lot of consolidations of kind of the overarching. A lot of times, at least the experience that I’ve had has been, we played a dual role. So I would do corporate and I also supported marketing, you know, so you kind of get a little bit of both because you definitely need to have, you know, someone that is quote unquote, almost part of the marketing team, right.
Or part of the merchandising team where they are, they’re, they’re really understanding the intricacies and the ins and outs of, of those areas and functions and how they relate to the P and L and the numbers. And, you know, from a forecasting standpoint where I would say where they were a little bit different, and that’s part of why I, you know, made the shift from like, let’s say banana Republic to Walmart, because at PNA is so ingrained in business and really understanding the business model and the operations, walmart.com was e-commerce, you know, banana Republic for me was brick and mortar.
And that’s where it was a little bit different, you know, going from, from banana Republic to Walmart, I needed to change and get experience and understanding how e-commerce works. You know, what are some of the key metrics that might be a little bit different? There are some that are the same across retail, right? From a metric standpoint. But then as you go from brick and mortar to e-commerce, that’s where you start to understand, oh, you know what? I have different levers to pull. These are, you know, we look at Shipt margins versus just gross margins.
You know, that’s what you would look at from a brick and mortar retailer. So, you know, there are just some slight nuances that you begin to learn and begin to understand, Hey, this is, these are the types of metrics and different analyses you can do to provide value to your business partners to make better informed financial decisions or the company in the long run.
Speaker 0 (27m 15s): Okay, well that was CFO way for chow. And that was from episode 7 0 8 of CFO thought leader. The reason I chose him as a planning a Steve is just that he spoke so passionately about collaboration and, and trying to collaborate with his team members across the organization. And just seeing that as a real mission, helping them understand how they bring value, how finance brings value, but what did, what did you make of what he shared?
Speaker 1 (27m 45s): Well, for my friend in the first part, you know, we’re really talking more from, from kind of what do we deliver. So back to our previous conversation about, you know, what is the street, what he’s trying to break that down, where everybody understands that, yeah, you’re a part of what we deliver to the street. So it’s not just your little marketing span, but is that driving the right kind of customer acceptance is the marketing hemorrhage thing. The leverage effect that we hope to have in terms of, you know, reaching out to, to drive that amount of sales, that is the campaign being successful.
So each one of those things, whether it’s a big capital investments, which you clearly see in track, or just an investment span in marketing, each of those are discretionary spends. And those discretionary spans are meant to drive the flywheels. They’re meant to drive the business forward. So it’s really trying to help everybody understand where they fit in, in the machine and how it all kind of comes together and how to be able to communicate that and have it, how to kind of carry that forward. Then he goes forward and really talks to what I found most fascinating because our CFO’s, I’m excited about the guys we have this time Jack, because they, again, present the diversity of what it really took to become CFO of it.
These guys don’t just stay in one industry. They don’t come up. They, they come from different perspectives. They come from different approaches in terms of what’s out there, but coming from, from, you know, soft, good retailers like gap and banana Republic into walmart.com. And the shift when I go to online retailer like Walmart now, all of a sudden the cost structure, even though those are both retailers. Yeah. And banana Republic, both have a lot of on-premise stuff. Walmart has on premise, but it also has walmart.com is all about warehousing and much more of an Amazon competitor.
How do those costs structures different? What order are our metrics in our models? I’m talking to marketing as we go back earlier in the conversation. If I’m talking to marketing, I’m talking about lifetime value of customers, things that some of the things we talked about in episode one here, every different part of my business, if I’m in a manufacturing, plant and development, if I’m in a distribution chain, if I’m in a sales organization, whatever part of the business and FPI you’re supporting, there are key metrics and there are keys to really understanding how do we know what this function is really doing, what it’s supposed to be doing, and how do those functions, even though we’re doing the same thing, we’re making retail, how do those metrics and functions slightly differ?
When I go from one part of what I go from, on-premise retailing to shipping retailing, you know, gross margin I look at, but when I’m looking at, when I look at a warehouse version that when I looked at online retailer dot commerce, it’s the ship margin because I don’t have the stores to worry about, but I do have to worry about how do I get that to the customer? And if I’ve given away the delivery, you’ve got to factor those things in. So again, it’s, it’s just really understanding the nuances. And again, the most exciting part about, for me, if for young people in the profession, this is really where you begin to really understand what’s going on.
And I got into, I got, I became an accountant because I wanted to understand how businesses worked. I wanted to understand how we made money. More importantly, I want to, how do you make a profit? This is at the core of really beginning to understand that. And this is, this is what these, these FBI leaders are pointing to, what they’re getting their FP and a functions to do to help them support them in their CFO role.
Speaker 0 (30m 54s): Well, we have one more clip we’d like to share with the audience, Steve and you as well. And of course, it’s Ross Tannenbaum, who I mentioned, I had a second clip from this time. I’m always asking him. I like, again, the perspective of a wall street banker, looking into the planning function and analysis function, and then to have the CFO really understand the realities of what it takes to, to really optimize that FP and a function and have, you know, the lines of sight you really desire.
Anyway, what he shared I thought was spot on. I hope you do Tuesday. We’ll find out this is Ross Tannenbaum.
Speaker 2 (31m 37s): You can appreciate on the inside now, you know, making sure we’re managing the model and, and predictability visibility is even more important. You know, when, when it’s your, you’re the one on the, on the line. So that that’s something that I’ve drawn back on my past experience. Not for sure. Another thing you would do as a banker is about just the key metrics, right? So we used to work with CFOs on what are all the key metrics and in SAS, you know, there’s a list of 20, right? And, and, and many of them report the same ones, net retention rate, you know, some kind of customer counts, you know, churn those kinds of things.
And so we’d spent a lot of time benchmarking metrics. What are your, what are your using on the inside? What are reporting on the outside? Where do you want to go over time? And you know, this year I’m spending a lot of time when metrics Jack it’s it’s, we put in a set of metrics at the time of IPO, the business. Now three years later is evolving. It’s changing is becoming more complex, we’re doing more things and you have to evolve your metrics internally and publicly over time, you know, to be able to, to be able to keep up, you know, with, with running it, but also reporting on it.
And that’s a key thing that FP and a has to do. And so really when you get on the inside, just, just, just the other view of it, it’s really about the buildup, right. You know, when you’re advising a CFO as a banker, it’s, you’re looking at the aggregate it, and you’re trying to make sure it all checks out and it’s predictable on the inside. It’s about how does it build up? Where are the numbers coming from? What are the key drivers, which drivers are really reliable. Cause there’s, you know, it’s subscription, it’s written in stone, which ones are more, we’re making assumptions.
And we’re having a really buttoned up that forecast and really look at it really closely. So it’s a much deeper level of, of detail and analysis to get to the buildup that as a banker, you’re looking at, you’re just looking at the output is the banker and advising around the margin so much different ball game there, as you can imagine. And then on the, on the metrics, I think this is the most important it’s if you think about like net retention rate, okay. Which is a metric that most SAS companies report.
And what it means is like, if you look at your customers last year versus this year, are they growing in revenue value or not? And most SAS companies it’s above a hundred, meaning they’re growing. That means if you net out the churn that out the downgrades and then put in any upsell or add ons, you know, is it higher or lower than a hundred percent? Most companies in the SAS world are higher. But what’s interesting is as a banker, we talk about the metrics with the CFOs in the aggregate, you know, how does your NRR benchmark to others? You know, how do you want to report it?
There’s different slices of how you could report it as a CFO on the inside. We’re really focused on the decomposition. So if I look at downgrades, what are the main drivers of down rates? What are the main drivers of churn by different types of customer? What are the main drivers of upsell add on price increases, cross sell, you know, expansions are customers because then you can take those dimensions. And this is about how FP and a becomes really effective FP and a decomposes. It, they can then take those dimensions and they can help the business leaders, the people that are in charge of customer satisfaction and retention.
And they can say, Hey, if we can drive down downgrades lower by this amount, we can have this much more revenue. If we can drive this much more, add on, we can have this much more revenue. And now we’re talking about FP and a taking a metric decomposing and operationalizing it with the business partner to then drive results. And that’s, what’s really powerful about FP and a jacket.
Speaker 0 (35m 30s): I have to say, I liked that expression of decomposing metrics and measures decomposing. Since I heard Ross use it, I think I’ve heard another three finance leaders use it. So I don’t know if it’s contagious or maybe it was always out there. And I did. It never caught my ear before, but Steve, what did you, what did you make of what Rashi? Well,
Speaker 1 (35m 50s): What he’s really getting down into is what is in the detail. It’s not just that the numbers are going up or down, but why are they going up and down? The decomposition is really just deep analysis. It’s the why it’s not just enough to know what’s happening, but why is it happening? And if it’s happening, what can you do about it to make it happen more if it’s favorable, making happen less, if it’s unfavorable. The other key aspect of that, the reason FP and a needs to be involved is not only can you look at the decomposition, but also you can measure, you can put dollar amounts on each one of those.
So, you know, on a cross sale, how much can I afford to spend to make that cross sell? Okay. If I know how much more margin it’s going to give me how much it becomes, easy to figure out, okay, what could I invest in to try to make that happen? Or what could I invest to make that decline rates slow down some? So it’s really what he’s really talking about is the deep mechanics within the system to understand, and then work again with operational leaders to think about what can we do to change this? What can we do to make our position better, to make our customer more happy to get them to stick around longer, all those kinds of things.
That’s where it comes down. This has been going on in business for a long, long time. What we have today is we have so many more metrics, so much cheaper and easier way to see things. The data is there. We just have to access it and turn it into, into useful information. We can make decisions on an act. Yeah,
Speaker 0 (37m 11s): I like that the data is there, the data and in some organizations, it’s just waiting, waiting for some attention. Steve, thank you so much once again for joining us. And before we go, let me ask once more, where are you be? What’s what’s going on in your world?
Speaker 1 (37m 31s): Well, I’m, I’m really excited. We’ve got a, we’ve got a workshop in September coming up of a webcast that we’re doing on workforce planning. And one of the key metrics that I’m sure we’ll be talking about in future sessions is about what a key element the workforce is for everybody it’s in most companies, the largest cost elements that you have, but it’s often the one that we just look at a number and from a planning point of view, we often just put down payroll and inflated 3% and say, that’s what it’s going to be when it’s, it’s so much more, there’s so much more than a narrowed about what really, what’s it really composed of the decomposition that we were talking about earlier, but also not only who am I buying when you think about it, there are huge parallels.
We’re beginning to see them now, are we going to get people to go back to work? You know? And when we think about it, are people going to go back to work? You know, getting the right people hired. Some people don’t want to come back to the office. They work from home proved successful 15 months. They don’t just because you want to see them again. Doesn’t mean they’re going to come back. How are you going to work with that in terms of what’s out there. You’re looking at that population. That population is a whole lot older than it ever used to be. So there’s a tremendous amount of knowledge in our workers today that is about to walk out the door in terms of normal retirement, early retirement.
And so if you don’t know what tasks and knowledge you’ve gotten, who’ve got it, how old it is. And when it might be likely to leave and have a plan in place to replicate that and capture the company, you’re going to have a huge amount of knowledge, capital walking out with no way to replace it. So everybody really needs to think about workforce planning as a huge topic to really look at we’re going to be working on that, that we’ve got a website up coming up on September 9th to send me an email. If you’re interested in attending love to have you join us. But so much of this, we’re getting down into just helping people become agile, helping people learn how to pivot.
I’m just very excited. You are correct. We are in person in, at the AFP conference in November. I think you’ll be there with me. The lean accounting summit is coming up, live virtual on, on September the 13th. So very excited about that. The whole lean accounting area is kind of exploding. I’ve got a good partner, Mike DeLuca, and they’ve written a new book on practicing lean accounting. And so it’s, it’s coming out September one. So just, just, there’s a lot of good materials still coming.
So I appreciate it. I’m looking forward to starting to get feedback from our listeners. That’s the nice thing about having an episode here. We can, people can talk to us about what they want to hear more about. I’m looking forward to getting that feedback.
Speaker 0 (39m 59s): Yes. True. We’d love your feedback. You visit CFO thought leader.com. We have planning ACEs right on the nav bar. Click on that. You can find information for Steve as well as myself. If you’ve got a question, don’t hesitate to email it our way or comment are welcome as well. Steve,
Speaker 1 (40m 17s): Thank you, Jack. Look forward to next time.
Speaker 0 (40m 37s): Don’t forget. Go right. Corporate performance management software can help your organization advance down. The evolutionary curve Planning Aces is made possible by profit software to learn how profits is helping 1500 global companies transform the way they work visit go.profits.com/transform.
What’s Steve up to?
September: Workforce Planning Webcast
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