#15 | Decoding SaaS KPIs: Marrying Data & Business Tactics with Victor Cheng (CEO Coach) & Vipul Shah (Co-founder & CEO at SaaSWorks)

Victor Cheng is a CEO Coach and independent board member for founders of SaaS companies. He has been featured as a business expert by major media outlets including MSNBC, TIME magazine, and The Wall Street Journal, Victor is a former McKinsey & Company consultant and has been a senior executive in several publicly owned technology companies. He's the author of Extreme Revenue Growth: Startup Secrets to Growing Your Sales from $1 Million to $25 Million in Any Industry

Vipul Shah is a Co-founder & CEO at SaaSWorks. SaaSWorks is the first purpose-built Continuous Finance Platform, powering the single source of truth for Subscription, FinTech, and Payments businesses and delivering accurate data, timely signals, and peace of mind. Prior to founding SaaSWorks, Vipul held Managing Director or Managing Partner roles at the likes of ArrowMark Partners, Brightwood Capital, SVT Capital, and Goldman Sachs, where he invested in mid-market private equity, growth equity, and debt across the SaaS, software, and tech-enabled services sectors.

Transcript

SPEAKER_03 0:10

Friends, welcome to 2024, and we are back with the Besti2Go FinTech podcast. I am Fraser Anderson. Today I'm very, very excited to be joined by Victor Chang, strategic advisor and independent board member for SaaS CEOs. I would strongly advise you to check out his website, sasceo.com, and um by a voice and a face, if you are watching the video, that uh many of you will know, Vippel Shaw, co-founder and CEO of SaaS Works. Uh, and uh and now it's time for their bios. Victor Chang is a CEO coach and independent board member for founders of SaaS companies. He has been featured as a business expert by major media outlets, including MSNBC, Time magazine, and The Wall Street Journal. Victor is a former McKinsey and company consultant and has been a senior executive in several publicly owned technology companies. He is the author of Extreme Revenue Growth: Startup Secrets to Growing Your Sales from 1 million to 25 million in any industry. Bitbull Shaw is a co-founder and CEO at SASWorks. SASWorks is the first purpose-built continuous finance platform, powering the single source of truth for subscription, fintech, and payments businesses, and delivering accurate data, timely signals, and peace of mind. Prior to founding SaaSWorks, Bibble held managing director or managing partner roles at the likes of Aeromark Partners, Brightwood Capital, SBT Capital, and Goldman Sachs, where he invested in mid-market private equity, growth equity, and debt across SaaS, software and tech-enabled services sectors. Prior to his career as an investor, Bipple co-founded Pyramid Digital Solutions, an enterprise software company which he sold to Sunguard Data Systems. Bippel earned a Bachelor of Science in Finance from the University of Alabama and an MBA from MIT Sloan School of Management. And without further ado, let me get to my chat with the guys. Bitbull, Victor, welcome to the show. Thanks for having us. Thanks for having me back. And Vippel, I think you are the first repeat guest. And I was given how uh busy my guests are and accomplished, I was sort of expecting I'd have to be begging, literally begging the first repeat, but you uh you actually invited yourself back on, which I'm very grateful for. But when you do invite yourself, you do have to provide entertainment to the host. So maybe we can start and you can set the table and explain why you're back and uh why Victor's here.

SPEAKER_02 2:33

Well, despite all my promises to myself to never do a podcast, what compelled me to invite myself back is uh when I saw Victor presenting, uh and to me, you know, you can't not talk about a conference that's called Silicon Y'all.

SPEAKER_03 2:51

I I the moment that I heard you were going to that, I was one, not surprised, and two, I was just waiting to hear you become a kind of hype man for Silicon Y'all, and you certainly have been.

SPEAKER_02 3:04

Yeah, and I and I just telling you, I love the event, not just because I grew up in Birmingham, built our first business in Birmingham, but when I saw the content, and particularly when Victor got up on stage, and the conference was really focused on uh uh you know bringing a lot of information to CEOs in terms of what really matters in terms of growing a business. And when Victor got up there, uh you know, it was just fascinating uh in terms of where he was pushing the envelope and the importance of KPIs and understanding not just growth KPIs, but all KPIs. And then at one point, Victor went into the importance of FPA. I'm like, I wanted to go up on the stage and just give him a hug. And so that's when I thought like Fraser's got to meet Victor, and Victor's got to meet Frasier, and it's gonna be pretty fun to do this. So that is why a forced introvert from Birmingham, Alabama volunteered to be back on a podcast.

SPEAKER_03 4:03

Well, that's a perfect explanation, and I think a good segue. Victor, why don't you talk a little bit about uh how you got involved with software companies in the first place?

SPEAKER_00 4:11

Yeah, I mean, I first got involved in software in general in kindergarten.

unknown 4:16

Okay.

SPEAKER_00 4:16

We can go way back. Uh the personal computer had been invented a couple of years earlier. Um, Microsoft was founded a couple years right now, right around then, and um sort of fell in love with computers very early. My folks were in the computer retailing business for most of their professional careers. I've always had computers around, unusually so. So it was in the blood. Yeah, yeah, yeah. In my blood, yeah, second generation. And then I got into the software business uh really right out of um a little bit after coming out of college. I was working at McKinsey for a couple of years, and then the dot-com boom started. Super enamored with that. The world was changing, not too dissimilar from sort of the uh the hype here on AI today. Yeah, and it just seemed like an exciting thing to do. I really wanted to be involved. Much of the internet world sort of started where I was at school at Stanford. Yeah, I didn't realize it was happening around me until after I left and looked back. I go, Oh my goodness, I was like in the middle of all of it, uh, not realizing until a couple years later.

SPEAKER_03 5:13

That is that's absolutely wild. Um, it's funny. I was uh chatting with our general partner, Dave London, yesterday, and um he was doing uh neural network research at MIT in the in the late 80s, started his first company uh just out of school, had a wonderful exit uh to to vignette in 2000. But um he said he said to me, uh I've only really got a couple of career regrets. Uh very, very few things have worked out really, really well for me. But the only regret I have is that I didn't start two companies um right then. And and it's it astounds me, but it makes a lot of sense to sort of hear that being at Stanford when you were you were insulated from it, because I think it seems to me anyway, and maybe this is just because of the interaction we have with the folks over at MIT and um in Harvard frequently as part of our work, that at least the venture capital community has sort of evangelized entrepreneurship on campus. Um, I don't know if I don't know if you feel like the Stanford uh student population today is is more attuned to the AI wave than perhaps it was to the internet wave when it was happening. Um I don't know if that makes any sense.

SPEAKER_00 6:23

Yeah, it does. I I would say so, right? I mean it's definitely the popular consciousness. Um I hear about it uh, you know, in my Uber, going to the airport, right? People bring it up. Uh that was not the case uh when I was at school and back at Stanford. And it was sort of this really Silicon Valley was really kind of this niche thing, right? That sort of uh you knew that it was sort of associated with that industry, but most people didn't know actually know a lot about it at the time.

SPEAKER_03 6:47

And and and when one thinks about like kind of Gen 1 software companies, I think one one tends to think of like enterprise with a capital E and like an almost sort of vertically integrated company in the sense that like you kind of had to if you weren't bringing your own servers, like you had to know a guy that had servers and there was a lot more setup involved, and and you know, you'd get paid as sort of a design partner. And but but at some point, and you are the SaaS CEO, so um, you know, what is kind of the difference between SaaS and enterprise, or what are the key differences and what what makes you focus on SaaS today?

SPEAKER_00 7:24

Yeah, so my career span sort of traditional enterprise software, sort of earlier in my career. Today it's almost all SaaS. Yeah. And what I and in that transition period, what I liked a lot about it was that I think the SaaS sort of recurring billing model, month to month, uh, it really keeps vendors honest. Yeah. Right. Um, in the enterprise world, you would like try to get the seven-figure deal, land them, celebrate, and then the incentive was to ignore them and to do things to get the next deal. Yeah, and so that never sat well with me. And I'm a third generation business owner and it goes back many, many years. And I was always taught like if you treat your customers right, you have a good long-term business. Yeah, I think the fast model provides the financial incentive to do exactly that. Okay. It's better for customers and better for vendors in the long run. So I've always I love that model.

SPEAKER_03 8:10

Yeah. And when um and what what was like one of the the early software businesses you were involved with after you after you left McKinsey?

SPEAKER_00 8:18

Yeah, so uh see the first company I went to join was something called Life Person. Uh they're still on NASDAQ. I think they're a unicorn these days.

SPEAKER_07 8:25

Okay.

SPEAKER_00 8:26

And later joined a company called uh ATG, our technology group, uh, which was then absorbed by Oracle, now the Oracle uh Cloud Cloud Commerce platform is I think what they rebranded.

SPEAKER_03 8:35

And I think just just going back a little bit to the to the remark about enterprise, you know, you and I were chatting a few weeks ago, and uh you told me a story which I just like I think have to bring up again. Um so I will I will set the table for you because it is the holiday season and it's it's very appropriate. But you know, imagine imagine you were not in in glamorous Seattle today, but you were in lower Manhattan, Christmas lighting displays are up, night has fallen, you're walking east along Canal Street, and then you turn right on to Center Street. Might this conjure up any memories for you?

SPEAKER_00 9:10

It it does, yeah. It's quite quite the adventure. This was back 1999, I believe. It was uh maybe the first big uh e-commerce Christmas season, right? Sort of right before maybe this was, I think, in early November. And it was the inflection point of the internet was huge, uh, e-commerce was a big thing, but this was the first year that consumers were gonna largely purchase online. And so the company I was with it at was uh sort of served e-commerce companies, right? They were our customers. And so we did this sort of, I did this this sort of server analysis in terms of our capacity, and and we were running at 90% capacity, right? In November 1st. Yes. No Black Friday yet, no Christmas sale, no, you know, all of that.

SPEAKER_03 9:49

That that's not enough redundancy, clearly.

SPEAKER_00 9:52

Yeah, exactly. You know, I'm not a CTO, at least I'm not anymore. And like, I'm pretty sure that's not enough, right? Uh and we were going public like six months later. So this if we blew up and died, we the IPO would be you know really a threat. So we screamed to get servers in place, and this was before cloud provisioning happened. And so if you wanted more capacity, you had to physically go get servers, and we couldn't buy them fast enough, we couldn't get them delivered. So uh I was down in Canal Street trying to um repurpose some old servers and an old data center and grab them and move into the new data center. And uh the issue was there was a billing dispute. Yeah, uh, so they had sort of frozen our account. Uh, I got in there with a buddy of mine, our uh I think our head of network and operations. We sort of took apart all the servers, ready to head out, and then security wouldn't let us go because the bill happened, but there was a billing dispute. So I was looking at my buddy Chris, I'm like, I think we should run for it. There are servers, we own them. Yeah, um, so I look at each other and like, you know, I'm still in pretty good shape back then, right? Like, I can run with two, you know, two compact servers. So we each grab two and we're like calling ass, uh, excuse me. I'm just running running down the street, uh, down to Chinatown. I'm on the cell phone calling our CFO, like, can you extract us, you know, we're being chased by security. It's our own thing, right? So we're not stealing anyone else's stuff, it's our own. Yeah, yeah, yeah. And it was this big crisis. We we got the four servers, we got them into the new data center, and then we tripled our capacity, and we made it through that first e Christmas. That's fantastic.

SPEAKER_03 11:16

I I want to make it very, very clear to listeners that Bestigo Ventures is not endorsing crime. We are endorsing scrappy entrepreneurship. So if we fast forward a little bit to what you spend your time on now and have been spending your time on, you've written and and clearly spoken movingly about SaaS metrics. So kind of curious what led you down the route? I mean, it is a bit of a rabbit hole, because there are a lot of them, and there seem to be well, there was a real proliferation of these, I would say, leading up to 2021. And now I think they're they're tracked more rigorous, rigorously, but there are less of them that that matter, perhaps. Um, so so what led you into this world and and kind of this desire to like understand and articulate and share and teach about about uh software KPIs?

SPEAKER_00 12:06

Yeah, so it's it's ironic because I I hardly I don't consider myself a software KPI person, at least that's an undemand. I'm about building better businesses, making better decisions. Yeah, right. And the challenge is to you you make better decisions with better data. Right. If you misunderstand your business, you make the wrong decision. Preach, preach. Yeah, and so I learned that really on McKinsey. I was very, I was taught about to sort of do data analysis to figure out recommendations for clients. And one of the things I found really, really fascinating was how often the intuitive answer we thought was correct after you look at the data, sometimes it was wrong.

SPEAKER_06 12:42

Yeah, right.

SPEAKER_00 12:43

And often that counterintuitive decision was very empirically proven would would make a huge financial impact. But nobody in the room would have guessed it, you know, uh before looking at that data. So that sort of sold me of how many times these major decisions that have huge impacts on enterprise value, it was in the raw data. Yeah. And so early on in the tech world and the SaaS world, the early stage uh SaaS companies, there wasn't a lot of data. There's no market data, the revenue lines are pretty um uh immature. But now, as the industries have matured, there's more data to capture, to analyze, and to make better decisions. And not enough people are doing that. And so I think they're suboptimizing the decisions they make and the enterprise value they could be generating.

SPEAKER_03 13:24

I I'd love to hear from both of you on this next one because it's it's um it's something that I've spent a lot of time thinking about. Because I mean, so there's you have the kind of markets paradigm of uh, let's say like quant hedge funds or even like the fundamental investors. I mean, they they will ingest as much data as they can. And you you exist in a market dynamic where the moment somebody has an edge, like everyone else must figure out what the edge is and adopt it immediately. And so that is like this very, very data sophisticated paradigm. If you think about, let's say, sort of the mega PE firms, they they are fairly data sophisticated as well, but not nearly as much because there is there is kind of a dynamic as well, where if I'll pick any name, um, Apollo um uses data, makes better decisions than KKR, and they get through diligence, you know, 10 times faster because they've sort of tech enabled their um their approach to using data, you know, at some point KKR will need to adopt the same thing. And that I think sort of flows down to the operating businesses. But what causes a data-driven framework to be to be adopted? You know, how do you think about the early adopters for a new segment that's using data or using a new data type? And are there common market dynamics that that make adoption, the adoption curve suddenly go sort of vertical? I I don't know if that framework kind of resonates with you.

SPEAKER_02 14:53

Yeah, I mean, I think I think that's a great question, Frazier. For me, what I observed was the really deep dive I got into understanding the value of data was my my first few deals when I joined the private equity team at Goldman Sachs. And we were asked to go so deep within the data from a segment analysis, cohort analysis, and really create that objective point of view. And at first I was frustrated. I'm like, I haven't even met the management team. I need that subjective input in order to understand what I'm looking at. And my view, you know, a year in changed pretty meaningfully because I realized that there is a story you can build from the data, and it allows you to be more objective. And an example of that would be one of the businesses we were looking at. All our intuition said, hey, they should really focus on expanding the enterprise accounts because they have higher lifetime value, uh, they're they're stickier. By the time we were done ripping the data apart, putting it back together, never having my management team, because I was still a junior guy at that point. And you looked at it like, wow, the SMB customers have like no customer acquisition cost, they don't ask for discounts, and they never leave. Why and why would you shut that off? Because the segment margin for that business, the gross margin on that business was just phenomenal. Yet, intuitively, those are the person I was on the deal with, I'm like, well, I see what you're saying, but I echo Victor's point, is like all our intuition said mid-market enterprise, uh, and what we found is like, hey, leave SMB alone and let it just grow because they stay forever. Yeah. And that's an example of where. So I think if you can get whether it's for the investor, for the management team, for the head of finance, whoever it is, if that point of inception can occur, and I think for each person, if they can just have that moment uh two, three times early in their career or at whatever time, yeah, it's gonna stick with you because we were about to recommend stopping investment in what was probably the most lucrative segment in the business, contributing to uh to profit margins. So that's my example of once that happens, and that's really eventually what led my journey down the path of saying we gotta democratize access to this sort of data to every operator and founder. So that's my I believe if that inception can occur once and whatever catalyst drives that, drives that. And it doesn't matter. It might be a new transaction, a capital raise. That's my thought. Uh, but Victor, you nailed it. It's like once you see it, you're it's the first time you say, okay, I want to remain skeptical of my own intuition because there are some counterintuitive moves that have proven to lead to amazing growth.

SPEAKER_03 17:59

Yeah, I I heard one investor say, when I get a feeling in my gut, I eat ice cream. Um yeah, but shout out to Oscar Rybic. Uh Victor, are there any um maybe taking a step back because I think you probably give me a thoughtful answer, like like Vipple just did. But from a sort of, if you look at a market segment adopting a data-driven approach, have have you seen commonalities around what will drive adoption within a new segment, or um, does it tend to be just pretty idiosyncratic?

SPEAKER_00 18:31

Yeah, I I think there's sort of a bit of a care and stick approach. Right. So the stick approach is like you have no choice. Yeah, right. Uh so I'll I'll give you a real simple example. You know, these days a lot of people ought to do a lot of folks do inbound marketing, right? You know, paid media, paid advertising, you know, Google makes a ton of money off of that.

SPEAKER_07 18:48

Yeah.

SPEAKER_00 18:49

Uh when I started doing that like 20 years ago, you know, the cost to get one click to your website was about five cents.

SPEAKER_06 18:56

Yeah.

SPEAKER_00 18:56

Right. Today it's like five to fifty dollars. The the cost to get a visitor has gone up at the low end, 200x, right? On the low end, 200x. So like, was anyone tracking data like in 2003 and four? Like, no, like it was like almost like almost free traffic. Who cares? Right? You had enough room where you could make a lot of mistakes and you'd still be ridiculously profitable.

SPEAKER_07 19:18

Yeah.

SPEAKER_00 19:19

These days, if you don't look at your numbers on the marketing lead gen side, you're just gonna bleed cash. Yeah, like and a lot of it. Yeah, so that's sort of the that's sort of the the stick, if you would. Okay, uh, I think the carrot is for people who are looking for an edge, right? It's if you're in a competitive field, you are looking ahead and it's tough.

SPEAKER_06 19:36

Yeah, right.

SPEAKER_00 19:37

And your point of differentiation maybe is you have some now, right? You have a little bit of an advantage or modest advantage, but it's not impenetrable. Yeah, and so you're looking for like, well, how does this play out over five years? And is it clear I'm gonna be the obvious winner? Yeah. And for those that are a bit more sophisticated in their skill set and have more forward-looking, they look at it and go, I need every edge that I can get. Right. I think data is one of those edges you can have.

SPEAKER_03 19:59

Yeah. Uh that first one, I'm gonna have to think a little bit more about that. This kind of notion that if you have a sort of price dislocation for a while the market won't notice, but eventually it becomes a stick that forces uh that forces a behavior change. Curious what your perspective is on this, Vic, Victor, especially, because you know, as an early stage investor, Bestigo, we often invest, I mean, we'll occasionally invest almost pre-company, uh, we um occasionally invest pre-product, but we like almost always invest pre-project market fit. And you know, when by the time I'd say like the series A will happen for a portfolio company and there'll be a new board member, a series A investor almost always wants to start tracking things right away. And and sometimes, especially um in the years 2020 and 2021, uh, you know, a series A would happen kind of pre-project market fit, it turned out. And and when you start to track things, there are kind of sometimes a board dynamic where it's like we don't have enough data to bother tracking KPIs. Like we can literally understand the entire population of our customer base because we have seven of them. So, like let's let's not be fooled by uh kind of fake rigor. I mean, I mean what when does it matter? When's when's it useful? Or is it more of a spectrum?

SPEAKER_00 21:21

Yeah, so I think of I think of data is extremely important. And there's quantitative data and there's sort of more qualitative subjective data.

SPEAKER_06 21:28

Yeah.

SPEAKER_00 21:28

And I like decisions where they both kind of line up, yeah, right. I went to it because I had this thinking suspicion this might be true. You go at the numerical data, it lines up. You talk to a bunch of customers, they say the same thing. Yeah, all arrows point in the same direction, right? I get a lot of confidence from that. Where numerical data is less reliable is in a brand new market, yeah, right, where you can't size the market because no one knows how big it is. In emerging markets where the data, what customers need, is not being quantified, you get the data by talking to people, right? And so what what I often see is founders are Very good, tend to be very good at getting intuitive qualitative data. Yeah, right. I talked to 55 customers, I don't know anything about tech, but I know I can solve that problem. Yeah. Right. And no one else is doing it, and they're all complaining about it and they're willing to pay a lot of money to solve it. I think there's an opportunity, right? You get it. Where I see this transition is as markets and industries mature, as a company matures, you know, before product market fit, there's not a lot of things to track. Yeah. Right. Are customers happy? Thumbs up, thumbs down. Like that's a pretty good metric, right? Are they paying at a premium? Yes or no? That's a good metric. But as the business matures, as you go from more of a founder-led company to a company that's really should be run more by a CEO, sometimes it's the same person making that transition. There is more data to be analyzed. Yeah. Right. And you have an advantage and opportunity to take advantage of that insight. Yeah. But oftentimes the skill set of the early founder versus sort of the scaling CEO is a bit different. And the big difference there is how data sophisticated they are.

SPEAKER_07 22:55

Okay.

SPEAKER_00 22:55

Now you don't want a CEO doing the doing being an entrepreneur, right? Because they're looking for data and it doesn't exist. And then the founder, when they stay too long and they haven't developed their skill set, they tend to go by intuition beyond where it's useful when there is data to make a better decision. And maybe they aren't used to doing that. Okay.

SPEAKER_03 23:12

So and this might be a completely unfair question, but um I'm gonna ask it anyway. If it's uh here we go. Prepare yourself. Let's say I'm a three to ten million dollar of ARR business uh selling B2B with an ACB north of 50k. You know, if I could only track one KPI besides like revenue, what would it be, do you think, or what is one you would certainly want to track and uh and why?

SPEAKER_00 23:42

I'm gonna cheat and have two.

SPEAKER_03 23:44

Perfect. That's great.

SPEAKER_00 23:45

Yeah, so I would say uh NRR, net revenue retention, okay, right, which is how much are you keeping your customers and driving repeat uh and sort of upsells and cross-sells.

SPEAKER_07 23:54

Yeah.

SPEAKER_00 23:54

Uh because your NRR is over 100%. This business is gonna grow forever as long as you keep that true, right? Even if you get no more customers. So uh that's for me a great sense of whether the product market fit is there, the underlying economics are good. Okay. Uh sort of a related metric that helps um uh is really the LTV lifetime value over CAC, LTV versus CAC lifetime value divided by customer acquisition costs. Yeah. And that really gives you some sense of the return on investment of marketing spend or go to market spend.

SPEAKER_07 24:22

Okay.

SPEAKER_00 24:22

So if I can get five times return for every five dollars of lifetime value, I spend a dollar to get it. Yeah, I mean, how many financial investments out there do you have in stock market, bank accounts, savings accounts, you know, uh certificates of deposits that return five to one, a 500% return, it might take three or four years to get it. But like, wow, that's like that if you can sustain that at scale as you grow, maintain that number, it's a 500% return on investment, you know, over a couple of years. Like that's like, why wouldn't you do that all day long? And so investors like yourselves and others are looking for that. Yeah, and so if I see a business where the NRR is very high, right, uh, and they have that lifetime value over a CAC is really good, yeah, it's extremely attractive. And if you model it out from an enterprise value standpoint over a 10-year period, it's an incredibly valuable business. Yeah, and and sometimes people don't know that. And I I had um, if I may share a example, I had a please, yeah, a client of mine who classic entrepreneur, right? That decision, he's got four businesses. Uh, there's one business that's sort of in the in the revenue range you talked about, right around I think eight or nine million when we had this conversation of ARR. And I go, hey, just out of curiosity, what's your uh net revenue retention? It's like, oh like 120, 130 percent, right? Which by the way is very similar to where Dropbox is, yeah, a lot of the uh a lot of the unicorns, right? Uh Snowflake, they're all in 120, 130%, right?

SPEAKER_03 25:43

So like do you hear that and go, that that can't be true, really?

SPEAKER_00 25:46

Um I'm like, I'm like, tell me more. That's rare, right? It's like very few companies can perform at that level. Yeah. And then I ask, like, what's your LTV versus CAT? Like, what does it cost to get a customer? And it's like five, six X.

SPEAKER_07 25:59

Yeah.

SPEAKER_00 26:00

I'm like, and I'm I'm penciling out the math because I'm kind of in a little bit of disbelief. It's so hard to find those numbers. And I pencil it out and go, do you realize you're gonna be in a hundred million AR in about seven years? Right? And if you're in a 10x multiple, I don't know if you'll get it, but that's almost a unicorn, right? You're almost at unicorn level, but you're just sort of about 10 years. I'm saying the 10-year early version of a unicorn, yeah, numerically. And this guy, he's this was the business he wanted to get rid of. He was not interested, it wasn't fun, it was so boring because it was so routine, yeah, right? Like customers don't leave, the money just comes in, there's no fire to put out, right? There's no vision to be achieved to it to be sort of uh achieved and strove after. I'm like pounding on him like, you realize you have a unicorn, right? Yeah, like every meeting, it's you have a unicorn, and all we want to do is talk about everything else but the unicorn. Yeah, uh, and it's because he didn't realize the significance of those two data points. Okay. And I did. So half of my job was just to get him to pay attention to that business. Yeah, that was a unicorn in the making that he sort of underappreciated.

SPEAKER_03 27:04

It's it's fascinating. I mean, especially for consumer companies like you know, uh, startups are tracking LTB to CAC like before they have customers, basically. And of course, with consumer businesses, LTV to CAC is like an incredibly unstable number. And that's one of the reasons I think why that segment is so challenging to invest in, especially for financial services tech. But B2B, especially early stage, like LTV to CAC is it's almost impossible to measure because if the founder's selling, it's like you can't really you can't really measure CAC. And I think that speaks to you know, Vipple and I have a mutual friend, Chris, Chris Reisig, and you know, he always preaches like as soon as you can, no sooner, but as soon as you can, the CEO's got to train someone to sell the product for them. Um, and I that's that's just like kind of one more reason to add the sort of operational rigor of that process, even if the CEO could take you another, you know, uh six to eight million of ARR just on their own sort of network. So um you you smash that out of the park. Thank you, Victor.

SPEAKER_02 28:04

Yeah, one thing, Fraser, I'll add like I love what Victor said, and I want for all the CEOs and founders that might be listening in, Victor highlighted something really, really critical, which is this moment you hit boredom. And this is not my my first rodeo. And actually, Victor, I've just never heard anybody actually say that just overtly. So that's when the business actually is starting to hum.

SPEAKER_05 28:36

Yeah.

SPEAKER_02 28:36

However, from a founder standpoint, you're so used to putting out fires, innovating, looking around the corner, all those sort of things, and you don't need to for a little bit. And that is a tricky zone where you may say, okay, let me go, let me go tweak something or let me go change something, or and that's when it's actually working, right? Like if you look at the stats you describe, Victor, yeah, that is kind of boring, but that's the good boring. Yeah. And it's important to stay aware of that. So, Fraser, as you know, and I know you make snippets. I mean, I think that's an important really one to get out there is that like be aware of the boredom stage.

SPEAKER_03 29:15

Yeah, that might be where uh you know you're gonna make bank. And and and good founders will have a predilection to create chaos when they get bored, and or if not create chaos, just start innovating because founders are by very nate by their nature, it's sort of like creative, dynamic creatures. And boredom is not a good idea.

SPEAKER_02 29:34

Which what got you to the boredom phase was that creativity. Now, let's say you don't have the 120, 130 NRR with a 5X LTV to CAC. Uh at the ASP you describe, one of the other metrics that I found to be helpful, particularly at the stage you're describing, three to 10 million in revenue, is there's no really good way to approximate gross margin and understand if a high ASP business, if there's a deep services component or not that could be hidden under the surface, are there scalability issues hidden under the surface, is to look at for revenue per employee. Because part of product market fit is also tied into pricing and margin. Because you could be selling a phenomenal product that has good retention metrics, has a good LTV to CAC, but if your revenue per employee is off, that could be hidden under the surface in terms of saying, okay, well, of course they love it.

SPEAKER_05 30:31

Yeah.

SPEAKER_02 30:32

Because your revenue per employee is like $50,000. Uh, the ASP looks good, NRR looks good, LTV looks good, but you've embedded so many services into making that product sing that when you look at product market fit, there's got to be a gross margin fit as well. And that's why I think in the coming years you're gonna see uh Frazier a lot of importance on segmented profit margins, uh, particularly gross margins becoming really relevant. So, in that use case you're describing, three to ten in revenue, high ASP, only a few customers, so you don't have a statistically significant sampling. I would the only thing I would add is look at revenue per employee just so you don't lose sight of gross margin because it's very hard to unpack that.

SPEAKER_03 31:17

What you're telling me is terrible news for venture capitalists who are gonna have to learn how accounting works. Victor, maybe you can talk about uh some of the CEOs you work with as you you mentioned your clients earlier.

SPEAKER_00 31:29

Yeah, so like most of my clients are sort of finding sort of in that three to ten million AR range. They usually sort of stay with me maybe through exit, uh, or at least when professional investors in a first or second round comes in. Most are founders. And they tend to be, you know, maybe technical background, technical founder is pretty common. Um, and some of the things that VIPO mentioned, I think I see a lot, right? Which is uh of probably every client I've ever worked with, sort of in that range, I would say probably a hundred percent of the time there was some kind of optimization of uh what segment to target.

SPEAKER_01 32:02

Okay, right.

SPEAKER_00 32:03

I can't I don't think I've had a single client where that was not the case.

SPEAKER_01 32:06

Okay.

SPEAKER_00 32:07

And it's because certain not all customers are created equally, and not all customer segments are created equally. There's a difference in retention, there's a difference in gross margin, right? Some are just far more profitable and they stick around a lot longer. And so one of the issues we talked about the stick earlier, right? One of the things that's been true for my whole online career, digital career, is the customer acquisition cost has never gone down, you know, year over year. It's always the same or higher. And that's been true some from a nickel, paper, click, right? Sit today. And my expectation is it's only going to go higher. Yeah. Uh a lot of my marketing training was from the direct response world, going back a hundred years, right? Direct mail, yeah. Yeah, where every email every wasn't email, right? It was a physical postage stamp. So that cost was extremely high. And if you would you go out of business, right? If you didn't do your math. And so what I'm noticing is that in order to compete at the at that unit economic level, you have to know your numbers. You have to shift towards the part of the business that's more profitable, more sustainable, where there's better product market fit, and there's better competitive advantages as perceived by the that particular uh customer segment. And you can build a much better business that way, right? And it's far more capital efficient, it's more defensible. You're more likely to be able to charge premium pricing. Um, they're less sensitive to that. You get better, superior margins, and superior growth and better lifetime value over. It's like all things point to that way. And so I think one of the goals, amongst a couple of things in that sort of three to maybe call it 20 million AR, is to figure out what segment that is. Okay. Under a million, maybe not enough data to figure that out. You get little hints. Certainly by three, you got enough, and by 10, you better be doing it. And if you don't, what ends up happening is you sort of top out in the growth.

SPEAKER_07 33:48

Yeah.

SPEAKER_00 33:48

Right? The raising cost of customer acquisition, the sort of suboptimal unit economics sort of saturates at a point where you just the growth doesn't happen anymore because you can't afford to invest more because the unit economics aren't there. So I think it's a major factor. It's one thing I do with my clients, it's not the only one, but that's probably true in virtually every single scenario instance I've worked in.

SPEAKER_03 34:08

So, I mean, maybe a natural sort of next question is to what extent do you focus on, or to what extent do you see it practiced, uh, sort of competitive intelligence data? I mean, do your clients think about use a data-driven approach to think about their competitors, think about the market? Is that an area that is growing as well as kind of a natural next evolution from really understanding your own business?

SPEAKER_00 34:31

Yeah, I think I see it more as you get bigger. So post 10 million. Usually when you're under 10, if you're limiting the business, if the business has a restriction, a limitation to growth, it's usually internally. Like we scoot something up or we suboptimize something. Yeah, it's rare that you know we're at like 100% market share at 3 million AR, and we're having to really go head to head against somebody else, right? So I would say I even though I have that background, certainly uh when I was at McKinsey, we did a lot of competitive research analysis. I would say I do a lot less of it. It's a bit more like why did we lose a deal?

SPEAKER_06 35:04

Yeah, right.

SPEAKER_00 35:04

Uh we lost to XYZ competitor for this reason. That's useful. Yeah. Uh, if a client churned out or a customer churned, uh, why did they go to a competitive product? And are we missing a feature set? So at that level, definitely. But in terms of the classical competitive analysis, go visiting competitors' business, you know, sort of shopping them as a mystery shop or that kind of thing, which I used to do for clients. Uh, much less of that. It's just sort of get your house in order. Yeah. Right? Take care of customers and clients, look at the numbers as people were suggesting and indicating. If you just do that, you can really blow through the 10 million AR range. Well, just on that alone.

SPEAKER_03 35:38

So I I think I mean you you've answered everything I've asked so completely. My guess is a few of these blind spots we've already covered, but we had talked in the past about part of your motivation for becoming uh an advisor, uh coach to founders, was that you started to see common blind spots with some of your peer set. So I mean, maybe you could talk about a couple of those that you see when you're thinking about scaling software companies.

SPEAKER_00 36:02

Yeah. So I so I would say I'm missing out generically around CEOs in general, right? Regardless of size. Uh and I think probably the biggest blind spot is sort of lack of self-awareness. Okay. Right? It's okay to not be good at certain things. Nobody, none of us are good at everything, right? Uh, but the better of us will realize what we suck at. Yeah. And we will hopefully hire somebody or partner with somebody or seek the advice and counsel of someone smarter than us in that area.

unknown 36:27

Yeah.

SPEAKER_00 36:27

Right. And so I saw this a lot maybe back in 2021. You know, back then the growth was really easy to get. Uh, a lot of the founders I work with don't come from a finance background, don't come from a KPI background. And then the markets got tough, right? In terms of it wasn't so easy to get capital, consumer business spending wasn't as high, and they couldn't interpret their data. And they pay dearly, right, for that mistake. And it's okay to not be good at finance. It's not okay to not realize you're not good at finance and metrics. Yeah. And you don't all better get somebody on your team who's really good at that and then listen to them. Yeah. So I think whether that's true in technology, sales, marketing, uh, KPIs, it doesn't matter what functional area, but that's probably the one chiller of a business at every level is not realizing your own weakness and intentionally compensating for that who you would who advises you or who's on your team.

SPEAKER_03 37:22

That leads me to another question, and Vipple would love you to tee off on this one. Maybe, maybe I'll have you tee off on this one, and Viply, uh, Victor, you do a follow-up. So, customer segmentation is something that you hear about like sort of all the time as an example. And it's very easy because I've done this, especially when I first got into the business, um, of pretending you know what people are talking about, you just sort of smile and nod your head. And I'm sure plenty of founders who are more technically oriented or even more sales and business development oriented don't quite know what that means. So maybe it's sort of like if you could define it and then talk about, you know, when you reach a maturity point that this is a really valuable exercise and a really valuable thing to track, you know, where would one start? And just for simplicity, let's keep it in a B2B software context.

SPEAKER_02 38:08

Yeah, so customer segmentation and revenue segmentation can just take on so many forms. Uh in the context of a B2B business, and let's say this is not a PLG business. We'll just go with the example you gave earlier, Fraser. It's a B2B motion, there's reps involved, the ASP is, you know, not $50 a month, but you know, it might be $5,000 a year or it might be $50,000 above a year. So you're gonna have some reps, there's gonna be some motions that are involved with that. And things, like even some really easy segmentations, and you don't need a lot of tooling to do uh a few things I'm about to describe. And then you can do a deeper dive as a business grows. But saying, okay, turn turn an ASP into a segment. Say, okay, here's my customers from 5,000 to 10,000, 10,000 to 25,000, and 26,000 to 50,000, just three segments and start tracking all the core KPIs that give you indication into efficiency, quick ratio, LTV, how you're growing, where the new logo's coming in, and on the cost side, if you can understand CAC. So that's like an easy segment. It's in your CRM, right? You can calculate it very easily and say just bin them, right? All you're doing is creating three bins. Another example is your CRM has data on who sold the product. So start to track, turn a rep into a segment. You know where you're billing them, so you know what region they're in. Turn the region. And this is something, you know, like region is an example where people are like, well, why do I need to do that? Well, even within the US, bicostal companies buy differently than middle America. And you need to be understanding and sensitive to the fact that, hey, I'm gonna have different price sensitivity here. And are you seeing a different ASP range? And reps. Uh, there may be reps who have high LTV because they're discounting more. There may be reps that high have high LTV because they're just finding better ICP, stronger fit customers. And I consider that like just at a minimum put the kindergarten level segmentation in. And those are things that are living in your system. You don't need any fancy tool for. Now, as you get more sophisticated on the scale of businesses, Victor's talking about, kind of once they've been a client of his for a while, you say, okay, I'm gonna bring in product usage information and I'm gonna turn that into a segment. Are they logging in once a week, three times a week, ten times a week? Or do they have one product, two products, three products or more? And because uh, and to bring back Victor's point on intuitiveness, you may think if they have three products or more, that's stickier.

SPEAKER_05 40:53

Yeah.

SPEAKER_02 40:53

Well, you don't actually know that. It's just your intuition. So the moment you can where segmentation really comes, brings things to life, it is allows you to put your instincts in, but surface through the empirics and challenge your intuition and say, okay, I'm I'm I'm batting 500, right? I got half of it right, but this is the other half where wow, I just couldn't have seen that coming.

SPEAKER_04 41:17

Yeah.

SPEAKER_02 41:18

And so that is an example of segmentation that doesn't require a ton of effort. And if you start monitoring that early on, it's going to give you insight into even where to press your bets on the product side, pull your bets on the product side, and similarly, where to press your bet on sales and marketing and where to pull your bets on sales and marketing. And what I'm describing, Victor, I don't know what your reaction to that is. That's like I'm calling that sort of the baby level segmentation, the toddler segmentation, which in the kind of businesses we're talking about is easily doable. If you've got less than 100 logos, do it in a spreadsheet. If you've got more than 100 logos, do it in a spreadsheet. Exactly. Thank you for making the plug.

SPEAKER_03 42:03

Someone's not a BB focus founder.

SPEAKER_00 42:08

It's fascinating. You call them like the baby steps. If I get all my clients to do just that, like I'd be retired, right? Like it's game over. There's like no more work to be done. And I had one client that did just that. Like literally, everything you just talked about, they did sort of at my encouragement and other members of the board. And you know, they they exited a couple years back for like right around 200 million, yeah, right, enterprise value. Just doing that. And so I agree with that approach. I agree with the segmentation patterns. The ones I see most impactful are uh um, in addition to the ones you mentioned, vertical industry, right? For some reason, manufacturing companies never quit, but financial services customers, they churn out really fast. Okay, do we know why? If we don't, who cares? Just go pick the better one, right? That's sort of one thing. Um, definitely by rep, right? And if and that's less for that's more for insight. If you have one rep that's requiring customers with a far greater LTV, that one sales rep, their customers never churn out. I mean, I'm figuring out what is that rep doing? Like I literally had one a situation where that was the case, and I said, told my my clients be on an eight-hour Zoom meeting with this rep because it was a remote working company, record screen capture everything that person that rep is doing. I want to know for in an eight-hour day what exactly they are doing that's getting three to four times the production value than all the other reps, better than the other five combined, and start understanding what is that insight. I'll I'll give you an example of uh usage-based um segmentation. So I had a client, this is the one that exited for 200 million, and there was this hypothesis with this intuition that maybe in this product suite where there's five modules, maybe people who use one module, if they end up using that module, tend to stick longer. And so they recalculated all the churn numbers based on feature usage. Right. Now, this had a couple implications. Like, first of all, they weren't tracking it. Right. And then they weren't tagging it by customer ID back in the billing system. Yeah. So it took like a month or two to kind of change the data model, capture the usage, you know, do a join on the SQL tables to kind of get back to a customer ID and map all the users to a particular customer to usage, right? You get a company level usage metric. So it took like a quarter to do that. And they found there was one module where if a customer used that one module, the churn rate dropped by like 80%. Just because of that. And like, okay, like what was the module? Right? Fascinating data. And it was the module that allowed the client to communicate with their customers. So the customer's customer now became a user of the SaaS B2B SaaS software. And so now if you were to rip it out, then you're losing the connection with the customer's customer. Like, oh, I mean it makes so much sense, like after you hear it. And so the entire product roadmap was geared towards encouraging users of the system to use the third module, right? Which is the communication module. And if we just did that, you know, the enterprise value of the business would double and triple, which is what happened. And it was like so easy once you knew the insight, yeah. Everything was revamped around that. The sales, the messaging, the onboarding, the training, um, having product features that sort of led people into that module. And it was such a simple insight, made a huge difference on the exit. Not rocket science. Yeah. Not rocket science at all.

SPEAKER_03 45:28

But at the same time, like not only do you have to have the kind of um the courage or the conviction to try something which might not be intuitive, it also took a quarter to get the data right to get the insight. And what's amazing about that is it would only take you a couple of days if you did it in SASWorks. And uh another it's it's it's it's true.

SPEAKER_02 45:50

Sorry to interject, but like Victor just tugged at my heart on two things. And this was the inspiration behind starting SASWorks, right? Is democratizing and making segmentation so easy that everything is at your fingertips. So you mentioned financial services as a segment, Victor. One of our customers, uh obviously not gonna, you know, not gonna spell out who they are. One of the things, so we every every quarter for our customers, we do an insight session and we call it sort of reporting the news, where somebody that's a trained buy-side analyst gets on the phone with the CFO and the CEO and just says, Hey, let us tell you what we saw in the data. And because we don't know your business, and actually that objectivity makes it really powerful. And for one of those, this was about 18 months ago, we said, by the way, did you know you guys are crushing it in financial services? They're like, we don't sell the financial services. Like, yes, you do. Because once your data has been uh uh segmented properly enriched in the right way, and by the way, the data was in Salesforce. We showed them the segment and we said, this is a 2x LTV relative to everything you have in your system. Surfacing that in an objective way because you also don't want your intuition can get in the way of insights at time. Without intuition, you're not gonna have enough insights, and and and that really becomes critical. On your rep example, you want your best rep to become every rep. And if you can take that eight hours of video you talked about, so those kind of things and making that easy to do. And the issue is in the example you described, why you need to have this continuous source of truth is if you do that segmentation once and then you don't go back to it, it atrophies so fast. And that is the most boring, mundane work you can do, yet it's mission critical. Yes, right? And we're in the business of boring. So if you can then take those rules for segmentation and just automate them, now you're gonna have those insights get surfaced. And if somebody is coming to you objectively and saying, by the way, did you know that this product or this industry or this rep is who you should take insight from in terms of how to shape other things? I I love the example you gave, Victor.

SPEAKER_03 48:02

You know, so one thing that we see very, very frequently, and I it tends to, I think, what definitely amounts to what you've been talking about, is somewhere between I would say a million eight and five million of ARR, um, it feels like oftentimes companies will start to sort of stall. And it it often happens at a point where there's just a general belief like we have product market fit, like we have a lot of customers, we can sell the product, it's usually the founder's still selling. We sell the product and a lot of people love it. And I think when you peel it back, what what the underlying cause ends up being to kind of growth slowing down is um is that you don't have your ideal customer profile um set up, but like you don't have that rigor. So the founder is just so used to selling through issues um that they don't they they don't intuitively pick up the discipline to start saying no and focusing on on the only segment that matters, or they don't really they have product market fit, but they don't know what their market is. So um, Victor, maybe you could talk about um your framework for creating creating an ICP.

SPEAKER_00 49:12

Yeah, so I think there's three pieces that I've come together, sort of uh, I call it a bit of a triangle, right? There's product market fit, uh there's the ideal customer profile, and then there's the unit economics related to the distribution channel you want to use to get more customers. And when that's not in alignment, you top out right around that sort of three to five million AR range. And so a lot of smaller businesses, they typically have a good product that works, happy customers. Uh, a lot of the initial customers are through referrals or through initial contacts of the founder. And so you think you have this great business, I want to scale, right? The the issue is sometimes as you transition from a founder-led sales model to more of a you know uh hiring salespeople that can follow a sales system, that becomes more expensive, right? And one of the things you have to look at that almost nobody ever looks at, at least not on a uh formal basis, is what are your unit economics with that ICP, with that product market fit? Yeah, maybe it's a fit because you charge very little, yeah, right? But maybe if you triple the price to get the unit economics sufficient enough to sort of afford a sales force, you lose product market fit.

SPEAKER_05 50:18

Yeah.

SPEAKER_00 50:19

Right? There wasn't enough differentiation, not enough value driven. And so if you don't get all three prongs of the triangle right, you top out in your growth is because one of those three pillars, you you have to have all three. And so one of the reasons why you want to shift the ICP by segment is because if the unit economics are three times better, even though it's a small segment, you can now afford to have a Salesforce and have it be a good distribution channel. Yeah, whereas before you could not. So that's a I think it's a really missing piece of the insight. Everyone talks about product market fit. The ICP is sort of like, of course, you have to have one, but no, you have to nail it. You have to nail the ICP in conjunction with the unit economics of the ICP relative to the distribution channel you want to use to go from where you are now to double and triple. Yeah, that's the part very few people actually do.

SPEAKER_03 51:11

This has been immensely helpful. And um, I mean, at the risk of destroying the market for this, for this podcast, uh, which is which is hopefully going to be reshared many, many times over. I think a lot of the lessons that you have, we really talked through are pretty, I mean, by their nature, they're generalizable to B2B SaaS companies. There are a tremendous number of organizations that try and help companies go from zero to one, but we've just been talking for the last hour basically about companies that are at one and want to go to ten and the sort of trials and tribulations that happen in this stage. Might there be a Y combinator for scale-ups in the making? And um, might this be something that you're involved with, Victor, at all?

SPEAKER_00 52:00

There is, actually. Thank you for that lead, and I appreciate that. Not by accident, just to be transparent. And so uh so I actually leading something, um, um, a program that's sort of a sort of a an accelerator, if you would, non-equity based fee for service that really deals in what I call loosely the three to ten million problem, right? It's a different set of problems. And so usually you got a product that works, the technical risk has sort of been addressed. Yeah, there's at least product market fit with a customer, may not be the one that'll get to 10 million, but at least there's just a customer. And you get into issues around is it the right ICP? Oftentimes founders will see the symptoms of the wrong ICP, but not realize that's the root cause. Uh, the more the symptoms they often challenge the challenges they often face are how do I get to sell and market beyond my own efforts? Yeah, right. That's a common issue. Uh, and then how do you get the unit economics to work to kind of get to another level? So uh I developed something in conjunction with uh an investment call bank called Founders Advisors, and they are very uh big on helping companies grow to a point where they can transact.

SPEAKER_01 53:05

Okay.

SPEAKER_00 53:05

And and their phrase is to describe what they call an investment grade business, a business that's compatible with a private equity, you know, institutional investor to sort of buy that company. Uh and all my work has sort of been very consistent to get them to that size. So we've combined forces to develop what we call an investment grade um coaching program. Um, and our whole model mission is to get those companies that are sort of in that three, five, 10 million range and get them to a point where it is now a sellable asset. And that involves hitting a minimum scale threshold. Yeah, but a lot of the things we just talked about, right? Getting the sales model beyond the founder. Um, I got one company where they're at 25 million ARR, which is great, that meets the size threshold, good margins. They went to market to try to sell, nobody would buy them.

SPEAKER_07 53:51

Yeah.

SPEAKER_00 53:51

Right, because the founder was driving 100% of the revenue growth personally.

SPEAKER_07 53:55

Yeah.

SPEAKER_00 53:56

Right. And he wanted to quit after selling. Okay, not a sellable asset. Good business, not a sellable, not an investment great asset. Yeah. So those are kind of the range of issues that uh I see a lot of what we talked about in the podcast. It emerges sort of in that three to ten range and sort of usually gets addressed before 20. And so we've developed this program to really help people do that in a non-equity-diletive way and to put those folks together with others, peers who are in a similar set of situations and circumstances and make everybody better. So that's been our objective in that.

SPEAKER_02 54:27

And a Frasier, yes, given I'm always accused of not doing enough BD. We are gonna do one of the workshops with Victor uh for uh the the I I love what you called it. I mean, uh, in terms of an accelerator for scale-ups or a Y combinator for scale-ups. I love the mission that Victor and Founders Investment Bank is pursuing. And so we we will do that. I think it's really needed, Victor, because uh, you know, each inflection point really needs that insightful advice along the way.

SPEAKER_03 55:04

What's the most important thing to you, Vipple, that we haven't talked about?

SPEAKER_02 55:10

So there's a there's a few things that Victor brought up during his presentation because like I judge how I think about a presentation based on how many times, even though I know I can get the deck afterwards, right? How many times am I taking pictures and am I texting my co-founder?

SPEAKER_04 55:29

Yeah.

SPEAKER_02 55:30

So Victor's presentation, I was like just snapping pictures one after the other and just sending things out. And so I think one thing, Victor, that you shared in a very acute pain point is when you said like to every founder and CEO in the room, like you need to understand why FPNA is important, like why an FPNA stands for financial planning and analysis, right? Why is that important? Why does it matter? Uh, and how that links into data being data driven. So I thought that was one point that I just haven't heard many people talk about and kind of connecting, uh connecting those dots and how that links into being an investment great company. And uh, you know, so that's that's one topic really that I think, Victor, for the audience here that couldn't be at Silicon Ya, it'd be great for them to hear your perspective on that.

SPEAKER_00 56:26

Yeah, I'm happy to share. So I most of my clients, they usually don't have a full-time CFO. They probably have a bookkeeper. Uh, and there's a wide gap between what a CFO does and a bookkeeper. Yes. Uh, and that's very glaring, sort of in that three to ten range.

SPEAKER_03 56:41

Yeah.

SPEAKER_00 56:41

And one of the things that this resonates with me. Wow. How do you have it? Oh my god. It's like, oh, I'm gonna have a neck injury from the nodding.

unknown 56:50

Oh no, yeah.

SPEAKER_00 56:51

Yeah, it's brutal. I mean, I've worked with a lot of CFOs over the years. I'm used to certain conversations you have, yeah, and the entrepreneurs and founders, they're just not used to that. If that's not been their career path, yeah, they're just not kind of been exposed to that. And so they get paying taxes, they get doing accounting, they get sort of bookkeeping. That makes sense to them. Yeah, and then there's this gap, like what do CFOs actually do? A lot of the founders don't know. And so the CFO function really is split in sort of two domains. One is accounting managed by the controller. Uh, at the very bottom end of the accounting function is the bookkeeper, right? That's and they're usually all have that because they got a file tax. The other part of the finance department is financial planning and analysis. So, in a bit larger company, they'll have a director of FPA and they're running models, right? They're running financial models. And so the way I like to split it is you have your accounting team tells you what happened in the past, right? Down to the cent that the numbers tie out, the banking statement reconciles. The financial planning and analysis team tells you what will happen if you make certain decisions at the business level. So, what if we took this one segment that we really like, we increased price by 35%, our even that margin goes up like 100, 200% relative to what it is now, but our close rate declines by 12%. Are we ahead or are we behind? What is it for this quarter? What is it five years out? The math is too complicated to do in your head, and but that's where the money is made. And so, why do you need FPA if you're a bigger company, especially? Because that's where the money is, right? It's like, why do you rob why do bank rubbers rob banks? Because that's where the money is. And here we're finding the money in a spreadsheet, and that the math is too, especially in a recurring revenue business, it's not like we're selling widgets. Yeah, right. If it's a widgets, I kind of ballpark the math in my head. If you're pretty good at it, get out of calculator, you can figure it out. But because there are cohorts, there's recurring revenue, they're different segments, when you layer that all in, it's very, very complicated. Yeah. So having a model that says, if we did X, what would happen to EBITDA? What would happen to um weighted average um lifetime value? What would happen to churn? What would happen to enterprise value five years later? Yeah. And is this a good decision? So I would say probably less than 5% of companies under 10 million AR do this. Um, but there's so much money there. And so I'm a big believer it. I sort of where I started my career, I did all that work for clients at McKinsey and even at the fortune finder level. And there's just so much insight there. But you have to have a recognition that there is insight there. If you don't have the skill sets, you you find someone to help you with that. But there's absolutely money in the numbers, particularly in that size range.

unknown 59:29

Yeah.

SPEAKER_03 59:29

Well, um, this is gonna be one of the few podcasts that actually will help you make more money. So um, I think we've accomplished something pretty amazing. Before uh before we go, unless there's anything else we want to explore, um, Victor is here, which means he has to stand and face the rapid fire question segment. Uh great.

SPEAKER_02 59:50

Good luck, Victor.

SPEAKER_00 59:52

Thanks for the warning, at least.

SPEAKER_03 59:53

I got the warning on email. I appreciate that. Okay.

SPEAKER_00 59:56

Who impresses you? Uh Bill Gates.

SPEAKER_03 1:00:00

Good answer.

SPEAKER_00 1:00:01

Yeah, he he he was the entrepreneur, he was the founder, he became a professional CEO, and then he became an institution builder, right? Very few people can cross all three of those thresholds. He was the first one I ever sort of saw in my career. So super impressed by him.

SPEAKER_03 1:00:15

Uh what piece of media, book, podcast, movie, article, essay have you gifted or shared the most?

SPEAKER_00 1:00:21

So one of my favorite books is a book called Influence by Robert Chaldini. And it's really it's about social psychology, which is something I studied in school. And really, it's about how do human beings think and make decisions. And so it's a great book on understanding sales methodologies, marketing, influencing people uh in terms of your management. Love that book.

SPEAKER_03 1:00:40

Um, in the past, I call it year to five years, what skill have you spent the most time developing, work or non-work?

SPEAKER_00 1:00:48

Uh yeah, uh we haven't talked about this, but uh medical skills actually. So I'm I'm I'm a volunteer first responder, sort of in my free time, uh, so I can get away from the screen. Yeah. And so it's, you know, how do you resuscitate somebody? How do you bring them back from the dead? How do you stop a major hemorrhage? Um, it's a completely different sort of realm than what we're doing. And so I enjoy the hands-on, very different nature of that.

SPEAKER_03 1:01:11

What's the last idea you encountered that blew your mind?

SPEAKER_00 1:01:15

Ooh, good question. Um so the idea that blew my mind that probably shouldn't have is just how different human beings are. Right? I like the world of numbers because it all makes sense. It always gives two plus two always equals four in every language across the land. Uh, but wow, people are really different. And I think I assumed that people were more similar to me than I realized. Yeah. And so I've I've kind of been uh humbled in that way of oh wow, there's like a much wider range of what people are used to than what I'm used to personally. Words to live by. Ooh, life is short. And and live it well.

SPEAKER_03 1:01:51

I think I'll just do one more because we can't end on that note. What's a topic that people should learn more about?

SPEAKER_00 1:01:59

Uh, besides the obvious around finance, I would say Yeah, learn about human beings, right? Yeah, we are in a technology industry, yeah, but really it's all about people. Your your employees, your customers, your partners. And if you can master both sides, you know, sort of the the sky's the limit. And I think people sort of should spend more time on the people side. It's it's a big factor.

SPEAKER_03 1:02:19

We can end on that now. Vipple, this was an excellent, excellent idea. Invite yourself back with a friend anytime you like. Victor, this was such a joy. Um, really, really enjoyed the conversation. Thank you so much for making your time and sharing your wisdom with us. And uh, I suspect, or I insist, that this will be the first of many.

SPEAKER_00 1:02:40

Perfect. I'm looking forward to it, and thanks so much for having me on.

SPEAKER_03 1:02:42

Thank you guys.

SPEAKER_02 1:02:43

Happy holidays.

SPEAKER_03 1:02:46

Hello again, friends, and thank you very much for listening till the end. One final thing before you go. If you enjoyed this episode, do you think you might also enjoy a monthly email from us where we share more stories, news, and perspectives from our early stage fintech ecosystem? If you think the answer might be yes, head over to our website, vestigoventures.com, and sign up for our Envisions newsletter. In addition to blog posts with our latest thinking and updates from our portfolio companies, we always include a short video interview with incredible people from our network. If you do sign up, I hope you enjoy it.