S3E14 – How do investors analyse SaaS businesses? With Cameron Hay
In this post-COVID era, money isn’t flowing freely anymore. But here’s the burning question: How exactly do investors analyse SaaS businesses?
Join us in this episode of the “Grow your B2B SaaS” podcast where we roll up our sleeves and dive into the detailed aspects and complexities involved in analyzing SaaS businesses, particularly in the post-COVID era. We’ll shine a light on the crucial role of data-driven decisions in navigating the increasingly selective investment terrain of 2024 and beyond.
Leading our discussion is none other than Cameron Hay, co-founder of Finomatic Consulting. With a treasure wealth of valuable experience and knowledge in corporate finance, accounting, and data analytics, which is highly beneficial in his role as an expert in assisting private equity-backed SaaS firms, Cameron is the go-to expert for private equity-backed SaaS firms seeking financial optimization and real-time KPI analysis. Buckle up for insights that will reshape your investment strategies!
The Changing Landscape of Investing
Cameron discusses the changing landscape post-COVID, highlighting the impact of higher interest rates on debt financing and investor behavior. He emphasizes the shift towards more data-driven decision-making and the importance of understanding unit economics as businesses mature.
Minimum Requirements for Talking to Investors
Cameron advises SaaS businesses to have key metrics in place before approaching investors. The key financial metrics to have in place includes retention rates, ARR, growth rates, and monthly burn, as crucial factors to instill investor confidence and showcase financial acumen.
Common Mistakes in Investor Presentations
Cameron highlights common pitfalls in presenting SaaS businesses to investors, emphasizing the need for precise, industry-specific metrics, alignment of financial and operational data, and maintaining consistency in information sources.
Where most Deals go wrong (Aligning Operational and Financial Information)
Ensuring operational and financial alignment is crucial to avoid discrepancies in data presentation and to maintain investor confidence, allowing for informed decision-making and efficient communication.
Strategies for Data Preparation
Cameron suggests implementing meticulous naming conventions, CRM management, and data reconciliation processes to streamline data accuracy and improve visualization for effective decision-making.
The role of the tools in Keeping Investors Updated
Leveraging BI dashboards for investor updates can enhance transparency and provide investors with interactive insights, reducing the need for manual data gathering and enabling self-service exploration.
Encouraging investors to engage with BI dashboards and involving them as valuable resources can lead to collaborative growth strategies, tapping into their market knowledge and experience to drive business success.
The Monthly Reporting Essentials
For SaaS businesses, emphasizing customer-related metrics and high-level cash flow analysis is crucial on a monthly basis, with a focus on metrics like ARR waterfall, net new ARR, customer wins, losses, and upsells.
The ARR Waterfall Analysis
The concept of ARR waterfall analysis, encompassing gross retention, net retention, and new wins, provides a comprehensive snapshot of revenue movement and customer growth trends, essential for evaluating business performance.
Importance of Net Retention
Achieving net retention rates above 110% signifies healthy customer growth and engagement, showcasing a robust business model and customer satisfaction, instrumental in attracting investor interest and driving valuation.
The Importance of Data-Driven Decision-Making
Emphasizing the significance of data-driven decisions, Cameron underscores the value of understanding customer dynamics, optimizing revenue streams, and exploring additional services to enhance cash flow and foster business growth.
The Importance of customer interactions
Regular customer interactions and feedback play a vital role in shaping product roadmaps and service offerings, enabling businesses to adapt, innovate, and retain customers effectively, ultimately driving sustainable growth.
Balancing Services and SaaS Offerings
Integrating services alongside SaaS products can enhance customer value, reduce churn, and augment revenue streams, showcasing a holistic approach to customer success and business sustainability.
Offering ancillary services, productizing service offerings, and exploring additional revenue streams beyond core SaaS products can optimize cash flow, deepen customer relationships, and contribute to overall business profitability.
Optimizing Financial Reporting
Cameron underscores the importance of meticulous financial reporting, strategic data management, and maximizing investor relationships to drive business growth, enhance valuation, and foster long-term success in the SaaS industry.
Future of VC Analysis
The episode concludes with insights on the future of VC analysis in the SaaS industry, emphasizing the need for comprehensive data management, clear financial reporting, and a focus on unit economics to attract and retain investor interest in a selective deal market.
Key Timecodes
- (00:37) Show and Guest intro
- (1:30) Why you should listen to Cameron Hay
- (02:08)The Changing Landscape of Investing
- (03:24) Minimum Requirements for Talking to Investors
- (04:24) Common Mistakes in Presenting to Investors
- (05:55) Where most Deals go wrong (Aligning Operational and Financial Information)
- (07:04) Strategies for Getting Data Ready
- (09:27) Keeping Investors Updated(The role of the tools)
- (10:20) How Cameron structures his data
- (10:54) The best practices to keep your investors updated
- (13:00) Target Net Retention Rate(The monthly Report)
- (14:54) The target for SaaS businesses in 2024
- (16:06) Challenges in Getting Data Ready
- (20:05) The Future of VC and SaaS Analysis
- (23:59) Why Saas Companies should work with Cameron Hay
- (25:43) How to grow towards 10K MRR
- (26:26 ) How to grow towards 10 million ARR
- (28:15) Advice for SaaS founders
- (31:42) What Chris wishes He knew 10 years ago
Transcription
[00:00:00.000] – Show Intro
Welcome to the Grow Your B2B SaaS podcast. In this podcast, we cover all topics on how to grow your B2B SaaS, no matter in which stage you’re in. I’m Jorn Hoffman, the host of this show and the founder of Reditus, which is a B2B SaaS that helps other B2B SaaS companies to set up, manage, and grow an affiliate program. Being a founder myself means I’m going to the exact same journey as you are, experiencing the exact same issues, and probably have the exact same questions. And this is why I started the podcast in the first place. Get advice from industry experts on how to grow my B2B SaaS. So if you like this content, make sure to subscribe, follow, give it a thumbs up. Let’s just dive in.
[00:00:37.610] – Guest Intro
In today’s episode, we’re going to talk about how do investors analyze SaaS businesses. A lot have changed post-COVID, where money isn’t free anymore. So let’s dive into how investors analyze SaaS businesses in 2024 and beyond. My guest today is Cameron Hay. Cameron is the co founder of Finomatic Consulting. They help private equity-backed SaaS companies to optimize their financial reporting and forecasting, with the goal making more data-driven decisions by levering real-time KPIs. They work with several large investment firms on their portfolio companies, including Insight Partners, Highland Europe, IP Group, and BGF. Before starting Finomatic, Cameron spent around 10 years in corporate finance, accounting, and data analytics, where he helped companies with M&A and fundraising. I think if we want to have a talk about SaaS metrics, we have found the right person.
[00:01:26.990] – Joran
Welcome to the show, Cameron.
[00:01:28.700] – Cameron
Thanks very much for having me.
[00:01:30.240] – Joran
No worries. I always like to start with a Dutch blunt question. Why should people listen to you today?
[00:01:36.650] – Cameron
We’ve worked with several large investors, both with the funds themselves and on their portfolio companies. That’s where we’ve got a good insight into how investors across the spectrum, really anywhere between their investing a million euros up to a hundred million euros into companies. We can really see a full spectrum of the challenges which SaaS businesses face and also what investors throughout that spectrum, how they analyze those businesses finances. Our clients range anywhere from companies with 30 to 400 employees, and they’ve all found a tremendous amount of value in the insights we’ve generated. Nice.
[00:02:08.830] – Joran
I mentioned it, the landscape has changed. If you would just explain it in layman terms or somebody who just jumped in. What has happened?
[00:02:17.030] – Cameron
A lot of the time, it’s just that higher interest rates has been a big impact, and that just means that there’s a lot less debt financing available. Private equity and venture capital firms are having to fund the transactions with equity, which just brings down the amount of capital available chasing the deals. Also, with ever being fewer exits for VC firms and private equity firms, it just means that there’s less capital being recycled back to their investors, which they can then deploy in follow-on funds. Another factor is going to this point of where the funds get the money from with the higher interest rates, fully funded pension funds don’t need to go and chase returns as much with higher interest rates. That means that they’re allocating less capital to equity and private equity, which then again flows down to these SaaS businesses. All this, it really just means that investors are being a lot more careful about the types of businesses they invest in, and it’s not a growth at all costs at all. It’s very much looking at the underlying unit economics, particularly as businesses mature.
[00:03:13.260] – Joran
Yeah, because in the end, it’s more expensive for them to lend money, so they lend out less money, so they look at more unit economics to find out is a business actually good for them or not.
[00:03:23.290] – Cameron
Yeah, that’s exactly right.
[00:03:24.490] – Joran
I guess if you as a SaaS business, if they’re now thinking like, Hey, I want to talk to investors, what in your opinion has to be minimal in place before even talking about or even thinking about talking to investors.
[00:03:36.690] – Cameron
This really depends on the size and scale of the business. If you’re a young SaaS business with a handful of customers, they’re going to require a lot less data and information than if you’re a 20, 30 million ARR SaaS business. So investments at the earlier stage are really driven on what’s the vision, what’s the market opportunity, the founders, is this the right team to drive this, to capture this opportunity? Whereas if you’re going for an IPO, for example, you’re going to have a team of equity analysts analyzing hundreds of different data points. So at a minimum, I would say you want to be understanding your retention metrics, what your ARR is, your growth rates, and your monthly burn, and that’s really going to make sure that you can give that confidence to an investor that you understand what’s going on in your business from the financial side.
[00:04:21.110] – Joran
Yeah, all makes sense. We’re going to dive deeper into that in a second. I always like to start with the common mistakes companies make. You’ve been helping quite a few companies companies out there. What are the most common mistakes companies make while trying to present their business towards investors?
[00:04:36.270] – Cameron
A lot of this comes from us speaking to investors and their experience. A lot of the time, it’s just information is too general. When we’re looking at space as nuanced as the SaaS space, you’ve got to make sure you understand your key metrics. Investors aren’t as interested in your traditional profit loss balance sheet and cash flow. They really want to be understanding the dynamics of your customers. Looking at your gross and net retention and retention are really important. Making sure that all your information lines up. One example could be companies doing cash accounting whereby full value of an invoice is recognized in the month, but then the costs are spread over a number of months. It just makes looking at your financials quite difficult if an investor can’t clearly see how revenue is building up on an individual basis. Yes, and that, and not providing industry-specific metrics. Actually, when you’re providing information from different sources, making sure reconcile. There’s something like using a ChartMogel for revenue recognition and retention calculations. But then when you’re sending over your financial data, you’ve got to make sure that the numbers in your accounting system actually match what’s in ChartMogel.
[00:05:43.180] – Joran
I think that’s always the hardest part, to actually make sure that everything is exactly the same because as a SaaS company, we love using other SaaS platforms, and that’s where it often goes wrong. At one point, you don’t have one single source of truth anymore. If you look at deals or maybe deals not being made, where do you think most the deals go wrong data-wise? Is there anything you definitely need to avoid or common patterns there?
[00:06:06.800] – Cameron
I would say the most important thing is really the alignment of operational and financial information. You don’t want to be going to present to an investor with an idea, with an operational plan and speaking to them about what your plans are for the business, and then you send over your financial information and it tells a completely different story because that just means that investors will lose confidence that, again, you don’t have this understanding about what’s going on in your business. Because for them, the source of truth is the financial information is the numbers. Whereas a lot of the time with businesses where someone’s not coming to help line up that information, there can be that mismatch. It just confuses people. Investors are so busy and get so many opportunities coming in. You’ve got to make sure that you don’t end up confusing people. If they just think it’s too hard, then it’s so easy for them just to go, Okay, I’ll move on to the next one.
[00:06:50.760] – Joran
We combine even the answers you gave from the two questions, like operational and financial need to align, and then consolidate all the data, make sure that it works It’s exactly the same and looks exactly the same no matter which platform you pull it out from. If you would help, if you would step in the shoe of a SaaS founder and you’re going to help them to get the data ready, are there any some strategies, processes you would use to get everything ready?
[00:07:15.810] – Cameron
Yeah, there are. To be honest, a lot of it is very unglamorous work, which really needs to be done. Something as simple as naming conventions in your CRM and the difference between your accounting system and just being able to match those up. If you’re trying to look at what your revenue forecast looks like, actually, when you’ve got a deal closing in the CRM, do you know if that’s a new win or is that an upsell opportunity for an existing customer? Just having that level of information just really just will help you visualize because presenting information that’s clean, tidy, and all reconciled is quite easy to get the picture across. But when there’s a lot of noise in the information, it’s really difficult to actually get any meaningful insights from your data and understand what you’re doing it. Is your growth coming from new customers or are you expanding existing customers? If you’re doing more than one or the other, then it’s good to know about. Another thing is to actually just make sure you go through your CRM effectively. We’re both founders as well in this call. I know it’s a difficult thing to make sure you’re actually going through it with a fine tooth comb, really, and just saying, is that opportunity likely to close at that date or is that a reasonable waiting for it to be at?
[00:08:21.920] – Cameron
Should that really be in there or should it be in that close lost and you’re not heard from them in a month? I don’t know. You’re probably a lot better than we are at that.
[00:08:28.700] – Joran
No, I think I’m an early stage SaaS founder. For example, in our case, we just switched to HubSpot. We just did the basics, as you mentioned. But even those basics, they’re not difficult, they’re important to do. But actually keeping track of, did you do the basics of a certain contact Did you move them out of unqualified? Did you create a deal? Did you update the deal stage in the tech? If you’re a product that grow business like ours, we get a lot of signups coming in, a lot of book and demos coming in, where I’m on these calls, I’m following up on these. It’s really hard to keep the CRM updated. But on the other side, I do see the importance of it because we’re now building, for example, our first dashboard. If I don’t update my CRM system, then the dashboard is going to be screwed. I can definitely see the importance here.
[00:09:11.900] – Cameron
It’s great that you’re there and visualizing the information because once you start trying to put it into place. You always look at it and you think, Do I really have 100 qualified leads that I should be going out to or have I not heard from them in a certain amount of time, and they should really be just taken off the list?
[00:09:25.100] – Joran
I might fast forward a little bit, but there’s a lot of tools, at least what we use, which are freemium, free trial, things like that, which you can use to actually visualize this. Do you think you can fully rely on these tools, or do you need anything else to really update the investors on a regular basis?
[00:09:43.350] – Cameron
The tools definitely have a place. But it’s just it’s coming back to the point you were making earlier about making sure you’ve got that single source of truth and you can bring everything together. Because while there are so many great tools out there for recording individual transactions or look tracking your MRR and visualizing that, but If that doesn’t feed into your accounting system, then you’ve now got a problem where you’re maintaining two different data sets. Whereas with our business, we’re always trying to bring everything together. So there’s one single place where everything’s maintained. So that it’s quite easy to see when checks and when things are going out of whack. It’s very easy for you to find out where the problem is and actually go and rectify it.
[00:10:19.120] – Joran
I guess for that single source of through, how do you guys normally do it? How would you structure the data? What is the actual single source of through? Is that the CRM system?
[00:10:27.870] – Cameron
It’s actually probably something you’ve got to collate everything into. Microsoft have done a great job with launching Fabric and actually pulling everything into one lake and using that and creating a data in there is certainly a very good and easy way because you’re always going to need something that’s not in your CRM because it It’s the invoicing detail, which is going to be within your accounting system, which if you’re looking at MRR and you’re invoicing in advance, that’s going to be your single source of truth, I would say.
[00:10:53.920] – Joran
Yeah, makes sense. When we go one step back, it’s one thing to get the information towards the investors, right? And once you get investors investors in, you need to actually keep them updated on what is happening. Any best practices to keep your investors updated without having to spend hours or days gathering the data?
[00:11:10.710] – Cameron
This is also something that we’ve been working on a lot with companies and the investors we work with. Is it’s trying to push things as much as possible into a BI dashboard, which is interactive and allows the investors to go into as much detail as possible, because that way you’re not going to be playing email table tennis with them to answer questions or go into anything, whereas they would rather have the information in a way that they can drill into it if they want to and they’ll be able to get the answers themselves. But also it’s making sure you use your investors as a good resource. They see so many different businesses. They’ve got a huge amount of market knowledge that they’ll be able to help your business grow if you’re able to give them the data points that they need. They can say, Yeah, I can see this is happening in your data. I’ve seen this happen in X, Y, and Z, and this is how they’ve solved it. It’s really using them as a resource, I think, is very underutilized. Having something where that flow of information and they’ve got flexibility to look at it is really important.
[00:12:05.540] – Joran
I actually experienced it in a previous company where indeed investors, it’s their job to find these things, to drill into the data, to play around with it and to figure out how Can this company grow faster? At that time, it was growth at all costs. But they were able to basically look at the data to figure out this is actually working, this isn’t. Have you guys seen this? It wasn’t always the nicest way how they brought it. Almost that we missed something where they were able to spend days on it and to figure things out because we were growing a business. But I do agree. They have a lot more information, a lot more benchmarking from other companies, so they can actually help you to understand sometimes the data and to figure out what our potential within the business.
[00:12:46.440] – Cameron
Yeah, that’s exactly right. They’re a great resource. And so often, all the time, really, they’re really willing to help and they want to see you succeed. They’re invested in that future as well. So you’ve got the great alignment of interest there. I would 100% recommend using them as much as possible.
[00:13:00.580] – Joran
And if we go back to reporting on, let’s say, a monthly basis, what should we have at least a minimum in place on a monthly basis level?
[00:13:08.010] – Cameron
For SaaS businesses, so much of it is going to be the customer-related metrics and looking at high-level cash flow, I would say. Once you get beyond the 2 million mark or 2 million in ARR, you’re going to want to start to be providing more. But the most interesting thing is actually always going to be your ARR waterfall, looking at how things have moved over the last 12 months, your net new ARR in the quarter, what customers have we won, what customers have we lost, what have we lost or down sold, why have we lost or down sold them? Is it a competitor, is it something else our product or service should be offering? Because it’s really that customer-level information and communicating with the customers regularly so that you can understand them and help service them better, really.
[00:13:47.630] – Joran
Is that what it means, ARR, our Waterfall, the lost ARR, basically? Why did you actually lose- When I’m talking about an ARR Waterfall chart, I’m talking about you got your starting ARR position, and then you look at your losses and Downsales to get to your Gross Retained picture.
[00:14:03.050] – Cameron
You can see what are the impacts that are bringing down your ARR from the opening position to your gross retained. Then you’ve got your upsells that will then take you to your net retained. So your gross retention is always calculated on your Gross Retained value. So opening minus Losses and down sales, divided by your opening position. And then your Net Retention is after you take into account up sales, what is that existing, the customers you had 12 months ago? What do they look like today? And has that grown? So ideally, if you want to be getting that north of 110%, it just means your existing customer base is growing by 10% a year. And then you look at the final stage of the waterfall being the new win. So you can see that clear trajectory of from what my ARR is today, what it was 12 months ago, and how did it move then? So that’s what I was referring to in the Waterfall chart.
[00:14:49.550] – Joran
I love the explanation, and I always like to ask a stupid question, so people can learn from this. And is the 110%, is that still the number which is still the target for SaaS businesses in 2024 or has this changed?
[00:15:02.180] – Cameron
With businesses, it seems to be around that number is often seen as that’s a good market. When you start dropping below 100%, it should be a focus area to see how you can expand that. Above 130% is fantastic. That’s where it’s really understanding those key metrics because if you’re taking your business to an investor and you’re saying, as soon as we sign a customer, they stay with us and they spend more with us and they use more of our product, that tells you so much more than any amount of tech you will about the company.
[00:15:27.170] – Joran
Fully agree, because you don’t want to fill up a leaking bucket.
[00:15:29.890] – Cameron
Yeah, exactly. Exactly.
[00:15:32.710] – Speaker 3
This podcast episode is sponsored by Reditus. Reditus helps B2B SaaS companies to set up, manage, and grow an affiliate program. In short, it means you’re asking other people, affiliates, to promote your SaaS. You would only pay the affiliates a kickback fee when they deliver you paid clients, making it a very cost-effective and scalable way to grow your MRR. See more at getReditus. Com.
[00:15:56.680] – Joran
This sounds, if we do it in a podcast, it all sounds easy, Can you speak to any challenge, I guess, companies will face when they try to achieve this and maybe any ideas on how to overcome those?
[00:16:08.320] – Cameron
So much of it is just getting the information ready is really just making sure the underlying information at the transaction level and making sure everyone in the team understands what your procedures and processes are. So your sales team understand how they should be filling out the CRM. What is everyone considering to be a certain weighting of project? Whether that’s you’ve sent a proposal, you’ve sent an engagement letter, or it’s just an initial unqualified meeting, initial meeting, where do all of those sit? And then just making sure that everybody is involved in the process. They understand the ramifications of why keeping doing all this is important, why you need to be understanding, tracking which invoices are going out or quarterly, annually, and so that when you need to be invoicing again. All these things are very simple, but it’s just super important. It’s just difficult when there’s so many different people involved in a process to make sure everyone’s got a good, consistent way of looking at things.
[00:16:58.310] – Joran
It’s almost like the challenge is going to be the people because in the end, it’s processes you create and people have to follow them. If you don’t follow them, in the end, they will break.
[00:17:07.250] – Cameron
Yeah, exactly. That’s where we really like just if things are kept in databases or any, of course, your SaaS tools where simple things like just having drop-down lists where possible and not having people type in terms, for example. It’s something as simple as if you’re in HubSpot and you’re going, Is this invoice quarterly, monthly, or annually? Just having that as a drop-down field rather than having somebody type it in because so many of these data The cleaning tools out there are case sensitive. It can be very easy. It may make things a lot harder if you’re actually trying to maintain a good quality data set. It’s very easy to put in a typo. It’s all done, obviously. Then all of a sudden, that can start throwing out a lot of the analysis.
[00:17:44.140] – Joran
I think this This is like a best practice which I learned the hard way for your SaaS. Even in your onboarding, for example, make sure you can simplify it, plus also make sure they don’t make any spelling mistakes or different ways of spelling the United States or US or USA, things like that. We made that mistake. We had to clean up the entire database with thousands of people filling out the countries. But also indeed with the Aspot example, we now created line items for the products, which you can just select. We can create it like drop-downs. What is the status of a lead What is the status of a deal? So I can’t make any mistakes basically by entering one time one thing and one time the other. And if you set it up nicely and the process is clear, and we even mapped out the process in Miro where we knew exactly how do they move forward and then what can we change basically, then it’s also a lot easier to follow because you know exactly what to follow.
[00:18:35.380] – Cameron
Yeah, that’s exactly right. That’s really the way we work with SaaS companies. It’s you come in and do a one-off big project, go through, clean all the information, present it in that clear way. We all have a good understanding of what’s happened in the business historically, because it is that point when you go in and do that first visualization and we present it back to the management team or the finance team. There are often so many bits where the stuff doesn’t look right, and then it’s actually tracing our way through the data to say, If you didn’t Who is that customer then? Why does it look like you’ve stopped billing them? Oh, we’ve actually changed their name and they’ve invoiced under a different name. That’s the stuff you need to go through. But once you’ve done it as that one-off exercise to start with, as you say, that April process you just alluded to, is then making sure you’ve then got a process in place to go, Well, let’s make sure that we do this. If we are going to change the name of a customer, is there a way that we can change it back for that customer going back in the system so that when we then try and run more analysis, it’s not going to cause any problems?
[00:19:27.650] – Joran
Yeah, and it sounds like a really cumbersome thing to which it is, but in the end, it’s really important because then you can visualize everything properly.
[00:19:35.510] – Cameron
Yeah, exactly. I never promised we were in a very glamorous area.
[00:19:39.260] – Joran
No, that’s what you said at the beginning. I’m experiencing right now myself, which is so for an ADAT. It’s nice to have visualized data, but if the underlying data is incorrect, then it doesn’t make any sense.
[00:19:52.010] – Cameron
Yeah, exactly. It’s one of those things that someone can spend ages and ages cleaning the data, and then all of a sudden, your data analyst, your BI analyst comes in and puts a car and everyone’s Wow, look at all these insights we’ve got. You just forget the fact that somebody just went through every job, actually cleaned it all up.
[00:20:05.240] – Joran
Exactly. If we go look at the future, how do you see the future of the VC world and especially how they analyze SaaS startups?
[00:20:13.640] – Cameron
We just think that This is just a more selective deal market. It’s just more and more important for businesses to be really on top of their financial information and just understanding how is it we’re growing and what are the key things we need to be focusing on. Because investors are really going to want to go into that level of detail and even just the fact of if there are fewer opportunities in the market, they’re going to spend longer on the opportunities that do come up. We’ve talked actually on the negative side about how not having your data in order can be a bad thing. But it’s actually in the flip side of it, if you’ve got everything in order and everything works, That’s just a dream for these investors. They can clearly see when they’re writing their papers for investing committees and getting the future sign up, they can clearly point to all the data points of why this is a compelling investment proposition. It just makes that they are much more willing to do the extra yards and push the opportunity internally because if they can put their hand on it rather than if something goes wrong in the future, which investment is not every investment is going to go to the moon.
[00:21:08.340] – Cameron
But if something goes wrong in the future, it’s not going to come back on them and say, actually, you didn’t have any data to make this decision, and we weren’t actually thinking about this, logically. Because that’s what I think they’re going to be a lot more of going into a lot more detail, really.
[00:21:19.680] – Joran
Funny that you said, because in the end, you do business with people, right? As you mentioned, they need to almost cover their own ass. Why do they make a decision to actually invest in your own company? That’s why they’re at all the metrics, right? That’s why they want to know. They drill down everything. They want to make sure that they actually make the good decision. In the end, if it’s a personal person, don’t want to get fired based on a decision they made.
[00:21:41.530] – Cameron
Yeah, exactly. Whereas if it’s all the data points are really clear and everyone can get on board with it, it’s not based on having to go and say, Oh, yeah, I’ve just got a good feeling about this. I mean, all that investment is like getting a good relationship with the founders. There will be time that there is a really compelling opportunity and there is less data available and investors will have to take a bit more of a leap of faith. But if you can make it so that investors don’t have to do that, then that just puts you in a great position. We’ve talked that you don’t ever need to be coming across as a negative Nancy in any of this, but it’s just, yeah, there’s a positive side to getting it sorted rather than just the negative side of not having it sorted.
[00:22:14.790] – Joran
Yeah, I fully agree. In the end, if you’re listening, you’re not even looking to funding. For example, like us, we’re bootstrapped. I see definitely the positive of getting everything in order, even though we’re not going to talk to investors. We can actually make these data-driven decisions. We have a freemium model. We know that a lot of the free SaaS companies who use us invite a lot of affiliates to the network, which is going to have a positive effect on the growth of the network. But if we wouldn’t have the proper data to actually validate that, we might, could have said, they take up a lot of support, they take a lot of the effort we have to do. We have to train them on board them and they’re not actually paying us in the first, let’s say, 6-9 months. Why would we even bother? But then we know that they’re actually helping to grow the company because we have the data available to actually prove that. So always always go for clean data and make sure you make data-driven decisions, even if you’re not going to talk to investors.
[00:23:05.710] – Cameron
Exactly. So often we work with companies as well that aren’t looking for investors, and they’re actually just thinking, If I need to go and I want to sell my business in three years or I want to get investment in three years, or actually, either way, it’s not on the horizon at all. They’re still thinking, We want to make sure that we’re on top of what’s coming in, what’s going out, and especially in the SaaS world, where if you’re billing 12 months in advance, understanding your pipeline and what deals are coming in is hugely valuable. That can be a lot of the funding for your growth. If you’re a high growth business building 12 months in advance, that negative working capital profile can really help give you so much capital to invest in your business, grow in sales and marketing. It’s really important to understand that and even the impact of how much of a discount should we give people to pay annually in advance versus paying monthly and what that does for your cash flow.
[00:23:55.860] – Joran
Maybe even before we dive into the last final four questions, because you mentioned bits and pieces of what you guys do for SaaS companies. If you would just explain it in a couple of sentences, if you would come in, or why would even a SaaS company need to work with you? And if they do, what are you going to do for them?
[00:24:11.490] – Cameron
For us, our business is really built off the back of having spent seven years working in tech mergers and acquisitions and corporate finance. It’s really so often we are working with businesses that find that we’re working with technology companies, and they were saying that how the information they had when they were about to sell their business, they were about to fundraise was the most useful. That’s where my brother and I got the idea that actually if you could get to the point where this information is readily available at all times and use it to help you grow the business, you can still need the information if ever you’re going to fundraise or sell. But just by Having this information all the time can really help you. In terms of what we do, it’s going through each of the systems and all the various data points, whether it’s your HR data, your data warehouse, understanding your inflight projects and accounting systems, and really creating that single source of truth so that you’ve got a understanding of what’s happened in your business historically and what that’s going to mean for your business going forward. That’s that combination of filling financial models and data models to actually be able to slice and dice the data and really understand the impact of different scenarios.
[00:25:12.970] – Joran
I think it’s something what a lot of companies need, and especially later on when you become bigger and you have a lot more data to handle, then sounds good to have or sounds crucial to have. I know out of experience, in a previous company I worked, we have a lot of data to work with, and that was really nice because you can just basically almost scenario everything and figure out what is working and what isn’t and make decisions on that instead of assumptions. That’s always the way I like to work. Let’s dive to the final four questions. When we talk about how do investors analyze SaaS businesses, what advice would you give somebody who’s What’s your starting out and growing to 10K monthly recurring revenue?
[00:25:47.960] – Cameron
I would say that’s the business we normally work with, but it’s really just going out and speaking to your clients regularly, understanding if clients have left, why they’ve left, and make sure if they’re wanting you to provide additional services and there’s other ways that you can help serve them. Just make sure that you’re using them to help create your product roadmap because that’s always the best way. The people who already use your product to help them grow your business. We as a business are constantly speaking to investors and finding out what it is that they need help with both as funds and also on their portfolio companies and making sure that if there is something else that we can do to help that, that we’re pivoting and making sure we can service that.
[00:26:26.250] – Joran
When we go beyond the 10K money of your current revenue, and we’re going to make a big jump, we’re going to go to 10 million ARR. What advice would you give a SaaS founder here?
[00:26:33.940] – Cameron
My advice would be, make sure you’ve got your numbers in order because investors are going to go through your data points in a huge amount of detail. You really want to be making sure that you are making those data-driven decisions to help you grow and make sure that you’re ready for these conversations. Coming back to the point we made earlier where actually you’re getting the most out of your investors, and they are industry experts, they are very knowledgeable, and they see so many different businesses that if you’ve got all this data and it’s cleanly presented, they’re able to actually help you grow and be able to help you understand what else is going on in the market.
[00:27:06.260] – Joran
I think a contrast enough as in giving the data towards investors is not them checking up on you, but as you mentioned, it’s actually them helping you to grow. I think that’s really important always to keep in mind.
[00:27:18.360] – Cameron
Oh, yeah, no, exactly. It’s not when you get the money from investors and go, Oh, they’re annoying because they’re on my case and they’re always wanting all this information. No, they’re here, they’re trying to help you, but you need to help them to help you. By giving them the information that they need, then, as you mentioned in your previous experience where your investor had gone through a lot of information which you didn’t have time to do because you’re running the business. But it’s seeing that as a really… Is that being a really positive thing and making sure that’s coming through? If at your next board meeting, the investor was saying, Actually, we’ve been through all your information and we pulled out these things that we think we should discuss because I think it can help you in the next few quarters. That’s a fantastic position to be in, and that’s what so many investors would love to be doing. It’s making sure you give them the ability to do that is what’s really important.
[00:28:00.930] – Joran
Yeah, and it all starts then with bringing in the right investors who generally want to help and not punish you based on the data they find it. Make sure you find the investors who want to help you, and then from there, give them everything they need to actually be able to do so. If we zoom out of this, Would you have any more general advice towards other SaaS founders who are now on their journey?
[00:28:19.680] – Cameron
I would say once your product is finished, really experiment with the different customer acquisition channels and just really seeing what works for your business, because depending on the scale and the average value that you’ve got, it’s going to be different ways at which you find it’s going to be. There’ll be different ways to get in contact with your ideal customers. Then really just understanding what the impact of what we’re talking earlier with the billing in advance and what discounts you can offer. Really understanding that information, I think it’d be something that’s really important and understanding the impact of being able to bring that cash injection into your business sooner and how that could help you fund your growth instead of thinking the default has to be, we need to go out and raise additional capital. But is there just some tweaks that you can move from a monthly billing to annual up front that could massively help your cash flow, particularly if you’re growing very quickly with high gross margins.
[00:29:08.060] – Joran
Yeah. So really asking yourself, how can cash from clients can help us to actually accelerate growth? And you mentioned one, going from monthly to annual billing. I think that’s an easy one, not an easy one, but it’s a typical one. Do you maybe have some other ideas or have you seen other things which companies do to get more cash in from current clients?
[00:29:27.960] – Cameron
Yeah, coming back to really looking at what other products or what other services you can offer around your product to see, is there any additional revenue you can get? So not just, can you get the revenue you’re going to get from them earlier? Actually, are there other things that your customers would like to have that you could offer? Are they getting consultants in to help integrate your product elsewhere? Could you be bringing that service revenue in-house? And just because you are primarily a software business, that doesn’t mean you can’t have a services element to what you do as well. And that’s a very common situation that we see. There’s an element of services alongside your software product, making sure that you’re aware of any ancillary services or offerings that you could be putting in around your product, I would say.
[00:30:13.790] – Joran
I think I read something on LinkedIn the other day that it’s not bad indeed to have services alongside your SaaS because we always think I had the impression as well. We first started a bit with services to get money in, then we built a SaaS product, and now I’m trying to scale down the services, which we did and we productized the service. But still, I do think there’s a lot of opportunity to actually do the services because we have the knowledge, we have sometimes the time which a client doesn’t have to actually get the needle moving. Is that something like, I guess you see with, for example, good Are there some performing companies that they always have still that service part available?
[00:30:48.930] – Cameron
Yeah, it’s very common to see it because you really want to make sure your customers are getting the most out of your product and no one’s going to know your product better than people internal to your organization. Having that support team, having that services team that you can do additional work for to make sure that your customers are getting the most out of what you do, because the last thing you want is a customer to churn. It turns out actually it’s because they didn’t know the problem that they had with your solution could have been solved, but they just didn’t know it existed. That’s the thing that’s going to really impact your valuation if you’ve got churn rates picking up. That really affects a lot of the unit economics. Having those services as exactly as you’ve said is really important.
[00:31:29.500] – Joran
Yeah, because next, bringing in extra cash. Indeed, they will probably be stick here with your product because they know exactly how to use it. Churn will go down, and in the end, it has multiple positive effects on your financial metrics.
[00:31:41.580] – Cameron
Exactly.
[00:31:42.060] – Joran
Final question. What is the one thing you wish you knew 10 years ago?
[00:31:46.080] – Cameron
Yes, this one. For context, my brother and I started this business, started from consulting together. I would definitely say that working with family isn’t anywhere near as scary as you think. A lot of people said that crazy to go into business with your brother, but we’ve had a super close relationship and we found it really helps just keep 100% of the focus on delivering great service to customers and the business goal because we’ve had over 30 years of working together. It’s just the types of problems right now are slightly different. It’s gone from how can we find out where mom hides the chocolate cereal, and then it goes to how can we run sensitivities on customer analysis?
[00:32:23.870] – Joran
The type of conversation has definitely changed. But do you guys have a really clear, we talked about it before the recording already, but you have a clear job description of what both of you do. Does it overlap?
[00:32:36.180] – Cameron
We were just chatting about that earlier today, actually. We do cover it. I’m doing a lot more of the sales, marketing, customer success. I’m very involved in the actual building out of all the solutions with the clients as well. But my brother is very much head of R&D as we hear, where making sure that we’ve got all the right processes in place and everything’s streamlined. For context, he’s an automation consultant. Making sure everything that we do is as streamlined as possible is really up his wheelhouse.
[00:33:05.970] – Joran
Don’t talk about SaaS metrics over Christmas dinner, and then you’re fine.
[00:33:09.680] – Cameron
Yeah, exactly.
[00:33:11.570] – Joran
Nice. If people want to get in contact with you, Cameron, how can they do The best way is probably on LinkedIn, finding me, Cameron Hay and Cinematic Consulting there, or dropping an email at cameron.
[00:33:22.280] – Cameron
Hay@cinematic. Co. Uk. Yeah, be either ways happy to have a chat and always keen to learn about data headaches people are facing and problems that they’re facing in the financial world.
[00:33:31.850] – Joran
We’re going to link it in the show notes, and we’re going to link it to your LinkedIn, to your email. For people listening, rate the show. Leave us a rating on Spotify or Apple podcast, and we’re going to add a poll to this one as well. So make sure you Let us know what you thought of it and what you want us to cover next time. Thanks again for coming on, Cameron.
[00:33:51.610] – Cameron
Yeah, thanks very much for having me.
[00:33:53.550] – Joran
Thank you for watching this show of the Grow Your BDB SaaS podcast. You made it till the end, so I think we can assume you like this content. If you did, give us a thumbs up, subscribe to the channel. If you like this content, feel free to reach out if you want to sponsor the show. If you have a specific guest in mind, if you have a specific topic you want us to cover, reach out to me on LinkedIn. More than happy to take a look at it. If you want to know more about where it is, feel free to reach out as well. But for now, have a great day and good luck growing your B2B SaaS.
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