CFO Playbook: Mastering metrics and managing boards for SaaS finance success

In the office of the chief financial officer (CFO), determining what metrics matter—and how often to track them—is one of the most critical and challenging tasks of the job. “It's really about finding the right balance between signal and overhead that lays the foundation of an effective finance function,” says Alex Wu, founder and managing partner of CFO Advisors and member of Bessemer’s CFO Council. 

So, what are the recommended best practices for identifying needle-moving key performance indicators (KPIs) and leveraging them effectively in board relationships?

As part of Bessemer’s SaaS Finance series, we’re sharing an essential CFO playbook for startup founders on company metrics and board management. Alex joined Bessemer Operating Partner Jeff Epstein for a discussion on navigating the complex world of finance leadership and board governance.

This playbook is structured into five key areas:

1. Identifying and evolving key metrics
2. Build a “Financial Hypothesis”
3. Presenting metrics effectively to boards
4. Managing board relationships and meetings
5. Leveraging the CFO role for strategic impact

Each section provides actionable advice, best practices, and strategies that CFOs can implement to excel in their roles and drive their companies forward.

1. Identifying and evolving key metrics

One of the CFO’s primary responsibilities is to identify, track, and interpret the metrics that truly matter for the business.

The true test of whether your startup has the right mix, altitude, and number of key performance indicators (KPIs) lies not in their complexity or quantity, but in their ability to drive meaningful action. If management meetings consist of reviewing KPI beats and misses without corresponding changes in tactics, strategy, prioritization, or resource allocation, this can be an early warning sign. The entire purpose of KPIs is to serve as a compass, guiding your business towards success by prompting decisive action. When your organization consistently shrugs off significant variances from targets without adjusting course, it begs the question: why track these metrics at all? 

The entire purpose of KPIs is to serve as a compass, guiding your business towards success by prompting decisive action. When your organization consistently shrugs off significant variances from targets without adjusting course, it begs the question: why track these metrics at all?

This section explores how to select the right metrics for your company's stage and how to evolve them as your business grows.

Best practices for metric selection and management

1. Focus on a core set of KPIs: "It's really critical that you understand where your company is at and what are the one or two things that they're trying to prove out," Alex emphasized. Limit your core KPIs to five to six max to ensure management and the board can easily focus on the most important aspects of the business.
2. Evolve metrics with company growth: As your company progresses through different stages, it’s important to adjust your metrics accordingly:
   • Early stage: Focus on proving willingness to pay and solution viability. Key metrics might include customer acquisition cost (CAC), conversion rates, and initial customer feedback.
   • Series A/B: Demonstrate a repeatable sales cycle. Consider metrics like customer lifetime value (LTV), sales cycle length, and net revenue retention.
   • Series B/C: Show ability to serve customers profitably and potential for significant market size. Important metrics at this stage might include gross margins, customer cohort analysis, and total addressable market (TAM) penetration.
3. Always add to what you're tracking, but don't overbuild: As startups scale from seed stage, financial leaders shared that they tracked three to five metrics; by the time they reached Series C the number of KPIs grew to 15-20 considering the complexity of the business evolved, too.  As businesses scale, measure important input and output metrics and be cautious about creating unnecessary overhead. Regularly review your metrics dashboard and retire or demote less critical ones.
4. Finance should own the source of truth: Establish finance as the central authority for all key metrics and data. Alex noted, "We're seeing more and more in our industry where business intelligence and finance have a strong partnership. At my previous company, we rolled out half of the BI team into finance, which proved very effective for the organization."
5. Think and talk in ranges: Acknowledge the inherent uncertainty in forecasting by presenting ranges rather than exact figures. Jeff advised, "If you're going to do a reset, do one, don't do a half a reset and then come back three or six months later and realize that you actually needed to do a bigger one."
6. Standardize non-GAAP definitions: Create clear, consistent definitions for any non-GAAP metrics you use. This ensures everyone in your company and on your board is speaking the same language when discussing these metrics.
7. Use benchmarks wisely: Be cautious about benchmark sources and relevance. Alex cautioned, "A lot of VCs produce benchmarks, but a lot of times it's just their portfolio companies. So it's really not a subset of all SaaS companies. It's a subset of the best companies that can get funded by this VC." (However, if you do want the benchmarks of top performing private SaaS business, dive into Scaling to $100M.) 

2. Build a financial hypothesis

The ability to cut through the noise and focus on what truly matters is often one of the most critical roles a CFO can play in an organization. Enter the concept of the "financial hypothesis"––a powerful tool that startup CFOs can use to clearly align their board, management, and the organization. At its core, a financial hypothesis is a distilled, simplified model that answers the critical question: "What do we have to believe to achieve our goals?" Rather than drowning in a sea of hundreds of possible metrics, this approach hones in on the three to five key inputs that will make or break the company's journey towards profitability or its next compelling financing round.

Whether it's pipeline conversion, average order value, retention rates, or unit economics, these vital few metrics form the backbone of a tailored financial narrative. The beauty of this approach lies in its flexibility; a company betting on improved unit economics might focus on contribution margin, while one banking on network effects could emphasize viral multiples and monetization. 

As actual results roll in, this streamlined model allows for rapid comparison against initial assumptions, clearly highlighting which hypotheses were proven and disproven, enabling swift strategic pivots without getting lost in the noise of hundreds of metrics. 

Company spotlight: The power of focused metrics at Startup Z

Jeff shared a compelling case study about a consumer internet search company we’ll call Startup Z, to illustrate the importance of focusing on a few key metrics:

• Site visitors per month
• Lead conversion rate
• Sell-through rate of leads
• Revenue per lead

The founder's initial assumptions were that he could reasonably achieve:

• 250,000 site visitors per month
• 10% lead conversion rate
• 100% sell-through rate
• $10 revenue per lead

These projections led to an estimated $3 million in annual lead revenue within three years. However, the actual results were starkly different:

• More site visitors than expected
• Only 5% lead conversion rate
• 60% sell-through rate
• $3 revenue per lead

This resulted in just $300,000 in lead revenue, supplemented by some ad revenue to reach $500,000 total. Several years later, the founder sold the company for the value of the invested capital, meaning investors got their money back but didn’t make a profit. 

In fairness, it’s hard to predict business outcomes when you’re just starting a company and turning your idea into an early product. But if the founding team had done more research early on, been more accurate in its projections, and rerouted once it realized its key metrics weren’t working out, it would have saved considerable time and money.

The key takeaway for CFOs: Focusing on a few critical metrics and validating your assumptions early can save significant time and resources. It's crucial to be realistic in your projections and constantly reassess your business model based on the actual data that’s coming in.

As a CFO, don't overlook the importance of usage metrics, especially for B2B companies. Jeff noted, "I'm surprised that for B2B companies how seldom usage is one of the key metrics. For consumers, it's quite frequent." 

Usage metrics are considered “input metrics,” or leading indicators, which inform how the business or product is performing with its customer, users, or channel partners. By tracking a few important input metrics, you’ll be able to find a relationship on how input metrics (which teams can control) go on to impact “output metrics,” or otherwise known as lagging indicators, which are a result of a series of systems and processes within an organization. 

Usage metrics can provide valuable insights into:

1. Product adoption
2. Feature utilization
3. Customer satisfaction
4. Churn risk

Alex shared a stark example: "We worked with a $3 billion market cap enterprise SaaS company that didn't measure product engagement, and when we ran that analysis it showed that 25% of all their paying users didn't log into the product over the last year."

As CFO, ensure you're tracking and analyzing usage data to:

• Identify at-risk customers and implement retention strategies.
• Inform product development decisions.
• Provide valuable insights to your sales and customer success teams.

3. Presenting metrics effectively to boards

As CFO, your ability to communicate complex financial data clearly and persuasively to your board is crucial. This section provides strategies for presenting metrics in a way that drives productive discussions and decision-making.

Jeff Epstein's favorite board slides

Jeff recommends starting your board deck with these two slides:

1. Top three to five priorities since the last board meeting, including: 
   • The priority
   • The metric or goal associated with it
   • A red/yellow/green grading system indicating progress
2. Three to five priorities for the next board meeting, by outlining: 
   • Continuing priorities from the previous period
   • New initiatives for the upcoming period
   • Associated metrics or goals for each priority

Jeff explained, "If these are the first two slides of a board deck, it focuses the board's attention on both what's important and how well things are going. And then describe the actions you're taking to mitigate the problems."

Best practices for metric presentation

1. Use a simple red/yellow/green system: This visual approach quickly communicates the status of key initiatives and areas needing attention.
2. Focus on the future, not just past performance: Jeff emphasized, "If the CEO only tells the board about decisions after the fact, there’s no opportunity for the board to consider alternatives, weigh the pros and cons, ask questions, suggest additional people to talk to, and influence the CEO’s thinking. If after several years the CEO has never changed his or her mind following a board discussion, the CEO should recruit a new board.”
3. Provide the takeaways upfront with metrics supporting: When you tell a joke, you save the punchline for the end. When you present to a board, tell the punchline at the beginning, using a complete sentence, to make your key point as clear as possible.  By explicitly stating the narrative around the numbers instead of just showing raw metrics and charts, you guide stakeholders to the most salient insights and prevent potential misinterpretation. Given the same set of raw data, different stakeholders can construct wildly divergent narratives based on their own biases or limited context, potentially leading to incorrect conclusions that can derail the decision-making processes.
   
4. Highlight key decisions under consideration, who is going to decide, and when: This allows the board to provide valuable input before decisions are finalized.
5. Present financial hypotheses alongside key operating metrics: This helps board members understand how current performance aligns with projections and strategy.
6. Provide context with brief departmental updates: Include high-level overviews of each department's performance and challenges.

4. Managing board relationships and meetings

Effective board management is a critical skill for CFOs. This section provides strategies for structuring board meetings, handling challenging dynamics, and fostering productive relationships with board members.

Structuring effective board meetings

1. Balance strategic and operational discussions: Jeff advised, "Effective boards spend two-thirds of their board time on decisions the CEO is considering but has not yet made, with one-third reporting on past performance and topics.”
2. Set a clear agenda: CEOs and boards are successful when they succeed at:
   1. Team
   2. Execution
   3. Strategy

For each of these, discuss:

• • Updates on top priorities
  • Key decisions under consideration
  • Financial performance and key metrics

Also, be sure to:

1. Pre-circulate materials: Send out board materials in advance, allowing members to review and come prepared with thoughtful questions and insights.
2. Allocate time wisely: Ensure you're spending the majority of the meeting on forward-looking discussions rather than reviewing past performance.
3. Encourage active participation: Create opportunities for board members to contribute their expertise and insights.

Navigating board dynamics

1. Conduct annual board evaluations: Regular assessments can help identify and address issues proactively.
2. Leverage a lead director or lead investor: This person can privately address issues with problematic board members.
3. Build trust through transparency: With the CFO suite at the helm of the organization’s business intelligence efforts, finance teams can build influence by reporting on key metrics and communicating relevant context to board members. 
4. Manage difficult board members: "High-quality companies and high-quality boards do annual board evaluations,” Jeff suggested. “The lead director, or a lead investor, should work with the CEO to have a private conversation with the problematic board member."
5. Build relationships outside of board meetings: Foster connections with board members between meetings to build trust and alignment.
6. Consider adding independent directors: As your company grows, independent directors can bring valuable outside perspective and expertise.

5. Leveraging the CFO role for strategic impact

Modern CFOs are key strategic partners in shaping company direction. This section explores how you can maximize your impact beyond traditional financial management.

The evolving role of the CFO

1. Be a strategic advisor: Position yourself as a key partner in shaping company strategy, not just a financial gatekeeper.
2. Drive data-informed decision making: Leverage your financial expertise and data insights to influence company direction and drive growth.
3. Balance short-term execution with long-term strategy: Help the company navigate immediate financial challenges while keeping an eye on long-term growth and sustainability.
4. Foster cross-functional collaboration: Work closely with other departments to ensure financial strategies align with operational realities and company goals.
5. Lead digital transformation: Champion the adoption of new technologies and data analytics tools to improve financial operations and decision-making.

Driving strategic impact

1. Translate complex data into actionable insights: Distill vast amounts of financial and operational data into clear, strategic recommendations for the executive team and board.
2. Proactively identify opportunities and risks: Use your financial acumen to spot potential challenges or growth opportunities before they become apparent to others.
3. Cultivate a forward-looking finance team: Build a team that not only excels at reporting past performance but can also provide valuable forecasting and strategic planning support.
4. Align financial strategy with company vision: Ensure that your financial plans and metrics support and drive the company's long-term goals and vision.
5. Be a change agent: Don't hesitate to challenge the status quo when you see opportunities for improvement or when current strategies aren't delivering desired results.

Key takeaways for CFOs

1. Focus on a core set of five to six KPIs that truly drive your business, evolving these metrics as your company grows.
2. Own the source of truth for company data and metrics, centralizing this responsibility within the finance function.
3. Build the “Financial Hypotheses” of the company, focusing on the key metrics which will determine success or failure.
4. Present metrics to your board effectively, using tools like red/yellow/green systems and focusing on forward-looking discussions.
5. Structure board meetings to maximize strategic input, spending the majority of time on future decisions rather than past performance.
6. Cultivate strong relationships with board members through regular communication and transparency.
7. Position yourself as a strategic partner in the C-suite, driving data-informed decision making across the organization.
8. Don't overlook the importance of usage metrics, especially for B2B companies.
9. Be proactive in sharing both good and bad news, building trust through transparency.
10. Continuously evolve your role, balancing traditional financial management with strategic leadership.
11. Foster a culture of continuous improvement within your finance team and the broader organization.

By mastering these best practices in metric management and board relations, CFOs can significantly enhance their impact and drive the company toward sustainable growth and success. Remember, the role is not just about reporting numbers, but about shaping the future of the organization through strategic financial leadership.