Three SaaS CFOs share financial leadership advice for tough market environments

For the risk manager-in-chief, it’s always the right time to plan ahead. But how do you plan in an already uncertain macroeconomic environment––and what does it take to get every level of the organization on the same page about the path forward? 

“Part of the CFO's job is to be able to lead in any kind of environment, because that is the thing that's going to be unpredictable,” said Chris Garber, CFO of Guild. “And I think we're seeing over the last year or two just how true that is.”

Earlier this fall, Bessemer Operating Partner Jeff Epstein moderated a panel discussion with three SaaS CFOs––Chris Garber from Guild, Elena Gomez from Toast, and Dave Sherry from ServiceTitan––to talk about the State of SaaS Finance. 

For our Atlas readers, we’re sharing the highlights from this hour-long conversation, covering how leading finance professionals think about strategic planning, business metrics, artificial intelligence (AI), and IPO preparation tips in 2023 and beyond.

What makes a great CFO in a bull or bear market

The best CFOs make decisions based on empirical evidence and intellectual honesty, have risk management plans for any environment, and connect the dots between high-level strategy and on-the-ground reality.

“It is so important that you’re very connected with your CEO and also have the confidence to be the truth teller to them,” Elena said.

Over the past two years in particular, stakeholder management has become an especially paramount part of the CFO role, she added. Today’s finance leaders have to set expectations about the state of the business, sharing a reality check with the C-suite, employees, investors, and board members. 

To excel at this, it helps to have a deep knowledge of your company’s operations, Elena said. “You can make a decision in your seat as a CFO or CEO, but then really understand, what is the implication of that decision downstream? What are the risks, what are the opportunities? And in understanding that, I think it allows you to make better decisions.” For example, if a CFO decides to institute a hiring freeze to lower operating expenses, that decision may impact how you serve your customers, or might impact the sales team’s ability to hit its quotas or enter new markets because the business may need that headcount to achieve those goals.   

Dave agreed that being ahead of the curve on risk is particularly critical: “Our job is the risk manager-in-chief,” Dave said. It’s a truth that holds in any market environment, which is why he encourages CFOs to prioritize risk management even in bull markets where capital is so available. 

“It’s on CFOs to make sure the company always has a fully funded plan,” Dave added. “The truth is you can never be in a position where you put the company's life at risk.” CFOs ensure plans are feasible and reasonable, even if they are unpopular decisions. 

Chris stressed the importance of developing a close understanding of how different business functions operate. “Finance leaders need to build the maturity and capabilities of the business,” Chris said. “That not only means scaling the different functions in cost-effective ways, but also operating at different altitudes. CFOs earn their team’s trust when they connect data to reality on the ground in the business, to the decisions that we want to make at the company’s highest levels.” 

Financial planning is both an art and a science

Every CFO undergoes a company-wide planning process to create budgets that reflect strategic priorities and business realities.

As a primer, Chris recommends reading Jeff Epstein’s Goldilocks budget. “Just like Jeff says, it’s important to make sure your team has the right targets, and those should be aspirational when it comes to growth, even if a little bit over the horizon,” Chris said.

Being reasonably ambitious is also why Jeff recommends always budgeting an expense line for contingencies, to be prepared in the event of any negative surprises. Elena recommends this from her experience at Toast: “We like to do contingency planning in addition to scenario planning, for revenue and expenses,” she said. “It’s important to have a healthy debate around how much contingency the business would need based on different market backdrops.”

At Guild, Chris applies a good, better, best framework for scenario plans and goals, especially for quotas and revenue targets. 

“It’s important not to get over your skis,” Chris said. That means not setting such unrealistic goals where you could struggle to get back up and on course if the business doesn’t reach them.

Instead, every month or quarter, review the plan and assess how you’re doing against it and what course corrections you need to make along the way, Chris suggested.

“We use some of those more conservative scenarios to actually plan our cost and our resource goals,” Chris added. “And then when we start to run ahead against our plan on the growth side, we know we have some dry powder in the middle that then we can double down and maybe make some investments that we didn't want to green-light on day one.”

Elena also recommends that finance leaders “think like a chess player” during planning and budgeting cycles. “It’s important to have context outside your company: ‘What’s the competitive landscape? What are the chess moves that are going to happen around our company? If X company buys Y company, what might we do from an outside-in view?’” 

Finally, Dave stresses the importance of the budget shape: top-down with bottoms-up feedback.

“If you ask people what they can deliver, you’re going to get a worse budget than if you tell them what they need to deliver,” Dave said.

“Early in my career I started bottom-up, by asking the team what they could deliver,” he continued. “But that approach often results in people saying they can deliver very little and needing a lot of cost. When CFOs go back on that, departments often have an emotional attachment to what they anchored on the first time.”

Know your input and output metrics

Today’s finance leaders fixate on all business metrics, not just financial ones. In fact, in many cases non-financial metrics, such as usage and engagement rates, are leading indicators of net new and recurring revenue. 

If it has a dollar sign, it’s a lagging metric, meaning it’s an indicator of past performance, Chris said. Leading metrics––predictors of future business performance––are operational, not financial, he added.

To arrive at the right metrics, “anchor in strategy,” Chris said. “What’s the north star? What’s the performance we expect? Ask these questions, then work backwards to the pieces you need.”

And if you’re not sure you’re capable of measuring something, take that as a good sign, Chris added. “That’s actually great, because then you’ve uncovered a capability you want to build or something you want to uncover.”

Elena recommends not getting caught up with too many input metrics. When someone comes into a meeting with 20 metrics, it’s hard to know which is the most important, she explained. “The more focused you can get to the three to five needle-moving input metrics, the better,” she said. “Figure out the ones the executive team needs to focus on, and spend time on those.”

How finance leaders are leveraging AI

After ChatGPT took the world by storm, tech leaders in all functions are figuring out how to generate productivity gains from generative artificial intelligence (AI) models. Elena, Chris, and Dave share how they’re approaching the AI era from the CFO seat.

It helps to focus more on the problem than on AI as the starting point, Elena explained. “We try to approach the AI question from, ‘How can we serve our customers better?’” 

That means identifying and testing a few of the highest-impact use cases with customers––including leveraging AI within the product in ways the customer can’t see, but will make the product a better tool for customers.

Separately, Elena said her company is also evaluating ways to leverage AI to improve internal productivity, especially around how it serves its customers and builds out products. “We have an ‘AI Council’ looking at all the ideas, prioritizing which ones will have the highest impact for customers and employees,” she added. 

Chris noted that AI and machine learning (ML) are nothing new to the finance function. “We all work in high-growth companies,” said Chris. “At Guild, data-driven forecasting is table stakes. For instance, we build revenue forecasts in Python and use ML for complex customer models,” he added. “We also use AI to automate manual tasks, like accounting and in-product payments.”

IPO preparation advice from Toast CFO Elena Gomez

Looking back at her time as Toast’s CFO, Elena sometimes wishes she had joined the team earlier. 

“My first advice is give yourself more time,” Elena said. “I felt I joined Toast in the ninth inning with bases loaded, and instead I recommend CFOs try to join a new company in the fourth inning, so to speak.”

These are her four best practices for CFOs preparing a company for the IPO process:

1. Have a crisp narrative of the strategy. Know the answers to questions like, “What is our strategy and our vision? Do we have the addressable TAM?”
2. Build relationships with investors and the board. It helps to understand what investors and board directors want and expect out of an IPO, she added.
3. Calibrate the team to be ready to be public company leaders. That means making sure you have people on your team who have prior experience leading public companies.
4. Pick the right metrics. Oftentimes less is more, but you also don’t want to seem like you’re hiding something.

In finance leadership, communication is a technical skill

If there’s anything we took away from our discussion with Chris, Elena, and Dave, it’s that managing expectations and soliciting input from across the organization are vital ingredients for success as a CFO––especially through challenging times. The best finance leaders connect results and projections, the “what”, to the people involved at every level and the possible paths forward, the “who” and the “how.” Regular conversations with fellow C-level leaders, employees, investors, and board members help finance leaders align everyone on their vision and the road ahead, even in bad weather and limited visibility. 

Want to learn more about CFO best practices? Check out our SaaS Finance Course today.