Protect the Hustle | A SaaS Podcast
00:27:13 · Doug Pepper
[00:27:13] S2: Yeah, it is uncertain. And I don't think anybody really has a crystal ball. And so in some sense you have to plan further out as a result of that. I did hear an interesting quote that some companies are subscribing to, which is survive to thrive until 2025. And that's because, you know, we don't know when things are going to get better, so plan for the worst. Make sure you have runway until 2025 where it's likely the environment and fundraising environment will be more attractive. You know, how are we planning? We have to plan multiple years out. And the reason is because you can't measure your spend for next year without knowing what your plan is for the following year. Because it's the following year plan that determines your hiring for next year. And so we do have to do a multiple year forward looking plan to accurately assess the hiring and the spend for the current year. And so we really do look at multiple year plans. Obviously, year two and year three plans are less certain, but we have to have a model to measure against. And we're really encouraging our companies to think of this as not a one year event, but something that could be challenging for a couple of years and then hope to be surprised and make adjustments. On that point, you know, it used to be for a while there, it was like a one year plan, set it and forget it. And the truth is the plans now are much, much more adjustable and flexible, and we're looking at these plans quarterly. And so the idea is to set a plan that's conservative, that gets us out that two year runway to 2025. But then if the environment changes or we're seeing real performance and demand above those expectations, well, then we can unlock investments and say, Okay, we did great in the first half of next year. Let's unlock that new product line in the back half or unlock that geographic expansion. So I think companies are much more nimble now around their planning as well.
00:29:20 · Andrew Davies
[00:29:20] S1: So we see top down planning, bottom up planning. What's a healthy planning process from your perspective when there's that natural sense of tension between a CFO and then the different department leaders who have got to manage their own, you know, budget and their own OpEx?
00:29:35 · Doug Pepper
[00:29:35] S2: It's amazing. And this has come up in a number of the board meetings as well, I've seen this, maybe for the first time, is that they'll show a timeline of their budget process, almost like a product development pipeline or timeline. It is a very real process where they're gathering, of course, the input of all their team leaders and within the company, what do they need, what budget do they have, what desires do they have in terms of hiring and otherwise, and gathering all those inputs. Then, you know, talking as a board to get our input and what some of the constraints are and are our positions in terms of what they need in terms of timeline and runway. And it's very iterative and it takes time. I mean, I'm seeing some of these where it's multiple months of budgeting and planning and maybe then coming to the team, the board with an initial version. Usually, you know, the team leaders can't get everything they want, so there's a cycle of going back and saying, Hey, you need to cut that by 20%. Gathering that new data and iterating on it. And it's a very collaborative process between CEO, CFO, all the general managers within a company, and the board and investors to kind of come together on what the right plan going forward. But it's a tremendous process putting a lot of time and stress on the CFO and and the finance team. But, generally, I'm seeing people do a great job with it. At the beginning,
00:31:01 · Andrew Davies
[00:31:01] S1: you mentioned about, you know, the line and drawing the line forwards, and perhaps we'd drawn a line that was going from historics that are no longer true. As humans, you know, we're very good at just drawing that straight line forwards up into the right. Is it just about being more conservative now? Are there any other kind of rules of thumbs that you're you're using or your companies are using in order to establish where that line should now go?
00:31:22 · Doug Pepper
[00:31:22] S2: I think we do have a lot of data and precedents. You know, we've been lucky to invest in a lot of the very best companies that have gone public over the last few years and before that many of the Cloud 100 companies that are now, you know, 100,000,000 ARR and beyond. And so one of the things that we can do is look at history and look at those very best companies and how they grew outside of the pandemic. And that's what we've done. We've captured that kind of data for many, many years. And so one of the things that we're able to do and we're not the only one there's other firms with this data is share with our portfolio what the historical not averages because our companies want to be you know, top quartile, top decile companies, but to look at those top companies from the past that are now public and show them in more normal times between 20 and 50,000,000 ARR, between 50 and 100,000,000 ARR. Here's how those companies grew. This is what their spend in sales and marketing or R and D or G and A looked like to drive that growth. And so there are roadmaps that give us some sense for how companies like these at that scale should grow in more normal times. And so we have a whole data science team that has really pulled that data together. They're busier than they've ever been before because people are really hungry for that historical data on what growth rates look like. So we don't really have to make it. Now, every category is different. Every company is different. You know, we look at bottoms up SaaS versus top down enterprise and break the data based on the type of company, the type of selling model, to try to give each current company, you know, the best sense for how they should model their business. That's what we're doing a lot these days is trying to tap into that historical data. And I think it's it's maybe the best road map that we have.
00:33:18 · Andrew Davies, Andrew Davies
[00:33:18] S0: And now Doug answers the question, if this is really the new normal. [00:33:26] S1: So let's finish this off with two final questions. For all of those SaaS founders and executives that are listening here who aren't in your portfolio, let's give them the benefit of of what they get in the boardrooms where you're part. What would your advice be for their companies? What are the top few things you'd love them to focus on or do as if you're an investor or board member in their businesses as they look into 2023 and how they make sure they can survive to thrive in 2025?