SaaS CFOs Need to Be Operational Leaders

According to the folks at Oracle Netsuite, the duties of the chief financial officer (CFO) include “building a top-notch finance and accounting team, ensuring revenues and expenses stay in balance, overseeing FP&A (financial planning & analysis) functions, making recommendations on mergers and acquisitions, obtaining funding, working with department heads to analyze financial data and craft budgets, attesting to the accuracy of reports and consulting with boards of directors and the CEO on strategy.” While true, this definition fails to account for the operational nature of the CFO in a Software as a Service (SaaS) business. 

In a SaaS company, Sales and Marketing typically represent the organization’s most significant expense category, followed by Cost of Goods Sold (COGS). In their role, CFOs closely monitor and control these spending categories. Accordingly, many sales and marketing leaders think of Financial Planning & Analysis (FP&A) and the CFO as the land of “no.” Increases in spending are frequently denied, and even budgeted dollars are not released, thus the land of “no.” In reality, the CFO and FP&A team want to spend and make investments. The CFO knows better than anyone that SaaS businesses simply can’t save their way to a liquidity event. Nonetheless, making prudent investment decisions will challenge the CFO if they are not operationally oriented.

To be true business partners, SaaS CFOs need to understand the details of the Sales and Marketing functions to an intricate level, particularly demand generation processes and conversion points from the top–of–funnel (TOFU) to disposition (Closed Won/Lost). How long does converting a raw lead to an MQL, SQL, or qualified opportunity take? How does that vary by campaign or lead source? How much pipeline must be added? How clean is the existing pipeline? How much pipeline does a seller need to be successful? What is the ramp time for new sales capacity? What is the average deal size? What are the win rates for the sales team? Without a clear understanding of these and other metrics – supported by a clean and reliable dataset – it is almost impossible for a CFO to make sound investment decisions. Without a clean dataset upon which sales, marketing, and finance agree, investment requests are more likely to be denied by Finance leaders.

Operational understanding may be most important during the planning process. When targets are planned for future fiscal periods, the process must begin with Sales and Marketing. Though the CEO may provide a “top-down” set of goals, Sales and Marketing must work closely with the CFO to build a “bottom-up” model. These bottom-up commitments impact the needs of all other business functions. In just one example, sales projections determine the number of new customers the business will need to onboard and service, thus determining needed investments in Account Management and Professional Services. The CFO will need operational knowledge of how the bottom-up sales goals will be met before agreeing to fund the onboarding and support investments. 

Once complete, the bottom-up build will almost certainly show a delta between what has been asked (top-down) and what can be delivered without additional investments or changes to current operational behavior. The CFO must know and understand every funnel connection point to decide whether to rely upon operational improvements, added investment, or both to close the gap. Once the CFO makes their decision, they must be able to support that decision when speaking with the CEO and the Board. Once again, this requires a solid understanding of operational details.

Bottom line? SaaS CFOs must be financial and operational leaders intimate with the details of almost every Sales and Marketing process. Absent this, the CFO will never be able to support and challenge the go-to-market teams' investment requests properly, nor will she or he be able to confidently and accurately represent the future of the business to the CEO and Board.