SaaS Brief

Top Qualities to Look For in Your SaaS Startup’s First CFO

Bringing on your first CFO can be extremely exciting, and a strong hire can give your business a significant strategic edge. But to make an effective hiring choice, you need to know what to look out for in a great CFO.

The times have changed, and whereas CFOs used to be viewed (respectfully, of course) mostly as “number-crunchers”, they’re now seen in a much more comprehensive light.

A Mckinsey report on the role of modern CFOs put it this way: “...it’s important that CFOs step up to play a broader role, one that includes modeling of desired mind-sets and behaviors in transforming the finance function itself…”

So, with this in mind, what should you be looking for in your SaaS startup’s first CFO hire?

Prioritize Data-Driven Candidates

Without a doubt, one of the most desirable qualities in a potential CFO is a deep understanding of SaaS analytics and the importance of leveraging data to achieve your company’s goals.

The SaaS environment is known for being fiercely competitive. This means that corporate decisions must be made based on hard data in order to be effective.

Specifically, be on the lookout for a CFO who understands and prioritizes Key Performance Indicators, or KPIs. KPIs are valuable benchmarks that allow you to gauge whether your company is heading in the right direction and making effective decisions.

There are many KPIs that can make a difference to your company’s long-term success, but here are a few of the main ones your CFO should keep an eye on:

  • Cash Flow – SaaS companies at a breakeven point or cash positive are in a much better position to grow. While a -50 percent margin is acceptable at the start-up stage, breakeven or better is a strong predictor of future success.
  • Committed Annual Recurring Revenue (CARR) – This KPI accurately measures the health of a SaaS organization and shows its monthly annual revenue cadence by recognizing signed deals and netting out known or projected churn. Growth in CARR of 100% or better is a solid indication of future performance.
  • Customer Lifetime Value (CLTV) – As a predictive KPI, increases or decreases in customer lifetime value can show where the organization is headed on future return. If the customer lifetime value is decreasing, the company will need to add more customers at a higher rate to achieve its results. A healthy SaaS provider will achieve a 3x on CLTV while best in class achieve a 5x.  
  • Cash Conversion – The cash conversion score is a calculation of committed-annual-recurring-revenue to capital-raised-to-date (debt and equity) minus the cash on the balance sheet. This measures the return on invested capital and shows how well these dollars convert into recurring revenue. Best-in-class SaaS organizations post a cash conversion score of 1X or better.
  • Net Promoter Score (NPS) – This KPI measures customer loyalty from a range of -100 to +100 based on asking customers how likely they are to recommend the organization’s software. A low NPS indicates the company is at a crossroads and must either make some transformational changes or accept future losses and business decay.

Deliberately tracking your SaaS analytics can give you a much better chance of improving them over time.

Look for Someone with Revenue Growth Success Stories

Although direct profit-and-loss accountability often falls to the CEO, CFOs are increasingly being expected to play a more active role in developing and integrating revenue strategies. Applicants should be able to provide concrete examples of how their financial leadership directly impacted revenue growth for their past employers.

Were they able to improve employees’ productivity by updating them on best practices and tools to use? Maybe they reviewed their company’s pricing tactics and and implemented improvements. Or they could even have used their financial credentials to help secure corporate funding from banks.

Remember: CFOs should be looked at as strategically accountable members of your board, not just objective financial reporters. The ideal candidate should have measurable and proven results to share with you.

A Good CFO Realizes that Customer Satisfaction is Vital

For any SaaS company, avoiding subscription cancellations should be a top priority. The percentage of total users who end up cancelling across a specified time span is known as a company’s “churn rate”. Since so much of SaaS finance revolves around recurring and subscription billing, your CFO should aim to keep churn as low as possible.

While you’re conducting interviews, be on the lookout for individuals who’ve created effective “anti-churn” strategies for other SaaS startups. These could include anything that entices customers to stay engaged with your product.

A few well-known approaches are:

  • Prioritizing Top Customers – Identify and cater specifically to your best, most loyal subscribers
  • Using Direct Feedback – Leverage customer reviews or other direct subscriber feedback to make specific improvements
  • Keeping In Touch – By regularly reaching out to your customers on social media, email, and other platforms, you’re more likely to stay top-of-mind. But make sure all communication is relevant, and don’t overdo it.
  • Asking Why Customers Leave – A certain amount of churn is unavoidable for any SaaS product. So, when it does occur, try to get insight on what’s causing it and view it as a chance to improve.

 Any CFO worth their salt will have a natural aversion to customer churn, and a toolbox of different strategies to correct it when it happens.

They’ll Be Able to Improve Your CAC & CLTV

Your CAC is a measure of how much it costs your company to persuade a new user to sign up. It’s a very important metric to watch because spending too much on customer acquisition ties up resources you could use more effectively elsewhere.

Lowering your CAC should be a critical objective of any CFO you hire. Specifically, they’ll analyze the cost and effectiveness of different acquisition methods:

  • Your Marketing Team – Does it seem like there are processes in your marketing department that could be streamlined, or resources that could be used more effectively?
  • Advertising Expenses – Whether you’re running social ads, email campaigns or anything else, it’s critical for a CFO to do a cost-benefit analysis of your advertising strategies.
  • Your Sales Team – As with your marketing team, your CFO should look at the day-to-day effectiveness of your sales professionals. Are resources being maximized across the department?

 In conjunction with lowering your CAC, your CFO should also devise plans to raise your customer lifetime value, or CLTV. Your CLTV is a measurement of how much revenue an individual subscriber contributes to your company across the total length of their subscription history.

By working on these two metrics simultaneously, your CFO can help you make more revenue from your customers while converting them more cheaply.

Great CFOs Know How Important Financial Automation Is

Lastly, make sure you hire a CFO who understands the impact that financial automation can make on a SaaS startup’s trajectory.

In the hyper-competitive startup environment, CFOs who leverage automation accomplish more in less time, and free up precious resources for high-value strategies and tasks.

 

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