Driving Growth – Something New to Think About
Marcus Wagner, CEO & Founder @ AcctTwo
Ascent Conference 2019
[00:00:03] My name is Marcus Wagner and I’m the CEO and founder of a company called ActTwo, and you’ll learn a little bit about what we do through the course of my presentation. But if you’d like to learn more, we’re one of the exhibitors. If you go into the exhibiter hall, we’re just on the right hand side as you walk in. And since we started late, I might truncate the presentation. We might not have time for questions. So let’s start with a show of hands or volunteers. I’ve got a question to ask you. Just raise your hand or shout out the answers. What do you think some of the greatest enablers for growth of your business are?
[00:00:36] Just shout them out. Alcohol. Wow. All right. That helps when you prepare the board presentation, right. What are some enablers? What are things that propel your business forward? What do you say, partners? Capital. Referrals. How about this side of the room, you guys are quiet. The press, OK, great, thanks for those answers. What about some of the greatest impediments to growth, maybe speaking from firsthand experience? Any impediments that you see?
[00:01:14] Talent churn, it’s good one. Compliance. Sales cycle churn.
[00:01:24] You don’t want money going out the back door as it’s coming in the front door, right? So so those answers probably didn’t surprise you and they didn’t surprise me either. So today, I want to spend some time getting you to start thinking about something that you may not have thought about before as you think about growth and those things that might be able to drive growth through your organization or potentially impeded, depending on what decisions you make. So this comes from experience of me and my company working with over a thousand high growth companies, many of them in tech, ready? So first of all, this session could just as easily have been called survive to thrive, because in order for companies to thrive and grow, startups need to be able to survive. And we all know that most startups don’t survive. So what is the key to survival? It turns out that overcoming financial challenges is one of the keys to survival. Thirty eight percent of startups that failed, according to a study by Hacker Noon, failed because of financial challenges, and less than 46 percent of seed tech companies actually make it through there, around. So my goal today is to help you go back one more slide for me.
[00:02:47] One more, that one, thank you.
[00:02:50] My goal today is to give you a playbook so that you’re in a better position to tackle your financial challenges with minimal, minimal effort, managing your cash, securing funding and scaling your operations to support rapid growth. And I’m probably going to skip a couple of slides here in order to to move forward. Quickly, let’s skip those. There you go. So what I’m going to do today is talk to you about three keys to survival and growth, and I’m going to give you three warnings about what will happen if you don’t put these into place. And the first key to survival is having a playbook.
[00:03:30] So you all know that great coaches have a great playbook. How many of you would say that you have a playbook for your business? Raise your hand if you have a playbook. Not too many hands are going up, so those of you who who raise your hands, is it written down? It is good, good, is it is it understood by the whole organization?
[00:03:58] So a little bit of shrugging, but hopefully it’s understood, is it practiced right? Are you actually practicing the playbook that you put in place now? In football, a playbook is generally broken down into offense, defense and special teams in business. The playbook contains all the pieces and parts of your go to strategy for getting things done. Accenture defines a playbook as a process, a process workflows standard operating procedures and cultural values that shape a consistent response or the play.
[00:04:37] Next slide. So what does your playbook include?
[00:04:44] Let’s just build this slide and take a look at what some of these things are, and for those of you who don’t have a playbook, the more honest ones of you in the room.
[00:04:53] What needs to be included?
[00:04:57] Does this list look good to you? Does this have everything on it that should be included in your playbook?
[00:05:03] See anything missing?
[00:05:09] OK, so if you do have a playbook, it’s likely informal. And for me, this is evident from having worked with hundreds of tech CEOs and founders, but more importantly, as a founder myself. When I started my business eight years ago, which is now about a 25 million dollar revenue company, the first thing I did was I hired the type of people that I thought had the talent to help me build a company. And in the early days, we had a pretty good idea. We thought we had a good idea of what we were going to do and how we were going to do it. But what we found was it wasn’t documented very well. And again, going back to Accenture, the playbook is process workflows, standard operating procedures and a set of cultural values that shape a consistent response or play at Act two. Today, we’re documenting things in this way. And I have to tell you that the lack of this playbook has ended up constraining our growth recently. But we also neglected to include something that is incredibly important to have in your playbook. And that is accounting. Believe it or not, we didn’t have an accounting playbook. Now, let me clarify, I’m just the CEO of a company that delivers the future of finance and accounting to high growth companies. So you’d think we would have had a playbook in place. We implement accounting systems. We deliver managed accounting services to high growth companies. So this is not a shameless plug. Maybe it’s more of a therapy session for me. But more importantly, I’m here to help you avoid making the same mistakes that I made. OK, next slide, so here’s my first warning, if you don’t have a playbook in place, you will lose control.
[00:06:57] Now, it’s not a matter of if you lose control, it’s just a question of when you’ll lose control.
[00:07:06] So my second key to survival and growth is having the right finance and accounting infrastructure in place early. OK, what most companies do is they start out in Excel or they start out in quick books because it’s cheap and it works when you’re small. But when you outgrow it, it becomes painful and then it becomes very expensive.
[00:07:32] If it done right and and put in place early, there are platforms that you can put in place that will scale down to where your needs are as a start up, but will allow you to grow to 100 million, 200 million, three hundred million dollar organization. So how many of you would want to be in this position? I love this photo. I don’t know where it came from. While I haven’t met many of you in the room, I’ve met some of you. My gut tells me that many of you are headed towards this outcome for your finance and accounting. What do I mean by that? So your foundation in accounting infrastructure is critical to scaling to go from a startup to a scale up to an enterprise requires more than just having a great product with great marketing, a great sales and great customer support. You can see that you need the infrastructure to handle more volume, more complexity, more reporting and analysis and more controls and oversight as you scale up. Let me give you an analogy. When you’re building an apartment or a hospital or a hotel designed to house hundreds of people, would you as the owner build the foundation after all the people are in the building? Of course you would. You put the foundation in place first. So scaling without the proper infrastructure can result in several things. Number one, it can result in more and more manual effort that’s needed to enter customers in the system. Get your invoices out the door, extract data across numerous subscription contracts to pull out your key staff metrics. Seema Chern customer lifetime value deferred revenue. The second thing that happens when you scale without the proper infrastructure is that you’re constantly looking in the rearview mirror instead of the front windshield because you’re always playing catch up. When you have systems that aren’t integrated, you’re constantly inputting data numerous times. The third thing that you’ll find happens when you don’t have the appropriate infrastructure as you’re scaling is it becomes more and more difficult to report to investors, lenders, et cetera. And that results in a lack of confidence in the integrity of the numbers. Especially when everything’s being calculated in spreadsheets. If you don’t believe it, just ask your auditors and speaking of auditors scaling without the proper infrastructure results in your audit costs and ultimately your due diligence costs going way out of control, because the amount of checking that has to happen, scaling without the appropriate infrastructure can also result in surprise. Hits to your cash can result in unexpected restatements of revenue because it wasn’t booked correctly or it wasn’t invoiced correctly. And last but not least, scaling without the appropriate infrastructure can result in damage to your enterprise value and spending. I’m estimating probably 10 times more trying to fix that tire on the motorcycle while it’s driving instead of putting it in place ahead of time. So my second warning to you is not having the proper infrastructure in place early means you’ll have to start over later. You’ll spend a ton of money. Give you an example. We’ve had clients because the new revenue recognition rules that are in the SAS space spend over 500000 dollars with us to rip and replace and implement a new system. I don’t want that to be you and you’ll end up leaking enterprise value. So growth requires you’re thinking about accounting to change. So here are a few things I want you to think about, accounting is no longer simply an expense. It’s an investment in the future of your organization. Accounting is no longer about history. But it’s about the future being able to predict the future. Accounting is no longer where the buck stops, but where the growth starts. And it’s all about the data and the analytics that you’re going to be able to get from your accounting system. Don’t relegate your CFO and your and your accounting department to the back office. You need a strong CFO to help propel you forward by not slowing you down, first of all. And number two, by arming you with all the information that you need in order to grow. So if you’re skeptical about this, you remember the top 10 rolls of cloud computing that Bessemer made famous back in 2012, well, three of those top 10 are metrics based. Number five, play Moneyball in the cloud and check the scoreboard with the five C’s of cloud finance Sayama Cash Flow CCAC, CLTV and Chern, I’m assuming everybody has seen that topline top 10 list. Number six is build the engine, the revenue engine and only agrest aggressively invest in revenue if you have a short cash payback period. Well that all needs to be calculated by someone. And number 10 and best sellers list is cash is still the king cloud, a nomics requires that you focus on cash flow above operating profits. Which leads me to my third and final key to survival and growth, which is having a real time dashboard digital board book that serves up those key metrics to you that you can pull up on your phone or your iPad or at home anywhere you are. Just think about it. Most of us, when we prepare for board meetings, it’s a mad scramble to pull all that data out of Salesforce or out of books or out of Excel and pull it all together. And then you run out of time and you hope and pray that it’s right when it gets to the board. Right. So this allows you to focus on what matters, which is customers, products and sales. And again, my third warning is without that real time visibility, you’ll lose control of the business. What’s the impact of extended DSO, inaccurate cash forecasting, busted bank covenants? An unexpected cash squeeze or worst case scenario, a botched capital raise, especially when you really need the money, that’s the loss of control. So back to Bill Walsh, the words that I want you to think about as you read this quote again, how can I be sure I’m making decisions based on the best information, i.e., thorough across the organization. In other words, extensive. And that is actually current or immediate. So, again, my first advice to you is to create an accounting playbook, and we had act to believe your accounting playbook should consist of these five key areas, active planning, which means not only having a plan or budget in place, but constantly monitoring that against actuals. Considering your best and worst case scenarios and actually making the appropriate adjustments and making changes on the fly, sound transaction management means not having to worry about processing orders, invoices, payables, journal entries and banker checks, but also, even more importantly, being able to scale those volumes if you’re as successful as you want to be. Right. We want a whole lot of revenue. We want a whole lot of transactions by responsible cash management. I mean, really understanding your cash position on a daily basis. I actually look, when I’m not watching the Astros game, I look at my phone and check my cash position. Am I working capital every day, but also having accurate projections of what your cash will be and making sure that you don’t get out over your skis by timely and reporting and analytics. I mean, having the information you need when you need it from anywhere, any time, and not just a static report, but being able to drill down into that data and get questions answered quickly or perform what if analysis. And then finally by funding an exit readiness, I mean, having your books in order with all the detail that’s required for the due diligence that’s going to be done on you by either a potential lender, a potential investor, or maybe even a potential buyer. The second rule for growth is having that supporting infrastructure in place and doing that early. Don’t be afraid to invest early. It will pay dividends in the future and allow you to scale without ever having to think about it again. And by the way, this type of infrastructure that I’m talking about doesn’t have to be built. It can be bought. So it doesn’t really matter how you get there. Just get there. Just get it in place early. And then third, keep a constant pulse on the health of your business through the form of a of a digital dashboard. So hopefully I’ve given you some new things to think about that go beyond just having a great product and great sales team, a great go to market strategy, and that you’ll think about your accounting and finance playbook so that No. One, accounting and finance is not an impediment to growth. And number two, it’s actually an enabler of growth. I think we’re out of time for questions. So if you have any questions, come visit me or one of my colleagues at the act to Booth in the Exhibiter Hall. Thanks for listening.
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