Diving deep into B2B SaaS metrics with Paul Barnhurst, Founder of The FP&A Guy

Episode Description

In this episode of Diving Deep, Subscript's CEO, Sidharth, has an engaging conversation with Paul Barnhurst, Founder of The FP&A Guy.

Sidharth and Paul go deep into B2B SaaS metrics as they discuss:

• The specific characteristics CEOs really want to see in their CFOs
• The 4 key pillars of FP&A planning tools
• How FP&A professionals can become true partners to their businesses
• Top advice for FP&A teams preparing for 2023 planning
• When's the right time to say goodbye to Excel in the finance tech stack?
• And more!

Show Notes

Follow Sidharth: https://www.linkedin.com/in/sidharthkakkar/

Follow Paul: https://www.linkedin.com/in/thefpandaguy/

Follow Subscript: https://www.linkedin.com/company/subscript/

About Diving Deep with Subscript

Diving Deep with Subscript is a video series where we dive deep and explore SaaS metrics with leading investors, CEOs, and finance leaders.

Watch the entire series of Diving Deep with Subscript

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Episode Transcript

Sidharth Kakkar
The first question I have for you is around data. And it's sort of always been clear that it's important for FP&A folks to be comfortable working with data, but it feels like it's getting more and more important. And I'm curious how you think about that. Why is it more important? Why is it so critical? And do you agree that it's more critical than ever?

Paul Barnhurst
Yeah, that's a great question. So I think definitely data is more of a challenge for FP&A. I do think it's more important. You're seeing that need for data driven decisions, and sometimes it's almost overload. Right? You try to find that balance. It's not like just because you have the data doesn't mean you have to analyze it or that it's necessarily important. But I think a lot of the challenge is also coming from where it's being more important is it's becoming harder and harder to cleanse it, normalize it, and get those insights that you need. I mean, FP&A professionals studies show spend 40 to 50% of their time on non value add activities, with a large percentage of that being data prep. And I've experienced that in some of my jobs where we had multiple different billing systems and no master data and they weren't going to invest in it. So who ended up creating all that using Power Query and Excel and whatever tools they gave me to try to get to the data we needed. So we'd know, oh yeah, this is how much revenue we generate from this customer, across our businesses, things like that.

Paul Barnhurst
So I definitely think it's becoming more and more important and it's becoming more of a challenge. It's why you see so many platforms out there in this space, adding data management to try to integrate the different key systems that you need.

Sidharth Kakkar
Why do you think it's harder now?

Paul Barnhurst
You know, it's a good question. I think part of it is just the amount of data, the sheer volume is a challenge. I think there's also we've gone through this whole big data and data explosion. I think there's a much bigger focus on data driven decisions. Right. 20, 30 years ago, a lot of it was gut. Yeah. You looked at some data, you tried to use data, but now it's almost like, well, if we don't have the data, can we make the decision sometimes? So I think that's part of what drives it is just there's been such a push of a data driven culture that people are much more expecting to see the data before they make a decision and really understand it at a level that I don't think we have in the past.

Sidharth Kakkar
That's so interesting because you point out something very positive which is trying to make decisions more based on data. Which is kind of, I think, all of our aspirations at this point. And maybe that wasn't necessarily a thing that people thought about a few decades ago. But then there's this gap of the reality of actually being able to do it. Of actually having high quality stuff that you can put together. And I guess a lot of times there's not necessarily a willingness to invest in closing that gap. And if you were helping, let's say you're talking to a finance professional who's having that challenge, trying to pitch to their exact team, we really should invest in this or their board or whatever, how would you suggest to go make that pitch?

Paul Barnhurst
Yeah, so, I mean, I think first it depends on the company. How data driven are those leaders? Because you need to find out, how do you appeal to them, how do you make that emotional appeal to help them understand the value? So, one, do you have some examples historically where maybe FDA has done a ton of work and found some value that took a lot longer than it should have, and to show, look, here's how much we could’ve saved. Here's where all this benefit came from. Yeah, you got something out of it, but you don't realize my team spent a month on that and 150 hours when it should have taken three.

Sidharth Kakkar
Make the one side.

Paul Barnhurst
Yeah, I think a little bit of it is understanding your audience, right. Different CEOs are going to respond to different things, but also try to come with some facts to show how much time is spent, the savings, the benefit you can get by focusing on the value add on those relationships, versus wrangling data.

Sidharth Kakkar
Yeah, such a good point. And one thing that I think a lot about is that finance folks their job is becoming more and more data oriented. And what makes it so fascinating is that they've always been actually super data-oriented people. In my view. They're kind of programmers who program in Excel and data scientists who data science in Excel. But the one thing that's really interesting about FP&A  folks versus sort of pure data folks is FP&A folks actually really understand the mechanics of the business a little bit more. What can they do to lean more into that superpower that's beyond sort of just a pure data role of like really being true partners to the business?

Paul Barnhurst
Yeah, that's a great question. I think there's a couple of things. I think there's two or three things that really help there. And the first is just taking the time to learn the business. That's something in every role I've had is I've really tried to pride myself on being an expert, so much so that people would reach out to me and ask how things work. And that's because I took the time. I talked to people, hey, explain your business. I do the reading because I realized, okay, the numbers are the numbers, and no matter what the business is, I can look at those and understand them. But if I don't understand what the business is going through, how do I really partner? How do I have those conversations around strategy or operations or things beyond, hey, your COGS is 67% and we'd like it to be 63%. What are you going to do? Well, if you knew my business, you'd know why it's 67% and going to go up to 70% next year. That type of thing. And I think the second thing is being strategic, really understanding strategy so you can be at that seat at the table, especially with the strategic planning and not just like I said, focus on the numbers.

Paul Barnhurst
So I think those are two things that FP&A really needs to do to make sure they're driving that value and being the business partner versus the numbers guy.

Sidharth Kakkar
I can imagine some of our audience listening to this going, wait, am I strategic? How would you suggest they figure out the answer to that question and what they might want to change if they should?

Paul Barnhurst
Yeah, that's a great question. I think there's a couple of things. One first question to ask yourself is, do you know your company's strategy? Every company has a strategy. If you're paying no attention to it and you don't know what it is, you're probably not being strategic. So that's the first. 2nd, are you thinking critically about things? It's not just strategy, but are you really looking at it through a business lens than just a financial lens? And then third is, do you know some kind of framework if you need to analyze it? And I'll give an example that really helped me. So I had a professor for my advanced finance class in my MBA program that every write up and every exercise we had to do always started with a Porter's Five Forces Analysis. He's like, you had to analyze the entire market and the industry before you built me a model, before you got into the numbers and how you were thinking about it. And that really helped frame that idea of, I need to understand the big picture versus just jumping in and coming up with a model.

Sidharth Kakkar
Yeah. So when it comes to improving gross margin, it's not like, what can you make that number go down? It's more like, can we make better decisions that will help move this in the right direction, maybe change suppliers, whatever.

Paul Barnhurst
Yeah. Like, okay, our cloud hosting. All right, we're doing it in a private cloud right now. Does it make sense to go public? What's the difference between Google or Amazon? What are our other options? Those type of things, right?

Sidharth Kakkar
Yeah. That's such a great point. What is, like, a great strategic CFO do for a company? How do they transform it?

Paul Barnhurst
That's a great question. I think the first thing is they serve as the right hand man of the CEO. What you're seeing is what I saw as interesting as I saw a study the other day that 33% of new CFOs are coming from an FP&A background, and 33% of all hires are first time CFOs, and the majority of those have an FP&A background. They're data driven and they're viewed as business partners. Right. If you go back 20 years ago, 30 years ago, most of them came from the controller background. It was really, hey, make sure the financial statements are correct. Make sure no mistake is in the financials, and we don't have to restate them. Make sure we have our funding, take care of the money, and make sure it's all right. But today, they're really viewed as a partner, kind of a right hand man that helps guide the business. They can guide it through a financial lens, which means they can have those hard conversations of, look, the economy has changed, your runway is x, we need a strategy to adjust that. Where others are just seeing the growth rate and going, well, hey, but we're growing at 200%.

Paul Barnhurst
Yes, but the markets have dried up, and we already have this much cash that we've raised, and do you want to lose this much equity? Kind of being able to really be that partner that can have those tough conversations and bring the economics. I really like there was an article, Jack Alexander, he wrote a book on FP&A. And from 1978 when he started his career he found an article of what a CEO wants in a CFO, and there were four things that were listed. First was credibility in the numbers. Pretty straightforward. The one I really liked was the second one was trying to remember how it was listed. Dispassionate, fact-based analysis. So basically, take out all the emotion and just tell me what's going on. And then it was strategic partner, I believe, and the fourth one was around culture.

Sidharth Kakkar
Yeah.

Paul Barnhurst
And I thought that was really good. It was dispassionate hardheaded analysis, I think was the term that was used.

Sidharth Kakkar
I like that a lot. I'm curious, you talk a little bit about markets and especially funding markets, and I think a lot of companies have found themselves in this situation where a drop in multiples has left them sort of wondering what it takes to go from their last round to their next round. When multiples are consistent or going up, everything is great, but when multiples go down, things are a lot harder. And I'm curious what sort of conversations you've had with folks around that and how you think about sort of like, what would you do?

Paul Barnhurst
Yeah, I haven't had to have a lot of conversations around that since I've been kind of doing my own business. And it's been a little more training, not a lot of consulting recently, but I've definitely talked to people about it.

Sidharth Kakkar
Yeah.

Paul Barnhurst
And I think the first thing you have to do is you have to look at and say, okay, what's the reality of our situation? What's our runway? Where do we need to get to to realistically raise the next round and then figure out what's the best path there? Are there savings we have to do, are we going to have to lay off or reduce hiring or delay it? Are we going to have to reduce spend in certain areas? Because right, as you mentioned, high tide rises, all boats, and sometimes you get a little loose with the money and the spending. Well, everything's going great. The revenue is 200%, and it's all revenue, and you forget the expense side. And now it's like, hey, I want growth, but I want it profitable or more profitable than it was before.

Sidharth Kakkar
Yeah, that's a great point. When it comes to strategic finance and being a strategic sort of advisor to the business, one of the things I think a lot about is connecting subscription metrics to that, because if you're not trying to be strategic, you kind of technically don't need them. You just need your three sort of statements. And those are not financial, those are not subscription metrics, and you kind of just need a controller. So how do you think about both strategic finance from the lens or metrics from the lens of strategy? How do the metrics play into sort of analyzing and advising a strategy, especially when it comes to SaaS metrics like the non GAAP one?

Paul Barnhurst
Yeah, no, I mean, definitely you need to understand those top line metrics and other metrics as well. But when I think of revenue wanting to understand, okay, what's the average salesperson doing, what's kind of your pull-through weight, what's your lead, what is it costing you for each dollar you're getting? What's the quota rate you're paying at and does it make sense? I can remember having some tough conversations where we dug into some things and some of the rates made no sense. We're barely making any money on this deal, and we're paying two people full commission. Like, why? And having those tough conversations and saying we need to revise the plans, or sometimes saying, no, we can't do that. That doesn't make sense. Strategically. That's one example. Other areas I remember we did a real deep dive on churn, on customer churn because we were in a situation where we had a product that got delayed. Really. The launch went really poorly, and so we had some pretty high churn and trying to figure out how to manage that and going through and digging through that and really discussing with the business, okay, where should our strategy be?

Paul Barnhurst
Should we focus on these groups? This group? What do we need to do to turn this around? And having those metrics really helps because we dug into them. You find different things about different cohorts. Like, we found okay, these ones where we have this type of relationship, we have a much lower rate. What can we do to increase those types of customers so they're more likely to stay with us?

Sidharth Kakkar
Yeah. When it comes to trying to figure some of those metrics out, where do you find that teams have the most trouble and where do they stumble? That's part one. I have part two, but I'll hold it.

Paul Barnhurst
Yeah, no, it's a great question, and I think so I was talking to I don't know if you know who Ray Rike is, but he runs RevOps Squared, so he does benchmarking for SaaS. His website has about 7,000 companies. And we were discussing and one of the statistics that showed is 70% of companies aren't regularly tracking their metrics. And I think the biggest challenge is it's often hard, it's not easy to always get the numbers, and operations and finance and marketing may all be calculating them differently. I think we've all seen that before. “Well I have the CAC as this”. And finance is like no, you need to add these costs into it that you didn't know about all your travel costs or whatever it might be. And so no, it's really this. So I think a lot of times not having that one source of truth, not having a place where they can go that everybody can have that same answer, and often having to pull it out of a CRM that's messy. It's very customizable. We've all seen the Salesforce system that never quite gives you the report in the format you think it's going to.

Sidharth Kakkar
Yeah.

Paul Barnhurst
And so it's just hard sometimes. And so other things overcome it and it kind of gets put by the, well, I don't need to see it this month, I can look at it next month type of thing.

Sidharth Kakkar
Yeah, I have a view on why the CRM doesn't work for metrics. And I'm really curious to hear your take on it because I feel like you probably have a much more refined and sophisticated view. So my view is the CRM isn't really built for time series data. It's more about what does the Opportunity pipeline look like right now and what's already closed, and not about what is the revenue last month and the month before that, and who are the customers who were customers three months ago but weren't customers two months ago. The time series element is entirely missing. That's just not built for that. So that's my view on why it doesn't work for financial metrics. Because finance is a time series thing. It's like a month-by-month. That's how your general ledger works. I'm curious what you think of it.

Paul Barnhurst
I think that's a very good point. I hadn't thought of it necessarily in that way, but I would agree with you. I think that time series is a big part of it, and it's why it's often trying to use the billing data in combination with elements from the CRM data. Because often the CRM may have data points stored in it that's not stored in the billing system. But I would always try to prefer to run it off the billing data. You do run into some challenges of normalizing it, like hey, if there's product discounts, billing screwed something up or whatever it might be. But I've generally found that's the more accurate numbers.

Sidharth Kakkar
I couldn’t agree more. We find this often with the folks we work with where the CRM might know things like the actual terms, the start and end of the contract. Sometimes the billing doesn't have line items on it, but the CRM does have line items. Sometimes the CRM has metadata on customers, like what industry they're part of, and the billing system knows nothing about the customers. It's just an ID. So you kind of often need both to actually be joined to get anywhere with it.

Paul Barnhurst
Agreed. And that's why you've seen CRM. They went out and bought steel Brick, which was a billing engine. They have their financial force. They've tried to meet some of that need. I think they've done it for some companies. You don't see it widespread use, so obviously they haven't perfectly figured it out or more companies would use what they have. But it's also why the CPQ and getting that right is so important, because that really feeds the billing. And if you nail that, it really opens up the data. Because I've seen the pain of having that all wrong and it just makes analyzing things tough.

Sidharth Kakkar
I've been the cause of having the data all wrong, so I am familiar with that challenge.

Paul Barnhurst
Yes. I've told the CRM to make a few changes and one time because I wanted to fix some things and it screwed up everybody. The MRI was wrong for the entire company. And I was like, you guys didn't test this. You just deployed it. And I'm like, you do realize all these numbers are wrong, and I can't pay commissions until you fix this.

Sidharth Kakkar
Right. You wrote a really insightful article recently about the four pillars of FCA tools. Can you get our audience up to speed on what the four pillars are?

Paul Barnhurst
Yeah, I'd love to. So there are two different ways to think about this. Someone brought another way to think about it. I referred to them as pillars. So an FP and a planning tool. Most companies today use excel. 70% are using Excel for their planning. But planning tools are cropping up all the time. I mean, there's been, in the last couple of years, 60 different tools probably have come up. And so when you think about a planning tool, I like to think of it as, like I said, four pillars. And it's almost like a pyramid, because the first ones are most important. They're not all equal pillars, but you have the data management side. So you got to have a data model. You got to have connectors integration, right? At a minimum, a planning tool integrates with the ERP. That's just baseline. If you don't have that, you're not a planning tool. Most of them today, especially what I call third generation, which are tools, have cropped up in the last few years, have CRM natively built in. They have the HR system, and then some may even have the data warehouse. Some may connect to Snowflake, some may connect to the billing system, especially if they're a SaaS-specific tool, they'll often bring in the billing for deferred revenue and other metrics like that.

Paul Barnhurst
And so that's data management. You have to think about that model, right? How many dimensions are you going to allow? How many attributes? How are you going to handle ad hoc data that people want? And so that's really almost a foundation of the base, because if you get the data model wrong, the rest of it isn't going to give you a lot of value.

Sidharth Kakkar
Yeah, that makes total sense.

Paul Barnhurst
So that's the first pillar. The second is the modeling. And I think this is the area they've had the hardest time getting right, because you're trying to bring structure in a database, but still give the flexibility of Excel. Excel is so flexible because it's not a database. You have unstructured data, and as soon as you have structure, you have trade offs. It's just the nature of it. Getting that calculation engine right, I think is an area where a lot of tools kind of struggle. How do we build the spreadsheet, how much flexibility you give, how many templates do we build in? Do we just try to use Excel as a calculation engine, which some tools have done, and just put structure around it? Do we use Google sheets as our calculation engine? Do we create our own syntax, low code? And so that's the second area. And that's critical. Because if you can't budget, if you can't plan, they can't meet your basic needs. You're just going to go out to Excel and do it, because you know Excel will allow you to add that line even though you may be up till 2:00 in the morning finishing it.

Paul Barnhurst
You CAC add that line and get it done where you're like, okay, it's just not here. And then I'll just load it back in in the morning. I think almost anyone who's worked in FP&A has had some experience like that. So that's the second piece. The third part is dashboard and reporting board, decks, management reports, variance analysis, flux, all those standard reports that FP&A has to do. How do you think about that? How do you think about a dashboard? How much flexibility do you give the customer? Can the tool meet your needs? And then the last one, which I think is pretty simple in the overall tool, is how do you think about workflow and collaboration? Can I add notes? How easy is it to integrate with Slack, with teams, with my different communication channels?

Sidharth Kakkar
Yeah, I have questions on many of those, but I'll actually start at the end first.

Paul Barnhurst
Sure.

Sidharth Kakkar
When it comes to workflow and collaboration, what are the most critical parts of the finance workflow? When it comes to working with other teams, where should teams be most thoughtful about where they're communicating? And what are some gotchas to watch out for when things go wrong?

Paul Barnhurst
Yeah, that's a great question. So I would say historically, most companies have said for an FP&A tool, we're not going to involve the business. It's a finance tool. We're going to manage that with templates and load it all ourselves. What you're seeing with many of these new tools, they're saying no. The whole idea is strategic finance partnering. You need the tools to have access to the data and get in there. So it's really important if you want that to work, if you really want them to go in and add their own head count and see their own numbers, really be part of the tool, then you got to have the right workflow so it can route to everybody in the business, can go through the approvals, you can only show them what they need to see. How are you going to partition it off? Because the last thing you want to do is give somebody the salary of their boss because you gave them the wrong list and that type of thing. So that's the first thing in the workflow. And the second is just the finance and that whole approval chain, making sure it routes through all that, and it can manage those type of things, and that you can collaborate the whole way through.

Paul Barnhurst
So Bill can say, look, I added these five heads. Here's the time I put. But the reality is, if we need to slide them a couple of months because I know you're looking for savings. That's fine. We could start them as late as this day or whatever the note might be, or hey, if we need to take out some savings, I'd prioritize it this way.

Sidharth Kakkar
Yeah.

Paul Barnhurst
So take out this conference first. We'll skip that one if we have to. Those types of things.

Sidharth Kakkar
When it comes to headcount planning, I found that's often the most intense and contentious part of some of the collaboration in finance. And I'm curious, what have you seen work really well? What is, in your view, ideal?

Paul Barnhurst
I don't know that I've seen anything work ideal. It is the most contentious and hardest. I think one thing we did that I really liked at a company, and not so much around budget, but just forecast and approving hiring, is we told every business, look, we're not going to approve hiring until you can show us a capacity model. Just because you lost somebody does not mean they need to be backfilled. Show me that you need that person. So go find what your key metrics are and build a model. And we got really good where they knew I wasn't going to approve the hire until they could demonstrate that it was needed. Particularly on the expense side, revenue was a little different. You look at different metrics, but especially our operations or call center, things like that, we really cracked down and said, give us a model. We're not approving it until you can demonstrate. And there were times it was really tough conversations. “I'd like to bring so and so back”, especially around COVID, because we furloughed some people and did different things. And I'm like I'd love to bring them back too. I get the human element of this, but the numbers aren't here.

Paul Barnhurst
I can't put this in front of the CFO because I know he won't approve it.

Sidharth Kakkar
Yeah.

Paul Barnhurst
So you can come back to me when you can clearly demonstrate it's needed.

Sidharth Kakkar
Yeah. I am assuming, obviously, an Excel model.

Paul Barnhurst
Yes, it was an Excel model I have seen. I tried to build one, I was unsuccessful to get it in TM one, but I had built a very robust one with Excel and Power Query and integrated all of it with the data. But it was not the way I wanted to do it.

Sidharth Kakkar
Amazing. You were like a full on software engineer all into yourself, basically.

Paul Barnhurst
It feels like that sometimes. I don't do VBA, but plenty of DAX learning, some DAX from BI, learning Power query. And I joked one time because I built so many processes and so many data models and I transferred to someone, they finally brought in somebody and gave mass access QL to put it all in the database. And a new python. I go, Here you go, here's my janky process. It works, but it's really janky now. You go do it the way it should have been done to start with. And he just laughed. He's like, “you actually got all this done in Excel? I'm impressed”. Yeah, no, it is amazing what people do in Excel. And I wouldn't consider myself there's those guys that can do a lot more than I can. Like, I look at some of the experts out there and I'm just like, you did what in Excel?

Sidharth Kakkar
It can be pretty amazing. One of the other pillars you mentioned was around sort of data management and integration. And you mentioned before that finance has often lagged other departments in that. Especially when you think about departments like marketing, where everything has to be instrumented just right to get the data management, because you can't spend money without knowing how it's going to work. Right. So some departments have been really far ahead, whereas finance has sometimes been a little further behind. And I'm curious why you think that is and how should people change that at their companies? Like, change that culture?

Paul Barnhurst
Yeah, I would say there's probably three reasons for it. First, finance for the longest time was viewed as a back office. So there wasn't as much appetite to an invest. Right. Where are you going to invest? On the revenue side or in the back office? You're only investing when it's regulatory or it's required, like getting ready to go public.

Sidharth Kakkar
Right.

Paul Barnhurst
Making sure you meet those things that aren't going to get you in trouble.

Sidharth Kakkar
Right.

Paul Barnhurst
You're not looking at, I think historically, it wasn't really looked at as an investment that would give a return in and of itself. So I think that's one thing.

Sidharth Kakkar
Cost would be minimized.
Paul Barnhurst
Exactly. The second is just finance: you're going to have to pry Excel out of our cold dead hands right. There's this over-dependency on Excel and “I'll just figure it all out in Excel”.

Sidharth Kakkar
Yeah.

Paul Barnhurst
And the third is, I think that's a challenge, is finance needs data from a lot of different areas. It's not just the financial metrics. Finance is analyzing a lot of different things. And now you're starting to see with these data driven CFOs, a lot of times the data and analytics is now sitting in Finance. They're owning that.

Sidharth Kakkar
I'm surprised at how often that's been the case.

Paul Barnhurst
Yeah. My last company, we brought in a new CFO. He had come from, actually, Anaplan. And when he came in, one of the first things he did was take the data and analytics team and put it back under him.

Sidharth Kakkar
Yeah, I mean, it's to your point about like you made it a little bit ago, which is a lot of times you have all these teams each with their own number, like everyone's calculating their own CAC. And when you don't, like as an organizational principle, if you don't have a single place that blesses the numbers, then that's exactly what you're going to end up with. And Frank Bien, the former CEO of Looker, called those data brawls, like, where people get into brawls over what the right number is. I feel like that's like the ideal wording for this.

Paul Barnhurst
I like that term. I hadn't heard that one, but I love that. The data brawls. That works.

Sidharth Kakkar
Very cool. Thinking about planning part of this. So we're in the Fall of 2022, which means that 2023 planning is on everyone's mind right now. Some companies in the throes of it, some companies are dreading it. It's about to come up. Some companies are going to do it at the last minute. And I'm curious what your advice is to folks who are going through the planning process. What do you think? Like modern Planning 2022 Edition should be like?

Paul Barnhurst
Yeah. So I'll give a few things on this. The first thing I'd say is it's critical you involve the business. There used to be a time where it's kind of siloed and you did the finance plan, you did the operational plan, and then all someone's like, oh, they don't hang together. And the business is like, I don't recognize that number. So the first thing is it's just critical you communicate and make sure everybody's on the same page.

Sidharth Kakkar
Yeah.

Paul Barnhurst
The second is more around what's needed. And this isn't something you may solve for 2023, but budget in general. I saw FP&A Trends, which is one of the big organizations out there. They do an annual survey and their 2022 survey, it was really interesting. They found, I want to say, about a 12% decrease in satisfaction in budgets. Not surprising with COVID, it went from like 51% to 39%. But what they found is companies that had driver-based models had six basis points higher satisfaction in their budget. First is really knowing the drivers and using them. Not overcomplicating, not creating something where everything is a driver, but really understanding those key metrics that drive your business. The second thing they found that increased the overall satisfaction from CFO's of the forecast, the budget of the business was having a cloud-based tool. So they found companies that actually had a planning tool felt they had a better budget. And the third one was using AI. Those that use AI for some level of planning, 61% compared to 39% of the general population. So I think we're seeing more and more of that need. An AI cloud based tool.

Paul Barnhurst
It makes scenario planning much easier. We all know building a bunch of scenarios in Excel is painful. Yeah, it's not well designed for that. You can do it, but it's just not easy. And so I think having the right tools to be able to quickly sensitize your numbers, run different scenarios gives you a lot more confidence and then bringing in some external factors with AI and tools like that. And so if a company doesn't have those today, they're not going to get that in place for 2023 budget.

Sidharth Kakkar
Right.

Paul Barnhurst
But I think that's where it's going. And I would say for this year, it's the partnering. It's doing the scenario planning. Make sure you really think about inflation and you have strategy and you have the conversations with the business of “We need a scenario”. If this is long term, we know it's not transitory at this point. We just don't know how long and how bad it's going to be. Right?

Sidharth Kakkar
Yeah. I'm super curious and no worries if you don't know the answer, but I'm curious what they looked at as far as AI in this context.

Paul Barnhurst
So I am not exactly sure. I think they looked at a little bit of predictive analytics. I think it was a little more open ended question, so people could have interpreted it differently.

Sidharth Kakkar
Got it.

Paul Barnhurst
But I didn't see the actual survey, so I'm not completely sure. I just saw the summary of it. The report.

Sidharth Kakkar
Yeah. As a CS person who studied a bit of machine learning in college, I've realized more recently that AI can mean anything from division to neural networks to God knows what else. Apparently.

Paul Barnhurst
Yeah, it's kind of like the term data analyst, data scientist. Ask ten people and get eleven answers.

Sidharth Kakkar
Right. Right. Very cool. A lot of folks, especially as they think about 2023 and looking at some of the potential scenarios, anyone who isn't planning for a more sort of turbulent 2023 than at least a 2021 is kind of missing out on what's going on in the world. So I'm curious, like there's a lot more focus on efficiency as a result of that, and especially in some of the scenarios that people are generating when it comes to focusing on efficiency. Any general advice on where to look first?

Paul Barnhurst
Well, I mean, I think a good thing is if you're in an industry where there's good metrics that you're comparable is how do you benchmark? Right. If there's good numbers on, say you're a Series B company with roughly this growth rate and you can get your hands on some data, especially some efficiency KPI metrics and things like that. Like what's my pull-through rate? Maybe on the sales side, what's my R&D as a percentage of revenue? My COGS? Really dig into those and see where those numbers may be out of line. And then you need to know based on your strategy, is that strategic, is there a good reason for that? Like maybe we spend more on R&D because we're not as much sales lead, we're a little more product led. Okay, so that makes sense. But if not, then it's understanding why and how do I correct it. So I think it's just really going through and taking that financial lens to all the different areas of the business. Looking at those metrics and starting with your key metrics and saying, are we efficient? Are these numbers where they should be?

Paul Barnhurst
And if they're not, what's the strategy to get them where they need to be?

Sidharth Kakkar
Yeah, that's a good point. Cool. One sort of big, very overarching question I have here is we talked a lot about Excel, we talked a lot about tooling, and as you mentioned, finance folks, you're going to have to pry Excel out of our cold dead hands. But where do you think, clearly Excel is really good at some things, but really bad at other things. And how does the modern finance professional think about leveraging the powers of Excel, but also taking the things where it's not as good and supplementing it with other tools to make sure it all kind of comes together?

Paul Barnhurst
Yeah, that's a great question. You're definitely seeing a little bit of a change there. Like people are realizing, okay, we need BI tools, whether that's Tableau, Power BI, Looker, list goes on and on, whoever. But we need to bring those in and we need to understand them to a certain extent. We may have someone in IT who can do the development, but we need to understand it well enough to have those conversations to bridge that gap at a minimum. Sometimes we may even be doing it, depending on how it's set up, understanding a little bit of SQL and how to pull data. When it comes to using Excel the ideal scenario, and I say most companies aren't there, is you should have ideally if you're big enough, and scale, if you're really small, Excel is fine. For my business, I use Excel. There's no point in getting a planning tool. But if you're a 100 million dollar, billion and a half business, Excel is going to have a lot of pain points. So it really should be for edge cases in your tech stack. Maybe there's an M&A activity where you're dealing with data that's not in any of your systems.

Paul Barnhurst
You're probably going to do that in Excel. You need to do some kind of quick analysis. It's a new product. You're probably going to start that in Excel. But when you're doing your core planning, your core reporting, you'll be able to use your tech stack, your BI tools, your finance tools, sometimes your CRM. That's how I like to think about it. Obviously it doesn't always work that way, but I think that's kind of where it should be going. And you'll see a little bit more of some use of Python and different things, but that's always challenging because most finance professionals don't know it. And if you use a bunch of it and then you leave, what happens if the next person doesn't have those skills.

Sidharth Kakkar
Also your Python code base is probably not in Git. There's almost definitely no tests associated with it. So you're really not following any modern software development practice.

Paul Barnhurst
Kind of like when we program in Excel for most of us.

Sidharth Kakkar
Like no tests, no variable names. As a programmer, that hurts my soul. So another question I have related to that, though, is there's this like point at which you go from doing all your sort of planning and modeling in Excel to needing a financial tool. What is usually, in your experience, the first pain point that gets painful enough that you decide, let's switch?

Paul Barnhurst
Yeah. I think the biggest you know, there's a couple version control. If you go on LinkedIn, you look at the finance space right now and look at the posts, you see people putting out these memes that show: “Budget, Version 12, really final, dated 7/12/2023”, and then you have five more after that. Really final.

Sidharth Kakkar
Yeah. Stick your initials in there. Someone else sticks their initials after you.

Paul Barnhurst
Exactly. And you have this long. Okay, which one is the last one? So I think the first thing is version control when you can't manage it. The second is when you're linking like 50 files together, you know you have a problem, which we've all seen. It where one link breaks, the whole model breaks. The other is when you get to the point where you really can't collaborate and you're spending more time in Excel than you are with the business. And what that point is going to be is different for every business. But I think those are some of the key areas where you really see that frustration boil over. I worked with the guy that they were doing a one-and-a-half billion dollar business out of Excel, and he left. And there are other reasons he left. He said one of them is I was just done dealing with it. He's just tired of a headache because it was so painful to do the budget process.

Sidharth Kakkar
Yeah, that's no fun at all. In any job, if you don't give people the tools that help them feel productive at it, they're going to leave.

Paul Barnhurst
Yeah. It's just a matter of time.

Sidharth Kakkar
Yeah, those are the questions I had. I feel like we covered a lot and I learned a lot as expected. So I'm super grateful. Any final thoughts for our audience? Mostly, like, series B, series C company finance folks.

Paul Barnhurst
Yeah. I think the biggest thing that I would say is, remember, you're in a growth environment and you need to step back from just being that conservative, viewed as “no” guy in finance and be willing to take some risks. If the business has really come to you with something and they're asking for approval and they're strategic risk, maybe small risks, be willing to say yes. Make sure you work with the business. And when you say no, give them a reason. Really be that partner. Don't just be the numbers guy.

Sidharth Kakkar
I guess that's the difference in being strategic and helping see the bigger picture versus being maniacally focused on one thing without seeing, like just having blinders on. Right?

Paul Barnhurst
Exactly. I was reading, it was this article that they were saying, you know, kind of stereotyping different businesses. And the one was, you're dealing with finance when they're hounding you about the bagels you had at the breakfast party for the last three months. That you spent too much money.

Sidharth Kakkar
That's how you know you're not seeing the big picture, when you're wondering about bagels. Thanks so much, Paul. Really appreciate this.

Paul Barnhurst
Of course. My pleasure. Enjoyed chatting with you. It's been fun.