Building a 10x business

This week, I want to talk about an Operating Scorecard I was first exposed to when I enrolled in Ben Murray’s (aka the SaaS CFO) course at TheSaaSAcademy.com. (Something I highly recommend for any SaaS CEO and early-stage SaaS VP of Finance.)?

Why?

The world of SaaS Operating metrics often resembles the wild wild West. Definitions like CAC and Magic Number don’t have standard definitions, which can make the process of running your business and/or conducting due diligence a nightmare.?

This is where Ben’s course and SaaS Metrics Framework come into play. In the framework below, he’s done a great job of defining the metrics that matter most and providing a range of benchmarks from different sources (Open View, Insight Partners, and Benchmarkit’s Survey), which help you understand what best-in-class looks like.

Ben’s framework reminds me of the Periodic Table of Elements we all learned about in high school Chemistry. There is a logic for how the different elements are combined, and understanding the relationship within each column helps you to focus on specific value creation levers:?

• Growth
• Retention
• Gross Margin
• Profit/OPEX
• Efficiency

When running a SaaS company, there are hundreds of metrics you could track, but with a framework like Ben’s, you can stay focused on the right ones. And by converting this framework of key metrics into an operating scorecard, you can see at a glance what is and isn’t working in your business.?

Ben recommends that early-stage companies focus mostly on the far left “Growth” column. These are the metrics that matter most for a seed company. As you grow, however, you need to shift your focus to keeping customers, as captured in the “Retention” column. The next stage of growth usually necessitates tuning the business in terms of optimizing your Gross Margin and OPEX relative to other companies. The key metrics to track are in the “Margins” and Profit & OPEX” columns. Finally, as you start to build history with clients, scale your systems, and introduce more complexity into your business operations, you need to expand your focus to include the metrics in the “Efficiency” column.?

This framework makes it crystal clear what your company should be looking at during each stage of growth. However, putting these metrics on a scorecard, that takes into account your targets (from your annual plan) and the relative industry benchmarks isn’t something you’ll be able to do right out of the gate.

First, you need the right systems in place to track them. Then you need to optimize your processes and ensure those systems create a single source of truth for your business. Otherwise, you’re in for a world of confusion and extra work.

I learned this the hard way. During my time at Seismic, I helped lead two acquisitions, one of which leveraged SaaSOptics (which eventually became part of Maxio). Having SaaSOptics in place made the due diligence process relatively easy. The metrics were clearly defined and tracked automatically. More importantly, the MRR Schedule, Revenue Waterfall, and Customer Cohort Analysis were all based on auditable invoicing and billing data.

The due diligence for our second acquisition relied on spreadsheets and manual processes. The inconsistency inherent to systems heavily reliant on manual processes made the whole process take ten times longer, and this was for a company that was one tenth the size of the other one.

The clincher for us was Maxio’s Subscription Momentum report which helped us quickly aggregate data we needed to quickly add our “actuals” for a specific time period. Having a system like this is what makes the difference between smooth sailing during an acquisition and roadblocks which can put the whole project at risk.

Why does this all matter?

As CEOs of Venture or PE-backed companies, we are all trying to create value for shareholders. In a recent Expert Voices event we did in Atlanta, Ben walked through what it takes to be a 10X business and shared these two (anonymous) profiles of companies he has worked with:

Using this framework, you can quickly see that the second company is more likely to achieve a higher valuation based on its results compared to industry benchmarks.

To increase the value of any business, you have to manage all five categories by monitoring the 23 metrics on the scorecard. It sounds like a lot, but this type of visual representation creates a “Business Radar,” enabling you to see what is/isn’t working and better hone in on what needs to be addressed.?

At Maxio, we employ our scorecard in our Quarterly Business Reviews (QBRs) using a technique I call “management by exception.” While it’s tempting to focus on the winning (green) metrics, we spend the majority of our time talking about what’s trending yellow or red–the exceptions. As a leadership team, we add value by diving into the areas that aren’t tracking according to plan, doing root cause-type interventions, and ensuring mitigation plans are in place.

I also include this operating scorecard as the third slide in our board materials, right after an Exec Summary and P&L slides. This lets my CFO and me quickly talk about business operations at a high level. And it sets up a framework for discussing trends over time using YoY, QoQ, and MoM comparisons, which is extremely helpful context when evaluating the successes we want to double down on and the areas we need to address.?

Peter Drucker wrote, "Efficiency is doing things right; effectiveness is doing the right things." Ask yourself: Are you simply aggregating data, or are you focusing on interpreting the most relevant results??

Instead of getting lost in the sea of data, the key to success lies in quickly discerning and leveraging the right information. Ben’s SaaS Operating Framework is another one of those business hacks that allow you process an enormous amount of data quickly so that you can make timely, well-informed decisions in the moment.