Ep. 198 - How to Make Your SaaS Company More Fundable

Speaker A: Foreign. Welcome to the SaaS Backwards podcast where we reverse engineer the success of fast growing SaaS firms and explore strategies CMOs and CEOs are using to drive their businesses forward. Welcome to SaaS Backwards, the podcast that helps SaaS and AI CEOs and go to market teams grow and scale. I'm your your host, Jason Myers, the Chief Revenue officer of Austin Lawrence Group, where we help B2B SaaS companies drive revenue and build toward their next liquidity event. Now, many SaaS founders I know are pretty brilliant builders and tenacious sellers, but when it comes to the financial engine underneath their business, they're not exactly students of the business model. They may have revenue coming in through paddle or charge B and a, uh, bookkeeper that's keeping the lights on, but they have no real visibility into whether their company is healthy, scalable or fund. Today's guest has spent more than 25 years helping B2B SaaS companies learn and do what they need to be fundable. Anthony Nitsos is the founder of SaaS Gurus, a fractional CFO firm that handles everything from strategic finance and FP&A to bookkeeping, payroll and HR admin. His firm has contributed to some significant exits, including Duo securities acquisition by Cisco for 2.35 billion and Lam Soft's exit to COPPA for 1.5 billion. He works with precede through series B companies and his whole mission is to turn your financial operations into a strategic asset rather than a liability that you discover too late. Anthony, welcome to SaaS Backwards.

Speaker B: Thanks, Jason. Appreciate it.

Speaker A: Most SaaS founders that I talk to feel like their business is flying fine. Money's coming in, the team is growing, customers seem happy. But you use an analogy that I really like. It's like flying a plane plane at night with no instruments. Can you put some meat on that? What are the most common founder blind spots?

Speaker B: Probably the most common blind spot is that you kind of encapsulated, oh, I have more money at the end of the month than I did at the beginning. Customers are happy, so things must be fine. And they could very well be fine. The point that I like to make those, they could be finer and it could be that there's a lot going on in your finances that you're unaware of that could be wasting you cash or wasting money. Or you could have a red warning light flashing off that you're not paying attention attention to. Um, and the one that I see most often is in this metric for SaaS that we call net retained revenue or NRR, where we usually find issues there is that they're either not paying attention to it or they're not measuring it correctly. And they're finding out that their net retained revenue isn't where it needs to be for them to be either fundable or acquirable. And that number is becoming more and more important over time because sales growth is great. As long as your ARR is going upward and to the right, everybody's happy. But are you keeping the customers that you have and are you expanding the customers that you have, especially if you're in the B2B space? Or are you losing them out the door almost as fast as you're bringing them in? But that's being masked by the fact that your ARR is growing. You're just not paying attention to the fact that you're either losing logos or you're losing contraction or churn.

Speaker A: And in the prep session I think we talked about finance versus accounting. They're definitely not the same thing, but I think a lot of SaaS founders think that they have a CFO when they actually just have a book caper with an upgraded title. Can you draw that line clearly for us? What does the strategic finance function actually do that accounting doesn't? And why does the distinction matter more as a company scales?

Speaker B: Accounting is factual based. It's taking a look at what happened and putting it in the right accounts or the right buckets or the right accruals. But it's backward looking in terms of. It's always looking at the history of what has happened and making sure that things are accounted for appropriately. The issue that you run into is that finance is the forward looking part. It's the part that says okay, based on that history and other things that we need to know, where is the cash flow actually going to go? Where is the sales growth actually going to go? Where is the cost to acquire customers actually going to go? So finance by its nature is predictive. It's looking into the future saying here's what I anticipate is going to happen so that we can take action to either enhance that or prevent a disaster or whatever it happens to be. Accounting by its nature is always looking backwards at what happened. And that's like if, if you're driving your car through the rear view mirror, if you're driving a car, you need to be looking in the rearview mirror to make sure somebody's not coming up behind you about to smack you in the butt. But you really need to be paying attention to what's going on through your windshield and what's coming. And that's the difference between finance, which is windshield oriented, and accounting, which is rear view mirror oriented. They're not the same thing. And people who start off in accounting and like to call themselves, oh yeah, I'm a CFO now. In fact, what they are is accountants. And so you can tell the difference because the accountants who call themselves CFOs are going to be spending a lot of time on analyzing what's happened and looking backwards. They're not going to be so strong on predicting the future. In the end, that strategic function that a, uh, CEO or a founder and executive company needs is somebody who's sitting there saying, yeah, watch out for this, or here's where you're headed on this trend. Are you aware of that? Is there something we can do to correct it? We literally just had a meeting with an executive team not more than a few minutes ago and we're taking a look at the actual results and we're looking at the budget and how the two balance against each other. And we're going to be making corrections to that budget going forward because we missed some things or the team made some wrong assumptions or hey, that cost of cloud AI is driving through the ceiling on our AI. What the heck's going on? Is there something we can do to optimize that? So there is a serious need for proper accounting, but it is, like I said, it's limited in that it's looking at what's happened and it's not telling you what's going to happen. And that's what finance does.

Speaker A: You told me that, uh, you can assess the health of almost any SaaS company with just five metrics. ARR growth, net revenue retention, cash flow, customer acquisition cost and gross margin. Can you walk us through each one of those briefly and more importantly, tell us where the founders are typically getting these wrong?

Speaker B: Let's start with ARR. Annualized Recurring revenue. ARR is like the top line valuation metric. When you take a look at how companies are being valued, especially if they're venture backed and they've been running net operating losses, the biggest valuation driver for that company is going to be the ARR. Where I've seen it go wrong is in two ways. One, there's not somebody who's actually properly measuring it. So there are do's and don'ts when it comes to measuring ARR. And you either need a spreadsheet or you need purpose built software to do it properly. And there are certain software that do it well and certain softwares that don't but there's a methodology to that and you need to make sure that you're doing it right. We came into a client a couple years ago, the CEO was tracking it on a spreadsheet, said, yeah, our ARR is at a million two. We come in there, we do it right. And we said, nope, actually Your ARR is 675k. That's a pretty big miss. And what was happening is he wasn't taking into consideration the fact that they were selling a lot of contracts with discounts and he was ignoring the discounts. And I said, you can't ignore the discounts. The discounts are part of your recurring revenue. If you it's not showing up as cash, it's not showing up as revenue, then you can't just look the other way and say, oh my ARR is a million one. And yeah, I've got 400k worth of discounts, but those don't matter. Yeah they do. So that's kind of an egg on the face type of thing. In that case, another one is where they actually lump services or transaction revenue in with recurring revenue. And this is an argument and a debate that I have a lot with founders is like, yeah, well we' doing the, we've got the base subscription and then we charge them $150 for each one of these transactions. Like that's not recurring revenue, that's transaction based revenue and it needs to be accounted for separately. It's not the same thing and it's not valued the same way. It doesn't get the same multiple. Another one is lumping just plain services. Like, oh yeah, we have a $15,000 contract and a $5,000 implementation fee. So that's $20,000 recurring revenue. No it isn't, it's just 15,000 and it's 5,000. So those kind of subtleties in terms of being able to parse the contract and say, oh no, this is true ARR and this isn't. And it's important because when you go for a round, either an investment round or you go for an exit, there are going to be some really sharp people on the other side who are going to be pulling your numbers apart and they're going to be taking a look and say, okay, is this company for real? Are these numbers that you're telling me real and are they not? And if they're not and you haven't been accounting for them separately, now all of a sudden all of your numbers come into question, everything that you told them now becomes doubtful and they Start discounting the valuation immediately. So if you really want to get the most valuation out of your company on an exit or the greatest valuation, when you're going for an investment round, having your numbers rock solid, bulletproof is one of the ways to make sure that you maximize that valuation. Because then they're not questioning whether the numbers you've given them are correct. They're going to take them at face value after they've tested and said, okay, yep, your ARR really is this. So that's one of the reasons though why that is such an important metric to get right. It's to show the growth, yes, but it's also to show it as real growth, not as something that's inflated because you've either missed the discount or you're adding something in there that you shouldn't. Nrr, that's the next one that's like I said, becoming way more important nowadays because it comes back to this thing called quality of earnings, which is, you know, are your customers sticking around? Is your product sticky? Right. Is it a one way product? In other words, people buy it and then they don't leave the investors. What they're looking for is they're looking for the relia viability of that revenue stream. Is it real, is it going to continue? Is it going to go away? And what they're trying to do in order to determine that is to take a look at your logo churn, which is how many actual companies come and go. So that's based on just the number of companies. And then they're looking at that net retained revenue, which is, let's say you start off at the beginning of January with a hundred thousand of ARR or a million of ARR, I should say. What happened to that group of companies 12 months later? Some of them left, some of them expanded, some of them contracted. And what you're trying to look at is you're trying to look at the net impact of that. So you want a net retained revenue of about 115 to 120%, which means that group that you started with, they even after the contractions and the expansions is all settled, it ended up at a million two or a million three. That shows a really good strong retention. It shows really good reliability of revenue and it's investable. What I found in a lot of cases is that a company is so focused on ARR growth they're forgetting getting to go back and take a look at oh yeah, what is our logo churn? Run the numbers. It's 40%. That's not a good result. That's something that was hidden because you lost a bunch of customers. You didn't realize that you had been losing them. You got, like. You get big wins, and then you forget all the little guys that are leaving. But those are a signal. Those are a market signal. Either you sold to the wrong people and they're leaving, or your product's not as sticky as you think it is, and that big customer that you just landed is going to leave you in 12 months, just like the other ones did. You can't understand that and figure out what. What is really going on unless you have somebody presenting you numbers to say here, this is what's going on. So that gets back to that. You're flying your plane at night without any instruments. You could be 10,000ft off the ground with a full tank of fuel and running just fine. And there's no. There are no storms coming. There's no turbulence. But without any instrumentation, you don't know. You're just flying blind and trusting to luck. And maybe it'll continue. Maybe it's been fine. The problem is that when something does go wrong, it's usually getting to the point where it's a little too late to do anything to correct it, and then you're in a problem. I think the next number you said was cash flow. I go back to my original accounting professor. His name was Wally. It's a great guy. Former vice president, I think it was one of those firms that does like cosmetics and whatnot. Really smart guy, though. He said, you know what? You can't spend net income. You can only spend cash. And that stuck with me for 30 years. Because in SaaS, you can account for your revenue, but unless you're actually getting paid for it and you have that cash to run on, you could be great. Like, hey, uh, yeah, we had a really profitable April. Yeah. You also have a million and a half in accounts receivable that you haven't collected, of which 60% is past due. And you're not paying your vendors because you don't have enough cash coming in the door. None of that's going to show up in your P and L. None of that. That's all what we call balance sheet stuff. Well, that balance sheet stuff is what gets you into trouble. Now, if your numbers, your P and L numbers don't look good, that's in your face, you can figure that out. But if you've got an imbalance in your balance sheet, you have a cash flow problem. You need to address that. Because without cash, your company stops. And so we spend a lot of time. I spend probably at least half, if not three quarters of my personal time with my clients predicting and talking about their cash fl. Why? Because it's so front and center. Hey, I make it front and center with them. But the smart ones, the wise ones already figured that out, and they said, you know what? I need to have a cash forecast. Nobody can give me a really reliable cash forecast. Can you help put one together? Yeah, we've been doing this in our sleep for 20 years. We can figure that out for you. There isn't a cash flow situation we can't predict. You need the right input. You need a good spreadsheet to put it in, and you need some know how, but it's certainly doable. And so that shouldn't be a deterrent to like, uh, oh, nobody can figure that out. It's rocket science. No, yeah, it's rocket science, but that's what rocket scientists are for, is to figure those things out so you can get it done. But without that cash forecast, I don't know how you can run any business without a cash forecast. I really don't. Maybe when you're a single person shop and it's your only source of revenue and it's just you and maybe one other person, but as soon as you start to get anything even bigger than that, especially if you're venture backed, you need to know when your Runway is going to end, because you need to start fundraising months and months in advance of that end. Um, you don't want to be fundraising at the last minute because that puts you in a really weak position negotiating wise, and you could also run out of of cash and your company just stops. But you need to know what your cash Runway is. If you're venture backed and if you're a bootstrap, you want to know how much cash flow you're making above and beyond what you need to keep the lights on, because that's your working capital for reinvesting in the business if you need to grow. Right. Can we afford the new salesperson? Well, the cash forecast is going to tell you that. Can we invest in more R and D and add this new feature to our product? Well, cash flow is going to tell you that because that's how you're going to pay your people. It's peripheral to net income. It's much more front and center to do the cash forecast. The next thing I think you listed on there another one that I can tell if the company is healthy or not is CAC cost to acquire customer. That really speaks to how efficient your marketing and sales team is. If your marketing and sales team is spending way too much money to get one or two clients, that's not sustainable. Right. You need to be able to have a CAC that is really efficient. Now, you can do that on a numbers basis, which is. Okay, we spent $100,000 in marketing and sales in last quarter, and this quarter we got four new custom. All right, so that's a $25,000 CAC. That's pretty easy. What's your average contract value? Oh, it's 5,000. Okay, so you spent $25,000 to get a $5,000 contract. That's a problem. Right? That's not sustainable. You spend $25,000 to get $100,000 contract. That is sustainable. So you need to understand how that CAC works, which is, how much is it costing me to get a customer, and what's that customer worth? We call that the lifetime value of the customer. And so it's cac. And it's also this thing called LTV to cac, but it starts with the cac. You. It's costing you to get a new customer. And there's another measure that goes along with that is how much, uh, is it costing you to get a new dollar of ARR? So you can look at that CAC two different ways, and you need to look at both of them, and that's pretty much it. Uh, gross margin, the last one, probably, in my mind, one of the biggest ones, SaaS companies are noted for having high gross margin. That's the whole point. Right? These are cash engines. They're supposed to be cash engines. If your gross margin is an 85 or 80% or above, you're in trouble. Where I see this failing most of the time is, especially in the day and age of AI, but most particularly in SaaS in particular, is not measuring what your gross margin is correctly. People have all sorts of crazy ideas about what goes into cost of goods sold and what doesn't. Well, they're not crazy ideas. There is an industry standard, and there's a standard way of doing this, and you need to have an expert in the room telling you that this is what belongs into cogs and what isn't. I had somebody argue with me that customer success does not belong into cogs. I said that's ludicrous. Well, they're out there helping the customer. Okay, so how does that not make it cogs? Well, they're doing expansion. Okay, maybe a portion of their effort is helping to upsell, but not all of it. So it really comes down to sitting them down and saying this is what belongs in cogs and this is what doesn't. And when we go in and we call it the re engineering of the accounting system because when we first engage with a client, they never have a chart of accounts that's correct. We have to go in there and fix that. Because without that we can't figure out cac, we can't figure out gross margin, we can't do the cash forecast, we can't figure out what your R and D spend is, and we can't do any of the stuff that's needed in order for to do proper projections. So it starts with getting that. I call it the financial core. It's like yoga. It's like anything. If you've ever done yoga or pilates, they always talk about having a strong core. Your accounting system is the equivalent of your core for your company. You have to make that thing rock solid, which means that your numbers are rock solid. Otherwise you have no visibility. You don't have the instrumentation you need to fly the airplane. So getting that gross margin correct is critical cycle. So those are the big five. I can take a look at your sales growth if you're doing your NRR correctly. Take a look at that. Your cost to acquire, your customers, your cash flow, your working capital generation ability, and lastly your gross margin. And with those five, you can make a really good solid assessment about the health of the company.

Speaker A: M let's take a quick break for a word about our free go to market analysis. If you're building a SaaS company, here's some data that's certainly worth paying attention to. According to Kyle Poyar's research, across 6,500 software companies, only about 1 in 5 ever reach 5 million in ARR and just 1 in 10 make it to 10 million. Now those are some pretty sobering numbers. If you've got funding and a solid product, but you're still missing revenue targets, the culprit is almost always somewhere in your go to market. Now, uh, maybe you're losing too many deals to no decision. And many times pricing hasn't changed and it's opened the door to competitors. And often sales and marketing are hitting their activity KPIs. But that's where the good news ends. Now these are all solvable problems, but you have to know where to look. And that's exactly why we built the SaaS. Doctors go to market Checkup. It's a free diagnostic where we assess 12 critical components of your growth engine, from positioning and price pricing to your sales, tech and metrics. We'll come back to you with a clear picture of what's holding you back and what to prioritize next. No 80 page decks that you'll never implement, just a sharp, actionable read on why you're stuck and what needs to change. So if your product should be growing faster than it is, check out the link in the show notes and let's talk. And now back to the podcast. So, uh, you work with both bootstrapped and VC backed cess companies and what you describe or you've described them as living in pretty much different financial realities. So what are the telltale pain points that you see in each group? And is there a stage like a revenue number or a round where the consequences of financial blind spots really start to compound?

Speaker B: I'd say the financial blind spots tend to be more present with the venture backed companies and that comes from the fact that if you have a lot of cash in your bank account, you think that you've got a lot of working capital to work with. Bootstrappers, I don't want to use the word cheap, but frugal may be the better word. But if they're a bootstrap, they've been paying attention to that cash flow from day one because they can't run their business without it, right? So they have an instinctive understanding of what's going on with the cash flow. So they've got that part usually nailed pretty well. They're very efficient with what software they're buying, they're efficient with what people they're hiring. They tend to be as more efficient because they have to be. They don't have any outside revenue or uh, any outside investment to put into their bank account that they can rely on. When you have a lot of anything, it's human nature. If I have a ton of food, I don't care if some of it spoils, right? But if I have very limited food, I want to make sure that I'm preserving everything that I can. And that works the same way for cash. When you get a $10 million round, you tend to be a little bit more free with stuff and a little less concerned with internal controls and making sure that your cash flow is tight than if you have like a $50,000 round and you have to really make it go. So the mentality difference that I see between the bootstrappers and the venture backed CEOs is in that kind of regard. It's the paying attention to the cash flow thing is a really big one. The other one is the bootstrappers tend to have a really good handle on the ARR and NRR because they're keeping a close eye on whether they're keeping their customers. And if a customer leaves, they want to know why. Right? Because that is they're right in that nascent stage or their beginning stage of their company where it's really critically important for them to understand the behavior of their customers. Are they bringing the right customers in the door? That's number one. And are they keeping the customers that they have have? That's number two. And third, are they expanding? They have a land and expand model. I do a lot of B2B stuff. So this may not be so relevant to the B2C world, but in the B2B world, land and expand is critical. You want to get in the door and then once you're in the door, you want to find other opportunities for your software to be sold internally or expand or more user licenses or whatever it happens to be. But that's where that NRR number comes from. The blind spot. Go back to the venture capitalist ones. That's where I always find the logo retention problems and the NRR problems that have been hidden. Hidden. I can't remember a case where I found that in a bootstrap because they live that really closely. But the ventures, they tend not to pay attention to that because they think, well, as long as I have enough sales activity going on and we're closing enough deals and the ARR is growing, we must be fine. No, you're not. You may not be. You should be paying attention to that NRR number. So if your listeners are listening today, if there's one thing you should take away from this podcast is go check your NRR numbers right now and make sure that you don't have a hidden red warning flashing off there because that will make it diffic you to get investment. It'll also make it difficult for you to exit.

Speaker A: Yeah, very good advice. You also mentioned that by series B, investors are going to be scrutinizing your business like never before and that things, uh, hidden in earlier due diligence not going to stay hidden for long. Tell us about a founder who got to a growth milestone and then discovered that their company, uh, wasn't worth what they thought it was. What was the hidden problem and what did it actually cost them?

Speaker B: It cost them the deal. And the way it cost them the deal was that they weren't Paying attention to the contracts that they were signing with their development team. There's this thing called assignment of intellectual property rights. And whenever you hire somebody who's going to be touching your code or doing product development or whatnot, including yourself as the founder, you want to make sure that any and all rights, now and in, forever into the future are assigned to the company. This situation came up. I was on the due diligence team side of it. I was not on the customer side of it. I was on the acquirer side of it. And the first thing we start taking a look at is contracts. Contracts get a lot of screens scrutiny in due diligence. When you're getting to the advanced rounds, your vendor contracts and your employee and contractor contracts, and they're looking for hidden liabilities, they're looking for things that set you up for cost in the future that's not anticipated, or they're looking for something that in this case shows that you don't have clear title to your intellectual property. And this company had negligently been told that they didn't need to worry about that. And so none of their employee contracts and none of their contractors, independent contractors, had this assignment, which means that any one of those people, people could lay claim to the IP deals off companies can come in and acquire you. They want to make sure that you have clean title. Just like when you buy a car from somebody, you want to make sure that you have clean title. Right? You don't want some lien holder coming back and claiming the car because there's a loan on it. Right? That was a big one. That was a really big one. And it's such an easily preventable one. Right? And I think probably most of your listeners already say, yeah, we got that covered. But if there's one person out there that doesn't have that covered and we save them something right now, that's a good thing. And the other thing is taking a look at what are called indemnities and warranties. I know that sounds like a lot of legalese, but when you are writing your customer contracts for your customers to buy your Goods, do not DIY this, do not download this from LegalZoom or whatever platform. Have an attorney that understands SSAs draft those agreements for you. Maybe it'll cost you a little bit now, but it's one of those things where do you want to pay a little bit now or do you want to pay a lot for it later? Because if you don't have your contract, especially in the age and day of agentic AI, where people are developing AI agents to go out and do things and act on behalf of somebody. You want to make sure that your customer contracts are ironclad so that nothing can come back to you if something goes wrong. Let's say that agent goes out and does something stupid. AI does stupid things. We know that it lies, we know that it hallucinates. What's to stop an agent AI from going out there and doing something equally stupid? Well, you don't want that coming back on you as a company. You want to make sure that your contracts are ironclad to protect you from that. That takes a skilled attorney to do that. I don't know how to do that. I hire skilled attorneys to do that. I have skilled attorney partners that do those things. That's not my expertise. So on due diligence, the advanced due diligence one, we already talked about it, your numbers need to be rock solid. They need to be bulletproof, they need to be completely done the way they should be done so that you don't have any credibility question there. But more important, you need to make sure that all your contracts are correct. Your vendor contracts, your employee contracts, and your customer contracts. Contracts that you don't haven't signed yourself up for something or you haven't left the back door open that somebody could drive a truck through.

Speaker A: Had a side question about the customer acquisition costs that you were talking about earlier. A lot of marketing leaders, they talk about pipeline and engagement and attribution. But the, uh, conversation tends to break down the minute the CFO asks, how do we know that this spend, whether it's advertising or marketing, is actually working? So why do so many SaaS companies struggle to create that alignment between finance and marketing around ad spend, for example? And what should marketers be measuring or communicating differently if they want the CFO to see marketing as an investment instead of a cost center?

Speaker B: I think it really comes down to there's no excuse not to do it nowadays, given the availability of data and software tools. If I'm going to go out and I'm going to spend $10,000 a month on LinkedIn ads, I should be able to tell if I've got a lead that came in the door through one. Pretty basic, right? Or if it's a Google Ad spend, or if I'm doing a zoom info and I buy a list from zoom info and I'm doing dialing for DOL dollars, as I like to call it. There should be no excuse, given the level of technology that we have today, that you do not know where a lead came from. And that's really where it comes down to. If I know that my lead came from X, Y or Z or PDQ or whatever it happens to be, it should be very easy for me to draw a line from that lead back to the spend that I put into it. That's why the CFOs are big on that. Because to us, if you're not doing, it's just pure laziness. Right. There's no reason reason why you can't know when a lead. Hey, how did you find out about us? Simple question. I asked that to everybody who comes to me as it sends an email. How'd you find out about me? Oh, I found your website or I found your LinkedIn. Boom, I put that right in there. Why? Because I want to know the money that I'm spending on marketing and sales, especially marketing, what's working. Right. Because if I don't know what's working, then how can I possibly know what to lean into to make it work more? Or how do I know to cut back on the spending? Because that's clearly a waste of cash.

Speaker A: Yeah.

Speaker B: We spent $20,000 a month on LinkedIn ads. Yeah. How many leads did you get?

Speaker A: Crickets, it seems to me.

Speaker B: Why are you spending $20,000 a month on LinkedIn ads?

Speaker A: Yeah, right. It seems to me, especially in some of these venture backed companies like you talked about, like where they're, the money's kind of flowing like water. They may not be tracking that stuff. Right.

Speaker B: The ones that make it to Unicorn, the two unicorns that I worked on, they had that stuff nailed day one.

Speaker A: Interesting.

Speaker B: They knew they had all of that, that go to market piece, which is what your firm is all about. MHM is the biggest fail point by far of SaaS companies. So you got two SaaS types. Yeah, I call them the nerds. They come up with a great idea and they find out, oh hey, somebody wants to buy this, okay. And then they find an investor say, yeah, I think people want to buy this. Right. Then they start figuring out the go to market. Maybe they do, maybe they don't. Maybe they hire somebody who spends a lot of money and doesn't know jack. Maybe they don't. The bootstrappers, those are usually people that are insiders. From the beginning, we see a market need. They already know the market. They're already players in the market. They already know how to sell to the market. They're just like, hey, you know, if I had a piece of software that did this I know exactly who I can sell it to, how I can sell it to them, how I can message it to them, who my ICP is, what all the avatars are, what watering holes they go to get their information, what message I should use in order to get to them. Right. They know that because they're inside the techno nerds. That's like, what's that? Kevin Costner, Field of Dreams? If you build it, they will come. That works in the movies, that does not work in real life. Oh, I got this great piece of software people will buy. Buy it. Really? How are they going to know about it? What makes you think that they understand the value proposition behind it? So the two unicorns that I worked on, um, they knew who their customer was from day one. They knew exactly what the pain points were. They knew exactly how to price it because they knew what it was worth to their customers. And then it was just sit back and watch. So if you are not decoding that go to market DNA really early. Like, you get your seed round that's kind of like the proof of concept round, which is like, okay, we've got a working prototype or we've got an MVP or whatever want to call it, and clearly we have some customer traction because people are buying it and they're keeping it and they're asking for more. Okay, great, we'll be in some investment. The first thing you should be doing with that money is figuring out how to sell it, not how to make it the product better, how to sell it, who to sell it to. How are you going to get the message to them? What message is going to resonate most with them? Are you really crystal clear on what your value proposition is? Can you explain it in layman's terms? That doesn't require a rocket scientist to interpret. Right? Those are the kinds of things, things that I see them struggling with. And it's heartbreaking because it's like if you just figured this out, you wouldn't have to go to the next round and sell another 25% of your customer equity to an acquirer or to an investor. So they start giving away their equity because they're running out of cash. But, man, if you gave me like the $2 million seed round, the first thing I'm going to do is go hire somebody like you to tell me how to get this thing to market. Because without that, without customers, there's. It's useless. Right? And you'd think that something as fundamental as that would be crystal clear to everybody, yet it isn't.

Speaker A: We Used to talk about how like, bootstrappers have to understand that because the role of capital in itself is just an amplification tool. That's all it is, right? So if you're amplifying crap, guess what? Like if you're amplifying something that you don't know if there's actually a business model attached to it, guess what?

Speaker B: And it all comes back ultimately to me because if you don't have a good go to market, you don't understand how much marketing dollar you need to spend in order to get a lead, you don't understand how to qualify that lead, you don't understand what the conversion of that lead is into a sales contract, then your sales forecast isn't worth jack to me.

Speaker A: So that's great. This has been a really good discussion. So for a founder at say, 5 to 15 million in ARR, who's listening right now, what are, say, the two or three things that they should be doing to build financial infrastructure so they won't be embarrassed when it comes to the next investor or acquirer or, uh, board member? Just wants to look under of the hood.

Speaker B: You mean short of reaching out to me so that I can take a look at your system and telling you whether you're in good shape or not?

Speaker A: That would be one way, yes.

Speaker B: That would be the other one, is find somebody like me who can do that. What you really need to do, if you're serious about stuff and you haven't had somebody in house, do this already, is go out. Don't find just any fractional CFO. You need somebody who's SaaS specific. It is a niche market. There are definitely ways to do this thing and not. Yeah, of course. I'm going to 2 my own first. I've been doing this for 20 years, so you should reach out to me. But if not, just find somebody who is an expert in SaaS finance and have them do an audit. Have them look at those five metrics, have them to open the hood, pull the engine apart, test it, do whatever it is to make sure that your numbers are correct. Because that's where it all starts. If your numbers aren't correct, then you're missing things, guaranteed. And not only are you missing things, but you're going to miss out on your next investment round because they're going to pull those numbers apart and they're going to find that they're not done right. So if you're doing everything right and You've had a SaaS expert on your finance team from the beginning you're probably fine. But if you haven't and you had Betty Bookkeeper set up your accounting system and Jack the tax CPA set up your chart of accounts and nobody else has taken a look at how you put the numbers together, you need a SaaS CFO expert to come in and pull them apart and tell you how to fix it.

Speaker A: Agreed. I would say the same thing about demand gen agencies as well. Like SaaS, expertise goes a long way. Long way.

Speaker B: And it's not just like I said, I'll reiterate, it is not just go out and find yourself a fractional cfo.

Speaker A: Yeah.

Speaker B: Uh, I can't tell you how many times we've come in to clean up after a fractional CFO that was not SaaS savvy, as it were.

Speaker A: So if people want to reach out to you, how do they do that?

Speaker B: Well, I have one of the rarest last names on the planet, so it shouldn't be too hard to find me. If you Google nitsos, less than 300 people show up in a Google search on that last name. I am the only Anthony Nitsos in North America. The other guy who's named Anthony Nitos lives in Melbourne, Australia. I'm not. The other one is just to go to our website SaaS Gurus IO. It's all one word. SAS guru asked to slow down. Gurus IO. There's contact me page there. I respond to all the contacts. They come to me personally because this is a personal touch issue. It's like hiring a doctor. Right. You want to make sure that the person who's in charge of your numbers is actually skilled and competent, knows what the heck they're doing. The only way you're going to know that is if you talk to me and let me ask you some questions. But I will give a free audit. If you hear this podcast and you reach out to me as a result of this podcast, I will you give give you an hour of my time for free. And I'll take a look at your financials and I'll take a look at what you're doing and I'll be able to tell you within that hour if I think you've got things done right or not.

Speaker A: Well, that sounds like a no brainer to me. Also check out our demand gen agency for software and, um, AI companies@austinlawrence.com. um, that's Austin as in Texas and Lawrence as in Kansas. If this episode didn't convince you to subscribe to the podcast SAS backwards, not sure what will. But please do so. And Anthony, thanks so much for being with us today.

Speaker B: Thank you. I really appreciate the opportunity.

Speaker A: Thanks for listening to the SaaS Backwards podcast brought to you by Austin Lawrence Group. We're a growth marketing agency that helps SaaS firms reduce, churn, accelerate sales and generate demand. Learn more about us at www.austinlawrence.com youm can email kenlempittinlawrence.com about any SaaS marketing or customer retention subject. We hope you'll subscribe and thanks again for listening.