330: What is the Best SaaS Metric to Track - with Randy Wootton

Speaker A: Foreign. If you're running a small startup, uh, which metrics should you be tracking and how do you know what to do once you get those metrics? If you track them, first of all, did you track them the right way? Are they efficiently tracked? And now that you have the number, how do you manage that? Well, all of this is really kind of crazy stuff to learn and figure out, and you don't want to figure it out on your own. Fortunately, Randy Wootton came in. He's the CEO at Maxio, and they do some great stuff around metrics, but he shares in this episode. Metrics you should track as well as what you can do around it. He also is a great CEO, and so if you're a CEO, he goes deep on specific things you can do as a CEO to make sure your company continues to scale forward. This is a lot of great knowledge here. Welcome to Scale youl SaaS, the podcast

Speaker B: that gives you proven techniques and formulas for boosting your revenue and achieving your

Speaker A: dream exit, brought to you by a guy who's done just that multiple times. Here's your host, Matt Wallach. Hello. Welcome to Scale youe SaaS. I am delighted that you're here and excited for today's show. By the way, if you've never been here To Scale youe SaaS, this is the show where we help you understand how to generate a whole ton of great leads to how to close those leads quickly and efficiently, and how you can get a sales team to do it for you. If you want to know any of those things, hit the subscribe button so you don't miss a show. And on these shows, what we do is we bring in experts and people who are doing this and have done it themselves, including SaaS CEOs. Like one that I have with me now, I've got Randy Wootton. Randy, how you doing?

Speaker B: Doing great. Thanks so much for having me, Matt. Looking forward to the conversation.

Speaker A: I am as well. Let me make sure everybody knows who you are. So, Randy, he's the CEO at Maxeo and Maxeo. It's a B2B SaaS platform that streamlines billing and financial operations for SaaS businesses by automating tasks such as billing, invoicing, subscription management, accounts receivables, and collections. And what it does, it offers this holistic solution within a single system. So it's very slick. And in his career of 25 plus years, Randy has worked in leadership roles with tech giants like Microsoft and Salesforce. And really he helps business units within both companies. And he's done A lot of great stuff in terms of growth rates and scaling and he absolutely knows his stuff. So Randy, thanks for being on the show again.

Speaker B: My pleasure. You nailed it. You should be in our marketing department.

Speaker A: We'll see about that. Maybe I've got a different career there. But, uh, tell me what's been going on with you lately and what do you have coming up?

Speaker B: Well, look, it's been an incredible journey. I started with Maxeo two years ago. As I was mentioning in our pre brief, this is my third gig as CEO. First one was a public company CEO gig. Second one was a VC backed and this one is really a PE backed uh, firm. It was the mashup of two companies, SaaS Optics and Charge of I both who had been industry leaders in their specific area around billing and financial operations and then battery, brought them together in 2021 and I joined in 2022. And I'm one of those guys, kind of professional CEOs that helps come in and figure out what, why something might be stuck or how to take it to the next level. Been uh, here for two years. It's been a lot of fun. I've moved from my background has primarily been in go to market tech, so sales, service, advertising tech, which we can talk about. Jermaine, um, to your topic about generating leads and how that has evolved. But I wanted to make the shift to the office of the cfo because I think that function and that specific uh, office and that role has not undergone the revolution that we've seen in the other functions like sales, marketing and service in terms of workflow, automation, efficiency and effectiveness. And so it's a journey. Uh, it's been good. Maxio. Uh, we have about 2200 customers worldwide. Uh, we service exactly what you described, billing and financial operations. The other thing we do which we can chat a little bit about is revenue recognition and reporting. So the real value of the tool for SaaS business, uh, operators is understanding what's happening. What I mean by that is like CAC ratio, uh, gross, uh, retention, net retention, LTV to cac, magic number. All of these metrics that you and your audience are probably trying to think about, learn about, maximize, come out of the system. And so I think of it as an essential tool for any B2B Ah, operator.

Speaker A: I think it is as well. And it's something that a lot of people struggle with, especially in the early days is really understanding what are all those metrics. We'll be right back. Hey, it's Matt. If you're anything like me, you Check your website analytics and you see people coming to your site but you have no idea who they are or what they're doing. Plus why aren't they converting into leads? That's why I now use leadfeeder. This thing is slick. Leadfeeder is a tool to choose. Shows me which companies are coming to my site plus which pages they visited and in which order. So I can see their interest level just by what they're doing. You can use it too. You can track your site visitors behavior and integrate the data from Leadfeeder with your CRM. That helps make your lead generation efforts more targeted. The result? Website traffic converts to sales. Click the link in the description and go to leadfeeder.com for a free demo and get a free extended premium trial when you let the rep know that you heard Leadfeeder through the scale. Your SaaS podcast finally know who's visiting your site with with Lead Feeder. Do it. And we're back. First of all, a lot of people don't know what they are, then they don't know how to track them and then they don't know what to do once they have the tracking. And how do you manage around that? And in fact I was just talking with one of my clients this morning about CAC Payback, one of those metrics that I'm sure your system can help with. So what are some of these metrics that people should know if they are an early stage company?

Speaker B: Well I would say that it's sort of a, as you mature there are different metrics you look at. I think when you first are getting out of the gate, especially if you're a founder, um, bootstrapped and you're trying to um, just uh, generate interest in the marketplace. You're really talking about bookings, growth. As you move from that early stage seed, series A and you start to get investors, what you'll and customers, what you'll find is people start to really focus on gross retention. Gross retention being what percent of dollars and then also gross retention, what percent of logos are you maintaining? And then that evolves to net retention. Net retention is are you able to take those customers and grow them either by selling additional features or across divisions, etc. So I think the bookings, growth, gross retention, net retention are uh, really some of the core metrics you look at in your early stage. There's one that I really like. As you start to move from series B to series C, we call it recurring margin. It's basically like an operating leverage and what that means is, is how much, what percent of every dollar are you spending on G and A, R and D and other opex that then you can invest in growth. Your ability to get more leverage out of that core, Hey, I gotta produce the product to then invest in growth. Sales marketing acquisition is a really good indicator of your ability to scale. So net net, there's a bunch of metrics you could be looking at. Gross retention is probably the one that everyone looks at. If you, if you're looking to get funded, you need to have that gross retention. The biggest challenge, Matt, is you find early stage founders. I describe it as they often have their uncle doing the books, they're doing cash accounting and they're just, you know, they got money in their bank and they're just trying to make sure they got enough money to pay payroll. The thing that the challenge is with the SaaS business model, not the SaaS software distribution model, is you start to get into accrual accounting and having to do revenue recognition. And it gets tricky. It gets tricky when you have multiple products. It gets tricky when you have a lot of different customers like, hey, did you give a disc a 15 month contract? Um, but they're only paying for 12. There's all these nuances and Bob, your uncle is not going to be able to do it. And so that's when you move to like a CPA firm. But we'll really want to have a CPA firm that focuses on B2B SaaS. And then you'll move to a fractional CFO. And this is when it starts to get really complex and when you need a system like ours to help you with the revrec and reporting technical founders probably don't speak accounting. And so making sure they got partners at each of those different inflection points is really critical. So they got the right, right, um, data to help them run their business and manage their investors.

Speaker A: I love it because I work with a lot of early stage software companies as you know, and they go through those cycles and a lot of people are thinking of, oh, I need to hire a growth person, a salesperson, a marketer, I need to hire more tech. But they often forget about the financial side. You're right. It's just, oh, my uncle, like you said, is tracking all of this for us or I do it on the side. And I can tell you from being a founder and owner of companies, I don't do a good job of, of tracking all that stuff. That's why I'm glad I have people that do it. But it kind of gets put on the back burner, which is crazy because it's your financials, it's actually the, the blood of the business. So is, isn't that ridiculous that that's kind of second, you know, fiddle?

Speaker B: Well, I think so. And I think it's, I think it's because people don't appreciate the complexity of it when they can just track it in the Excel file, right? They can do their spreadsheet, they can model it, and they, they got cash in the bank. What I will tell you, having done a bunch in M and A, both on the buy side and the sell side, having sold two companies and bought a couple of companies, is the. And, uh, it's not me who says this. This is a quote from a national firm that talks about the number one deal killer is accounting issues. And I'll tell you one story. So when I was at Seismic, we were going to buy, um, a large company, sales enablement. I had sold percolate to them. I then moved to a role, chief strategy Officer. Uh, during that time, deployed about $300 million in capital, bought a couple of companies and did a strategic investment. One company had legacy SaaS, optics. So they had all the revrec, right? They had the reporting they were 10 times bigger than the other company we bought, but we spent 10 times more dollars in time on the smaller company because their contracts are basically in a filing cabinet. And so when you go through that due diligence and you do the forensic accounting and you're trying to match the mrr, roll forward the customer cohort analysis and it's not making sense and you can't find the contracts, it puts gunk in the due diligence process. And a lot of deals get killed because you can't, for example, draw a distinction between contracted ARR and live ARR, or you can't break out your segments and be able to talk about what the different gross retention values are by segment. And so I think that if you're an early stage founder who's never raised money before, understanding how, uh, an investor thinks about doing due diligence is critically important for you to get funded.

Speaker A: I love it. I love it. So critical. I absolutely agree. So how does Maxio help that like, and when's the right time to bring that in?

Speaker B: Yeah, well, Maxio has a couple of different offers. One is we are billing solutions so we can help you get money. And I think when founders have a product and they want to put up like a PLG motion, they want to have a billing portal and they want to have customers be able to interact autonomously through the, through the billet portal. We've got that option. It competes with the stripes of the world. Um, we do billing and payments. So that's one value prop. This other value prop. Uh, what we find is it usually resonates when a company's about 30 employees and they've brought on that first fractional CFO and they're looking for professional money because they're going to have to get all their stuff in one sock to represent it to the many investors that they're going to be doing conversations with. And they go into due diligence. So, you know, where is that the 2 to 3 million dollars range is when you would want to have a product like ours. Um, we can grow with you. So we do have 50 public companies that are using Maxio for, um, different types of billing, complex billing scenarios. And we have a couple of hundred companies are greater than 100 million. So once you get it in, it will grow with you. The story I like to tell is, so, um, my second time CEO gig, I was CEO of a company called Percolate. Between us girls and all the hundreds of thousand people listening to your podcast, it was about a $25 million company. And, um, we would spend the first six to eight days, the CFO would close the books, which is standard, right? And then the next half of the month, we'd be working through the Excel file to figure out what was going on with all of our customers, who renewed, who, who churned, who contracted, who expanded. And it was a, it was madness, chaos working through that Excel file. And we would show up at the board meeting hoping it was right and worried that it was different because someone had fat fingered a cell in the Excel file from the last time we were at the board meeting. And you're nodding your head. You've probably had that experience where absolutely, you know, they look at you and say, hey, you said Q1 gross retention was 87.4% last time. Now you're telling me it's 88.2%. What happened? And you're like, boom, I have no idea. We brought SaaS optics. And it was over my, um, uh, hesitation because I didn't want to buy more software. But the CFO forced it, and I'm so glad he did. Uh, because then we went from a world where we would spend the entire month, first six to eight days closing the books, the next 10 days working on the operating metrics, to the day the books close. I have my operating metrics. I can tell you what the ARR. So, like it's July 31st, we're recording this tomorrow. On August 1st, I will know how much ARR we made in the month and I'll know what our churn was and I'll know what our overall net ARR is. I'd ask your audience, can they do that? And if they can't, then I would suggest that is where the real value comes from. Having a tool like ours, we're not the only one who does it. But having a tool like ours allows you as an operator to be thinking about what's happening with the business, diagnosing it, engaging in it mitigation plans in two to three weeks before you would have in the old model.

Speaker A: Amazing. I mean, just the amount that you can start making decisions and manage your business, the quickness is incredible. I want to shift gears a little bit because I know you've talked about the seven secrets of success for SaaS CEOs, and we've got a lot of SaaS CEOs that listen to us. So what are these secrets, Randy? You have to share them with us.

Speaker B: Yeah, well, what I find is I'm just recycling great content from other people. So, uh, tip of the hat to people like Peter Drucker and Clay Christensen and all the other folks that have written all the awesome books out there, John Doerr with okrs. But my distillation of it is that there's seven basic secrets. Um, one is you're ultimately responsible for the, uh, overall results. If you're not delivering the results of the CEO not driving shareholder value, you're going to get fired. Number two is you got to establish a winning strategy so everybody knows what business you're in. Especially if you're in a role like mine where you come in as the professional CEO and you have to help chart the new course. That winning strategy will help you deliver the results. But if people don't know what they're going to work on, then, you know, you got lots of people moving in lots of different directions. Um, to that point. The third thing is around shaping the culture. And this really comes down to the values and standards, like how are you going to operate as a company? We can talk more about that. Um, the fourth, which I think a lot of early stage CEOs underappreciate, is building an effective executive team. So what does it mean? And, um, Patrick Lencioni, who wrote the five Dysfunctions of the Team, has this mental model he calls the first team what does it mean to hire someone who's a functional expert, who then can participate running the business with you as the CEO, where their loyalty, the way they think about things, is what's best for the business versus what's best for the function. That is wicked important. Um, early stage CEOs in particular, who are used to doing everything themselves, learning how to leverage and delegate and hold accountable an executive team then sets the mandate for the rest of the organization.

Speaker A: I haven't read that book. That sounds phenomenal.

Speaker B: Oh, it's awesome. I mean, and then there's another book in there called Execution by Bosity which has that same idea of how do you build an operating system, a company operating system to allow you to execute and then how do you think about that broader team? But I do think of that as like, um, so I had the good fortune to be at both Microsoft and Salesforce during times when they were really doing really well and had done a couple of their bench programs. And I just remember someone at one of these bench programs saying like, if your executive team is not effective, that entire function where that executive is not functioning is diminished. And so your core opportunity as a CEO to create a highly effective executive team, then you focus on the broader leadership cadre, then you focus on the management team. And, and uh, because if you're a manager, you're only, I don't know, impacting six to eight people. But if you're an executive, you're responsible for an entire function. And so as a CEO, getting that team alignment around, what does success look like? Making sure the corporate bonus is aligned. Everyone has objectives and key results. They build trust across is incredibly important in any business. And I tell people, I'm not the first to say this, but software is a people business. And so getting the people structures system in place, the executives, is really one of the most important things you can do to then execute on the strategy and deliver the results. Um, the other three, which I'll throw out and we can talk about whichever ones, um, resonate for you is managing your board and investors and setting the expectations. They've put money in at a specific valuation. They have expectations of both valuation and timing. And so you being able to have a growth plan that delivers on that, especially if you have investors coming in at different stages so they have different valuation markers, is wicked important. Uh, you want to do that before you get into a deal cycle and we talk about that, um, allocating capital. I think one of the challenges for early stage companies is you've got all this, you got to do right now. And you have to.

Speaker A: Everything's on fire.

Speaker B: Everything's on fire. And you want all your engineers solving these customer problems. But you're to grow faster than um, your competitors and brought faster than the market. You also need to have a bifurcated view of long term capital allocation. McKinsey has an old model, it's called the three horizon model, which I love. It's basically what are the set of things you're doing in the next year? Allocating a bunch of resources. What are the set of things you're doing that are going to translate into dollars in the next 18 to 24 months? So it's like a continuation of capabilities and then what are the little bets you're making that are going to be the next act that is going to be the future of the company? Because as the CEO and the executive, your time and energy should be mostly focused on the next act, not delivering what the month needs to be. If you're doing that, you're ever functioning. So that's number six.

Speaker A: Totally agree.

Speaker B: And then the seventh one is um, describe it as investing in your tribe. And this means um, throughout my career I've benefited from having a mentor, a coach, a um, peer group. So I, I've never been part of entrepreneurs organization. People have great things to say about it or ypo.

Speaker A: It's great. Yeah.

Speaker B: Uh, I do vistage currently but I've done other ones. And then the fourth group to, to have as I call it a peer advisory board. So go find some people who knew you when you're young and dumb and who can call you on your bs so that when you're making career decisions or you're doing things, um, that you need help that and you want it from people who have nothing in it other than wanting you to be successful. It's super helpful. The CEO is a lonely job. No one ever tells you the truth. And so having that peer advisory group can really benefit you during those times when you're just beside yourself with uh, working yourself all on a, you know, a tis about some decision or some inflection point. So those are it, those are the seven I've been writing about it.

Speaker A: Great.

Speaker B: Happy um, to chat more.

Speaker A: Yeah, I love it. They're all definitely extremely helpful and super critical based on, you know, where you are in your growth stage. I want to talk about the culture one you talked about how, how you can. I think the word you use was ingrain the culture or what?

Speaker B: Yeah. What do we need to do Ingrain or inculcate I think that, uh, one of the things I find about culture is you get in this conversation around values and look, I've been at big companies where you have values and they put them on the wall and everyone says, yeah, those are our values, but you're not actually living them. Um, I think values can become a Dilbert exercise and everyone sort of scoffs at it. I think though, especially in this hybrid world, one of the things as a CEO like I am always, I am, I am always focused on how do I build connections and community, and that is rooted in values. And so we went through an exercise. We, um, uh, when I first started, we were bringing two companies together. And so I think it was important for us to try to create a common set of values and language for how we reward people and recognize them. We, every single monthly, all hands we have, it's called hype. Um, honest and open. Your input matters. Passion, uh, for progress and expect excellence. Um, uh, so making it easily memorable. So it's something that people can remember. It's not super complicated. Have it be something that every. All hands we recognize. We use a program called Bonusly, where people can give token amounts of points to folks and they do it through the lens of one of the, um, one of the values. And then people get points and they can buy swag or the gift cards or whatever. So it has to be part of your whole, uh, system. The thing that people get wrong with values, I think, is they try to create aspirational values. They come and say, hey, we want to do we want to be like this? And they don't recognize what are the current expressed values. And if you come out with just a set of, um, aspirational values, it will fall flat. It won't feel true. It'll create dissonance in the organization. And so I think the first step is to, well, what are the values? How do people interact with each other? How do we treat each other? Um, and then if you want to introduce aspirational values, how do you introduce reward and recognize and change the behavior?

Speaker A: That's phenomenal. And I have always believed that as well. And I think that what you're doing is creating that kind of sense of community and it's creating that vibe that everybody really appreciates being a part of that company.

Speaker B: And I think, I don't know if you're in a remote context. We're in a hybrid model. So we, uh, have about 240 employees around the world. We, um, don't have them come in the office except for we try to get them in one day a week and then one day a month for our Maxio, all hands, and then we do an event together. And I am totally scared that people don't have connection to the broader company. They're sitting at home like, I'm in, you know, Haley, Idaho, looking out in the mountains. I'm working for Maxio. I could just as easily be working for another company. What is it that makes. Well, I'm CEO, so. Got it. But, you know, if I was just regular employee, like, what makes me feel like it is worth investing my psychic, uh, energy, my time, and, um, you know, betting my life on Maxio. You gotta create a place where they feel like they like the people they're working with, they feel like they can make an impact and they're doing great work.

Speaker A: Yeah. And I think something that we've lost with the remote work. And, uh, one of my guests a couple months ago said this is. Yeah, you can still have the meetings. You can still do the job efficiently. It's the in between times, in between the meetings where she tells you about her kid at school or you talk about the game or whatever it is that we've. We've kind of lost that. And keeping that in a hybrid or a fully remote environment is difficult.

Speaker B: Yes. And I would say you need to be deliberate and intentional about how do you build culture and connection in this world. I worked at Seismic, which I was mentioning earlier, great CEO guy named Doug Winter. And they were a big company, thousand something employees. And he had committed and worldwide, and he had committed every year to bring everybody together. And he called it the seismic of the event as a huge investment. And he said it was the one thing he was never going to compromise on. And so at Maxia, we've started with a company kickoff in February, and then we just got done with a go to market summit in the summer. Um, we're not able to bring everyone together yet because I have a bunch of, uh, engineers, uh, in Poland, and it's wicked expensive. But my ambition is that at least once a year we bring everybody together for the company kickoff and to get what you described is that, you know, bouncing into each other time, we also support each function to try to get together on a quarterly basis so they bring their teams together in some city and do something. So it's not less expensive to be in a remote first model. You just need to think differently about how you're spending that money and how you're creating those employee experiences.

Speaker A: Yeah, that's well said. I Love it. So as we wrap up here, Randy, what advice can you give for an early stage company? Maybe let's think about uh, the financials that we talked about earlier and they feel like they are in that boat that we talked about, how they're not really putting enough attention to it. What advice? Obviously getting Maxio would be a great boost, but besides that, what, what would, what should an early stage founder or CEO do to make sure they're on the right path so that their company can continue to scale smartly financially?

Speaker B: Well, I think what um, you saw in the era of growth at all costs, which was fueled by crazy amount of investment with VC and pe, was people just blew money on go to market. And I think the getting super clear on what it means to have product market fit before you bring in a, uh, VP of sales and blow a bunch of money on expensive salespeople is uh, uh, have you had a bunch of deals that you can point to? Why are you winning? Do you have the marketing and the messaging? Maybe hire a fractional CMO that can help you get that wired in before you make the big investment on the sales team. The metric that will help you understand if you're doing well is what they call, um, uh, well, it's CAC ratio customer acquisition costs. There's two parts of it. One is new CAC versus expansion cac. So if you're just focused on bringing on new customers, it's how much money are you spending for every dollar of ARR? There's a great guy out there, Ray Reich, who runs Benchmarket Benchmark. It is a, he does a bunch of things, but in part what he offers is a survey of benchmarks. So you can look at uh, your dollar ACV of your average uh, deal and what uh, your um, revenue is and you can triangulate to say what is a best in class CAC versus a bad cac. And so as uh, CEO, I would get my arms around how much m. How much am I spending to acquire a dollar of ARR and how do I compare to peer groups? Because that is something that investors. Well one, it's going to help you better manage your investments and go to market. But it's also something that investors are going to be looking at to say outside of gross retention, are you able to retain customers? Is, are you able to um, have you built an efficient growth model which is how many dollars is it taking to acquire a new dollar of ARR?

Speaker A: Beautiful. I love what you're sharing. You just drop so much knowledge. So this is really fantastic stuff. Randy, I appreciate you coming on. How can people learn more about you and Maxio?

Speaker B: Yeah, so I'm writing about the seven secrets to success on LinkedIn. There's a bunch of articles there. You can click in and read those. You know, pop on um, and uh, comment or send me a note on LinkedIn. Also, um, Maxio.com is. We've got an enormous amount of resources there. We have a thing called Saspedia where all the metrics are defined. You can see the reports. We also are just about to release our new growth report which is um, based on our 2000 plus customers. What their growth has been split by different models that you can use to inform your own, um, planning, um, and if they want to. Randy Wootton. W o o T T o n@maxio.com I always have time to chat.

Speaker A: Awesome. I love that. We'll put all that into the show notes. So if you're listening you can get all Randy's stuff there. Go connect with him. Sounds like some awesome stuff. Randy, this has been fantastic. Thanks for coming on the show.

Speaker B: My pleasure. Thanks for having me.

Speaker A: You're welcome everybody out there. Thank you for being here as well. Make sure you're subscribed so you don't miss out on any other amazing leaders like Randy coming through. This has been a great conversation and I hope that you don't miss the next ones. Thanks for being here and we'll see you next time. Take care. Thanks for listening to Scale youl SaaS.

Speaker B: For more help on finding great leads and closing more deals, go to mattwallock.com.