CFO Toolkit Series: Dave Kellogg on the strategic use and abuse of SaaS metrics

Rollupeurope is at SaaStr this week! The one session we could not miss was the talk by the legendary SaaS opinion leader (and Balderton Executive in Residence) Dave Kellogg. His presentation on SaaS metrics covered:

• The symptoms of a SaaS metrics problem

• The root causes of the problem

• Dave’s 5-level playbook for building metrics maturity

A LOT of what he said resonated with us, and hopefully you will see why!

You can see the full version of Dave’s presentation here.

Dave’s symptoms of a SaaS metrics problem

How do we know that a company misuses or abuses its SaaS metrics? Well, Dave’s got a whole checklist ready for you! 

• Numbers are used to “bludgeon” management

• Metrics are used to mislead. For example: we’re 96% of plan based on quarterly ending ARR. Instead, we should be talking about X% of new logo ARR, Y of expansion ARR, Z of net new ARR

• Déjà vu: go to the same board meeting 3 quarters in a row

• Rat-holing: discuss the metrics but the business behind the metrics

• Lack of semantics: what do base case, commit, worst case etc. actually mean?

• Recalculation: board metrics recalculate metrics themselves because they don’t trust the management.

• Inexplicability. Management cannot explain why we’re missing headline KPIs

• Dissonance: the words don’t match the music

• Innumeracy: only the CFO and RevOps present metrics

• Disconnect: metrics are not linked to strategy

• Piecemealing: numbers are evaluated in isolation, not holistically

• Mis-benchmarking: comparing to wrong companies. Many benchmarks are inherently biased depending on whoever answered the survey. Ideally we should segment companies by aspiration e.g. companies that aspired to grow EBITDA X% in 3 years

• Causality: correlation confused with causation

• Data distortion. Dave showed the example of a company 5% logo churn but 25% dollar churn. Example of management allowing customers to subscriptions for nominal amounts to push down logo churn

Why does this happen?

Often there is confusion over definitions and calculation of metrics. If there’s no organizational buy-in into the metrics, they become tangential to the strategy. Accordingly objective performance evaluation becomes difficult, almost impossible, which in turns breeds distrust about data internally as well as externally (investors recalculating the metrics etc.). Clearly the tone must be set from the top. 

Dave’s 5-level playbook for building metrics maturity

It’s all very well diagnosing the problem – but how do we solve it? The good news, Dave’s got a framework. There are 5 levels:

1. Lay the foundation. Fix the underlying systems to enable ongoing reporting. Offload to a metrics committee

2. Build trust. “Templates build trust”. Discourage cherry picking

3. Link to strategy. Identify top challenges and define 4-6 strategic goals (OKRs)

4. Cultivate a data-driven culture. “If we have data, let’s go with data, if we have opinions let’s go with mine”

5. Agree on strategic trajectory

Bonus content

Q1: Do bankers make great CFOs?

Dave likes CFOs who come from FP&A and Investment Banking backgrounds. He likes fast people, people that can give approximate answers on the fly. “You don’t want a CFNO” – one who’s afraid to.

Q2: How does one compare divisional performance in a company with massive large costs?

By looking at the contribution margin.