Panelists
| John Garvens Owner & Principal Architect Garvens Consulting Garvens Consulting on YouTube |
| Dan Miller Chief Financial Officer RightRev |
| Zee Akbarali Managing Director Accordion |
| Bryce Baker Managing Director Accordion |
Contents
- 00:00 Introduction
- 02:35 The CFO as a Growth Catalyst
- 06:47 Transition from Spreadsheets to Modern Tools
- 20:33 The Growing Complexity of Revenue Models
- 28:24 Importance of Data Quality and Compliance
- 41:00 Future of Revenue Recognition and AI
- 51:51 Resources and Action Items for CFOs
Transcript
Note on Transcription: Please note that this transcript is an automated or semi-automated reproduction of the audio recording. Due to the nuances of natural speech, some words or phrases may be mislabeled or omitted. The audio file remains the official record of this episode. The RevOps Roundtable podcast does not guarantee the absolute accuracy of this text and is not liable for any misunderstandings resulting from its use.
John Garvens 0:00
Hey everybody, welcome to the RevOps Roundtable. I’m your host, John Garvens, the owner and principal architect at Garvens Consulting, and today we are going to be talking about revenue recognition for the office of the CFO. Topics today are going to include the CFO a growth catalyst for the business. We’re going to talk about audit readiness and compliance. We’re going to talk about revenue recognition metrics that matter, CFOs and the future of finance. And then we’ll get into some additional resources that you can pursue after this conversation and action items you can take for your business to start moving in the direction of maturing your revenue recognitions business processes. And today I want to introduce in in order. Here we’ve got Dan Miller, Zee Akbarali. Did I get it? I got it. Nailed it. First time go. And Bryce Baker, I’ll have each of them introduce themselves in a few words, and then we’ll get started with our conversation. Dan.
Dan Miller 1:01
Hi, everyone. Dan Miller, I’m the CFO of RightRev. Been with the company for four years. Jagan Reddy, our founder, invented the revenue automation space about 12-13, years ago. Prior to that, my claim to fame was I was also Vice President of Finance and General Manager at NetSuite, so kind of out there in helping businesses grow, especially in the mid market, but as we, as I’ve kind of toward the tail end of my time there, worked into the enterprise. So nice to meet everybody. Look forward to discussion.
John Garvens 1:34
Zee.
Zee Akbarali 1:35
Hey everyone. Zee Akbarali, managing director with our digital solutions advisory practice here at Accordion. I’ve been advising clients for 20 years, particularly in the PE space, and looking at how technology can be part of your value creation plan.
John Garvens 1:49
Bryce.
Bryce Baker 1:50
I’ll go last I guess. My name is Bryce Baker. I’m managing director as part of our CRM practice here at Accordion as well. My history has been very heavily in Salesforce, it’s operationalization of CPQ and Billing and now revenue recognition capabilities as it passes through the Lead-to-Cash journey. I’ve always, and Zee, been very focused on private equity in the past and in a prior life, have been very focused on sales ops and the evolution into revenue ops and how that powers CF office of the CFO today.
John Garvens 2:26
Fantastic. Thanks for being here. I appreciate your time and your willingness to contribute to this. I look forward to the conversation. With that said, let’s get started. The CFO as a growth catalyst. So Dan, you said earlier, when we were preparing for this call, everyone is trying to grow the CFO must support that growth. Can you dive a little deeper into what you what you mean by that?
Dan Miller 2:52
Yeah, I mean, and it’s been CFO for a long time, and product teams, boards, CEOs, you know, kind of obviously want to create a dialog around, how do we continue to grow? And unfortunately, the CFO, who has to maintain the back office, has to maintain auditability, credibility, also just really kind of the soundness of the numbers overall. A lot of times, we may not have the people, we may not have the systems. When an acquisition is proposed, or a new business model. And we’re going to talk about a lot about new business models, obviously, the consumption model becoming much more prevalent today as people try and monetize, whether it’s AI or just any aspect of their product. We want, as CFOs to say, yes, but if we don’t have the systems, people, or process to do it. It’s tough. So really, what I think the next generation of revenue automation tools is doing is allowing CFOs to be that growth catalyst, to say yes to those new business business models, to say yes to those acquisitions, and do it without a bad conscience, and being able to sleep at night knowing that they are able to support those and scale those over time. So all businesses are trying to grow, and CFOs love to grow, but now we can do it more responsibly, just due to those new tools and new capabilities that are out there.
John Garvens 4:15
Zee, you have anything to add to that?
Zee Akbarali 4:15
Yeah, absolutely. I mean, we think about the PSE space, a lot of times the CFOs are asked about, like, look, we’re looking at some potential new acquisitions. We’re looking to enter new markets as well. And sometimes those companies that you’re acquiring, they may have a subscription based model, right? Or the way you’re looking at servicing customers, the model that you’re billing at may be subject to change. Is your back office systems, are your back office teams prepared, and are they able to scale as well? And then you have to ask yourself, as a CFO, do I want to continue to hire bookkeepers, or do I want to hire folks that are data analysts right and focused on there? Let’s make sure that I have the right technology so I don’t have to constantly be just hiring “data janitors,” in a way, and not trying to undermine bookkeepers they definitely serve. But how can we make sure that. That our our team members are part of that value creation story, and just not, you know, financial guardians of record keeping.
John Garvens 5:08
Bryce.
Bryce Baker 5:09
Yeah, I do want to add the responsibilities of a CFO 10-20, years ago are a lot different than they are today. That is part of the evolution of technology. That is part of the evolution of revenue operations and the incorporation where that leads to and we are finding CFOs feeling a lot more of that stress to understand the growth catalysts, to ensure it’s the right decision, even in looking at mergers and acquisitions, what is the value creation plan? What is the thesis? How is this going to increase a lot more consciousness on business cases, and how do we expect to see them grow, to get all of that data, to have that to the fingertips, to make sure that they’re making those decisions? This is why the evolution of technology has gotten to where it is.
Dan Miller 6:01
Yeah, can I? Can I just double down on that? I think the trajectory, I think we’re talking about going back in time a little bit right. The CFO would be CFO for a while, and then they’d eventually move on to COO and that’s still obviously happening. I think it’s happening more and more today, just because of the moving more to the front office of the CFO role, whether that be go to market, understanding product, particularly if you’re in this office CFO space, like I am. But I think also now what I’ve started to see is that, are they basically quasi the CIO, and really bringing those technologies forward, and I don’t mean this literally, but really figuratively, managing that overall process all the way from go-to-market all the way obviously finance, but then into technologies, and we’ll talk more about that again. AI is probably accelerating that. But even without AI, these things are happening. So I think it’s a really good point, both Zee and Bryce.
John Garvens 6:47
Well, not a lot of the technologies that have been used for the past 20 years been Microsoft Excel. It’s probably the single biggest competitor to a lot of these newer tools, like a right rev or like any other the go to market, tools like Sales Cloud and things like that, or whatever we’re called, Agentforce, sales, whatever we’re calling it today. So as we start to move from those spreadsheets into these newer technologies, that presents fun challenges as well, what are some of the things that we’re seeing as we’re going from, okay, I’m trying to manage things in spreadsheets, and that’s how I’m keeping track of my revenue to now we’re starting to implement and operationalize, like you were talking about Bryce, operationalize and move into some sort of a some sort of a tech stack. How are we starting to connect the dots between those different systems to get that complete picture?
Bryce Baker 7:41
So that’s probably one of the most dangerous topics. You are 100% right. Excel is probably the number one biggest competitor against any of these software and solutions, including CRM, including CRM, particularly in the age where there’s explosive growth of companies, or explosive investment of companies. A lot of these trends, like the, we didn’t even have the term 10-15, years ago of a billion dollar unicorn, right, right? And so while valuation is that terminology, the aspect of the services and the revenue in the back office, which is now very importantly, as Dan said, kind of a responsibility of a CFO. Those aspects have led more of the controls in place that we see today ASC 606 coming out to make sure that. How do we make sure the full, end to end system full, what we call it, Lead-to-Cash data flow is governing accuracy in that number, and then when it very importantly, comes to revenue recognition, how do we, how do we associate all of the different reasons and the policies that need to make sure sense, so that when a company is truly being valued, it is the right value? And I’ll use the horrible example of like a booking. Somebody can sit there and say, I’ve sold a five year deal. It’s for a million dollars, but then, but then you realize it’s not a it’s not a million dollars every year. Is it a million dollars over five years? Is there ramps associated to it? What are all of the different things that we need to do to make sure that there aren’t these massive fluctuations and in revenue, they adhere to the accounting principles that were designed in place to make sure that, as businesses make decisions, particularly in the public market, there isn’t, you know, scrutiny too. There’s no issues to it. I think there’s a phrase somewhere and Zee, Dan, I’d love your reactions to this, but in our era right now, we’ve got a pretty clear and clean, cut aspect of what is a private company and what is a public company. But we aren’t too far away potentially from that private aspect blending into some potential of crowdsourcing or being more towards the public ability to invest, that will start to blend even more of the scrutiny on what do those numbers mean, and what governance do we have in place? Because, I mean, it really matters to the majority of the people that might invest in a company.
Zee Akbarali 10:35
Now that’s that’s absolutely right. I mean, if you think about it like you know, for the investors, they want to continue to have confidence. It’s funny when we talk about spreadsheets in Excel, in the PE space, when we’re doing due diligence and we’re evaluating companies, and if we ever hear them say, Oh, we have this really great custom built spreadsheet with all these macros that did this, you know, really awesome work, immediately that signals a discount on the valuation. And so CFOs then need to keep that in mind that, you know, then there’s comp, there’s less confidence in the reporting. I mean, if auditors and others have just walked in and said, you know, they picked three random contracts and they said, you know, how long would they wanted to know, essentially, you know, the revenue on this, on those contracts, how long would it take the CFOs team to really prove that revenue was recognized correctly? And if it’s not a click of a button and they’re having like, well, let me go look at the spreadsheet. I got to update a few formulas. Going to do this right there. I mean, confidence has dropped significantly, right? So the CFO is mind isn’t just about just compliance. And like, you know, did I, you know, do I have the right tools from an Excel perspective? But how are you going to build confidence in your reporting CFOs? You know, look, some CFOs have bad quarters, but that’s not their worst nightmare. Their worst nightmare is having a bad quarter, and they can’t explain why it’s bad at the end of the day, right? So this, this is what really should be on the mindset of the CFOs. And if we just kind of go in with a thought process that, you know, RightRev, having this tool will essentially, you know, help you book your revenue correctly. I mean, you’re just thinking in the controller mindset. We got to think beyond that as well.
Dan Miller 12:05
I’ll just quickly add the thing we’re seeing with with these teams that are evaluating these these systems as part of a digital transformation project, is certainly CPQ–I see your wonderful t-shirt, John–is always going to be super important, helping sell and facilitating that process. Then we got to build people so we can get money in the door. And revenue used to be the poor stepchild. You know, people sort of think about it as an afterthought. Yeah, sure, the accountants, they’ll figure that out, or we’ll automate that later. I think that I know that as a part of some of the revenue model, sort of innovations that are happening now, I wouldn’t say revenue is more important, but certainly now, I think the teams are saying we need to do this all at one time, and that and not waiting until later to deal with the revenue piece, has really become much more part of the dialog and the narrative for these teams. And it’s super important. Frankly, it’s the smartest thing to do, right? I mean, is to do it all at once and and bring those projects together and solve that full, full stack solution. And I’ve talked about AI. I’ll get away from AI for a second. Really, just talk about cloud marketplaces, if you’re if companies are using Cloud markets, software companies, you know, cloud marketplaces to sell. There are all sorts of dynamics that happen in there that I think create complexities that aren’t really fully appreciated today, around revenue recognition. I won’t geek out on it too much, but I think these distribution models are changing. Obviously, you know, kind of that we talked about consumption versus subscription, etc. But I think there’s all sorts of ways that, again, back to the growth catalyst for the CFO. I think that make this, this full stack implementation and digital transformation, even more important today. So we’re happy at RightRev that revenue has moved up in the importance and trying to do it all as part of one process, versus kind of bolting it on later. It just works much better to do it all at once.
John Garvens 14:02
Let’s, let’s, let’s geek out a little bit. Dan, so let’s take consumption specifically. Earlier we were talking about how consumption has elevated in importance of revenue recognition. We’ve got, you know, you got our one time products. We’ve got our subscription products. We’ve got these consumptions. Now we’re starting to get scenarios to where we’ve got that hybrid model. I’ve got a little bit of subscription, but then I got some consumption layered on top of that. And it’s getting much more complex versus years ago, when models were simpler and you talked about the business model innovations. I’m sure that phrase is like, would make some CFOs go, “I don’t like when people start innovating the business model. You’re putting more on my plate. This is getting complex.” What are some of those trends that you’re seeing, and what can companies do about it?
Dan Miller 14:52
Well, I’m gonna actually come I’m very interested Zee and Bryce on this one, particularly, because maybe I’ll do the opposite. So after NetSuite, I was CFO of fastly. And fastly was 100% consumption back in 2015 that was sort of innovative. Not many people were doing it. Certainly, obviously the big guys were AWS and others. But as a startup, it was pretty unique at that point, and we didn’t have a lot of predictability. Back to Bryce’s point, I would have a good, good month, a bad month, and not of it wasn’t anything endemic in our business. It was just there was an election, or there was the Super Bowl, or there was, you know, some other thing that happened. And so the board said, Hey, we need a little bit more predictably. So we really started to create a managed service offering around we weren’t going to get to 100% and didn’t want to, frankly, but, but just some base layer predictability was how that’s what we innovated, was to actually get away from some of the consumption, which I think really hopefully Bryce and Zee will talk about more businesses layering on consumption. But this was sort of the opposite, just to make the argument around CFOs, have this, have this in abundance of how to deal with these issues of complexity around the business model. So I’ll turn it over to others around maybe the year, where Bryce was talking the other about consumption model coming in, versus, sort of my example, where I was trying to sort of layer in something non-consumption.
Bryce Baker 16:14
Yeah, it’s a dual edge sword for CFOs, for sure. The aspect of creating a revenue model that is more based on value instead of a flat subscription, and then trying to change the dynamics of, do we charge more for enterprise? Do we charge more by by user count, like all of the all of the notion and time spent trying to look at data to get the right, what we call like list price on a subscription product gets made simpler when you move to more of a usage product, for sure, And the sell externally is small, large we’re trying to create a product that grows with your value.
Zee Akbarali 17:05
Yeah.
Bryce Baker 17:06
It also takes the entry level aspect of pricing out of that as well. The dangerous aspect of it is it becomes less predictable, and that is where we do see a lot more adoption of minimum commitment and usage tier models that get better pricing, the more consumption that you use. And then now, even a step further in the evolution of it is, can I track those, can I track those aspects well enough that I can increase the minimum commitment or incent them to give a bigger discount on more of a minimum commitment, so that I have more predictability in it? So all of this comes together. I mean usage and consumption is a very large topic, and primarily for CFOs, just to take one second to think from from a pricing standpoint, from a revenue standpoint, from a forecasting standpoint, from a sales commission and incentive standpoint. All of it becomes a very, very, very fun topic, and you’re trying to create this balance of, how do we how do we maximize the amount of minimum commitment we can get out of a client that pairs well to their value story and our value story, but how can I not leave money on the table if we are truly providing value? So I will say one last statement. I’ll turn this over to Zee but in every mindset of product management and the revenue models, the go-to-market models that we think about. The one biggest message you can send is, how do I create a system? How do I create a product that makes people want to use it, creates the value for people to use it, and then I’ll use the dangerous and it’s sticky, because that’s, that’s the goal, right? We want people to use the products that are out there for to become sticky, but for to always be price-to-value in a good place for that client.
Zee Akbarali 19:13
Yeah, say Bryce, you actually hit on quite a bit already. I mean, but you’re absolutely right. I mean, CFO is predictable. It’s just, it’s hard to, you know, understand, like, what next month is to look like from a revenue perspective when you have consumption models. But consumption models just open up markets for you, right? So your market’s a lot wider. Folks like, you know that that come in initially, that maybe you can’t afford, like, the high price end, from a consumption model perspective, they’ll come in, all right? We’re using it more, you know, and now it makes sense to pay for it more. The stickiness is absolutely there as well. When you have the right technology in place, yes, you can set like, some minimum thresholds, but when you have all that data recorded, let the system kind of recognize based on the pattern of consumptions from the past to understand what your forecast would be like as well, right? And so if you are just leveraging Excel spreadsheets for these things, one they’re not going to be really well connected. And so it’s harder for you to, you know, actually forecast things out. And that’s another thing for CFOs, and it makes it a lot more difficult for consumption models. But if you have the right technology in place, it can really help you with that forecasting.
John Garvens 20:21
Yeah, otherwise, you’d have this whole, like, 75 versions of the same spreadsheet, and which one’s right, and who shared what with whom, and this person did it a little bit differently, and getting it in the same system done the same way, and all that. And I think the general theme that I’m hearing across the three of you too is that we’re we’re trying to increase the floor of our revenue. How do we do that? We could do some of that. You know, the consumption is like the icing on the cake, but we still want to have some cake there, which can be that subscription, the managed services, other software offerings, the subscription models. I’m thinking here of even, even my other business, because I’m an idiot and decided to run two businesses at once, but it’s a jiu-jitsu school, and so I’ve got a floor of revenue based on memberships, and then consumption is like, sometimes people buy merch, sometimes they don’t buy merch. I don’t know when they’re gonna buy merch. They’ll probably buy some, but it whipsaws all over the place, and it’s, it’s a nice high margin thing, but I don’t know when that’s gonna necessarily hit so not quite the same as what we’re talking about here, but just smoothing things out and taking advantage of that upside of consumption. I give you more value. I get more money. Everybody wins. Great.
Dan Miller 21:32
I’ll just quickly add here one other thing. So snowflake is our customer, one of our one of our anchor customers early on. And I just want to kind of make this point back to the earlier conversation, and it relates a little bit to what you were talking about, John, is they actually work from revenue back. And Bryce you said something, what is a booking and what is revenue under contract? And the reason for that is because what really matters within the shop is, of course, their customers, but is they got sales people, and sales people are getting compensated on revenue, not on bookings. So as a result, they work from revenue back, because that’s what’s actually incentivizing behavior internally, and so that that predictability and thinking through that sort of stuff, it doesn’t just permitate permutate through the P&L, but also through the commissions and their entire sales team. So I think there’s that. And I think back to you, John, I think that that behavior drives predictability, because you’ve got somebody who’s actually internally sort of trying to figure out how to smooth all of that out so that their compensation works as well.
Bryce Baker 22:42
Yeah, the fun aspect, and I you know, we’re covering this, but sales incentive compensation, the number one motivator of paying sales people is growth. And how do we align to them growing things?
Dan Miller 22:57
Bingo.
John Garvens 22:58
And the bit, the more, the more alignment we get, the more systematic we could be, the more operationalized we are. Going back to that audit, readiness and compliance we were talking a little bit. We’ve touched on PE, IPO, exit readiness, even. The more predictable we are, the more forecast more, the better able we are to to forecast what our revenue is that’s going to increase our valuation as well.
Zee Akbarali 23:23
Yes.
John Garvens 23:24
Zee, maybe you got a few things to say there. Since you were mentioning valuation earlier, I didn’t mean to put you on the spot like that.
Zee Akbarali 23:37
So absolutely. I mean, look, the predictability is key as part of the valuation exercise, folks are going to come in as part of their due diligence. They look at the systems. They look at tools as well too. But if they lose any confidence in your reporting process, the structure when they’re going through and they’re diving in and conducting audits as well, any material weakness that they find is going to significantly affect the valuation. That’s why it’s so important that, you know, these investments that are made up front, you know, builds the confidence in that reporting, and that falls right, you know, squarely on the CFO. There’s no one else in the organization that that they’re going to point to, it’s going to be squarely on the CFO. That’s why it’s so important that they have these right tools in place to support them.
Dan Miller 24:22
So can I turn that into a question, John? So maybe for Zee you in particular, which is up front, are these PE firms, including in their diligence? Obviously, there’s a zillion things to diligence. Are they? Are they diligencing the, I guess, agility for the target company to support new pricing and packaging? Or they sort of like, they just don’t, don’t ever get to that? As it’s sort of, oh no, we’re going to, we like the core business. We like this. We like that. We like, you know, that we like the market. And then they think about, okay. Once we’re in, well, that’ll be part of our, you know, kind of digital transformation, do they do? They look at it up front, or is it sort of ah, we’ll figure that out afterward.
Zee Akbarali 25:07
No, no, it’s up front. I mean, part of, part of the consideration of buying that company is, it may be like, “Look, we weren’t. We’re going to acquire more companies that we’re going to have this organization enter into new markets.” They’re looking at all those things. So, yes, you’re right about like that. The scalability and the ability to actually having that agility to change and adjust as well is very key as part of your evaluation story. And they’re looking fit and keep buying that. If it is messy, they’ll include a discount, and then they’ll see it as like well, we could come in and put a tool in and increase the valuation as part of our exit story. So at the end of the day, you know, they may still purchase your company, but they may end up purchasing at a discount, which, if you’re the CFO still at that company, you may not like.
Bryce Baker 25:51
It’s, it’s, it can be seen as both a material weakness and an opportunity.
Zee Akbarali 25:57
Exactly.
Bryce Baker 25:58
As part of the value creation thesis, the one thing, and we try to give guidance to this on particularly like founder led owners that are going through this for the first time, and may not know, in many of the recommendations around systems and incorporating system, getting out of Excel and getting out of manual processes, it’s it’s not going to prevent you from going through a transaction, it’s just that they’re going to discount that, because they’re going to read this from two specific angles, as I’m going to need to do this. And so there’s going to be Need A Budget there that I need to incorporate in doing this, and it’s going to take me, and this is the important part, time to do this because hopefully everybody knows this, but you know, from from a private equity lifecycle, they’re trying to create value and exit, and exit is always there, and so anytime that is going to be included in there, particularly if it’s not an opportunity, or it’s not an opportunity where there’s they’re going to see it as kind of a value add to turn into something that’s what they’re looking at evaluating is, how do I reduce the time? If I can exit tomorrow, I’d exit tomorrow at 2x 3x 4x but even further down the road. And I think this gets into one of the most important aspects of why audit readiness and compliance is in here, even for private companies, and why private equity firms also push more towards still doing an audit every year is somewhere down the road, if a company is getting acquired, it’s big enough, one of the exit strategies who can buy me, the firms that can buy me get smaller and smaller and smaller. And so the other option is that that starts again is, well, do I need to IPO? And so you have this balance between who are my potential buyers, and if those buyers keep getting smaller and smaller, and my industry, my products, aren’t necessarily in their wheelhouse, do I need to start considering an IPO? And that’s a that’s a big consideration is, Am I ready to IPO? Because that readiness, and we deal with this a lot within we’ve got a transaction execution division within our company, as well as, is your exit strategy ready, regardless of whether it is a private exit or whether it’s a public exit.
Dan Miller 28:24
Yeah, can I just want to talk a little bit more about these things take time that resonated with me, which is something we’re in the bowels of these very complex implementations just just like Accordion, and I’m sure there’s some exact percentage through some survey, but it is. The vast majority of these implementations are around data, data, data, and the hygiene of that data. And if you can have a wonderful stack to even start with, still going to have some cleanup, perhaps you’re still going to have some things you’re going to have to think about, if you’re migrating, pricing and packaging, all that sort of stuff has to happen after all the stuff that we’ve talked about before, but, and it sort of just goes back to the office, to the CFO again, sort of, why did I sort of mention the CIO role? This is exactly why is you can’t just sort of be about give me my ERP, you know, you really have to be thinking about that up upstream data, significantly and not and the the hygiene of that data and being think about thinking about how to make these systems flow from one to the other. We always say it’s a little ridiculous in some ways, but we can get somebody live on a very complex RevRec very quickly, as within weeks and months if the data above us is clean. That’s why we’ve partnered with Salesforce. That ability to take that Rev Cloud, CPQ into Billing right into RightRev is super powerful. It’s all pre integrated, all of this stuff, all works. But if that data is above us is clean, we’re ready to go so so I think just it. It can actually be fairly quick. So it’s really about keeping that data clean.
John Garvens 30:04
And with keeping that data clean. I mean, that’s the big question right there. How muddy is it upstream? Because a lot of times what I’ve seen a lot, especially being like the CPQ guy in the room, is your CPQ is set up in such a way that it doesn’t play nice with billing, and it’s not going to play nice with Rev Rec. And that happens a lot, because sometimes CPQ is built in this whole silo. So we need to consider the full end to end process to make sure that we’re backing into that data, data, data, starting with the end, in mind, backing into it on the front end. To know, as I’m even setting up my products to sell for my sellers, so that they can quote and actually sell what we offer. How does this need to look on the back end? What does finance need from the sales side to make sure that they could do their jobs? And that’s where we start to get as you mentioned, the Salesforce is the core platform, and then you’ve got CPQ and billing, or you’ve got Revenue Cloud, or whatever we’re calling it this week, and then that leads right into something like a RightRev, which can work for both products. Probably for a separate call, but the nerd in me really wants to talk about RightRev for customers that are on CPQ, but moving to Agentforce Revenue Management. That’s a probably separate conversation, but at the end of the day, all that data exists for the purpose of getting metrics that matter. So as you think about your financial metrics related to revenue recognition. Maybe Dan, we can start with you. What are your What are your favorite metrics to track to help you understand the health of the business, how to increase your valuation, and things of that nature?
Dan Miller 31:43
Yeah, nothing really, that we haven’t already talked about. It’s obviously, is it growing, and is it growing in the areas with the best unit economics? So we don’t talk a lot about in these things, about gross margin, but it is absolutely one of the things that we’re working on is as we expand our platform and and add some forecasting capabilities, sure, we want to be able to help CFOs predict, predict revenue, but also the unit economics, because those consumption models sometimes, as we all know, you’re having to pay some LLM or some platform in some way, shape or form, and those can actually carry lower lower gross margins, even if they’re growing. So there are trade offs, obviously there that we can talk about, but I think that that, that that unit economic piece is not and one that drives all sorts of things around the SaaS metrics that that I don’t think are going away, around the ability to retain those customers and drive significant growth and profitability off of off of those. The one thing I wanted to just step back quickly on is around the ability to do these implementations, and do them in a way that gets customers through things more quickly, usually. And I think this is where accordion would agree, is the 80% to 90% of these things are actually fairly straightforward. And it gets back to your sort of, what makes these things hard is usually, it’s the exceptions, right? And it’s the funky contract, it’s the we had to bend all of our roles that we say we’re never going to do to get some deal done. And generally speaking, those end up being very challenging. And that’s where systems like this, and to your point about keeping data clean and then ultimately making those SaaS metrics work, or business metrics work generally, more broadly, is around trying to one stay away from those exceptions. But when you have them, having the systems, the process, the controls in place to be able to just record those without having to do it, as I always say, doing backflips, to be able to get those things done, which hold up close, which hold up, the ability to report the number and back to Zee’s point bill, the ability to explain those numbers in a way that then is palatable to investors. And maybe back to Bryce’s earlier comment about companies getting acts, you know, public access to public markets and whatnot. I saw now at NASDAQ is going to start to get little pieces of the OpenAI financing and other things, and be able to include them in their their their indices, and give access to everybody who wants to have access to those kinds of things, those that translate directly back to private markets, needing to be able to be auditable and have SEC compliance. So a whole bunch of stuff in there, but I’ll throw it to others to sort of add in. But I think those edge cases and those exceptions, I think, directly relate back to your point about driving good metrics. Those can actually really screw up your metrics if you don’t know the unit economics and the sales economics around what those exceptions are driving.
Bryce Baker 34:53
So I’ll hit on a couple of different of the points that you had, Dan, is like. The goal of every company, from a sales and a finance standpoint, is to be able to get cash in the door as quickly as it can. But cash is not physical cash, right? It is revenue recognized. And so when, when we look at that, we use other concepts of DSO. And so from the time that I’ve sold it to the time that I’ve billed it to the time that I can recognize it is very importantly, how do I close that window down as much as I can? But this leads into a couple of other things. Is what is increasing your DSO time, and many of that is disconnects between CPQ system, your billing system and your revenue recognition system, most primarily manual processes, swivel chair, swivel chair, all of that concept. So when we look at implementations within any of these three systems, and this is probably important to say, they’re typically implementations, typically digital transformation. If you’re doing it right, it’s digital transformation. And one of the things that we still see is more of a failure, is somebody only looking at sales from the sales perspective, somebody only looking at billing from the billing perspective, and somebody only looking at revenue and accounting from the revenue accounting perspective. And that has led historically to that, that it’s somebody else’s downstream problem, which is why we try to use these systems to get away from that. But more importantly, why do we try to push a mindset here at accordion of it’s Lead-to-Cash, and it has to be Lead-to-Cash because you’re trying to empower you, you’re trying to improve it, you’re trying to reduce it, you’re trying to make it honorable and compliant.
Zee Akbarali 36:42
Yeah. I mean, you guys hit on it. I mean, look CFOs, like should now already be looking past just simple like gap revenue, right, recognition? They should be caring about, like their EBITDA quality. They should be looking at the predictability of deferred revenue as well too. And if you you know, have the right models in place and the right technology in place, like you know, for your forecasting shouldn’t just be an educated guess overall, right? So having these tools in place will definitely assist you and drive that value for you as well. Look RightRev can be the engine that’s there, and at Accordion what we do well is looking at not just the overall technology and how we can support you, looking at the data, the processes that are in place, right? And going from, you know, initially looking at the contract, I’ve heard from CFOs that, yes, you know, they just signed this contract, and then the CEO was asking me, that was a big one, what are the margins on there? What are we going to gain? And it’s like, we’ll have to get back to you. What do we have to make on this right? So having that looking, that entire process from end to end does, does really matter, to really give you that contract to cash visibility as part of all of this.
John Garvens 37:53
Bryce, you were mentioning the the the different systems, and sometimes we have too much of a lean our mix is wrong. If this is an audio track like we’re just we got too much sound in this bandwidth, and we got too little over here. And one of the things when I’m talking to clients, that I always encourage, even if it’s just a CPQ project, is you got to have in the room people for more than just sales. If you just end up with VP of Sales or CRO in the room, CRO less of a problem, but if just as VP of Sales led CPQ project, we’re going to make this really easy to do on the sales side, but then downstream. All right, finance team, you figure it out. We need to make sure the finance is in the room, compliance, legal, sales, product management be in the room, like, let’s just have that conversation. What is a product? What? How do we price our products? How does this product actually work? How does the pricing work? What are the business models in place? Getting a broader swath, a broader cross-section of the business in the room, even if it’s just a CPQ, is sales tool project, because it’s going to affect the broader business.
Dan Miller 39:04
Yeah, 100% and I think probably a topic, well, definitely a topic for another day, because it’s a big topic around revenue leakage. That’s how you get it is if you do not have a, you know, a and it’s tough. I mean, you got all these people in the room. You got all
Dan Miller 39:19
Everybody’s busy, yeah.
Dan Miller 39:20
Yeah, you got different initiatives. I mean, you kind of was thinking of Zee’s comment about the big contract that comes through. It is sort of analogous to the deal desk, where if you don’t have the right people in the room, something gets done, and you just end up with a really bad situation, similar to your point about CPQ, you have to get the stakeholders. This is a very it is such a blend of strategy all the way down to execution that you need to get the right people in the room that. And it is really hard, because some people are very tactical, and it is hard for them to think strategically, or they just haven’t been they’re not
John Garvens 39:54
Or the opposite.
Dan Miller 39:54
Or the opposite exactly, people that are like, no, no, you guys just make it work. And it is very. Hard to do these projects. Great to have an Accordion to help guide you through it. And great to have the right the software, the right capabilities. That’s the one thing I would add here is when you are looking at these systems, it can look you can see the AI hype. You can see all whatever, some bright, shiny object kind of capability. Look at reference ability. The folks that have been there and done this for a very long time have been through the battles we’re adopting AI, we’re adopting all of the current technologies, whatever you may be, may be looking for in those kind of new, bright, shiny objects. Partner itself with people who’ve been been there and done that. Jagan Reddy has been doing this for a long time. He knows he has seen everything that there is, as has Accordion. Those are the partners you want to work with to go into battle and to actually solve these problems and then guide and work with your team, which are super complex to be able to manage internally so that you get to a successful outcome.
Bryce Baker 40:58
No, that’s, that’s an absolutely great point on that we should probably pivot to the future. I did want to drop one last and it has to be mentioned, kind of revenue recognition metric, kind of just finance metric. Days to close is, is, you know, up there with revenue reporting, DSO, all of that, but one of the biggest things, particularly around compliance, particularly around driving finance, is seriously days to close. We even have companies that try to do journal runs on a daily basis, just to make sure by the end of the month, they are doing whatever they can to try and drop that metric lower and lower and lower Dan, would you agree?
Dan Miller 41:47
I would, and it is. So I’m going to do my, can I do my AI public service announcement?
Bryce Baker 41:53
Yeah, we’re moving to the future anyway.
John Garvens 41:55
By the way, have you heard about Agentforce?
Dan Miller 41:59
So that is, that’s the number one use case, right? Is around close management today, and then I think as we move more towards and just do the I’ll do that because we’re leaning in hard on AI, but there’s so much hype in there, but it is really around, ultimately, the the outcome you’re getting is that, hopefully a bit more accuracy, but obviously closing more quickly, what I will tell you is having just the 10 today, an AI summit out in Sonoma last week out with all of the usual suspects around, all the brand names I will not mention now, there’s a bunch of FOMO that’s going on, I think, in this market around AI. And what am I missing? Because you just go on any, any public posting, and you see everybody’s doing all of these great things, the buy versus build thing, I think is super interesting. And there was a lot of discussion over the course of two days on this. What I would say is, and this is sort of a little bit of my opinion, but I think it is a, I think it is a bit of a synopsis of what happened is that build thing is really cool for one off sort of small scale things, anything that is going to be deployed needs to be secured, need to needs to be controlled, all of those sorts of things, you’re still better off buying it. What I love about what we’re doing at right rev and others are doing this as well, to be super clear, is you get that pre built application that is purpose built in our case for revenue recognition, revenue automation, but we now have a capability where you’re able to extend that, and that’s leveraging AI technologies to support back to my earlier comment about those edge cases. You do an acquisition, you do a new you’re testing out a new product, and you’re like, Ah, I don’t want it to your point, John, am I doing this in spreadsheets? And I think what that’s what you’re going to see. You’re going to see these, these, you know, even, I’ll just, even the legacy providers, I’ll name them right now. But Salesforce being one, they’re not sleeping. They know what has to happen. They they’re they have a huge install base that are saying, What are you doing here? And they’re launching things. Some of it will work. Some of it won’t, but I think a lot of it is around. You still need that government application that you’re going to, quote, unquote, have to buy. And then within that, in the old days, you scripted the heck out of it, and that, having been subject to that, particularly in my days at NetSuite, wasn’t great, to be perfectly honest, right? You end up with spaghetti code, or you just end up with something that, just over time, gets less and less valuable and more and more complex. I think the ability to do that yourself with leveraging AI technologies is super exciting. And what I would say is that, is it not just my opinion? I think that was the across the room opinion with some of these, again, very large companies that you would know, some of whom are owners and deployers of these LLM tools. So I’ll turn it over to the others to sort of comment on that, whether that resonates or not.
Zee Akbarali 44:48
Yeah, you know, Dan, you bring up a good point, and also on the build versus buy, right? So CFOs are sometimes have been asking, I’ve been seeing these tools. I’ve been seeing a lot of them, like, I can just go and maybe prompt something. Build out an application for me. Does it make sense for me to just go do that, rather than looking at some of these point solutions within the finance function that are available? And I always ask, like, Okay, if you’re going to build that, is it audit ready? Is it audit proof? Are you feel comfortable enough that someone comes in for a due diligence or conducts an audit, because they’re going to look at it from end to end, that AI tool that you created did not hallucinate, and didn’t hallucinate at a certain point where there was a material weakness, right, and and there was a fault there. Look, leverage these tools. They’re there. They’re there to help you, but recognize that the technologies that are built for the office of the CFO, they’re going through making sure that there’s enough training inference in their tools that the audibility exists. If an auditor asked, like, you know, give me that audit log, the event log, report of what it went through before it generated this report, all those checks and steps are done. There are you going to actually do that in your custom build tool or not? And frankly, go back and look at your core competency as a company like everyone needs to stop thinking of themselves as software companies just because low code, no code exists, like stop trying to become a software company. Focus on your core competency as the CFO, and what you need to do to deliver that net overall growth in the in the value creation that you’re trying to create.
Dan Miller 46:13
Can I just make one real? Do it on a no names basis? A very good friend of mine did a big IPO two years ago, AI semiconductor company, and I talked to him about this stuff all the time. We talk all the time, and he just basically says to me, You know what my company is, you know, just dominating its market right now. We’re growing like crazy. If you think I’m going to roll out an AI technology that has any chance of putting that my stock price at risk, you’re crazy. My audit committee would think I’m crazy eventually, sure we’ll get there, but right now, I’m still establishing credibility with the street about just banging out numbers every quarter and hitting them and exceeding them and all of those sorts of things that you do in public companies. And I think in some ways it was a real sort of reminder to me that, yeah, these things are pretty cool. And it’s cool to eliminate head count. It’s cool to sort of, maybe sort of automate things, and with using AI technology to try these things, we like in finance to try these things, at the end of the day, the CFO’s job is to preserve value and shareholder value and anything that puts out that risk. So I think these things will be adopted in time. I There is no I don’t, I don’t think there’s fear of missing out. Keep an eye on it, obviously. Talk to your vendors, like, like Accordion and RightRev and Salesforce, but I think, yeah, I don’t think you need to. The train has not left the station.
John Garvens 47:30
Yeah, the FOMO piece. It’s part of the reason people feel FOMO. And you mentioned this, Dan, you know, from a PR marketing, advertising side, it’s all we hear about today. Is AI, this AI that everybody just needs to calm down. It’s like, is it significant? Yeah, but is it a life or death scenario where if you don’t develop and deploy AI this week, your business is going to just tank? No, you’re going to be fine. We could almost think of it too, as a form of altitude sickness if you try to go too far on this AI futuristic sort of thing, but you haven’t done the testing and the rigor that you were describing, Zee, especially if you’re trying to vibe code your way to some sort of audit ready product. No, no. What could possibly go wrong there? You know, Hallucinations? We don’t want hallucinations with our with our financial data, that’s not going to go well. So I think move forward, yes, but move forward with thoughtfulness and mindfulness and precision and accuracy and thorough testing, because these hallucinations are very real, and they could have a very real impact on your business and your metrics, therefore your evaluations and all these things, and we don’t want to get ourselves in trouble just because we’re trying to be on the cutting edge of technology. And I say this as a as a pseudo tech, bro, I guess.
Dan Miller 48:50
Well, but you actually make a great point is when we talk about a lot, which I think in some areas, probabilistic works great if you’re estimating T&E, accrual. Sure, if you’re off by five percentage numbers, you probably no one’s losing their job. But when you are off by that much with revenue, some people are losing their job. So we always we’re built on a deterministic foundation, a rules based engine that we will enhance with all of these new technologies, and they’re going to be great. But ultimately, the core of what we do, given its revenue, is, is absolutely deterministic. So I’m actually right, glad you made that point. And I think it is absolutely true is that hallucinations being an extreme, just even at its core, is probabilistic. And we need repeatability, predictability within this revenue stuff to be particularly precise.
Bryce Baker 49:41
So a couple different elements is not all AI is built the same, not all AI has the same quality.
John Garvens 49:53
Yep.
Bryce Baker 49:53
But when we look at a buy verse build scenario, for the most part, for the really serious. Players for the people that are building this, for you to buy the whole aspect, and one of the most important pieces to it is they’re building it on top of an expectation of data that is going to be there and that is going to be accurate. And Dan, I think to your point, especially around writers, especially around revenue recognition, it is built that way because it has to be governed that way, which means it’s a great use case to set AI on top of.
Dan Miller 50:25
Yes.
Bryce Baker 50:26
Introducing AI on top of a very bad data source may lead to not just delusional results, but also just wrong results. And that’s where we see there’s a lot of options out there for AI, there’s probably five or six new companies, new offerings popping up every hour, not even every day, but every hour. They’re not all going to last, but what will last and what to make the purchase on. That’s where education is very, very important. And making sure that you educate yourself, you look at it, you look at the use case, you look at the data that you have that’s going to empower that use case, because all of those things are going to produce whether or not that use case is valuable and trustworthy.
John Garvens 51:13
Yeah, the AI thing is very exciting, and these business processes are one of the best places. As much of a public AI curmudgeon as I am, full disclosure, I talk crap all the time, but we have in the Lead-to-Cash process one of the largest and most complete data sets in the entire company. And if that data is accurate and it is precise and it is trustworthy and reliable and consistent, AI is going to be like pouring NOS on it. But also, if it’s kind of a cluster and it’s not really well organized, and we pour a bunch of NOS on that, not too good. Let’s wrap it up. We’re right at time resources and action items. So maybe we go around, starting with Dan, if you think about resources, obviously the right rev website is going to be one of those resources. What resources or next action items could I take? I’m a CFO at a business. I’m interested in learning more about this. I’m interested in improving my business, maturing my revenue recognition processes. What are some resources and action items I can do today or start on today to move in that direction?
Dan Miller 52:20
Yeah, I’ll just give one, just because there are so many right now. The one thing that’s been actually really cool these would be that started my career where none of this existed, is the CFO communities, just like you have John, the ability to sort of find this information are now proliferated and actually super credible. There’s absolutely incredible. But the one I’ll point to is just MGI Research. They’re the market research firm that we watch the most, because they are the most credible in getting into the weeds. There are other firms in our particular market, you know, Gartner, Forrester, or all these guys sort of do the bigger markets quite well. But within what we do, MGI Research has done some stuff. They’ve looked at, is this a bubble that all the way through? What are the CPQ vendors, obviously into revenue automation? So I would direct people to MGI as well.
John Garvens 53:14
Zee.
Zee Akbarali 53:15
Look, there’s, there are a number of resources for for CFOs. Accordion has been focused primarily within the Office of the CFO. And look, a lot of folks are figuring this stuff out as well. We do have a really great podcast too, and we have a number of articles that you can go and listen to. We have also had discussions with a number of our clients as part of that and see what they’re sort of struggling and working through. And you know, it’s refreshing sometimes for CFOs, when they come back and they listen to it, they’re like, Okay, I guess I’m not the only one. Only one trying to deal with this and trying to figure it out. You know, just don’t feel like you need to go about this yourself. Understand there are partners out there that can assist you as part of this, just to go and continue to have conversations with your peers and others. Everyone is willing to have conversations about this price.
Bryce Baker 54:00
I’m gonna do the double plug here. So we operate within the Office of the CFO. We have white papers that go out regularly on State of the Union for CFOs. We have another one specifically focused on AI as well, and AI enabled solutions outside of that. This podcast and the series around this podcast is a great way of getting educated and supporting to, you know, bring you know. Talk to John. Give him some trends, give him some questions, give him some other topics that you’d love to see as well.
John Garvens 54:36
Yeah, I’m happy to talk about all this stuff. If you have any, any of those things: feedback, comments, topics you want me to discuss, podcast@garvensconsulting.com is a way to get that directly to me. I read every email, so send it my way. I reply sporadically. I’m terrible at inbox management. That’s a whole other conversation, but I wanted to thank everybody for being here today. It was it was a privilege to host you all. Hopefully we do this again, sometime. We can deal and drill into some of these other topics as well, and maybe go spelunking and deep diving on them. Thanks everybody for listening. I appreciate you. Make sure that you do the whole like, subscribe, bell thing, Apple Podcasts, Spotify all that stuff, and, of course, the YouTube channel. I appreciate your support and look forward to the next episode.
Dan Miller 55:26
Thanks, everyone. Thanks, John.
Bryce Baker 55:27
Thanks John.
Dan Miller 55:28
Thanks, guys.