The six-year CFO journey at Pantheon – where we increased ARR ten-fold to and through $100 million – taught me a ton about what to do and what not to do.
I joined Pantheon, the leading SaaS website operations (WebOps) platform, in early 2017 as the company demonstrated its product-market fit (PMF). With the benefit of hindsight, below are my five key lessons that I hope could help someone scale the next SaaS unicorn (I have a lot more to learn myself):
Learning 1: Scaling requires customer segmentation, a.k.a. “Strategy”
Product-led growth (PLG) companies with exceptional product pull often face the dilemma of choosing whom and how to serve and whom not to target in a broad market, usually with increasing demand for enterprise sales. Before investing in scale, it is vital to develop and synchronize on a robust segmentation strategy across your organization.
Why is synchronization essential? Think of it as an orchestra playing in harmony. When your product, marketing, sales, and investor narratives are in sync, your organization actually creates the magic of symphony. By prioritizing this alignment, Pantheon successfully shifted its sole focus on developers to creating a new product category for marketing owners of digital properties and was successful in delivering and explaining a remarkable value for our customers.
Critically, this means aligning the team around very specific ways your product creates value, your competitive moat, your target customer segments where the segmentation is based on publicly available data, and buyer profiles. This alignment ensures everyone is moving in the same direction towards a shared vision.
The CFO and their team play a crucial role in this process. They help identify and assess the opportunity for each customer segment and ensure that each segment’s entire customer lifecycle is aligned with the operational setup (See Learning 3: Organizational Design), construct a financial model for each segment’s holistic unit economics, and determine investment requirements. This collaborative effort ensures a well-defined and executable strategy.
See if you are successful by asking your VP and Director level leaders to articulate the strategy, including customer segmentation, every quarter as you set goals. The magic, if it exists, will be there for everyone to see.
Learning 2: Establish a data culture early
While it may appear tactical at first glance, establishing a data culture is a critical step that is often overlooked. Similar to building an overall company culture, it may lack a clear, immediate return on investment. It is also easy to overlook because its impact is much less evident prior to PMF.
The key objective at this stage is tracking the entire customer lifecycle from awareness to sale, engagement, expansion, support interaction, and churn. Without control over these customer lifecycle metrics, operationalizing the strategy becomes excruciatingly challenging, like playing the orchestra without the conductor.
Data culture begins with product development. It involves architecting the product with data capture in mind and implementing a coherent data strategy for each new product release. This extends to building the discipline of selecting and using internal and external tools, appointing someone accountable for an enterprise-wide customer and product data models, and considering data flows and process change management when adopting new internal SaaS tools.
Investing in a centralized team of data engineers to build an Enterprise Data Warehouse (EDW) and aligning it closely with your Finance team, or an analytics team, will ensure that your operational teams always have the support they need and are held accountable to making data informed decisions.
Making informed decisions and establishing cause and effect relationships requires historical, segmented customer behavior data. Lacking the culture manifests itself in leadership team discussions where people debate data quality issues and outcomes, as opposed to logic used to make recommendations. Can you track conversion rates and time in each step for your most important customer segment cohort, acquired two quarters ago?
Learning 3: Align organizational design with customer journey
Organizational design plays a vital role in ensuring successful execution. That involves aligning customer workflows with their buying preferences and your unit economics. Equally important is ensuring that employee skills align with the business model, for example, avoiding the mismatch of hiring high-priced account executives for low-value deals.
It’s essential to place different departments in the most suitable homes based on prospect and customer requirements. This means considering whether roles like business development representatives (BDRs) are better placed in sales or marketing or Customer Success placed under sales, engineering, or elevated to a C-Suite status. These decisions need to be based on customer needs and how they like to learn about, buy, and use your product. Those structures may also need to change as your business volume or growth shifts from one customer segment to another.
For the customer-facing organizations, you may define success by having predictable customer onboarding times, clear compensation structures for the sales organization, minimal customer complaints about excessive handovers, and a well-defined prospect-to-customer journey. Elsewhere, success means clear roles and responsibilities (check your employee surveys!) and rational span of control, avoiding situations with three or fewer reports per manager, and, to the extent feasible, avoiding single points of failure.
As a recurring theme, the ability to forecast and explain conversion rate variances at any given point indicates a clear and well-structured customer journey. (Note, this also requires pre-existing data culture discussed above.)
How many teams have touched your median complexity, median ACV customer that was onboarded last month?
What was the time-to-value for that customer?
Learning 4: Develop pricing and packaging to maximize value creation and capture for each customer segment
Pricing and packaging is the most important manifestation of strategic alignment of the entire company. In this context, aligning pricing and packaging means ensuring that it is consistent with customer segmentation and unit economics.
When pricing and packaging are inconsistent with the overall strategy, you may attract the wrong customers to ill-fitting packages, stymie usage and net expansion, hinder optimal product development, and misallocate marketing resources.
Consider the example of our own experience. By making changes to our packaging (with the support of the OpenView team), we witnessed a remarkable doubling of growth a few years after achieving product-market fit. We regularly revised our packaging every 12-18 months, with more significant changes every three years, especially concerning usage and evolving upmarket lead base.
These adjustments proved particularly effective in navigating recessionary pressures and inflation. Most importantly, these changes positioned us as pioneers in the early creation of the WebOps category.
To see if you are successful, observe the workflows around deal pricing discussions, internal deal approvals, billing inquiries, and reliability of usage forecasts by segment. The packaging should be easily understandable by your customers as well as sales and customer support teams. Needless to say, pricing should be administratively straightforward for back-office teams to manage. How many SKUs and business and operational rules around SKUs do you have?
Learning 5: Scale the finance function to act as a Chief Performance Officer
As a software company scales, it becomes imperative to scale the finance function as well.
The GTM (Go-To-Market) and product organizations should have dedicated business partners within the finance and analytics functions (those can be separate or combined, and ideally centralized to avoid silos). These partners assist each of the operating leaders by helping them identify problems and breaking down silos, for example, by ensuring all departments think of and forecast based on customers in the same segments even in situations where it could be more natural for one of the departments to think of market segmentation differently.
A dedicated strategy team within the finance organization, closely aligned with the analytics unit, should support the Executive Leadership Team (ELT) with a comprehensive outside-in perspective. In the current market, a well-capitalized company may also use this function to review acquisition opportunities to accelerate the product roadmap, buy revenue, or expand TAM.
On the accounting front, it pays to ensure accounting methodology is synchronized with how the financial planning and analysis (FP&A) team builds the financial and operating model. This enables better follow through from operational planning to financial analysis to GAAP presentation; it also ensures that accounting is acting like a force multiplier for the finance team.
The clearest measure of success is the symbiosis between the financial model and operational model, where forecasting forms the basis for key operational aspects of the business and allows for clear performance evaluation. Most key aspects of the business (pipeline, close-won rates, usage, gross margin, etc.) should be forecasted based on operational drivers, such that both positive and negative variances can be explained and, if the root cause is under the company’s control, acted upon. For the executive team, this level of granularity allows for decision-making that optimizes optionality, especially during external events like a pandemic or a funding freeze.
Lastly, incorporating best practices in top-line forecasting, such as taking a longer-term view, considering the Total Addressable Market, evaluating the impact of strategic choices, analyzing competitive dynamics, and ensuring operating actionability and scenario analysis, showcases maturity of the pre-IPO finance team.
So, what’s the CFO role exactly?
The finance organization is unique in its unbiased perspective and inherent visibility into all stages of the unit economics equation.
Collectively, your team should aim not only to solve problems but also to identify them ahead of others in the business. You should act as a Chief Performance Officer – driver behind the cadence of experimentation and learning. This ability of the company to evolve its execution is the most critical lever for value creation and is what will separate Darwinian winners from the graveyard of companies not able to adopt fast enough.
Mark Khavkin is the former CFO of Pantheon; the views expressed in this post are solely his own and do not reflect the views of Pantheon or of OpenView.
Note: Some of the companies referenced are OV portfolio companies. For a full list, please see our website.
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