Category Archives: Board

How To Present a Quarterly Sales Forecast to Your SaaS Company Board

While most companies put real thought into how they present numbers in their post-quarter board decks and other management reports, one area in which you’ll find a lack of discipline is in how they present quarterly sales forecasts to the board.

They’re typically done as a quick update email to the board.  They’ll usually mention the forecast number this quarter (but only usually) and only sometimes include the plan and almost never include the prior-sequential or year-over-year quarter.  Sometimes, they’ll be long, rambling updates about deals with no quarterly number at all — only ARR per deal on an list of deals with no idea which permutations are likely to close.  Sometimes, they’ll confuse “commit” (a forecast category status) with “booked QTD” — a major confusion as “commit” is only “done” in the eyes of an optimistic sales VP — I have little interest in the former (unless it’s part of a general, proven stage-weighted expected value) and a lot of interest in the latter (what actually has been sold thus far).  They’ll often use terms like “forecast,” “commit,” “upside,” “worst case,” and “best case” without defining them (and questions about their definitions are too often met with blank stares or squishy replies).

In this post, I’ll discuss how to present these forecasts better.  If you follow this advice, your board will love you.  Well, they’ll love your communication at least.  (They’ll only love you if the numbers you’re presenting are great to boot.)

The Driving Principles
I think CEOs write these hastily dashed-off forecast emails because they forget some basics.  So always remember:

  • Your board members have day jobs.  They’re not necessarily going to remember your plan number, let alone what you did last year or last quarter.  So help them — provide this context.  (And do the percent math for them.)
  • Your board members care about deals, but only at a summary level and only after they’ve been given the numbers.  They typically care about deals for two reasons:  because they might be able to help if they know an executive at the target company and because they like to see if the deals that close are the same ones management said were “key deals” all quarter.
  • Communication with your board members will be more effective if you have standard definitions for “forecast” or “best case.”  I like to define “forecast” (at the VP of sales level) to be 90% confidence in beating and “best case” to mean 20% confidence in beating.  This means you get to miss your forecast once every 2.5 years and you should beat your best case once every 5 quarters.  See How to Train Your VP of Sales to Think About the Forecast for more.
  • After hearing a forecast the next question most board members will have is about pipeline coverage.  Ergo, why not answer that up front and provide them with the current quarterly pipeline and a to-go coverage ratio to get to plan.  To-go coverage = (current quarterly pipeline) / (new ARR bookings needed to get to plan).

How to Present a SaaS Company Quarterly Forecast
So, now that we’ve covered the logic behind this, let’s show you the spreadsheet that I’d embed or attach in a short email to the board about the current quarter forecast.

how to present forecast 2

The Question that CEOs Too Often Don’t Discuss with the Board

Startup boards are complex.  While all board members own stock in the company their interests are not necessarily aligned.

  • Founders may be motivated by a vision to change the world, to hit a certain net worth target, to see their name in an S-1, to make the Forbes 500, or — and I’ve seen crazier things — to make more than their Stanford roommate.  First-time founders with little net worth can be open to selling at relatively low prices.  Conversely, serial successful founders may need a large exit simply to move the needle on their net worth.  Founders can also be religious zealots and take positions like “I wouldn’t sell to Microsoft or Oracle at any price.”
  • Independent board members typically have significant net worth (i.e., they’ve been successful at something which is why want them on your board) and relatively small stakes which, by default, financially incents them to seek large exits.  While they notionally represent the common stock, they are often aligned with either the founders or one of the investors in the company — they got on the board for a reason, often existing relationships —  and thus their views may be shaped by the real or perceived interest of those parties.  Or, they can simply drive an agenda that they believe is best for the company — whatever they happen to think “best” means.
  • Venture capitalists (VCs) are motivated by generating returns for their funds.  Simple, right?  Not so fast.  VC is increasingly a “hits business” where a few large outcomes can mean the difference between at 10% and 35% IRR over a fund’s ten-year life.  Thus, VCs have a general tendency to seek huge exits (“better to sell too late than too early”), but they are also motivated by other factors such as the expectations they set when they raised their fund, the performance of other investments in the fund (e.g., do they need a big hit to bail out a few bad bets), and their relationships with members of other funds represented on the company’s board.

In this light, it’s clearly simplistic to say that everyone is aligned around a single goal:  to maximize the value of the stock.  Yes, surely that is true at one level.  But it gets a bit more complicated than that.

That’s why it’s so important that CEOs ask the board one question that, somewhat amazingly, they all too often don’t:  what does success look like?  And it doesn’t hurt to re-ask it every few years as any given board member’s position may change over time.

I’m always shocked how the simplest of questions can generate the most debate.

Aside:  back in the day at Business Objects (~1998), I suggested bringing in the Chasm Group to help us with a three-day, strategic planning offsite.  I figured we’d spend a morning reviewing the key concepts in Crossing the Chasm, at most one afternoon generating consensus on where we sat on their technology adoption lifecycle curve, and then two days working on strategic goals and operational plans after that.

Tech-Adoption-Lifecycle-01

With about 12 people who had worked together closely for years, after three full days we never agreed where we sat on the curve.  We spent literally the entire time arguing, often intensely, and never even got to the rest of the agenda.  Fortunately, that didn’t end up impeding our success, but it was a big lesson for me.  End aside.

So be ready for that simple question to generate a long answer.  Most probably, several long answers.  In fact, in order to get the best answer, I’d suggest asking board members about it first individually (to avoid any group decision-making biases) and then discuss it as a group.

But before examining the answers you can expect to this question, let’s take a minute to consider why this conversation doesn’t occur more often and more naturally.  I think there are three generic reasons:

  • Conflict aversion.  Perhaps sensing real misalignment, like in a bad marriage the CEO and board tacitly agree to not discuss the problem until they must.  You may hear or make excuses like “let’s cross that bridge when we come to it,”  “let’s execute this year’s plan and then discuss that,” or “if there’s no offer on the table then there’s nothing to discuss.”  Or, in a more Machiavellian situation, a board member may be thinking, “let’s ride Joe like a rented mule to $5M and then shoot him,” continuallying defer the conversation on that logic.  Pleasant or unpleasant, it’s usually better to address conflicts early rather than letting them fester.
  • Rationalization of unrealistic expectations.  If some board members constantly refrain “this can be a billion-dollar company,” perhaps the CEO rationalizes it, thinking “they don’t really believe that; they’re just saying it because they think they’re supposed to.”  But what if they do believe it?
  • The gauche factor.  Some people seem to think it’s a gauche topic of conversation.  “Hey, our company vision statement says we’re making the world a better place through elegant hierarchies for maximum code reuse and extensibility, we shouldn’t be focusing on something so crass as the exit, we should be talking about making the world better.”  VCs invest money for a reason, they measure results by the IRR, and they can typically cite their IRRs (and those of their partners) from memory.  It’s not gauche to discuss expectations and exits.

When you ask your board members what success looks like these are the kinds of things you might hear:

  • Disrupting the leader in a given market.
  • Building a $1B revenue company.
  • Becoming a unicorn ($1B valuation).
  • Changing the way people work.
  • Getting a 10x in 5-7 years for an early stage fund, or getting a 3x in 3-5 years for a later stage fund.
  • Showing my Mother my name in an S-1 (a sub-case of “going public”).
  • Getting our software into the hands of over 1M people.
  • Realizing the potential of the company.
  • Selling the company for more than I think it’s worth.
  • Getting acquired by Google or Cisco for a price above a given threshold.
  • Building a true market leader.
  • Creating a Silicon Valley icon, a household name.
  • Selling the company for {a base-hit, double, triple, home-run, or grand-slam} outcome.

Given the possibility of a list as heterogeneous as this, doesn’t it make sense to get this question on the table as opposed to in the closet?

I learned my favorite definition of strategy from a Stanford professor who defined strategy as “the plan to win.”  The beauty of this definition is that it instantly begs the question “what is winning?”  Just as that conversation can be long, contentious, and colorful, so is the answer to the other, even more critical question:  what does success look like?

My SaaStr 2018 Presentation: Ten Non-Obvious Things About Scaling SaaS

Below please find the slides from the presentation I gave today at SaaStr 2018, about which I wrote a teaser blog post last week.  I hope you enjoy it as much as I enjoyed making it.

I hope to see everyone next year at SaaStr — I think it’s the preeminent software, SaaS, and startups conference.

Simple Rules to Make It Easier To Build Your Startup’s Board Deck

As someone who has assembled many startup board decks over the years, I thought I’d offer some advice to executives who contribute slides to board decks that should make it easier for the point-person to assemble, improve the deck’s appearance, and avoid any painful and/or embarrassing mistakes in the process.  Marketing folks, who both build a lot of presentations and live in PowerPoint, tend to get these basics right.  Everybody else, in my experience, not so much.

  • You are your metrics.  Remember the old quote that’s often misattributed to Peter Drucker, “if you can’t measure it, you can’t manage it.”  I prefer its corollary, “if you’re not measuring it, you’re not managing it.”  And, in turn, its corollary, “if you’re not presenting it at a board meeting, then you don’t care about it.”  Remember, the metrics you choose to present — and perhaps more importantly those you choose not to present — say a lot about you and what you think is important.  Put real thought into selecting them.
  • Take the time to write a short letter.   Remember the again often-misattributed quote from Blaise Pascal:  “if I had more time, I would have written a shorter letter.”  It’s your board — take the time to include as few slides (and as few numbers per slide) as are needed to tell the story.  But no fewer.  Don’t make the classic mistake of just grabbing your ops review slides and pasting them into your board deck.  Don’t make the deck assembler have to decide which slides, from a pile you provided, should be in the deck.
  • Provide context for numbers.  Repeat after me:  the board is not afraid of numbers.  So don’t be afraid to present them.  Don’t drown them — be selective in which metrics you show.  But when you choose to show a metric, provide context so board members can analyze it.  That means providing trailing nine quarters of history, sequential and YoY growth rates, and % of plan attainment.  Thus, each metric translates to 12 numbers, so pick your metrics carefully.
  • Use the right design template.  Assembly is much easier if everyone is using the same corporate slide template, ideally a confidential version of it that includes good security footers (e.g., Company Confidential and Proprietary, Internal Use Only).
  • Learn how to use slide layouts.  Don’t be the guy putting text boxes onto blank slides when you should be using the Title+Content layout.  One great part about using layouts is re-applying them to make sure you, or a prior author, hasn’t changed anything.
  • Don’t hack the layout.  If your layout doesn’t include a subtitle, don’t use one.  It just makes it harder to reformat things downstream.  Plus, too many folks are lazy and make a sequence of slides with the same title, only varying the subtitle.  Bad habit.  Integrate the two and make varying titles.  Less is more.
  • Don’t put numbers into embedded tables.  The easiest way to get math errors in your board slides if to either cut/paste or re-type numbers into embedded Word tables.  Use embedded worksheets for numbers and ideally do live total calculations to ensure all the numbers are right.
  • Be careful as heck with embedded worksheets.  That said, note that Office has a terrible habit of taking the whole workbook along for the ride when you paste a table as an embedded object.  Don’t be the person who pastes in a table of payroll by department, accidentally including everyone’s salary on an adjacent tab, and then mailing that not only to the board, but also the whole executive team.
  • Paste charts as images.  The major upside here is you eliminate problems related to the prior point, the downside if you give zero power to the deck-assembler to fix things at 2 AM.  The best practice is to ship your slides with charts pasted as images and attach a separate Excel file as the source.  That way, you both reduce risk and give the assembler the power to change things if needed.
  • No more than one table of numbers per slide.  While board members love numbers, don’t mentally overload them with too many concepts on a single slide.
  • Use a standard capitalization convention.  I Recommend Title Case for Slide Titles.  I recommend sentence case for slide body copy.  It’s a pain in the neck to fix this if everyone is doing something different.
  • Use a standard convention for notes and sources.  I use * and ** and put the notes (which are often data sources) in 8-point type right above my confidentiality footer.  It doesn’t matter where you do it; what matters is that everyone puts them in the same place.
  • Don’t use slide notes.  In reality, you have two choices here — either always distribute your board slides in PDF or never use slide notes.  Any middle ground is very dangerous — imagine copying a slide from someone else’s deck that has embarrassing commentary in a slide note that you don’t notice, but a board member does.  Ouch.
  • Type text directly on objects.  Don’t create a separate text box and then put it atop on object; make the text and the object one.

If everyone on the e-staff follows these tips you’ll end up with a better board deck and it will take whoever assembles it — often the CEO at smaller companies — far less time to do so.

SaaS Startup One-Slide Financials Dashboard

[Updated 5/1/18 to add net new ARR, LTV/CAC, and both customer and employee NPS.]

In the course of my board and advisory work, I get to look at a lot of software as a service (SaaS) startups financials and I’m often surprised how people choose to present their companies.

Because people — e.g., venture capital (VC) investors — judge you by the metrics you track, the order in which you track them, and how clearly you present them, I think it’s very important to put real thought into how you want to present your company’s one-slide financial and key operating metrics.

As both an author and analytics enthusiast, I also believe in minimalism and reader empathy.  We should neither bury the reader in facts nor force them to perform basic calculations that answer easily anticipated questions.

I always try to remember this Blaise Pascal quote (which is often misattributed to Mark Twain):

I would have written you a shorter letter, but I did not have time to do so.

So, in this spirit, let me offer my one-slide SaaS startup financials and key operating metrics dashboard, which captures all the key high-level questions I’d have about any enterprise SaaS company.

one sheet

While this is certainly not a complete set of SaaS metrics, it provides a great summary of the state of your annual recurring revenue (ARR), your trajectory, your forecast, and your performance against plan.  Most important, perhaps, it shows that you are focused on the right thing by starting with 5 lines dedicated not to TCV, bookings, or GAAP revenue, but the key value driver for any SaaS business:  ARR.

If you like it, you can download the spreadsheet here.

Joining the Granular Board of Directors

I’m very happy to say that I’ve joined the Board of Directors of Granular.  In this post, I’ll provide some commentary that goes beyond the formal announcement.

I think all CEOs should sit on boards because it makes you a better CEO.  You get take remove the blinders that come from your own (generally all-consuming) company, you build the network of people you can rely upon for answering typical CEO questions, and most importantly, you get to turn the tables and better understand how things might look when seen from the board perspective of your own company.

Let’s share a bit about Granular.

  • Granular is a cloud computing company, specifically a vertical SaaS company, aimed at improving the efficiency of farms.
  • They have a world-class team with the usual assortment of highly intelligent overachievers and with an unusual number of physicists on the executive team, which is always a good thing in a big data company.  (While you might think data scientists are computer science or stats majors, a large number of them seem to come from physics.)

To get a sense of the team’s DNA, here’s a word cloud of the leadership page.

wordle 2

Finally, let’s share a bit about why I decided to join the board.

  • As mentioned, they have a world-class team and I love working with supersmart people.
  • I like vertical strategies.  At MarkLogic, we built the company using a highly vertical strategy.  At Versant, a decade earlier, we turned the company around with a vertical strategy.  At BusinessObjects, while we grew to $1B largely horizontally, as we began to hit scale we used verticals as “+1” kickers to sustain growth.  As a marketeer by trade, I love getting into the mind of and focusing on the needs of the customer, and verticals are a great way to do that.
  • I love the transformational power of the cloud. (Wait, do I sound like too much like @Benioff?)  While cloud computing has many benefits, one of my favorites is that the cloud can bring software to markets and businesses where the technology was previously inaccessible.  This is particularly true with farming, which is a remote, fragmented, and “non-sexy” industry by Silicon Valley standards.
  • I like their angle.  While a lot of farming technology thus far has been focused on precision ag, Granular is taking more of financial and operations platform approach that is a layer up the stack.  Granular helps farmers make better operational decisions (e.g., which field to harvest when), tracks those decisions, and then as a by-product produces a bevy of data that can be used for big data analysis.
  • I love their opportunity.  Not only is this a huge, untapped market, but there is a two-fer opportunity:  [1] a software service that helps automate operations and [2] an information service opportunity derived from the collected big data.
  • Social good.  The best part is that all these amazing people and great technology comes packaged with a built-in social good.  Helping farmers be more productive not only helps feed the world but helps us maximize planetary resource efficiency in so doing.

I thank the Granular team for taking me on the board, and look forward to a bright, transformational future.

To Pre-Meet Or Not To Pre-Meet: That Is The Question

I once asked one of my board members which CEO ran the best board meetings across his portfolio companies.  His answer was, let’s call him, Jack.  Here’s what he said about him:

  • Jack got the board deck out 3-4 days in advance of the board meeting
  • Jack would call him — and every other board member — 2-3 days before each board meeting and walk through the entire deck and answer questions, taking maybe 2 hours to do so.
  • Board meetings with Jack would go very quickly and smoothly because all the questions had been asked in advance.

When I heard this, I thought, well, I have a few issues with Jack:

  • He spends a lot of time managing his board instead of running his business.  (I guess he got his CEO job by managing-up.)
  • He completely violates my “do it in the meeting” principle by having a series of pre-meetings before the actual meeting.

While I may have my doubts about Jack, others don’t seem to.  Consider entrepreneur and VC Mark Suster’s recent post, Why You Shouldn’t Decide Anything Important at Your Board Meetings.  Suster straight out recommends a 30 minute pre-meeting per board member.  Why?

  • Agenda input so you can adhere to the Golden Rule of Board Meetings:  “no surprises.”
  • So you can “count votes” in advance as know where people stand on important and/or controversial issues.
  • So you can use board members to convince each other of desired decisions.
  • Ultimately, because in his opinion, a board meeting is where you ratify decisions that are already pre-debated.

OK, I need to chew on this because, while practical, it violates every principle of how I think companies should conduct meetings — operational ones, at least.  When it comes to operational meetings, nothing makes me grumpier than:

  • Pre-meeting lobbying
  • Post-meeting “pocket vetoes”

My whole philosophy is that meetings should be the place where we debate things and make decisions.  Doing everything in advance defeats the purpose of meeting and risks encouraging political behavior (e.g., “if you vote for my bridge in Alaska, I’ll vote for your dam in Kentucky”), with managers horse-trading instead of voting for ideas based on their merits.

The only thing worse that teeing up everything in advance is what one old boss called the “pocket veto,” where a manager sits in a meeting, watches a decision get made, says nothing, and then goes to the CEO after the meeting and says something akin to “well, I didn’t feel comfortable saying this in the meeting, but based on point-I-was-uncomfortable-raising, I disagree strongly with the decision we reached.”

I remember this happened at Business Objects once and I thought:  “wait a minute, we’ve flown 15 people from around the world (in business class) to meet at this splendid hotel for 3 days — costing maybe literally $100,000 — and the group talked for two hours about a controversial decision, came to resolution, and made a decision only to have that decision overruled the next day.”  It made me wonder why we bothered to meet at all.

But I learned an important lesson.  Ever since then, I flat refuse to overrule decisions made in a meeting based on a pocket veto.  Whenever someone comes to me and says, “well, I didn’t feel comfortable bringing it up in the meeting (for some typically very good sounding reason about embarrassing someone or such), but based upon Thing-X, I think we need to reverse that decision,” I say one thing and only one thing in response:  “well, I guess you should have brought that up in the meeting.”

You see, I believe, based on a bevy of research, that functional groups of smart people make better decisions than even the smartest individuals.  So my job as CEO is to then assure three things:

But I’ve got a problem here because while we know that boards like pre-meetings, operationally I am opposed to both pre- and post-meetings.  Would it hypocritical for to say that pre-meetings are OK for me to conduct with the board, but that managers internally should avoid them?

Maybe.  But that’s what I’m going to say.   How can I sleep at night?  Because I think we need to differentiate between meetings with a decision maker  and meetings of a decision-making body.

Most people might think that the pricing committee, product strategy committee, or new product launch committee are democratic bodies, but they aren’t.  In reality, these are meetings with a decision maker present (e.g., the CEO, the SVP of products) and thus the committee is, perhaps subtly, an advisory group as opposed to a decision-making body.  In such meetings, the decision-maker should want to encourage vociferous debate, seek to prevent pre-meetings and horse-trading, and eliminate pocket vetoes because he/she wants to hear proposals debated clearly and completely based on the merits in order to arrive at the best decision.

However, board meetings are different.  Boards truly are a decision-making bodies ruled by one-person, one-vote.  Thus, while I reject Suster’s advice when it comes to conducting operational meetings (which I believe are inherently advisory groups), I agree with it when it comes to decision-making bodies.  In such cases, someone needs to know who stands where on what.

And that person needs to be the CEO.