With Carrie Dolan, CFO, Tradeshift

Why SaaS CFOs need to think vertically and horizontally

With Carrie Dolan, CFO, Tradeshift


  • In SaaS companies the finance function must be seen as a strategic partner to the business.
  • Vertical financials looks at P&L and Balance Sheet, while Horizontal Financials look at lifetime value.
  • Even as you are working to accelerate growth, make sure you’re doing so within a framework that allows you to be capital efficient.

Setting the scene

SaaS businesses are ultimately recurring revenue streams, often with significant upfront costs for customer acquisition. Any profit or contribution from an individual customer is only typically generated in the second or third years. In order to be viable they need to have a deep understanding of their business model and, critically, an understanding of the underlying economic viability that allows them to stay on track, make good decisions, manage their costs, manage their cash, and plan for growth. For venture-backed businesses in particular, they ultimately have to unlock capital efficient growth in order to achieve the goals that they’ve set for themselves and for their stakeholders.


Our guide to this topic is Carrie Dolan, CFO at Tradeshift, a unicorn in the Notion portfolio. Notion led the Series A in 2009. Carrie has more than 20 years experience as a CFO, in fast growth venture-backed technology companies such as Metromile, Lending Club, and prior to that with Charles Schwab.

The role of the startup CFO is constantly changing as the business grows

When a company is small and relatively simple, it's easy to maintain goal alignment or objective alignment, and for the CFO to assess how things are working. Once the company starts to grow quickly, it begins to get more and more challenging. Early in a lifecycle, it is pretty important to start thinking about the processes that are in place to track investments and to see how things are performing. I think the job itself as a CFO constantly changes; what I am worrying about today, with the pace and the growth of the company, will be different in six months from now and there’ll be another change six months later. The challenge with fast growth and fast pace is to constantly be assessing what keeps the company interconnected, and what keeps consistency across objectives and across business processes.

In my experience, oftentimes with the smaller companies or early stage founders, there can be a view of finance as just accounting, which is backward looking and managing cash flows.   But I actually think, early in the company's lifecycle, there should be far more focus on thinking about the finance function as a strong strategic partner to the business. This goes beyond doing budgets and creating data dashboards; a strategic finance team should help the business identify critical drivers of growth and efficiency, identify the best metrics that measure performance and build the systems to capture and track them.  

I often find that companies will say, "we're very data driven," but actually having data that's correlated to financial data, and that actually provides insights, is hard to do. You really need a financial partner that can act as a bridge between the business and the financial systems to align that. For example, Metromile is a pay-as-you-go car insurance company, so for them a key metric would be policies. You would think, "how many policies does the company have each month?". Tracking that is important, but what I found was that you go in and you talk to different teams, and the definition of a policy varies, for example you can sell a policy that doesn't actually start for a month, so when should you count that as a policy? A key first step is getting really consistent definitions of metrics, and then making sure that the infrastructure is in place so you can report on that specific definition or multiple definitions over time consistently.

Sometimes, early in a company's life, you're able to do this on the fly. But once you start to grow, the infrastructure becomes critical to start monitoring and understanding the business performance and how it relates to the financials.

Like a plane being built in flight, the finance systems and processes need to be built as the startup grows

I often talk about the concept of building a plane while flying and I think this is an important concept for leaders in any function because it talks about the fact that there are daily things that you need to be doing, while at the same time building for the future.

When you're in a fast-growing startup, with lots of fires daily, it's very easy to get consumed with trying to put out the fires, which leaves no capacity to think about the future. All of a sudden you wake up six months later and you're in a pretty deep hole because the business grew. A CFO, in particular, needs to be constantly evolving processes and evaluating teams and people - not just in the finance team, but across the organisation.

For example, at Tradeshift, we need to understand how efficient our marketing dollars are at producing future SaaS sales, while also having predictability. We can then plan, today, how much we need to spend to hit our revenue targets. So you need the processes and infrastructure in place for that information to get back to the CFO, but you need to consider at what point you should evolve a process - the process needs to fit the organisation’s maturity.  I could come in today to Tradeshift and put in processes that maybe I worked on when I was at Chevron or Schwab, but they're going to be way too heavy and so you need to know how to anticipate. Another analogy I like is that ‘you skate where the puck’s going,’ and you have to be constantly thinking this way. I think that's one of the most interesting and challenging things about the role that makes it fun.

It’s important to anticipate what level of infrastructure and automation a business might need if it were 10 or 100 times the size and be prepared to act

When you're starting a company, or in the early stages, any investment needs to go into the product, then it needs to go into sales and top line growth, and in many respects the financial infrastructure, the accounting infrastructure, can be handled manually. But when beginning to think about, “well, what if we are 10 times our size, or 100 times our size?” you can't continue to just add people, not only is that costly, but it also creates issues with controls. The more that you automate, the more frameworks you can create, and the better the data you get, the quicker you get it. This helps the business react quicker while also being efficient, so automation and systems really help for efficiency and cost controls.

Back to the analogy of building the plane while flying. How do you get the wash out every day in a financial team, for example, and try to automate? How do you make sure that what you are building is fully automated, for example for payables or treasury cash management, or even automation from order to cash in a SaaS company? How do you make sure that all the handoffs between systems are right? The other aspect of this is that you must be able report on information consistently - some information you may be sharing with investors or outside interests and you need to make sure that data is pulled consistently across the organisation. There are many more tools today that are in place for reasonable costs for CFOs, many more than when I was earlier in my career, so there's a lot more flexibility to be able to standardise and automate sooner.

CFO is one of the most fascinating and exciting jobs in SaaS and when a company gets to a certain degree of scale, you're a critical part of the business.

The role of the CFO has continued to evolve. There was a time where CFOs were more accounting based but that has definitely shifted more towards an analytical, data-driven CEO. In my job, I have to really understand the business and I find that what's really important to be successful is gaining an intuition across all aspects of the business. I need to understand, not only the product and the offering and the go to market, but each team and what they're doing and their plans for how they grow and scale as well because I see the role as helping make sure that, across the organisation, we're allocating resources in the most efficient way that we can. We may have 100 investment opportunities, but we can't invest in all of them, so how do we actually make sure that the dollars that we are putting to work and where we are spending, is in a way that is optimal? Sometimes you don't know that initially. So I think on the flip side here, making sure that there's a way to quickly assess and find the signals that say, "maybe this isn't the best thing, but let's quickly test and learn, and then move on if we don't actually see it." I love the role, I think it's a great place to be in terms of having an understanding across the organisation, but also having really a significant impact on how a company might grow.

Taking risks is inherent in a startup

You have to take risks as a startup, spending in ways or in places where we're less sure about the outcome, for example in SaaS hiring a sales team and driving a go-to-market strategy, that may take months to really get going. It's important not to just go all in, but to have ways to test an area or an approach, to test a marketing idea without necessarily investing in a place where it's hard to undo.

Cash flow is incredibly important. I think that right now, with COVID, there is continued uncertainty. So I think that many companies will continue to face uncertainty in their sales cycles, so companies might have to stop certain activities and be more conservative. We may have to be more defensive, whereas in the past, we would spend more aggressively ahead of growth.

This is an environment where I believe you have to step back a little bit and be more conservative about how you spend. In essence CFOs, are risk managers. I feel like my job is to see the risks in the room and constantly be thinking about how we mitigate those and make sure that nothing comes along that we can't weather through. We've got to be resilient. Even if a company is flush with cash that doesn't mean that that cash should be spent. The risks of the company and the risks of the market all have to be taken into account and you lean in or lean out, depending on what you see.

The metrics I obsess with? Top line growth, bottom line efficiency and cash flow

Coming into Tradeshift, one of the first things that I did was talk to investors and the board and about what they want to understand and know about the company, what's important to them. Then internally, try to understand what we are paying attention to and what we are watching.I think for any company you can broadly say the metrics that matter the most are top line growth, bottom line efficiency, and cash flow. Those are core lifelines for any company at any stage.

Going deeper on metrics is very situational and what you want to drive. For example, in Lending Club, we had a core business which had lots of top line growth. As that's working really well, we focused more on margin, driving to breakeven.

CFOs need to understand vertical and horizontal financials

Finding and acquiring customers can have a significant upfront cost that will take time to redeem. In Metromile’s case, we needed to compete to acquire a customer and then look back at it over time and ask, “how long did that policy stay in place, what's the lifetime value of it and how quickly we can cover the cost of acquisition?”.

What we did was we would look at product profitability over time and we knew that once we got to a certain scale with a certain number of policies, and also an efficiency, that we could drive down the acquisition costs and continue to expand that lifetime value. This is an important concept I often talk about, thinking horizontally as well as vertically. Finance leaders can look at vertical financials - in essence their P&L, Balance Sheets which are a view at a certain point in time - but also need to look at financial performance horizontally, i.e. over time, meaning that I want to look out over time to see if I am building an asset that has a long term return and that those returns continue to grow.

Trading off today for that future is really what's critical around this concept of looking at CAC (customer acquisition cost) and LTV (lifetime value) relative to current resources. It's another interesting part of the role that constantly evolves as the company is growing and maturing,

Balancing top line growth vs capital efficiency

Oftentimes startups will focus just on top line growth and worry about bottom line efficiency later. In my previous prior startups, we couldn't do that because we needed to make sure we didn’t have losses on policies or lending. So in both cases, we worked very hard to balance both top line growth and bottom line efficiency, again, leaning back and forth at different times.

With some of the issues that we've seen in the market, and last year with WeWork and others, if a company's DNA is built focusing only on top line growth, then one day if you wake up and say, "Okay, now let's worry about profitability," it's really hard to turn the ship. It's really important to create the capital efficiency mindset and discipline early on; you can't be completely efficient when you are starting out because you don't exactly know how it works, you've got to evolve and learn over time. But if you can start off thinking about the need for capital efficiency it creates for more value over time.

My approach continues to be to ensure that even as we are working to accelerate growth, that we're doing that with a framework that allows us to be efficient, or if we want to be slightly inefficient that we know that that's the case, meaning that there is an affirmative decision around that, as opposed to "let's just grow at any costs." That's how I think about it and is the mindset I’ve brought to Tradeshift.

As the company grows, you need to level up the team

I joined Lending Club when we were roughly 40 people, so relatively small at that time and over my six years there, we grew to about 1,500 people. I think that one of the interesting things about that scaling was how we had to evolve the organisation and evolve people.

Early, you often have folks who are execution focused ‘jack of all trades,’ they just get stuff done. When the company becomes bigger and more complex,  what happens is that you often need to bring in more specialised experience. Also, when the company becomes a bit more complex you need to keep the alignment across the company, so you need managers and leaders that know how to keep teams together, setting objectives and accountability.

I think that's another challenge for companies that we outgrow people or the company evolves faster than the folks and knowing when it's time to bring in the next level of leadership experience is a challenge, but it's critical.

It can be one of those emotional challenges where you have someone who has done really great work for the company, but has gotten to the stage where perhaps that person needs to be layered or that role needs to be adjusted a bit, but at different levels and different maturity you absolutely need people with different experiences.

I encourage all CFOs to become a partner to the business

As a CFO, approaching the role as a business partner is critical. Sometimes CFOs can be viewed as the expenses cops and I think that is a missed opportunity. I really think the CFO role is a business role and can drive significant value, so I’d encourage CFOs to push themselves to get to that partnership place. And also, encourage CEOs and other executives to really find and seek out the finance people that are truly partners for the business.

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