Leveraging Technology to Drive Better Decision-Making

Randy Wootton (00:04):

Hello everybody. This is Randy Wootton, CEO of Maxio and host of SaaS Expert Voices, where we bring experts across the marketplace of SaaS to help us better understand what's happening today and what's coming for tomorrow. Today, I'm honored to welcome Dawoud Nasraty, who I've known for a while, and to join the show. He's got an incredible background and deep insights that we're going to share and talk about really three things today.

(00:33):

One is the data and decision making and how he's seen that play out in his time as a consultant, as an accountant, as a controller, the impact of technology and lessons learned in best practices. But before I jump into that, I just want to highlight Dawoud's background as an accountant at the big six, he was a controller three times, including a European company based in Afghanistan, and then a CFO of a small company where he built out the FP&A function and reporting. He has a master of science and financial analysis. Let's see, you shifted to your consultant advisor career with Brenner that then rolled into Armanino, and you've been in that capacity for a while and so thank you for joining us.

Dawoud Nasraty (01:14):

Randy, thank you so much for having me. It's a great pleasure to be here today, so I'm really excited to talk to you about all these great topics.

Randy Wootton (01:23):

And so maybe just... You have such a fascinating background. Can you just give us a little bit of a snapshot in terms of the different experiences and which country you're in and what you saw in terms of... I don't know, accounting practices in Afghanistan versus the US as a practitioner and as a consultant?

Dawoud Nasraty (01:40):

Yeah, that's a really good question. So the company that I worked for was leading telecommunications company based in Afghanistan. It was European-owned and operated. One of the investors was an American company, so it had two European investors and one American company. I was the financial controller for the company, big operation, the company had grown within five years from nothing to $250 million US annual revenue company, one of the largest companies in Afghanistan and also the largest private taxpayer to the Afghan government. Accounting was based on GAAP, US GAAP.

Randy Wootton (02:22):

U.S GAAP.

Dawoud Nasraty (02:23):

Right.

Randy Wootton (02:23):

I was going to ask that, because that's an interesting dynamic is which accounting rules are you following?

Dawoud Nasraty (02:29):

Yes, we were. We weren't following IFRS, we were following US GAAP. It was just an incredible experience working abroad, being in another country, it was one of the most vibrant industries at the time, the telecommunications sector, after many years of war in the country.

Randy Wootton (02:48):

Of course.

Dawoud Nasraty (02:49):

The rebuilding of the country was very much needed after so many years of conflict. So the telecommunications sector was one of the foundations of getting everything back into some kind of normal sense of normalcy. So that was a great experience.

Randy Wootton (03:12):

Quite the experience. So let me just ask you, just off script, but how was the audit process then in Afghanistan? As they're building the infrastructure and the governance and compliance, was it similar to a US experience or how did that play out?

Dawoud Nasraty (03:26):

The audit experience, so we were a privately held company, it was a large operation, but we weren't under audit by auditors. We did have external consulting with different providers externally, but the company was European-owned, managed, I worked with expat, colleagues from Canada, different European countries, the Philippines, not to mention Afghan national staff the idea was to train them up so that they could eventually strengthen the economy through their own knowledge and take over different functions within the company.

(04:20):

An answer to your question, the short answer is that the company, we were recording all transactions and doing the accounting according to US GAAP to the strictest sense of GAAP in the event that the company would be audited. Similar to what we do at Armanino and we did at the Brenner group, and was to always bring a high degree of professionalism and a very high sense professionalism and detail to the accounting work and make sure...

Randy Wootton (04:56):

Yeah. Well, that's great, and maybe that's a good transition to go to... So what brought you back to the US and specifically your time with Brenner?

Dawoud Nasraty (05:05):

Yeah, Randy, it's an interesting story. So towards the end of my time in Afghanistan working for Roshan, the largest telecommunications company in Afghanistan, the security situation started to get worse there in the country.

Randy Wootton (05:23):

So what year was this?

Dawoud Nasraty (05:25):

This was about in 2008, 2009, I decided to come back to the United States and I was looking into a master's program, something to expand my knowledge and just discovered a program at the University of San Francisco in financial analysis. So I applied for that program and I got in and it was an extraordinary experience. It was a two-year professional program, very quantitative based program in financial analysis, studying the financial markets, how to value assets, we value derivatives and bond instruments. It was really extraordinary and very interesting, very rigorous.

(06:09):

So I came back for the master's program. The security situation was deteriorating, but the Brenner Group, I ended up working at the Brenner Group after the master's program had ended. And I spent a little time, you mentioned I was CFO/COO for a small company, I was at that company for a while and then ended up transitioning to the Brenner Group and then was he actually able to bring that same company that I was a CFO/COO for into the Brenner group as a client.

(06:44):

So it was a great transition. And then the Brenner Group was an extraordinary experience for me, formative in my career, and that I had a much greater exposure to the markets and what was going on, working with startups, a lot of technology companies because the Brenner group focused on the technology sector, VC-backed technology startup companies and what I did there was I was a controller consultant who would go out to these clients, work remotely, but also go on site here in the San Francisco Bay Area.

(07:24):

This is around 2014, 2015 into '16, '17 during the technology boom in the San Francisco Bay Area, all over the place, as you're familiar with, we as the consultants at the Brenner Group were basically the single source of truth in a way, kind of like a system of record. But the accountant extraordinaire, if you will, like wearing many hats, helping companies set up companies, and then see them through their very critical early stages and up to the point of series A, series B funding rounds is usually the duration of how long the engagements would last, but three, four or five, even six years. It was really an extraordinary experience being able to work for or with these startup companies that had really high hopes for great things in the future and many of them did achieve great heights.

Randy Wootton (08:30):

Do you have some tombstones on your bookcase of the companies that hit it?

Dawoud Nasraty (08:35):

Tombstones? If I were to think of tombstones, I would think about companies that didn't...

Randy Wootton (08:41):

Oh, right. Yeah.

Dawoud Nasraty (08:44):

But you mean in terms of bookends?

Randy Wootton (08:45):

Tombstones are when they actually do the deal, the bankers have those things they give you.

Dawoud Nasraty (08:48):

Oh, sorry. Yes, yes. Yeah, no, what happened, the usual case was a startup or early stage company would come to the Brenner group and they would need everything to be set up. They had not invested in the back office infrastructure yet. They had nothing set up. So suddenly they had some amount of funding, and that was the key. Like say they bought five or 10 or 15 million in seed funding, or... Usually to seed funding. So they would have some amount of investment and need to really get things set up the right way.

(09:29):

So they would turn to the Brenner Group, the Brenner group had quite a good reputation in Silicon Valley and then the consultants would, a single consultant, not a team, but just for example, myself, I would work alongside the startup company and then set them all up and then set up systems so that according to US GAAP, the accounting, the financial reporting, the systems, the technologies, so that the data would be sound and there would be the ability to perform reporting that would allow the company to make better decisions. And then over time, usually the idea would be they would hire in-house and then wouldn't need our services anymore and that's similar to Armanino as well. At some point we expect a client, we hope that a client will outgrow us and not need us anymore. So that's where there's commonality between the Brenner Group and Armanino.

Randy Wootton (10:34):

Maybe we can make that switch to the three things, the lesson learned that you've had having had all this experience with these early stage companies, but just kind of coming back to your broad point, I mean, most early stage startups, at least the ones I've worked with, B2B SaaS, are founded by technologists who know technology and how to code, but don't speak the language of finance and accounting.

(10:55):

They're super early stage, and so they don't have enough money, enough cash flow to hire a full-time controller or CFO and so this model of CPA firm/fractional CFO is what many people turn to and there are a couple of groups out there, and Brenner, Armanino is really top in the field that provide these set of services. And to your point, I think what happens is CEOs, when they move from bootstrap to taking professional money, all of a sudden there's a new level of accountability and rigor that they have to present to the investors, and it is to get funded and stay funded. And so they get through their seed, their series A, their series B, and then they have to start thinking about building scalable systems as they go, either running up to public or going through a strategic transaction.

(11:41):

Someone once said to me that the number one deal killer in M&A is accounting issues and that's because companies haven't done the work that you were just describing, hiring professional consultants, advisors, fractional CFOs to come in and help put the systems in place so the data works so that they can represent the reports. So you were right there. You were on the front line. And so let's talk about some of those things that you learned. First bucket being around data and decision-making and how you've been on both sides of the house and you were an operator for 10 years, and then for the past 10 years, you've been a consultant. What have you learned about the data and just how many people think it's easy to put data together, but really, it's very hard to get the data you need in the way to use it?

Dawoud Nasraty (12:29):

Thank you for your question. It's such an important question in our economy and the importance of data and what it means, good data. And as you mentioned, I've been on both sides of the house. I've been in-house, worked in the corporate world for many years, including my time abroad, and then I transitioned to being a consultant first at the Brenner Group and now at Armanino the last 10 years. And so I know the importance of good data, firsthand. And why is it a good idea? Why is it so important for us to have good data? Because it plays a crucial role. We know it plays a crucial role in statistics, finance, and economics. A single data point can move the markets these days, and it's been the same for a long, long time and a misstated revenue can ruin a company if it's done anyway, even if it's intentional or not.

(13:33):

One thing that's interesting is that a lot of my understanding of best practices has evolved from working with companies that follow worst practices. So I've learned a lot about companies and what to do and what not to do, but the fundamental truth is good data and how do you achieve good data is usually through a system of record that provides a single version of the truth. But I think that it's important to ask the question, "Why do we even care about tracking the historical transactions? Why do we care about the past?" The whole reason why we gather and organize data is to allow better decision making to be made.

(14:19):

So that's really what I've learned through my work with client companies, I've learned that the singular importance of good data, so that's what we try to do as consultants, is we partner with our clients and try to ensure that the accounting is done right, it's done according to US GAAP, but also that the systems are in place to be able to take the data and organize it in such a fashion that it's understandable and that it can be used to make decisions.

(14:59):

I like to think of an accountant as sort of like a historian, but also a good accountant, a really good accountant as a data scientist, somebody that understands the importance of getting the data. And so companies have always needed good information. They've always needed information as fuel for good decision-making, and allow it to allow them to move forward. Without good information, a company operates almost blindly in a way.

Randy Wootton (15:37):

I describe it as having a business radar and I think the point that you're making around accountant as historian is really important, is not just governance and compliance. It is about this track record and having the data be consistent and accurate. One of the worst things you can do is go into the board meeting and have whatever you're talking about, gross retention, net retention change from one month to the next, and they go back and say, "Hey, you told us July, your gross retention was 91%. You come back in August and say, July's gross retention was 89%."

(16:07):

There can be some smart investor whiz kid finance guy, usually a guy, who's going to tell you, "Wait a second, you told us it was 91, now it's 89, what happened?" And you can't give them the salute of, "Whoops. I don't know." There has to be just this continual documentation of what happened historically and clearly in today's news, we know about companies who aren't keeping good historical records of their finances and what might happen across many fronts.

Dawoud Nasraty (16:36):

Absolutely. No, it is so important to get it right. And of course, companies, they're under so much pressure, the CEO, the CFO, the C-suite, all people working together to try to add value to move the company forward. Companies are under a great deal of pressure to succeed, and to see into the future and make bets on where to go next and that's where proper accounting and sound financial management is key to a company's success going forward. What I'd like to do is talk a little bit about the impact of finding the right technology.

Randy Wootton (17:20):

Sure. We can shift there. I don't know if there's any final takeaway for under the category of data and decision making, what I heard you say was, "Hey, you need to have good data." But was there anything else from the companies that blew up that they weren't... What was it about the data that they weren't doing? And maybe it's just they didn't have a good system to track it and so that's the segue into the technology. But is there anything else under that category of data that you would say... Take this away.

Dawoud Nasraty (17:49):

For sure. Yeah. Some of companies that didn't do it right or didn't pay attention, now, let me just back up a little bit. So usually what happens with a startup or a company that's getting started in the early stage, the mindset of the founders, they're laser focused on the product, the service, the go-to-market strategy. And that's very important, extremely important. Without a product, without a service, without revenue, there is no company. But what else is required? And it's not only a good idea, but sound metrics based on built on sound data. And so a lot of companies that get started, not all, but a lot of them in the beginning, they don't pay as much attention to the back office, the finance and accounting.

(18:37):

So it's important finance and accounting takes second or third place, but it's important to establish a solid foundation in that area sooner than later. Not too early, but not too late. So the CFO needs to encourage investment in the finance function at different stages in the company's life cycle. Those that haven't done that, they can go down the path of the wind down. And so the wind down is actually a dissolution of the organization, either through a bankruptcy or a reorganization or an assignment for the benefit of creditors.

Randy Wootton (19:16):

An A, B, C, yep.

Dawoud Nasraty (19:17):

An A, B, C, exactly. So I can give you talk about a couple of examples that I saw.

Randy Wootton (19:21):

Sure. Yeah. I think what you saw as you look at the carnage, the lessons learned. But before we go there, I think the point you're making is that finance becomes a critical function as you move from early stage startup where you're probably doing cash accounting, and it's basically, "How much money do I have in the bank?" And as long as your receipts are coming in and you're able to pay people, you're like, "Okay, this is good enough."

(19:45):

But then when you have to start thinking about investments and if you start moving to accrual accounting, having that sorted out so that you know about deferred revenue and about how to do the revenue recognition and that, especially in a SaaS model, subscription model, it really can get you wrapped up in your underwear and it can be really devastating and turning into a situation like a wind down. So yeah, maybe two or three examples of, without saying the names, obviously, of this wind down, what was it that they didn't get right in terms of thinking about the balance of investment in product and go to market and finance and accounting?

Dawoud Nasraty (20:21):

One of the wind downs that I was part of, I led the team that dissolved the company, was an internet B2C company. It was a anonymous messaging app, and this is around 2014, 2015. They had raised a lot of money with a big valuation, but then they ended up spending a lot and with the idea that their product was going to hit, but it didn't hit and there wasn't a good market fit for the product. And then they had basically likely under-invested in finance and they lacked the infrastructure to be able to run the business and steer the business through the issues that they encountered. So they decided to shut down operations. So we came in and helped dissolve the company. So basically, under-investment in finance, lack of systems, lack of controls, overspending or a lot of spending. And then-

Randy Wootton (21:31):

Well, yeah, I think the dynamic there is raise a bunch of money, investors invest in an idea, and the people and they love it and they think it's going to go great, so they give them a bunch of money. They go out, they don't have full product market fit, so they get a little sideways, they spend more money, and if they don't have the financial controls in place and the systems to understand what their cash flow is or how things are going to play out, you can run out of gas faster than you may have thought.

Dawoud Nasraty (21:56):

Right.

Randy Wootton (21:57):

I just saw an online news site, The Messenger, which backed by incredible entrepreneurs, people in the media forever, The New York Times announced it, it was a year ago, and they raised 50 million bucks and they just announced they were shutting down. Now, I'm not implying at all that there was any financial impropriety. What I'm suggesting is it was a hype, it had a bunch of money invested in it, growth at all costs, and even as of January, the CEO was talking about, they had secured another 10 million bucks. 30 days later, February, they're shutting it down. So I mean, I think we're seeing this, the graveyard of startups now who took too much money at too high of a valuation so they can't get the next investment because the next investors don't want to come in unless they're going to do a cram down. And I think we're going to see a lot of carnage. So that's one.

Dawoud Nasraty (22:48):

Yeah, I can give you a second quick example. So there was a solar construction company here in the San Francisco Bay Area that I think that what they've struggled with is their systems were not set up correctly. They had disjointed systems and processes, multiple sources of truth, and they also had lack of proper controls. Their people in the field and the contractors in the field were able to submit, say for example, expense reports and there was no adequate control over how much money they were spending. There were budgets set up, but they weren't rigorously enforced.

(23:25):

So I think that, and especially in that industry, there's a great deal of competition and thin margins, so they were just running out of cash. So I came in as an interim controller there, and then the long time controller left, he transitioned to me and then our team, it actually flipped into a wind down and assignment for the benefit of creditors as well. So I guess the theme really here is that if a company doesn't invest in a solid foundation relatively early on and adapt to technologies as they are changing and also invest in their people or go to an outsourcing option where there's the ability to more closely manage your ROI, then they can come run into challenges.

Randy Wootton (24:22):

And you're now coming into... What's near and dear to me as CEO of Maxio is this idea of having a system of truth connecting different technologies so that you have a consistent view of the data going from a CRM to the general ledger and back. And you have had enormous amount of experience doing implementations of technology of what was legacy SaaSOptics, one of the companies that became Maxio, but other tools as well. Can you talk a little bit, maybe the big challenge you find with people using spreadsheets to do deferred revenue and then having to move into having a solid tech, a platform that allows you to connect into a broader ecosystem of technology?

Dawoud Nasraty (25:04):

Would love to talk about that. And this was very exciting and this is how, you touched on it, it was how I first had heard about SaaSOptics, which is now Maxio, but the CEO of a Brenner Group SaaS company that I was the primary, the main consultant for, helped set up everything, all the systems, the records, the accounting system, everything. And then kept working with them for several years, four or five years, the CEO talked to me and sent me a message one day. He said, "Hey, I've heard about this technology, it's called SaaSOptics. Can you take a look and maybe set up a demo and let me know what you think?"

(25:48):

So I was very impressed from the beginning and made the recommendation to go forward. And so I led the implementation with the SaaSOptics team. Prior to that, leading up to that, we were tracking everything very diligently with a really good process. But within manually, within Excel, within Google Sheets, shared files with me and the CEO and his team, and we would track billings and deferred revenue, or I would as the accountant track deferred revenue, we would jointly track billings and what this did, the setting up this system of record and this single source of truth, going back to that theme, SaaSOptics was a game changer.

(26:38):

What it did, since it's a database that ties out total billing to total recognized, you know you're right. And with the risk of spreadsheets, the risk with inherent in spreadsheets is that there could be a formulaic error somewhere in the spreadsheet and with thousands of lines and rows, and what SaaS Optics did was it freed up the CEO's time to do other things. It defined roles and swim lanes, reduced inter-organizational tension. And that being the tension between sales and finance, because what it did, what SaaSOptics did was it forced the Salesforce to be used properly.

(27:25):

The CEO had to set up a product list with his sales team, which then flowed into items and into the accounts within the accounting system. So yeah, it was a great experience to work on that. But it's an example of setting up the right system, the right technology that then becomes one of the sources of truth within that function, which is AR customer management, subscription management, and deferred revenue tracking, and of course SaaS metrics.

Randy Wootton (27:59):

Yeah, I think it's just how do you bring consistency from order to cash? And I've worked in Salesforce a while, I love Salesforce, but it is the wild, wild west in Salesforce. It's a system that's tracking accounts and contacts. Everybody has Salesforce admin rights, and so as a finance person, if you're responsible for reporting on the results and manning the cash, you can't trust Salesforce in and of itself. You've got to set up these connections and have the data come into the purview of the CFO, the office of the CFO, and work with the systems like the GL.

(28:33):

CFOs don't let anybody touch the general ledger, other themselves and their controller. And so there is, how do you connect from that primary source of truth for these other things? And I think of a system like Maxio, and there are other ones in the market as well. They provide you as a system of record for revenue and for a subscription business where deferred revenue is meaningful, and how do you think about doing recognizing revenue both for the SaaS, more like sales-led motion, as well as consumption usage based models where it starts include a lot more complexity and then your professional services, it can become really complex about which customer bought what, when, and how do I recognize that revenue? And that impacts everything in terms of gross retention, net retention, LTV to CAC, all these metrics you're trying to run your business with. If the core isn't right, if it isn't connecting the billing system to the revenue recognition system, you're operating blind.

Dawoud Nasraty (29:30):

And investors really pay attention to that.

Randy Wootton (29:32):

Totally.

Dawoud Nasraty (29:35):

When a system such as Maxio is set up and it's operating and producing the reports that are needed and the data that's needed to run the company better, investors are happier about that pretty much overnight. It makes a huge difference.

Randy Wootton (29:53):

I spent a bunch of time in M&A deals, and it's like the reports are looking at, "Are your MRR roll forward, your deferred revenue waterfall and your churn analysis, and how do you think about customers?" And if you can't produce those and have people trust that numbers that are being represented are accurate, that's why the number one deal killer is accounting issues, is because they haven't done that.

Dawoud Nasraty (30:15):

Yeah, going back to earlier on in our conversation about good data and decision-making, good data plays such a crucial role in the marketplace, and a single point of data can literally move the markets and move a stock price up or down and it's just the quarterly reporting of our public companies and it's so critical.

Randy Wootton (30:43):

And I think as companies take on more, as we were talking about before, is they get the bigger, investors put more scrutiny because they got more money at stake. And so you have to start with the foundation early. A thoughtful way of thinking about aggregate, and we're collecting and aggregating the data and managing the data to drive the insights to run your business. Thank you.

Dawoud Nasraty (31:05):

Yeah.

Randy Wootton (31:05):

This was great. I really appreciate your time and insights and congratulations to your success and look forward to continuing to work with you.

Dawoud Nasraty (31:11):

Thank you Randy, really, again, it was a great pleasure to be here with you today and thanks so much for the invitation. Really, really greatly appreciate it.

Randy Wootton (31:18):

Our pleasure.