The Tech Stack and The Tech Pile: Creating Seamless Data Flow

Randy Wootton (00:04):

Hello everybody. This is Randy Wootton, CEO of Maxio, and your host of SaaS Expert Voices, the podcast that brings the SaaS experts to you to help us understand where we are today and what's happening tomorrow. Today I am super excited to introduce Anthony Nitsos. Am I pronouncing that correctly?

Anthony Nitsos (00:21):

You are.

Randy Wootton (00:22):

All right, awesome. Who's had a really interesting background. He's late to finance, came a very circuitous way, which we'll get into. It actually is relevant to the insights he's going to be sharing. He started off at medical school. He rolled into ERP deployments back when Y2K was happening. He was a controller of a Japanese company and now he's a CFO expert in helping small companies in particular with everything SaaS. He runs a company called SaaS Gurus out of Michigan, has a bunch of great clients and really interesting insights. Welcome, Anthony.

Anthony Nitsos (00:57):

Thanks. Appreciate it.

Randy Wootton (00:59):

And so you've had over 25 years of experience in building B2B SaaS financial models, but this is really your second career. You started in med school and we were talking a little bit about what med school did for you in the way that you approached problems and think about solutions. Could you explain a little bit about that and that modality and how you apply it today?

Anthony Nitsos (01:20):

Absolutely. So the way that, back then at least, I don't know if it's changed any different now. Training in medicine is that... The human body is an incredibly interconnected system. We've got all of these organs and all of these systems that are talking to each other through nervous system, through hormones, et cetera, et cetera. So it's from the beginning we were taught what you really want to be doing is going after the cause, not the symptoms. And too often in medicine we treat just the symptoms without actually looking at what's causing it and going after corrections.

(01:56):

So there's a big tussle and still is today about preventive medicine versus corrective medicine, if you will, or treatment medicine. And there's a lot of attention being paid to how do we keep ourselves from being in the emergency room? How do we keep ourselves from being at the doctor's office when we get sick by maintaining ourselves? And now for their various reasons, I decided I did not want to be a doctor. And we could go down a rabbit hole and I can explain my thoughts and philosophy, but in the end I decided, "You know what? I'm glad there...

(02:25):

Thank God there are people out there who want to be doctors because I see them and I need them, but I don't want to be that person." And so I took a very difficult step and dropped out of medical school. And what do you do with an interrupted med degree? This is a real practical problem, right? It's like, "Okay, so Anthony, tell me about your work experience." "Well, I don't have any, I've been a study geek since I was 18 and I made it halfway through medical school and decided I didn't want to be a doctor. So what do you have for me?"

(02:56):

Strangely enough, the first job I got in manufacturing, maybe not so strange, I'm in Michigan, it's medicine and manufacturing. I guess that all three have Ms. So maybe that was the connection there. But it was a logistics specialist position. So somebody who was supposed to basically handle the inflow and outflow of materials into a factory. And I very quickly mastered that because it was pretty straightforward stuff. But then I began noticing stock out situations. I began noticing overstock situations and I started asking questions like, "How does this happen?"

(03:29):

And suddenly one step led to another and I started becoming a process reengineering expert in a manufacturing setting because I applied that medical knowledge, that training of... A manufacturing company is no different than a human body. You've got a nervous system, that's the IT system. You've got blood flow, that's your cash. You've got departments, those are your organs and they all have to be functioning together. And you really need to find out where is the choke point? Where's that root cause that's causing these symptoms? And because of the med school training, I was actually pretty good at it, so I kind of rapidly became a process engineering, logistics manager, materials flow specialist.

(04:12):

And that's kind of where that started. I moved on from manufacturing to other industries but that was really kind of the genesis of how I think about solving problems.

Randy Wootton (04:24):

And the other thing I thought that was really interesting is when you're talking about the medical school experience as well as in the manufacturing is the way you thought about working with people to solve problems and removing the person and focusing on the problem. And I think... Do you want to talk a little bit about that in terms of being the objective observer of facts in medicine obviously you're trying to save people's lives and so you got to try to remove as much ego as possible and really focus in on assumptions and data.

(04:54):

And I think you were saying that similarly in all your roles, but in this one in particular, you were talking about how you could approach the problem even differently, not just from a systems' perspective, but the way to do the problem solving.

Anthony Nitsos (05:07):

Absolutely. That's a great point. I hadn't really thought about it in that concept before. When you're in a room with a patient, you need to be very careful on how you ask questions because you need information and you don't want patients lying to you or obfuscating facts or keeping stuff from you that could be really relevant to their diagnosis and their treatment. So being able to walk into a situation and ask questions without making them loaded, without seeming like you're attacking somebody, like you screwed up. How did you screw this up? None of those kinds of words.

(05:39):

Being very careful to go in and say, "Look, kind of like just the facts, ma'am,” from the old TV police program. I'm just here for the facts. And really focusing on processes because if you go back to your training with... I don't know if any of you have been trained in Edward Deming's technology in terms of Six Sigma and other kind of quality engineering, but he was the master of it. He's the one who basically gave the Japanese all of the secrets on how to make quality products. And he was very much of the, you fix the process and the tools first, and then you leave the people to operate a process that's foolproof.

(06:19):

That's another part of the training that I kind of incorporated that came from the manufacturing scene, that didn't come from med school, but that was layered over the top of that medical training is you're really trying to idiot-proof, if you will, if I may use a maybe politically incorrect term. You have to make the process as robust as possible so that humans can't screw it up.

Randy Wootton (06:39):

That's great. And actually a nice segue to the next two phases of your career. One where you would move to the ERP system implementation. So you had a deep understanding of finance and accounting, having not been an accountant or a FP&A guy, but then you moved into the controller of a Japanese manufacturing company where I think you first got exposed to the Deming principles and total quality management. Again, one of these things that you bring today. Do you want to elaborate a little bit on what Deming meant?

(07:07):

You talked a little bit about it, but what your experience was in, even though they were US GAAP, sort of a Japanese mentality and how they thought about process optimization, which is very much akin with any sort of operational optimization including finance operations, customer success operations, manufacturing operations. But I think there's some real great takeaways that you had from that experience that are directly applicable for SaaS leaders.

Anthony Nitsos (07:33):

And ones I still use to this day and here's where it played out. So after the manufacturing gigs, I became an ERP implementation project director. As you said, right before the Y2K, where suddenly I'm not dealing with just the factory floor, I'm dealing with the engineers, I'm dealing with procurement, I'm dealing with sales, I'm dealing with accounting and finance. And that's where I started really diving in and getting a deeper understanding of the accounting and financial aspects of this and understood that if you really want to know what's going inside of a company, the accounting data is what you really need to be focusing on because that's it, right?

(08:10):

That is the be all and end all. Y2K wrapped up and nobody was buying software anymore. I moved into that controller position. Basically the reason I was hired was because of my systems background expertise. This was a company that knew it was going to 10x its revenue in the next three years. They had contracts in place, they had already had everything set up and they needed somebody to come in and really dial in the back office side, the finance and accounting side of it. Because in the manufacturing space, margins are so thin that you can't afford to spend a lot of money on your G&A function, absolutely cannot afford to spend it.

(08:49):

You have to keep that particular department really narrow. And so my mission was to basically help a company take all of its accounting and finance systems, and scale them from 5 million to 50 million in three years without increasing the cost of the G&A function. And so this is where a lot of that training all came back together. Demings really hammers you on prevent first, then detect, then correct. In the order of quality management control, you prevent stuff from happening in the first place. You design the system as robustly as possible so that the processes and the tools or the technology are as solid as the state of the art can make them with the proper cost balance.

(09:31):

So that the humans can just execute on it without having to create further errors in the chain. An invoice is no different than a widget. You're putting together data elements on an invoice. You got to make sure that the build to address is correct, that the ship to address is correct, that the terms are correct. You're building a product when you're building an invoice, you're building a product when you're building anything that's data oriented. And so I took that concept and basically at the time, barcode scanning and on-premise software and on-premise hardware was the state of the art.

(10:02):

And I started with three people in the back office. And when we were at 50 million, I still had the same three people and we were running a $50 million operation with all the financial accounting reports that we needed and the projections that we needed. That was my first experience in scaling a company.

Randy Wootton (10:17):

That's awesome. And sorry, just remind me, is that the Duo security or was that one before Duo security?

Anthony Nitsos (10:22):

That came later. This was TG Fluid Systems, Toyoda Gosei Fluid Systems, a Japanese subsidiary of Toyoda, and we made fuel lines. It wasn't anything exciting or fabulous back then, but it was my job and I took it seriously.

Randy Wootton (10:40):

I think a couple of things you mentioned, which I just want to come back to. One is this whole prevent, detect, and control. And what's interesting about that, I think as many CFOs think of their jobs as detection and controlling. You audit and compliance. But what CFOs of the future need is really to be thinking forward in terms of how do you get in front of things to anticipate. I loved your story about invoice as a widget. It reminded me of that great HBR article. Staple yourself to an order where you start with something and move it through the process. How does the information flow?

(11:17):

How does a customer interact with your system or with your people? How do your people interact with them? What are the artifacts that are created? And then you can optimize that and introduce quality throughout. But if you think of an invoice as a widget, that is a really interesting way to think of that broader financial operations broadly and how are you improving it each step of the way. The other point which you made in our pre-brief was, which I really liked, the first point of creation is the maximum value.

(11:45):

Can you talk a little bit about that and how you think about in terms of finance and accounting, ensuring that you get it right at the front so that then the downstream systems are able to carry forward the accurate information versus having to chase it throughout the process?

Anthony Nitsos (12:01):

Absolutely. So I go back to the Japanese manufacturing techniques at this point. So they empowered the line people to have total control over what was happening. And if something was going wrong, they could stop the line. This was heretical in the United States, but in Japan it's totally acceptable. And the reason for that is...

Randy Wootton (12:18):

And what is it called when they pull the... Is it the cordon? What is it they call when they pull the flag?

Anthony Nitsos (12:23):

I forgot. But you're right, it's the red flag. Exactly. It's that little red flag. The little button goes off and everything stops.

Randy Wootton (12:31):

A whole manufacturing line stops. And it could be the dude that's putting on the nuts on the wheel and it shuts down millions of dollars of output. Please keep going.

Anthony Nitsos (12:41):

Potentially, but that means something went wrong, right? Because you want to design it so that guy doesn't have to pull the Andon. That's what it's called, the Andon. You had to dig that one out of memory. So the idea is that the person who is first touching the product is the one who's in the best position to make sure it's done right. Anybody who's adding onto it afterwards has to work off of what happened before. So if you set it up wrong the first time, then everybody downstream is going to be working on the wrong thing. So that is the core, the crux, if you will, of the Japanese manufacturing mindset. And it absolutely translates into information technology.

(13:21):

It absolutely translates into accounting because it goes back to that. When you set up the customer the first time, I can't tell you how many times I've walked into a company, I said, "Where's your customer list?" Well, sales has a customer list and accounting has a customer list, and customer success has a customer list, and they're all different or they're named different. Or this customer is called this here and this customer is called this here. And if you're trying to do any kind of uniform or integrated analysis, you're screwed at that point because now you've got to do a translation between these three systems.

(13:53):

And that's the point I'm trying to make, is you put it in right once to one system and that system feeds all the other systems. And that system is the system that is what we call the SOT, so the source of truth. That's the one that everybody goes to and leans on and said, "We make this right and everything else is right after it."

Randy Wootton (14:12):

That's right. Or other ways we've described as a system of record. The challenge is you have system of records for different things. So in Salesforce, you have a system of record for opportunities and accounts and your customer success. If it's not in Salesforce, it's a different system. You have customers and in your finance systems, you struggle, I think both with customers and also products, like having a unified product catalog and how does it get attached and how do you know what's been attached and how it's been instantiated.

(14:39):

I think to your point, one of the big challenges is creating that one holistic view of the customer and product data that then helps inform not just the statements, but also the operating reports that you're using to run the business. Understanding what's going on with churn, understanding what's going on with net retention. I can't tell you how many times we're like, "Wait, what's going on here?" And there's some exception, you got to go and figure it out, you got to recode it. And I think early stage companies, I don't want to make light of it, but they're just scrambling to get product out.

(15:13):

And so it's hard to bring this broader systems-based approach when they're just one engineer in the room or two engineers in the room building some cool new application. And so in your role today, I think one of the things you're describing at SaaS Gurus is you come in and basically do a system audit. And I think the way that you think about approaching your engagements is different than many, perhaps folks that are coming up through a CPA ranks and a big four audit because you've had these experiences of medical school, of the manufacturing process, of the ERP implementations of working with Japanese controllers.

(15:51):

And then through that, how you approach engagements, I think coming with this really total quality management approach and auditing systems. Maybe just spend a minute or two talking about when you're engaging with a customer, how does your engagement start and what are the things you're looking for in that first phase to get them set up for success.

Anthony Nitsos (16:10):

Even before they become a client, I usually have anywhere from a 60 to a 90-minute interview with them on my nickel. I'm not charging for it because I really want to understand what they're doing, why they're doing it, who they're doing it for, and how they've been doing it. So all those key critical questions. And through that audit, if you will, I call it a diagnostic because I can't get away from my medical training, but my marketing person says, "Stop calling it a diagnostic. It's an audit." But anyway, so I’m diagnosing my patient, you know what? I'm diagnosing my patient. And what I need to find out is how much of what we call the financial core is already in place.

(16:49):

Because I also, at one time, I didn't disclose this prior, but I used to be a yoga instructor, and so core strength is key to yoga. Absolutely. I since transitioned into martial arts, I now do judo instead of yoga. But anyway, it's the same concept. If your spine and your core muscles are not strong, the rest of your body is hanging off of that isn't going to be... The same thing works in a back office in the finance systems. You need to have a rock-solid accounting system that ties to a rock-solid forecasting system that both feed into a KPI system, right? So that's our three-part, financial core. We're looking for that.

(17:27):

And I'll tell you where it starts, is at the item. It's at the item because the item from your own software, of course, I'm not telling you anything new. That the item is what drives all of the metrics. It's what drives all of the revenue recognition. All of it's keyed off the item. That item should also be what's in the CRM system as to what you're quoting and selling. And that item should also be in your quoting system, whether it's PandaDoc or whatever it happens to be. So as long as the item is uniformed between all of these systems, now we're talking a common language and we're able to then start doing analysis because at the item level is where most of our analysis ends up.

(18:12):

Who did we sell to? What did we sell them? What revenue recognition are we having off of it? What's the ARR off of that? It all comes back. Not to promote your software, but that's what I really loved about Maxio or SaaSOptics back in the day, of course, was the fact that it was all item driven. I said, "This is brilliant. This is the way it needs to be." Because that's the license plate that I can drive the car through the entire system with. And once you have your accounting system structured so that it looks like a SaaS company, and there are definitely dos and don'ts about that, you now have everything you need.

(18:46):

Because in the end, what I'm looking for is information, not data. I'm looking for information. I'm looking for information that I can use to help enable the CEO and the executive team make better decisions. I think of my role as a strategic enabler. That's really what my role as the CFO is. I'm there to provide the best information possible. Well, I can't do that without the systems being set up properly. So I think you're right. I came to finance late. It's not like I don't have chops in finance, and it's not like I don't have chops in accounting. "Hey, my name's Anthony. I'm a recovering CPA." I get that.

(19:22):

I know the debts and credits, but it's all because the purpose here is to provide actionable intelligence to the executive team and to future investors and the existing board, right? Well, I can't do that if the systems aren't set up, if I'm constantly having to chase different systems. So I learned a long time ago if I want to not put myself in an early grave or give my clients the wrong information, I better fix those systems first. And so all of our engagements start off with basically a re-engineering of the financial and accounting systems. It has to.

Randy Wootton (19:55):

And what we find is people who've been multiple times CEOs, actually recognize how important it's to put those systems in early. It's the first time founders and CEOs where they're coders and they're like, "Hey, I'll worry about that. I got cash in the bank. I'm good." and it changes radically. I'd love to shift a little bit to... In addition to everything else we've talked about, you did have two unicorn rides, one with Duo Security and one with LLamasoft, and they each were slightly different in terms of the context.

(20:26):

And one was a green field, one wasn't, one was hockey stick growth. Maybe talk through Duo security, what your roles were, what was the challenge you were facing, and then what were your big takeaways from riding that unicorn as you think about working with companies today and helping them set up for success?

Anthony Nitsos (20:46):

So in the case of Duo Security, I was hired underneath the CFO to basically, again, had the systems and the implementation experience in the accounting and finance jobs to come in and say, "Okay, we need to build systems that can support what is becoming the hockey stick growth of the company." When I came in, it was about low eight figures in sales. When I left, it was in the low nine figures in sales. So we added a zero to everything in three and a half years. So tremendous growth. And obviously we know about the exit to Cisco and what happened afterwards, but the reason why you bring somebody in like me at that point is to build the systems.

(21:32):

So the accounting system was already set up. It was already fairly well-structured, of course, because there was an experienced CFO who had come and taken care of it. But now we need to integrate. We needed to integrate. We needed to bring an ERP system in. We had to kick out the predecessor to SaaSOptics when we were getting SaaSOptics up and running. When I first came in, I think you guys had eight employees at that point. I remember we used to call Dave on the phone when we had tech problems.

Randy Wootton (22:00):

And this is 2015?

Anthony Nitsos (22:00):

That was 2015. And we were just loving... Every time we'd turn around, it was like, we need something out of SaaSOptics. I keep calling it SaaSOptics because that's what it was. It would produce the magic. Having built these things, we brought Intacct in for the ERP system. We married it up to SaaSOptics to Maxio. We had it connected to QuickBooks. We were still running QuickBooks at that point before we fully transitioned. We had Salesforce. So that's where the concept of the unified product really came to the fore, because Salesforce was calling it one thing, accounting was calling it something else.

(22:43):

Maxio couldn't call it anything different, they had to line up. So forcing everything into common products, forcing everything into systems that integrated and talked to each other. This wasn't a Greenfield implementation, of course, because the company was already at eight figures of sales. So these systems were already in place. This comes back to what I call the concept of the tech pile.

Randy Wootton (23:05):

That's what I wanted to chat about. I think that's...

Anthony Nitsos (23:08):

The tech stack, we all know about what a tech stack is, but I've come up with the term tech pile because this is how a tech pile starts. "I'm an engineer. I've got a great new product I'm going to make. Oh, I need a payroll system. I got to pay people. Okay, I'm going to go get Gusto. Oh, I need an accounting system, fine I’m going to go get QuickBooks. Oh, CRM. We actually have to keep track of that. Oh, let's go get HubSpot. Oh, we got to do quoting. DocuSign. Okay." Suddenly you have all these systems that aren't talking to each other, that aren't set up in a logical fashion where data flows and information flows from one to the next.

(23:41):

So instead of having a tech stack, you've got a pile. And then it takes somebody like me to come in or my crew to come in and basically sort through the pile and fix it. Well, that's a lot more expensive to do after the fact than if you set it up right the first time. We actually do come into companies where they're not that big yet. And it's easy because frankly, we can set up systems now for a $1 million company that can scale to a hundred million. I mean, the technology exists. Believe it or not...

Randy Wootton (24:14):

That's what people don't fully appreciate.

Anthony Nitsos (24:17):

You can fix it. I don't know, there used to be this FRAM oil commercial way back in the day. You can pay me now or pay me later kind of thing. You can pay me a little bit now or pay me a whole lot later. And it's the same concept that stuck to me from my childhood too. I still use that one to this day. And my kids look at me like, "What's FRAM? What's an oil filter?" I have an easy [inaudible 00:24:36]

Randy Wootton (24:35):

It's like my father used to talk about having a nanny. What are you talking about? One of the things you talk about in the, I don't know if it was this example exactly, but from that experience of don't create a tech pile. Create a tech stack. Be deliberate. We're calling it SaaS in a box. What are the set of systems in a monetization ecosystem that you need to be successful? You need a CRM? Well, you need a general ledger, right? You need a CRM, you need tax, you need FP&A, you need billing, invoicing, rev rec. You can add onto it. But if you have a vision for what your monetization ecosystem should be, what are the products you want to bring out?

(25:12):

How do you want to price them? How do you want to instantiate them? How do you then want to measure and analyze the results that helps that vision drive an integrated view? The other thing we were talking a little bit about before was this idea of a critical point of failure. Single point of failure. And you were telling the story about NASA and then spreadsheets as a single point of failure. Do you want to talk a little bit about the moon story and where we are at the telescope? How that plays out?

Anthony Nitsos (25:39):

I'm a great big science nerd. If you got your camera running, here's my 1960s Lost in Space robot, just so you know. How much nerd I am.

Randy Wootton (25:47):

We are Maxio-nauts at Maxio. We can get you some Maxio gear.

Anthony Nitsos (25:57):

Well, we were Duo-nots at Duo. So it all works. I still have my SaaSOptics corksicle mug. I'm still using it. It's one of my favorite mugs. I love watching documentaries and just to bring this back quickly. I was watching the documentary about the James Webb Space Telescope, the brand new space telescope that went up. And one of the things they were talking about was it had something like 340 single points of failure that if something went wrong at that point, the entire thing would fail. Now you think about it, they're trying to put a $10 billion space telescope up.

(26:31):

I don't know how many millions of miles away from the earth in orbit and deploy the thing all remotely and get through 300 and some critical points of failure. They said, to put it in context, the Apollo launch had something 80.

Randy Wootton (26:44):

That's what you had said. Mind-boggling.

Anthony Nitsos (26:47):

Mind-boggling. Now to bring this back to earth as it were. Excel spreadsheets, G sheets, whatever they are, are very powerful tools. We use them all the time for analysis. They're part and parcel of what I do. I haven't met a projection, sorry, projection software people out there. I haven't met one of you yet that I like. I'm still wedded to my spreadsheets because my spreadsheets do one thing, which is project cash, which is what I need more than anything else. But within spreadsheets are many points of failure that can cause the spreadsheet to produce an incorrect result.

(27:27):

Well, the most embarrassing thing you can do is tell your client they have enough cash when they don't, right? Or tell them that their P&L is this. Or case in point, somebody who was calculating their ARR on a spreadsheet who didn't know how they were doing it. And when we came in and we actually finished implementing Maxio, it turned out the ARR was about a half of what the CEO thought it was. Oops. That's a big oops.

Randy Wootton (27:56):

And who won that argument when you came in and said, "Hey, your ARR is 50% of what you think?" Did they say, "Thanks, here's the door?" Or did they have to go back to their investors and say, "Whoops."

Anthony Nitsos (28:06):

It was the latter and it wasn't so much a, "You're wrong." It wasn't an argument. It was like, "Okay, give me your data." It's like, "Yeah, we just can't get this SaaSOptics thing to work." I said, "I'll get it to work. No worries." So I called up Adrian and we got it all dialed up, and I came back and I said, "Well, your ARR is here." He said, "You're wrong." It was his first day. "I think you're wrong." I didn't say no. I said, "No, I'm right." I said, "Oh, well show me."

(28:32):

So he said, "Well, here, here's my spreadsheet." And I said, "Well, let's take this client right here." And we made it through two clients or three clients before he said, "No, you're right. I've been doing it wrong."

Randy Wootton (28:42):

Oh my gosh, isn't that crazy? So that whole idea of deferred revenue and revenue rec 606 was a driver of this, but just the SaaS business model is so dependent on that ability to do rev rec accurately, right? Do the MRR roll forward, the deferred revenue waterfall. It seems so easy, but it's so hard to do if you don't understand the principle and you don't have a tool supporting it.

Anthony Nitsos (29:06):

And if you don't and you're relying on a spreadsheet and not a system, I have two clients still to this day where I have to do all of my... Basically, I call it the Maxio spreadsheet because basically what I'm doing is I'm recreating in a spreadsheet what Maxio does for me in a system. And I hate it because I'm terrified that I've missed something, that I put in a date somewhere wrong. And it's really difficult to go in and cross check that kind of stuff because it's a spreadsheet. I'm a CPA and I know how to do audits, and I've done the best job I can.

(29:37):

And it has actually passed an audit in one occasion. But it's very nerve wracking for me because it's like that single point of failure on the Apollo launch. It's like all it takes is one thing to get screwed up in the spreadsheet, and I've got a wrong number. And the worst position a CFO can be in is presenting wrong numbers to investors or to a board or to an executive team. That's not a position any of us ever wants to be in. So that's why I come back to, I want to be able to sleep at night, and I want to be able to sleep at night knowing that the numbers that I'm giving my clients are correct.

(30:10):

And the only way I can do that is by designing these systems and putting them into place. And I've been doing it now for enough years, both for whether it was the ERP or the Controllership or Duo Security or whatever. And with clients today, we come in and we have a very specific way that we set things up because one, we've foolproofed it, and two, it really relies on that single point of data entry, eliminating as many points of failure as possible. And the minimized use of spreadsheets because those ultimately are the bane of our existence. Because those things, when they go wrong can be really embarrassing.

Randy Wootton (30:46):

Amen. I've told this story before on this podcast, but I was a SaaSOptics customer at my last company Percolate before selling it. And it was about halfway through my tenure as CEO, the CFO or whoever came and said, "Hey, we need to buy this new technology." I was like, "No, we don't. I do not need yet another piece of software." And he overrode me and bought it, and we brought it in and got it set up. And I'll tell you, it changed our lives in terms of the first eight to 10 days after the month closed, we would spend, not me.

(31:18):

He and his team would spend doing the financial statements and we'd get those, and then we'd start thinking about that. And then he would shift his attention to trying to figure out what just happened in terms of the operating metrics in churn and ARR. And we'd spend another six to eight days doing that through spreadsheets. We had so many customers, you'd push a button on the... You would change a formula and refresh, I think we were in Excel. You could just see Excel bogged down because it was 40 tabs. And anytime you press something, it would take that long. So we'd wait 10 to 15 seconds for every permutation of changes, and we were never sure it was right.

(31:56):

And so we would slide into the board meeting and be like, "Well, I hope it's okay." And often the board would say, "Hey, you showed us these numbers a quarter ago and now they're not agreeing. Why did they... What's the difference?" We would end up in math camp around, "Well, no, we're off by not substantial numbers, but a hundred thousand here." That's really bad. And so to your point, sleeping at night, both for the CFO and the CEO as having a system of record that helps you make sense of the madness.

Anthony Nitsos (32:26):

I mean, the beauty of it is I can on, February 1st, tell my client what their ARR is, tell them what their churning contraction is, tell them what their net RR is because it's already there. I mean, the beauty is that on February 1, I can literally log in and tell my client exactly where their ARR is, where it landed, who they lost, who they expanded, who they contracted, who they got new, all of it right there at my fingertips. I don't have to go through a spreadsheet. And I'm not worried that it's wrong because one, my team is the one putting the data in so they better get it right, but it's coming from HubSpot, where it's coming from PandaDoc, which it's already been vetted.

(33:12):

We're all using the same products. So I can go in and say, "Yes, your ARR is X, and here's what your churn and contraction was." And they're like, "Great, thank you." To the point of you walking into a board meeting and not knowing what it is, that just panics me. It's like, "Man, it's just..."

Randy Wootton (33:29):

Panics me. That's part of the reason I came. I was like, every single B2B SaaS company needs this type of software, whether it be Maxio or somewhere else. But if you're going to operate in a world of subscription businesses with revenue record issues, and if you're going to introduce something, for example, a usage-based now pricing, which adds another level of complexity, and how do you do that rev and rec? It's only going to get more complicated.

Anthony Nitsos (33:54):

Yep, absolutely. And in the end, this really boils down to the fact that as the CFO, especially if you're dealing in a venture-backed world, having the right numbers can kill deals. Not having the right numbers can kill deals. It can destroy your credibility. It can run your company into the ground because if you don't have enough cash to get to the next round because people don't believe in your numbers, you're done. I had an accounting professor who told me once, "You can't spend net income. You can only spend cash." It's like…

Randy Wootton (34:29):

It comes down to cash forecasting.

Anthony Nitsos (34:30):

Wallace Reed, if you're still alive and out there...

Randy Wootton (34:33):

We'll tag him on LinkedIn, get him the shout-out. This may lead to a good next topic around the role of the CFO. We were talking about how you think of what the CEO is and what the CFO is. Do you want to share that with the audience?

Anthony Nitsos (34:52):

Is it printable? Could I do that?

Randy Wootton (34:54):

I think so. The way you've defined it.

Anthony Nitsos (34:57):

I mean, I'm A CEO, I run my own company. You're a CEO, you run your own company. And I said, anybody who thinks the E and CEO stands for executive is wrong, it's excrement. Because we're the ones that have to deal with all the crap that nobody else has to deal with. It's just plain and simple. It just is.

Randy Wootton (35:15):

In that world. I know when you said that, I was like, "You're absolutely right." Or chief bottle washer or whatever they call it. But I think the chief excrement officer is great. So then if that's the CEO, what is the CFO in that role?

Anthony Nitsos (35:28):

So then our role is not finance. It's flushing because we've got to flush all the excrement that everybody else has created through the system and get it cleaned up. But I don't like being the chief flushing officer. I would rather be, what I really like is the cashflow oracle. And that is my be all and end all. All of these systems is so that I can project cash. That's it.

Randy Wootton (35:54):

Right. And we were talking about to what end, how far out do you want to be able to look in terms of your cash, for cash, cash radar when you're using systems and working with a CEO and a company?

Anthony Nitsos (36:06):

Bare minimum 12 months, ideally 24. In my world, not to beat the dead horse, but there are really kind of two client types. The bootstrappers, the ones that have gotten where they have without taking any outside investment, and the venture-backed ones, the ones that have. And in the case of the venture-backed ones in particular, cash runway by far is the most important metric. I don't really care about anything else because that tells me how long the company has to live until it needs to go out and get more money.

(36:37):

And my job as the CFO, I'm not joking, is to be the oracle of cash and say, "You're going to run out in September of 2024. You need to start your round no later than June, preferably in May, because you got to get money."

Randy Wootton (36:52):

And that's what I was going to just add to is I think the other thing about... It's not just knowing when you're running out, it's being deliberate and intentional about you want to raise money on good terms, not have your back against the wall, where people can trade down or just really add in structure and things that you don't want. And so that means really this 18 months of cash, that used to be the way people raised money was, well, you got to operate for six months and then you almost start to go into the next process to raise money 12 to nine months out from when you need it.

(37:23):

So you got to be super clear on... And you can adjust knobs, you can drive more revenue, you can reduce costs. But in general, I think people don't appreciate that you don't put the money in the bank and hang out. Don't think about raising money for 18 months because you are back in the funding cycle at least six months prior to when you need it.

Anthony Nitsos (37:44):

And that's it. And that's why so much of my focus, and this came from the past experiences with the unicorns and other clients, is if you don't have a CFO or you don't have somebody on your team who is forecasting cash out 12 to 24 months, you need to find somebody who can and not shy away from that because of all of those reasons. Even if you're a bootstrapper and you're not going out looking for an outside round, we then switch over into basically investment strategy and tax shielding strategy. You're going to be making a lot of cash. What do we do with that cash?

(38:19):

Do we reinvest it in the company? Can we afford to expand the sales team? Do we lean into the dev team? What is it? So it becomes a different discussion, but it's still all around that ever important metric of cash. And so cash and sales growth, like I said, I know there are a lot of metrics out there for SaaS companies, but you nail those two and the rest of them really follow along, to be honest. Get those two right and the rest of it means a lot easier.

Randy Wootton (38:46):

I think so. And I think especially in that early stage, maybe less than 5 million bucks, three to $5 million, when you're just really worried about growth. You start to make that shift to not profitable growth, but disciplined growth, understanding people have been throwing out the rule of 40 metric. Bessemer just came out with a new rule of X metric. But there's no right answer, there's trade-offs though. And having deliberate conversations about the profile of the company today, what are the bets that you're making, the investments you're making that are going to impact your trajectory going forward? And having alignment with the board on that.

(39:22):

I'm on a board of a company right now where the CEO has huge ambitions and thinks everything's going to work out, and we're looking at it slightly differently going, "Well, maybe." But getting aligned with the board is so critical. And to your point, as a CFO and CEO, you got to have investor-grade metrics where they're not second guessing you. Otherwise, you're never getting the strategic conversation. You're just trying to figure out, do you guys know what's going on with cash? If you can't clear that hurdle, you can't have any other conversation.

Anthony Nitsos (39:56):

Do you know what your CAC is? Do you know what your NRR is? Do you know what all the various aspects, what your ACV is? All of that comes into play, but it comes into play after you've cleared the air that the numbers that you're presenting are correct. And you're right, you don't want to be wasting board time or any executive's time for that matter, questioning whether the numbers are right. And as you get bigger, yes, way more complex, bigger teams, more department heads. You need more metrics because now you're disaggregating is what I call it. Getting down into, "Okay, CSM, you guys need to really focus on net retention.

(40:30):

You really need to focus on those kinds of numbers." The development team really needs to be focusing on how much they're spending on each sprint. All those metrics then come into play the larger and larger you get, and I'm not discounting those at all. Because my world is focused mostly on the really smalls and the startups as a fraction of CFO. By the time you get to your B round, you're hiring a CFO. So we're dealing with companies that are pre-revenue up to B round. And in that world that I deal in, it's cash baby. I don't know how to put it in any other way.

(41:02):

It is cash. Cash is the most important metric. And like I said, I'm spending 80, 90% of my CFO time in either projecting it or discussing it or analyzing it.

Randy Wootton (41:16):

Wow. Well, we were going to shift to the speed round. The speed round had three questions. What's your favorite metric and why? Number two is what's your favorite book that you've read? It could be any book. And then number three is influencers. Are there people that you're following that you think other people should follow? It sounds like we got number one nailed. It's cash, baby.

Anthony Nitsos (41:36):

Cash and ARR growth. [inaudible 00:41:37]

Randy Wootton (41:37):

What's favorite book? All right, you get two. All right. Cash and ARR growth. What's your favorite book that you've read recently or biggest impact? I mean, Deming could be an example. When we were chatting before, I was like, "Oh gosh, I haven't looked at his writing in a really long time. I think I can go pull that back or go order it off at Amazon. Is there one that you really would recommend?

Anthony Nitsos (41:56):

My favorite book of all time is Dune.

Randy Wootton (42:01):

Right on. Yes. One of my all-time favorites as well.

Anthony Nitsos (42:05):

Just really quickly is because it's so brilliantly a political novel as much as it is science fiction, I learned more about politics and how politics really work from reading the Dune series than literally any other book. So Dune by far outreaches it. Now recently, the Three-Body Problem by this Chinese author is fabulous. I just finished reading it. It's like, "Wow, that's really great." I can't wait to read the next two in the series, but Hugo Award winner, just a brilliant, brilliant book, but I'm a science fiction geek, so no, I don't read a whole lot of management books. I don't have time.

Randy Wootton (42:43):

We're going to have to cover off on that in a separate... I'm a huge science fiction fan, actually reading Neil Stephenson, shoot, Reamde, and then I have it have teed up for the fall. And to the Three-Body problem, I tried to read that. I got stuck. I think it was because I was reading it night and I just kept falling asleep. So with your endorsement, I'll go back, dust that off. Get back into it.

Anthony Nitsos (43:09):

My wife is from China, and she said, "You better read it." My wife's Chinese. And I had the same reaction as you did. I got to third chapter and I'm like, "This is going to put me to sleep." She said, "No, you're going to stay with it." I'm like, "Okay." And I did. I was really grateful. I got to the end of the book and my jaw just hit the floor. I'm like, "Oh my God." Anyway that was a great book.

Randy Wootton (43:30):

That's a great sell. I'll go back to that.

Anthony Nitsos (43:33):

We derailed you. What's your third question?

Randy Wootton (43:36):

Third question is influencers. Are there any people out there that you follow in this space or a SaaS expert space that you learn something from their posts rather than it just be recycled content?

Anthony Nitsos (43:49):

The honest truth is that I don't do a lot of social media, and I don't do a lot of following because I'm so busy dealing with client matters and my kids and my family and my interests. Judo being the big one these days. And when my next belt test is, that in the end... See, I had some influencers way back when, people who gave me lessons along the way that just made the hugest impact. And I'll tell you what they told me. Things like, "You can't spend net income. You can only spend cash." Well, that was a big one, right? The other one, you might be surprised to hear this coming out of a CFO. It's better to be liked than it is to be right.

(44:36):

I think too many times the CFO digs their heels in because they're right and they've got to be right. And I tell you what, you're dealing with people. You're dealing with boards, you're dealing with all sorts of personalities. There is a way to be right, and there's not a good way to be right. And I found it's a lot easier to get what you want if people are coming along willingly because they like what you have to say and they like your solutions. Not because, "No, dammit, you're wrong. Your ARR is off by a third and I know it and I'm right." No. When the CEO said, "You're wrong," I didn't say, "Yes, I am."

(45:16):

I said, "Okay, show me where." It's like I'm opening the door. I make mistakes. Come on, we all do. But those two have had a huge influence on my life. It's like you can't spend an income, you can only spend cash. It really is better to be liked than it is to be right. And the two people who gave me those, I think one of them unfortunately, has passed away. The other one's probably still around, but they're not great thought leaders. They were just good CEOs, good professor who had been there and done that and seen a lot and basically transmitted some really good advice.

Randy Wootton (45:51):

Yes, Warren Buffett's adages. Hey, look, they're good reminders. I think you're right. I mean, I tell people software is a people business. And I think to your point, a lot of times CFOs I've met liked to be right. And because they have the data and they know how to run Excel files, they're often right. But that doesn't make them most effective. Being effective is about learning how to work with other people, lead with inquiry, and to your point, ask about assumptions and data.

(46:21):

And then I think keep the big picture in terms of materiality. Are we solving a problem that's meaningful? If not, let it roll. Keep going. I think that's the wisdom of age, is understanding where you got to focus your energy, effort, and dollars.

Anthony Nitsos (46:36):

In the end, my job is to help companies build valuation, right? To me that's the mission of... I talk about the cash flow oracle, but in the end, you're there to help these people have a great exit.

Randy Wootton (46:52):

Shareholder value.

Anthony Nitsos (46:55):

Shareholder value, great income. It's all about building valuation. Every single thought going through your head should be, what is the best path to get there? And that includes, as you said, that effectiveness, right? I can have all the right numbers in the world, but if nobody wants to pay attention to me because I'm a jackass, then how effective can I be?

(47:16):

So it is a political game. If you're a CFO and you're out there listening, yes, you are a political animal, and you should be a political animal because you're dealing with other political animals. And if the goal is to build valuation, that's your mission, then you need to pay attention to that.

Randy Wootton (47:33):

And I guess maybe in the final words is, and read Dune because it's a political book and you'll learn all about politics.

Anthony Nitsos (47:38):

And read Dune. Oh my God. I mean, it's like a 20th century version of Machiavelli. Oh my God.

Randy Wootton (47:46):

It's awesome. Well, hey, with that, thank you so much. Really appreciate your time, Anthony. People can find you on LinkedIn. They can find you at SaaS Gurus. Is there any other place you'd like them to sort of track you down?

Anthony Nitsos (47:59):

Come to the dojo on Saturdays.

Randy Wootton (48:03):

But come with your spreadsheet. Get ready to rumble.

Anthony Nitsos (48:06):

No, don't come with your spreadsheet. Come with your gi and an open attitude. We're going to go flying through the air with the greatest of ease and land with a slap and a thump. Well, there you go. Thank you, Randy.

Randy Wootton (48:18):

Well thank you very much.

Anthony Nitsos (48:19):

As always it's so much fun being with you guys. Thank you.

Randy Wootton (48:22):

Great pleasure.