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Episode 23

Efficiency in Finance: Navigating the Essentials of Early-Stage Startups

Episode details

This week on the Expert Voices podcast, Randy Wootton, CEO of Maxio, speaks with Alex Diaz-Asper, Principal & Founder of Tarsus, and an experienced figure in the financial dimension of SaaS businesses. With an extensive background in private equity and M&A, Alex shares key financial concepts and strategies within the SaaS landscape. Randy and Alex explore the importance of clean financials, the impact of accounting errors on M&A, and navigate through the potential risks and rewards of dealing with client concentration. Delving into the transition from PE to an operational role, Alex also shares insights from the strategic partnership between finance and sales divisions in scaling SaaS businesses.


Randy Wootton
Randy Wootton
CEO, Maxio
Alex Diaz-Asper
Alex Diaz-Asper
Principal & Founder, Tarsus

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Video transcript

Randy Wootton (00:04):

Well, hello, everybody. This is Randy Wootton, CEO of Maxio, and your host for SaaS Expert Voices, where we being the experts to you to talk about what's going on today in the broad landscape of SaaS, and what is on the horizon.

With me, I'm very excited to have Alex Diaz-Asper join us, who's had an incredible career. Started off in M&A, and then PE for six years with DKW Capital. He did another tour with a group called Alfred Street Partners. And during that time, he actually made the switch to CFO for TARP, one of their portfolio companies. And so he has that great background in terms of being on the investor side, and then being an operator. And after that, in 2008, right when the Lehman Brothers disaster blew up, he decided that'd be a great time to start his own advisory services firm, now called Tarsus. Well, welcome, Alex, and what an interesting career.

Alex Diaz-Asper (00:59):

Thank you. Thank you, Randy. Great to be here.

Randy Wootton (01:01):

So one of the things we were talking about in the pre-brief was just, maybe because you had these three chapters of your career, the M&A, and PE, and then as an operator, and then now really the last 15 years as an advisor, maybe talk a little bit about some of the lessons learned. Starting back with PE and M&A, in terms of helping CEOs better run their business, using financial operations to better inform their go-to-market strategies. What were some of the key lessons learned from that time of your career?

Alex Diaz-Asper (01:30):

Yeah. The fun part of that is that I've seen it now from both sides, as the investor, now the actual guy providing the information to the investors. It's very interesting to see both sides of that thing. Also, plus, in my M&A days, I saw the end result, where people were trying to sell their businesses.


It was in the telecom space, we were actually acquiring a lot of companies on the buy side, so we saw the end of those processes. So it's been a very unique and kind of fun experience to see all sides of those different things, so it's very helpful. Throughout all those different elements, finance, accounting, good numbers, clean books, it's kind of a cliché, super important, there's nothing but help you in all these processes.

Randy Wootton (02:16):

And, in fact, I mean, one of the things I quote often, it came from a law firm actually based in Atlanta, but they're a national firm, and they say the number one deal killer is in accounting error.

Alex Diaz-Asper (02:25):


Randy Wootton (02:26):

And that, especially in SaaS, where you're doing revenue recognition, it's not according to GAAP, and so people can come up with all these creative ways of doing revrec. But then, when the MRR roll forward doesn't make sense, or the customer cohort analysis doesn't make sense, that's when PE firms especially, and they got a bunch of Excel jockeys, jump in and start digging in, and they find more issues, and they either trade down or they don't do deals, because the numbers don't work.

Alex Diaz-Asper (02:52):

Yeah. I've seen deals blow up because of exactly that reason. And I've been on both sides of that. One side, you're panicking, the numbers all-

Randy Wootton (02:59):

Yeah, totally.

Alex Diaz-Asper (03:03):

Yeah, you see, you found the error, there's a little issue in your spreadsheet, I don't know who found it, but somebody's starting to look at it, and it's like, uh-oh, now what?


And to the other side, where you're like, "Hey, look, we're buying a company because we want this kind of revenue stream. We're valuing the business, I'm an investor, I'm valuing it on AR multiple. And all of a sudden the AR is not what I thought it was going to be, so I have to re-trade." And then that's kind of a difficult situation. Those deals have a high probability of breaking up and blowing up.

Randy Wootton (03:27):

I'll tell you, not having done as many as you have, but having sold a couple of companies, and then being corp ... I was Corp Strategy at Seismic after I sold Percolate to Seismic, and did a couple of ... Well, we did several M&A motions, ended up buying two companies, and then also doing a strategic investment. But to your point is, as the buyer or the investor, you're primarily investing in that asset, especially if it's a bigger company, the revenue, the customer revenue. Clearly, the IP, and the people, you want those folks, but you're really counting on that revenue to get that multiples, either at the top line revenue growth, or at the EBITDA level. And if it doesn't work, it doesn't pass sniff tests, it makes it super hard to get the deal done. So I think that's a great point. And I would say that we also find that our best customers are usually those that have been multiple time CEOs, or multiple time CFOs, because they know how important it is to have the back office in ship shape and seamen like, as much as it is to have the go-to-market engine going. So that's a great lesson learned.


So you decided to leave the world of PE, and drop into one of the port cos, TARP. Which is not unusual, but I would say often comes with its own challenges, because many times the CFO for operating companies come up from the big six, or the big four, they're accountants, and they're controllers, and that's just a different way of looking at the world, than coming in as an investor PE guy. So how did you decide you wanted to make that transition, and what were some of the lessons learned from that experience?

Alex Diaz-Asper (04:55):

Yeah, yeah, it's a great way of putting it. Yeah, I came from the finance side of it, versus the accounting side. And I think you find CFOs have those general two kind of starting points, either they came up through accounting, or came up through some part of finance.


I came up through finance, so I had to learn the accounting, and it's only gotten more and more painful through the years, including lease accounting, 606, all these fun things. But, yeah, I've always relied on really good talent, hiring really good controllers, people who could help me through that process, and that's also important. I mean, there's the systems, and the tools, getting out of the spreadsheet world, using systems with tools like Maxio, and then hiring the right people to help you implement those processes and interpret those contracts.

Randy Wootton (05:40):

That's great. And then with TARP in particular, you were talking about how, when you jumped in, client concentration can really be something that's an issue. Initially, it's great to have a big client, because they're paying you money. At the same time, they can really dictate your roadmap. So if you're trying to build a horizontal solution, and they're like, "No, no, no, I need you to do more for me," you're in this constant state of tension. Can you talk, as much as you feel comfortable, about that idea of client concentration? And now, as you've been advising people, if you have rules of thumb about how much revenue concentration is appropriate?

Alex Diaz-Asper (06:14):

Yeah, that's a great question. And it went back to the acquisition stuff too as well, clients, investors, and buyers are all going to be looking at this number too. They don't want to buy client concentration, unless they really love that one particular client. But, it doesn't show scalability if you have this one big client.


All those issues all wrap themselves up, like you said, the roadmap, they suck development resources that solve these particular issues, and your whole firm sort of ends up wrapping themselves around that contract. And, unfortunately, we see, a lot of times, a lot of our clients have gotten themselves in trouble. Had a big cash cow kind of client, they wrap themselves around it, everybody was super happy, over-serviced it, etc, didn't focus on other go-to-market, or trying to find other clients, then that client leaves, or that clients another product. It's a large corporation and they get distracted, and they get ... You know how it is with these large corporations, who knows what happens with them? And then all of a sudden you're in really difficult existential crisis overnight.

Randy Wootton (07:18):

Right. If it's the whale, and you're the pilot fish hanging onto the side, and the whale decides to turn left, and you're like, "Whoa, wait, hang on." Do you have a general sense for rule of thumb for how much revenue you would want from, no more than from one client, as you're looking, as a healthy business?

Alex Diaz-Asper (07:34):

Yeah, certainly no more than like 20%.

Randy Wootton (07:34):


Alex Diaz-Asper (07:37):

Yeah, certainly no more than 20%.

Randy Wootton (07:37):

I think that's right. I've used, in my past, and I haven't done it a bunch, but like 10%. And so how do you drive down to have no more than one client being representing 10%? I think maybe it depends on what scale you are.

Alex Diaz-Asper (07:51):


Randy Wootton (07:51):

So I tend to come in at Series C companies, and so if you're still a seed, or Series A company, having a company represent 20% of your revenue may be okay. But, I think to your point, being able to tell the story about revenue diversification, multiple go-to-market plays, how are you going to show that you can scale, and have a reasonable sales model, while you keep that honey pot?

Alex Diaz-Asper (08:14):

Yeah, exactly. Yeah, exactly. At the end of the day, it's all about validation. So the more people who said yes, the more data points you have of people saying, "Okay, I'm going to give you money for this thing."

Randy Wootton (08:25):

Yeah. That whole product market fit, that they're going to pay you, and they're going to pay you again. They get through a full cycle, in terms of that they renew.

Alex Diaz-Asper (08:33):


Randy Wootton (08:33):

Great. So you jumped for PE and that finance function, you came in as CFO at TARP for a bit, and then you decided to go off on your own. What was the catalyst for that career pivot? And then maybe some of the lessons learned over the last 15 years? We'll get into a little bit more detail around that. But just, you've been doing this for a while now, you've got a super successful practice.

Alex Diaz-Asper (08:51):

Thank you.

Randy Wootton (08:53):

Why do you decide to do that? It seems like it's been super satisfying.

Alex Diaz-Asper (08:57):

Yeah, no, I've really enjoyed it. I really enjoy early stage tech companies, working with ... I serve two roles now, the managing partner of the firm, but I also do service like CFO for about five to eight clients at a time. And I really enjoy working with early stage tech companies. I find that-

Randy Wootton (09:16):

Are you a sucker for punishment? I mean, what is it that you-

Alex Diaz-Asper (09:19):

I tell people it's like teaching elementary school, everybody wants to play in the NBA, everybody wants to be the president. As opposed to later stage, high school kids, they're going to be lawyers and doctors. It's that kind of atmosphere, where they really, really have that kind of energy about really trying to take over the world. It's a fun thing to be around.


So I figured, hey, I have two choices, I could either go find another early stage company, and go jump in as the CFO there, or start up a whole different way of doing this, of working across a bunch of clients as the CFO, and getting more exposure to different businesses. Frankly, a lot less risk with going to-

Randy Wootton (09:58):

I was just about to say, was it risk diversification, you're not putting all your eggs in one basket?

Alex Diaz-Asper (10:04):

Yeah, part of it. Part of it. And two things too, part of it is that, and part of it is that, at early stage CFO, you end up wearing a lot of hats. You wear a lot of administrative hats. So this allowed us to build sort of a key team of accounting, and we have an offshore team based in Bangalore, India, and they do a ton of the core accounting, GAAP, US financial statements, so I don't have to spend my time digging into that part of it.


So we have the ability to really create an infrastructure to do financials, to close the books in a timely basis on a US GAAP basis, using tools like Maxio to do analytical reporting, GAAP revenue, all those kinds of things. So when I get to see the numbers, I'm actually really acting as a CFO, and not a controller, not an AP person.

Randy Wootton (10:51):

That's great. Right. You get to pick what you want to play, which playground you want to play in. One of the things I talk to folks, and I am primarily focused on B2B SaaS, is there's usually this phase of when a founder, first time founder, technology person starts their company, they have their "uncle" do the books. It's someone that is okay with Excel, they do cash accounting, and they manage it through their bank account.


At some point, they hit an inflection point like, oh gosh, and maybe it's when they take on angels, that they do an outsourced firm, and we'll talk about the difference between a CPA bookkeeper and a type of firm like yours. And then there's another phase we find, at about 30 employees, where they actually bring the CFO in-house and say, "Okay, now we have enough complexity, enough customers, I need a full-time CFO, and I want to build out the finance function."


How do you find that play out? When do you get most of your customers in the B2B SaaS space? Have they all had their uncle, and you're coming in there as they go to accrual, and try to think about GAAP, you're like, "Oh my God," you're pulling your hair out, because you got to get all the accounting sorted out? And when do they graduate? And what's the impetus or the catalyst for graduating from your services to a full-time CFO?

Alex Diaz-Asper (12:01):

Yeah. Yeah. So we usually typically get involved even angel round, as long as they get some funding, but it's typically seed, Series A. And it's usually that outside capital, all of a sudden it needs visibility. We do work with some bootstrap companies, it's very different working for a bootstrap company, where the entrepreneur is running it, looking at the bank account, and that's how they manage their financial statements, versus like, okay, somebody outside the firm needs to know what's going on, either it's a bank or-

Randy Wootton (12:31):

And trust the numbers. That's the big issue too, right?

Alex Diaz-Asper (12:33):

Yeah, exactly.

Randy Wootton (12:35):

And as you move into GAAP and revrec, you have these investors that are trying to understand the ARR, and if you haven't ... If you're making up your own rules around ARR, because it's not a GAAP metric, that can get all hairy and scary like we were just talking about.

Alex Diaz-Asper (12:48):

Yeah. And then you start talking about these things with, hey, 606, with uncle, as you said, or it's like some bookkeeper, or it's a CPA firm who does their tax, they just can't handle these things, they don't understand these things, and they, frankly, don't want to. So it's a great starting point for us. And then we typically work with firms until the Series C range, and then at that point is where we see they typically hire a CFO. And at that point-

Randy Wootton (13:11):

How serious ... Sorry for interrupting. Revenue size, what would be a typical Series C that you would see, or number of employees, what's that inflection point that you usually see?

Alex Diaz-Asper (13:21):

It's usually maybe 80 to 100 employees, $15 to $20 million, that kind of range. And it's hopefully a sector that's coming back now. It's been a little tight the last couple of years.

Randy Wootton (13:34):

I think that's right. We've actually seen it even a little bit earlier, 30 to 40 employees, in that five to 10 million, is where we'll see people bring in CFOs. So that must mean then, what you're doing for them is this advisory services that you're providing, and maybe you can talk a little bit how that is different than tax, and audit, and accounting. What's the layer that you're providing for them? Because that seems to indicate to me that the CEOs and the boards who've done the Series A, Series B have been excited about what you've been providing, and they're able to extend that with you before they bring on the CFO. So what is that sweet spot that you're offering in a set of services?

Alex Diaz-Asper (14:11):

Yeah. So we're able to do all the things that those firms need, like track the KPIs, track the financial model, try to forecast, tell people what happened, and what will happen, both on the KPI side, on the cash flow side. So bring a lot of visibility for the board. We're very used to dealing with boards, our CFOs have all been around the block, and very much know this space, especially B2B SaaS. So, yeah, we can serve up to that role until the Series C now. Where it gets hard for us at the Series C level typically, is at that point there's a lot of stakeholders, both internally and-

Randy Wootton (14:50):

You have multiple investors? Yeah.

Alex Diaz-Asper (14:52):

Yes, that investor relationship. And then the management team becomes a lot bigger too. So there's a lot more kind of stakeholder management, that we're really not suited for. And at that point, if we're working with one COO, and one CEO, and head sales guy, that's okay. And maybe two or three investors, that's okay. It's when it gets later stage, and there's all these different people, you really do need somebody full-time to manage all those people.

Randy Wootton (15:18):

That's a great point. We had a CFO at Percolate when I showed up, but we had Sequoia, GGV, Lightspeed, First Round Capital. And I just remember, the end of the month, you have to deal with each of their analysts, and our CFO and our controller was filling out their templates. And when we brought Maxio on, then we had the reports that would come out of the subscription momentum report, and it just changed the game. We're like, "No, no, here's all the numbers you need." And it allowed it to leverage, and really decrease the amount of time you had to spend in that IR, the Investor Relationship. That's a great insight.


So we were just bumping up to this idea of financial operations, and how you think about financial operations. You were talking about how financial operations, at the end of the day, gives you visibility into what happened, what will happen, and what should happen. Can you talk a little bit about that? And the distinction you made in our pre-brief around GAAP revenue, versus analytical revenue, I thought was a really interesting and powerful distinction.

Alex Diaz-Asper (16:17):

And this is super important as GAAP gets more and more convoluted, able to look at and understand these two different things, because boards, acquirers, are looking at these two different numbers. So analytical revenue, well, GAAP revenue is pretty straightforward, it's US GAAP will tell you what the revenue is for that particular contract on our ASC 606, so that's, while it might not be straightforward-

Randy Wootton (16:42):

So it's on the revrec.

Alex Diaz-Asper (16:42):

Right. Exactly.

Randy Wootton (16:43):

Get the rev-rec right, and you got the revenue, you reported on your P&L, and it shouldn't change.

Alex Diaz-Asper (16:49):

Yeah. And there's been enough audits, everybody's been through it, so I don't think there's a lot of controversy left all that anymore, so that's pretty straightforward. But, again, it can be really convoluted, like we have a contract ... Especially with clients who have implementation periods, where you can't start the revrec until after the implementation period, then there's zero revenue, and then it gets compressed, and then they renew, and then there's a downgrade. So that confuses the heck out everybody. Nobody likes that, right?


So we then track analytical, which is essentially, what are you going to renew this contract at? So it's $120,000 per year, but you implement at six months, so you get 120 divided by six, for the last six months, but then next year it's going to renew at 120. So let's just capture that, what is the run rate revenue from that contract? 120,000, and that becomes our ARR.

Randy Wootton (17:39):

That becomes one of the things we talk about when looking at targets, is contracted ARR, versus live ARR.

Alex Diaz-Asper (17:46):


Randy Wootton (17:47):

Which is what you were alluding to terms of, hey, you've signed a deal, but if it takes three to four months before it goes live, you can't actually recognize that revenue, and how does that play throughout your revenue recognition? And then, to your point, your ARR, so that you're not taking a contraction in year two, which is what you were pointing to, because you had this compression.

Alex Diaz-Asper (18:08):


Randy Wootton (18:09):

The other thing I think that it really helps inform is, how do you figure out a way for your customers to get live sooner? So you reduce the time between contracted and live, the opportunity to recognize revenue, but also get cash.

Alex Diaz-Asper (18:24):

Exactly. Yeah. Yeah. Well, a lot of these clients are still charging annually upfront anyways.

Randy Wootton (18:31):


Alex Diaz-Asper (18:32):

That's why CARR makes sense. And, yes, we got this analytical ARR, CARR, like, okay, even though it might not implement it in six months, it's still part of your CARR, right? It's still part of your basis, it's still part of your validation, right?

Randy Wootton (18:45):


Alex Diaz-Asper (18:46):

Because what we're talking about, like what investors and everybody's looking for is, how much do they really get validated? Is it a $10 million company? Is it a $15 million company? Is it a $20 million CARR? So many clients have decided to pay you that much, which is really what those important numbers ... And then, for obvious reason, everybody wants to gravitate to CARR, right?

Randy Wootton (19:06):

Yeah. So that was one of the things I was going to ask you, we had talked a little bit about investors, and what are they looking at? Are they looking at GAAP revenue? Are they looking at analytical revenue? Are they looking at a subset of the revenue? You've been on both sides, what is the metric that's got to be accurate?

Alex Diaz-Asper (19:21):

Yeah. Well, unfortunately, all of them.

Randy Wootton (19:25):

Fair. Okay, fair point.

Alex Diaz-Asper (19:27):

And they all serve different purposes, and they all have to be ... And you don't want any of them to go wrong, because then you have a different problem. If you get your GAAP wrong, you don't want to get an embarrassing audit issue. And then, later stage company, private equity sponsors, they can seem to be gravitating to GAAP. But, at that stage, if you're going to post- $20 million, $25 million company, it's a software company, these GAAPs are less important.


Early stage seed company can have big gaps between GAAP and CARR, because they're selling a lot, they haven't been implemented on lots of those. So I think early stage, obviously CARR gets very important. Later stage, they tend to gravitate. But it's important to keep them all straight and reconciled.

Randy Wootton (20:14):

Yeah. That's an interesting point. What I've noticed, one of the big distinctions between VC and PE backed, is also ... We're a little bit bigger at Maxio than what I was at Percolate. Is the focus on EBITDA. And part of that may be the shift in the market as well, and people saying efficient growth, versus growth at all costs.


But, when I was VC backed, it was more around product market fit, reputable sales engine, go, go, grow, grow, grow. And PE is a little bit more around, hey, we want you to grow, we still want you to be high growth, how you define that, but we also want to see you starting to get some operating leverage. And that manifests in EBITDA. I just never really talked about EBITDA before, but it's become a topic of every conversation.


I think the other thing that popped over the last year and a half, with the rise in the interest rates, is actually ... I don't know what you would call that, EBDA, not IT, because you have to think about interest. And so what's the hurdle that you have to bring every year to just even pay off the interest at 5%, or whatever it is that it is now, and it's a crazy difference. And that was not true two years ago, money was free.

Alex Diaz-Asper (21:27):

Right. Yeah.

Randy Wootton (21:27):

So I think that's been interesting, that conflation of looking at ARR growth, and bookings growth, and churn. But, at the same time, ensuring you understand the revenue, and when that's going to play out, and how do you cover through the P&L, but then also the cash? And so your 13-week cash forecast, I think that's been another thing. I don't know how it's playing out for the types ...


Well, maybe that's a question for you. So your early stage seed Series A, what are you seeing in terms of their ability to raise capital? And what's the assumption, in terms of how many months they should go against the burn, before they need to raise again?

Alex Diaz-Asper (22:03):

Yeah. Well, the important point, the biggest point, is that a lot of it's not ... The markets are still pretty tight, so people are still sort of in that frame of mind of, hey, we got to extend the runway. The rounds are-

Randy Wootton (22:19):

So 18 months, 24 months, 36 months? When they're raising money, what's the assumption in terms of how much money they've raised, and how long will that last?

Alex Diaz-Asper (22:26):

Yeah, I think everybody's so gun shy now, nobody wants to do less than 24 months, if it's an external round. Obviously, there's still internal rounds, just say, let's fight for another day, 12 months out. A lot of use of leverage, there's some interesting debt products out there, but they do set up problems down the road, right?

Randy Wootton (22:45):

Yeah, totally.

Alex Diaz-Asper (22:47):

Now, the problem is that people didn't want to raise capital in early 2022, but now, hey, took some debt, instead of equity, and now some of that debt is not only interest, it's actually amortizing, you got to pay off the principle. So there's still a lot of cash flow management. We do talk about a lot of these CARR and ARR metrics, but there is a lot of cash flow issues. But having a tool that can help you forecast your billing is super helpful.

Randy Wootton (23:17):

Yeah, we were talking a little bit about that, that one of the things you find is, in general, B2B companies don't struggle with their costs, because something like 65 to 75% of their costs is people. And then it's AWS. You're not buying data centers around the world. It's not a huge capital expense, and it's, how many times do you buy lunch a month?


But what you were suggesting, the big challenge, and I appreciate this, is they struggle with defining and forecasting revenue. Can you talk about why that is, and what are the components that the companies you work with are struggling with most? Especially that early stage, where they're still trying to, I think, get some PMS.

Alex Diaz-Asper (23:51):

Yeah, yeah. Well, because if you have these large annual upfront invoices, knowing when those next batch of annual invoices are coming, is super important. You can't assume cash comes in evenly over the 12 months, right? If you signed everybody in Q4, you had a great Q4, and kind of Q3, you're starting to run out of cash. You see it on the horizon, okay, here comes all the renewals, and new cash is coming in. So that's super important from the cash flow models, to be able to see those kinds of ebbs and flows of cash flow. And then just having a tool to help you track the renewals. Because a lot of clients, unfortunately, lose track about what's coming up to do, and then they're scrambling around to try to renew these clients.

Randy Wootton (24:33):

We call that revenue leakage. Everyone calls it that, but revenue leakage. And there's some people out there that I've seen, analysts, that say that it can be up to seven to 9% of your revenue is leaking out of the business, because you haven't invoiced correctly, you forgot to invoice, or the customer is contesting it. And you think about that, seven to 9% of the revenue, that you've already done all that hard work to get them on board, get them instantiated, get them up and going, they probably paid their first invoice.


But, to your point, you're coming around on the renewal, if you don't have a system that's helped manage that, and do subscription management, you don't know, you're not out in front. And if the invoicing is not accurate, you may be missing dollars, because you just didn't invoice correctly. Or, if it's not accurate, you end up in contentious negotiation with your customers. Do you see that playing out across your customer base?

Alex Diaz-Asper (25:26):

Yeah. And clients are using every little excuse not to pay you.

Randy Wootton (25:29):


Alex Diaz-Asper (25:30):

Yeah. So you submit, you get your invoice wrong, okay, fine, submit a new one 90 days from that.

Randy Wootton (25:35):

Right, right. You get in the back of the line. Get in the back of the line.

Alex Diaz-Asper (25:38):

Exactly. Yeah. Seriously. Especially Fortune 500, they're awful. They're awful on these poor little SaaS companies. Yeah, they're awful, they really are.

Randy Wootton (25:47):

I mean, you're living and dying by cash, and they're floating the interest, they're making money on the float, but they're dragging you out. It is another one of those David versus Goliath type thing.

Alex Diaz-Asper (25:59):

It is.

Randy Wootton (25:59):

But I think, going back to earlier conversation, having a broad base of customers, so that you're not reliant on just one big customer, I think really understanding your monetization strategy, who you're out selling what to, and how are you going to do that over time? And then I think having a very disciplined order to cash process.


We're talking a lot about that this week in fact, is the fragmented order to cash, and how that causes problems by not having the connection between the data, the technology, and the process. Is that something, when you go into a organization, an early stage company, and they're like, "Look, we got this product, we're going out and we're going to build this product, we're going to go sell it, so we're going to invest in a CRM system," how do you convince them to adopt back office technology to better inform front office strategies? So taking all the data that they're getting, and then using that, as we were just talking about, to define and forecast revenue.

Alex Diaz-Asper (26:52):

It sometimes could be a challenge. Hopefully, if you've got an entrepreneur who understands, who's got some experience, then it's relatively easy, because you're demonstrating to them. You're showing them, hey, this is how the financial information can look like. We'll show them a example financial package, which shows all the KPIs, and all the forecasts, and all this stuff. And then, hey, this is going to make your life easier, it's going to give you the visibility, it's going to give your investors visibility. So hopefully that wins the day.

Randy Wootton (27:23):

Do you charge them less if you ... I was just wondering, and I don't need you to tell me your business model, but is it one of these things where you're like, "Look, I don't want to have to work in Excel, so if you adopt one of these technologies, it makes my life easier, I'm only going to have to charge you 10 hours a month, versus 15 hours a month?" Do you see that play out at all? There's an efficiency for you, and you pass that on to your clients?

Alex Diaz-Asper (27:42):

Yeah, definitely. Yeah, we will charge them less if they're using tools, the right tools. Otherwise, because, like you said, it's just hours, and not unnecessarily hours where ... We are a professional services firm, so hours are not a bad thing, but there's kind of hours you want to spend, and hours ...


What really kills a finance organization, if I've learned anything, is just these breaks, these things that then the swirl that comes with trying to fix them. You're in that board meeting, and you're like, "Oh, why did ARR go down, and what was that $10,000 churn last month? We didn't lose any customers last month?" And then it's like-

Randy Wootton (28:18):

Oh my gosh. And then it turns into a rabbit hole.

Alex Diaz-Asper (28:21):


Randy Wootton (28:21):

Especially with early stage investors, when you get young analysts who are there trying to prove their salt, and they're going to take you to math camp, and they're like, "Oh, well, three quarters ago your gross retention was 86.2%, and now you're saying that same quarter is 87.4%. Why was there a change?" You're like, "That was three quarters ago. I mean, that was a millennial ... Now I'm just talking about what's happening today." But, no, no, no, they bring you back, and they start to question your numbers. And I think that's where you have to be able to come in with investor grade financials, so that then you're having conversations about strategy, not about accounting roles and reconciliation.

Alex Diaz-Asper (28:55):

Exactly. Exactly. And nobody likes that, the CEOs don't like it. So it's an education process, back to your point, with some entrepreneurs. But, yeah, we've been pretty successful, everybody ... Luckily, also, B2B SaaS companies, they understand technology.

Randy Wootton (29:12):

Right. Oh, there's that, right? So what's the percentage of your portfolio that's B2B SaaS, versus other industries?

Alex Diaz-Asper (29:18):

So on Tarsus now, we do a lot of different things. We do government contract, and we produce that and everything. But the venture practice, I would say, is about 40% of our business. And that was how we started, was out of the venture space. And of those, I would say about 75% are SaaS companies, for obvious reasons, it's a very attractive business model.

Randy Wootton (29:41):

Right. And it also has that endemic issue with revrec.

Alex Diaz-Asper (29:47):

Yes. Yes. Yes.

Randy Wootton (29:47):

I think that's what causes a lot of people ... So have you seen ... What percent of the B2B SaaS companies you're working with are using a more traditional subscription term, so annual contract, versus a usage or consumption-based model, a metered-type model?


Maybe two different questions. We often find that early-stage companies are adopting product-led growth, and so they have the product, and the customer can sign up for it, self-instantiate, they don't have a sales team. And that also tends to coincide with a usage-based consumption model. As those companies get bigger, and they start to move into large mid-market or enterprise, they'll hire a sales team, and that'll lead to sales-led, and that may have more annual contracts.


Do you think that definition is consistent with your experience, in terms of the earlier-stage companies are primarily PLG, and are they using primarily usage-based monetization, or are they also trying to play with subscription terms at that stage?

Alex Diaz-Asper (30:45):

I think a mix of both. We do see that product-led growth, and investors love that kind of stuff, and pushing companies in that direction. We also work with a lot of cyber companies here, we're in Washington DC, and they're just traditional subscription-based businesses.

Randy Wootton (31:02):

What we found in our Maxio Institute Report, ironically, that the PLG cohort was lower growth than the SLG cohort. And part of the reason, we think, is because monthly contracts, usually monthly payments, and so the usage is happening on a monthly basis, and so you start to see the impact of the economy much sooner than an annual contract. If you've been signing year contracts each of the 12 months, you see them drop off, but it's a different type of drop.

Alex Diaz-Asper (31:30):

That's interesting.

Randy Wootton (31:34):

Yeah. The ideal situation is to actually have both, so that you have the subscription term type contract, that kind of holds it all together, and then, if you're fortunate, the PLG, or the usage-based pricing mechanism can have some volatility as the companies grow, or as someone is using more of the widget, they pay more for it. You have this aligned value prop for that, but then that also drives your business.


When I first walked into Maxio, one of the people asked me ... Because Chargify had been more PLG, and SaaSOptics had been more SLG. Said, "Randy, PLG or SLG?" And I don't think I fully understood the question, I was like, "I don't know, I think it's both." And they're like, "Bah, you're just playing."

Alex Diaz-Asper (32:20):

Choose a side. Choose a side.

Randy Wootton (32:20):

Yeah. "You're being a politician." I was like, "I don't know."


But what I think we found is that it really is having both going forward in a hybrid model that's going to ... It's basically figuring out, how do you offer value, how do your customers want to pay, and be able to offer that. And then having systems to track it.

Alex Diaz-Asper (32:36):

Right, right, right.

Randy Wootton (32:37):

Well, good. Well, anything else that you're seeing? We'll get to the speed round in just a minute or so. But in terms of, if you think about disruptions in the office of the CFO, or because you see broadly across all of these companies, and then they start to fleet up to CFOs, are you seeing a different type of CFO stepping into the seat these days, than 15 years ago, when you first started a company, especially in the B2B SaaS space? Do you have advice or suggestions for aspiring CFOs that want to be the first step into that role? How do you see the landscape, from having seen so many different companies?

Alex Diaz-Asper (33:18):

Yeah, that's a great question. I think the challenge for CFOs is always staying on top of this technology stuff, whether it's AI ... We had a call today earlier with an AI implementation of a sister company of ours, how they're using it for their FP&A function. Whether it's that, or the latest type of tools, or ... Even your tools are evolving. If you're on Intact, what's the latest, greatest thing on that? Axia, what's the latest, greatest thing on that? And staying on top of all those things. So that part of it, and that's a little bit harder for these early stage CFOs to stay on top of.

Randy Wootton (33:52):

Yeah. I talk about CFOs, at least the generation that I grew up with, it's like, you're going to pry Excel from my cold dead hands, and everything was tied to Excel. And they do their own models, and whenever they come into a company, they throw the old model out, because of course it's bonk, so they're going to start over and rebuild the model. That's the starting point.


The other thing I talk about CFOs is, because, at the end of the day, they're there to be ... And partners like you, similarly, to absolutely be certain about the cash, that they have a very tight control on their tech stack, and they want very few people involved in touching things like the general ledger. I don't even think my CFO would let me touch the general ledger. He's like, "Randy, what do you want to know? Here you go, here's a report for you."


Whereas all those go-to-market professional sales, marketing, success services, they adopt a new technology every week. They're like, "It's kind of cool, let's try it. Whiz, bang." But I think there is this, because you're responsible for the bank account and the cash, the CFO, and also the personality is a little bit more risk-adverse, that they know what they know, and they want to do it that way.

Alex Diaz-Asper (34:58):

Right. Right. Yeah. Now that you mentioned that, the other thing that really has changed a lot, is how the CFO is a big part of the collaboration, especially with the sales team, early stage. That's super important that we're partners with each other, the sales people and the CFO, because to manage cash, we need to know new sales as well.

Randy Wootton (35:21):

So tying the CPQ, being able to get the contract, and make sure you feel good about it. And so that's one of the things we do at Maxio, is that two-way integration. It's one of the things that we've talked about, is do we want to invest more in the CPQ system, to own that full order to cash?


We found though, most companies today, the CPQ, the decision to buy CPQ, still rolls up into a CRO versus the head of finance. And so for us, it turns into, well, do we want to build another go-to-market motion, where we're trying to target revenue folks to buy CPQ versus ... But I do think, over time, there may be ... How do you think about CFOs, and owning the CPQ, and bringing it into the GL?

Alex Diaz-Asper (36:01):

This is a fascination of mine. This is my fascination, is RevOps. Who owns RevOps? That's one of the most critical parts of these organizations, and how that has to work well. And it has to work well, from my perspective as the CFO, so I know what's going to happen, or at least I have a good idea. I can't go into a quarter, and then you close half of what we expected, you look like a bunch of morons in front of your investors, and nobody's happy in those situations. So there's that, understanding what's going on on, who's policing that, who's bringing all those pieces together, the sales team, the finance team, and getting everybody what they need. That's a fascinating role.

Randy Wootton (36:42):

When I was growing up, we would have sales ops. When I was at Salesforce, they basically invented that idea, sales operations, and being in the sales force. And then I'd been in marketing for a long time, we had marketing operations, and so much complexity in the marketing tech stack. And then you had success operations, the people supporting the customer success on Gainsight, ChurnZero, or one of those.

Alex Diaz-Asper (37:03):

ChurnZero is a client of ours.

Randy Wootton (37:07):

Is it? Oh yeah, you might. I just saw him in New York, great guy, great product. I think there's enormous value connecting company data with customer data. To what we were talking about before, is being able to show when a customer is coming up for renewal, and then have all the data in front of you from a system like ChurnZero or Gainsight, where you're looking to see, well, what's that customer's health, what's been going on with their tickets, do we think they're going to a trip? Do you get in front of them before the renewal, rather than just having your finance team send an invoice?

Alex Diaz-Asper (37:37):

And staying on top of the month, and helping them use the app platform all the way through, driving success. Yeah. Yeah, yeah, no, it's a great product.

Randy Wootton (37:47):

Great guy, great product. I worked for Maria Martinez at Salesforce, who really brought life into this idea of customer success, back, this is years ago. And how do you make that something more than just support, answering tickets? And instead, adding value in investing in customer success. And so Nick Mehta at Gainsight really took that and ran, wrote the book, and has great success there as well.


But I do think that whole idea of RevOp, bridging those three, so signing up the customer ... Well, going out and marketing, so understanding the marketing funnel, down to the sales funnel, have that whole pipeline. To then bringing the contract across, implementation, value realization, and renewal. And having all that data connect across all the disparate systems is really hard.


Where are you seeing people put RevOps, the functional leader? Does it go up to finance? Does it go up to sales? Does it go up to a CRO? Does it go to the CEO? Or all of the above?

Alex Diaz-Asper (38:50):

Usually sales. Usually sales. Sometimes I feel like sales doesn't appreciate that role as it should be, because it's almost like back office. And it's so important to understand all these metrics we talk about, like your customer acquisition costs, your payback on all that, are you being efficient in acquiring customers? You need all the data to do that.


And that's where RevOps comes in, make sure we get a good forecast, we understand what the forecast is, all those things. How are we doing across B2B SaaS? Which of our sales guys are contributing? Who are not? Simple stuff like that.

Randy Wootton (39:33):

I think that's the one where I think sales ops, versus RevOps, is being able to ... Because salespeople are so expensive, especially if you're doing a sales led motion in the enterprise space, and you have year long contracts, big deals, is being able to understand what's working on a almost per unit, per AE basis, in terms of the activities they're doing, the management of the opportunities, how many are they supporting, what their win rate is, how's that compare? Sales is one of those functions that you can just measure and compare more than any other.

Alex Diaz-Asper (40:03):

It's beautiful.

Randy Wootton (40:04):

It is, in some ways, it is. People think, well, it's just a machine, you just put a coin in. And it's not that, there's more to it. But you can certainly use a lot of data to help you better understand what's working, what's not, in your sales motion.

Alex Diaz-Asper (40:18):

Right. Exactly.

Randy Wootton (40:19):

Awesome. Well, Alex, we're sort of at the end of our conversation. Thank you so much for your time. We'd like to close with our speed round, of which there are two questions. One, is your favorite metric, and why? And the other one is your favorite influencer, so someone that you read periodically, you subscribe to their emails, but you think he or she is really moving the thinking forward. So what's your favorite metric?

Alex Diaz-Asper (40:46):

I still love gross margin payback. I still love gross margin payback.

Randy Wootton (40:50):

Gross margin payback. As like CAC payback?

Alex Diaz-Asper (40:55):

But without any sort of assumptions about ... A lot of people play with the churn assumptions. It's just, straight up, how long does it take you to get a customer, your customer acquisition costs. It costs you a dollar to acquire that customer, how long does it take you to get that customer back? It's a very, very simple, hard to manipulate number. Just a good number.

Randy Wootton (41:18):

And do you have a rule of thumb for your early stage companies?

Alex Diaz-Asper (41:22):

Anything under 12, marvelous. 12 to 24 is good. And then anything above 24 could be a little bit of a problem.

Randy Wootton (41:30):

And is that different based on ACV, or deal cycle?

Alex Diaz-Asper (41:35):

On ACV? No, it should be independent of ACV. And I'm not sure about deal cycle, what you mean by deal cycle.

Randy Wootton (41:41):

Well, I just wonder, if you're selling bigger deals, and it takes longer, it's a 12-month deal cycle, versus a six-month deal cycle, it seems like you're putting more CAC into it, when do you get the payback? It may be like a 24 month, versus a six to 12 month, if it was a $5,000 product that you're selling in 30 days, versus a $50,000 product you're selling over four months.

Alex Diaz-Asper (42:05):

Well then, if the ACV is the same, and it takes you that much more to get it, it's a worse business. Unfortunately, if it's really ... And we see this in our enterprise customer, like our big ticket, like 250 a year, you got to get a lot of ACV back. You're going to have a salesperson going out to these different customers, and stuff like that.

Randy Wootton (42:27):

Got it. So you think it's a great equalizer.

Alex Diaz-Asper (42:29):


Randy Wootton (42:29):

It aligns with how much are you ... Almost like your customer acquisition costs, how much are you spending to acquire, and getting in return?

Alex Diaz-Asper (42:37):


Randy Wootton (42:37):

Awesome. And then, who do you think is out there writing good stuff, or someone that you'd like to follow?

Alex Diaz-Asper (42:42):

On the SaaS side, I do like his emails, Ben Murray of SaaS CFO. He just does good stuff. I love this one he sent out recently about, what are the metrics for bootstrap companies? It was just kind of neat, a different perspective. Because we do work with bootstrap companies, and it's different. They didn't get the capital, so they're not going to do the same things as these venture backed companies, because it's a different path. But it's still legitimate, it's a great way to build a business. So it was just a neat perspective. It was kind of neat. And he does do a lot of that stuff.

Randy Wootton (43:16):

He does, and he does a great job promoting community. We just had him, actually, with Ray Reich, in Denver, as part of bring people together, bring dinner, bring folks together for a dinner and conversation. And Ben came in, and he's just a great guy, just super low-key, and very helpful.


I, in fact, took his course, right before I started at Maxio. I had been in SaaS, but had been a while since I've gone back and really looked at the metrics, and I thought, well, gosh, I'm going to a company that ... One of the legacy companies with SaaSOptics operating metrics. I better get my knowledge tuned up, because there are so many different definitions and ways of doing it.


And the other thing he does in his course, which is great, he provides a lot of benchmarks. And so he's done all the work to read all the benchmarks, and then provide that. You begin by ACV or stage, if you're looking at this type of company in this context, this go-to market, this is what a good benchmark is. And so it was great. It was a great refresher, I recommended it to everybody. And he's a great guy, so that's a great one.


Well, thank you, Alex. Thank you for your time. Really appreciate you being here and sharing some of your thoughts.

Alex Diaz-Asper (44:17):

This was great. Thank you, Randy.