Striking the Balance: CFO's Playbook for Market Volatility

Thriving Amid Market Volatility

The past few years have brought unprecedented market volatility, especially after the COVID-19 pandemic. Finance leaders today face the challenge of navigating these rocky waters effectively. In this insightful webinar, Joe Garofalo, Cofounder of Mosaic, and Saurabh Agrawal, Cofounder of Zenskar, share their expertise on how to thrive in these conditions.

What You'll Learn:

1. Market Volatility Post-COVID-19: The impact of rising interest rates, macroeconomic factors, and political events on the software and technology sectors, leading to tighter financial conditions and scrutiny of expenses.
2. Navigating Growth Stages: Strategies for startups in Series A, B, or C to remain perceptive, set realistic milestones, and develop contingency plans for achieving profitability or breaking even.
3. Efficiency Metrics: The importance of North Star metrics (growth rate, retention rate, and burn ratio) and department-specific efficiency measures to drive business success and capital allocation.
4. Capital Management: Building accurate financial models, reforecasting monthly, and understanding cash flows to maintain 18-24 months of runway, ensuring financial health during volatile times.
5. Optimizing Cash Flows and Preventing Leakages: Practical tips for improving cash flows, such as implementing usage-based pricing models, automating billing processes, and leveraging financial tools for better cash management and efficiency.‍

Speakers:

Joe Garofalo, Cofounder at Mosaic

• Previously VP of Finance at Axoni
• Extensive experience in FP&A, financial modelling, and building investor relations

Saurabh Agrawal, Cofounder and CPTO at Zenskar‍

Webinar Summary

1. How should finance leaders adapt their strategies during periods of market volatility?

During periods of market volatility, I focus on staying informed about macroeconomic factors like interest rates and political changes. I recognize that aggressive growth strategies may no longer be feasible, so I shift towards capital efficiency. I ensure the finance team is aware of changing circumstances and adjust our business milestones accordingly. It's also critical to have a backup plan in place, especially if external funding is not available. I ensure we can still reach profitability or break-even without relying on new funding rounds.

2. What financial metrics do startups need to focus on during growth stages, particularly in volatile times?

In my experience, the key financial metrics I track are growth rate, retention rate, and burn ratio. These are my North Star metrics, as they give me a clear view of where the business stands. During tough times, focusing on these metrics helps me make adjustments where needed, whether it's improving customer retention or reassessing spending. These metrics help us balance growth with sustainability, especially when external funding becomes less predictable.

3. How should startups navigate funding challenges during high interest rates or economic downturns?

I've found in CFO exchanges that during times when funding is scarce, startups need to be incredibly capital-efficient. I focus on reducing overheads and optimizing sales cycles. It's crucial to build financial models based on realistic, conservative assumptions and to stress-test these assumptions regularly. I make sure my team is aligned with this approach, focusing on extending runway and optimizing cash flow, rather than relying too heavily on external funding.

4. How can startups improve customer retention during volatile periods?

I make sure to invest in customer success, ensuring that we continue delivering value to our existing clients. Retention is always a top priority because it costs less to retain customers than to acquire new ones. I regularly monitor our Net Revenue Retention (NRR) and address any signs of churn early on. To improve retention, I ensure that we are actively listening to customer feedback and continuously improving our offerings to meet their evolving needs.

5. How can pricing strategy help improve revenue, especially during economic downturns?

I’ve found that shifting to a usage-based billing system can significantly improve revenue by aligning the cost with the customer’s actual use of the product. This model not only makes pricing more transparent and flexible for customers, but it also allows for easier renewals and upselling. By offering pricing that scales with the customer’s value from our product, we avoid the friction that comes with fixed pricing models, which can become a barrier in volatile times.

6. How should startups maintain cash flow when external funding is difficult to obtain?

For me, maintaining accurate financial forecasting is critical during these times. I focus on forecasting cash flows and expenses with as much precision as possible. This means tracking day sales outstanding (DSO) and ensuring our collections process is highly efficient. I also stress the importance of regularly updating our forecasts to adjust to any changes in the market. This way, we can stay ahead of cash flow challenges and make adjustments before they become critical.

7. How can startups prevent revenue leakage and improve profitability?

I have seen revenue leakage occur when companies don’t have a tight integration between their sales and billing systems. I ensure that our billing processes are automated and based on actual customer usage. This allows us to eliminate any gaps where revenue might otherwise slip through. Regular audits and integrations between sales and finance systems ensure that no customer usage is missed, and all billing is accurate, preventing revenue leakage.

8. How do you approach capital allocation during uncertain market conditions?

I believe in being efficient across all departments, not just sales. I focus on ensuring that every dollar spent is contributing to long-term value. For example, in sales, I track quota attainment and ensure that the quota-to-outcome ratio is in line with industry benchmarks. I also monitor other departments like R&D and customer success to ensure that our capital is being allocated efficiently. The goal is to maximize return on capital and minimize waste.

9. How should startups balance growth with survival in a volatile market?

During volatile times, I prioritize survival first. This means focusing on profitability and ensuring that we are able to sustain operations without relying on new funding rounds. I still aim for growth, but it needs to be sustainable. Instead of scaling rapidly, I look for ways to optimize existing operations, focusing on customer retention and operational efficiency. This balanced approach ensures that we are prepared for whatever the market throws at us.

10. How can startups effectively forecast in uncertain market conditions?

I rely on a solid financial model that includes conservative assumptions about our growth and expenses. I track our sales cycles, rep ramp times, and key expenses closely. Every month, I re-forecast based on actual performance to ensure we are on track. I also stress-test our model regularly, adjusting for any changes in the market. This helps me stay ahead of potential cash flow issues and make the necessary adjustments to keep the business on course.

11. How do tools like Mosaic help in optimizing capital efficiency?

Using tools like Mosaic has significantly improved our ability to monitor financial health and optimize capital. These tools integrate data from various systems—like CRM, HR, and accounting—and provide a real-time view of performance. They allow me to build accurate financial models, update forecasts quickly, and test different scenarios with minimal effort. This helps us stay agile and capital-efficient, ensuring that we are making data-driven decisions that support long-term sustainability.

12. How does pricing automation contribute to improved cash flow and reduced leakages?

Implementing an automated billing system has helped us align our billing with actual customer usage, which significantly reduces both overcharging and undercharging. By automating pricing adjustments, we ensure accuracy and consistency, which makes billing smoother and more predictable. This also eliminates manual errors and prevents revenue leakage. The integration of automated billing systems with CRM and ERP platforms ensures that every customer interaction is properly captured, improving overall revenue capture and cash flow.