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As you refine product-market fit for your SaaS and services product, you need to plan, choose, and scale your B2B subscription billing for success by making sure your operations across teams are coordinated in order to scale your billing and financial systems successfully when you are ready.
In this on-demand webinar, we will explore what you need to plan for:
- 7 mistakes to avoid when automating your B2B subscription billing model
- 5 steps in building your subscription financial processes
- 3 tips on how to choose your technology stack
On-Demand Playback | Our Experts | Transcript
On-Demand Playback:
Our Experts:
About David Appel, Head of Software & SaaS, Sage Intacct
David is Head of Software and SaaS Vertical at Sage Intacct. He is passionate about creating great vertical market strategies. Over time he has developed a series of Mid-Market sales playbooks that have generated over $2.1B in market capitalization for his clients, focusing on creating value for customers, increasing return for shareholders, and building great teams. David is a big believer that life begins at the edge of one’s comfort zone and that tomorrow’s dangerous idea becomes today’s orthodoxy and yesterday’s cliché.
About Brian Shaw, CFO, Discovery Education
Brian Shaw is the CFO of Discovery Education. Discovery Education is the global leader in standards-based digital content for K-12, transforming teaching and learning with award-winning digital textbooks, multimedia content, professional development, and the largest professional learning community of its kind.
About Joe Maxim, Corporate Controller, Discovery Education
Joe Maxim is the Corporate Controller at Discovery Education. During 2018, Joe oversaw the implementation and migration of contract data into a new financial platform from Discovery Education’s former Parent company in the midst of carving out of their former Parent company. Since 2018, Joe has worked with Brian to build up the accounting and financial reporting team from two up to a team of eleven, with business processes continuing to evolve alongside Discovery Education’s own business model. Joe wants you all to know that the thought, care and cross-collaboration (with other departments) you put into your up-front planning will save you many days and sleepless, frustrated nights after you “go live”.
Transcript:
Kathy Greenler Sexton, CEO of Subscription Insider:
Welcome, everybody. Today you are going to learn the right way to automate your B2B subscription billing. We are here with some experts, David Appel, Brian Shaw, and Joe Maxim. Hello, I am Kathy Greenler Sexton, and I am the CEO and publisher of Subscription Insider. We have experts because they have gone through automating their own B2B subscription billing, and I’d like everybody just to quickly introduce yourself so people understand who you are, your view of automating your B2B subscription billing, and perhaps a very quick intro of your company. I’m going to start with you, David.
David Appel, Head of Subscription Vertical at Sage:
Thank you. My name is David Appel. I’m the Head of the Software and SaaS Vertical here at Sage Intacct. We’re the world’s largest provider of B2B subscription billing and financial management, and we spend a lot of time with our customers on how they’re trying to build great business models. We’re going to get into a lot of detail, but as a result of all those interviews and surveys that lead into these insights, I had a chance to see a lot of your backgrounds, those of you that are attending. Thanks for joining us. I hope this is insightful for you. I asked Brian and Joe to join us because they’ve had a fascinating journey going through this, with a great end result, and Brian, if you want to take it from there.
Brian Shaw, CFO, of Discovery Education:
Sure. Thanks, David. As David mentioned, my name is Brian Shaw. I am the CFO of Discovery Education. We’re a large edtech business that’s primarily SaaS driven, and we carved out of Discovery Communications, our old parent company, back in 2018, as we were acquired by a private equity firm, and that was a triggering point to essentially reinvent all of our processes and implement all new systems, so we’ve certainly gone on this journey with Intacct here over the last two years, and have a lot of good insights to share.
Joe Maxim, Controller, of Discovery Education:
Yeah, thanks, Brian. Hello, everyone. My name is Joe Maxim. I’m the Corporate Controller at Discovery Education. Been with Brian every step of the way on this journey, and with the systems implementation and migration into new ways of thinking and operating, so definitely excited to be here and share a little bit of what we learned.
David Appel, Head of Subscription Vertical at Sage:
A great journey.
Kathy Greenler Sexton, CEO of Subscription Insider:
Yeah, thank you everybody. That’s fantastic. David, I know you wanted to set this up with what we’re going to be talking about in terms of the recurring B2B billing and the people who are on the line today.
David Appel, Head of Subscription Vertical at Sage:
Well, this is just an elevator pitch on where we’re coming from, because I want to give you context as to how we’re trying to help, but for those of you attending, you see it here, we are built for finance teams or fast growth subscription companies, who want to automate the subscription billing model with some great end results on what people have told us important to them, increasing cash flow, cutting the close, getting the consolidations and the revenue correctly, on the finance side. On the RevOps side, delivering the metrics you need in order to drive the business, so getting net dollar retention up, increasing customer lifetime value, getting a lot of operational efficiency on time to bill. That’s our point of view, and thank you, Kathleen.
Kathy Greenler Sexton, CEO of Subscription Insider:
Sure. It’s important to, as Stephen Covey has said, begin with the end in mind, and this is where we can get to when we collaborate, right?
David Appel, Head of Subscription Vertical at Sage:
Yup. That’s what we hope for, for all of you attending, right?
Kathy Greenler Sexton, CEO of Subscription Insider:
Absolutely.
David Appel, Head of Subscription Vertical at Sage:
Let’s build a great business.
Kathy Greenler Sexton, CEO of Subscription Insider:
Well, let me just quickly let everybody know about us, Subscription Insider. We are an information company that delivers news, how-to, training through our membership portal, daily news conferences, and sessions like this. We do that for all types of companies across the subscription economy, from scaling startups to large enterprise class companies, and we do it for all roles. I wanted just to highlight that we do that, and today we are focused on B2B SaaS primarily, but our goals, as always, is to help you learn and get better, and get the information you need to excel in your role and grow your business. You can see on your screen now a couple of programs that are coming up. We have an on-demand training program, primarily for people new to subscriptions, to understand the fundamentals of subscription payments.
Kathy Greenler Sexton, CEO of Subscription Insider:
For those who are advanced, primarily working in B2C high volume subscription businesses, our Subscription Accelerator workshops are coming up, and our Subscription show for pretty much everybody across the subscription economy is going to be hosted in New York this year, so you can see all that information on the URLs in your screen. One final note, if anybody’s heard me, I always say this, it’s time to stop multi-processing. I know that everybody on this call that’s put the information together today, there’s some great, great information, and I don’t want you to miss any of it. We will be having an on-demand playback of this session for you, so definitely keep that in mind. When you’re taking notes, you’ll be able to view that as well.
Kathy Greenler Sexton, CEO of Subscription Insider:
With that, let’s get going. The Seven Mistakes to Avoid When Automating Your B2B Subscription Billing. Here’s what we’re going to be covering today with Joe, Brian, and David. We’re going to cover the unique challenges that you face. We’re going to discuss what are the issues when automating your billing. We’re going to cover tips for choosing the right tech stack. We have a case study for you today, and we also have a discussion. We’re going to be talking a lot about a number of issues that come up. Don’t be shy. Ask your questions, and if we don’t get to your questions today, we will follow up with you and understand what they are, and get back to you directly. We’ve got a team here monitoring all your questions, so please don’t be shy. Let’s get to it.
Kathy Greenler Sexton, CEO of Subscription Insider:
The unique challenges B2B subscription businesses face. It’s key that you validate your customers, and it’s really key that you check and understand what’s the right subscription model that they need to convert and ultimately use your subscription business. You can see the list here that you might be looking at as you go through with your customers. That’s going to give you confidence that your recurring product or revenue idea is going to be solving a market need. It’s going to be giving you confidence that you’re targeting the right customer, and it’s going to give you confidence that your product or product idea is going to translate into a scalable business, with a sizable target market that you can really grow quickly with.
Kathy Greenler Sexton, CEO of Subscription Insider:
The next mistake that we see is pricing that’s not reflective of a market. I see many people getting into the business that look around and do some market research, and they’re not necessarily smart about really getting the pricing right for their specific target customers. I’m going to give a quote from Mark Stiving. He’s a PhD, actually, in SaaS pricing, and he says that, “Sellers don’t understand how their buyers perceive value. Software companies realize that they don’t need to use value based pricing, but they don’t know what value means.” Think about that. “They especially don’t know their own value.” When he is doing pricing optimization, he typically, at a minimum, will see a 10% increase in profitability based on what they’re doing, and that involves, going back to step number one, really understanding that target market, that target customer, and designing your recurring revenue model based on them, and understanding your value to them.
Kathy Greenler Sexton, CEO of Subscription Insider:
With that, you can really have an effective pricing scheme that really helps you grow profitability. The number three thing that we see, for B2B and B2C, is companies that really only focus on the top of the funnel. It’s really good that the market is maturing and people are focusing on retention more and more, but as finance professionals that are on the line today, it’s really important that you understand and help your marketing team connect the dots between acquisition and the lifetime value. That’s really, really key. Some of the most effective teams that I see that do this have a partnership across marketing, retention, and the finance teams to really understand that lifetime value very, very clearly. That way, the marketing team can choose marketing programs that are going to attract higher profitability customers.
Kathy Greenler Sexton, CEO of Subscription Insider:
But I’m going to show you something. It’s important for you, as finance and operational professionals, to understand the lifetime value in some of these “marketing reports” as well. If you look at this report, it’s a type of report that you all know well, but what’s important is to know how to read that. There’s a significant drop in month four. That, to me, says there’s an operational issue that, if you’re responsible for operations and not just marketing, you need to be able to pinpoint, understand, and fix to help grow your lifetime value. The next thing that companies tend to trip up on is what I mentioned before, but I’m going to dive into it a little bit more deeply now, understanding how the front end acquisition impact retention. This is going to be very, very high level. You are all payment and financial professionals, so this is really conceptual at this point, but we’re going to dive in deeper.
Kathy Greenler Sexton, CEO of Subscription Insider:
Most companies, and I have been in front of a room with hundreds of financial professionals, and I’ve asked them to say, “Okay, raise your hand. How many can tell me the lifetime value based on acquisition source, or price or plan, or term length?” It’s really critical, and generally, when I have asked these questions, only 10% or less have raised their hands. It’s a growth opportunity for the industry in general to really understand this, so when you’re looking at this, you know your subscription centered numbers, revenue per month, your lifetime customer value, and it’s important to understand how that relates to churning customers, and the overall profitability. David, I’m going to hand this over to you, because these are some really interesting charts that I know you wanted to share with everyone.
David Appel, Head of Subscription Vertical at Sage:
Well, we’re going through and blocking and tackling on how you build a business, and the principles to go through, but there’s some real numbers behind this. We coordinate with the Key Bank Capital markets on their annual SaaS survey, and pulled out a couple of specific slides from them about gross dollar churn, and this is a benchmark. You can see there in the middle where the meeting is, but you can get a sense of where you stand, if you know your numbers off the top of your head, compared to where your peers are. Like anything, okay, here we are, but how do we get better? This is the guiding post on if you make the mistakes, you might be trending below, but it’s not over.
David Appel, Head of Subscription Vertical at Sage:
You’ve got a place where you are today, and it’s how do you set the plan going forward to where you go from here? This and the next couple slides get into more detail, Kathleen, if you want to go to the next one. The last one was gross dollar churn. Here’s net dollar retention from existing customers, and this is how much, based upon the baseline that you had, how much upsell and expansion did you get from customers. Again, if you know the numbers off the top of your head, here’s where the baseline is, the median where this is coming from, but think about this, because you have to get to a certain size, at the base of customers that you’re there.
David Appel, Head of Subscription Vertical at Sage:
Discovery Education will be sharing in a few minutes the great base that they have, but this is where the real lift and expansion comes from in your business model. Thanks, Kathy. I think there’s one more slide. You mind expanding this one? On this particular one, there’s so many ways to calculate churn when you compare yourself to somebody else. I mean, you can just look at this. I’m not going to read the slide. You can do it in review, but there’s so many different comparables as to how you calculate this that you want to make sure you’re comparing yourself to yourself in your measures. Could you go to the next slide?
Kathy Greenler Sexton, CEO of Subscription Insider:
This is a key point.
David Appel, Head of Subscription Vertical at Sage:
Go ahead.
Kathy Greenler Sexton, CEO of Subscription Insider:
Yeah, I was just going to say this is a key point, because a lot of times, your board will say, “Hey, look, how are you doing compared to your competitors or your peers?” It’s not necessarily an easy answer, because people calculate things that sound like the same numbers written differently, right?
David Appel, Head of Subscription Vertical at Sage:
Well, that’s just the slide. The slide’s probably a little over a year old, but the point of this is, look at how all these different public companies, when you read in depth in the footnotes and the 10-K and 10-Qs, how they’re calculating churn. I’m not going to get into the specifics. In each of them, you’ve got to read the specific details, but there’s a way that they’re telling their story based upon who their customer is, and the problem they’re solving, and how they’re delivering the value for that. This is Kathleen’s broader point. Pay attention to churn. Pay attention to renewals, but understand your customer and the value you’re bringing so you can really track how you compare against it. Thanks, Kathleen.
Kathy Greenler Sexton, CEO of Subscription Insider:
You betcha. One final point that I’d love to add here is when you’re comparing, first compare against yourself, and if you’re growing, that’s what you want to know, week after week, month after month, year after year. All right, we’re up to number six in terms of things that people don’t quite get right when scaling their businesses. This is something that B2B companies tend to ignore because the consumer focused companies tend to get all the action in terms of FTC action and publicity, but B2B SaaS, you actually have to pay attention to everything that’s going on here. We know that there’s quite a lot of activity in terms of privacy, both global and here in the United States.
Kathy Greenler Sexton, CEO of Subscription Insider:
If you have a free trial, you are going to have to make sure that you’re adhering to the new rules and regs focused on free trial notification and cancellation. The FTC is getting very strict about marketing plans, so there’s a lot of different range of regulation that’s out there, not only just on the financial side, the privacy data side, the marketing side. You need to make sure that you are on top of everything, and my recommendation is to have a lawyer either on staff, or someone who is an expert in recurring revenue law who can do an audit once a year on your front end through your back end policies to make sure that you’re compliant, because as you scale, you become a bigger target for people to look at to make sure that you are doing things correctly.
Kathy Greenler Sexton, CEO of Subscription Insider:
There’s one very specific here, which is the ASC 606, and I know when we’ll be diving into that a little bit later, and we’ll focus on that then. The last thing is selecting the wrong tech stack. This is one of my favorite slides to actually talk about, because guess what? The 30 to 50%? This is from InsideSales.com, and basically, the salesperson who responds first is 30 to 50% more likely to get the sale. What that says is many companies don’t do their homework. They don’t really think through what they need, and they respond to that salesperson who is very aggressive and gets the close.
Kathy Greenler Sexton, CEO of Subscription Insider:
Now, let’s go over to the right side, and you’ll see, this is from the New Sales Imperative research from Harvard Business School, and there’s a 50% regret rate on purchasing technology and enterprise class especially types of tools and platforms. You need to do your homework and make sure that what you buy, what you put in your technology stack, is going to be the right fit for your organization, for your budget, for your needs moving forward, and not enough companies do that, as you can see from the slides here. David, Brian, and Joe, I’m going to turn the microphone over to you to talk a little bit about what you’ve been through when you’ve automated the billing and navigating some of these challenges that I’ve just walked through.
David Appel, Head of Subscription Vertical at Sage:
Well, it’s a great set-up. For those of you listening, maybe you’ve already run into some of those seven, or maybe that’s your advice as to how the step by those seven, because Discovery Education, and I’m going to let Joe take it from here in just a second, but what a great firm on a successful business, running business a certain way, but then with the carve out for Discovery, with Francisco Partners, creating a whole new business with the ability, then to take a fresh look at how to deliver great product and deliver the value behind that, and then turn it into a highly efficient financial machine to capture all that value. If Joe and Brian, why don’t you take it from there, and Kathleen, if you’ll go to the next slide about who is Discovery. Fellows, let her rip.
Brian Shaw, CFO, of Discovery Education:
Actually, well, thanks, David. Joe and I will tag team this a bit, but in terms of our business and our origin here, as you mentioned, we carved out of Discovery Communications a couple years ago, and I mean, it’s a big public media company, and we are a relatively, compared to the parent company, a smaller edtech business, and the reality is that all of our systems, all of our process, all of our metrics, wanted to treat us as if we were a cable network. The reality is that we are a K-12 edtech business primarily, so we are selling directly to school districts, software, and obviously, a completely different business model than a direct to consumer or direct through a cable provider, cable network business model.
Brian Shaw, CFO, of Discovery Education:
In a nutshell, who we are and what we had to try to build a process around is a series, again, of primarily K-12 businesses that are selling into schools. We have a streaming, like think about Netflix, but with standards aligned, and curated content, and a whole bunch of lesson plans and interactives, and a whole array of value added features to make a teacher’s life easier, to make the classroom more engaging. That’s our core product, and then from that, we’ve built on a digital textbook replacement called a techbook that is replacing, as you would think, the old print textbooks, and that’s still a subscription business. It’s still a technology software driven business, but it’s one that has longer contract terms, some of which are paid up front. Some are paid over a period of time.
Brian Shaw, CFO, of Discovery Education:
In supplementing those two businesses, we have a handful of smaller business lines, but I think the one of size that’s worth noting is we also have a fairly significant professional services, or in this case, professional development business, that is increasingly moving online, but it’s still very much an in person game of sending a human being to a school to teach teachers how to use technology effectively in a classroom. Ultimately, multiple different business models there, some of which are billed up front. Some are billed over time. Some are billed at point of use, in the case of professional development, so we had multiple different ways that we do business, and for the first time in the company’s history, we actually had the ability to build our systems and processes out in a way that was really reflective of our business and the way we need to manage it.
David Appel, Head of Subscription Vertical at Sage:
Building on that gets into, then, your story, because there’s a before and after on all this, and all of you can see, on the core processes, what it takes to build a subscription business, and do that across the finance and revenue and sales operations team, and all that. As you said, there was all this business process set up around doing things a whole other way, to track a whole other type of order life cycle, and capture all that. Would you take everybody through a little bit of the before and the after?
Joe Maxim, Controller, of Discovery Education:
Yeah, David. This is Joe again. I’ll jump in, and just as a quick aside, I think our story, as a carve out, distinguishing from a spinoff, is that we took various aspects of a business that were connected to a much larger ecosystem, and then placed them in a slightly smaller terrarium and asked them to directly interact with each other. As Brian took you through the various revenue streams that Discovery Education manages, as varying as those streams were, the manner of tracking, recording the opportunity, the quote, the contract, the revenue, and the billing for each line of business ended up being somewhat dissimilar as well.
Joe Maxim, Controller, of Discovery Education:
One of the first things that we recognized was we need a standardized module or process for managing a large and varying subscription base of contracts. As you can see here in the first line especially, we had a combination of tools that we used to manage opportunities, revenue, and billing, back when we were part of Discovery Communications. As a standalone entity, the only way that we were going to get to scale was to find ways of automating that as much as possible through the use of a module that was flexible enough in Intacct to accommodate various billing and revenue schedules and cycles.
Joe Maxim, Controller, of Discovery Education:
A few metrics here, just real quick, with regard to our ability to improve processing time, improving some DSO metrics, and then making sure that we had various billing models that allowed for and accommodated the various revenue streams that our business offers. Where previously, they were all managed in disparate systems and processes, now we have one module that drives the entire process end to end. I will also say, another impact that I’m feeling right now, given that it’s 2019 year end, is that our auditors have noticed an exceptional increase in their own efficiency, with regard to audit of our contracts, so that makes everyone’s life easier, and ultimately gives Brian a little bit of an uplift on the opex side, in terms of reduced audit fees, so very happy about that as well.
Joe Maxim, Controller, of Discovery Education:
I think I’m covering the next point too, around automation and scalability, where now we have one process, one module that drives revenue recognition. Yes, various revenue streams, point in time, over time, and so on, but there is one module that runs it that gives us an idea around what to expect from a revenue perspective, and to the extent that there are point in time deliverables that still need to be recorded or recognized, this module lets us know what those milestones are up front, almost at the beginning of the month, so that we can make sure that by the end of the month, we have the requisite accounting support to justify recognizing the revenue within the month that we expect to earn it.
Joe Maxim, Controller, of Discovery Education:
When you think about that happening 12 times a year, that’s one of the meaningful ways that our auditors are able to work through independent testing of our transactions, because we’ve already taken the steps of contemporaneously gathering that kind of information on the front end. The close reduction is very real. In terms of having to use one module versus a bunch of disparate modules, the actual act of recognizing revenue takes place with the click of a button, and filtering by certain customer types of contract types. That is a meaningful improvement across several of our revenue streams, compared to the old manual way that we had to manage. The point here on decision making with the use of data, the forecasting element of the contracts module has proven to be very useful for a lot of different reasons.
Joe Maxim, Controller, of Discovery Education:
Although I’m the head of the accounting side of the organization, I work very closely with our FP&A team, and through the contracts module, thanks to the contracts module, containing an end to end overview of a contract’s life cycle, we are able to give FP&A extremely accurate information with regard to the timing for when revenue is going to be recognized. For SaaS contracts, it’s straight line, and a start date and an end date. Pretty straightforward, but with regard to any sort of point in time delivery, in terms of professional development days or what have you, we have the ability to forecast or predict those based on our customers’ needs, bake that into the Intacct contracts module, and give them a sense as to when they can expect certain revenue events taking place.
Joe Maxim, Controller, of Discovery Education:
Not only does that allow for faster reporting at month end, it also allows for better decision making as you go down field and think about the connectedness to billings, revenue, and how our cash balance moves over the same time horizon. Again, it’s resulted in increased level of accuracy with regard to forecasting cash balances at a period end. Where I don’t know if I could have stood by a cash forecast in maybe 2017 or ’18, 2019, we ended up being fairly on the mark. Really excited about that, and if I’m honest, I don’t know if I would have believed that we would have been that accurate at the beginning of the year, but as we went along, we refined the methodology to arrive at an answer that everybody could stand behind.
Brian Shaw, CFO, of Discovery Education:
And I think, to build off what Joe is saying, there’s a level of precision and visibility that we have obtained through implementing the system and refining our processes that this business has frankly never had before. If you think about the context, again, of a carve out from a much bigger company, I don’t know that it was necessary to have the level of precision that you would expect a standalone company to have with active private equity investors frequently reviewing the performance of the business, and wanting to know the trajectory of what’s lying ahead. This system has achieved a whole bunch of things on the efficiency of close side of things, but also, as you think about management and board reporting, the ability to forecast reliably has been a huge uplift as we exit 2019 and are looking forward to 2020.
David Appel, Head of Subscription Vertical at Sage:
Every time I hear it, it’s just a great story, for all of you listening. Oh my gosh. Like everything, constant experiment and trial and error, and going through the tips that Kathleen made, understanding who your customer is right on point number one, and then building your model against that. As you guys have slightly different markets and different K-12 and other educational customer markets, you were able to test different billing models. The point on managing lifetime value and getting the creative upsells over time by seeing that visibility, able to then plan that out and get that without publishing it, but the net dollar retention for the customer that you have. The point on managing against revenue recognition, so you do all this in compliance to pass with the audit committee, with the auditors, you’ve done all this in a way which you contract that original performance obligations over the contract term and still make the changes and modifications and amendments to the agreement, but have all that tied back to performance obligation, so you got clean revenue.
David Appel, Head of Subscription Vertical at Sage:
All this is great, because it’s not just us, right? It’s great people, process, and technology, but the final point in the bottom right hand corner there, that’s what your board is tracking, so begin with the end in mind, making all this operational efficiency, allowing it to increase cash EBITDA by 15%. I mean, that’s a big number, and that’s for all of you listening. We’re sharing all this because in applying this, in applying the advice, there’s this kind of business benefit. Just ask the great sense of personal satisfaction that comes from doing such a great job that I know you both have, that I know your teams have, working with you two. It’s a great story, Brian and Joe. Thanks for sharing with everybody.
Kathy Greenler Sexton, CEO of Subscription Insider:
It’s absolutely fascinating. What we’re going to do now for everybody is begin to walk through how you really need to be thinking and translating this really great, great story and case study into your own business. David, you have one of my favorite slides of all time coming up, and I’m just going to let you take it away.
David Appel, Head of Subscription Vertical at Sage:
How do we make this practical, so it’s not just all theory for all of you? We tried to distill everything we’ve learned with all the interviews, and specifically with Discovery, for some outcomes for you. First off is this slide was built in conjunction with one of our former board members, a gentleman named Jeff Epstein, who was the CFO of Oracle for many years, and now finance operating partner in arguably one of the world’s top SaaS investors, Bessemer Ventures. Jeff’s so incredibly bright in that second column. He says things so cleanly. As you grow through your stages of growth in that second column, starting at the bottom and working your way up, what you need to do changes, so for many of you, you’re at that early stage.
David Appel, Head of Subscription Vertical at Sage:
You’re trying to figure out product market fit, which is get 10 ecstatic customers and track cash, get a little bit bigger, prove the revenue model, which means getting 75% of the sales team making quota, so you can show you have an efficient cash efficient sales machine. There you’re tracking your economics, and some of the measures Kathleen talked about in those seven tips. Get a little bit bigger, and now you’re trying to prove your net renewal model, which means showing the customers buying from you a second and third time, a net change in CMRR, and that’s the point Kathleen was making. Think about how you’re growing the customer base by delivering value to them, but then monetizing it.
David Appel, Head of Subscription Vertical at Sage:
You get a little bit bigger to the Discovery size, as they expand. Now you’re focusing on gross profit and making everything repeatable, and then that’s just the sale of IPO, and this is just a milestone as you take a highly cash efficient machine and move into adjacent markets and geographies, and so you need this point. This first one is remember that as you go through each stage of growth, there’s different demands that you have on yourself, and put yourself in a position, in whatever stage you’re at, to be successful at the next stage, and anticipate what’s coming after that. That’s all point number one, Kathleen. Next slide.
Kathy Greenler Sexton, CEO of Subscription Insider:
Absolutely. As the slide says, don’t lock yourself in so you can’t get that flexibility that’s really reflected in this slide.
David Appel, Head of Subscription Vertical at Sage:
I suppose I should ask Joe and Brian before you go back, if you go back one second. Fellows, if you have any comment as you’ve gone through this journey yourselves.
Brian Shaw, CFO, of Discovery Education:
Yeah, I think from my perspective, you hit the nail on the head. We’re a bit of an interesting situation, again, with the carve out origin of our business. We basically jumped straight past all of the early stages, and are now at the top line. Not necessarily for sale or going public, but very clearly, as you look at-
David Appel, Head of Subscription Vertical at Sage:
You’re in the deep end of the pool.
Brian Shaw, CFO, of Discovery Education:
Yeah, I mean, we are going global, we’re making acquisitions. I’m reading all the words on that top bucket, and that’s exactly where we are. Obviously focused more on an EBITDA profitability metric rather than a bit more of a top line or gross profit measure, so yeah, we jumped straight there, but it’s certainly been necessary to build the right support infrastructure to catch up with the fact that we didn’t go through this step-by-step.
David Appel, Head of Subscription Vertical at Sage:
Thank you. Now, Kathleen, next slide.
Kathy Greenler Sexton, CEO of Subscription Insider:
There you go.
David Appel, Head of Subscription Vertical at Sage:
Joe and Brian alluded several times to having one subscription system of record, and this is so important. I’ve heard this time and time again, that the older systems that were out there a lot of people have been using the past several years were just order based, and so it puts the pressure on the revenue operations and the finance team to associate how those orders come together, and the impact to revenue and forecasting. There’s a whole new way of doing this, so what you can manage the entire subscription over time, taking the data in from wherever the quoting system is, Salesforce, Salesforce CPQ, some in-house data, Stripe, otherwise, but managing it over time, but then this is what allows you to automate billing and to easily add on co-terms and automate the revenue and then get the forecast out of it.
David Appel, Head of Subscription Vertical at Sage:
Having one system of record, then, allows you to have all the constituent teams that are in there, product marketing, marketing, the direct sales or channel sales team, the customer success team, any implementation that you have, to all be working and touching the elephant, each in their own way, but everybody’s touching the same data, and that gives the executive team a lot more confidence on what the forecast. Remember Brian’s quote at the end, “We now have the confidence for big decisions.” Working off one system of record gives you the confidence to make big decisions. Fellows, I don’t know if you want to add any commentary to that.
Joe Maxim, Controller, of Discovery Education:
I think you hit the nail on the head, and again, I think Brian and I offer different perspectives all leading up to the same top of the mountain, which is making sure that the processes are strong enough to sustain and support the growth that any organization wants to have. I think the benefit that we’ve realized is a ton of scalability, where previously, we didn’t have it, so very, very happy there, but it has to start with a process that a system can then support, and making sure that the process is scalable, not just the system.
David Appel, Head of Subscription Vertical at Sage:
Yeah, that’s perfect. That’s well said. Mind going to the third point, Kathleen? The metaphor I always tell here is Blockbuster versus Netflix. In the Blockbuster world, it’s just these independent orders. You rent When Harry Met Sally one week, and then Godfather II the next week. Blockbuster didn’t care. They just wanted your $4, but Netflix, if you have the level where you rent When Harry Met Sally, great, but then you want to watch Godfather II the next week, and they say, “Certainly. We’d love for you to do that. You just need to upgrade your plan.” There’s add-ons, and then we make the change with the add-on, how does that change billing, and how does that change revenue? If you don’t have this all in one place, the pressure for associating all of that is on your shoulders, whether you’re high volume, then the volume gets very overwhelming for you to manually manage that way.
David Appel, Head of Subscription Vertical at Sage:
Or if you’re high ACV, still, there’s so much complexity as you negotiate with different procurement teams that you’ve got to put this in. The subscription world is different to the seven points that Kathleen was building. Kathleen, would you go to point three? You need to track all this. By putting in this automation and having a great team doing it, then you lead to the ability to see what’s going on, both looking backwards and looking forwards, but not just in a gap set of views, but in the SaaS metric set of views, you can track some of those measures that you were probably already thinking about, and those Kathleen laid out in her fifth and sixth point that she made. Those are those three points. Have business flexibility, give yourself that flexibility with one system of record, and third, have the data that goes in allow you to see, visualize it in order to guide future business decisions. Kathleen, we’re good on this slide, and go to the next one.
Kathy Greenler Sexton, CEO of Subscription Insider:
The next one’s about building a dashboard, and I can’t say how important that is to make sure you have a dashboard that your board agrees on and understands, and is also translatable to your team. This is another fantastic slide.
David Appel, Head of Subscription Vertical at Sage:
Well, I’ve now done 96 customer interviews and seven industry analysts, and 13, 14 investors. This is the pattern that came out. It’s built off of Maslow’s Hierarchy of Needs, so if you’re thinking about how to have the takeaways for your own business and listening to this webinar, and, “Okay, what am I going to go back and do for myself?” It all starts with getting the quotes set up correctly and the order coming in correctly, the financial system as you build your billing model, again, over the lifetime, not just in individual disparate orders, but when you do that, like for instance with Salesforce, you can sink the item master between Salesforce and your billing system, and your financial system, so then billing rules and the revenue rules come in automated.
David Appel, Head of Subscription Vertical at Sage:
You can have human intervention to double check and track it, and it’s on an exception basis as opposed to loading the data, so that drives the revenue, which then drives the dashboards, and then having all that in one place allows you to then see, across the customer lifetime, revenue, cash, and billing, and that’s what Brian and Joe were talking about with the Discovery business. Imagine being within 5% of the cash forecast and having that be accurate, and then P&L leaders knowing that information to guide the big decisions they need to make. The outcome is, like with Discovery, the EBITDA being up 15%, but it’s because of visibility and a lot more confident decisions that happened there.
David Appel, Head of Subscription Vertical at Sage:
Here’s the five steps to think about as you’re going after building your own set of systems and your model. Thanks, Kathleen. Go to the next slide. All this leads into some tips for you for choosing the right technology stack. This is the sizzle part of the job on what you’re going to buy and the tool, and have some fun with it, but it is on top of hiring a great team, and thinking about the processes that Kathleen laid out in those first seven tips. Do those things first, and then what technology you need, and what problem you’re trying to solve, becomes self-evident. Kathleen, why don’t you kick off the first point?
Kathy Greenler Sexton, CEO of Subscription Insider:
Absolutely. The first thing you really need to understand is not all vendors that you’re going to be talking to have experience in recurring revenue and subscriptions, and specifically, they may not have experience in your unique area. You need to remember something. The subscription economy and the technology stack has a lot of different models. We talked about, at the top of this slide, different models that you can use just for SaaS, but look at all the other types of recurring revenue models that are in the subscription economy, and there are hundreds and hundreds of technology platforms and services and tools across a lot of needs that all of your company’s going to need to put into your stack to support your growing company. You really need to make sure you know yourself from what your needs are going to be.
Kathy Greenler Sexton, CEO of Subscription Insider:
You’re going to need to know what your budget is, and make sure that whomever you’re talking to, they have the right experience in your type of recurring revenue model, and not just one customer, but they have a good history of doing that. That is a big issue for many, many companies. They just make this mistake and get locked into the wrong type of technology, and they don’t have the flexibility to do everything that we just talked about. The other thing you need to keep in mind is based on your stage of business, you might have to start out with an all-in-one type of platform, and then, as you really grow and get into, let’s say, an enterprise class level, you’re going to be choosing pieces and pulling together something that might be more custom.
Kathy Greenler Sexton, CEO of Subscription Insider:
Some companies, especially with very sophisticated boards and leaders, know that they’re going to have to start with all the pieces at the beginning, because they know they’re going to need that. Other companies might start with the all-in-one platform to prove out their model, and then transition to some other pieces as their business model proves out and their needs are more sophisticated. It’s something really important to know, because you might be talking to some vendors who are really great at serving enterprise class customers, but you’re just starting out, and that might be a mismatch for you, unless there’s some certain things that actually match up, in terms of board and your model and goals.
David Appel, Head of Subscription Vertical at Sage:
Very happy to say that IDC named us as a leader in their MarketScape on subscription management applications. If you can look in that top right hand corner, that’s the segment in the leader, and for all of you listening, again, seeing your background, you’re in that fast growth segment, and that’s where we specialize in helping you get through those different segments, because it’s that old adage. When you say it about yourself, it’s bragging. When someone else says it about you, it’s true. Here’s one of the world’s foremost analysts talking about it, and so we’re excited to share this. We’re humbled by this, because it reflects a lot of great customers working real hard to make the system successful for themselves, but it lends itself into then being able to help you operationalize and act upon all these ideas. Kathleen, next slide.
Kathy Greenler Sexton, CEO of Subscription Insider:
Well, I think we’re at the end. We have a discussion. I’d love to hear all of your questions. If you have any questions, please submit them in the chat box now, and also, you can feel free to reach out to anybody directly, and while you’re submitting your questions, I just want to give you a quick reminder of some of our upcoming programs. Our Subscription show is going to be October 5 through 7 in New York, and you can check everything out at SubscriptionInsider.com. Let’s get to some of these questions. A question actually just came in, David. What is the relationship between NetSuite and Sage Intacct, and what’s the difference between them?
David Appel, Head of Subscription Vertical at Sage:
Well, it’s a good question, and I can’t speak so much to the competition. I can tell you what we very much focus upon is this one subscription system of record. From what I’ve heard, and you should all verify this independently for yourselves, but NetSuite’s very order-centric, and so that’s why they’re very strong in eCommerce and those other spaces where you’re doing the one-off orders, but as we talked about, what you need to see is the customer over the entire lifetime, and that’s where you get the growth from us. If you go back two slides for a second, Kathleen.
Kathy Greenler Sexton, CEO of Subscription Insider:
I can.
David Appel, Head of Subscription Vertical at Sage:
Me saying it’s one thing, but if you look in this IDC survey, we’re in the upper right hand corner in that yellow circle, and you can then see a little bit further down, Oracle NetSuite, and here’s independent on market shared subscription businesses, so the market’s already spoken, which would be roughly two times the market share when it comes to building a subscription business, so in this new paradigm, the market is seeing us as the leader going forward, and I’m happy to go deeper on that. I think that was a fair question. Again, you should independently verify for yourself what you think the best solution is for you, but that’s how the market’s loaded.
Kathy Greenler Sexton, CEO of Subscription Insider:
The next question is about sales operations and revenue operations. I guess this is for Brian or Joe. How do you work with those teams, sales ops or revenue ops, when you’re integrating all that you need to do into financials, the quotes and all of that into the financials?
Joe Maxim, Controller, of Discovery Education:
Yeah, hey, thanks. This is Joe. I’ll take this one, just to get started, and Brian, obviously feel free to add in if you feel like I’m leaving anything out, but I think if the question is around the process that we went through as a result of the carve out and implementing the contracts module, I think that the first thing that we needed to do was understand how our sales teams are going to market, and making sure that when we think about the contracts and the value that we are providing to our own customers with the tools and services that we provide, we needed to make sure that we configured the contracts module in a way that was a mirror image of the opportunity that is getting built through our opportunity management system, our sales opportunity management system.
Joe Maxim, Controller, of Discovery Education:
I think the most important thing was to make sure that we understand all the different ways that we sell our services and tools, and then make sure that we construct the contract in the contracts module in a manner that is a mirror image of how the contract gets built up, and ultimately gets signed by the customer. At that point, when it comes to billing, invoicing, collections, the customer is somewhat familiar with the contract lines because it’s worded and structured in the same way that the contract or opportunity was crafted when they were originally reviewing the quote, so the most important thing there was making sure that we had a standard means of receiving that information, and then programming the contract accordingly in a way that reminded the customer of why they came to us in the first place, in terms of the various contract lines that were getting pulled in.
Kathy Greenler Sexton, CEO of Subscription Insider:
Well, I have another question, which is going to be related to both of you, Brian and Joe. It’s about board meetings, and if we are a fly on the wall, what’s the most important metric you discuss with the board?
Brian Shaw, CFO, of Discovery Education:
It’s interesting. I think there are a handful of financial metrics we talk about with the board literally every time that we speak with them, and then a couple of KPIs as well. Not to go into too much detail, but I think in our minds, bookings, billings, and our cash EBITDA metric are always top of mind. I mean, they’re top of mind so much so that the entire management team, Joe and myself included, are incentivized for our bonus structure based on hitting those metrics, but I think there’s a key underlying element to that, which is around billings, and the fact that our cash EBITDA number is actually, rather than using gap revenue, it’s really using billings as the top line number.
Brian Shaw, CFO, of Discovery Education:
I think that really underscores the importance of how Francisco Partners, our private equity owners, view billings really as a proxy for cash flow, as you’d expect, and also underneath that, it really underscores the need to be efficient in terms of quick billing, and then a quick collection cycle. That ties actually pretty nicely into a couple of the non-financial KPIs. DSO comes up all the time. You can certainly think about any kind of subscription business and again, the faster the path is to sign someone up, get them billed, get the cash in the door, the more you can then have visibility and confidence to invest and make decisions accordingly on how to further grow the business. That only works if everything is working in harmony to be as effective as possible.
Brian Shaw, CFO, of Discovery Education:
One thing that I think came up in a couple instances earlier on in this webinar, just around what you would think of in terms of subscription metrics, for us, we tend to us, of all of those different public companies, I think I saw ServiceNow was using a renewal rate number that looks very similar to our version, but we track growth and net renewal in terms of just the number of school sites that renew our product, but then also the dollar retention impact of price increases and other things, so those are always top of mind, especially as we measure how we’re preserving our kind of installed base of existing customers. Between those two, I think the financial metrics and then the handful of KPIs, again, renewal rates and then DSO being two that jump to mind that’d be relevant for this audience, we’re always focused on crystallizing onto a couple of metrics that show the health and trajectory of the business.
Kathy Greenler Sexton, CEO of Subscription Insider:
Really great points. David, did you want to add anything in terms of metrics to that?
David Appel, Head of Subscription Vertical at Sage:
Well, again, a little bit of the nuance of what your model, for whoever asked the question, all of you listening, different cadences and different value, there’s some different measures, but with a good board, they’ll often guide you into that. They’re savvy investors. I laid out in that one slide earlier my stage, what’s important, and that Key Bank Capital Market Survey also leads into a lot of other metrics you can benchmark yourself against. To the question asker, if you want to shoot me a note directly, then we can talk about your business. That’s out there. I kind of want to let that come back, Kathleen. Thanks.
Kathy Greenler Sexton, CEO of Subscription Insider:
Okay, well, that sounds good. David, I think this is going to be for you. ASC 606, can you explain that a little bit more in detail, and what do we need to plan for, and how do we manage it?
David Appel, Head of Subscription Vertical at Sage:
First off, a caveat. I am not an auditor, and you should double check with your auditor before you make any final decisions, but if I could put it in layperson’s terms, it’s that you need to track the performance obligations over the customer lifetime, not just that original order. You need to track them and have all the upsells happen to it. The biggest impact that I talk to a lot of our customers is how they’re amortizing commissions expense, and so you really want to be tracking that. That gets back into one system of record, so with the discounts and commissions terms that you get up front, being able to track those over time, you eliminate an immense amount of wasted time trying to do that by yourself if you put it into the system. We’ve got a lot of that on this. We’ve got the webinar specifically on the five steps that you think about for ASC 606, if you want to check those out, or just shoot me a note directly, be happy to get you in touch with some of our experts on that.
Kathy Greenler Sexton, CEO of Subscription Insider:
Yeah, and we can also put a link to some of that on the webinar playback too.
David Appel, Head of Subscription Vertical at Sage:
Great, yeah.
Kathy Greenler Sexton, CEO of Subscription Insider:
Yup, we can do that. We are actually about to run out of time, so before we do, I’d like to make sure I think everybody that’s with us today, and I want to ask David, Brian, and Joe one final question, which is if you had one thing that you want people to leave with from their time with us today, what would that be? I guess David, I will start with you, and then we’ll move on.
David Appel, Head of Subscription Vertical at Sage:
Well, how about this. You don’t have to do it alone. There’s great networks and communities that are out there. There’s fantastic firms and great leaders who have been through it before who want to pay it forward to others, and leverage all of that. Leverage the leaders that are able to help you be successful in all that. I think I’d leave it at that.
Kathy Greenler Sexton, CEO of Subscription Insider:
Great advice. Brian? Joe?
Joe Maxim, Controller, of Discovery Education:
Yeah, this is Joe. I’m going to cut in line here only because of how passionate I feel about it, but the one thing that I would ask for the group to walk away with is know your process, know how your processes need to scale, and then build your world in Intacct based on those scalable processes. If you do not have a scalable process, Intacct or systems aside, having a fancier system isn’t going to solve the world’s problems for you, so as painful as it is, as many different stakeholders as ERPs involve, it is essential that you understand the flow of information across your organization, be it a spinoff, carve out, whatever your fact pattern. Make sure that you are confident in the scalability of a process before you get it into Intacct, or wherever you’re going. Otherwise, you’ll pay for it later. You’ll be able to do things faster for sure, without question, but it’s important to make sure that if you are truly preparing for growth, that you are confident in the processes that exist, or could exist in any direction.
Brian Shaw, CFO, of Discovery Education:
Yeah, I think that-
David Appel, Head of Subscription Vertical at Sage:
Sorry to cut you off, Brian. That was the whole point of the question about how you work with sales ops and revenue operations, that you built that together with the other stakeholders. It’s like building a house. You work with the architect and lay out what you want first before you start building. It’s a great story. Sorry, Brian. Over to you.
Brian Shaw, CFO, of Discovery Education:
No problem. I think actually my thought here is building off of something that David said earlier on in this webinar, and it actually ties in nicely to what Joe was just saying. In order to build a scalable process, and whether you’re kind of a seed, series A round growth company, or you’re dropped in the position that we were where we were already a company at scale and had hundreds of people and nine figures of revenue and all those things, I think taking the time to be thoughtful about synchronizing people, system, and process is important. Process, and the scalability process, as Joe said, I mean, that is extremely important as you grow, and things start to get hectic as growth rates increase, so having it in place on the front end is really important, but also enrolling the right people, having people bought in.
Brian Shaw, CFO, of Discovery Education:
To the extent that we had tried to build the processes that we did in a vacuum, just within the accounting and finance organization, it just wouldn’t have worked, so we had buy-in from not only sales ops, the sales teams, legal, you go across a number of different functions throughout the business, and I’ll be the first to admit, we didn’t get them all right on the first shot, so certainly recognize that there are iterations and constant improvement to these things, but it is important to think about solving this challenge not just from the lens of, “Okay, I buy a system. I plug it in. Problem’s over,” or, “I map out a process and then I don’t have to talk to the person at the desk next to me.” It’s not that simple, and it needs to be a holistic approach in order to really get the maximum value and benefit of scalability for the organization long-term.
Kathy Greenler Sexton, CEO of Subscription Insider:
Well said. Well said. Well, I’d like to thank all of you. Joe, Brian, and David, really great points today. I’d like to thank everybody who has joined us today. If you have any questions, we are going to be leaving the chat window open, so get them in, and we’ll just follow up directly with you for anything we didn’t get to today. Until next time, everybody have a great day, and until next time.
