Zuora’s Tyler Sloat on the CFO Thought Leader Podcast

By Aarthi Rayapura August 22, 2014

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Our CFO Tyler Sloat recently sat down with CFO Thought Leader for a wide-ranging discussion entitled “Why Now is the Time to Join the Subscription Economy.” Some highlights:

 

On the Subscription Economy:

 

 

“Besides a dynamic market and an amazing product, I really like the fact that we saw this happening before anyone else did.  Our founder Tien Tzuo told me four and a half years ago that everything was moving to subscriptions – not just software, but everything. That was a pretty bold vision at the time. But it’s a vision that is coming to fruition and one we continue to execute against today.”

 

“The reason that our clients are calling us is because they realize that their legacy  ERP systems simply can’t do what they need them to do. They can track widgets sold, and the margins on those widgets, but they can’t give them an accurate picture of the real lifetime value of their customers.”

 

“The subscription market is huge now. SaaS was the fore-runner. But we also have a big telco business. We have a big media/entertainment business. These are verticals for us because solutions for these customers that might have cut it five or ten years ago are now being recognized as both inflexible and expensive.”

 

“We have a lot of confidence in what we say about the Subscription Economy because we benchmark carefully. We track dozens of subscription-based companies, and if we’re curious about metrics that are missing from their statements, we’ll pick up the phone and talk to the CFO.”

On Metrics:

 

 

“Annual recurring revenue (ARR) is the core financial metric for us, and based on ARR we think about three aspects of the business. Our growth engine, or the money we spend on our sales, marketing and customer success. Our recurring non-growth spending on servicing the existing install base, and that includes, COGS, G&A and R&D. And finally, one-time expenditures on professional services to get our customers effectively onboarded.”

 

“The efficiency of our growth spend is incredibly important to us.  As such, we hold ourselves accountable to a Growth Efficiency Index goal, essentially our take on a Magic Number or CAC ratio. It let’s us determine whether money is being effectively used to generate new Annual Contract Value, which is the increment to Annual Recurring Revenue. Churn is the decrement.”

 

“On non-growth spend, we think a lot about our recurring profit margin. We want to keep our non-growth spend to a strict percentage of our ARR. So if anything happened to our market, we could immediately pull back on growth spend and produce profit.”

 

“We’re not interested in maximizing professional service dollars. Those services happen in the context of a customer relationship, which is vastly more important to us.  Instead, we feel it is very important to understand the financial impact of that business to ensure it does not become a tax on the recurring business.  Our mandate internally is to try to run a break even Global Services business.”

On Today’s Finance Professionals:

 

 

“Controls and compliance are non-negotiable and the first order of business, but once you’ve established that, a good CFO, in my opinion, should be concentrating on the business model.”

 

“A business model is different than a budget. A budget is about handing out headcount and expense against assumed revenue. A business model is a mix of strategy, insight and ideas that winds up as a quantitative but fluid framework – it affects change and reacts to it.”

 

“The big difference with the recent SaaS IPOs versus the Bubble is that these businesses are driving real revenue… recurring revenue – they could be cash-flow positive at any point in time if they decided to curb growth. It’s an exciting time for finance professionals because once they have the compliance issues squared away, they can become much more involved in strategy and modeling.”

 

“We’re the biggest users of our own product. We’re proud of it. It allows us to scale our business without headcount.”

Listen to the entire interview here.