An IPO Mindset – How It Can Help Companies at Any Stage with Airbase | SaaStr Software Community

how it can help companies at any stage. There will be time for Q&A, so please be sure to drop your questions throughout the session into the Q&A below. We can get to the next slide for some housekeeping notes. Welcome. Drop in the chat where you're joining us from. We would love to hear. To submit a question to the speaker, use a Zoom Q&A in the bottom of your toolbar of your screen. This is a 20-minute session with time for Q&A, so be sure to send in your questions throughout. These sessions will be recorded and available post-event. Be sure to follow SaaStr on SlideShare and subscribe to our YouTube channel. Join me in welcoming Emma, Aneel, and John. Take it away.

Hi everyone, thanks ever so much for joining us this morning and this afternoon. Um, welcome to An IPO Mindset. We have with us two very distinguished CFOs, John Bonning from Harness and Anil Vallaruupilly from Airbase. And we're gonna have a discussion today around what it needs, what it takes to have an IPO mindset and how it can help companies at any stage that you're at. So hi, John. Hi, Anil. Thanks for joining us.

Thanks for having me.

Nice to see you. Well, let's start then. Let's go first. We're going to go through what the definition is, the milestones, and what IPO means versus growth, right? There's different preparations that you should consider. So first up then, John and Neal, what do we mean by an IPO mindset?

Awesome. Emma, if you want to share the bullets real quick on, you know, the 4 main areas, John, I'd love to get your take on, which is, you know, primarily if you're looking at the security, governance, you know, predictability, the fourth one here, speed and accuracy. Love to get your take on, on those areas.

Sure. Yeah, thanks, thanks for having me. You know, I think, as I said, I think this is an interesting topic because I think companies at any stage, particularly companies that are, you know, growing quickly, you know, need to have a lot of these frameworks in mind early on, the earlier the better. You know, at Harness, we've started taking these, you know, establishing these principles early on, and it's only helped us as we continue to scale. You know, I think, you know, just kind of going through the list a little bit, I mean, I think security, you know, is obviously top of mind for a lot of folks these days, a lot more than it probably used to be even. You know, every day you read in the news something going wrong, so to speak, in this space. You know, with companies having attacks and with, you know, generally with everything, you know, moving more and more to the cloud and companies even operating remotely, this has become a bigger deal. And it's not just security, you know, it's your data security, it's your risk assessment, it's your frameworks, you know, all these things where you need to build infrastructure and it needs to be secure, right? And you, you know, if you end up in the news in one of these hacks or breaches, it can, it can derail your whole IPO journey, if you will. So I think you gotta be careful there. Governance, same thing as setting up early processes and systems around audit committees, having a clean audit opinion, having your clean frameworks on your security profiles, really having an, even before an audit committee, right? You've at least got board members who are acting potentially in that capacity, even if it's informally. right? And making sure you've got those kind of processes lined up early, right, from a governance perspective. Predictability is the name of the game when you— as you grow. You know, I think early on as an early stage company, it's kind of like just, you know, you're finding product-market fit and it's just grow, grow, grow. But as you get into mid-stage and certainly later stage, you know, your revenue models have to be very predictable, right? From the sales motion into the revenue predictability and You know, the concept of— you've probably heard of the concept beat and raise, Aneel, and I know you've been a part of public companies before as well. You know, that's still very much a requirement and a mindset for a successful IPO journey, but it also is for later-stage companies and mid-stage so that your board and your investors, you know, don't want to be surprised, right? And you've got to get that done early.

John, what does that phrase mean?

Yeah, so beat and raise is an interesting— it's just kind of— it may be a little bit of a dated phrase, but it basically means that as you're committing, you know, certain revenue performance, whether it's to Wall Street or investors, private investors, you know, you generally need to be confident that you're going to hit that number or beat it, as we say, and then you raise your outlook again, right? And that's kind of a drumbeat that public companies follow, but it's actually good practice to get that mindset going early because you want to just be able to predict and beat those numbers early on to your investors.

Yeah, and I know that, you know, to John's point there, you start a lot of that, you know, in your Series B stage even, right, as a company. You start thinking about your guidance you're giving quarterly, etc., and you want to have this consistent track record of understanding how your performance is going to trend and where you think you can push. I mean, Being a part of Guidewire when it first went public, I mean, I think we had 12 quarters in a row that we hit and we beat. And a lot of that was us understanding ourselves really well for us to be able to continue to push ourselves. And, you know, it starts with speed and accuracy, strategic decisions being able to be made off of good data, right? And, and, uh, yeah, completely.

Yeah, we had the same concept at Ariba when I was there, is that We did not miss a quarter while we were there. And I learned a lot from the CFO at that point, which was finding that balance where you're pushing the organization, you're pushing sales to achieve stretch targets. But at the end of the day, you've also got a set of targets, I'll call it, that you're kind of must-haves and you got to ensure you achieve those and they got to be predictable. And then the last part, speed and accuracy, as you said, Anil, In order to become predictable, you really need to have like a good set of tools, systems, understanding so that you can kind of balance that moving really fast as a startup and growing, but also accuracy, right? Like, you know, you got it, you got to kind of balance the two as you continue to grow.

Right. And so we talked a little bit about the mindset, right? And it's helpful to have that mindset as early as possible in the company's evolution. But now maybe switching to milestones a bit, right? What are some of these milestones as you think about potentially, you know, high-level workback schedule and like what are the themes that you see there, you know, that we kind of have notated here?

Yeah, it's great. It's a great question, you know, and I think, you know, some of these milestones obviously are again sort of great to consider early in your stage of a journey as a company as well, and they'll evolve as you grow. For example, the growth, we just talked a little bit about growth and you need to have not only predictability of growth, but you need to have a sustainable pace. If you have a lot of volatility in your growth, generally, as you can imagine, that as you get towards an IPO event or IPO readiness, if you have a lot of volatility still, that's very hard to manage and also kind of have investors understand how your business works. If the volatility is high, very difficult. So you got to manage that down. And I think that comes with pace or scale, right, Anil? I think you mentioned a guidewire, but at a certain point, you have to hit a certain revenue scale. Today, that's typically well over $100 million in revenue, where some of that predictability does become easier. The good news is the bigger you are, there's some inherent portfolio effect going on there benefit you.

Yeah, you end up having a feeling of, okay, the machine is built, you know, people love this product, they're consistently buying. Now how can we optimize from there, right? You're confident that this is a sustainable business.

Definitely. You know, and then I think, you know, on the, on the infrastructure and kind of governance and audit side, I mean, that's the other key milestones here, right, is again, start early. I mentioned before, right, like as you grow, I mean, even your first audit opinion, you is so important, right? And a lot of us here are in the technology space, probably most of us actually, and a lot of us are in the software space, most of us. And the requirements for the new 606 accounting guidance is not simple, right? It takes a lot of time and effort to get your accounting systems, your audit, everything ready for audit readiness. So I mean, before you even think about IPO readiness, you got to make sure you're audit ready, you know, well before that. And so, you know, I think that can catch people off guard, particularly if they've not had an accounting background. So I think it's important to get— and also hire the right people there, right? And making sure you've got expertise so that you've got a clean audit opinion. You've thought about all the different, uh, you know, equity gets highly complex in the accounting world for technology startups. I mean, I'm sure You know, Neil, you guys are looking at the same thing. And so that's really important as well.

Totally, totally. And on the system side, right, I mean, I think that obviously behind the systems and processes are great people, right? And really strong people that you brought along that either have seen this rodeo before or have that growth mindset and understand what it takes to learn about that next phase of growth. But talk to me a little bit about the systems and processes. Ultimately, you know, all these things are connected together, you know, meeting planning. When you're planning, you need data, right?

No, absolutely. I mean, I think this is, you know, this is obviously the kind of the heart of the matter of the how, right? Like we kind of talked a little bit about the what, which is like what the mindset is and, you know, what an audit opinion is, what is sustainable growth. But this is really the how, right? And I think I think to your point, Anil, it's obviously having an amazing team with diverse sets of experience and backgrounds, you know, everything from, you know, FP&A to technical accounting to all those good things, right? And people with a lot of experience in that is critical. And then also, yes, from a systems perspective is, you know, tying this together, because if you're still using, you know, if you still rely, right, really on spreadsheets to tie everything together, you know, from everything from planning to close processes to whatever, like that really becomes a bottleneck, right? And so you gotta, you know, you gotta ensure you enable systems. I know at Harness, for example, you know, it's pretty amazing. Like when we first created the first accounting, the department, the finance department, we literally were all outsourced. And then, but fast forward a year later, we had over 15 systems in place, which allowed us to really scale with a less amount of people, better expertise in people, and then also way less errors, and our people can move much faster, right? Like your day-to-day operations.

Totally. I remember at Mattermost, right, when I started there, John, you know much about the stories back then, and G&A was completely outsourced, right? Small startup, and ultimately built that org up to include finance, HR, recruiting, legal, IT, and biz ops. And ultimately, you know, ARR, even closing out ARR used to take, you know, a few hours, and, you know, by the time I had moved on, it was it was live up with 5-minute live data, right? So you're literally seeing deals close in Salesforce and things try, you know, work through the data store all the way up to Looker. So very important, very important. And then maybe we have a few minutes left here. We've seen the startup phase, right? We've seen public. How is it different, right? How is prepping for an IPO different than how you and I have built those those finance functions from scratch or a fast-growing company?

Yeah, no, it's— I think there's— luckily, there's a lot of similarities, I think, in some ways. I mean, I think there's a piece where, as you're prepping for an IPO, and I like to maybe term IPO readiness, if you will, like we talked a lot about the foundations that you got to get in place, but I think I mean, that's kind of the key thing is that you put these pillars in place early, you know, around your team members, around the governance, around the systems, around the process. And, you know, the challenge really is then balancing, we all know, is the growth of the company and the scale of the company. Because, right, if you're an IPO company or IPO-ready company, you know, you're going to be growing, you need to be growing very quickly, right? That's kind of a requirement for even to consider. you know, and an eventual IPO. So the tricky part of this is sort of balancing the governance, the systems, and the processes that are needed to scale, um, so that you, you know, you, you de-risk any of the kind of operating issues or errors that could prevent you from going IPO, but still not, you know, making sure that you can either accelerate growth or certainly not inhibit growth, right? I don't know, Anil. I mean, that's— I think that's kind of a little bit of the art and science is is knowing how to sequence those things, right? And, you know, for example, you know, you may not want to put in, you know, 6 layers of approval for certain spend types when you're, you know, when you're a $50 million company, right? That just doesn't make sense because it would take too long, it would slow you down. And even though, you know, that may make sense if you're SAP, it does not make sense if you're in high growth. So you got to really make those trade-offs of that risk and growth.

Yeah, I think, you know, you highlight a very key, key point, which is ruthless prioritization, as I like to say, right? We can't do 50 things amazing, but we can tackle and prioritize the 2 or 3 or 4 biggest needle-moving aspects of the business each quarter. And ultimately, I think that, you know, for me, what it's felt like when you're in early stage, you're changing the wheel on the car while the car is going 100 miles an hour, right? Yes. And ultimately, as you're getting up to that IPO phase, you're just about to go public, depending on how much foundation you've prebuilt, it doesn't feel as chaotic as that, right? Especially soon after going public. And I'd say that, you know, ultimately all this foundation you lay ahead of time helps de-risk that ability to even IPO. I mean, I have so many stories of folks who've been at companies where, you know, instead of it being a couple million dollar effort or a million dollar effort to go public on the G&A side, it ends up being almost an 8-figure, $10 million effort. And Instead of it taking 6 months, it takes 13, 14 months. And the difference between 6 months and 13, 14 months is potentially missing that IPO window. Right.

And so— Yeah, that's a good point. That's where I think— And I also think that it's key to remember too, is that the IPO is really just a— it's really a funding event and it's a stage. It's not the end game, as you said. So a lot of companies have gotten in trouble where if you're not ready and you haven't built the foundation early and you rush to an IPO or event, As soon as you miss that quarter number or you have an event that's a security breach or you have something else that could have been prevented from the foundation, it's very painful. I mean, the public markets are way less forgiving than the private markets, let's put it that way. So I think that's, to your point, you got to be doing that early on so that there isn't a scramble to plug holes and gaps at the last moment.

Right, right. And, you know, we're— we've got a few minutes left before ending, so I would like to ask a couple questions. So please, if y'all have questions, please send them in. We do have a couple here, John, and maybe we can hit— as John coming up the accounting track, right, and coming from E&Y, right, back in the day, I'd love to understand, you know, one of the questions is, when should a startup graduate from a part-time controller and start to think about bringing on that full-time controller?

Yeah, it's interesting. I mean, I think it, you know, Harness was an interesting example for me as we were 100% outsourced when I joined. I think we had, well, I know we had very aggressive growth goals. And so, you know, our CEO, when we talked about, when I talked about joining, right, it was all about like how you transition, you know, from call it external providers or outsourcing into in-house. And I think it all depends on really the size you are and the growth pace, right? If you are a company with approaching, generally speaking, approaching 100 people and you have aspirations or you're seeing growth of even more than 2x on a run rate year over year, that is time to start aggressively bringing those things in-house, right? And, you know, doing it obviously in a smart way. I think doing it sequentially. I mean, I think controllership is obviously one of the most important fundamentals early on because, you know, obviously you've got to get those fundamentals and the accuracy of the historical results to know where you're going. I always like to say you got to know where you've been before where you're going. FP&A is not going to be very effective unless you have a solid accounting foundation. Totally.

Totally, and I completely agree. I mean, my background being the M&A, FP&A, strategic finance background, right? I know that the first hire I've made in the last 3 companies has been that director of accounting or that controller role, because ultimately, you know, you need that right hand. And that's what really FP&A and consulting and accounting are, is right and left hand to the finance overall function. You know, for us here at Airbase, we're hiring for that controller role now, right? Having come into the company recently, We need to go hire that. And ultimately, you know, I think as you get, as you mentioned, around 100 employees, you're facing different challenges as business, right? Whether it be global, more revenue, more systems, et cetera, for which controller really does have those operational skills to tackle those for the company. And so here with a minute left, I don't think we have enough time to answer another question, but I would like to let folks know there is, if you do have more questions or more questions like these, there is a group called Off the Ledger and it is a Slack group where ultimately you can get responses and seek guidance for any questions that can be helpful. And this is very much a forum you can think of of finance and accounting professionals to seek any type of knowledge or open questions.

Yeah, and I think that's great. I mean, Anil, that's one piece of advice I would give as a parting shot is that, like, you know, you don't have to figure this out on your own, right? This, this whole IPO mindset, the stuff we've just touched on today, like, I— one of the things that's helped me in my career are resources like this, whether it's these or whether it's personal. Anil and I have traded war stories and learnings, you know, throughout our career. So, you know, I think that's super important as you're, as you're prepping for these growth stories, is you leverage your networks and people who've done it before.

Yep, totally. Well, um, Cynthia, I think that that's, uh, our time here. But thank you so much, John. I really appreciated chatting with you as always. Emma, thank you for, for helping us through it and look forward to seeing y'all on Off the Ledger.

Thank you everyone for attending and thank you, Emma and Neil and John, for that great session. We have lots more of content today, so see you guys all in the next sessions.