SC Corner E5: Industry Vertical - Managing High Tech Needs in NetSuite

I'm Becca Smith, a solution architect at NetGate. I'm a CPA and started my career at Deloitte in their business Tax service group. My legendary co host, Chris Miller is our VP of Product Strategy at NetGate. He was at NetSuite for over six years, solutioning with some of their largest enterprise clients. He's a CPA and has served in roles such as controller, director of finance and cfo. So let's jump in and tackle today's topic. Okay, so we are talking about a specific industry at NetSuite today. Kind of wanted to get into high tech specifically because I know that this is a huge vertical at netsuite and there's a lot of cool things in the high tech industry that work really well with NetSuite. And we've worked with a lot of those clients as well.

Yeah, absolutely. I mean, in the early days of NetSuite almost the software vertical they call them seemed to drive almost all of the innovation, all of the development. It was always top of mind. You know, netsuite being a software company, being like, how can we make that work for them? So it's a good one to explore.

Okay, I'm excited about it because I feel like we work with tons of tech companies and so it's good to just get a good idea of what matters to them. And like, if I was an SC coming in on a deal and I'm a high tech sc, what am I looking for? What am I vetting for? Like, what makes a client a good customer for NetSuite?

I guess sure, that's a good question. And I'd say there's probably three or four things and it has a lot to do with where the software company is in early. So, you know, in emerging you're often trying to capture them to kind of at that beginning. But like say if you're like size, say even around neck gain, you know, you start thinking about a couple of things. You need to make sure your revenue is. You've got the revenue being tracked correctly because many times you're looking for funding to be able to grow and do that. And so the primary driver of funding is oftentimes how good your revenue reporting is and how well you can explain your different ratios and all that. And so that becomes one of the main reasons that people start to look at NetSuite is they might be in QuickBooks trying to do it, but all of a sudden they want to, they're trying to explain to somebody why they should invest in them and they realize that they need a step up in their accounting power to do that. The other thing that people come to NetSuite for is its flexibility. So you know, even 20 years ago there were often companies that were services and then companies that sold software, you know, on premise and then there were companies that were hardware coming, you know, you know, you were a manufacturer and now what happens is you have one company in a software company or high tech that's selling, you know, a piece of equipment like a set top appliance or something that used to be a manufacturer. Then you're selling some software on top of it and then you're booking, you know, and then you've got installation and implementation and services. And so the business models have gotten super complex where you're not just one thing now you're three things. And that's really. And netsuite is like the best at that. So it's like their verticals really come.

In and like apartments and the like the class locations that they're using where like. Because I had one of my really good friends has this company that she's running and they have multiple software products that they sell, but it's all under the one company. And so then she was like, well, I want to look at a income statement by that specific product.

So.

And that's where I think netsuite does.

A really good job. Yeah, yeah. It's that ability to segment stuff and be like, I want to look at this or this or this. And you can be really, really, really flexible.

There's so many different types. Right. And especially with the revenue recognition you were mentioning, like you. That's where I think ARM like stems from. Right?

Yeah.

And then like with 606 revenue. So I guess are there any pitfalls that you see clients have in the high tech that you've like. I guess what pitfalls have you seen and then how have you kind of solved for those? Like if I was an sc.

Yeah, great question. So if I look back at some of the really kind of the big or marquee or complex customer snts we had, there was almost always each of them would have some sort of big issue or problem. You're right. Revreck would start out for the first one. So many times what happened is companies will they start out and just kind of their order. It's gotten better now as people have gotten that. But you know, a lot of times people don't know exactly how to allocate the pieces in their thing and so they start making it really complex and sometimes it gets too Complex. I've seen some pretty crazy allocations where they're breaking this stuff out.

And what we're talking about, that's like software versus hardware. Right. Like a company I worked on, they rent a equipment piece, but then they also have a service contract associated with that. So you're splitting that out.

Yeah, yeah, that's exactly right. And then, though, you'll break it out even further from there, you know, support and services. And you get this.

And they get like. They want to see every aspect of it. And so that's where it gets super granular.

Yeah. And so as it gets granular, all of a sudden you're like, trying to figure out, well, what's the trigger for this piece of revenue or the trigger for this piece and how much is in there. And then ultimately, then how do I. How do I. How do I roll all of this? And that became super complex. So a lot of times we would hope people would take a deep breath after 606 and say, okay, I probably don't need all of this. That they would simplify it up a little bit to, you know, what really has the economic substance versus, like, just trying to go, yeah, for that. But even then, no matter how simple or complex it gets, you really needed a system. So, you know, we had a. I'll never forget, we were at a customer, Adam and I, and we were sitting in there, and they were talking about doing a rev rack for virtual farm animals in their game, and they had millions of them. So it was like, what's the life. What's the trigger for a cow? You know, how does. What's the life cycle for a cow? A farm, a tractor? And we were like, oh, my gosh. What. You know, how are we going to do this for, like, ver. It was like, for virtual revenue recognition on the.

On the game.

On the game. And then the pieces that you bought inside of the game.

Okay.

So you can get. That's kind of what makes it pretty unique. And, you know, that kind of revenue recognition was something that suite's really strong on. Not only tractors, but, you know, real life.

You can arm handle different triggers like that.

Yeah. Yeah, it sure can. So kind of what happened, first of all is there's. There's usually there were four originally. So there was like, you know, quantity on fulfillment, and then there would be, like, a percentage on. On, like a fulfillment or the bill. So that's how you would take, like, if you had 20 things and you fulfilled one of them. I don't want to trigger the rare for the one, not the other 19. And then, you know, there was like over time, so you would, you know, your typical subscription. And then they created this idea of a custom trigger that was really smart. And what you can do with that is kind of set it on almost anything. So one of the common ones we would do would be people would want to recognize revenue when they actually ship the goods. So as you recall, in netsuite, when you fulfill something, it hits the cost of goods sold immediately. But you might not be able to recognize the revenue until it's actually been shipped or received by the customer or acknowledged or some way like that. And so that's where that custom trigger could come in.

Is it based off essentially a custom record in the system that the customer has had receipt. And so that triggers something in my system. And so then it triggers my ar.

Essentially a custom field. So we did one where when they signed off of it at FedEx, the FedEx acknowledgment would come back into NetSuite. That was the trigger. And then they would recognize the revenue. And so, so between that there really, if you use the customers, there really isn't much that you can't do. And then of course there's the other side, which is the deferred cost. So you've got things like the commissions and maybe the inventory, and you want to cost to obtain the contract, they called it. And so we also just like you would have a trigger to recognize that we would kind of mirror that. So you would grab the costs and then it would recognize the costs in the same way that it would recognize the revenue.

Is that still inside of ARM or is that.

Yeah, interesting. Yeah, that's. That, that's part of, that's part of arm. I forget what we, what they called it. It's, it's like advanced cost schedules or something. The other things that ARM was really, is really good for is really foreign currency. One of the things that you get, you know, we, we run this with like foreign currency leases. But in these contracts, it's very common for a software company to be doing their stuff in a foreign denominated currency. And then, you know, then they got to remeasure it and do that. And so one of the real tricky things where a software company will often come to netsuite is on the revenue side is how do I recognize revenue in USD when I'm billing in gbp because I'm based in the US and how do you do that? And that's, that's complicated. It's complicated. But you know, we. The. When I say we. Netsuite. Netsuite figured it out. So.

So I guess what's one of your favorite problems that you solved? Like, on the revenue side? I'm curious.

Oh, for. For like, high tech, apart from the chickens and the virtual tracking.

Did you solve that one?

Yeah, yeah, we. We did. We figured that one out. That is a. That's a really good question, you know, because I could think of, like, where. Well, was there a cool product or was there something. I'll tell you what I think was probably my. The hard. The hardest one was we were visiting a large customer, and it was a customer that was so big that we couldn't believe that we were. We were talking to them. It was, you know, it was Hewlett Packard. So we're down in. We're in Sunnyvale in their Sunnyvale office. And I was actually doing double duty for doing. Oh, gosh, blink their name. Invisalign and HP at the same time. This morning it was like Invisalign afternoon, it was hp. And so at the HP place where I wasn't. They had run into a. They had run into a deal blocker where they were like, okay, we're not gonna. We can't go forward with you guys. And got in the car with some of the Netsuite executives, and they were like, chris, can you figure this out? They're there. And I'm like, okay. And so I had to kind of just sit there quiet for, like, I was probably about 20 minutes in the car. And it kind of came to my mind, okay. And I was like, all right, guys, I know exactly what to do. I'm going to take what I just did for Invisalign and change it this way. And what happened was they wanted to rebuild, push costs through various places so they might have a customer in Germany. And what they wanted to do was it might start in the US but then they wanted to have 8% margin in the UK and then 12% margin here in Germany.

Yeah. Being cost pushed through different subsidiaries. And you have a margin.

Yep, that's exactly right.

It's a whole bunch of intercompany transactions.

Yeah. And at the time we were like, we can't do it. And I figured out that I could essentially do that, chain a bunch of intercompany transactions together and then kind of controlling the margin on the back end so we could concentrate at the end user for the rebiller this margin and then move this margin up. And for the transfer pricing, did you.

Do it using like custom transactions or fields.

No, it was just kind of brute force, honestly, it was more accounting plus plus that. But it's funny because that's now since become, you know, like standard. That was like, like they were like, we got to have this in it. So that was kind of where some of the pieces of like intercompany framework came from, was a need to solve this for transfer pricing. But yeah, so it was funny because we got done and I kind of got the high five and we went out to dinner and they were like, we were dead. We thought we were gone. And then you pulled it out of your hat. Yeah, you pulled that out of your hat. And then they were happy. And then now I had the easy part in implementation. Bruce Cavers, who's still with netsuite, he had to actually deliver it. And so he created, he had to create the actual mechanism that I kind of brute forced. And so he really deserves a lot of credit for, for doing that. But that was one that, that was, that really makes being a solution a lot of fun is like figuring out sometimes you gotta do on the fly, sometimes it's not the best on the fly, but, you know, figuring out the problem and sometimes, you know, looking at it in a way that nobody else has looked at it to say, okay, we can, we can do that. And that's kind of what makes being a solution consultant really a great job. Have you had any of those yet where you're like, okay, I got this figured out and I didn't think I would be able to.

Yeah, kind of with the. Because on our asset product, being able to push from inventory into assets is an issue. And so I had a couple conversations with like Jason, other people around, like what I thought the trigger should be there. And I was definitely doing a lot of just like practicing on the back end and kind of like forcing it to work, kind of like you're saying, and then eventually got the dev guys to actually look at it and they were able to come up with some really cool solutions. I've actually now led into our ability to just auto create assets off of really any trigger or any record in the system, which that's like a super cool new feature that we have in.

There and that's like a key feature for all of these customers that are doing like asset management that we didn't have.

You know, not that I'm saying like I was the developer of that idea. Right. But I was just saying that like I remember like working with it and like trying to figure out how we could apply it to customers and make sure that it was going to fit their needs. And then kind of demoing it when it wasn't like perfect yet. And also just working a little bit on the solution side as well of what it should look like. Yeah, that was a cool experience.

It is. And that's where the creativity comes from. Becca is like, you see there, okay, there's like a problem, but then you got to turn it into like a job to be done. Everyone says, I don't like this, but then how do you turn into something that's like, how do you break it.

Down into all the pieces?

Yeah, I want to do this more than I dislike that. And then turn that into something you can give to somebody to say, okay, build this so that, you know, it'll do this job and solve this problem. And, you know, that's the, that's the fun part of being, being in, in this industry and kind of in this role. So.

Yeah, no, I love it that I feel like is the part of my job I lose track of the time the most because you just start solving things or playing with things or building and testing, and then three hours have passed.

Yeah. Oh, it is. You can get in the flow, you know. And so I always tell everyone we kind of have the best job in the world because we get to talk about accounting, but we don't have to do accounting. But then when you get into this stuff, it doesn't feel like work. It's just. It gets.

It's doing accounting with an end goal that is like, interesting to me because it's software based. So that's cool.

Yeah, no, it's absolutely true. And believe it or not, that's how like a lot of the innovations came from. You know, even in netsuite that, you know, the kind of the idea of even arm, really the credit deserve should go to Joe Friedman for that. You know, I love Joe and I miss him. And I remember one day he's calling me. He's like, chris, Chris, you got to see this. And he had like written this like manifesto of Revreck and how it would be. And it was pages and pages long. And I can't remember if I saw it before he showed it to Jim McGeever or if I was seeing it afterwards. But, you know, he like pushed it through. I mean, he was like so passionate about it. It really became the genesis of Advanced Revenue Management, you know, and same thing he was SC like, you know, we were, we're partners together and I was kind of like, just like it became his passion project. And now you look, started working on.

It on the side until he had a project.

Yep, yep. I think he had like, like one of those things where he stayed up all night, you know, where it's like in the movies or something.

We can make a movie about it.

Yeah, yeah, exactly. But no, it was, it was awesome because he, he had the. He embodied a lot of the exact same traits. You know, he just love to do that. That's what made him great at it.

So cool. Okay, well, this has been very helpful to me because I think ARM is fascinating in like, how it can help so many companies. Okay. This has been such a cool conversation. Thanks, Chris. Yeah, just because I think like, high tech specifically is such a huge industry inside of NetSuite and then just looking at some of like the pitfalls or the ways that you can solution for them is so helpful, especially on the SC side. So appreciate all your knowledge.

Oh, happy to do it. Always glad to be here. So. Okay, thanks, Becca.

Thanks. All right, well, I'm Becca Smith and I have been joined by Chris Miller. Thanks for listening to SC Corner. You can listen to us on any of your preferred streaming services or you can always look up our products at NetGain Tech.