When Mahesh Patel stepped in as CFO of software-as-a-service-based data protection company Druva five years ago, sales representatives were making deals by offering clients a menu of a-la-carte solutions, but those solutions weren't creating the kind of value that leads to higher customer spend over the long term. So Patel worked with others to get that changed, and now the company sees far higher value from each customer by selling services in bundled packages.
"None of these new value-added features [sales reps were offering] added significant extra bookings or dollars or revenue to us," Patel said in a CFO Thought Leader podcast last week. "Meanwhile, [as CFO], I'm investing in these solutions.... So it became a bizarre situation where it felt like we were actually commoditizing ourselves."
Patel said he worked with the CEO and a board member on a new way to price and package the company's solutions. "We went from selling 10 to 15 solutions to actually bringing it down to just three," he said. "We started bundling every solution, and by bundling these solutions into one, it made our sales organization start thinking about selling value, not just augmenting solutions."
Once the change took effect, average revenue per user, a metric he gave scant attention to before, shot up. "It wasn't part of our DNA before I joined," said Patel, who worked for a pair of Big-4 accounting firms about 15 years ago before moving to increasingly high-level finance roles at a handful of technology companies. "We started measuring on a per-unit basis whether what we were selling added more value.... We made it easy for sales to just go out with one solution at a time to make them sell more value."
Tracking gains
Patel said he only looks at a few metrics each day. "I don't want to overdo it because if I have 28 pages of metrics, I’m not going to know which way to go when I finish that cup of coffee," he said.
Among his go-to metrics is annual recurring revenue (ARR) and how that corresponds to the capacity of the company's sales team and the quota they're expected to attain.
"What's our trajectory to hit our forecast in the quarter?" he said. "How does that correspond to how reps perform? So, I can look at how much the sales team is doing and whether performance is aligned to where my expectation measure is. That would dictate whether I need to hire more reps next quarter to handle more of our growth and do it efficiently at the same time."
He also looks at net retention. "We have an amazing opportunity at our organization when a customer deploys our solution and they stay and add more data to us over time," he said. "So, our net retention is a metric that's a proxy of how an existing customer grows with us over time. We've historically maintained a 120% net retention, so an average customer grows at least 20% year-over-year, a metric we maniacally focus on to make sure not only our customer is happy, so they're not churning, but they're adding more services, continuing to grow and stay with us for a long period of time."
Patel said he follows the rule of 40. That's a guidepost unique to SaaS businesses in which a company can spend cash at any rate it wants as long as its growth rate is 40 percentage points higher than its free cash flow margin.
"I don't expect to hit it at our scale, but I expect us to continuously have leverage and motion toward that scale and grow that efficiency in our model," he said. "If I don’t see that leverage in our business model, I continually challenge us to be better than that."
COO function
In his five years at Druva, Patel has led four capital raises to generate about $200 million in equity. In addition to traditional accounting and finance functions, he oversees several of the company's functional areas, including legal and IT.
"I operate more in a COO-type capacity because I control the financial outcome of this company, so I'm able to go upstream and help drive decisions," he said.
His expanded responsibility represents a sea change from how things were when he started in business.
"Often the finance organization was relegated to just being the finance organization," he said. Today, "we help control the outcome. We're not just there reporting. Especially in SaaS organizations, where we live and breathe together. So, being actually part of these business decisions, using these business metrics, to drive an organization's decisions is really important."
