How subscription CFOs can amplify value through accounting automation software
CFOs at high-growth subscription companies face challenges scaling their ERPs and General Ledgers as transaction volume skyrockets. As their teams grow rapidly, how can they be sure that their technology scales with their growth?
Steve Springsteel, CFO of Recurly, and I discuss the biggest challenges that high-growth subscription companies face. We also chat about how CFOs can leverage automation software to scale more efficiently and effectively.
To start, there's a lot of complexity around financial data. Can you describe the fragmented ecosystem as you see it today?
Ray: The fundamental shift is happening in the back-office. We're seeing an increase in back-office software that doesn't talk to each other which creates data fragmentation. This dramatically impacts accounting and finance ability to be cross-functional and data-driven.
I think the first step is to realize the fundamental problem is data. Then you need to ask the question of, how do we solve this problem?
How do you address and prepare for the complexities within a recurring revenue model when it comes to ordering payments and financial workflows?
Steve: As you grow rapidly, you'll want to leverage automation as much as possible. Manual processes don't work as you grow, particularly if you're in a high growth mode.
As Ray mentioned, you need to focus on integration. You need to make sure that your billing platform has integrations with your ERP systems, like Netsuite or Quickbooks, and that you have integrations with your CRM, like SFDC.
Then on the billing side and the payment side of these interfaces, make sure your websites, payment gateways, fraud management, texts, checks, taxes, and compliance, etc. can all talk to each other.
For payments, you'll need to make sure you understand the key reasons why a transaction failed. When you're using an automated tool, you can quickly correct those particular issues in real-time.
The more that you automate, the more that you're able to reap the benefits.
How do you build with scale in mind to increase the speed, efficiency, and ease of use within your payments and subscription processes while also trying to manage to keep costs down and low?
Ray: I think finding the right balance is incredibly important. Because moving fast and designing for the long-term feels contradictory, right?
If you’re thinking too long term, then you can end up in an endless design cycle. But if you think too short term, you may end up choosing a solution that can’t scale with you and you’ll end up doing a re-implementation down the road.
Let me talk about a couple of technical points.
First, I think it’s important to get all the right stakeholders in the room sooner than later. Sales and Product have a tremendous impact on billing solutions, finance, and accounting processes. Get them engaged and understand their needs early on.
Something that can be challenging is that finance and accounting don’t always know what’s coming down the pipeline, which increases the complexity of their processes. It’s important to make sure that everyone is aligned.
Second, choose the right solutions. Choose the right solution that can adapt to your business. It's important to adapt to your ongoing business needs.
How can technology impact the time-to-value? With automation, how do you ensure you’re creating the right solution to stop the problem of data silos?
Steve: Building is not the way to go. And unfortunately, I made that mistake.
When you consider building your subscription billing platform, there are so many things that you need to take into account that you don't know at the front-end. It just ends up building and building deeper and deeper as you continue.
It starts as, “Okay, I need to create a frictionless billing and payments experience to make it easy for the customer.”
But then, it needs to be built so that we can adjust to an ad hoc pricing model so that our marketing and sales department can run promotions. Now we want to go international so we need now added multi-currency support.
Wait a minute -- this other thing came up with varying privacy security compliance considerations. Then we need to have a method for detecting fraud. Jeez, never really thought about that one.
Then you need to think about who's going to build this billing payment platform? You might think, “We have bright and intelligent engineers. Let's have them work on it.” But you're taking them away from the product development work, so that doesn't work.
If you decide to outsource then you're dependent upon a vendor. But now you need to go to them every time you need upgrades or enhancements.
All of a sudden, this project drags out for months when you could have been up and running in weeks. Your finance team is suffering through all of this. Your engineering team is unhappy writing code for back-office software instead of customer-facing products. So all I can say is in short, building your billing platform is a losing proposition.
What's the breakdown of how much an internal build would cost. Especially as you think about ROI when deciding to build versus buy?
Ray: It rarely makes financial sense to build any kind of back-office software. Product and engineering resources are some of the most expensive resources at your organization. They should always be focused on products and core software that is going to influence customers and make their experiences better.
As Steve said, you don't think about all the downstream impacts when you start that initial build. I feel like there's a tremendous amount of hidden costs that you don't even think about in the initial build vs. buy scenario.
You also need to think about the decision from a time perspective. You'll need part-time finance and accounting resources to give feedback on the initial build.
There are rarely fewer than two full-time engineers dedicated to any kind of internal build and a safer assumption is around 5 to 10. You’ll also have to have a part-time product manager. From time to deploy, I would say anything they quote, just double it.
Steve: The only thing that I would add is just to keep in mind this is going to be an ongoing project. This is not a one-and-done.
You're going to put this huge amount of effort upfront, but then again, there are all the downstream impacts. Every time compliance changes or you talk about expanding into a different country or add in a new currency. As your business grows and grows, do you want to take that on as a project or would you rather go with a vendor that has a tremendous background and history doing that exact thing? how