By Lea Boreland, Head of Finance · May 11, 2022
What got me interested in finance was the idea of making a business — a rapidly-growing, constantly-changing start-up that believes in an improbable story — legible to itself.
In finance, each month, you produce numbers that should tell you the reality of what’s happening in a business: how quickly you’re growing, how much money you’re spending, how much cash you have. And, further up the stack: how your sales team is doing, how happy your customers are.
Legibility is about that inevitable moment where the truth breaks the seams of the story. Sometimes, you are a customer-centric company with customers who dislike elements of your product. Sometimes, the value proposition you think is awesome actually doesn’t matter to anyone. Sometimes, you think you’re doing well but you aren’t, and sometimes, you’re doing better than you ever thought.
In those moments, what is the process for reconciling the story with the truth? Because if a business does not understand the truth, it will either get lucky or it will die.
At Column, we are here to build a business. While starting a company is about believing in an improbable story, building a business is the process of adapting the story to reality. Our focus has always been on being worthy of trust, driven by a deep focus on serving our partners. As a venture-backed company, we are setting out to build a company of consequence and to that end, we believe in incorporating financial discipline into the fabric of how we operate.
Here are a few ways we keep our eye on the horizon line:
A deep understanding of unit economics. While the profit and loss (P&L) statement shows aggregate costs and revenues over a period of time, unit economics are a grouping of the costs versus the gross profits associated with a single customer over time. Tracking and understanding these figures is not anything new, but it is the heartbeat input-output relationship of a business unit. This is especially true for software companies, which need this per-unit orientation of a P&L to truly understand inputs versus outputs and profitability over longer spans, due to their recurring revenue and large investment into intangible assets. We treat unit economics as our fundamental horizon line — core business Key Performance Indicators (KPIs) that we track, dissect, evangelize, forecast, and set our goals around.
Rigorous, conservative cost classification. Accounting standards do not provide strict guidance on how to classify operating expenses versus direct expenses, or costs of goods sold (COGS). As a result, there is a temptation — especially for software companies — to push minor direct expenses below the gross profit line, or skim headcount expenses from the sales and marketing figure that funnel into unit economics. This improves figures at a cosmetic reporting level, but in the long term, the costs are real. We have no interest in wearing rose-colored glasses. We want to paint the most accurate, even conservative picture of our business to know exactly where to improve.
A path to profitability and the creation of scarcity. Our planning process occurs with an eye on a path to profitability and is designed to drive focus through clarity and scarcity. We evaluate our use-of-funds plan monthly in an agile, two-day budgeting process that brings together performance analysis, forecasting, and capital allocation. We aim for short feedback loops as we interrogate our current pipeline, forecast our future growth, evaluate how we're tracking goals, and rank order needs and opportunities to decide how to allocate capital. Outside of agile budgeting, experiments are green-lit via a transparent process but are evaluated in relation to clear hurdle rates.
As-short-as-possible data feedback loops. Accounting is usually a retrospective process. Something that happens midway through one month takes until partway through the next month, when the books are closed, to verify and react to. We’ve focused on building strong engineering and data foundations that are tightly integrated with our product and give us daily, granular visibility into our revenue and expenditures. This helps us keep our ears to the ground so we can read and react to our environment easily.
Finally, a focus on doing the work that matters most. This is the work that moves a company forward as opposed to running in place. Financials are important (and, for some, fun), but they are an emergent result of the real work. We keep the emphasis there, underpinning the work that our Sales, Support, Product, and Engineering teams do every day to serve our customers.
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