A CFO’s Best Advice for Budgeting Amid Macro Uncertainty

For founders and CEOs who haven’t yet led through sustained periods of economic uncertainty, anticipating common pitfalls can pave the way for better decision-making.

I first got to know Bruce Felt in late 2006 when he joined, SuccessFactors, as the chief financial officer. About a year later, Bruce took the company public—just in time to face the Global Financial Crisis and see SuccessFactors’ stock plunge from $15 per share down to a low of about $4.

SuccessFactors weathered that economic crisis, ultimately turning things around and selling to SAP for $3.4 billion (or about $40 per share) in early 2012. Bruce is now the CFO at Domo, a cloud-based business management platform that went public in 2018. Though he plans to retire from Domo this year, Bruce is leading the company through various scenarios around budgeting.

So what do founders, CEOs, and other leaders actually need to know about architecting and planning the budgeting process in times of turmoil?

Here are some of Bruce’s top budgeting tips based on lessons learned the hard way:

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Focus on preserving cash

If you haven’t already adjusted your mindset, pivot from planning around growth to planning around cash preservation. “You’ve got to buy the time to live through this,” Bruce says. “Investors will understand that you made the trade-off [of growth] to protect cash.”

For small businesses with limited cash, cash flow matters the most; for bigger businesses with more resources, Bruce says, it’s all about operating margin.

• Aim to have at least 18 months of cash in the bank—ideally 24 months if you can make it work—and a fully funded business plan.
  Rethink your annual plan: Bruce relies on “a live model” that allows “making a call as often as we need to. We can adjust it every day if we need to.”
• As an experienced operator who sits on both public and private boards and who also invests in venture funds, Bruce is currently modeling about 10 different scenarios for Domo with one constant: keeping the company’s operating margin positive.

“Committing to this operating margin under any condition means if the top line gets softer, we’d have to cut expenses more,” Bruce says. “Pick a number that you can live with, that your board can live with, that derisks the future where you don’t need to get more financing—that’s the holy grail. Grow as much as you can, but the constraint is that cash burn number.”

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Align stakeholders around a constant metric

To secure buy-in from the rest of your leadership team, Bruce suggests a two-pronged strategy:

1. Sharing critical info: From what investors are saying to what analysts are writing, proactively paint a picture of the macro environment for your key stakeholders.
2. Executing: Just as a football team may have 50 plays that it plans to run going into a game, Bruce rallies the whole management team around a base plan with many different scenarios. If actual results begin to diverge from the base plan, the company is able to quickly shift to a different scenario without missing a beat.
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“Scenario X is what we’re going for,” Bruce explains. “Scenario Y is how we’re going to manage expenses.” This spreadsheet of multiple scenarios analyzes what’s going on in the business and “gets the whole management team on the same page to make rapid-fire decisions, which is really what you need to do in this environment.”

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Know what other KPIs to track

As a founder or CEO, you’ll encounter a lot of “noisy data and non-patterns,” Bruce warns. “But you have to spend the time to understand [the data] so you can make the call on what it means to the business and how it’s going to play out.”

Consider monitoring:

• Gross renewal rate: Engage customers in candid conversations at least six months ahead of the renewal date. Pay close attention to downsells—“if a $50K customer now wants to renew at $47K, that matters a lot in this environment,” Bruce says. “That’s like a non-renewal of a smaller customer.” For forecasting, Bruce recommends taking off 5 points as a “good starting assumption—then test the heck out of it.” For example, if you’ve been producing 90% gross renewal in past years, expect 85% this year.
• Pipeline creation: Verify if the top of your company’s marketing funnel is still healthy.
• Sales rep productivity: How many reps do you have? How ramped are they? What do you know about their tenure and expected performance versus actual
• Product-market fit: Consider creating a framework for advancements in product that separates nice-to-haves from must-haves. Will you lose renewals because you don’t release a feature? Based on his experience of selling to enterprise companies, Bruce offers some cautionary advice: “Just because a customer bought your product does not mean that you have PMF … It could be that your sales team has done a good job selling but the customer isn’t using the product fully, making renewals and additional sales difficult. Our product marketing people (instead of just sales) need to be on top of this to figure that out.”
• Frontline intelligence: “What are your reps hearing? Have annual payments become quarterly? For deal cycles, what is the customer saying? What terms are they asking for?” To understand what’s truly going on in the account, consider looking at levers like activity, usage, and unused licenses.
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Get input, but make the call

For founders and CEOs facing tough choices, it can help to draw on others’ experience.

Whether it’s a board member, CFO, or another trusted leader, “get as many people who have seen this movie around the table … Get their input just so you can see the mosaic, the full story of what’s probably coming at us,” Bruce says.

But for the hardest decisions, Bruce recommends that you avoid trying to get consensus. Instead, seek the right input to help you make the best decision.

Tough calls may include implementing layoffs, Bruce says, but “what we’re trying to do now is if we stick to this discipline of locking into this number and giving up growth, we won’t have to face another cut no matter what is happening in the market.”

Remember: “The market has crashed 70%-80%. That's just the way it is. We didn't make that happen. It happened. Your performance didn't make it happen. The market did it to you … Listen to your best adviser, and get input so you have the confidence to tell the people to do what you need to do.”

While no one knows for sure what’s around the bend, history does have a way of repeating itself.

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