Financial Planning and Budgeting in a Downturn, with Ramp and Vanta

Summary

Riya Grover, Sequence CEO: “This was a great conversation with finance leaders at the helm of two of the fastest growing scale-ups in the US, Ramp and Vanta. The conversation covers how the current environment has made these Finance leaders think differently about managing cash and trading short-term profitability with investing for long-term growth. The conversion highlighted the importance of data-driven decision-making on where to invest dollars, how CFOs should communicate within their organisations, and ways of achieving a more financially disciplined operating culture. We also hear snippets from their personal career journeys, what motivated them to take these roles and how they think about driving excellence in their organisations.”

TLDR

• Emphasis on Data Analysis: Both Alex and David stress the importance of data-driven decision-making when deciding how to allocate spend and where to invest in growth. For instance, Vanta pulled back on ineffective LinkedIn advertising, focusing instead on investments yielding positive returns. This approach requires a close look at customer acquisition costs (CACs), sales funnel efficiency, customer retention rates and the burn ratio, adjusting strategies based on what the data reveals. “We have a high velocity, large transaction volume business. We're adding many, many hundreds of new customers every single quarter. And so there's a lot of data to analyze. We break it down into every part of the Salesforce stage funnel. We're looking constantly at our CACs to understand what our costs are across various marketing channels. And we try to really funnel money into the things that are working for us. We also look at other typical SaaS metrics like the magic number to understand how our sales and marketing spend is translating to net new ARR to the business. And of course, we have to look at our gross retention, net retention, because it's not enough to just bring in a customer into our business, but we wanna make sure that we have a path to expanding.”
• Growth-Oriented Mindset: Despite the economic downturn, the companies focus on controlled growth and expansion into new markets. David, for example, highlights the importance of expanding Vanta’s total addressable market (TAM) beyond its core competency in automated compliance into new segments such as vendor risk management and trust centers.
• Top Down Analysis: David talks about the importance of supplementing bottoms-up with top-down analysis. Examining the financial metrics and spending patterns of similar companies at comparable stages, and paying close attention to spending on Research & Development (R&D), Sales & Marketing (S&M), and General & Administrative (G&A) expenses as a percentage of revenue. Based on these comparisons, they set benchmarks or "guardrails" for their spending in different areas, ensuring that their investment levels in R&D, S&M, and G&A are aligned with their growth rate and industry standards.
• Cutting Discretionary Spend: Both leaders share strategies for cutting discretionary spend without stifling growth. This includes cutting back on the number of SaaS vendors, optimizing the use of existing tools, hiring a procurement leader and introducing a "dollar in, dollar out" policy.
• Accountability reviews: David articulates the principle "you can't save your way to growth" which highlights the importance of strategic investment over mere cost-cutting. This approach includes rigorous data analysis and ROI assessment of every expense, aligning with the philosophy of continuous investment in proven strategies. Furthermore, Vanta has implemented an accountability review process, allowing any team member to propose new initiatives for funding. These proposals undergo thorough evaluation to ensure they align with the company's growth objectives and have a clear, measurable impact.
• Forecasting and Reforecasting: Alex details the process of constructing an annual plan at Ramp, emphasizing the collaborative effort involving board approval and cross-functional team buy-in. This plan undergoes monthly performance evaluations and variance analyses to assess and adjust the company's direction as needed. Additionally, certain teams, like the SDR and marketing departments, engage in even more frequent re-forecasting and adjustments based on real-time data, illustrating a dynamic and responsive approach to financial planning and execution.
• Building a finance team : Alex has expanded the finance team from 1 to 22 members, dividing it evenly between strategic finance (focusing on FP&A, operating budgets, planning, and forecasting) and core finance (covering accounting, financial operations, payroll, procurement, corporate treasury, and capital markets). Initially prioritizing generalists with high adaptability, the hiring strategy has evolved to favor specialists with expertise in specific areas like securitization, revenue recognition, or enterprise SaaS. Additionally, with the shift to a hybrid work environment, strong communication skills have become crucial, emphasizing the need for clear, structured communication across the organization to maintain documentation standards and foster a cohesive written culture.
• Communication to Employees: David talks about the ways in which his communication to employees, as CFO, has expanded and adapted in the current economic environment. Offering employees a broader understanding of market dynamics helps them appreciate the strategic direction of the company and their role in its success. “So we try to give a lot more market context to how Vanta is performing. We have this thing called the CFO corner at all hands every single month, where I take 10 to 15 minutes to explain what's going on in the market .For example, 40 % of the world's population is going to the polls this year. And 80 % of the world's market cap is going to the polls this year. So there's gonna be a lot of volatility and that has an impact on the overall business. And so what we say at Vanta is be macro aware, but micro focused.”
• M&A: Alex and David acknowledge the complexities of M&A, emphasizing that their companies, while not focused on a broad M&A strategy, have engaged in acquisitions as opportunities to integrate extraordinary talent into the business. Both leaders see the value in acquiring companies not just for expansion but for the skilled teams they bring, suggesting a cautious yet opportunistic approach to M&A.