SaaS Finance Fundamentals with Anthony Nitsos

Josh
 Good day, fellow dealmakers. Welcome to the deal scout on today's show. We're going to have a conversation with the SAS guru, Mr. Anthony, welcome to the show. 

 Anthony
 Thank you, Josh. Really appreciate it. 

 Josh
 Yeah. So, if you're meeting someone for coffee and they go SAS guru, what the heck is that? Like, how do you even start to explain what that is? 

 Anthony
 Well, what a software company has, right? 

 Josh
 Yes, I do. I. 

 Anthony
 Mean, we all have like Microsoft or we've got G suite or whatever it happens to be. I said, well, when you pay for that, it's a subscription and SAS is just a fancy way of saying software subscription. The companies that do software subscriptions, that's what I specialize in. I specialize on the finance side of things. 

 Josh
 Okay. Got it. Give us an idea on what kind of SAS companies do you like working with because working on the finance side, so what kind of companies do you like working with and, specifically, like what companies would you not like working with? 

 Anthony
 I don't really draw a line. I work primarily just because of, how things have fallen out, primarily B to B business, to business SAS companies. I do have B to C companies and we also have companies that are not SAS, but they're recurring revenue company. Memberships, like, for example, if you have a membership, we'll say with a professional organization, so that's also a kind of recurring revenue, but we don't call it SAS. So really anything. I work with companies in cybersecurity, health tech, augmented reality, FinTech, it really runs the gamut. 

 Josh
 Got it. You can work with a Microsoft all the way to, I want to build a membership site out for my, personal training, whatever. Right. 

 Anthony
 Whatever it happens to be. Exactly. 

 Josh
 Copy that. All right. Getting into this, how did you one day wake up and you're like, I'm going to be the software guy. I'm going to be the SAS guru. Like how did, how does one become the Saskia Ru. 

 Anthony
 It was a dark and rainy night in an alley now. 

 Josh
 I've touched Batman started. Why not? That's. 

 Anthony
 Yeah. And of course he was an orphan at the time. We don't want to talk about that. My first SAS client was actually back in 2007 before the term was even really that widely used. It was here actually in Michigan of all strange places. You'd think of, like Silicon valley being the leading cutting edge. There's a lot of activity in SAS, in Michigan, in particular in Ann, in Detroit. I started with SAS back in 2007. I've been doing the fractional CFO type of work probably since probably 16, 17 years now, before that I had, real jobs. Now I have my own company and it wasn't something that I just happened to wake up one day and say, I'm going to do SAS. It was when I started, most of our clients were in manufacturing as being Michigan and automotive in particular, but with all the various shocks and financial crises and whatnot, eventually they fell to the wayside. 

 Anthony
 And I said, you know what? Software is a longer-term play for us. I began to move more and more into that space until now we are exclusively SAS and that's all we do. 

 Josh
 Got it. I love the idea of this is all we do, right? Like you're the guru. To be a guru, you have to say no to other things when it comes to deals. Right. SAS is your only focus, what kind of deals are tempting for you to kind of explore, right? Because as an entrepreneur, for me, shiny syndrome, like I'm always seeing opportunity, but for you to say, this is all we focus on. Like if there was something that would distract you, what would it be. 

 Anthony
 If you offered me a position with NASA that might distract me. 

 Josh
 Yeah. You want to go to the moon, right? Yeah. 

 Anthony
 Being a rocket scientist was always one of those things that was a dream of mine, but never materialized. But other than that, no. I mean, there's so much exciting stuff going on in software. When you think about, artificial intelligence and machine learning, augmented reality, that there's a lot of cutting edge stuff out there. I like being on the edge of things, not, following along and software is also something that's becoming more and more say recession proof or recession resistant. It's not like, goods and goods, tangible goods tend to go up and down. We all are aware of these issues right now in our economy. Software seems to fairly insulated from that, depending on what market they're in. 

 Josh
 Yeah. Copy that. What were you doing prior to 2007 when you kind of landed into software as a service? Were you working your way towards becoming a NASA astronaut or something? 

 Anthony
 No, actually I, if I have this kind of strange past, I was originally a medical student at the university of Michigan and I got into about the first or second year of the actual medical school program. It's like, okay, this is not for me. I, this was a mistake. I do not want to be a doctor when you take a look at how hard those people have to work to study and become doctors. I'm like, I just, I don't really want to do it. I'm not, I'm not into it. So, what do you do with a partial medical degree when you're dropping out of school? Well, in this case here, manufacturing was the next thing. Cause there was just a lot of manufacturing there in the time and they both started with M so I figured why not? The funny thing is that when I got into manufacturing, I realized that it was really no different than medicine in that you're dealing with highly complex interrelated systems that all have to be functioning at an optimal level in order to achieve, maximal health, if you were, and I've never really gotten away from that caregiver type of attitude towards fixing problems. 

 Anthony
 Also, one of the things that was trained into us was don't treat symptoms, try and find your root causes. That translated also very easily into manufacturing. I, they first hired me, it's like, well, we think we got a good spot for you. You immediately, what started happening was they would have these really intractable problems either in the supply chain or something. They'd say here, let's give it to Anthony and see if he can fix it. I would, and I'd go on to the next and the next. Eventually I became a, at the time was a six Sigma black belt process. Re-engineer I worked for the Japanese for a while, actually speak the language. I was able to, incorporate a lot of the quality assurance and total quality management techniques that they teach you in manufacturing. When I got into a full blown accounting job, which my first accounting job was as a controller of a Japanese manufacturing plant here in Michigan, I was given basically a 70,000 square foot empty building. 

 Anthony
 I was told you have responsibility for every electron that does not drive a manufacturing machine, make sure that you have the three people that you have right now to run your back office or the same three people. When we multiply our revenue times 10. We had a $5 million company, a brand new space. We had contracts that were going to grow as to 50 million in the next three years. My mission was to design all of the finance accounting information systems, the whole nine yards to scale it. And I did it in the end. We had the same three people working in the back office that we did in the beginning. I automated the living daylights out of everything. We had, everything that we needed at our fingertips. 

 Josh
 Super cool. Now that was a great accomplishment. The thing that really stood out in my mind is you speak Japanese. I need your help for a second. I'm putting you on the spot because in your best Japanese radio voice, could you say like welcome to the deal scout a show, all about deals in Japanese or something like that. 

 Anthony
 That's about it right now. Good morning. 

 Josh
 I've. 

 Anthony
 Got, I'm learning Mandarin in Greek right now. Those, every time I try to speak Japanese, I think those languages are going to try and come out. 

 Josh
 Yeah, it's all Greek to me. What, why Greek though? 

 Anthony
 My father was from Greece, my late father. He passed away a long time ago and it was one of those things that I wish he had taught us kids Greek when were kids. So, one day just out of the blue, I said, what? I was reading an article about Duolingo, right? Yeah, yeah. I'm like, huh, why shouldn't I give that a try? I downloaded the app and I signed up for it and I paid for the premium and I've been learning Greek ever since. And it's fun. I'm basically spend 15 minutes, half an hour every night just learning Greek. 

 Josh
 They happened to be a software company. Are they one of your clients to, 

 Anthony
 No, they're not. They're publicly traded. They're out of my range at this point. 

 Josh
 Copy that. All right. You started, well, you know, why not? I'm going to medical school, maybe the sight of blood or man too much studying what's next in the, glossary O M also manufacturing. You move over to metal manufacturing and you kind of start an operations, right. Six Sigma, and you're in your process improvement. You built in, scaled it out. You moved into accounting like that. Natural progression. How long did that take you in your career to figure out like accounting and finance is actually my sweet spot. 

 Anthony
 There was a step in between that. I kind of glossed over, which is I went from medicine to manufacturing and then from manufacturing, I went into ERP installations. 

 Josh
 So. 

 Anthony
 This is back before this was in the late nineties when everybody was panicking, that when the year 2000 would come along, they would, their code would blow up the whole Y2K scare. Right? Everybody and their brother and sister was out there buying ERP systems. There's this tremendous demand for folks that knew manufacturing. They knew information. They and I also had been accumulating some accounting shops on the side because one of the things that I had learned was that there's a lot of information in accounting that is really useful to the organization. You really need to know the numbers side of the organization. To me, it was like the nervous system of the body was the accounting and information system of the organization. Because without that, you don't know where you are, you don't know where you're going. They hired me in to do ERP implementations and immediately put me as a director because I actually knew a few things about manufacturing and accounting. 

 Anthony
 That went on for a few years. I did that with a company called TRW. You may have heard of them in their it division. Right around the year, 1999, weren't all out there partying. Like prince would like us to do what was happening was that if you had not purchased your ERP, implementation your ERP project by then, because back then you had to do this on premise. There was no SAS, okay. This was all on premise hardware and software. If you hadn't bought your two and a half to $5 million worth of servers and your very expensive ERP system and started your implementation, you were hosed okay. You by the time, cause it takes a year and a half at least to implement these things back then it did. What was happening was the sales were starting to fall off. The new business was starting to fall off a cliff in 1999. 

 Anthony
 By the end of 1999, about the fourth quarter, we had no business. There was no cars. Everybody had either bought their ERP and was already on the way to implementation. Or they were heads down trying to fix their internal code. Nobody was buying new software. Seeing the handwriting on the wall, it's like, okay, this isn't going to last long. You can't have a practice of a whole bunch of people. And you know, the layoffs started. I started looking for a job, another job. I got this job as a controller for a Japanese company that had an American company that had just been acquired by the Japanese and the American head. The president of the company did not want the Japanese to come in and run the finance. He wanted an American to come in and run the finance. He did a quick move and hired somebody. 

 Anthony
 It happened to be me and he, cause he knew they were going to scale. He said, even though I had no, I was not a CPA. I was a CMA actually at the time. I didn't have any hands-on experience with accounting. My, I had never had an accounting job in my life. They hired me in as the controller anyway. The first I would say three months of that job, I don't think I slept because I was in total panic mode. Like I was going to screw something up. It's like, okay, I need to learn how to be a controller. I went and got books and studied and learned how to be a controller. And so that's how that transition works. It was medicine to manufacturing, to ERP, to controller. Then that lasted for about five years. Once we had things all dialed up, there really wasn't much left to do. 

 Anthony
 I mean, once your systems are all set up and going, honestly, if I had a day, a week of real work, that was a busy week. Yeah. It was just, I had dialed it in so well that I spent most of my time reading the wall street journal and walking around in the shop floor, trying to find things that weren't working. Right. Having long coffees and whatnot, but I was bored and I felt like I wasn't growing, there was nothing, I could still be in this job today if I wanted it, but I didn't. I said, all right, what's the next fun thing. After accounting, the next fun thing with numbers is finance and finances. A lot more interesting and than accounting because it's forward looking, it's anticipatory, it's predictive, it's strategic in nature. Accounting is, I'm sorry if there are any accountants out there, I apologize. 

 Anthony
 I am a CPA. I'm a recovering CPA. As I like to tell folks, it's historical, it's looking in the rear view mirror of your car at what's already happened. While that's incredibly useful and you do need that information it's to me is not nearly as exciting as finance. I packed my bags and got went, took a year and a half off and went and got a finance degree, masters of finance degree. 

 Josh
 It took a year and a half off. That's awesome. Going back to school, how old were you when you are going back to school? 

 Anthony
 Gee, that would have been, gosh, I have to think about that late thirties. 

 Josh
 Okay. What, what was your, what was going through your head? You're, talking to friends or family and you're like, what, I'm going to take a year off. I'm going to go back to school. What, what were, what was the conversation like there. 

 Anthony
 You are out of your mind, you are nuts. What do you think? You got, you got this great six-figure job. You don't have to do it. What are you crazy? There was one, a very close friend of mine. She said, if that's where your heart is leading you, then that's where you need to go. 

 Josh
 Wow. 

 Anthony
 I'm like, that's, I I'm, I didn't really, I heard all the conversations and it's like, well, this isn't the first time that I've done something that everybody thought I was nuts about, which was quitting medical school. It's not like I haven't been through this merry-go-round before. So, I'd already like, all right, well I've made the decision and I've never looked back. It was a great decision because when I came back, instead of getting into a salary job, I hooked up with a guy who was already doing fractional, call it controller work and whatnot. And he needed a partner. He needed cause he had more business than he knew what to do with. That's basically 2006 that's when I started doing the full blown, fractional CFO controller work and have been doing it for the most part since then with a couple of salary jobs during that period where I had to work for a couple of unicorns here in Ann Arbor. 

 Josh
 Yeah. All right. Finance, I liked the way you described that finances, future thinking forward a strategic and accounting is kind of looking historically backwards and you prefer, just preference you prefer focusing on that and coming in as a fractional guy, focus on finance and controlling CFO, what would if you're, if I have a SAS company in that and I need to bring you in, what kind of problem do I have that I pick up the phone book, like when they had phone books back in the day and they say, I need this help. Like what kind of problem would I have where I would reach out to you? 

 Anthony
 It really kind of falls into two categories. We have what I call the first time, founder, CEO, and then the repeat founder CEO in the case of the first founder, first time founders, CEO, where they really start to feel the pain points are, they get started. Somebody sets them up on QuickBooks, usually their tax CPA or the CPA they've been dealing with. Cause Hey, I need to start tracking, my cash and my accounting and whatnot. The CPA sets up the accounting system, but it's set up for tax. It's not really set up to run the business. And those are two very different worlds. If you think accounting itself has a breakdown between, financial accounting and tax accounting tax does not look at the world in any. It looks at the world in a very strange way, which is why I don't do tax, but they have things set up in a way that makes it easy to do the tax returns. 

 Anthony
 And so for awhile, that's okay. You can start off with that. You're basically managing by your bank account. How much cash do I have in, right now, do I have enough cash to run through the next few payrolls? When you're first starting out as the CEO, founder, you're the chief cook and bottle washer, you're doing it all, making sure the accounts take care of the numbers, but sooner or later, you're going to come to a point where you need SAS metrics and you need SAS financial statements and you need numbers that says investors are going to want to see when they are looking at you and due diligence and looking whether to invest in you or not. Or your board is asking for numbers and you're standing there saying, well, I'm yeah, I'll get those. You don't know how and your tax CPA can't help you out because they don't know how. 

 Anthony
 Usually there's a pain point that's reached where the founder's like, I need these numbers and I'm tired of not having them and more important. I need to know how my business is really performing as a SAS company, not just as a company. And so they need that information. It's usually when we are brought in, when they find us. The first thing we have to do is fix a bunch of stuff that was done, set up incorrectly and fix some historicals and set up a lot of systems that they're going to need. Because of my six Sigma background and my process re-engineering background, I like to brag. I'm the laziest CFO you'll ever meet because I don't like crunching numbers. I like numbers being crunched for me. I want all my numbers coming to me with pushes of buttons, not with people with green bar paper and I shades having to sit down there and crunch numbers. 

 Anthony
 It's a complete total waste of time and money. That's what we call NVA. Non-value added activity when it comes to that. There are so many tools available to you now to automate your accounting and back office functions that you really should just have somebody come in and set all that up. That's the first time founder, they get to a pain point where they, they know they need better numbers than they have the repeat CEO or founder. Who's done this more than once. They already have been through that ringer. They're just looking for somebody now who really understands size, speaks the language, understands it and can provide, that financial strategy in addition to, the numbers side of things. And that's pretty much the two buckets. The other bucket that we're finding is that there are a lot of controllers out there who are all of a sudden, they need to know SAS. 

 Anthony
 Maybe they're hired into a company because of their experience, but it's a software company. Maybe they come from a retail background or maybe they come from a medical device background or something and they just don't know SAS. They need somebody to come in and teach them how to do it. Those are kind of the three buckets that we tend to find as clients. 

 Josh
 All right. When you work with the company, you get the first time founder where you're coming in and you're fixing stuff and you're fixing, educating, set up system and process. The, you have the repeat right. Who come in and it's just like, all right, come back. We did this for us last time, come back, do it again, just throws you right to work. You have groups where they have the internal CFO, but they need to be educated and you walk them through how to do it right out of those three. Which one are your, which is your favorite to work with? 

 Anthony
 Probably the repeat founder. Yeah, because they're, they are, they know what we, they already know conceptually what it is that we're going to do. They just hand it over to us and stand back and let us fix it. That's not to say that I don't really enjoy working with the first time founders because those, in some ways, bluntly, they're less jaded and it's still exciting to them. It's not like, gee, I've been through this. I'm going to do it again. They, whatever it happens to be. It's really, I guess it's hard to say that I prefer one over the other because each has their own attraction. The one is here. I know what you need to do. Go take care of it for me. The other was, show me that, what you're doing and teach me how to do it too. I love teaching and going to, that's just an internal thing that I love doing. 

 Anthony
 I love educating people. I love teaching them. I love watching those light bulbs pop off when there's like, oh, that's what that is. 

 Josh
 That's what it is. 

 Anthony
 Almost every time we come in, there's always those aha moments where somebody says, I had no idea that's what was going on. I had no idea were wasting money on that. Or I had no idea were doing that well, but what we mainly do first, what accounting does is it's a great big illuminator. It's like the electron microscope of the business world. You really gives you the very fine detail information. You can draw back up at a higher to get the bigger picture of where is the company right now and where has it been and taking that information and then turning it into forward-looking financial statements and projections that kind of starts where you're bridging into the finance world. You're adding on things like how, what's our pre money valuation. When we go into this round, how much dilution do we want? How much money are we going to do take in of that cash? 

 Anthony
 What are we going to do with it? You get into a lot of organizational planning and, planning forward in terms of how we're going to achieve scale. In the background, what are the systems that we need to put into place so that we don't choke on our own success? 

 Josh
 What do you mean? Okay, what do you mean by choking on your own success? What does that mean? 

 Anthony
 What that means is that you get caught flat footed by volume. Let's say you're running transactions right now. Let's say your sales order system right now is working fine. You're doing five to 10 deals a month. You know, things are working. Okay. All of a sudden you reach that hockey stick point. Instead of five to 10 deals a month, now it's 10 to 20 to 30, 30 to 40 to 50. That system that worked fine for five to 10 is completely inappropriate for 50 to a hundred. It just doesn't work. It was originally a manual system. That's when things really start to choke. You either have to throw bodies at it, which drives up your back office costs or your sales ops cost. That's usually where we see the pain points also in scaling. I've done this more than a few times is when companies start off what they typically start off with in the back office and in their operations areas, what I call a tech pile, right? 

 Anthony
 So, oh, we need an accounting system. Okay. Let's go grab QuickBooks. We need a payroll system. Let's go grab Gusto. We need a CRM. Let's go grab a HubSpot. We need, we need a CSM. Let's go get onboard. We need a budgeting tool. Okay, let's go download something from the internet. What you have is you have, four or five systems, not a single one of which talks to the other or integrates with the other. You're asked the question, how many customers do we have a very basic one? Well, HubSpot says, one thing onboard, says another and accounting says a third. Oh, by the way, we call it the say, university of Michigan here. Over here, we call it the uni V dot of EMI. Over here, we call it U of M and it's like, I have three different names all for the same customer. 

 Anthony
 And so it's that kind of grit. I call it grit, sand in the machine that really clogs things up when you try to scale, because what you should be doing is from the beginning is designing these systems with a plan in mind to say, okay, this is our accounting system. We're going to set it up this way. We're going to name customers this particular way. When we add a CRM, we're going set up the same products that we have in accounting, the same nail nomenclature of naming customers, the same way. Now we're going to add other information to it, but we want that information to come into the CRM first and then get exported to QuickBooks, not where I have to put in two at the same time. Instead of entering that data twice, I'm entering it once. If you add a CPQ, which is a quoting machine on top of it, same thing, you want everything harmonized. 

 Anthony
 This is where we really Excel with our clients is to say, okay, look, you have this tech pile. We're going to turn it into a tech stack. We're going to turn it into a tech stack by harmonizing and rationalizing the data sets across all of them and integrating them. They're talking to each other so that you end up with single point of data entry rather than multiple. You prevent errors in data entry at the beginning, rather than running a bunch of reports to try and find them afterwards. We use Deming's, hierarchy of prevention versus detection versus correction. When it comes to internal controls, we use the Japanese technique for whoever owns the data. Whoever owns the product, the creation of the product is the best person in charge of its quality in accounting and finance, whoever owns the data is in the best position for ensuring its quality and just keep using these techniques over and over again. 

 Josh
 I got it. There's a big difference from someone who has SAS experienced CFO versus someone who might have manufacturing, CFO, and the, the details of the things that you're like a surgeon, a heart surgeon versus a brain surgeon. Having that specialization allows you to come in and see what systems should even be there, how to do that. And, and from the finance, you have the ability to kind of look at the whole project and say, this is what other people are using. This is what you should have, right? Your tech stack and all that. Yep. You're talking to a first-time founder, what is one of the biggest mindset shifts that they have to overcome, or, to work with a group like yours? Like what for them, versus, Hey, I can figure this out on my own versus all right. We really need to Anthony. 

 Anthony
 It's exactly what you just said. They have to come to the realization that they don't know how to do this, right. That this is a specialty. It's like any, when you're a CEO, when you're a first-time company, founder, you're starting out, you're doing literally everything, right? Because you can't afford to hire in, maybe you have limited capital resources, but you don't want to get into the trap where you're the no, at all right. In the beginning, you're running marketing, you're running sales, you're running delivery, you're running, finance, you're running it all right. Well, sooner or later, you gotta start taking those parts of you and giving them to other people who are really experts in how to run it. And it's usually follows that order. Usually you turn over marketing first because you need somebody to fill your pipeline. And then you're probably the lead salesperson. 

 Anthony
 Well, then you need to turn sales over to somebody else. So you can focus on delivery. You need to turn delivery over to somebody else so that you can focus on strategy. These numbers things almost always end up last, right? It's like, yeah, I'll get to that eventually. Well, what'll happen is no, it'll get to you eventually because sooner or later it's going to sneak up on you and you're going to need numbers that you don't have. 

 Josh
 Totally. 

 Anthony
 That's usually the point where the ball goes off and says, what really need somebody to come in here and fix it? The problem that I've seen too many times is that there are a lot of people out there who call themselves CFOs. What they are is really glorified accountants. They came from a controlling background or a controller background, or primarily an accounting background. There's this old saying, like, if the only tool you have in your toolbox is a hammer, all of your problems begin to resemble nails. It, it applies also when you are primarily an accountant and you're trying to do finance and accounting is great, but it's like we said, it's historical, it's backward looking. It's not looking at things like the most important metrics. What are the two most important metrics that every SAS CEO should have in their mind at all times? 

 Anthony
 What do you think? 

 Josh
 Yeah, it should be a lifetime value of the customer and the cost to get a customer. 

 Anthony
 Right. I would go even more basic than that. It's sales and cash. 

 Josh
 Okay. 

 Anthony
 Sales number one. Are your sales growing? Number two, do you have enough cash to make it to the next round? Right? Because without cash you're dead. Okay. It doesn't matter. You can't spend net income, you can't spend gap revenue, you can only spend cash. Cash forecasting is something that accounts are very typically, historically I found very uncomfortable doing they're great at reconciling bank accounts and finding out what happened to the cash. When you sit down and say, okay, I'm going to put together a cash forecast. The first part of the cash forecast is the sales forecast off of the sales forecast. I have to derive a collections forecast because those sales turn into accounts receivable, attorney into cash. That's number one, most important forecast that anybody has to do in my opinion. That's really kind of one of those moments where I sit down with first time founders and even second time founders and say, I'm wanting to really reorient your attention to these two metrics. 

 Anthony
 The other ones are important. We will get to those, but most important, where are your sales going? And how does that turn into receipts? Because you need that in addition to your investment money to run your company. If you don't have growth in sales a year metrics, aren't going to look great anyway, because you're not growing your, and if you run out of cash, all of your investors are going to be really upset at you for not telling them that you're about to run out of cash and that your company is going to shut down. I'm really huge on the cash and sales metrics above all else for these, for these startups, because it is really the most important. Those are the two most important. 

 Josh
 Yeah. Awesome. Awesome. When it comes to the work that you're doing is you mentioned investors, right? I'm a SAS company I'm doing okay. I come to you and I say, I need help. You say, Josh, I think you need to raise some money. I'm like, well, we're making money over here. We're maybe even we're profitable, but you look at something and you're like, I think you should raise money. What would be that if any, especially if I'm profitable, like what would be a scenario where you look at a business and say you should raise money? 

 Anthony
 Well, if you're where I would come in and say, you should raise money as well. First of all, most of the companies that were work with, the vast majority are not profitable. Okay? VC backed tech startups tend not to be profitable because they're really focused on scaling their sales. The most important inflection point I've found for when you really need to bring in and investment money is when you have finally decoded the DNA of the go to market. In other words, we know exactly where our co we know exactly who our ideal customer is. We know exactly what watering holes they go to get their information. We've dialed in what message that resonates with them and all we, and once we have them in house, we know how to close them, right? Once you have that figured out, you should go get a bunch of money, because that tells me, all you need to do is push money into that process in order to get sales out of it. 

 Anthony
 Yeah. And the rest of it follows along. You hire your developers to continue to enhance the product. You hire your support and delivery people to deliver the product, et cetera, on and on. It really is the most important struggle point that I see with the tech startups is that four step process of the go to market, do you really have your segmentation clearly identified as to who your ICP is? Your ideal customer profile is within that profile. Do you understand exactly who within that company is the person that you need to talk to the decision maker in order to get the sale? Do you have a message and a channel to get the message to them so that they respond and come to you? Once you have them in house, do you have a really solid close process in order to bring that sales opportunity to a closed contract status that I can't tell you how many times I continue to see the struggle in those? 

 Anthony
 And it's, it's hard. There's no magic involved in this. It's a lot of it's trial and error. A lot of it is instinct. A lot of it is just being really good at marketing. I am not going to tell you, I'm like the coach. I'm not going to go out there and play that game, but I can tell you when you're not playing it. Right. Okay. That one, right there is one where I'm constantly having to say, well, yeah, you can go out and get more money, but what are you going to do with it? How does this really help you grow the ARR? That's really the blunt question. How is this money bringing in the money that you're going to bring in? Because you're going to dilute yourself. I was just going to increase the value. The valuation is almost always increased by heavy growth in sales. 

 Josh
 One thing you mentioned. So that's that's great. You mentioned like the time to pump in money is when you figured out your S your sales engine, right? Your, your revenue engine, once you figured that out money in money out, right. What happens when people get money too soon, where they haven't had that figured out? I mean, that's a softball pitch for w what kind of scenarios does it make sense to raise money before and what could go wrong there? 

 Anthony
 Well, so that's your seed round, right? So you haven't gotten market traction yet. You've got an MVP, a minimum viable product. Maybe you have a few sales out there now you're going out getting your seed money. That seed money should be used to figure out what I just said. How do you get that go to market, really dialed in. If you're not using that seed money to primarily focus on how to grow the top line and decode the DNA of the sales process, then you're wasting it. What'll happen is you'll run out of cashflow. You start running out of cash and you won't have the market traction to show an investor for your, a round that you're ready for growth, 

 Josh
 Bigger money and bigger growth. Yeah. Yeah. Super awesome. The DNA of the sales process is that a part of the four step process, is that what you were mentioning. 

 Anthony
 That to me is that there's just the term that I use to describe the whole thing, which is that ICP, the, who, all that, who are, where they are, what the messaging is, and more, most important. Once you have them, you have to close them. Okay. If you have an incompetent sales team that can't close a door, then all that hard work goes to nothing. Right. So, you really gotta be able to, once you bring him in, you really got a land of the contract because in the end, that's your business. Right. It's like, yeah, we got all these leads. Okay. That's great. How many of them are converting into sales? Great kids. Okay. Well that tells me right there. We have a problem. 

 Josh
 You can't even close the door. So, one of the hardest things that I see founders struggle with, so they, they're quick to delegate out, okay, you take over this, you take over that. One of the things that I see, like a really stumbling block is when they to go, we need someone to take over sales because usually the CEO is the best, sales person, unless they're technical founder or whatever. Like, usually they're the hardest driving salesperson and letting go of that process, letting go of that responsibility. I see a lot of people struggle in that. Now, if they're a technical founder, they can't wait to get rid of that. Right. What's some advice do you have for that founder, who's just the best salesperson. Right. Nobody else could replace them because they're the best, right. 

 Anthony
 It starts with having a sales playbook. That actually makes sense. And I mean, that sincerely, okay. I can go out and sell what I'm doing with SAS gurus, for example. If I don't really clearly understand what the pain points are, what the value proposition is, how to phrase it in a way that's digestible by the prospect and how to get them across the finish line to the close. If I don't fully understand that in detail and can describe it in detail, how on earth am I going to bring a salesperson in who doesn't know my business that well, or maybe comes from a related business and have them hope to do this? Yes, if you're the CEO founder, and you're the great say in you're the best sales person in the organization, that, of course, as you pointed out, it's a major weakness, because if something happens to you, then the entire organization falls apart, but you need to be able to clone yourself. 

 Anthony
 The only way to do that is to have a very clearly established playbook. It doesn't have to be like this fancy written document that's tomes long, it was thousands and tens of, no, it doesn't have to be, it can be bullet points, but it has to be really clear where you can hand it over to a sales leader who understands it and says, okay, I get where this is coming from. I can use my experience. I know how to turn this into sales. That's my advice. 

 Josh
 Copy of that with all the companies that you're working on, getting them ready for sale. Right? So, a part of the growth is, maybe the CEO wants to move on and go do another business, be their repeat founder and hire in the future for other things. But, they come to you and they say, I'm ready to start thinking about selling this two years out or whatever the case may be. What are some things from your perspective that they should start doing or planning or preparing to get that to happen. 

 Anthony
 So there's two sides to that one. How in real estate they say location, location, right? 

 Josh
 Yeah. 

 Anthony
 In selling a company it's documentation, documentation, having your virtual data room set up and ready to go, where you have all of your major customer contracts, all of your major contracts, period, your sales forecasts, all of the information that a due diligence person is going to want to look at having that set up and ready to go is number one, number two, you have to have something worth selling. Okay. So yeah, you can pray. Tell me, you want to prepare for sale in two years. My first question is going to be, are you going to be salable in two years? Now, what that means is if you, as the CEO were, God forbid run over by a truck, will the company continue? Will it continue on the same trajectory? Because if you are the company, you don't have anything to sell. We outlawed slavery back in the 18 hundreds. 

 Anthony
 Okay. You can't sell yourself. You can't give yourself to the acquirer. I mean, that very bluntly you as the CEO and founder need to be able to step aside. Yeah, there's probably going to be a transition period of a year or two or something like that. Post-sale of course there always is. That has to be, the acquirer has to be comfortable in the knowledge that without you, they have something that's worth what they paid for. And then some, yeah. If you want to get ready for an exit in a couple of years, you have to make sure that a, you can be divorced from the company. There's still something to sell that you can clearly communicate that to the acquiring organization so that they understand, yes, you can leave. It's the wheels won't come off the bus as it were. Behind all of that, all of the documentation that you're going to need to provide them the comfort that it, what they're in fact buying is what they're buying. 

 Anthony
 Right? It's the old thing about pig and a poke, right. Do what that I had to actually look up that once to find out what is a poke? A poke is a bag. 

 Josh
 Okay. What, explain what this is a pig and a poke. 

 Anthony
 Pagan and poke, right? If you're buying a pig and a poke, or you actually, if you're buying something in a bag, if I hand you a bag and say, here's a pig, and you can't look in the bag, then you don't know what's actually in there. 

 Josh
 Yeah. 

 Anthony
 Right. It's like, buying, as they say, buying a pig in a poke, it's buying the back. Are you buying a pig? Are you buying, you know, a peacock? You make something beautiful. I'm probably insulting all the pig owners out there now, 

 Josh
 We have a lot of pig owners listening into this podcast. We actually thought about, the pig scout, but the deal scout was the, it wasn't yet purchased. 

 Anthony
 Some of them are pigs and you can put lipstick on it, but it's still. 

 Josh
 Pig. You can put lipstick on it or yeah. 

 Anthony
 Think of it that way. It's like, you're putting lipstick on a pig. It's and that's partly why not primarily why you want to make sure that, you have sales contracts that show that you're truly SAS. Yeah. You don't want to have money back guarantees in them. It's gotta be, one way non-refundable paid in advance. You, you gotta make sure that what you're selling is primarily software and not services because service revenue doesn't give you much of a multiple software revenue. Does. There are a lot of companies where I come in and they're like, well, we're charging for the software. We have these look at all the money we're making off of implementation. I'm just like trying not to shake my head at that and say that w the valuation off of your services, revenue is one X. The valuation off your software revenue is going to be 10 and above. 

 Anthony
 Where do you want your revenue? 

 Josh
 You want all your revenue in the software side multiplex. 

 Anthony
 What you want to do is you want to structure your contracts so that they are software with a support network to go behind it. Not one where you're billing for that. Not one where you're doing hourly billing or you're billing. If you have an upfront implementation, make sure it's like tiny and that you're collecting it on the software, because I've heard that. Well, we have to, we have to spend so much time and effort to get our customers up and running. Well, I have two challenges to that. Why, okay, why does it take so much to get them up and running that right? There is a problem because it's going to impact your gross margin and gross margins are huge in software. So, how do you get it so that the product almost stands itself up for the customer. That's number one, number two is don't bill. 

 Anthony
 For that separately, you might have, do the old, gold, platinum Iridium level of software, right? Your gold level gets you, this support, your platinum gets you the support, et cetera. You kind of have to play a game here with reality versus perception. If you put it on your income statement as software and services separately, first, person's going to take a look at that and say, okay, yep. That services. We're not going to value that at all. If you have just software on your income statement, they're going to look at that and say, oh, look at all the software here, but you better darn well have gross margins that back that up. 

 Josh
 Yeah. So this is interesting. I love this software versus service multiples, right? Like, and you're saying like one of the key points you pointed out for people who are wanting to, build a company to sell, right? You want multiples, right? You want, you want the 10, multiple, right? You don't want the one multiple. You asked a question, they're like our software's here, but standing it up is over here. You're like, why is it not standing it up on its own? Explain that into detail. Cause I think that is such a golden nugget of how to increase your multiple for founders out there. That is beautiful. 

 Anthony
 Well, what it comes down to is when somebody onboard your software and we're talking primarily in the B2B space and the B2C space, I don't see this as much, but in the B2B space, let's say you're selling, some health tech, and you're having to deal with a healthcare organization. There's a lot of security concerns and, HIPAA compliance and all this other stuff. You want to make sure that you have a secure organization and that you're not having to scramble for that. A lot of times there's a data migration phase. You see this a lot in ERP, for example, where you have to take your legacy data, which you have right now and convert it and import it into the new system so that you get, out of the new system, what you're looking for that piece right there. If it's taking you a lot of time and effort to migrate data from an existing system into your system, you need to look at ways to automate that you need to look at AI or machine learning or some automation tools. 

 Anthony
 I can't give you the details cause I'm, it's really situational specific, but that's one where it's like, well, it just takes forever because we've got to clean up all their data and get it in there. Well, that's a problem because if you're spending a lot of time cleaning up their data, you're not going to get multiples off of that work once you have them in. That's great. It's probably sticky at that point because once you've converted them, it's probably hard for them to exit, but you want to make that go as quickly as possible. I'll use the example of duo security. Duo security is one of the unicorns that I worked with. I was their senior director of finance and accounting worked for their CFO. They eventually, I joined the company. There were about 10 million in revenue. I left the company. It was about 150 million in revenue. 

 Anthony
 That was three years later. That was just astronomical growth. And they, I say that. 

 Josh
 Again, 

 Anthony
 When I joined the company, they were about 10 million in ARR. When I exited, when I left the company about three and a half years later, they were at 130 million. 

 Josh
 Wow. That is massive growth. 

 Anthony
 Yeah, it is. So, when I'm talking about scaling and setting things up for scale, that is not just theoretical for me. That's the second time in my life. I had to take a company and add a zero to their revenue in three years and not have anything break. And that was my job. Just like it was for the manufacturing company. The same thing here was primarily on the back office side of things is setting up the financial reporting, the budgeting, the cash forecasting, the financial modeling, all the SAS metrics, making sure that could all scale and that we didn't choke on our own success. I was also a prime example of where your CRM has to be really in harmony with everything else or you're going to run into problems. The way that the duo folks designed their software was they could take a company say 10 or 20,000 people. 

 Anthony
 Now this is their first product was a two-factor authentication, multifactor authentication. Everybody does it now. Right? Yeah. Back then they were kind of in the blazing edge of it because it was a phone app. All you had to do was click a button on the phone app. You didn't have to type any numbers back into anything. That's still a system, but it's not as convenient. They were able to take, organizations that had, 10,000 people. Within a span of 72 hours have a 95% adoption rate of the new system, how they had tool, they had gone into it, designing it to make it easy for people to adopt their product. That forethought going in ahead saying, how do I not only do, how do I make a software that sticky in that my customers don't ever want to give up, but how do I make it easy for me to get them on board? 

 Anthony
 Because if it's easy for me, it's easy for them, right? They have a great customer experience because wow, you got us up and running really fast. The other guys took three months. You took three days. That's incredible. Let me go tell my other seasonal friends about this. So they spread the word of mouth. A delighted customer is an evangelical customer. They will tell other people about you because they're excited and nearly satisfied customer. Okay, maybe they'll get around to telling somebody about you. What duo did was really great because they adopted, consciously adopted the mantra, stole it from Southwest airlines to be the most loved company in cyber security. They did it by making their product almost stand up itself. They also had a product that was very highly quality oriented so that there were very few defects and bugs in the system, which then reduces your customer support profile. 

 Anthony
 You reduce your delivery profile by making it easy to implement you, reduce your customer support profile and by profile. I mean your internal costs by having a really high quality product that doesn't break. Your gross margins ended up being really nice and fat because you have great sales, but you don't have a lot of folks in your delivery department, your implementation department, and you don't have a lot of folks in support. Both of those are a drag on gross margin. Now I'm speaking as the accountant, anybody who says that customer success is not part of cost of sales, doesn't understand accounting. It is absolutely part of cost of sales, because if you didn't have sales, those people don't have jobs done simple. Right? So, cause I've seen, and that's another thing I come in and I'll see customer success down in operations. And I'm like, Nope, that's not right. 

 Anthony
 That's not where it belongs. It belongs up in gross margin. What's it matter where it belongs because margin is absolutely gross. Margin is of the most critical metrics for SAS. You can have a great SAS company, but if your gross margin is 50 or 60%, you have a pig and a poke. If you, as a say, if you have a SAS company and your gross margins are 80% above, you have a peacock. 

 Josh
 In this situation, do we want to pick her peacock? I'm just kidding. 

 Anthony
 Yeah. The bird, you don't want the stinky man mammal. Okay. This is an important point that I try to hammer home. Now that I think about it, you'd asked the question earlier, what's the realism. What are some of those realization and aha moments? One of them is the focus on gross margin. When you come in, when we come into a company and I see negative gross margin, that's an immediate alarm bell to me, it's like, okay, what's going on here? Do I have a classification problem? In other words, I'm putting the wrong costs and gross margin. I need to take a look at that first and make sure all the proper costs are going in. Do I need to allocate some of those costs out to say, these people are doing implementation. They're also coding. Okay, well then part of them goes to development. What I'm really focused on is for every dollar that you sell, how many dollars does that free up to run the rest of the organization, that being R and D marketing and sales and GNA. 

 Anthony
 Those are your three big buckets, right? R and D marketing and sales GNA. That's everything. After and below the gross margin line, when you're acquired, one of the areas they're going to eliminate is your G and area, right? Because whoever acquires you, they have finance and accounting and HR and it, and all the other stuff. That's one of the things they're going to look at, reducing out of your cost profile to enhance profitability when they bring you in-house. Making that, take that out of the equation. You're left with R and D and sales and marketing. That gross margin is what funds those and the profitability. Without high gross margin, you're not really a software company and you're not going to get great evaluations. 

 Josh
 Yeah. We're almost out of time. Maybe on the next interview or the next time we chat, I want to talk about acquisitions, right? We, we spend a lot of time of inside a business to increase multiples. And, and that was incredible. What a, what a great realization that was for me. I appreciate that, but we're wrapping up and I want to do a few things. One, I want to give you an opportunity. If someone's in the audience going, Hey, all right, I need help. Right? I need someone to come in who understands SAS, on the accounting and financial and the finance side. Like I need you work at people, go to connect with you and do a deal. 

 Anthony
 The best way to get ahold of me is go to my website, sass-gurus.com, sas-gurus.com. And there's a contact us there. It's also very easy to find me on LinkedIn. I'm over the place. It's Anthony Nitso posts. I T S O S N like Nancy, I T like Tom S O S like the distressing, and I, I pride myself on being very responsive to people that reach out to me. If you reach out to me, the first thing I'm going to want to do is set up what I call is a diagnostic, okay. Gap analysis, and audit. What we'll do is I'll spend an hour to an hour and a half with you on a call. Just, we're going to run through everything that you're doing right now. Out of that one particular meeting, I will be able to tell you exactly where you need to focus your efforts and how we're going to fix the back office in order to make it better for you. 

 Anthony
 By better, I mean, eliminate things that you haven't seen before and give you information to make decisions about your company that you've never had before. Prove otherwise, what's the point, right? 

 Josh
 Otherwise, what's the point, 

 Anthony
 Right? If you already have it all dialed in, you don't need us. Yeah. Maybe you need us because we're satisfying Nance experts. We really understand that space, but it starts with the fundamentals. I go back to my medical school training, the finance and accounting system of your organization is like the spinal column of your body. If you don't have a really good, solid back bone and spinal organization, everything else that hangs off of it, isn't going to work. Right. It works in organizations the same as it does in bodies. You really need that financial core set up properly and optimized because from that all sorts of information flows that you need to run the business most effectively. If you don't agree with that, then you're probably not a good match for us. 

 Josh
 Right. And that's okay. Right. There's a lot of SAS companies out there. 

 Anthony
 Yeah. I know a lot of satisfies. I don't have to worry about that. Look, my sales are great. Okay, good. I'm glad I'm happy for you. 

 Josh
 You might be a good acquisition target in the future, right. There's probably a question, one last question, what questions should I have asked you? Right. Like I always like to go, my knowledge is limited, as I learn and grow in my wisdom and in my experience, I got to know that there's things I don't even know what to ask. So what should I have asked you? 

 Anthony
 I don't think, I don't think there was anything Josh. You, yeah. You really hit on the most important points, in my opinion, which are, what are the key metrics you really need to look at as a SAS owner? And how do you get those? Yeah. I mean, that's what we specialize in. Above and beyond that, I think the only thing that we could spend a lot of time in on is how do you value your company when you're going into an investment around. 

 Josh
 Yeah, 

 Anthony
 Gosh, we're going or going for a purchase, going and looking to be sold. 

 Josh
 Yeah. We're going to have to, we'll have to explore doing another show. Cause we got to talk about value in business and that's not just a two minute chat right. 

 Anthony
 Now. Not. 

 Josh
 Yeah. And then, 

 Anthony
 You need a couple of, you need some lubrication for your brain and a lot of time to talk about it. Cause it's like, there's a lot in that. A lot goes into that. It's just as much art as it is science. 

 Josh
 Yeah. The next time we chat, we'll talk about valuing your business and acquisitions, right? You'll give us some key points of when should a software company look at acquisitions, but that's all for today. One more time, Anthony. Thanks for coming on the show. Fellow dealmakers in the audience, my ask to you is always reach out to our guests. Say thank you for being on the show. If you're a SAS company and you could use some help, his contact information will be in the show notes below, connect directly with our guests and say, Hey, her John, the deal scout let's do a deal. Let's figure out a way to work together. If you have a deal that you'd like to talk about it here on this show, the mission and purpose of the show is to put deals in deal makers together. That's how we make money. 

 Josh
 That's how we learn and grow. And it's just a blast doing it. You can head over to the deal scout.com, fill out a quick form and maybe get you on the show next. We will talk to you all on the next episode. See you guys.