Behind the Cloud – Part 8 – The Finance Playbook
Whenever I read a great book, I summarize it so I can learn better and recall it later. I have been asked to make some of my “Ken’s Notes” available. Here is part 8 of “Behind the Cloud” by Marc Benioff, the founder of salesforce.com. Scroll to the bottom for links to the other Parts – Ken Krogue
How to Raise Capital, Create a Return, and Never Sell Your Soul
Play #90: Don’t Underestimate Your Financial Needs
Marc seeded Salesforce.com with $6 million which he had saved. VC financiers valued the business too low for him to go to them for funding initially.
Play #91: Consider Fundraising Strategies Other Than Venture Capital
Marc reached out to friends and colleagues. Two thirds of startup capital in the US comes from the entrepreneurs themselves, while friends, family, and colleagues provide 78% of the total. Create a list of piecemeal investors.
Treat friends and family investors professionally. Avoid negligence, it will bite you later. Raised $65 million total; with $15.5 million from venture firms from 1999 to 2002.
Play #92: Use Internet Models to Reduce Start-Up Costs
Play #93: Set Yourself Up Properly from the Beginning, Then Allow Your Financial Model to Evolve
Though starting as a pay as you go model, it crippled until one year contracts and pay up front were used. Collect the cash and report the revenue as collected. This is how all SaaS models operate today, it was hard at the beginning. No longer send bills every month. Build a formal process to execute contracts and manage renewals. This makes it much easier to demonstrate to Wall Street to define, and meet, projections.
Play #94: Measure a Fast-Growing Company on Revenue, Not Profitability
If you measure on profits too soon, people focus on cross-charging functions to other divisions just to make a quarterly bonus instead of growing the company. This creates the wrong behavior and culture.
Play #95: Build a First-Class Financial Team
At $25 million began looking for a strong CFO.
- 1 million subscribers
- 1 billion in value
- Go public on NASDAQ
Steve asked, “Why not the NYSE?”
Play #96: Be Innovative and Edgy in Everything You Do—Except When It Comes to Finances
Always the goal was to go public. Wanted it for credibility, not just for cash to expand or acquire. That is why the NYSE brand is much better. Hired Ernst & Young. Started a year early with an auditing department, instead of 90 days. Had $100 million before going public. Chose CRM as ticker.
Issues arose in the IPO about the deferred commission model as a basis, all previous had immediately expensed the full cost of their sales commissions.
Play #97: When it Comes to Compliance, Always Play by the Rules
Don’t violate the “quiet period” prior to going public with a road show or comments to the press. This can be difficult. A Times article delayed going public by 30 days.
Play #98: Focus on the Future
Figure out how to recognize revenues correctly and spend more time on tax planning.
Play #99: Allow for Change as Your Company Grows
Now as a public company had to speak with analysts at one time, not individually. Start thinking three years out. Spent a lot of money on marketing at the $250M mark, because was planning to get to $1B.
Part 1 – The Start-Up Playbook – How to Turn a Simple Idea into a High-Growth Company
Part 2 – The Marketing Playbook – How to Cut Through the Noise and Pitch the Bigger Picture
Part 3 – The Events Playbook – How to Use Events to Build Buzz and Drive Business
Part 4 – The Sales Playbook – How to Energize Your Customers into a Million-Member Sales Team
Part 5 – The Technology Play Book – How to Develop Products Users Love
Part 6 – The Corporate Philanthropy Playbook – Make Your Company About More Than the Bottom Line
Part 7 – The Global Playbook – How to Launch Your Product and Introduce Your Model to New Markets
Part 8 – The Finance Playbook – How to Raise Capital, Create a Return, and Never Sell Your Soul
Part 9 – The Leadership Playbook – How to Create Alignment—the Key to Organizational Success
The Final Play