Brian Weisberg of Tidelift on the Heuristics of Forecasting

[00:00:00] Brian Weisberg: Generally speaking, when I think about headcount mix, I put the spreadsheet down, close the browser and go and talk to your team. At the end of the day, when it comes to planning, your plan is only as good as the conversations you have with your peers. 

[00:00:38] Joe Michalowski: Hello and welcome to another episode of The Role Forward podcast. My name is Joe Michalowski, and this episode is brought to you by Mosaic, a strategic finance platform that transforms the way business gets done. And today, our guest is Brian Weisberg, Head of Finance and Business Operations at Tidelift.

[00:00:50] And, Brian, thanks so much for joining me.

[00:00:53] Brian Weisberg: Hey, Joe. Thanks for having me. It’s great to be back on The Role Forward. 

[00:00:56] Joe Michalowski: This is a big day. This is our, our first repeat guest, which is great, and there is absolutely no one better to do it. Brian, you have been a boon to all things content at Mosaic, so very much appreciate you coming back for a second time.

[00:01:10] And, you know, for anyone that, that maybe missed the first episode, first of all, go, go check it out. But second of all, I wanna give Brian, you, a chance to kind of intro yourself and, and who you are, what you do.

Brian Weisberg Introduction

[00:01:22] Brian Weisberg: Appreciate it. That’s, it’s great to be back. I’m, uh, flattered, Joe, actually wanna listen to me, so I will take that. I’m Brian Weisberg. I am the Head of Finance and Business Operations for a company called Tidelift. We help development teams manage the open-source components they’re using in production.

[00:01:38] But you’re not here to listen to me talk about DevOps, DevSecOps or Tidelift. Happy to chat about it if you want, but that’s, I don’t think that’s the topic for today.

[00:01:46] I try hard to keep up with the finance topics. I think if I had to also keep up with the DevSecOps topics, we’d be in a little bit of trouble. I don’t, I’m not sure anyone wants me to host that podcast. Maybe someday.

[00:01:58] Brian Weisberg: They don’t want me on there either.

[00:02:00] Joe Michalowski: Someday for you too. You’ll be the, the honorary subject matter expert for DevSecOps for sure.

[00:02:05] But just to give some background on today’s topic, we’re gonna be talking about some, some heuristics, like general benchmarks to keep in mind when forecasting. And the best part is that this was not my idea. This was your idea. You came to me and you were like, “We should do this.” And so I’ll, I’ll let you set the stage, like, why, why did this come up?

[00:02:22] Joe Michalowski: How did this come up, and why is it such an important topic for people like you that do this work?

Why We Need to Discuss Forecasting Heuristics

[00:02:28] Brian Weisberg: Sure. So thanks for, uh, taking my pitch. It’s not often that I, I pitch a podcast, but, uh, I wrote this super thoughtful email for, uh, the group at F Suite.

[00:02:38] If you’re not familiar with it, F Suite is a community for finance leaders, CFOs, VP of finance, directors of finance, basically the senior most finance position at an organization.

[00:02:49] I wanna say we’re in like thousands of members now, but it’s, uh, mostly listserv first group. We get together periodically for dinners. We do biannual conference, one in San Francisco, one in New York, where I was last week. But it’s just a community of finance leaders that are super open and vulnerable and, and supportive of one another.

[00:03:08] Brian Weisberg: And one of the questions that came up the other day, it comes up a lot, is forecasting heuristics, but then specifically asking about headcount mix. There’s a ton of content out there about KPIs and other finance metrics. Mosaic has a lot of great content. There’s a lot of other great content out there.

[00:03:27] A lot of people don’t talk about general, like best practices with headcount mix. And so I broke down just based on my own experience and a couple of things that I’d read over the years. Kind of some general things to keep in mind when forecasting your team. So like headcount planning.

[00:03:42] I love it ’cause it, it’s, it’s, so top of my, especially like now, just the, the way the, the market is right now. Like you’re probably everybody’s headcount plans is probably more conservative than it was, you know, six, seven months ago. And so going into 2023, who knows, like we could head into deeper recession.

[00:04:00] Joe Michalowski: We could head into, I mean, things could turn around, and I mean, you got to stay on top of your forecast for headcount. Last, last time I did an episode, somebody mentioned that they, they look at their headcount plans like weekly, and I was like, “That’s, that feels like a lot, but also very necessary.” And so I’m excited to, to kind of dive into this and learn more about it.

[00:04:17] ‘Cause like you said, there’s, there’s just not a lot out there on this topic, it just doesn’t exist.

[00:04:22] Brian Weisberg: I don’t even think about it weekly. I just, I always think about it. 

[00:04:25] Joe Michalowski: It’s just… 

[00:04:26] Brian Weisberg: The first thing 

[00:04:26] I think about when I get on, and it’s the last thing I think about when I log off. I don’t even have to pull it up. It’s just always on my mind.

[00:04:33] Joe Michalowski: Oh my God.

[00:04:34] Brian Weisberg: You think about it, headcount is like 80% of your burn. So if there’s one thing you have to get quote right.

[00:04:42] And one of the things I talk about, it’s not about being right, it’s about making educated decisions. But if there’s one thing you want to get right, it’s about headcount.

[00:04:49] Makes a ton of sense. And that’s why we’re gonna spend the bulk of this conversation on it. So, I’m largely gonna kinda step out of your way here. I know you’ve got a ton to say. I might pop in and ask a follow-up question if I, if it comes to mind. But the floor is yours, Brian. I want to hear everything you’ve got on all things headcount, mix, and forecasting heuristics.

[00:05:09] Joe Michalowski: So let’s hear it.

[00:05:12] Let’s start with the headcount mix, and then we can talk about some general heuristics at the end and if we’ve got extra time.

[00:05:18] Joe Michalowski: For sure.

The Headcount Mix, from Sales to Development to CS to R&D

[00:05:18] Brian Weisberg: But generally speaking, when I think about headcount mix, I put the spreadsheet down, close the browser, and go and talk to your team. At the end of the day, when it comes to planning, your plan is only as good as the conversations you have with your peers. 

[00:05:34] So get out. Talk to your VPs, your CXOs, your directors, your managers, and even your ICs. Like the most important thing, most valuable thing you can do as a finance leader is to understand your business. Understand how it works to qualify opportunities, to close deals, to build product, even the content marketing. The stuff that you do, Joe, like you’ve got to get out and understand what everybody’s doing in their day jobs, and that’ll help inform

[00:06:02] the decisions that need to be made when it comes to headcount planning.

[00:06:06] So think about this, like if you are pre-product market fit, you’re not selling, you’re building product, most of your spend is probably going into R&D, software development, product management, design, things like that. That should be pretty easy to plan out.

[00:06:22] Like it’s just building product. You might not even be there at that stage. You may, I joined at Tidelift Pre-PMF, but it’s not typical to hire a finance leader that early.

[00:06:31] Once you have a sellable product or close to, sometimes people like to sell things a little early, get ahead of their skis. That’s normal.

[00:06:38] It’s time to start investing in sales and marketing. That’s when the game changes. You went from being all R&D to now having to build out a sales and marketing team and think about how that team evolves with the rest of the business.

[00:06:50] Brian Weisberg: So generally speaking, it’s pretty normal to have like a ratio between sales and marketing and R&D of like a one to two, where every sales and marketing person, this could be a rep, this could be a marketer.

[00:07:04] You’ll have two in R&D, software development, product management design, something in that capacity. That one to two is pretty standard across the board. Now, it could vary by industry. Bearing in mind, I’m coming to you as someone that has run finance for a number of B2B enterprise SaaS businesses. So some of what I say, I’m saying through that lens.

[00:07:25] Joe Michalowski: Sure.

[00:07:25] Generally speaking, your discretionary marketing may comprise like 20% of your burn. Let’s just put a pin in that, we’ll come back to it. But that, that may sound high, but you’ve got to build awareness about the product. You’ve got to do blog post, podcast, conferences, things like that.

[00:07:42] Brian Weisberg: So with this early PMF business, you may have 20 to 25 full-time employees in your company.

[00:07:51] Keeping this one-to-two ratio in mind, you might have 10 to 12 people in R&D, 5 to 6 in sales and marketing, and then a couple in G&A. You’ve basically got like your CEO, and maybe an accountant, a finance person, some kind of like BizOps hire. Like ’cause your CEO is gonna be mostly doing the CEO stuff, so you’re gonna need someone on kind of the BizOps side of things.

[00:08:14] Brian Weisberg: That’s your typical 20 to 25-person startup. As you scale and you go from 25 to 50 to 100 and beyond, that relationship, that one-to-two relationship, will start to shift to like a one-to-one. So for everyone in sales and marketing, you’ll have one in R&D. And then eventually, as you really start scaling your revenue, your go-to-market machine, that will flip, and it’ll become like a two-to-one.

[00:08:42] Again, just general heuristics here, but like, these are things to keep in mind when you’re building your model. Like every model I build, I like to have what’s your total sales and marketing headcount, what’s your total R&D headcount and tracking that relationship between the two.

[00:08:55] Makes a ton of sense. And I, I like the kind of juxtaposition of like, you know, a lot of times we talk about it in terms of like funding rounds, so it’s like series A. So I like that you kind of took it out of that. It’s just full-time employees. Like we have, we’re a company of 20 to 25. We scale, and then we like scale to another level.

[00:09:11] Joe Michalowski: And so it’s cool to hear you kind of break down the ratio that way. But the, the question I have is how do we go deeper? So it’s not, it’s not really on you as a finance leader to decide who to hire, but as part of your model, like it needs to be on that kind of granular level. So we know that at one stage, we’re gonna be like a two-to-one R&D to sales marketing shift to one-to-one, and then get to two to one the opposite way.

[00:09:36] But like, what does that actually look like? How are you building your model? What does the granular level of breaking that down by role or you know, even function?

[00:09:45] Let’s take the sales org for a second. So within sales and marketing, you’ve got your sales org. You’ve got your, let’s start with the reps. So you’re starting to hire a couple of reps. This is, again, we’re building those relationships with your CRO or your CEO or whoever is running that sales team early on.

[00:10:02] Spend some time with them to try and understand how much revenue you expect that rep to generate. So I’m not gonna give you the heuristic at first, like you need to have the conversation. When it comes to B2B SaaS sales, we’re talking that’s typically like a four to five x multiple relative to someone’s OTE or On Target Earnings potential. So that 300 K OTE rep on average, like, say you’re paying them 150 K base and 150 K variable, if they hit their number, you’re talking about a 1.2 to 1.5 million ARR target that they should be hitting at scale. This is fully ramped. The business is selling. You’re growing. You may not be at scale yet. So like that four to five is like, that’s the goal.

[00:10:51] Brian Weisberg: That’s where you want to get to, if you are Series D, series, whatever, and you’re, you’re at scale. You’re maybe over a hundred employees, and you’re, you’ve got a proven sales motion. Earlier on, you just wanna prove that people will pay for your shiny new widget. You built this shiny new toy and your goal right now earlier on is just to prove that people will pay for it.

[00:11:15] So maybe something like a two to three x payback. You need to figure out what you’re comfortable with, and then once you get to that, that’ll help dictate how many reps you need. However, like you’ve also got to account for ramp times. So when you hire a new rep, you’ve got to train them, they’ve got to build their book. They’ve got to start generating pipeline, and then eventually, depending on how long it takes you to close deals, they’ll get deals done.

[00:11:42] So, that’s where like a thoughtful Excel model or a tool like Mosaic where you can account for ramp times will really help you figure out how many reps you need based on some sort of revenue goal, and then working backwards, thinking about the, the ramp times. In a fully functioning go-to-market motion for a B2B SaaS business,

[00:12:01] we’re talking maybe six to eight months for a ramp to get productive. But if you’re early stage, like right around that PMF point, it might be twice that. It might be 10 to 12 or 14 months. It, it’ll be awhile. It’s usually longer than you think. So when you’re planning out your headcount for the sales reps, don’t forget to plan out the the ramp times for those reps.

[00:12:22] My follow-up question. You mentioned like getting a, finding the point where you’re comfortable on payback. If you, if you’re not at the scale level where you’re going four to five x, what are you thinking about to decide? Is it just what I’m comfortable burning? Is it, is it a fundraising question?

[00:12:37] Joe Michalowski: Like how do you decide what is comfortable for your business at a, at a multiple or that level?

[00:12:43] Brian Weisberg: You mean the four to five or two to three x payback? 

[00:12:45] Joe Michalowski: Yeah. So if you’re, if you’re not at scale where you’re like four to five x OTE, and you’re like, “Okay, like I have to maybe reduce that a little bit because we’re not at that level of scale.” Like, how are you, you mentioned like needing to find your comfort level with what that multiple should be like.

[00:13:01] What, what is the thought process there? Like how do you actually figure that out?

[00:13:04] Brian Weisberg: I would suggest starting with a goal in mind. You, you want to get to million dollars, $3 million, whatever, an annual recurring revenue. Dave Kellogg, blogger and, I guess, finance Twitter influencer and leader, advisor, investor has a fantastic blog out there. He’s, he’s all over the place.

[00:13:24] He has a blog post that he put up a little while back talking about the 5, 6, 7, 8, 9 rule. It’s a, it’s a really great blog post on kind of like revenue heuristics and breaking down where you should get to. It kind of breaks, pulls apart the triple, triple, double, double, double that a lot of people have talked about. And

[00:13:42] Joe Michalowski: Yep.

[00:13:42] Brian Weisberg: that’s great in theory, but no one ever gets that.

[00:13:45] And so he has like a little bit more accessible of a benchmark for you to kind of think about when you’re building a revenue forecast. 

[00:13:52] So I’ll, I’ll answer your first question real quickly, even though I went off on that tangent that build your revenue forecast and then use your revenue forecast to kind of figure out how many reps you can afford to hire to get to those projections relative to your cash burn.

[00:14:05] Brian Weisberg: What you have is you have a circular reference, but that’s, and every good financial model is a circular reference, and you’ve got to kind of twist the dials to figure out a balance of how long you can have to burn to get to where you need to be and how many reps you need to get there comfortably before you run out of money and, and be realistic with your expectations.

[00:14:24] Too many people start with that four to five x, and they, they run out of cash before they get to the revenue target.

[00:14:29] Coming back to the topic, like, so you’ve got your sales rep forecast, but reps in a B2B world don’t work alone. They typically need some sort of sales development support, BDRs, SDRs, depending on the nature of the sales motion. Someone helping prospect and qualify leads.

[00:14:46] Brian Weisberg: So again, this is where that conversation comes in, is talking with your sales leader at least talking with the reps about how they sell and understand that sales process will help indicate whether you need one BDR for every two AEs or a one to one. And there’s direct pairing. It’s typically either like a one-to-one or a two-to-one relationship.

[00:15:06] But that’ll help figure out how many sales development people, I won’t say SDRs or BDRs, but how many sales development uh, individuals you need. And then in the world of enterprise sales is, at least in my experience, ’cause I’ve worked at a number of like DevOps, DevSecOps companies. Solutions architecture is core to the, the sales process.

[00:15:28] So your sales reps can kind of get that surface area, have that surface area technical to conversation, but eventually, you need either a sales engineer or solutions architect to kind of come in and have a technical conversation and start discussing implementation, training, integration, and so on. And again, yet again that conversation like, let’s understand like can one set one solution’s architecture

[00:15:52] person satisfy the needs of one AE, or can they maybe stretch to two or three? It depends. It depends on how seamless the sale, the product is, the integration is. If it’s a high touch, you’re gonna need more SAs. If it’s low touch, fewer. But understanding that balance will help you figure out how many SAs you need.

[00:16:11] I mean, the interesting thing is that you, you look at your sales hiring plan, it’s like, uh, we’ve talked about like quota capacity models. Like, all right, how many AEs do I need to hit the revenue target, as you said? And like, I feel like sometimes the headcount conversation, at least as far as like what content is out there, sort of stops there.

[00:16:28] Joe Michalowski: But now we’re talking about it. We have like, we’re up to four or five people in the sales department for that, like one, potentially two AE hires. And so. 

[00:16:37] Brian Weisberg: That adds up. 

[00:16:38] Joe Michalowski: It really does. So, I like that we’re kind of getting beyond just the AEs ’cause I feel like, as you said at the beginning, like that conversation as it exists online right now kind of stops at that high level.

[00:16:49] “Can I hit my revenue target if I hire five AEs or ten AEs or whoever.”

[00:16:53] Nobody thinks about or talks about, at least publicly in blog posts and other content, all the support that goes into making an AE successful. They don’t, they don’t sell on their own. Not, at least not my experience. They have a team of people that helps get the deals done.

[00:17:08] Well, I mean, speaking of support, I mean, I think the, the next one that we chatted about going through is customer success, which is the same idea. It’s like you can’t, you can’t just build out that sales function without also building out the CS function in most cases. So, I love your thoughts there as well.

[00:17:23] Brian Weisberg: Yeah. A thoughtful CS function is worth its weight and gold. Like I’ve bought products purely because the CS and support function impressed me. There are a number of tools out there that I bought early purely because they impressed me during the kind of technical conversations and my, the relationships I got that I was able to build with the support team was like, “Those are the people that are there when the product goes down.”

[00:17:47] Or you’re doing an implementation or an integration. And so understanding, if you can, if you take the time to understand what it takes to make a customer successful, that’ll give you a sense for what investment needs to be made in the customer success and support organization.

[00:18:03] Joe Michalowski: Yep.

[00:18:03] Who handles support, who handles renewals, implementations, expansions and upsells.

[00:18:08] Brian Weisberg: Sometimes the sales reps lead that. Sometimes customer success, sometimes both. Sometimes there’s a separate renewal steam. So understanding, kind of like how business is done, will then help dictate how many people need to be there. And you can build a lot of this just based on that original revenue forecast.

[00:18:25] If you’ve got revenue and customers, and you account for some sort of ramp time, you can back into some of these numbers pretty easily. Like does an average customer success rep or CSM support 30 accounts, or is it like 2 or 3, or 4 million in annual revenue? Or is it none of those, and there’s something else that’s important for your business?

[00:18:45] I had that conversation in, I think I referenced this episode. Alright, but the, the previous episode we did on headcount planning, and it was that same thing. It was like, “Do you base it on number of accounts, or do you base it on annual revenue?” And I’m curious like what, what your take is. What do you do at, at Tidelift?

[00:19:02] Joe Michalowski: Like what have you found as a better, maybe not better, but at least in your case, what is the more accurate way to, to approach CS hires?

[00:19:10] Brian Weisberg: I kind of wanna just answer yes.

[00:19:13] Joe Michalowski: Just got to do both.

[00:19:15] Brian Weisberg: Yeah. That’s the sad truth is it’s a, it’s a little bit of both, and it just, it, or the typical MBA answers. It depends like.

[00:19:24] Joe Michalowski: Always.

[00:19:25] Brian Weisberg: It really depends on how much effort it takes to make a customer successful. So answering your question with more questions, but like, do you sell with a land and expand sales motion?

[00:19:36] If so, when you’re targeting large customers with expansion potential, it might be more based on logos and customers or seats or something like that. Maybe logos, not even seats or seat potential. But if you’re selling a product that’s like, set it and forget it, and it’s like you come in and you sell a pod. And then another pod, and they could be the same customer or different, then it might be a revenue driver. But it could be a little bit of both. And so this is where understanding like your sales motion and your support motion is important.

[00:20:09] Joe Michalowski: It always comes back to the, uh, conversation and understanding the business. My favorite thing about chatting with you, it’s, it’s very much in Mosaic’s wheelhouse, and I think it’s one reason why, why we get along so well is I think, we have the same kind of mindset about what the finance’s role is here.

[00:20:24] But, you know, the MBA it depends, answer aside, I think it’s a really good answer. You know, it depends, is often the right answer. It’s just, especially in finance, like there’s just no one way to do all this stuff.

[00:20:37] Brian Weisberg: There is no right answer. It’s just, it’s all, your role in finance is about helping the business make informed decisions. So it’s not going to Google and looking up for a piece of content and seeing like, “Okay, this is the number. Let’s just use this number.” 

[00:20:54] Joe Michalowski: Yep. 

[00:20:54] Brian Weisberg: That’s useless. Like that number that you read about is based on a conversation that someone had about a particular need.

[00:21:01] And what you need to do is have the same conversation about that need and you can have this data point in your mind to help influence or lead the conversation, but it could be totally different for your business.

[00:21:13] Joe Michalowski: Right. Makes a ton of sense. I think, uh,yeah. Love getting this insight from you. We’ve talked about sales AEs, we’ve talked about development, we’ve talked about CS. What, what’s the next frontier for our, our heuristics conversation?

[00:21:26] Brian Weisberg: Let’s talk about R&D. Like we’ve talked a lot about the revenue side of things. Let’s talk about like the actual product yourself, the thing that you’re building and selling. So we talked about like the one to two, one to one, two to one kind of overall heuristics a metric to kind of keep in mind when thinking about the balance of your those two.

[00:21:46] But then going one step deeper, taking the time, talk to your VP of product or your head of engineering and understand how they actually build the product. Are they building, a lot of companies will build in this pod-like structure. Well, they’ll have like a pod of like three or four software engineers and one PM one or designer building out a specific part of the roadmap.

[00:22:11] Brian Weisberg: So how does your team build product? Is it, do they follow that pod structure? And if so, then you probably want to like hire and kind of forecast hiring in these pods. And those pods will consist of a couple of software engineers and a, a PM or designer. And then G&A, G&A person, we can’t not talk about G&A., but it’s a little bit, it’s a little bit more lumpy and, and not as, uh, exciting as some of these other functions sometimes. But, for a, a hundred-person company, you’re probably gonna need like five to six people at least to kind of just support the business and help it run.

[00:22:47] Whether that’s like HR or recruiting, finance, accounting, business operations, EAs. Those functions all kind of roll up to G&A. And again, at that like a hundred-person markets, about five or six people, but that’s kind of one of those lumpy hires that a lot of CEOs don’t necessarily wanna make. And then when they make it, they’re like, “Oh, this is so helpful.

[00:23:08] Oh my gosh.”

[00:23:10] We didn’t talk about this before, but I think I’d be remiss to not ask you at this stage, about the finance team. Because I always hear like, “What’s the best time to hire someone in finance?” And it’s like, “Before you think you need one.” And it’s like right now or, you know, three months ago.

[00:23:26] Joe Michalowski: And so I’m curious, as you get up, like if you’re talking about the five to six out of a hundred full-time employees, like, like when did you get hired at Tidelift? Like how big was Tidelift, and how are you thinking about bringing on another person to help you? ‘Cause I think you’re, you’re a one-man army in finance right now, if I’m not mistaken.

The Best Time to Hire Someone in Finance 

[00:23:46] Brian Weisberg: I can’t take full credit. There’s two of us. 

[00:23:48] Joe Michalowski: There are? Oh. 

[00:23:49] Brian Weisberg: Yeah. 

[00:23:49] Joe Michalowski: Oh, nice. 

[00:23:49] Brian Weisberg: Yeah, Doug, Doug’s my principal accountant. He’s awesome. Well, so yeah, if you’re asking the question, you needed one six months ago, I joined at Tidelift when we were, I think, like 11 employees, and I think it was the exact right time. And that might shock people, but I think it’s important to invest early and more than you think in that function.

[00:24:12] So that first hire, in my opinion, and I’m biased because it’s kind of a personality type that I am, but you want someone that, that has a background in accounting, but actually has some finance or FP&A experience and can sit on both sides of the house and also look forward as a business operations person. So someone that can satisfy all three, three legs to that stool.

[00:24:37] Typically, you’ll see a startup like hiring, like a fractional CFO or outsourced accountant. That’s like one leg. But then you end up with this wobbly stool, a really thoughtful finance hire someone that’s kind of like a Swiss Army knife, or six person in basketball that can like do multiple things. The glue guy. That’s what you want. And then eventually, as the business scales, then you can hire like a seasoned CPA, and you can get like a really experienced finance person to support that, the person and then like contracts or bid desk person.

[00:25:08] But early on, ’cause those, you wanna set good habits early ’cause it’s lot less expensive to invest early in that than later down the road when you have to pay three or four times that in the cleanup work. I’ve done the cleanup work. It’s a lot more expensive.

[00:25:24] Joe Michalowski: I totally hear you. Sorry to derail you, but again, if we’re talking about G&A hires and finance podcasts, I feel like I would’ve been not fulfilling my duties as host here to not ask you about hiring on the finance team. So I appreciate you, you indulging the tangent for sure.

[00:25:43] Is there anything else that you want to cover on headcount mix? I know we just covered kind of like the main functions, but we’re on like, I don’t know, 25-plus minutes on headcount mix, so I’m sure we could go many times over on 25 minutes, there’s a ton to cover here. But any like, final thoughts on this one leg of the, the heuristic conversation?

[00:26:04] Brian Weisberg: On the, the headcount aspect, I think that’s, that’s enough there. I mean, there’s, there’s not a lot of great content out there about it, so that’s why I wanted to kind of lean in. When it comes to the non-headcount stuff, there’s a lot of great resources out there. You can look on Google, there’s a ton.

[00:26:21] If you want like databases of like metrics and actual like database on company size stage industry, Meritech Capital has a really great site with a lot of content. OPEXEngine is worth, it’s worth the investment. Public Comps is another new name in the space. A lot of good data there. Dave Kellogg, I’ll put his blog in the show notes.

[00:26:42] Brian Weisberg: Everybody on this pod, everybody listening should start reading Dave now. It’s fantastic. And to be conscientious of time, I could give you like just a couple quick hits on like the, the non-headcount side of things, like things that you might not find in the Google search.

[00:26:56] Joe Michalowski: Yeah, I can’t remember if we, we mentioned this off the top, but when you and I discussed it, there were like three kind of like pillars of this conversation. It was the headcount mix, the non-headcount expenses, and then like an efficiency ratios kind of thing. And so, like I said, I know we discussed it, but I can’t remember if that was like pre or post-hitting record, but I’ll say it now.

[00:27:14] So we kind of wrapped up that first pillar, and to your point, tons of stuff on that non-headcount expenses side. But can you give me like the TLDR on like the main things we need to focus on on that front?

Non-Headcount Expenses to Focus On

[00:27:25] Brian Weisberg: Yeah. On the non-headcount side of things, one of the questions, so thinking about your burn. You’ve got headcount is the lion’s share of your burn. After that, if you’re in the unfortunate position where you’re paying rent, I’m not, ’cause I work for a distributed company and it’s so nice, but we spend a lot on T&E, separate question, separate conversation.

[00:27:43] But if you are co-located or you have rent on your P&L to think about, JLL has a great, kind of rule that they talk about the 3-30-300 rule that says you should spend $3 on utilities and $30 on rent for every $300 of payroll. So 3-30-300 

[00:28:04] Joe Michalowski: Nice. 

[00:28:05] Brian Weisberg: utilities, rent and payroll. Pretty easy to kind of keep in mind.

[00:28:09] Another number, kind of just generally in that space, I, I just kind of think even simpler is like about $1,200 a person a month that is working in an office is generally how much you’re gonna spend on rent and utilities.

[00:28:21] Joe Michalowski: Yep.

[00:28:21] There are other non-headcount expenses to think about, like software tooling also. Like generally speaking

[00:28:28] Brian Weisberg: an average business might spend 200 to $300 a month per person on kind of like G Suite and Slack and Zoom and all those things. They’ll tell the vendors this, but it’s generally about like 200 to $300 a month is like a full like G&A overhead. And then your sales team and CS team are gonna have a little bit extra because they’ve got Salesforce and Zendesk and Salesloft and Gong, and oh my gosh, the list goes on and on. That, generally speaking might be 600, 700, $750 a person a month depending on kind of the nature of the business.

[00:29:05] But those two things will get the bulk of kind of your burn when you’re thinking about burn. And then your discretionary sales and marketing, that really kind of depends on your, your CAC, and your payback expectations. Early on it could be maybe 20% of your gross burn. And then as you kind of start to scale, it might be 20% of your overall sales and marketing investment.

[00:29:27] Brian Weisberg: So it’s gonna be pretty heavy early on ’cause you’re a new company, new name. You’ve got to build awareness. You’ve got to get eyeballs to your website. That’s expensive.

[00:29:35] Joe Michalowski: Yep. Yep. At the top of this conversation, when you’re doing sort of the general overview, and you mentioned discretionary, uh, think it was sales and marketing budget of 20%, you were like, “Oh, we’ll put a pin in that, because like people might think that’s a lot.” So can you add some context there? ‘Cause I, I don’t know. Like to me, I’m like, “Okay, 20%.”

[00:29:55] But if that sounds like a lot to people, what is your reasoning for setting that bar maybe higher than others might expect?

[00:30:03] Brian Weisberg: So I didn’t just make up the, the 20%. Think about like an average 50 to 60-person startup might be in the B2B space. Again, this is all through that lens, ’cause that’s just where the bulk of my experience is. You might be gross burning 500,000 or $600,000 a month. That’s a lot of cash. Of that gross burn,

[00:30:24] most of that’s gonna be headcount.

[00:30:26] Joe Michalowski: Yep.

[00:30:27] Brian Weisberg: But then that 20% number is basically implies that you’re spending about a hundred grand a month in discretionary sales and marketing, or about $1.2 million a year. In that B2B space it’s all about brand recognition. And, and building that out ’cause like, you’ve got to stand out from these big incumbents in the space.

[00:30:49] Even if you’re building something net new, blue ocean, red ocean. If it’s red, you really got to lean into that and stand out. But even as like something new, you might be selling something that like adds value to something else. How do you differentiate? A lot of that is just through like product marketing and getting out to conferences and getting in front of people, and that’s expensive.

[00:31:09] And there’s almost like a minimum water line where if you’re spending less than one or $1.2 million a year, you almost might as well just not be spending anything. ‘Cause like you’re just wasting money, and you’re, you’re like, you’re yelling into like an empty hallway.

[00:31:24] I love these analogies. As somebody who is sitting here on a podcast from Mosaic, working in the marketing department, I appreciate this. So.

[00:31:33] Brian Weisberg: You’re welcome. 

[00:31:33] Just gave you a reason to go back and ask for more budget.

[00:31:36] Joe Michalowski: Like, “Hey, hey, Joe. I heard from Brian. It’s all Brian’s fault that we are just yelling and do an empty hallway, and therefore we need to increase our budget.”

[00:31:45] I can feel my phone vibrating already. Like Joe’s already gonna call me ’cause he knows I just said this.

[00:31:51] Joe Michalowski: It’s like spider senses are tingling. Like you can’t even hear this, but it’s just like something set them off right now. I am fortunate to work at a company that lets me do projects like this one, so, I’m glad that, that we have a handle on it. But I, I think that makes a lot of sense and, yeah, I’m glad we kind of circled back to that ’cause I, I was interested in that

[00:32:07] point you made where you’re like, “That sounds like a lot,” but like, “We’ll get to it later.”

[00:32:11] Brian Weisberg: Yeah, it is a lot. And it’s kind of like if you’re not spending enough to move the needle, you almost just like, “Why bother doing it?” ‘Cause then you’re just wasting money. And you’re in a cash-strap business. Like, go invest in the product then and try and build out a PLG model or, or something else and be, be judicious with your capital.

[00:32:30] Joe Michalowski: So that we’ve got our headcount mix, we’ve got our non-headcount expenses. You and I, as we, I think always do anytime we chat, are running overtime as we do. So for the efficiency ratios, these are things like, you know, your rule of 40, your magic art. These are things that, at least in my experience, you have the most access to benchmark data and blog posts and things like that.

[00:32:52] So we won’t, like, you know, kill this one. If there’s like one metric, you think that a lot of these articles, reports, and things like that aren’t talking enough about, what would you say it is?

[00:33:03] It’s a great question ’cause there is, there’s a lot of great content out there. Like the KeyBank report just came out. That thing is fantastic. Again, I keep coming up with things that everybody should read. Everybody should just sit their phone down and go and read it now and then come back. But let’s listen to, listen to this last metric ’cause KeyBank won’t talk about it and then come back.

[00:33:20] Brian Weisberg: The one metric I think isn’t talked about, actually it’s not talked about at all. I just happened to stumble on it at one point a couple of years ago, is this concept of the magic number for R&D. Lauren Kelley from OPEXEngine wrote about it. And I still can’t find her blog post about it, but I swear she wrote something about it ’cause that’s where I found it.

[00:33:38] And the idea is that you compare your R&D investment relative to your revenue growth and see if that investment is paying back enough to make you comfortable. So specifically, you compare your quarterly revenue growth to the prior year’s R&D investment. If it’s more than 1.3, you’re generating effectively like a 30% return on that R&D investment. If it’s something less than that, you almost need to ask the question, “Did we invest in the wrong thing or did we invest in something that’s either not sellable, or are we overspending on the R&D of it? What, something’s broken here.” There’s a lot of other metrics out there, but I would add R&D magic number to your, your metrics dashboard.

[00:34:23] Brian Weisberg: Like right now.

[00:34:24] Joe Michalowski: This is the first that I, I’ve ever heard of this metric, and you better be sure that Lauren Kelley is on my list to hunt down for a podcast episode now. So Lauren Kelley, if you happen to be listening to this, I’ll be in touch. But, uh, yeah, I think that’s, I don’t know, I, I really love, anytime there’s like an out of the ordinary sort of metric. Because again like,

[00:34:44] Joe Michalowski: I could run through the list of like every, you know, we have, we have content about metrics. We have content like downloadables. We did like a SaaS metrics cheat sheet, and the things in there are the ones that you would expect to be in there. It’s a cheat sheet to like those most common metrics. And so, yeah, I really like that,

[00:34:59] you know, you can kind of pull one out that’s just a lot of the ordinary. It’s really nice.

[00:35:02] Brian Weisberg: I like to keep you on your toes, Joe. 

[00:35:04] Joe Michalowski: I, I, you always do, Brian. You always do. Cool. Well, I again wanna be conscious of time. I think that that covers our like three sort of pillars of, of the heuristics. But, as I always do, I want to kind of roll this into a little bit of a broader question.

[00:35:19] You’ve already been on the show, so you’ve been here for our career advice, kind of like what’s one thing you know now that you wish you knew before question. So instead, I’ll leave you with, with one other general question, which is, what’s your best tip for staying agile with planning? Like we’re, as this goes live, we’re kind of coming to the end of planning season, and so we’re heading into the new year.

[00:35:40] You got your annual plan, and it’s probably gonna break really quick. How are you gonna stay on top of that reforecast replant as the year goes on?

[00:35:48] Brian Weisberg: Yeah. I get asked the question a lot of like, “How often did you forecast?” And the short answer is easy as it depends. It depends on how often something has changed, a fundamental assumption has changed with your business. 

[00:36:02] If things are changing quarterly, monthly, weekly, it, it just, it depends on the frequency of a change going on with your business when you need to make a business decision.

[00:36:15] The other thing to keep in mind when, when forecasting, this isn’t in the notes. I’m gonna catch you off guard here, Joe, is the what do you need to believe question.

[00:36:24] Joe Michalowski: Ooh.

[00:36:25] Brian Weisberg: So when you build a forecast or a plan, say it’s to get to 10 million in ARR, or a hundred or one, or wherever you are with your business, or it’s 10 customers. Wherever you are in your journey, you’ve got that end goal.

[00:36:40] Break it down into a couple of incremental goals that get you there, whether the quarterly or if it’s a multi-year, like break it up so that you can bite-size pieces. And then ask yourself, ask your team, “What do we need to believe to get there?” If that’s the goal, and we’re all going towards this, 10 million number, and we’re at three today. “What do we need to believe?

[00:37:01] What are the 2, 3, 4 things we need to believe to get there? And let’s start setting goals based on those. And then if we’re off, that’s a time to kind of reforecast.”

[00:37:10] You’re right. Caught me off guard with the, the, what do you need to believe question. I love that. I feel like, it’s a nice way to sum up like kind of the, the info I hear about forecast, which is like, that’s the basic thing that you’re doing is what, what are the assumptions in this model to get us to the end goal.

[00:37:28] Framing it as a, as a, what do you need to believe question. Love it. It’s amazing.

[00:37:33] Brian Weisberg: Maybe we can get the product team at Mosaic to build a, “What do you need to believe” dashboard. Like that would be cool. An analysis canvas.

[00:37:39] I think they’d kill me if I asked them to do more things. It feels necessary. I feel like we need like a little, like a, maybe we could like put it on the website, just have like a little like template page where you’re, you’re figuring out… oh, I got ideas, already.

[00:37:54] Brian Weisberg: Yeah, it could be samples of like, you could have, like different guests that have come on. What is that what do you need to believe? Like what are their two to three, four things that you need to believe?

[00:38:02] I’ve been hunting for an update to our, what’s one thing, you know, like our career advice question. So maybe it’ll be a what do you need to believe question. I’ll, I’ll have to think about it ’cause,

[00:38:11] Brian Weisberg: Yeah. 

[00:38:12] Joe Michalowski: you know, we’re almost 25 episodes in, I’ve been asking the same question everybody that comes on.

[00:38:16] So…

[00:38:16] Brian Weisberg: It’s in, it’s time for a new question.

[00:38:18] Joe Michalowski: It is. Cool. I really love that answer. Brian as always, appreciate you indulging me over time as we always are. But I think it’s a good time to kind of wrap up. I’ll, I’ll leave the stage for you. Where can people go to learn more about you, to learn more about Tidelift,

[00:38:34] anything that you’ve got going on? I know you do a lot of work with F Suite plug, whatever it is that you’ve got going on in your life, floor is yours.

[00:38:40] Brian Weisberg: I appreciate that. F Suite’s great. There are a lot of great networking groups out there. I recommend anybody listening to this podcast, find one or two groups of fellow finance leaders and engage. Engage, engage, engage. We are a community that will thrive if we all kind of lean on each other and are vulnerable together.

[00:39:01] F Suite’s been great for me. There are others out there. Best place to find me is probably on Twitter. I’m not super active, like a lot of people out there, but I’m still somewhat. So it’s bmweis, uh, is my Twitter handle. And then Tidelift. If you or your team need help managing those open-source components, come find me.

[00:39:19] Brian Weisberg: Let’s talk. I can go a little deep on the DevSecOps. It’s tidelift.com. We help development teams manage the open-source components they’re using in production.

[00:39:28] Joe Michalowski: Amazing. Again, thank you so much for being our first-ever repeat guest on The Role Forward. We’ll see if we can make it a, a third times a charm kind of thing in the future. We won’t, uh, I don’t wanna overload your schedule, but there’s always more that I can chat about with you, so appreciate it, as always.

[00:39:43] Brian Weisberg: Always fun. Do I get a gold Casio if I come back a third time? Do I get like a special trophy?

[00:39:48] We’ll start planning now for the future where, where we have to start having that award, maybe like a jacket. Maybe we’ll get like a member’s only jacket.

[00:39:57] Brian Weisberg: Member’s only jacket. Calculator watch.

[00:39:59] Joe Michalowski: Oh my God. It’d be amazing. Alright, well, thank you so much, Brian. We’ll, uh, we’ll chat again soon.

[00:40:05] Brian Weisberg: All right. See you, Joe.