Jenny Jao, Finance at Sprig — How to Build a Flexible Operating Model
Jenny Jao, the Head of Finance at Sprig, discusses the work she did to build a flexible operating model for the business. She dives into the benefits of model flexibility, the challenges of building the model, and how she collaborates with business leaders to bring strategic value to Sprig.
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Jenny Jao, Finance at Sprig — How to Build a Flexible Operating Model
Finance is often perceived as a back office function. But getting out of the back office to collaborate with other departments within an organization is a prerequisite for building effective financial and operational models.
In this episode of The Role Forward, our host Joe Michalowski chats with Jenny Jao, the head of finance at Sprig, to discuss what it takes to build a financial model collaboratively.
Jenny shares what it was like building an operating model from the bottom up and the steps involved in the process. Jenny and Joe also discuss headcount planning, why it’s such a tough part of any operational model, and how Jenny works through it at Sprig.
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Jenny Jao is the Head of Finance at Sprig, a research platform helping companies improve their digital product experience. With over five years of experience at public and private companies, Jenny brings a unique blend of experience to startups looking to improve existing processes and drive better performance. And in 2022, she was recognized as one of Mosaic’s Movers of Strategic Finance.
- For startups, blending financial and operating models is key to more strategic decision-making. But the process for building a flexible, all-encompassing operating model is unique to every company.
- Headcount planning is among the toughest (if not the toughest) parts of the operating model. A regular cadence of communication between finance and department leaders is key.
- Having a flexible operating model turns finance from back-office number crunchers to go-to partners on all things metrics and strategic decision-making.
Episode Highlights from Jenny Jao
02:49 — Flexibility as the Foundation of an Operating Model
”I was lucky that there was a basic forecast model, so I had something to work with. And the structure of our data in both the accounting and the analytics platform was quite organized.
The piece that was missing was financials, which were separated in different spreadsheets […], and this made it difficult to audit and control errors. So with all the inconsistencies and likely human error from having the financials across different spreadsheets, my number one priority was to bring it together into a consolidated model.
I wanted to introduce maturity and ensure that we had the appropriate level of detail while maintaining a huge degree of flexibility. […] Since things change so quickly, I have built the model to flex in a lot of different ways. And that way, we can put in different assumptions and scenarios and plan. And building in case switches is also helpful to provide that extra level of flexibility.”
11:19 — Dealing with a Lack of Historical Data
”The biggest challenge is the lack of historical data. So we have maybe six months that we can trend off of because we’ve made all these changes. It’s not necessarily a business pivot. It could be the go-to-market motion or the way you staff up your engineering team, whatever it may be — the big changes that make it difficult to trend. So I’ve had to get a bit creative with how I forecast some of these line items.
The other piece, for example, was COVID. Travel and entertainment have been a line item that’s been very different in the last couple of years. And so, how do you think about that in the next 12 to 18 months? And if you want to trend even beyond that, and you want a three- to five-year model, that’s even more challenging.”
22:14 — Getting Granular with Model Creation
”So we get it down to the sourcing team level. So, for example, marketing would be based on a pipeline-to-spend ratio, and there are targets that we set there. So for every dollar of marketing spend, how much of the pipeline are we expecting from that dollar?
That gives you what your marketing pipeline should look like. And we also segment that by enterprise versus mid-market — mainly because our sales cycle is so different, and we want to see how the pipeline’s converting.
And then, SDRs. It is based on a meeting target. […] We set targets and figure out how many meetings they need to create to get to some pipeline level. […] And then you look across a few other sourcing channels. But once you get that next, you can share it and see if that’s the right mix you had in mind, and tweak assumptions as necessary.”
[00:00:00] Jenny Jao: With our business model, you know, we were making changes, we’re trying to test different things, and we were testing different price points and running different cases through the model is helpful just to see what the range of outcomes are.
[00:00:15] And we weren’t able to do that before ’cause if you, if it’s not consolidated, you can’t really see all the different, how the different metrics shake out.
Jenny Jao Introduction
[00:00:47] Joe Michalowski: Hello and welcome to another episode of The Roll 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, my guest is Jenny Jao, the Head of Finance at Sprig, and she is at a company that’s streamlining the user research process.
[00:01:02] Jenny, thanks so much for joining me.
[00:01:04] Jenny Jao: Happy to be here.
[00:01:06] Joe Michalowski: Awesome. Before we get into main topic, do you mind just giving everyone the quick background on yourself, how you got to Sprig and what you do there now?
[00:01:14] Jenny Jao: Yeah, of course. So, I lead finance at Sprig. You gave the intro of what we do. We are a research platform helping companies improve their digital product experience mostly by selecting insights across the product development life cycle. I started Sprig through a cold LinkedIn message from our VP of ops, I was at a publicly traded company, not actively looking to make a move, but always was interested in startup.
[00:01:37] And so, after learning more about the role product and the team, it just evolved into an opportunity that I couldn’t pass up. And then prior to Sprig, I was at BlackLine, which is public, publicly-traded software business, spent some time in, in, in technology before that, started my career investment.
[00:01:54] Joe Michalowski: Love all that. I think, I mean, you know, finance software near and dear to our heart, so love that background as well. And by the time this goes live, I mean, I guess this, uh, this cat will kind of be outta the bag, but you were nominated for our first awards program lineup, which is, like, the movers of strategic finance and by your, your head of ops and
[00:02:14] he sent a very nice nomination message and was singing your praises about one particular topic, and it was about building an operating model for Sprig, and so that is what we are gonna focus on today because what I heard is that the flexibility brought to this operating model was really important to what he cared about, what the business cared about.
[00:02:33] And so, to set the stage on that, do you mind walking us through sort of when you got to Sprig, what was the financial modeling sort of environment like? What did they have or what did they not have, and what were you hoping to achieve by building this new model?
[00:02:49] Jenny Jao: Sure. I was lucky that there was a basic forecast model, so I had some, something to work with, and the structure of our data in both the accounting and the analytics platform was, was actually quite organized, so I had just good bones to work with. The piece that was missing were, financials were just on separate Google Sheets, assumptions were hard-coded in different places,
[00:03:13] so it made it difficult to audit and obviously error-control. So, with all the inconsistencies and likely a human error, having it across different spreadsheets, my number one priority was just to bring it all together into a consolidated model and wanted to make sure that, you know, given the, you know, put maturity that we were in, that we had the appropriate level of detail while maintaining just a huge degree of flexibility.
[00:03:40] So, in my case, we have a number of bottoms-up build, particularly when we don’t have really reliable historical data for trending. Um, and that just gives me a little bit more comfort around forecast accuracy. And then, on the other hand, we, you know, since things change so quickly, I have just built the model to flex in a lot of different ways
[00:04:03] and that way, we can put in different assumptions, we can scenario-plan and see what they would spit out, and building in-case switches is also really helpful to just provide that extra level of flexibility.
[00:04:17] Joe Michalowski: Yeah. I think when I saw that the, the goal was kind of to build flexibility around the model, I was like, “Oh, this, this makes a lot of sense,” ’cause, you know, for our, our target audience, it’s a lot of, like, series A to D startups and everything changes all the time and so having this kind of, like, rigid model just doesn’t make sense.
[00:04:34] And so, it’s why I really like this topic a lot because, you know, really, I think, like, the bones of financial models that I hear leaders like yourself talk about are usually the same. Like, we talk about it, it’s, like, these building blocks, it’s your top-line planning, your headcount planning, your income statement, your balance sheet,
[00:04:52] but everyone has, like, a slightly different, like, nuanced approach, so I’m curious, like, it sounds like, I appreciate the insight into, like, the bottoms-up builds, but do you mind giving a little bit more about how you approached building the model, what the process looked like and, like, how long this actually took you when you got there?
The Process of Building an Operational Model
[00:05:09] Jenny Jao: Yeah, it’s a great question, and I’d say it is different for every, there are slight differences than across companies. I think in you know, in my experience, I’ve seen it built in several different ways. The first thing, I like to take it in three steps. So, the first step is understanding the key drivers of the business.
[00:05:27] And so, to me, because the model is really just a tool to help you reflect the business, you wanna be able to take the key drivers and drive the model off that. So, every company could very different, it could be, like, how you build your revenue, it could be how you build your expenses, so I would say that’s the first step.
[00:05:48] And then the second step is understanding what views and metrics are relevant to your key stakeholders. So, that would include your executive team, it could include your board. And, and what I mean by that is it’s less about the output because you can always build output off of, you know, the model and you can cut in a lot different ways.
[00:06:09] What I really mean is definition of those metrics and also the out, the model structure. So, for example, if your, your stakeholders want to see, you know, pipeline based on enterprise and midmarket split, your model needs to be built in that way, and so I would just be, I like to be mindful of that.
[00:06:31] And then the third step is building the model. And I have a particular style of, of setting up my model and some of this comes from my days in investment banking, so I like to have all three statements in one tab. To me, it’s easier to visualize, granted, if, you know, if your preference is to have in, in separate tabs, by all means, do what’s comfortable for you.
[00:06:57] I also like to have all my assumptions in one cap, and it just makes it cleaner to know what variables to flex, and so that’s, I found that’s helpful. Otherwise, we also run the risk of forgetting an assumption that’s hard-coded in, in the model. For SaaS, software as a service, the two most important build in my mind are the ARR, which is recurring revenue, build, and headcount plan.
[00:07:22] So, the ARR build includes your pipeline assumptions, your new ARR or some people call it booking, turn nutrition, your sales, like AE, SDR schedule. I like to look at ARR in two different ways. One is conversion of that pipeline and then two is sales, quota attainment. And to me, like, taking those two methodologies is a good way to try and to make sure, you know, the assumptions I’m running through the model makes sense.
[00:07:52] And then on the headcount build, I guess, pretty self-explanatory include new hire plan, comp increases, commission payout, employee attrition. And I like to build it, at this stage, I like to build it down to the individual. Uh, and, you know, when you hit a certain level of maturity, you probably could get away with just the, a team-level build.
[00:08:16] Joe Michalowski: Yeah. Love all of that. I think, I like that you’re talking about personal preferences and what this actually looks like. It’s not a side of this conversation I get that often, I realize, like, it’s a little nitty gritty and so usually when I ask this question, people, like, don’t think that maybe you want that information, but I love that information,
[00:08:31] so I, it’s nice to hear kind of how these can be personalized because I know, like, just by hearing people talk about it differently that it’s so different for everyone. Logistical question, like, so you step into Sprig, and how long does this take you to build? I feel like, I know they can be pretty beastly, so I, I’m just curious, like, what the end-to-end timeline looked like.
[00:08:52] Jenny Jao: For sure. Obviously, with a more complicated business model, the longer it would take. With Sprig business model, currently on the simpler side, so I would say, I typically give myself a week to build, mostly be, and it’s not the building piece that takes a while, it’s the iterating and aligning on assumptions, and there’s some back and forth with stakeholders,
[00:09:18] so that piece takes, you know, just takes a few extra days. And then on the monthly updates and before forcasting, I’d say maybe a few days. There’s inevitably gonna be something that’s not, doesn’t look quite right when you look at it,
[00:09:33] Joe Michalowski: Yep.
[00:09:36] Jenny Jao: check and see what’s driving that. Um, I always like to be able to explain variances between actuals and forecasts, so that takes a while to just stuff out, you know, and makes field explain why the numbers are the way they are. And then, I also spend time reviewing the financials with business partners. So, for example, it would be, like, the CTO or the head of, you know, engineering, your go-to-market leaders.
[00:10:02] I have a department-level budget that I provide each of them at the end of the month, I guess rather the beginning of the following month and I also ask them what, about their expectations for the rest, the number for the rest of the quarter and that gives me just a better insight with how I should forecast through the rest of the year. And because our business keeps changing, these assumptions actually move quite a bit, month-to-month, so I do wanna make sure that I have the latest and greatest in the, in the month. Yeah.
[00:10:34] Joe Michalowski: Yeah, it makes a ton of sense. I think it rolls back to the, the flexibility conversation we had, I think, obviously, I think the ideal is to be as agile and sort of flexible as you can. And I just don’t think a lot of companies are there, and so I, I think it was, was it Sean, who was the, the C, the CEO or the head of ops?
[00:10:51] So, I think it is why he was probably so excited. He was like, “Oh wow. Somebody came in, and they, they got this done because this is not, this is not easy.” And so, I wanna talk a little bit about the challenges because it’s hard enough to do that it prevents companies from being flexible at all. They just have, like, their annual operating plan and they’re kind of stuck in it for a while,
[00:11:11] so I’m curious, like, what were some of the biggest roadblocks that you hit along the way while you were trying to build this out?
Challenges of Building a Flexible Operating Model
[00:11:19] Jenny Jao: Yeah. The biggest challenge and I think, you know, start it slow, well, find this relevant, is the lack of historical data. So, we have, you know, maybe six months that we can trend off of because we’ve made all these changes, and it’s not necessarily like a business pivot, it could just be, like, the go-to-market motion or the way you staff up your engineering team, whatever it may be, like, the big changes like that make it difficult to trend.
[00:11:49] So, I’ve had to get a bit creative with how I forecast some of these line items. The other pieces, for example, with COVID, travel, and entertainment has been a line item that’s been very different in the last couple years, and so how do you think about that in the next 12 months to 18 months? You know, and if you wanna trend even beyond that, like, if you want a 3-to-5-year model, then that’s even more challenging.
[00:12:15] So, I would say that that’s probably the biggest, biggest issue I have.
[00:12:20] Joe Michalowski: Yeah, I can imagine. I mean, I work in content, so I, I don’t have to do this, but I can’t imagine trying to plan out what a startup is going to look like in three years. And so, I mean, even a, even a large company, but this, they, things just change so quickly. Even, like, if you’re just a department, like, someone outside of finance, like, you know that the company is evolving all the time, like, your pricing changes, your packaging changes,
[00:12:44] you’re, I don’t know, you decide that you’re gonna be product-led all of a sudden ’cause you add a new product line, and now it’s just a whole extra nuance to it. And so, really love that, that all of this is kind of about staying flexible and building in that agility where you can. So, the historical data, the trend data, I assume this is part of the next question, but I’m curious if there are others, but, you know, you’re coming from BlackLine
[00:13:09] and so it’s massive company versus startup and so, other than, you know, obviously, BlackLine, having a lot more historical data to work off of, if there, are there any other points of comparison or challenges that you dealt with at Sprig that are different from when you were at that large company?
[00:13:25] Jenny Jao: Yeah. So, I’d say, like, with, it’s, it’s all about how you, how the data is, is structured and the challenge, that’s probably the biggest challenge, I’d say, like, on
[00:13:35] Joe Michalowski: Sure.
[00:13:36] Jenny Jao: what might be easier is that we just don’t have the level of complexity, we don’t have as many products, we don’t have as many, like, international markets,
[00:13:46] so we don’t have to take into account a lot of that detail that I had to deal with at Blackline, but what’s more complicated is, you know, the model sensitive and, and I’m very sensitive to, to the assumption. So, it’s more, it’s more than just the, the lack of historical data, it’s just any assumption I put in right now can really move the needle. And maybe it’s, you know, tens of thousands of dollars here versus BlackLine,
[00:14:12] I can get away with tens of thousands of, you know, it might be an issue with, like, millions of dollars, so it’s a different reference in margins for error.
[00:14:23] Joe Michalowski: Yeah, rounding errors versus we took it to the board and we got a number wrong and now all of a sudden, like, we’re growing two X instead of three and a half X, and it’s like, “Oh, this is a very different-looking startup than it was a minute ago.”
[00:14:36] Jenny Jao: Absolutely.
[00:14:37] Joe Michalowski: So, yeah. I totally hear that. I just like, I like getting the, the perspective of the two different sides ’cause so much, so many of the people I talk to and the experience I have is all in startups
[00:14:45] and so I really like when people come in, and they can kind of give that future look. It’s like, “Hey, this is where you’re heading. Like, this is what you’re gonna deal with later.” So, really like that. I think, the last kind of broad question I have about the operating model that you built is about Sprig specifically.
[00:14:59] Are there any, like, I know you said that the model or the, the business model and everything is relatively simple at this stage, are there any nuances or complexities that are unique to Sprig that you had to manage based on, I dunno, maybe the products you sell or certain ways that you run the business in different departments?
[00:15:18] Like, are there ways that you had to build this model to adhere to Sprig’s sort of nuance as a business?
[00:15:24] Jenny Jao: I would say it, it follows a pretty traditional, fast business model, so the, the revenue build is, is pretty standard. And even though, you know, we price, we, we take the usage-based pricing method, which is different from seat, and I would say seat-based is probably more popular amongst that. Even then, like, from a modeling standpoint, it doesn’t really affect how I build it
[00:15:50] and that’s mainly because I’m not taking a person’s quantity, I’m taking, like, conversion-to-pipe and quota attainment. So, it, it’s just a different view. On the expense side, I would say, I don’t think there’s anything that dissimilar either, with headcount, you know, the company, you might just put in different assumptions. We would benefit, like, may, maybe there’s some differences and what the numbers are because our health and benefits might be different. But other than that, from what I can tell, it’s not that different. It’s mostly just like what the numbers actually are. And, but yeah, over time, like, if we launch a different product and we wanna price that differently, and we’re gonna comp our reps differently, like, potentially that could introduce a little bit more nuance that wasn’t, you know, isn’t doesn’t exist today.
[00:16:41] Joe Michalowski: Yeah. I guess that the way I’d probably saw it was like, “It’s not easy now, but it’s simple, and so you gotta, like, enjoy these early days while you don’t have some of that extra complexity as it moves along,” but, yeah, again, I’m, I’m sure it’s never an easy task, but at least you don’t have some, like, crazy pricing model on the side
[00:17:00] that’s like, “I need to build this whole thing, uh, from scratch.” So, good to hear. That’s probably a, a better answer than if we had to dig into, you know, 30 minutes of some crazy thing you had to do with the model to, to adhere to the business model. I want, you mentioned both of these earlier, you mentioned that the AR, ARR build, the revenue build, and headcount planning
[00:17:18] and I want to get deeper into both of those because they are the toughest parts of any model, as far as I can tell and they kind of set the stage for the rest of the, the business. Like, if you get those wrong, like, your plan is, is kind of meaningless. So, I know you mentioned, kind of quota attainment,
[00:17:36] so it sounds like you’re doing, well, actually, let’s start with, uh, the AR, ARR build, and if you’re doing quota attainment, it sounds like you’re doing, like, a sales capacity kind of model. You talked about bottoms-up models, but can you just give another breakdown of how you approached it, why you chose that model for Sprig, as opposed to, or I guess, like, what other options you considered curious,
[00:17:56] like, what that process was when you got in?
Building the Components of an Operating Model
[00:18:00] Jenny Jao: Yeah. So, when it comes to sales capacity, to me, that’s the most tangible way to get to ARR because your reps are, they are rewarded to hit a certain number, and so, typically, especially at larger companies, I would say that’s the methodology that they lead with, and I would say also that larger company, your attainment number has more historical data you can pretty easily, like, rely on whatever that percentage is
[00:18:31] and you also design your quotas in, in a way where it’s like, there’s a number and it’s pretty consistent for startups, maybe a little less relevant, just because the performance might flow with it more and
[00:18:45] Joe Michalowski: Yep.
[00:18:46] Jenny Jao: that’s natural, I would say. Uh, part of that is that sales process is still maturing. You’re still hiring, you know, your, your reps, and they’re still ramping,
[00:18:56] so there’s a large percentage of ramping reps, which also introduced just volatility. But overall, I would say those are the two methods that I would always build. I just probably spend more time on the pipeline conversion model right now at Sprig, just because there’s more emphasis there. We focus a lot on pipeline generation, what it’s likelihood that pipeline closing and when, and where is it coming from,
[00:19:27] like, what force channels and where, like, what size business are coming through the door, is it enterprise, is it in-market, small business and so, because of all of the attention around that particular, these particular metrics across, you know, the executive team I just, I spend a lot of time there. It also, we also use it to set targets for not just our, necessarily our sales team, but also marketing as any pipeline generation team.
[00:19:56] So, there’s just a lot, there are a lot of stakeholders in that right now. And then from a revenue-build standpoint, you know, all, all I focus on once I get pipeline and understand, like, what the numbers are there, it’s more around, like, what the conversion rates are. And that’s probably the piece that I have the least come for right now because conversion rates can vary quite a bit depending on what we’re testing
[00:20:23] and we’re just not, you know, we’re not a big enough business where there’s great trend data there. But overall, like, all that pipeline data feeds into what I call “New Logo Revenue” or “New Logo ARR,” and then once you have a good sense of what that number is, then you look at what your account growth revenue is, which is basically revenue from existing customers,
[00:20:44] and then you look at your term and attrition assumptions, which is basically revenue that you expect to use. I would say, like, given what we’re are, where we are today and the environment, we’re probably seeing maybe a little bit more of that than say last year. And then those three pieces, you aggregate that and that gets your ARR, and then to get it down to revenue, it’s just, it’s the revenue recognition. So, that, that’s how I would approach the top-line build, and that’s not that dissimilar from what I used to look at, it’s just which build is more reliable.
[00:21:20] Joe Michalowski: Yeah. Makes a lot of sense. I think, I mean, we, we’ve talked about, at Mosaic, we know that sales capacity model with the, like, the commission rates and the on-target earnings and the sales rep ramp, like, that is a very standard way to do, so we offer a template. The one that we don’t talk as much about is this pipeline kind of approach that you were talking about,
[00:21:40] so I would love to know a little bit more about, like, I, I’m guessing because I don’t do this work, so correct me if I’m wrong, you need to start with kind of the pipeline assumption. So, if you’re a startup, you can’t,
[00:21:54] Jenny Jao: Yeah.
[00:21:55] Joe Michalowski: I don’t think you can just, like, build it off of historicals, like, “Oh, we, our pipeline was this in Q2,
[00:22:00] so in Q3, we’re gonna bump it up by 10%” ’cause you need to grow a lot more than that, so how do you decide kind of what the starting point is, um, as a business? Is that just tops-down, based on, like, what the revenue targets are? I’m curious, like, how you approach that?
[00:22:14] Jenny Jao: It’s a bit of both. So, we goal our, so every team we, we get it down to the, the sourcing team level. So, for example, marketing would be based on a pipeline to spend ratio, and there’s, there’s, like, targets that we, we set there. So, basically, for every dollar of marketing spent, how much of pipeline are we expecting for, from that dollar
[00:22:40] and then that gives you what your marketing pipeline should look like. And we get it. We, we also segment that by enterprise versus mid-market, mainly because our sales cycle is so different, and we wanna make sure the pipeline is converting, we wanna see how the pipeline’s converting. And then with SDRs, it is based on, like, a meeting target,
[00:23:07] so whatever your top-of-funnel metric is, uh, is what I would use. And for us, it’s meeting. And we have, you know, we set targets, we figure out how many meetings they need to create to get to some level of pipeline. And then, once you look at, and then, you know, you apply average deal side to that to get to a dollar value
[00:23:28] and then you look across, you have a few other sourcing channel, but once you get that mix, then you can also share at it and see if that’s the right mix that you have in mind and tweak assumptions as necessary. That’s how I would start with pipeline. And then, the next piece, which for us is more relevant because our, you know, our enterprise cycle just takes a little bit longer, is we try to see what is, so that’s pipeline that’s generated,
[00:23:58] when do we think that’s gonna close?
[00:24:01] Joe Michalowski: Yep.
[00:24:02] Jenny Jao: And we have assumptions, like, is it, uh, is it two months later or is it a percentage in the first month or whatever it is, um, and, and that part can get a bit messy. So, again, really varies on, on the business, but once we get a pipeline to close number, then that gives us some idea of what, you apply the conversion rate shift to that, to get to your revenue numbers.
[00:24:25] Um, so there are.
[00:24:26] Joe Michalowski: Are those, are those conversion rates, I know they get messy and they, they vary, are they more historically-based? Like, we look at the last three, four months and we, we just see, yeah, I can, I can see where there’s some discomfort there, but honestly, like, I mean, what else are you gonna do, like, other, other than just, like, apply a number just because, like, I, I think that’s kind of the only, the only option you have is to, to base it on what’s gone on in the past and hope for the best.
[00:24:50] Jenny Jao: Exactly. We, we do also look at what are, what a target conversion could spit out, and that gives us an idea, and you can work backwards to figure out, “Okay, if we get to this target and if we don’t, we only need to create this much of pipeline.” So, you’re hoping what you’re trying to do is giving you, give your stakeholders a range so they can get them
[00:25:17] at least a few levers they can pull. They can either improve their conversion ratios or,
[00:25:21] Joe Michalowski: Yep.
[00:25:22] Jenny Jao: which gives them some relief on the dollar pipeline they have to generate.
[00:25:27] Joe Michalowski: Yep. Love all this. I, I appreciate you going deep on this because, you know, the last thing I wanna do is have a conversation about this, which is just, like, exactly what the most basic, like, bullet points would be, and so I really appreciate you kind of digging into to how you think about this, I think it’s most helpful to, to anybody listening and that needs to, to do this as well,
[00:25:47] so this is great. I want to switch gears to headcount planning because we, as a company and as somebody who does the content at this company, talk a lot about top-line planning. It’s, uh, it’s, everybody’s, like, main focus. It’s like the, the hot topic because that’s your revenue and, like, everybody wants to talk about revenue.
[00:26:04] But what I have heard from our CS team that they all have finance backgrounds, is that headcount planning is the process that nobody in finance really ever wants to do or talk about, but is that, like, absolutely crucial to what the company does ’cause it’s so much of the company spend. And so, we just don’t talk that much about the process
[00:26:23] and so I would love to hear from you, like, more about what that process is. I know you said you’re, uh, planning at the individual level right now, like, what’s the end-to-end headcount planning process and, like, how do you go about modeling? I would love anything you can provide
[00:26:38] Jenny Jao: Yeah.
[00:26:38] Joe Michalowski: insight into that.
[00:26:39] Jenny Jao: First of all, I would say it is continuous and,
[00:26:43] Joe Michalowski: Yep.
[00:26:44] Jenny Jao: and it is, I don’t think I’ve seen, I’ve been at a company where it is clean and straightforward, there’s so, there are so many nuances with that. My general take on all of this is I have learned to work really closely with the executive team, the ops HR team have, like, a talent acquisition within your HR team then definitely that team. And the, the, the reason is there are, there’s inevitably gonna be, like, multiple headcount sheets floating around different teams, right? Your recruiting team has a sheet that they track, what open track they have. Your ops teams have their plan based on, you know, whatever now they need, and your executive team is trying to figure out, like, how to plan, you know, this next quarter or 12 months or whatever it may be.
[00:27:37] So, with that, you need to have a source of truth, and so I like to think that finance at least owns the headcount, needs to be overarching headcount plan, and so basically my job is to make sure that I have the latest figures from all the different teams and that I communicate these numbers back out to the team so that they have, you know, the right numbers.
[00:28:04] That’s the hardest piece. And then also with, it doesn’t happen so much at startup, it happened a lot more when I was at, you know, larger company where there’s movement because you, you know, instead of, you see this a lot in, like, CS, because, for example, CS rep might be at the job for 12 months and then they might wanna move to another part of the organization,
[00:28:26] like, they wanna be a sales rep, or they wanna be an account manager. Our, actually, our SDRs, typically, are only in the role for 12 to 18 months, and then they move into other roles, and that’s just part of career trajectory and professional development. And so, all of that movement has to get reflected in head counseling, and then it opens up rep, and it, you know, you fill certain roles, but it just gets really messy.
[00:28:55] We don’t have that issue as much as, you know, as a startup, because with, I dunno, a hundred people, it’s a little easier to manage that, but that’s the biggest, I would say that’s the hardest part. And then the other piece is aligning on what hires you need. And this is where there’s a little bit of jostling and cost teams,
[00:29:15] like, “Do you really need an extra CSM or do you really need, you know, a CS engineer?” or things like that, or, “Do you really want a mid-market rep or should we really build out the enterprise, the team is?” It’s question, there are questions like that. And we revisit this on a weekly basis, and I would say, I think even in my previous experiences, it was still weekly just because the numbers move constantly,
[00:29:42] and then once you have the count, everything else, it’s a little bit easier, you know, you can debate the benefits, but by and large, like, that’s a set number. And then, seniority-wise, like, that affects compensation, but those are numbers, like, pretty much every HR team has compense. So, once you figure out whether this person’s a manager or director, like, you can figure out what those numbers are. So, that part’s pretty straightforward.
[00:30:08] I would say it’s the, it’s the number and the count that takes the most amount of time.
[00:30:12] Joe Michalowski: I, uh, man, we, I got hung up on weekly ’cause that just sat, like, I think, basically, I was trying to write an article one time about headcount planning. I was like, “Oh, like, this is important. Like, I’ll, I’ll write an article.” So, I grabbed one of our CS reps who has been a financial analyst before, and I was like, “Hey, like, can you just walk me through the process.”
[00:30:30] And his eyes rolled back so far in his head, and he is like, “Oh my God, don’t take me back to those days.” So, I could just imagine, like, weekly conversations trying to figure this out. It, it sounds very complicated, very difficult. I’m curious, like, is there anything from the finance seat that you can do to help kind of guide,
[00:30:51] like, the, who we should hire ’cause that, that sounds like the biggest part of that weekly conversation. Like, that’s what you mentioned a bunch, like, obviously, that’s up to, you know, the, the CS leader, knowing, like, what they need, but is there anything you can do to help that process?
[00:31:03] Jenny Jao: For sure. I use some benchmark, little less relevant at a startup, just because, you know, you’re building your focus on that. At larger companies, you generally have a, a sense of what the percentage you want your, uh, income statement to be across R&D, sales and marketing, G&A in. And so, usually, since headcount is what, 70, 80% of cost, you can use
[00:31:33] Joe Michalowski: Huge.
[00:31:34] Jenny Jao: these for, like, margins basically, to give you some idea of what’s appropriate. And all you’re trying to look for is that you’re not completely outta whack, you know, are you really spending, you know, 70% of your head in G&A, you know, things like that. Um, otherwise, and, and at start, the band are just, the numbers are just different,
[00:31:57] you, you know, a lot VCs do publish, you know, there are, like, surveys across different startups. That data is public out there. Certainly, good benchmarking. The other piece, and this particularly relates to sales heads, is how that translates to revenue. So, for example, every sales rep has a ramp. It varies depending on your product, the size the of the company, your sales process, but let’s say it’s anywhere from, like, 6 to 12 months. When you hire that person in seat, you’re not gonna get revenue from that person. You’re carrying that cost, though. And so, it does take, particularly at startups, you know, we’re sensitive to every hire we bring in. You’re, you do see that financial impact immediately, and then what you’re hoping is that that person produces when they’re fully ramped. But I take that ramp, I take a, a hard look at that because, often, for some reason, it’s always destruction. Seems like reps take longer to ramp than what’s in the plan, and so I track, you know, when they start producing, how much revenue they’re bringing in relative to forecasted, and that gives me a sense of what I need to push out. And I would say that for us it, it is very critical just because of how fast we’re trying to scale our go-to-market team.
[00:33:22] Joe Michalowski: Yeah. We’ve talked about the same, the same topic here. We, we wrote an article I learned a lot about how complicated it is to actually, one, to figure out what, I think it sounded like a lot of teams just say like, “Ah, like, we’ll, we’ll set it at three months, and we’ll build our model assuming that, like, they do 25%, then 50%,”
[00:33:39] and it’s like, “That’s great, but like, does it actually happen in practice?” And so, what I, what I have heard and what I’m hearing now is that, you know, as the finance person, you have all that data so you can actually see, like, when they start producing and so you get the real number of the ramp time, not the, like, idealized, like, “Yeah.
[00:33:56] We hired them and then, like, in four months, it’ll be fine.” So, really like, kind of hearing how that impacts the headcount planning process because it just sounds like a really tough thing to do, and don’t envy all of you people.
[00:34:07] Jenny Jao: It, it is. And it’s one of those things where in hiring is tough because once you hire the person, you know, you don’t wanna let go the person, right? So, it reduces, you know, financial flexibility. So and, and every hire impacts your dashboard, so you just have to be very thoughtful around the timing of when you bring in that person.
[00:34:30] Joe Michalowski: Yeah. Makes a lot of sense. I, uh, I have one more headcount planning question. I just looked at the time, and I was like, “Oh man, I’m eating up a lot of Jenny’s time,” so I appreciate you bearing with me. Are there areas, so obviously this is a very complex process, the headcount-planning piece of the model, are there areas where the headcount-planning model often goes
[00:34:47] wrong or in your experience, or, like the, the most nuance where, you know, “If we get this piece wrong, it kind of breaks the whole thing.” I’m curious what are those inflection points that, that people get wrong often?
[00:34:59] Jenny Jao: My answer’s probably not what you think I’m gonna say. It’s communication.
[00:35:03] Joe Michalowski: Ooh.
[00:35:04] Jenny Jao: So, it’s not getting full alignment across all your teams, finance, HR, your executive, your TA. That’s, I would say, is by far the number one, you know, way that headcount planning goes wrong. I can’t tell you the number of hours I’ve spent
[00:35:23] loved it, but, at Sprig reconciling headcount across different sheets. And so, that, and that’s, believe it or not, not easy because, for better, for worse, regardless of the team size, a lot of this is still tracked in Excel and, you know, there is software out there that does position management, there,
[00:35:45] there’re probably, there’s probably software out there for whatever reason, you know, a lot of teams still track this manually. So, it is, it, that’s probably the biggest issue, and when you don’t have alignment across the numbers, it makes it difficult, you know? Obviously, your forecast could be thrown off, your, your chasing might not be chasing the right number of, X number of roles that you need,
[00:36:10] so it, it just makes it really, really tricky. The other piece, I would say that I see at a general pitfall is the lead time it takes from when recruiting starts and when the employee needs to start. And I like to call it, like, “button feet.” We often underestimate the lead time it takes, so headcount plans are generally more aggressive, which puts, unfortunately, our talent acquisition teams constantly behind schedule.
[00:36:39] It’s, you know, it benefits us from a cost standpoint because obviously the higher doesn’t come in until two months later, well, there’s two months of savings you just realized without doing much work, but if it’s a sales hire, then that delay in the cap, in capacity has revenue implications. So, uh, in generally I would say, regardless, whether you’re a startup or you’re publicly traded company, your, your sales hire probably takes a good chunk of your hiring
[00:37:08] so that’s the piece that I’m, I’m very careful with.
[00:37:13] Joe Michalowski: Yeah, I think that all makes sense. The idea about reconciling the headcount across, like, the five different, probably more than five, a lot of different sheets is, uh, daunting and obviously, like, if your sales leader is like, “Yeah, I, uh, have it right here in the spreadsheet. We’re gonna hire eight new reps,”
[00:37:30] and then talent acquisition is like, “Oh, uh, we had three,” and finance is like, “Well, we had six, so where are we all at?” And so, yeah, just sound I, I can, uh, I’m getting a feel for why our CS rep was so not thrilled that I wanted to ask him a million questions about headcount planning ’cause it sounds, it sounds like a.
[00:37:48] Jenny Jao: It’s pretty tedious. Yeah. And the only solution I’ve found that’s tactic, tactically that’s helpful, is weekly things, just getting people in the room and talking through it. I haven’t really found a, a way to automate this problem. Could be a new startup.
[00:38:03] Joe Michalowski: Can’t automate conversations. It’s, uh, it’s, uh, not the part of the job that you can automate away for sure. Cool. I, I have two more questions for you, and I want to kind of sum up the, the modeling side of things that we’ve been talking about. And again, appreciate, like, the depth of information that you’ve been giving.
[00:38:20] but broadly, like, what, I don’t know how long it’s been since you built this out, months, I believe, I don’t know, I can’t.
[00:38:27] Jenny Jao: I think I started, yeah, in February.
[00:38:30] Joe Michalowski: So, okay, so we’ve had this since, since about February. I, I don’t know if that’s enough time to notice, but I’m curious, what are, like, any benefits that Sprig has enjoyed, the feedback
[00:38:40] you’ve gotten, uh, maybe from Sean, because Sean was so excited about it, just about building this flexibility into the operating model, what does Sprig get as a company because you did it?
Benefits of a Flexible Operating Model
[00:38:50] Jenny Jao: Yeah. I think Sean can probably explain this better than I can ’cause he saw it before, the before and
[00:38:55] after. I think from just my interactions with various members on the team, the first benefit is just having one source of, for all financial data. So, now, you know, I can become a go-to person in the model is go-to place to look for any metric that’s related. Cash burn, your magic number, your gross margins, whatever it may be. The second, I would say, is just the ability to run different cases. So, with our business model, you know, we were making changes, we’re trying to test different things, and we’re testing different price points and running different cases through the model is helpful just to see what the range of outcomes are.
[00:39:41] And we weren’t able to do that before cause if you, if it’s not consolidated, you can’t really see all the different, how the different metrics shake out, so I think that’s the second key.
[00:39:51] Joe Michalowski: Right.
[00:39:52] Jenny Jao: And I can do it live, generally, you know, assuming that it’s, you know, already modeled and structured in that way, if they wanted to see different revenue cases, I can just switch toggles pretty quickly.
[00:40:05] And that’s helpful because, you know, will call with our executive team and they want to, they’re making strategic decisions around should we do, you know, should we go into this space or should we hire this person to do that? I can get that feedback to them quite quickly. Um, and so I think that that’s probably a tool that they might not have had, you know, at their disposal before.
[00:40:26] And then the third is just general comfort in the forecast. I would say the, the accuracy of the forecast and it’s difficult with a startup, but generally it’s, you know, within range, like, it, the margin for error, it’s, it’s in an appropriate level for where we’re at. And I don’t know if I, you know, I, I don’t know if that was the case before, but just because of all the different builds and detail I have in the model, and we’re a subscription business,
[00:40:54] so it’s recurring revenue, you have some level of comfort that that revenue is gonna be, it’s gonna trend a certain way. But I would say that’s the third.
[00:41:03] Joe Michalowski: That’s all great. I, I’m sure it’s a huge advantage to, to the executive team. I’m sure Sean is very appreciative to have it versus before when they did not. And I, I think it, it, it all goes back to something you said at the beginning, which, uh, is that the financial model is really a tool for running the business and, uh, something I’ve heard time and time again is, like, it’s very common for financial models just to become, like, this exercise in putting together a spreadsheet and then no one looks at it, and it’s like, “Okay, like, we did it, but, you know, what was all that time for?”
[00:41:34] And so, it sounds like you’ve really, everything we’ve talked about is, like, an approach to build it in a way that you can actually use day-to-day and guide the business forward, which is what you want. So, love all that. I have a, I have one last question for you. It is, uh, super broad, so no more modeling, no more anything, unless you want it to be,
[00:41:53] but more on the career side. What is one thing you know now that you wish you knew when you started your finance career?
Finance Career Advice from Jenny Jao
[00:41:59] Jenny Jao: Yeah. So, I started my career in professional services, not corporate finance. Uh, so I was bit naive to all the different functions and teams that exist on the operating side. Um, for example, like, marketing, uh, there’s marketing analytics, there’s content, there’s social, there’s, you know, there’s so many different things out there
[00:42:20] and I wish I was more aware of those career paths. Even in finance, for example, I once thought that in order to be a CFO, I had to have been an accountant, so I wrote that off, you know, as, as a career, when I first started. And that might have been true maybe a decade ago, but the office of the CFO has changed a lot in the last 10 years.
[00:42:44] There are roles now that didn’t exist before, like, strategic finance, for example, I’ve seen more and more of that, that wasn’t as popular, right?
[00:42:53] Yeah, exactly.
[00:42:53] Joe Michalowski: We love that here.
[00:42:55] Jenny Jao: So, perhaps I could have been a bit more strategic with my experiences, you know, at least experiences I wanted to get early in my career, but, you know, now I know, so I guess part of the journey.
[00:43:08] Joe Michalowski: Yeah. I mean, things change. It’s, um, I, I thought the same thing, I was like, “Oh,” well, I, I, I was, like, an English major in school, so it was like, “Oh, what, what are you gonna be?” It was like, “You’re gonna be a teacher.” It’s like, “I don’t want to be a teacher.” They’re like, “Well, I don’t know what you’re gonna do then.” And I don’t know, if you told me when I started that path that I was gonna end up here doing a podcast with Jenny from Sprig about finance,
[00:43:28] like, that’s just not, it was not gonna be on my radar.
[00:43:31] Jenny Jao: Yeah,
[00:43:31] Joe Michalowski: And so, I guess, like, just being more open to, to different paths and opportunities ’cause, like, you, there’s a lot of different ways to get to where you want to get to, so I think it’s really great advice. I think it’s a good one. Cool. Well, I, I’ve taken up enough, enough of your time,
[00:43:44] so again, very much appreciated, loved getting to chat with you about all this, but I wanted to give you the stage. Where can people go to find out more about Sprig? Where can people connect with you, learn more about the work you’re doing, ask questions if you’re, if you’re open to them? Uh, the stage is yours.
[00:43:59] Jenny Jao: Absolutely. You can definitely learn more about Sprig. We’re at sprig.com. S P R I G. Um, and I’m on LinkedIn, Jenny Jao, you can find me pretty easily. Love to connect, happy to nerd out on, on finance things and professional development, whatever it may be. You, definitely an open door, so look forward to connecting.
[00:44:23] Joe Michalowski: Amazing. Well, Jenny, uh, thank you so much for taking the time. It was great to have you on The Roll Forward, and I hope we can do it again sometime.
[00:44:30] Jenny Jao: Likewise. Thank you for having me. Take care. Bye, bye.
[00:44:34] Joe Michalowski: Bye, Jenny.
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