About
I have spent my entire professional career at the intersection of software and finance.…
Articles by Todd
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Cash-flow Dynamics in a Shrinking SaaS Business
Cash-flow Dynamics in a Shrinking SaaS Business
By Todd Gardner
Contributions
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How do you handle term sheet revisions and renegotiations if needed?
I've negotiated hundreds of equity and debt term sheets for earlier-stage companies, and here are my takeaways. 1. There is no substitute for competition. Your deal will be better if you have multiple term sheets, so pursue that path intentionally. 2. Get business advice, not just legal advice. This negotiation will significantly impact your economics, and if this is your first time doing it, get help as you would with anything else. Many lawyers are good with the docs but miss the larger picture at the term-sheet stage. 3. Model the outcomes. Know what the different terms mean to you in real dollars to varying levels of exits. 4. Don't negotiate any term individually. It's a basket. 5. Think about the next round, not just this one.
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How do you manage your annual recurring revenue (ARR)?
For those of you wondering how to calculate ARR, I have seen it done many different ways, and here is my suggestion. For most subscription models, ARR=MRR*12, and MRR is what's on your income statement. Resist the urge to create separate schedules, etc. Tieing out this important metric to the income statement, which in turn is tied to cash and reconciled monthly (at least theoretically) is the most robust and defensible approach. The exception is contracted but not yet recognized ARR. These are customers that have signed up but are not yet implemented (no revenue recognized). That backlog of ARR can get added to your traditional ARR to equal CARR (Contracted ARR). Companies that have usage-based pricing are a separate conversation.
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How do you determine the optimal price for your SaaS product?
I have recently chatted with two pricing experts about validating pricing in a sales-led SaaS business. Chris Mele and Nick Zarbl, both long-time SaaS pricing consultants. They recommended not using A/B testing because arbitrary differences in pricing will become known by your customers and generate distrust. They recommended talking with your customers and drilling into the benefits of the product. Also, working to understand how deeply integrated your product has become in your customer's infrastructure. Customer Advisory Boards can be useful, and should be started early. They also recommended talking to your sales team consistently about pricing and also listening directly to sales calls.
Activity
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What is revenue leakage? How is it Valuation Kryptonite?
What is revenue leakage? How is it Valuation Kryptonite?
Shared by Todd Gardner
Experience
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Education
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Indiana University - Kelley School of Business
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Activities and Societies: Top 10% of Class, Founder and CEO of IU Business Consultants
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Activities and Societies: Cum Laude, Omicron Delta Honerary Society, Sigma Chi Fraternity
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Volunteer Experience
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Chairman, Finance and Strategy Committee
Mercy Health Partners
- 9 years 1 month
Health
Mercy provides comprehensive healthcare services to the Cincinnati region through 6 acute care hospitals and dozens of physician offices and outpatient facilities. Annual revenue exceeds $1 billion. The Finance and Strategy Committee reviews and recommends major capital investments and business model changes brought about by healthcare legislation and market trends.
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