A term used by VCs can help FP&A teams improve how they communicate with the business they support
Jason Lemkin, the CEO of SaaStr, is a recognized thought leader in the SaaS (Software-as-a-Service) industry and frequently authors blog posts. In a recent article, he sheds light on a commonly used term by VCs, “A Clear Path.”
Jason describes the value of using this simplified method to understand a company’s prospects to hit its objectives:
“While it can be more than annoying to hear all your hard work as a founder reduced to how “clear your path” is to the next stage, it’s actually an incredibly useful heuristic for communicating. Not just to investors, but to your employees, partners, and team.”
If you lead or belong to your company’s FP&A team, this may sound familiar to you. Sometimes, it can take your team months of detailed analysis to create an output of financial plans, budgets, forecasts, and scenario analyses. You start by reviewing what has already taken place (“baseline data”), incorporate macro and micro economic environments, and chart multiple paths for your company to move forward and achieve its objectives. Then you walk into a meeting with the CEO and other executives and are expected to summarize all this data into a few sentences.
This is where thinking about VCs’ communication tools, as described in Jason’s article, can be of value.
Find a way to boil down all the FP&A output your team has put together into supporting A Clear Path.
Your enterprise has short and long-term objectives. You have just spent weeks or months analyzing everything that can be possibly analyzed from every angle. While some leaders will drill into all this data with you, many want this presentation to be simplified.
Aligning your FP&A analysis into describing the clear path to support each of the CEO’s key objectives can be an effective communication method.
VCs, ask this question to founders who often only have a handful of employees at their first funding round and lack a formal FP&A team. Yet, these founders are expected to describe a path to reach growth objectives that would be daunting in percentage terms to any established operation. They need to describe the path from $5M to $100M in revenue or more and how to manage their expenses to not run out of money before their subsequent funding round.
Revenue and Expense planning and forecasting - Sounds like FP&A!
Next time you walk into that meeting with your company’s leadership, start by offering a clear path to how the enterprise can reach its stated objectives.