E8: How SaaS pricing is about to change - with Johnnie Walker

The way that people are gonna price SaaS, it's all gonna change. It's all getting disrupted.

What's one piece of advice you would give finance leaders scaling their team?

Hiring is always a challenge. And I think that with finance, you kind of need to make sure they succeed. Like, you need that success rate to be high because it takes a lot of time to get some of these people up to speed.

What's one trend in finance and accounting that you believe will shape the next five years?

I'm gonna pick the obvious one, which is the whole AI agentic chat stuff because we're gonna be in a world where we're talking to our spreadsheets for a certain portion of way we work with them.

And that to me is pretty exciting.

My main phrase when it comes about AI is the future is here, just not evenly distributed. And there's already a glimpse of what everyone will be doing in the next few years.

There's a lot in which makes our lives pretty fun, as well as more of a challenge. It's a great time to be in it.

You're listening to the 10x finance podcast. Quick, candid conversations with the people shaping modern finance. Hosted by Albert Gozzi.

Hello everyone, and welcome to the 10x Finance Podcast, where we dive into the real challenges and opportunities shaping modern finance teams. I'm Albert Gozzi, Co Founder and CEO at Aleph. And today, I'm joined by Johnnie Walker, Co Founder at Rooled. Johnny, it's great to have you here. Are you ready to jump in?

Yeah, very much so. Excited to be here. Thank you, Albert.

Always a pleasure to spend time with you on on this. So, Johnny, before we jump into your hot take, would love if you can give a, you know, thirty second background of yourself and role for those of out there that might not know you?

Yeah. Thank you. Thank you. Yes. I'm Johnny. I'm I'm one of the co-founders of Rooled.

My background actually is does start off in engineering, which I think is some of the topics that we're gonna get into is actually of some benefit the way that finance is evolving at the moment, with all the technology. But, yeah, fast forward through, I I did fractional CFO work, you know, ten years ago. I found my way into temp CFO, which was the precursor, if you like, to Rooled. Same team.

So we created Rooled about four or five years ago. We do outsource accounting and finance for almost exclusively venture backed startups. I say almost because there's always some things that we do in excess to that. But our expertise is really in audit ready financials for venture backed companies from pre seed all the way through series c, series d.

Perfect. So, Johnny, what's your finance hot take?

So I think the you know, we've in the last, what, ten years plus, like, you've seen this very established, rubric around SaaS and the billing and financials and revenue, etcetera, and how people think about it from a pricing and license management standpoint. And what's really and I think this is very evident now with the progress of last year is that whole dynamic is changing. That the way that people are gonna price SaaS or the way that you you price a service and a platform going to a customer, it's all gonna change. It's all getting disrupted.

And that's what's really exciting. It's moving towards true value for the customer, and it's moving towards usage based, consumption based pricing. That then is partly driven by the changing substrate on which we are actually delivering the business, so all the AI models become very usage oriented in their cost base. And that is just gonna make the whole world for finance ten times more difficult because it's all about predictability.

It's all about, you know, revenue and the cost base. Like, how are you actually going to forecast revenue when you can't rely upon a recurring revenue for the next twelve months in some base level? So I think that to me is gonna you know, I think we're starting to realize it now, and it's gonna be a really exciting time. I think exciting.

Scary.

Yeah. Exciting and scary. And and I agree. And I think there's 's a few angles to break this down, so I would love to go and talk a little bit about each.

I think there's what that means for finance as the one forecasting revenue. I think there's a flip side of what it means for finance, for forecasting cost, because all of a sudden, you know, your team uses more certain products, you get charged more, it's positive ROI, so it's fine. And then there's also something for, you know, finance as buyers even, like buying themselves software and like how the CFO stack. Maybe let's start, you know, you were talking a bit about like the forecasting revenue.

How do you think that will change?

I think, do you think there's something to learn there from other usage based models that exist today to like take that into account?

Yeah, no, I think it's a valid point because definitely, you know, making this a hot take as if this is happening now, obviously that move towards sort of consumption and usage base has has been occurring. Like, HubSpot's a great example. Base platform fee, and then there's a usage element based upon, you know, contact records or whatever in addition to that. So kinda it's a way to make in between course granular levels of pricing, it makes this sort of incremental usage.

It gives you a bit extra that you're willing to pay for in the product. So I think that generally has been happening already. But I think when you look at you know, doing financial modeling, you're always trying to figure out how do I how do I simplify? And you're you're looking to bucket customers up, and that might be from, you know, current activity.

You're trying to understand, like, how are things working right now.

And you'd I mean, if you really wanna try and get simple, especially when you're doing first iteration, you're looking for, you know, small, medium, and large customers. And in the SaaS world where it was just pure, you know, there's the revenue per year that translates an MRR, you kinda just bucket it up and chose like an average for what the ARR would be on a per on a customer size level. Bang. You're done.

Now what you've got is, I think, very reasonably, there's quite a distribution of actual revenue underneath those categories. And that's where all this usage, you might have a base platform fee, but then you've got this incremental usage on top. And that's where I think you've got, you know, you're gonna, the actual challenge of projections becomes one of really trying to look into that crystal ball to see how might the actual customer usage or adoption of these platforms actually pan out. And I think adoption is another very key thing.

Like, you can in those worlds, your revenue is very much tied to how how much your customer uses a platform to how how effective are they actually at adopting the platform that they buy. It's no longer suitable to just convince them of a sale, get it, and then obviously there's a churn possibility after a year if they don't use it. But your revenue is gonna adjust in that twelve month period or whatever your license period is if they don't use the platform. So you've got variability across like a whole bunch of dimensions now.

And that I think at a point in a projecting financials for a company, if you don't have much track record to go on, you're kind of you're you're in this realm of like really trying to dream up these different categories to try and simplify it. And that I think is just, it's an order of magnitude harder to do that. Now than what it was previously. If you do have track record, then you've got, you know, I think there it's going to be fundamental that you have the data, labeled data that you can, you can use to to summarize up.

I think that's, you know, where obviously Aleph is gonna be absolutely essential is in collating those different data sources so that you can start to you know, it's not just finance data. You can't just trust what ends up in the ledger. You gotta look at a level beyond that into the source data, the systems for utilization and everything to actually then categorize these buckets up to use those in projections. So I think the revenue, just generally, it's gonna be a come up projections and managing it's just gonna come a lot more complex.

I think it's very interesting. And I don't know if you have thought about this, but if not, like we can even like, you know, brainstorm on it together. And I think it might be interesting for the audience that like might want to nerd out in these topics is how would you actually forecast this? I think my one of one like, how would you structure the structure the model would be my question.

Part of my mind goes to, okay, yeah, you can use machine learning, right? Like, there's a version of this that is very sophisticated, but it's probably not how I would start. I'm a big fan of keeping things as simple as possible. But yeah, do you have thoughts on how would you model something like this?

I mean, I think kind of, you know, it's a little bit back to, you know, the sort of in a way the examples that I was giving there where, you know, prior to now, you'd think of it something as coarse grain, suddenly at initial stage of, you know, bucket and the customers are small, medium, large. You might have distribution channels that have distinctly different economics associated with them. Because I think I think very quickly after revenues, you get into cost. Like, that's your other that's your other domain that that kind of is your source of differentiation or or bucketing things up.

And so I think so revenue and customer size is one thing, but very quickly, you're like, oh, how did their dynamics and cost differ? So then because you're getting through to that gross profit line, that that top line margin that you really wanna focus on to then plan for the rest of the business. So I think, you know, it's yeah. I'm gonna keep saying that again.

It's like this categorization and bucketing, which is hard. I always look in the financial models, like, you know, of course you can go down the road of Monte Carlo and having sort of statistics and sort of having formulas that might describe sort of clients and coming up with distributions. I think in those great adopting those super, but I've always looked towards having a strong degree of dependence in the or reliability in the models. Like, if I put the certain number of inputs in, I get if I put those inputs in, I get those inputs out.

And it's kinda like the way that you stress test or error check a model because you always know this is like my test inserts or inputs. And then with those, I I know for categorically, I'm gonna get this out. And that's how you kind of as you're updating the model, which might be adding new components or sheets to it, like, do you verify that you've done that right? And I think if so I'd almost hedge against I always hedge against your your your point there, I think, is so true.

Keep it simple because as simple as you possibly can, because going beyond that and creating too much complexity becomes unmanageable. So yeah, I don't know how to sort of qualify anymore than the revenue side. I think it's just every situation is going be a bit different, but bucketing still applies. It's just going to be more complex projection basis, I think.

So maybe the bucket is going to be, this is the group of, you know, US mid market that has like high activity within this persona of customers. And like, it's kind of like similar to more of a cohort analysis, but the cohort becomes not necessarily a time based cohort, like, you know, not a cohort time base, but more of like a group of customers, you know, that plus the characteristics within that group.

Completely. And I think you've you've got that added, you know, the the churn as we thought about it traditionally results from dissatisfaction in the product or, you know, stress business stress on this part of the customer. But usually, you attributed to dissatisfaction, and that dissatisfaction is kind of now measured in in lack of utility of the product. So you have this measure that I think needs to exist in the financial model, which is how much are you expecting the customer to use the product.

And that that I think very closely to the way you might model a churn, but is more fine grained now because that is going to show up as a revenue and cost differential in the period of a license. You're still going to be selling. You want to lock people into a period, but it's not you don't get churn at the end. It's like you've got lack of utility or utilization partway through.

You know, if you're I think there, you're gonna you you can imagine now with a financial model, it's not just, you know, you know, sales and, like, how's it leading to invoicing and then revenue results from that. You've also got this historical activity usage on a per customer basis that you're rolling in to look at your next one, two, three months. I don't think that's gonna change. Your your job is to be accurate one, two, three months out, really accurate, because that shows that you really have a solid understanding of how the business is operating.

Yeah. And I think this highlights again, the importance of data and how like finance teams will need to go into product usage data and like other data sources that might be a little bit outside today.

Yeah, exactly. Exactly.

One question, Johnny, I know we need to move towards wrapping the rapid fire soon. Maybe the one final question I would love to get your take on is, what does it mean for a client as a buyer? And we, as a company, Aleph, we sell to CFOs. And I've had some of these conversations already, and there's a general adversity to, you know, variability and risk.

And I sometimes do wonder, and I chat with people, whether finance is going to be later to adopt this type of pricing, even if it's better for everyone. There's some like scary component about engaging with a vendor and not knowing how much you're going to pay next month, let alone next year. How do you think about that? And what will it take to say, okay, I'm a CFO and I'm happy to say this could be zero or could be like a hundred and I don't know where it's gonna fall?

Yeah, yeah, yeah. No, I think it's I don't know of any of all the companies I've talked to, had interaction with, worked with, or whatever, I can't think of any finance department that I would say has excess budget to spend. Like, there's never it is the department in a company that has the least amount of money to spend on tools that that and resources. So I think you start off with that as, like, your baseline.

And then so it's a hard graph to actually get anything approved. And I don't think it's just because I'm internal. It's just like there isn't a perceived value from a from a business growth or profitability standpoint to spending money on finance and, or it's very difficult to justify it. And and so I think that first of all, you got that.

And the second is I think if you've got variability in pricing attributed to usage or whatever, you're gonna have to be really clear. Will I get the benefit from that additional cost? And that's the I think that's where the challenge is both as a buyer, but also as a vendor. If you say, well, I'm selling my platform and, you know, this is how the cost will change based upon what you do with it, where it's gonna have to be patently clear and proven out that you as the customer are gonna get whatever consequential benefit it is that that you think you're assuming you're being told is gonna happen.

You have to be absolutely certain that's gonna happen. And that I think they're that's that's a there's gonna be so much focus on that, I think, to get finance teams across the line with that kind of pricing, basically.

Yeah. The bar for ROI will be much higher than maybe other areas that may be a little bit less scrupulous with their spending.

Agreed. Yep. Yeah. Because I don't think you you might see some other departments as as a bit of a bucket of just to spend money and something all good always happens. Finance doesn't have that benefit.

As we go towards wrapping, Juni, we like to do this rapid fire. Three questions, short answers. First one coming is what's one mistake you see finance teams make over and over again?

Yeah. And it's funny. So, the one I thought of in this is actually change management, and it's the adoption of tools. And so in a way, it's a little bit contradictory to what I might've said.

There's so much focus on what it is that you buy and proving it out. And I think what actually happens quite a lot of the time is that people will make the decision to buy or invest in something. And then the thesis on which you bought that doesn't then transpire. And we've seen that like countless times with some of the big ERP platforms, which will remain unnamed.

There's a lot of complexity in executing on those. There's a lot of cost. And I would say the vast majority of them say that they don't achieve what they expected to achieve. So I'd say that happens a lot.

And I think with this world now where you've got a whole myriad of new platforms appearing on the market, the thing that I think will trip people up more often than not is just will they will they look back after twelve months or whatever and say, did I get what I wanted from that purchase of this product? And that's the the change management is not something that happens, you know, organically or just without intention. You need to make very conservative, clear efforts to make sure that it's being used, that you're monitoring the usage of it, that you're encouraging, that you're training.

All that stuff takes a lot. We actually did on our podcast, I'm speaking C suite with Katie Royce at Zen Business. Phenomenal overview from hers. Obviously, she's rolled out a lot of different technology in her career, and it's a fantastic description of the challenges around that.

Nice.

I'm gonna refrain from commenting, I agree on a lot of what you're saying. But to keep the rapid fire moving, what's one piece of advice you would give finance leaders scaling their team?

So it's, you know, I think I think it's what I would say hiring at any point, you you're gonna this is gonna be second nature to you being CEO of a fast growing start up. Hiring is hiring is always a challenge. And I think that with finance, there's a lot of eyeballs, I think, on the on the success of hires. Like, it's difficult to hire unless your team is big.

If you're hiring your first three, four, five people, you kinda need to make sure they succeed. Like, you need that success rate to be high because it takes a lot of time to get some of these people up to speed, and they're very integral to the business. They become these components that, you know, upon which the business actually relies. So I think it's it's just hire well, and that's through network.

In fact, I'd say more often than not, when I look at people bringing finance team hires into companies, almost always, it's a prior network connection or, you know, by being introduced to the investors. Like, there's a lot of they look for a lot of real not guarantees, but sort of comfort through the connections that they have.

And that's, I think, I can't say there's no better way to hire. I mean, that's the way we do it. So I think the hiring is an absolutely the quality of hiring really will dictate us in success.

Yeah. People underestimate how hard it is sometimes.

So I agree.

Final one. What's one trend in finance and accounting that you believe will shape the next five years? Yeah.

I mean, I'm gonna pick the obvious one, which is the whole AI agentic chat stuff, because I literally did just get off a call with your colleague, Chibu, and that we were talking about the Cloud Code Excel integration. And I think now moving towards this UI where you are not our focus and perhaps yours as well was a lot on like, how efficient are you in Excel using shortcuts? How quickly could you move around? You're gonna we're gonna be in a world where we're talking to our spreadsheets for a certain portion of way that we work with them.

And that I think that's a really that's gonna unfold over the course of the next twelve, twenty four months. And that to me is pretty exciting. I think that natural language interaction with our data and the way that we structure our calculations, I think is exciting. Will it change how we do things in the next twelve months?

No. But I think it's a, it's an important trend that, is really just like completely aligned with everything else that's going on with, with, billing and so on. But yeah, that's, that's going to be a fun one.

For sure. And, and I think like always my main phrase when it comes to about AI is this idea of the future is here, just not evenly distributed and how much if you go and if you dig deeper and if you're curious, like the top finance teams or top teams out there are doing things very, very differently today. There's already a glimpse of what everyone will be doing in the next few years. Yep. Which is interesting.

I I think I think it is it's a very as I've said to multiple people, it's a very cool time to do finance and accounting right now. Like, there's a lot happening, which makes our lives pretty fun as well as more of a challenge, but it's a lot it's it's a great time to be in it.

Yeah. Johnny, this has been great. Thanks so much for taking the time.

Thank you very much, Aleph. Always a always a pleasure.

Really good to see That's it for this episode of the 10x Finance Podcast, bringing you sharp, real world finance conversations powered by Aleph.

Learn more at get aleph dot com. That's g e t a l e p h dot com.

‍