Sept. 29, 2021
Financial Metrics and Why They Matter to Marketers with Rob te Braake
In episode 96, host Eric Dickmann interviews Rob te Braake. Rob is a serial entrepreneur and Founder of Insight Matters. With more than a decade of experience in entrepreneurship and banking, he co-founded a technology and investment firm based in Beijing, China, and has guided dozens of digital companies as a financial adviser.
After running several technology and consulting ventures across the globe, Rob realized that there was one thing that excites him more than building his own business - helping other entrepreneurs get clarity and insight into their own business, goals, and financials. The intersection between finance and strategy is what excites him every single day.
For more information and access to the resources mentioned in this episode, visit: https://fiveechelon.com/financial-metrics-why-matter-to-marketers-s6ep15/
Send us your questions or comments
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WEBVTT
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Welcome to The Virtual CMO podcast.
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I'm your host, Eric Dickmann.
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In this podcast, we have conversations with marketing professionals who share the strategies, tactics, and mindset you can use to improve the effectiveness of your marketing activities and grow your business.
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Hey, Rob, welcome to The Virtual CMO podcast.
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I'm so glad you could join us today.
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Blessed to see you again, Eric.
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Happy to be here.
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You are now officially my second guest from the Netherlands.
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So slowly working my way around the globe with different guests.
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Excited to have you here.
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You know we live in obviously this digital age where the world is so small we can connect with everybody as long as the time zones work and you can get on somebody's calendar.
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So it's great to have you here.
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It's a pleasure.
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And I'm honored to be the second Dutch guest.
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I'm curious who the first one was.
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Yeah, so, okay you're going to put me on the spot because I don't actually remember her name right off the top of my head.
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But she was actually a guest on one of my other shows where we talk about work-life balance and yeah, it was a very fascinating conversation.
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But today we're going to get into a conversation that we really haven't had that often on this show and I'm really excited to dig into it a little bit.
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Because you know, we talk on this show about marketing, especially for small and medium businesses, and really what it takes to accelerate your growth, and the kind of tactics that you can employ to become better at what you do.
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But that comes at a cost, right?
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It comes at a cost of dollars and cents and being able to employ the right marketing tools, the right marketing tactics.
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And I think for many people there's mystery around that.
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There's mystery around how to set your budget, there's mystery around what metrics to track, there's sort of a mystery around what's a good statistic and what's a bad one.
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And so yeah, I'd love to just start out and get a little bit of your background.
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How did you get into this?
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How did you get into tracking financial metrics and insights?
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Well, my background, I studied finance and strategy in university.
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So that's where I went off track because I got the passion for the finance and strategy combination at that age already.
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Started my career in banking, got sent to China as an expat for a couple of projects there.
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I fell in love with the energy and the entrepreneurship in China so I did what any sane person would do is I quit my job started the entrepreneurial journey there.
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Aha.
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For seven years, together with a partner, I owned a technology and investment firm.
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Which was a really interesting experience, but it took me seven years to realize that as a foreign company without very deep pockets, you're never gonna make it there.
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So when I realized that, I figured, you know what, I'm going to step out, I'm going to go back to my original passion, and that is the pure finance side.
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I started as most people would do in their own enterpreneurial journey as a independent consultant.
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Advising startups and scale-ups as they're all finance or fundraising, or reporting, and nine out of ten times, the first question I would ask is, show me the reports, show me your books, show me your metrics, show me your dashboard.
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Where are we?
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Like, where are we in your journey and where do you want to go?
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And almost every time the answer was, well, we don't have any, that's why we want to talk with you.
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Which of course is a very nice compliment to get, but it also doesn't really make a lot of sense that you start being a consultant at consultant rates to do something that is so foundational for your business.
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Yes.
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So after few years, I finally figured out how to productize it, to how to systematize it, to set up reporting and analysis as a prototype service, and actually dragging the right people that are even better at parts of the numbers than I am and let them actually do the accounting, do the reporting.
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And I still do part of the analysis because that's where my passion is.
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So for a lot of businesses, you know, they have to have some accounting system, right?
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They have employees, they need to pay people, they need to pay vendors.
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So there is at least some level of accounting, whether it's very basic and an Excel spreadsheet, or whether they're using Zero or QuickBooks, or some sort of a tool to basically do that.
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But I'm sure as you get into these businesses, you find what so many of us entrepreneurs run into, it's data in, but you just don't necessarily know how to make sense of it all.
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True.
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That the most common problem.
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The problem lies on two parts.
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One is the data quality is usually sub par to put it friendly.
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So either the founder does it himself, and therefore tries to maintain the books at a low cost, but actually it's becoming more expensive because you miss out on all the information and it takes the time of the founder.
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Yes.
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The second thing is that the data might be so overwhelming or so scattered that it becomes really hard to identify what are the numbers you really should be tracking.
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And there's a big difference if you're trying to build a Tesla level moonshot or a four hour work week business.
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The things you've got to look at and the meaning of the numbers is completely different.
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So you have to start and that's usually actually the most difficult parts with what are you trying to build?
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What are you trying to achieve?
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And then you got to figure out what numbers fit that trajectory, which numbers fit that goal, and where do you get them?
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Hmm.
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Do you find it challenging working with businesses because you mentioned that you work with startups, and many times early stage businesses, they're running in debt, right?
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You.
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You know, their financing usually comes from some debt offering.
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So money is piling up in the debt column, but yet you need to spend that money, that's part of what happens.
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And then at some point, hopefully you achieve profitability and all of a sudden you're spending profits, right?
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The equation turns green and you're spending differently.
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Do you think businesses have a hard time making that adjustment as to what to spend as debt and what to tap into once they get to profitability?
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I think there's in general, a massive gap between the source of funding on the one hand.
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So the right hand side of the balance sheet on the one hand and how to utilize that money on the other side.
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So we work with a few startups, but we now mainly work with bootstrap scale-ups.
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So companies that didn't have any external funding that are completely bootstraps and reached a certain scale where they actually need to get it more in place.
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For them, and that's usually because they fully own the company.
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Those owners are either overly optimistic and spend everything immediately and take way too much risk, or on the other extreme, they are so conservative and they are so worried about running out of money that they're under investing in the growth.
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But in both cases, there's this massive disconnect between the amount of money they have on the balance sheet, the runway, the operational cashflow that they are realizing.
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So are they actually making money already or not and how much they're investing in growth?
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Those things seem to be completely disconnected in their heads.
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Hmm.
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Do you see some consistency with businesses that they either overinvest in product development over invest in people so they bring too many people on too fast, they overinvest in marketing, they're spending money in ways that they can't make good attribution towards to see what that what's effective and what's not.
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Do you see some commonality, some common business mistakes?
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There's always, there's one really consistent pattern.
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The company over invests in whatever the background of the founders.
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So if the founder is a product guy, usually the company over-invest in products and product developments.
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If the founder has a marketing background, they're over investing in marketing and under investing in operations or products, et cetera.
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Because that's where the buyers have to find her is that's where their strength is, that's where they understand how to do it, so that's where they focus.
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That's very interesting.
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And I can see how that would play out.
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What about in human capital?
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Do you find that people bring employees on too early?
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Have things really changed in this digital economy where there are so much freelance talent out there?
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How have you seen sort of the human capital side of the equation?
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I don't think I have seen a really clear pattern there.
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There too, it seems to fit with the personality of the owner, of the founder.
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We worked with a couple of agency owners that are super risk averse.
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And so for them we've been pushing them like, Hey, you have the runway, maybe you should hire an executive assistant, maybe you should hire another marketer because you have the cash, you have the bandwidth to do so, and it would allow you to free up more time and grow faster.
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Okay.
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On the other hand, there is another agency or that we work with.
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Who has hired so much and so fast that he could double his revenue and still has overcapacity.
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Hmm.
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But he is aggressive, overly optimistic on his sales, so he keeps pushing.
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So I don't, I don't think we've seen a overarching trend in the last year there.
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No.
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Well, that's interesting because I do think, you know, things have changed in the economy and you can get resources part-time, you can get overseas resources.
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There are many ways to bring people on, and yet I still see a lot of reluctance on companies to invest in that, even though that does provide some of the scalability and growth.
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So it's interesting to see your perspective on them.
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Interesting.
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Well, we work with companies that are usually already set up completely remote or completely distributed.
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So working with contractors and part-timers is something that they are quite familiar with.
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I can imagine that if you're more office-based, then the work from the home, transitioned last year opened up to the whole world.
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I can imagine that that is like an eye-opener moment for them.
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Well you know, we were talking about metrics earlier and one of the things that's always surprised me is, you know many entrepreneurs they've got somewhat of a business background, maybe they've got a Business Degree or a Master's Degree in Business, so they've probably taken some level of accounting classes, right?
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So they know that there are debits and credits and they know what a balance sheet is, and a profit and loss statement, et cetera.
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But oftentimes at least in my experience, that was a very mechanical set of training and education, it didn't really teach you what the numbers meant, it just taught you how to sort of balance everything out so the books were technically correct.
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Do you find that as well that people look at the numbers, but they just don't really understand what they mean?
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All the time.
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To be honest, that is our license to operate.
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Because it's that translation that we focus on.
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They get the P&L from the accountants, they look at it, and they think it's more older numbers have hired a loss.
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That must be good, that's it.
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And that's a shame because there's a lot of value in there.
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And one of the things that frustrated me to go on a slightly different angle,
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yep.
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most of these companies that we work with, they have one revenue line.
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So in their whole P and L there's one line revenue, and that needs to go up.
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They don't break it down over different client groups, different projects, different service lines.
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Whatever the different geographic areas, whatever the relevant breakdown is for them.
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So they just look at revenues going up.
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So maybe the revenue for their marketing services is going through the roof, while their operational services are declining, but overall it goes up.
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So I think it's good news.
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But one level deeper, there is a treasure of data.
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But if they would see that, you can say, okay, we're going to double down on this marketing part because that's where the growth is.
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And we're going to scale down or even spinoff or cancel the other parts.
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Hmm.
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And you can go even more granular and probably, that's where a lot of owners would lose the interest or lose the overview.
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But I was going at least one level more details than they currently have or it unlocks a wealth of information.
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Really understanding your numbers, digging down, and seeing what makes up part of a category, if you will.
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I'm curious too, when you work with a lot of these companies, do you find that most of them have profit in mind from the beginning.
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So they are looking for a certain level of profitability and they build their business around that, or is it more that profitability is an after effect and wherever it ends up is wherever it ends up, but there's no real design for profitability.
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The design is for revenue.
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And that is one thing we're trying to change.
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So most people look at revenue as like the indicator for success.
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It's a seven digit business, it's an eight digit business.
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It gives a certain status.
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And like you mentioned, profit is much more relevant because that's actually where the money gets made.
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But in reality, we try to persuade them to not look at revenue.
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Well, to look less at revenue, look less at profit, and look more at operational cashflow.
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Because if you're a service industry, and you have a super big client as a massive retainer to pay.
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But they're paying five months late, you still have a problem.
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So we prioritize cashflow over almost everything.
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That's so interesting because I think that's something that so many businesses struggle with, right?
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It's collecting those payments, it's maintaining good cash flow so that they can really fund the business.
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I think that's what causes a lot of gray hair on many founders is that it's cashflow issues, right?
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It's not necessarily having consistent money coming into the business.
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So what are some tips that you give businesses when they say, you know, I've got a real cashflow problem?
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What kinds of things do you think they need to implement to better account for that money to better collect that money?
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If you're looking at a service business, the first thing to do is be strict to all your receivables.
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You probably have customers that have 30 day payment terms and then pay another 30 days later.
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That's the lowest hanging fruit to jump on that and get them to pay earlier.
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For new clients, if you can, and it depends a bit on the market you're in, your power balance in the market, et cetera.
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But if you can get clients to pay upfront, So they pay, and then you start the service, that's by far the best thing you can do to improve your cash position, because you never have the risk of people not paying and they pay you before you pay your team to do the work.
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So in that sense, you can never run out of money.
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So it's really structuring the deal in a way that you're getting that money upfront rather than having to wait to collect it after the fact.
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Absolutely.
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Cause if you've delivered the service, and your customers is happy or unhappy, that doesn't even matter actually.
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But they, for whatever reason don't want to pay, you have paid your team or you have a zero in the bank from them.
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So, if you can get them to pay upfront, your risk is zero, you can grow as fast as you can.
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Because.
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In a lot of agencies, if you grow fast, you need to hire the team, you need to train the team, you need to invest in that, and then you get the clients in, and then three months later, they pay.
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All that time you are paying before your customer pays you.
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And that means, the faster you grow, the more you need to put in.
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While, if your customer pays you first, the faster you grow, the more money you have in the bank accounts, and the lower your risk.
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We talk on this podcast a lot about reducing friction, about making things easier.
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And I've had clients, business owners, who will say, Well, I don't want to offer my clients the ability to pay on a credit card, for example, for a smaller kind of transaction because I don't want to pay that 2.4% or 2.9%, whatever it may be.
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But yet, if it takes them an additional three months to collect the money, because now it's got to go through an accounting process, a check has to get issued, mailed, you have to deposit it and wait for that to clear and everything.
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There's a cost, there's an opportunity cost there as well.
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And so it surprises me that more businesses don't build that into their pricing, don't build that into their expectation because as you said, collecting that money, that's what you want.
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I mean, you want to make that as easy as possible.
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Absolutely.
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And it's not only the bank hassle, et cetera.
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It's also the time and the stress of you or your team to chase clients.
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If you have somebody who costs 40,$50 an hour, chase their clients five times per week to pay, that comes with a cost as well.
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So I would much rather pay that 2 point something percent for the credit card fee.
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Hands down.
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We even advise our clients.
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If it takes a small discounts to get them to pay upfront, for us, that's a no brainer.
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I don't like giving discounts, it usually undermines the value, et cetera.
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But that's where you guys marketers come in, but from the finance and the risk perspective, pay up front, even if it comes out of discounts.
00:19:01.150 --> 00:19:04.000
Hey, it's Eric here and we'll be right back to the podcast.
00:19:04.000 --> 00:19:08.859
But first, are you ready to grow, scale, and take your marketing to the next level?
00:19:09.069 --> 00:19:15.430
If so, The Five Echelon Group's Virtual CMO consulting service may be a great fit for you.
00:19:15.700 --> 00:19:21.609
We can help build a strategic marketing plan for your business and manage its execution, step-by-step.
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We'll focus on areas like how to attract more leads.
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How to create compelling messaging that resonates with your ideal customers.
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To find out more about our consulting offerings and schedule a consultation, go to fiveechelon.com and click on Services.
00:19:46.029 --> 00:19:47.289
Now back to the podcast.
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I'm curious too, you know, when we're talking about analytics, we're talking about metrics and measuring these things, we talk a little bit about tools like QuickBooks, which is very prevalent out there for a lot of small businesses and Zero, and others.
00:20:01.039 --> 00:20:14.180
What do you think of those tools in terms of their analytical capability, the tools to be able to really tell you the health of your business, what do you need in addition to that, to really get the insights that you should have.
00:20:14.263 --> 00:20:19.710
Let me start with a compliment to them because they have increased that tremendously over the last few
00:20:20.629 --> 00:20:20.690
Yeah.
00:20:21.160 --> 00:20:24.500
It used to be just a boring P&L and a boring balance sheet, and that's it.
00:20:24.859 --> 00:20:29.240
Especially QuickBooks now adds a fairly decent dashboard.
00:20:29.690 --> 00:20:31.549
So it already helps you visualize it.
00:20:31.564 --> 00:20:34.384
What is still missing there is the interpretation of it.
00:20:35.043 --> 00:20:37.084
And that's where, of course we come in.
00:20:37.114 --> 00:20:43.804
But you, as the owner can do it yourself as well, or somebody in house, but the interpretation of what does this mean?
00:20:43.804 --> 00:20:45.874
Is it a 10% growth in revenue?
00:20:45.933 --> 00:20:46.894
Is that good or not?
00:20:47.584 --> 00:20:48.723
QuickBooks won't tell you that.
00:20:49.443 --> 00:21:00.365
But you should know or somebody should tell you if in your particular context, given your goals, given your business, if a 10% growth is good or bad.
00:21:00.545 --> 00:21:03.454
The same with profitability, the same with certain costs.
00:21:04.805 --> 00:21:06.464
QuickBooks is not going to tell you that.
00:21:06.944 --> 00:21:17.234
And everything that touches more on operations and marketing, like your customer acquisition costs or the lifetime value of a customer, QuickBooks is not telling you that either.
00:21:17.625 --> 00:21:21.254
But for you as the owner, that's absolutely critical to know.
00:21:22.184 --> 00:21:24.184
So they've made a step forward.
00:21:25.065 --> 00:21:30.734
And for a financial savvy entrepreneur, that could be good enough because they can make that switch.
00:21:31.514 --> 00:21:36.404
For those that are not somebody needs to help you to internal or external with that translation.
00:21:37.394 --> 00:21:39.414
You said something very interesting there too.
00:21:40.884 --> 00:21:44.684
These metrics that you're looking at, they're very dependent, right?
00:21:44.684 --> 00:21:48.525
On the industry that you're in, on the products or services that you're selling.
00:21:48.674 --> 00:21:52.664
There is no sort of universal metric for profitability or margin, or whatever.
00:21:52.664 --> 00:22:03.795
It's very dependent on the industry that you're in, and you sort of need somebody who can help you understand for this industry, these are some of the benchmark, data points that you should be shooting for.
00:22:05.565 --> 00:22:05.805
Yeah.
00:22:05.835 --> 00:22:08.944
Although I think people overvalue industry benchmarks.
00:22:08.944 --> 00:22:15.934
If the industry benchmark for a marketing agency is to have 50% gross profit.
00:22:16.067 --> 00:22:21.437
If I'm going to have highly innovative agency in the podcasting space, for example.
00:22:21.978 --> 00:22:24.798
Maybe I should aim for a much higher gross margin.
00:22:24.798 --> 00:22:26.867
And if I'm aiming for the industry benchmark.
00:22:27.347 --> 00:22:28.637
I'm leaving money on the table.
00:22:29.657 --> 00:22:36.617
Maybe you're in a super competitive market where there's no chance on earth you're going to get 50% gross margin.
00:22:37.218 --> 00:22:46.127
So industry benchmarks are a really interesting point to look at, but people overvalued the importance of audits for their own business.
00:22:46.488 --> 00:22:46.948
Hmm.
00:22:47.718 --> 00:23:04.218
So where would you say that people should go then, obviously consultants can help, but for many businesses that don't have access to that, where would you say is a good place for them to go to discover what is reasonable for them to expect based on their product or service?
00:23:04.231 --> 00:23:11.275
Probably the best place to start is actually the industry benchmark, but don't take that one at face value.
00:23:11.754 --> 00:23:16.744
Translate that to understand like, what is in that benchmark, and how relevant is that for you?
00:23:17.434 --> 00:23:21.954
For online retail, well, let's stick with the agencies.
00:23:22.224 --> 00:23:37.164
For marketing agencies, maybe the benchmark is 50%, but if you realize that we're in this newer segments or we are in a super specific, really high ticket, really high value niche, probably that industry benchmark, we would have to adjust upwards.
00:23:37.585 --> 00:23:48.355
And whether you adjust it from 50 to 60 or from 50 to 70, that's that's your feeling based on your understanding of the markets and also where you are now.
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