The Briefing: Driving high growth when you have limited FP&A data
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Typically FP&A teams rely on in-house historical data to achieve their mandate: guide the business to predictable outcomes. How do you manage performance in a high-growth environment with limited data?
Ramp has only been in existence for 32 months with about 12 months of useful operating data at its disposal. Our operations have evolved so much over the past 18 months that some historical data just doesn’t match with how we currently conduct business or is too variable to extract meaningful insights.
Despite a lack of data and resources to steer our planning, the business grew an astounding 5x in the last 8 months. Below I share how we mitigated these challenges to drive strong growth and advice for other FP&A teams in high-growth companies.
This first piece of advice won’t come as a surprise to anyone, but it bears repeating. High-growth companies usually have smaller FP&A teams compared to more established companies.
When you’re operating with few resources, it’s essential that you track what’s most important to the company at any point in time. Prioritize your time accordingly.
At Ramp, we’re hyper-focused on top-line growth so I spend most of my time thinking about ways to use our resources and capital to grow customer acquisition, retention, and revenue. We keep an eye on operating expenses but, at this time, it’s not our central focus. Given our stage of development and capitalization, it’s much more advantageous to the business to drive $500k in incremental monthly revenue than to optimize our cost structure.
That’s not saying we spend just to spend. We rigorously evaluate and compare the ROI on an expense with the belief that if we invest our capital on things that will either immediately or eventually produce a net positive outcome for the business, then our margins will remain healthy.
I also focus heavily on establishing best practices, stakeholder relationships, and new systems throughout the organization. For example, at Ramp, we’re spinning up our first rigorous, company-wide budget. Not only do I have to create a budget, but I also have to think about how to guide the business to create a budget. I'm also working on dashboarding, monthly close reporting, and ways to stay in sync with Sales, Marketing, Product, etc. Within Growth Marketing, I’m currently helping the team onboard new attribution tools to improve how we track spend and lead generation across the funnel.
At larger companies, these systems and processes are often already in place and it’s a matter of optimizing them. In a high-growth environment, you’re likely creating these things from scratch. It’s a different kind of work than day-to-day FP&A, but it’s critical to your long-term ability to scale the business and mature the Finance function.
Prepare for volatility
What makes working at a high-growth business exciting—and daunting—is that things can change in an instant. You simply don’t have the historical data you need to reliably forecast outcomes.
As a result, the operating plan is in flux much more than it would be at a more established organization. I cannot emphasize enough how important it is that FP&A teams in high-growth environments remain open and adaptable.
For example, in Q3, we significantly outperformed our plan at Ramp. This meant that we needed to quickly re-adjust and hire more people to support the larger pipeline and portfolio of customers. If we had been underperforming, we may have needed to quickly curtail our hiring.
It’s not just a quarterly calibration. You may be reworking the plan on a monthly or even weekly basis. Your plan may need to shift entirely from where it was just 2 weeks ago, given the performance you’ve seen over, say, the last 5 days.
To re-calibrate and re-run plans in real time, you need automation. When I first joined Ramp, planning was done in Excel and Google Spreadsheets. While that's still the case in some instances, we’re actively moving to more dynamic and collaborative tools. Here’s a snapshot of the stack we’re now building to improve our agility:
- BI tool: Looker (transitioning from QuickSight)
- ERP: NetSuite (transitioning from QuickBooks)
- HRIS: Paylocity (transitioning from Justworks)
- CRM: Salesforce
Another key to staying ahead of volatility is having direct, strong relationships with leaders around the organization. Things can change so quickly that it’s impossible to do your job effectively in a silo. Cross-functional communication and relationships are all the more important when you need to pivot your plan and make decisions with limited information. There’s bound to be disagreements, which require trust on both sides to resolve. At Ramp, I have biweekly checkpoints with our GTM team leads, and we use established Slack channels for more ad-hoc discussions.
Planning in the absence of data
Although you don’t have a large trove of data to rely on, you can still guide the business to make high-ROI decisions and drive growth. For example, when it comes to customer acquisition, focus on the channels that are most efficient and cost-effective.
At Ramp, we use an approach that I call “working at the margin.” Put simply, I’m interested in understanding what the return will be on just one dollar of additional investment.
I’m constantly asking:
- How much will it cost to acquire one more customer through a specific sales motion and how does that cost compare to the value that the customer represents to Ramp?
- How much will it cost to acquire one more customer through a specific marketing campaign and how does that cost compare to the value that the customer represents to Ramp?
- Is the ROI to acquire one more customer higher via one sales motion or marketing campaign compared to another? Typically, we’ll allocate our capital to whichever has the highest ROI.
The nature of these investments frequently involves hiring. If we want to hit, say, $1 billion in monthly spend, one of the ways we’ll get there is by hiring more people. When setting your goals, be sure you account for a “ramp” period (no pun intended) when the hire is onboarding and likely won’t be as efficient and also consider potential employee churn.
You also want to maintain balance across the organization. The value that an employee will contribute is easier to calculate for some roles (e.g. Sales) than others (e.g. Engineering). But it’d be a mistake to only invest in roles where the numbers are easier or more explicit to derive. You should have a general idea of what a healthy split looks like for your company.
And remember, you’re operating in a volatile environment. So things can change on a dime and substantially impact your headcount plans. Hold your best-laid plans loosely. Headcount planning is truly both an art and a science in high-growth settings.
Agility is key in high-growth environments
Access to good operational data and resources is critical for FP&A. But at the end of the day, your power to manage sudden overperformance or underperformance in a high-growth environment will come down to hyper-focus, your ability to adapt, and an ROI mindset.