By: @Luci Fonseca
CFO tools refers to the set of software tools typically helping chief financial officers manage finance related problems and challenges. An expansion in the responsibilities of CFOs, increased market volatility, and the inadequacy of legacy tools is creating a new generation of scaled businesses developing software to help the CFO function meet its new, broader set of responsibilities.
For our research, we segmented the modern stack of CFO tools by focusing on the tools required for the core CFO reporting role, understanding that a lot more than just reporting now falls into the purview of the CFO. We considered tools that would be used 1) at the beginning of the reporting period, 2) during the reporting period, and 3) at the end of the reporting period:
Several of these elements (e.g., payroll and benefits, procurement) are out of scope for this research because Base10 has done broader research efforts on those and they constitute large trends within themselves. Some additional elements (e.g., accounting, compliance & tax, workforce planning) were excluded for future deep research. We looked at businesses tackling the remaining in-scope areas. In particular, we found the most compelling investible opportunities in the Billing, Accounts Receivable, and Revenue Management Segment.
There are 3 primary tailwinds driving a renewal in this trend:
Expansion in the responsibilities of CFOs
Traditionally CFOs’ core function primarily revolved around financial management and reporting, financial planning and analysis, compliance, cash management and treasury, cost management and efficiency. This resulted in a primarily backwards-focused role that was largely isolated from other departments. But that has evolved significantly in recent years. CFO responsibilities have become more strategically oriented and they are now more likely to partner with other organizational leaders, including Go-to-Market, Research and Development, and Operations. As enterprise data infrastructure has also become more robust, CFOs now have access to more operational data they can marry with financial data to drive decision-making. This means that a number of areas that CFOs did not traditionally touch, such as strategy, risk management, investor relations and stakeholder management, M&A and corporate development, technology and data analytics, sustainability & ESG reporting, cybersecurity and data privacy are all increasingly coming within the purview of the CFO.
Underserved market with legacy tools falling behind
Historically, finance and accounting was not prioritized for investment or tooling and companies tried to keep these functions leaner. However, because of the expansion of responsibilities in recent years, there has been a growing need for solutions to support the CFO’s decision making process. A set of legacy tools have gotten to significant scale, including businesses like Anaplan and Netsuite.
While achieving large scale, these tools are difficult to implement and often require significant time, resources, expertise, and planning, which makes them less compelling for cloud businesses. They can also sometimes be tough to customize and be inflexible to unique requirements that growing organizations may have, making them hard to scale as companies increase data volume, users, and complexity in their planning. Finally, they can be costly when you add up licensing fees, implementation costs, infrastructure costs, and ongoing maintenance and support.
General economic uncertainty and volatility
The last 3-4 years have seen a dynamic and uncertain business environment which has elevated the role of the CFO and the importance of financial management. Executives depend on CFOs to help navigate economic uncertainty, manage financial risk, and develop contingency plans to ensure an organization’s financial stability and resilience.
While there are significant tailwinds to this trend, there are also headwinds, especially in certain subsegments. For example, in FP&A, new entrants are generally growing more slowly. Because these businesses can’t benefit from some of the distribution advantages of the previous generation (e.g., Anaplan, Netsuite) from simply moving on-prem to cloud, the bar for product quality and novelty is fundamentally higher. Many of these businesses, especially those focused on SMB, continue to struggle with the large, complex upfront builds and getting efficient GTM for the long tail of customers.
Within the broader suite of CFO tools, we believe one of the most interesting segments for investment is Billing, Accounts Receivable, and Revenue Management. Increasing complexity in how enterprises are pricing their offerings, combined with a lack of scalability of legacy (often-on prem) pricing and billing systems is fueling demand for sophisticated enterprise billing platforms for CFOs and revenue accountants.
Like the role of CFOs, billing was once considered to be more of a back-office function. But today, billing is emerging as a link between customer-facing marketing and sales systems and back-office fulfillment, payment, collections, and financial reporting and management. Outdated or inflexible billing can quickly become a serious challenge for companies of any size, resulting in lower customer satisfaction, billing disputes, and revenue leakage.
In recent years, we have seen many enterprises launching hybrid pricing models that include both subscription and usage-based pricing. More than 1/4 of companies who have added usage-based pricing implemented it in the last 12-24 months. In fact, we believe hybrid pricing models are the future of SaaS pricing, which should create the rise of a modern pricing and billing stack within CFO tools. This is driven by a number of factors including broader digital transformation within enterprises as well as: