2023 PLANNING
How Menlo Security plans to drive growth in a down market.
Menlo Security CFO David Eckstein shares tips and best practices for planning in an uncertain macro.
A successful financial plan for 2023 should go beyond cost-cutting. Instead, finance leaders like Menlo Security CFO David Eckstein aim to drive growth while maintaining financial discipline by spending strategically.
Eckstein has seen Menlo Security grow from 30 to 600 employees across the last five planning cycles. Today, the enterprise security solution serves eight of the world’s ten largest banks, the US government, and many Forbes Global 2000 companies.
Much of Menlo’s growth can be attributed to the efficacy of its secure web gateway. However, like all companies, they also benefited from a historic bull market. Heading into 2023, Eckstein’s latest planning cycle is “tailored to the new normal that we’re all facing.”
Brex recently sat down with Eckstein to share tips and best practices for 2023 planning. The following interview has been edited for length and clarity.
When do you begin your annual planning process?
For us, it’s an iterative process where we collect feedback from a variety of sources, including org leaders and the board. We usually start in August, though starting in November-December still gives you enough time — especially in this type of planning cycle where a lot of companies are going into freeze mode.
Give yourself enough time to collect the feedback that you need. But, you definitely need to move quickly, because people need a guiding light during this time. Also, when you’re transparent about the unique challenges that the whole economy is facing, you’re helping those employees connect with your overall goals as a company.
How do you balance qualitative and quantitative analysis?
A lot of people focus on quantitative — their model for next year, their top-line goals, how much they’re going to spend, and what their cash burn is going to be. But that’s actually inverted from what you should be doing. When you start off with a quantitative conversation, you often lose sight of the things that power the business.
Start off with defining the qualitative. What are the new products that you want to unveil? What new markets do you want to move into? What are the key initiatives that you want to support? Then, move into what the resources — headcount, discretionary spend, SaaS — that you need to go to support those resources. Then, you can move into the right trade-off conversation.
How do late-stage companies balance for growth versus burn? And what is an appropriate burn rate for a payments company?
The Rule of 40 is a good guiding metric. Not all companies are at this level, but it’s a way to look at your growth rate and subtract your operating cost as a percent of revenue.
When it comes to efficiency and planning, I think it's important not to over-rotate. You could build a company for this market that we're entering but, by the time that you've made all these cost adjustments, you could be entering a different type of market. Then, you’ve slowed down your growth too much. So, don’t over-rotate or build for a recession. Instead, do things that are going to be favorable and investor-friendly in any market.
What are your frameworks and benchmarks for maximizing hiring ROI?
One dollar in headcount is not actually $1. It's usually $1.40. On top of any headcount that you might hire or lay off, you’re also thinking about a healthcare cost. Benefit costs. 401(k) costs. As you think about forecasting for next year, it’s important not to forecast on a headcount basis. Instead, focus more on the overall dollar basis, given the additional discretionary costs.
For sales reps, we pull all of their sales contributions along with their salary and compensation to see if their revenue has outweighed their cost. There are other factors to consider, but a sales rep should generally bring in 4-5x the pipeline that they need to to close for the year. The amount that they close should be for 4x of what they're bringing home. So, to start at the top of the funnel, they should have 16x. As it gets closer and closer, you want at least a 4-to-1 ratio for it to be a healthy sales org in the enterprise software world.
What are you excited about in the coming year?
I think this is a great opportunity for new companies to prove themselves and find new value. If you look at the last downturn in 2008-2009, that's when the likes of Airbnb, Uber, and Coinbase were founded. I think there are a lot more Ubers and Airbnbs out there that are just getting their footing right now. There are all these new industries that didn't exist during the last recession, so I’m excited to press the fast-forward button to five years from now and say, OK, all these companies had their roots in the 2022-23 recession.