My recent article titled The SAASy Lifecycle created a somewhat unflattering view of the Software as a Service industry. This story will highlight a success of a good SaaS partnership.
I wandered into my current company just after the housing crisis in 2008. This restaurant group had five restaurants, three full service and two pizza operations totaling about 13 million a year in revenue. I was tasked by the ownership to lift the hood on this financial engine and recommend how to improve cash flow.
That two-week consulting gig turned into a 14+ year journey. Over the years, that temporary position grew into an executive CFO position during which time the restaurant group expanded from five stores and 13 M in revenues to a 10 store 50 M venture. But, as it turns out, growing revenue is not that difficult as long as one has investors and lenders willing to fund new concepts and the owners’ have the tenacity to see it through. What became apparent, and the overarching challenge that kept me with this group, was figuring out how to convert all that revenue into profit!
2015 was a pivotal year in my journey. We had solved our cash flow crisis, by institutional loan restructuring, shedding several low preforming stores and opening a new and vibrant tavern concept but profits still lagged. Sales at that time were around 20M, and I was growing restless and tired. I was under compensated for my work and as the CFO I could not hide the fact that there was not enough profit to pay me the industry standard wage I desired. And from an accounting operational point of view, we were wallowing in mire of what I unaffectionately called, "Excel Hell."
I normally leave 3rd party company names out of my stories because usually the shortfalls in business operations are internal structural issues and not due to the external vendor’s limitations. However, this story cannot be told without taking the reader through our transformation to success and that includes mentioning some of the companies that were part of that transformation. So, in 2015, we were using a variety of tools to analyze and account for our restaurants. Briefly, this is what a typical operational data day looked like:
PM store managers would print four separate daily reports from our Restaurant Point of Sale (POS) system and email a daily recap to owners
AM store managers would input various data points from those reports into an elaborate spreadsheet with a tab dedicated for each day of the month. This spreadsheet was also emailed to the owners and Home Office
Store managers would enter all invoices received into a 3rd party application that would important AP into QuickBooks accounting software
The POS automatically sent daily sales and expected deposits via a separate 3rtd party application into QuickBooks
Payroll was exported from the POS to our payroll provider and distribution information was manually entered into QuickBooks.
So, in a nutshell, our data source for sales and payroll was the POS, our analytical tool was a manually executed Excel spreadsheet and our accounting systems was QuickBooks Enterprise. Although we had integrations between some of these softwares, the data was static. As anyone who lived in the "dark ages" of static data integration will tell you, these several software systems did not synch with constantly updating data. The POS was the generator and keeper of store data and it never tied out with the human error prone Excel analytical workbook. Nor did the POS agree with our accounting numbers in QuickBooks. My job as the CFO in 2015 was not to analyze the businesses and recommend profit improvements but to play detective and figure out which one of our static data integrations failed or what human transposed a data point entered into Excel? I was armed with the restaurant profit modeling information I wrote about in my book, Restaurant Management, the Myth, the Magic, the Math, but God help me, I was so busy just trying to get accurate and timely information, applying that profit producing knowledge always fell into the "wish I could-a should-a" category!
So, I was at a crossroads with my employer (or some would call it a chicken-egg conundrum.) Either create more profit thus allowing me to get paid my worth or exit the company (obviously, the getting paid first with profit to follow would have been a tough sell!) Never the quitter, I surmised that our company needed a tech overhaul. Excel and QuickBooks had to go, we simply needed a better, faster, and more reliable data integration system. We needed our operational data fast and accurate so I could apply my analytical and profit making expertise to our current situation. I needed to hang up my sleuthing cloak, hat and pipe and roll up my math sleeves. To do that I needed a new data engine!
I took my accounts payable manager and IT director to the 2016 NRA show in Chicago. The goal was to hang out in "Tech Alley" until we could discover the accounting and analytical solutions required to transform our operations. This was no easy task. In 2016, tech companies at trade shows were long on flashy, large screen demonstrations showing analytical results. They busted menu items into the standard four quadrant splatter charts of "dogs and work horses " There was lots pizazz on display in 2016, but I was not interested in the shiny exteriors, I was looking for the right engine. Let's face it, the girl may have showed up to the race with the guy that had the best-looking hot rod, but she always went home with the driver who crossed the finish line first! At this show, was Danny Zuko and I was building "Greased Lightning!"
After an exhausting two days at the NRA show, we settled on a relatively new startup SaaS company called Restaurant365. Restaurant365 transformed our operational and accounting systems. Instead of a static data integration process, we now had a dynamic data solution. All the POS data, payroll data and purchasing data automatically flowed into Restaurant365. Restaurant365 had an approachable API that allowed for seamless vendor invoice, payroll and POS integration. Finally, with one data source, we had the same information flowing to our analytical reports as populating our accounting systems. The data was fast, reliable and accurate. When I say fast, once I needed to analyze an under preforming store and closed the financial period 15 hours after the end of the period! We had the solution, no more QuickBooks, no more Excel Hell and no more guessing which data set was the most accurate!
Finally, our restaurant group had the right engine, we opened 2017 with Restaurant365. We didn’t take her out on the test track, we just ripped off the sticker and headed out for the open highway! It was dicey at first, learning the new system, linking the thousands of POS menu items, and managing the inventory items. Countless invoice integrations and 50 managers touching and interpreting inventory items quickly gummed up our system. After a week of clean up, consolidating and permission lock down, we were back on track with accurate and reliable inventory data. We were off to the races.
The one delightful discovery we found in the Restaurant365 tool kit was a very robust budgeting tool. Midway through 2017 I retroactively built that year’s store budgets. QuickBooks did have a budget feature but it was useless to us because we used operational periods not calendar month periods. Historically, comparing an Excel generated budget to a QuickBooks P&L was just too time consuming. I preformed that task for the ownership, but it was just too time consuming to provide to the people that really needed it, our operational managers. So, for the second half of 2017, I practice budget to actual comparisons and coached the store managers on how to access and interpret the reports
Our groups first real breakthrough in winning the race to profitability came by restructuring our store management compensation packages. We amended their comp packages to include timely and guaranteed quarterly incentive payments based on six budgeted to actual financial performance metrics, namely Sales, Labor Cost, Food Cost, Alcohol Cost, Direct Operating Cost and Net Operating Income. In 2018 we implemented that manager comp plan along with monthly CFO coaching reviews. The 2018 year-end results showed that our profit jumped 2%, and that was after investing in the added manager compensation packages.
2019 was the year we decided to utilize Restaurant365's menu recipe building tool. Fortunately, we were ahead of the game by establishing accuracy and integrity to our thousands of menu items, so after about a week of reviewing our inventory data base we were ready to fire up theoretical vs. actual food and alcohol costs analytics. 2019 was also the year we started used Restaurant365 to manage all our period ending inventories. I call 2019 the year of 100%s as we had multiple stores hitting 100% quarterly incentive payouts. Believe me, paying out a team 100% incentive is the best check a CFO can write! 2019 revenues topped 30M and profits jumped a whopping 6% over ’18.
Restaurant365 had become such an integral tool in our profitability tool chest that my confidence in blowing the budgets our of the water in 2020 was a fait accompli. In February of that year, I was so confident in our continued success I was planning my winter vacation in Bali. Covid 19 and the subsequent covidnocrats had different plans for 2020 and on March 17th, they ordered our beautifully designed and maintained race car to an extended pitstop and all plans for profit and a sundrenched vacation were “dust in the wind.” How our restaurant group survived the nearly two years of the state and federal covidnocrates may be the topic of a future article. But for now, I will complete my SaaS success journey.
I am pleased to announce that 2022 is shaping up to pick up where 1st quarter in 2020 left off and we are raring to go with an ever-improving Resturant365 solution. Barring no further shutdowns, I project that our profits will grow another 2% in 2022. There are no perfect SaaS products. Operators will get out of a SaaS product relationship precisely what they put in. Learning the tools and dedicating the personnel to using the SaaS product will ensure the best chance at success. The beauty of the SaaS, industry right now is competition. Super smart people are developing better products every day and that means your current SaaS partner must stay relevant and earn your business every month. With that said, all I can tell you about a good SaaS partnership in the 21st century is that the “journey never ends,”
Some will win, some will lose
Some were born to sing the blues
Oh, the movie never ends
It goes on and on, and on, and on
This is fabulous and just the essay I was hoping you would write after your first SaaS article. The decision of which ERP system to use is mission- and life-critical for an SME and the risk of catastrophic failure or hobbling the business for years if you make the wrong choice is non-trivial. How important was the relationship with the R365 team during that crucial initial implementation phase? Thanks for sharing Bruce