This week on the Expert Voices podcast, Randy Wootton, CEO of Maxio, speaks with Jeff Epstein, Operating Partner at Bessemer Venture Partners and a distinguished figure in the business and finance sectors. Randy and Jeff discuss the rationale behind budgeting, emphasizing its role in predicting financial futures, resource allocation, motivation, and maintaining fiscal discipline with investor funds. Jeff talks about the recent introduction of the Rule of X by Bessemer Venture Partners, examining the balance between growth and profitability. Jeff also shares pragmatic wisdom from his time at Oracle about setting realistic yet ambitious targets and flourishing within set constraints.

Quotes

• “I think the Rule of X is my favorite metric because it combines revenue, growth and profitability. There is always that tension and that trade off. Should we grow faster and invest more or should we try to get more profitable sooner? And both the CEO and the CFO, that's one of the key resource allocation decisions they make. Another way to think about it is it's short term versus long term. You need to do both. You need to both achieve your goals this year and build the company for the long term. And the Rule of X captures both concepts.” -Jeff Epstein [40:21]

• “I think the way we think about that, and I'm only going to B2B SaaS guy, is what is the pipeline that has to be built to match the capacity, the sales capacity? So street quota, what is that? So for using an example, like 10 million bucks, marketing sales have to be totally aligned in terms of how many dollars need to be invested in paid surge versus events, et cetera, to create the pipeline, the days to close and the percent win rates that gets you to an 80/80 hit. So I think that's a great rule of thumb.” -Randy Wootton [25:40]

Expert Takeaways 

• Rule of X: a nuanced approach to evaluate a company's performance by combining growth with profitability.
• Budgets serve as a predictive tool, a resource allocation guide, and a motivational scorecard, and are fundamental for fiscal discipline, especially when using investors' money.
• The importance of aligning annual budgets with a company's strategic three to five-year plan and the careful management of board expectations.
• 50/50 probability when setting revenue targets should ideally lead to aggressive but achievable goals.
• Executive compensation strategies: balancing individual accountability and sharing in company-wide success.

Timestamps

(01:28) Jeff’s time at Oracle

(03:06) Building budgets

(06:37) The Rule of X

(09:09) The relationship between strategy and budget

(16:00) The need for more evidence before relying on AI efficiency improvements

(21:00) The 50-50 rule for team performance

(29:17) The three-part compensation plan and the alignment of incentives with profit goals.

(32:48) Driving incentives and motivation through MBOs and OKRs

(36:02) Addressing the tension between annual budgets and actual performance

Links

MAXIO

Upcoming Events

Maxio Institute Report

Randy Wootton LinkedIn

Jeff Epstein LinkedIn

How CFOs build a Goldilocks "just-right" budget