Rob Swystun, Pristine Advisers
Much like canines, Chief Executive Officers (CFO) come in different breeds. (They also like to chase cars and their greeting rituals involve sniffing each other.) The newest breed of CFO to emerge, as outlined by CFO.com’s David McCann, are the ones who spend less than half their time on traditional finance functions like reporting, treasury, tax and investor relations and instead focus on in-depth data analysis to drive the sales process. They are also wont to act as leaders of their companies’ business model and overall strategic direction.
Since Dave didn’t do it, I shall go ahead and dub this new CFO breed notitia princeps (NP).
Like all new breeds, this one had to evolve and it did so across many different industries and across the world, but the NP seems to pop up most in its natural habitat of the Silicon Valley technology sector, particularly in the cloud-based software and services arena.
Some of this new breed of CFO are starting to get together once in a while in Silicon Valley to discuss all things finance related.
“We pretty much open the kimono about our businesses and talk about anything we want to,” says Tyler Sloat. He is CFO for subscription-based business managing platform Zuora. (Open the kimono? Wha?)
While most of the previous generation of CFOs slogged their way through the accounting or treasury path, the NPs tend to specialize in financial planning and analysis, which are turning out to be the preferred skills for new CFOs to have.
Some proof: “Thinking about the ‘new breed’ of CFO, the analytical piece is a big differentiator and a reason I was chosen for this role over other candidates,” says Ned Sizer, CFO of Hightail, a file sharing service. “Folks like me are in high demand today to solve a data problem.”
That “data problem” is often that companies have too much data and need a way to use it effectively to drive up sales and business performance. And that’s where the analytics come in.
Sizer uses his experience in data warehousing, running analytics groups and driving product testing and optimization through online marketplaces that he picked up as a member of Ford Motor Co. It was at this famous brand that he honed his skills of using data-driven analysis of profitability by product line and geographic market. He leveraged that experience into a series of senior financial planning and analytics jobs at tech companies Siebel Systems, Macromedia, Omniture and Ancestry.com, which led him to his latest gig as CFO at Hightail.
During his two-and-a-half years at Ancestry, Sizer, along with a 12-person team that he ran, was tasked with reducing customer attrition by using analytics to study how the website’s users engaged with its products and why some renewed their subscriptions while others cancelled.
“We spent a lot of time building algorithms for that analysis,” Sizer says. “And we connected the results to our marketing, reaching out to at-risk customers. We also did a lot of work around pricing and packaging, figuring out how to offer customers the right duration of subscription at the right price.”
This type of customer activity analysis is seen as a huge value for cloud vendors, as well as a CFO who is willing to actually do data analysis him or herself rather than just conduct a team to do it.
“It depends on the company’s size, but the most successful CFOs I know have no inhibitions against rolling up their sleeves,” says Zuaro’s Sloat.
Probably the thing most responsible for the development of this new breed of CFO is the way technology has evolved in a way that allows for a much closer look into customer behavior and the profitability they drive.
“In the old days I would construct a P&L to look at profitability on some sort of geographic or segment basis,” says Howie Shohet, CFO of Lattice Engines, a company that specializes in predictive analytics technology for sales and marketing departments. “Now I’m effectively doing a P&L for every single one of my customers, every month.” That means a relatively precise measurement of how much revenue each customer generated versus the company’s costs to service that customer, which allows for a precise allocation of funds rather than spreading funds evenly across customer segments and markets.
This, of course, drives sales, one of the hallmarks of the NP breed of CFO.
“It used to be that the CFO passively accepted the sales guys saying how much they were going to sell or, say, what the ratio of account executives to engineers should be,” says Adriel Lares, finance chief at mobile-device security firm Lookout.
“The new CFOs are taking initiative to inform those decisions. For example, maybe if we had more engineers and fewer executives, we could save money and be more effective.”
Lares got Lookout being more effective by relying less on sales staff and more on distribution of mobile applications through app stores and leveraging carrier partners like T-Mobile and Deutsche Telekom as distribution channels, which saves the company money.
“Today’s CFO works to tweak the business model,” he says, something that happens more easily at growth companies, where fewer layers of bureaucracy can get in the way of common sense ideas.
Sloat says the NP’s mission has more to do with owning the business model and adds that it might be okay to spend $1.50 to acquire just $1 of business based on average customer lifetime, but it might not be okay if that $1 is coming from a new geographical market that will require significant investment for future growth.
“You need to understand things like that about your business model and make sure the rest of the executive staff, the board and investors completely understand why you’re doing what you’re doing,” Sloat says. They need to know that they can’t see the value of a growing subscription-based business in a traditional P&L, because during the growth stage at such a business there’s not going to be any operating profit – if there is, it’s an indicator that the company won’t be able to grow to the desired size.
“It’s the CFO’s job to understand the entire cycle from the beginning of a customer engagement all the way through to the end, and from there driving the optimum business model. And by ‘business model’ I don’t mean a historic operating plan that finance would partner with business owners to execute against. It is a broader understanding of the business, its markets, and the strategic goals and levers available to the company to execute near-term and long-term objectives.”
As data analytics continue to grow more sophisticated, the NP’s ability to add value will also continue to grow.
“In my view we are at the infancy of infancy stage,” says Shohet. “Even in the technology industry, we’re just scratching the iceberg.” (I’m pretty sure he means tip of the iceberg.)
And the new NP breed isn’t just CFOs, Shohet the iceberg scratcher notes. CEOs and even investors are using data analytics to up their game, too. (They’ll have to get their own designated breed name, though.)