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Dave Kellogg "The Board View" from Host Analytics Perform 2019


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My presentation at Host Analytics Perform 2019 at the Aria Hotel in Las Vegas: The Board View, What EPM Looks like from the Board Level.

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Dave Kellogg "The Board View" from Host Analytics Perform 2019

  1. 1. The Board View What EPM Looks Like from the Board-Level Dave Kellogg Blogger, Independent Director, Consultant, Angel Investor, and closet FP&A Person May 22, 2019 Revision 2.0
  2. 2. Alternative Title: Boards Just Wanna Have Fun
  3. 3. Shameless Blog Plug • Startups • Metrics • SaaS / cloud • Venture capital • Leadership • Silicon Valley • Management • And more …
  4. 4. What boards want How boards think about … How to give it to them Agenda
  5. 5. Our Focus Today: One Question How does everything we do look from the Board-level? ( A chance to step back and get above the trees)
  6. 6. What Do Boards Care About?
  7. 7. What Boards Really Care About • Compliance • Trust in the numbers • Shareholder value creation • Growth • Profitability
  8. 8. Compliance and Trust • The Foundation • Reporting the right numbers to the right parties at the right time • Having faith that the numbers in those reports are correct • Audit is for financial reporting, not management reporting • But certainly provides an indicator on how tight a ship is being run • Board meeting slides and monthly board reports are the basic tests • Getting stuff done on time is a huge tell-tale • Late numbers = suspect numbers • Late numbers = not really in control • Establish and hit realistic expectations for when things wills be delivered
  9. 9. The Impact of One Bad Number • Makes everything else suspect • Rule 1: There is always at least one savant on every board • Will find a bad number before CEO can finish saying “Good Morning” • Cockroach principle • If you see one, you know there are 50 more hiding the in walls • Dangers of copy, paste, attach at 2:00 AM when one change means 15 charts need to be updated • What we do • 8-eyes tests → replace with automation
  10. 10. A Private Equity Perspective • Bad numbers are career-limiting for the CFO • First strike: we all get concerned • Second strike: we probably start a search • Third strike: you’re out • (Note: some don’t even believe in three strikes.)
  11. 11. More Subtle Type of “Bad Numbers” • They don’t match the story = cognitive dissonance • The words need to go with the music • You say • We are beating lead generation targets • We had sufficient pipeline coverage at the start of the quarter • That we have strong win and close rates • That our sales cycle length has not increased • Yet many deals slipped and few reps seem to be handling their opportunity capacity • So why did we miss plan again and was week 3 forecast accuracy 68%? • Is weak pipeline a cause or a symptom of the problem • If we recognized pipeline was weak at the start, could we have done something about it?
  12. 12. What The Board Doesn’t Want Sunshine on a cloudy day Sunshine blown up their collective a**
  13. 13. Shareholder Value Creation • A long-term financial model that creates value for shareholders • Usually a combination of growth and profitability • But some are more profit-focused than others – “I Love EBITDA” • If they’re smart, a model that wins markets at the same • It’s easy to go out of business beating expectations if expectations are to grow at 50% of the market • The fundamental tension: “make a plan that you can beat” • Aggressive enough to create value and win markets • Conservative enough that you can beat it 9 out of 10 quarters
  14. 14. Growth and Profitability Growth • Should be about market share and winning markets • The GE rule: be first, second, or exit Profitability • Should be about continuous improvement and benchmarks • Assumption is not be average / benchmark on all things • Strategy should dictate variations • But when not strategic, convergence to benchmark is the name of the game • A debated, agreed-to long-term financial model really helps here
  15. 15. What The Board Wants Reality and what to do about it • Realistic recognition of company strengths and challenges • Logical, data-driven explanations that are consistent with numbers • The story needs to hold together (i.e., lyrics and music) • A sense of transparency and openness • A sense of accountability – can’t have the same problems too many consecutive quarters • A positive tone that recognizes problems but focuses on solutions
  16. 16. What boards want How boards think about … How to give it to them Agenda
  17. 17. Consolidation • Frankly, unless they’re audit committee chair they probably don’t worry about it that much
  18. 18. Forecasting Are you in control of the business? • Not be confused with are you growing the business? • Or are you running the business efficiently? • But, simply, are you in control of the business? • Do you know where you are going to land and managing to it?
  19. 19. Two Dimensions of Business Performance
  20. 20. Planning Can you accurately plan one year out? • While converging to a long-term, benchmark-based financial model? • Says nothing about market share gain or loss • Determines a lot about executive and company compensation = top use • If public, can you consistently beat-and-raise? • Do you have smart system for rolling and revising the plan? • Are you constantly increasing or decreasing the plan at mid-year? • Does your plan hit financial goals by “forgetting” about next year? • Is your plan strategy-driven, trended, or top-down spread?
  21. 21. Reporting Can you tell us what’s going on? • And, if you can’t, how are you flying the plane yourselves? • Do you have the basics in place? Definitions, historical comparability, meaningful presentation, … • Have you chosen “everything” or a key set of the right metrics? • Are those metrics key to the strategy and/or top operational challenges? • Finance should keep handy way more metrics than they show • Are you constantly changing your systems and definitions? • If so, is it poor decision-making or deliberate continual obfuscation? • Aside: I’ve never met a board member who’s afraid of a table of numbers • (And I’ve met many who dislike complex visualizations.)
  22. 22. AI and Machine Learning A little afraid of it, but want you experimenting • Generally don’t understand the technology • Generally dislike black boxes • But want the company to leverage big data and data science, typically via an expert team • Want to see results of working with models, not explanations of them • Don’t want to see the math • (“I’ve never seen a board slide with an exponent before”) • Worried about over-fitting and correlation/causation errors
  23. 23. Spurious Correlations, I
  24. 24. Spurious Correlations, II
  25. 25. Spurious Correlations, III • For more, see • Or
  26. 26. What boards want How boards think about … How to give it to them Agenda
  27. 27. How To Give It To Them, #1 Build credibility by running a tight ship • Monthly reports out like clockwork • Board decks out consistently in advance • No spreadsheets called “2019 plan, v2.5 final final final, r2” • Numbers that always foot • Numbers driven off databases (“how come he’s pulling from a database and we’re always opening spreadsheets”) • Clean audits / happy audit committee
  28. 28. How To Give It To Them, #2 Plan your work and work your plan • Hit operating plan timeline milestones • Never be in February without an approved plan • Build realistic plans that you can beat • Don’t plan to double headcount and constantly be behind (“cushion!”) • Help the business figure out what they can and should sign up for • Build in enough room that anticipatable “surprises” aren’t surprises • Run the business off rolling forecasts – avoid the December cliff • Think trajectory
  29. 29. How To Give It To Them, #3 Be a great partner to the business • Most boards prefer finance-as-partner to finance-as-police • Want to see collaboration across the team • Forecasts and plans are more accurate where there is such collaboration • Don’t be “Doctor No,” instead be “Doctor How” • Offer your opinions, but respect their accountability • Goes from the CFO/CEO relationship on down throughout the organization
  30. 30. How To Give It To Them, #4 Bring insights beyond just bringing data • If you spend every minute simply producing the data, you have no time to analyze it • The CEO/CFO shouldn’t be “sight reading” slides in board meetings • Make time to review what you’ve created from analytical perspective • Empower the CFO with those insights for review meetings and rehearsals
  31. 31. Keeping the A in FP&A Partner with data science and operations teams • Is FP&A the “if it can be answered in Excel, we can answer it” dept? • Other functions are increasingly providing reporting & analysis • Operations (“ops”) teams are taking on some traditional FP&A duties • Data science teams are bringing analytical tools and techniques to bear • To remain a trusted business partner, we need to • To embrace these teams as partners – take a ops person to lunch! • To understand how they work – read a book or take a course on data science! • Try (and it’s hard) Data Science for Business by Provost and Fawcett • Let me know how it goes
  32. 32. Conclusions • Boards love numbers • Never let anyone tell you otherwise • Boards see the work of FP&A indirectly • Boards draw conclusions from the basic quality and timeliness of that work • Boards demand absolute confidence in the numbers • You are your metrics • Boards can tell if you’re focused based on the metrics you track • Boards can tell what you care about by the metrics you track • Boards know it’s the teams’ job to run the company • And the board’s job to determine who runs the team