Agile Leadership: Effectively Managing the New Role of the CFO

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Agile Leadership: Effectively
Managing the New Role of the CFO
Dan Miller
NetSuite

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Abstract
Today, the CFO’s role is more complex and challenging than ever, as he or
she is expected to be involved in every aspect of the business, from
providing strategic business advice and analysis to the CEO and executive
team to improving the company’s productivity and efficiency. CFOs are also
often tasked with implementing organizational controls for compliance,
ensuring cost controls, and overseeing operations, IT, and core back-office
functions.
In this session, we will discuss how the CFO managing high-growth can
effectively manage these diverse responsibilities by achieving executive
alignment:
• making the business planning process transparent
• increasing real-time visibility into company performance across
departments
• improving core business processes across the organization

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Audience Check and Heads-Up
CFO’s in the crowd?
High-growth? (top line >20%)
Public, Private
Global?
Employees: <250? >1000?

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Agenda
Background
The Operational Challenges CFO’s Face
An Approach To Meeting the Challenge
Q&A and Discussion

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My Background
25+ years corporate finance experience in multiple industries
Currently: Software/Mfg/WD Vertical GM, NetSuite
Product, Services, Marketing Sales
Previously:
3X CFO, most recently as CFO of Nexant (1,000 EE SW and Service)
Life Sciences, Hardware, Software, SaaS, Media
IPO: VP Controller, Extreme Networks
Assistant Treasurer, Genentech
Deloitte
CPA, MBA

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What I See Every Day at NetSuite…
Hyper-growth
Strategic view, but short-tem focus
Big and Small
From Qualcomm , etc. to 20 person start-ups
Business Model Diversity
Internet, SaaS, Ecommerce, Services, Hardware-enabled, etc.
Process
Little or none
Stale (sometimes as soon as the process is built)
Either way – no one has the time
Starving For Information
Stale, inaccurate, siloed, disconnected from the PUE

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Company Overview
Top 10 Cloud Companies
to Watch
#1 Cloud ERP Suite Industry Recognition
Fastest Growing
Top 10 FMS Vendor
3rd Year Running
• World’s most deployed cloud ERP
• Used by 16,000+ organizations
• Fastest growing top 10 ERP
• Used across 100+ countries
• Founded 1998
• Publicly traded on NYSE: “N”
• Offices in 14 countries
• 2,000+ employees
• 2012 revenue: $309M
Background Performance
Best Cloud Infrastructure
Best Financial Management

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Record Quarterly Revenue: 32% YoY Growth
$0M
$10M
$20M
$30M
$40M
$50M
$60M
$70M
$80M
$90M
$100M
$110M
Q2'04 Q2'05 Q2'06 Q2'07 Q2'08 Q2'09 Q2'10 Q2'11 Q2'12 Q2'13
$4.0
$8.0
$15.5
$25.5
$36.6 $40.3
$47.1
$57.8
$74.7
$101.0

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One of the unique things about the human brain is
that it can do only what it thinks it can do…the first rule
of super brain is that your brain is always
eavesdropping on your thoughts … as it listens, it
learns.
—Deepak Chopra, Rudolph Tanzi, ―Super Brain‖ Co-Authors
LEADERSHIP

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The Challenges

#CFOD13Does Finance Really
Understand the Business?

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CEO

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Accenture High Performance Finance Study
How Do Others Think Finance Is Doing?

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Accenture High Performance Finance Study
What We Think About Our Challenges
Top 5
Responses

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Accenture, High Performance Finance – The Critical Role of the Finance Workforce
CFO’s: Time Allocation

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Finance Challenges In A Global Businesses
Inability to customize systems and processes as the company grows
Error-prone, inefficient, time-consuming manual processes
Lack of confidence in financial data
Significant resources, effort and attention just to keep current system running
―Siloed‖ data; no 360o view of corporate performance
Lengthy cycle to roll up financial results from subsidiaries
Lack of current visibility into subsidiaries’ financials
Challenge of scaling processes across geographies
Lack of IT resources in distributed locations

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Setting The Table For Operational Success
Is Board Governance in good shape?
Investor Expectations
Politics/Baggage
Culture of Say/Do
Accountability
Pay for Performance
Focus on Outcomes

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The Approach

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Building a Business Plan That Gets Buy-In

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Business partnering is a lot like dancing. Do it
right, and it looks effortless – graceful and smooth.
Do it wrong, however, and you are likely to step on
someone’s toes.
—Deloitte, How Finance Can Become a Better Business Partner

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Build a Real LRP!
►Involve the whole team
►Identify key input and output metrics
►Clarify how decisions today effect future
►Removes mystery of budget targets
►Tied to Comp: Pay for Performance
►Keeps a periodic eye on the long-term
►Used To Drive Significant Strategic Shifts
Example: Genentech

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Benchmark When You Can:
We compare our financial performance with other public SaaS companies
Informs our short-term and long-term target operating models
Removes subjectivity from business model assumptions
32.6%
0%
10%
20%
30%
40%
50%
60%
70%
Revenue YoY Growth
Peer group average = 28.3%
44.6%
0%
10%
20%
30%
40%
50%
60%
70%
S&M as % of Revenue (TTM)
Peer group average = 36.6%

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What’s the Strategy/Vision?
Significantly increase wallet
share with existing
customers
Significantly accelerate new
customers acquisition
Dramatically improve
effectiveness & efficiency of
the work we do
• Increase revenue per customer (cross sell,
upsell, sell more) on key accounts with
new account management mindset and focus
• Define value proposition, pricing, and FY11
product/technology roadmap for Software
• Raise awareness and market the Customer
Benefit of our differentiated solution…
Software and Services
• Develop and sell new services and products
into existing and new accounts
• Enter new geographies with existing services
• Standardize critical repeatable work processes,
build institutional knowledge through best
practice sharing, and manage enterprise risk
Enabled by high performance organization & technology
1
2
3
4
5
6
New customers:
Existing customers:
Efficiency savings:
2013 Growth Plan Critical Few Priorities Revenue Plan & Target
Plan = $75M;
Target = $90M
Plan = $390M;
Target = $425M
Plan = $10.0M;
Target = $15.0M

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$8.8
$13.3
 What Team Will Do With More Conservative Assumptions
 Likely the case we commit to outside investors
 Visibility of this plan is nearly 100%
$1.7 $11.4$0.5
FY11
$140.0
Y-o-Y Growth = 19%
$117.5
FY10
$117.5
$5.3 $12.4
$3.5
$150.0
Y-o-Y Growth = 28%
FY10 FY11
Consulting MarketsSoftwareEE
$11.4
• Work We’ll Do, Won’t Do
• Key Priorities
• Key Dependencies
• Stretch, but doable
$117.5
$7.5
$14.1
$7.6
$160.0
FY10 FY11
 Stretch Case
 Accelerated compensation if achieved
Scenario
Key Drivers
Worst & Best Relative To Plan Revenue Projection
Worst
Case
Plan
(Most likely)
Target
(Best Case)
Y-o-Y Growth = 36%
Y/Y
FY10
33%
21%
15%
40%
26%
3%
5%
37%
39%
46%
21%
46%
Y/Y
FY10
Y/Y
FY10
FY’09-’10 $7.9 $14.5 $1.7 $14.8
What Scenarios Should I Consider?

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Expense Build: Where Are We Investing?
$513.5
Merit / Bonus
$2.0
Expense Growth Driven By Revenue Growth and Special Investments
$Millions
Service Direct Labor $10.6
Markets COGS Incr. $11.2
Office Expansion $0.3
Base Growth:
22%
YOY ∆
Service Business Efficiencies ($2.0)
Corporate ($0.5)
FY11 Savings:
Growth-Based
$22.1
S&M
$1.5
Special
Investments
$0.9
Efficiencies
($2.0)
$738.4
Corporate
($0.5)
2012 Merit & Bonus Growth-Based Marketing Corporate Special
Investments
Savings 2013
Corporate
$0.9
Strategy Consulting $0.7
Executive Recruiting $0.2
FY11 Special Investments
Corporate $0.4
CMO, CSO, CPO $0.5
Corporate

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What’s the Financial Outcome?
3
2
1
1
2
28% Revenue growth
 Drivers of $32.5M in growth:
‒ BU1($11M)
‒ BU2 ($12M)
‒ BU3 ($3M)
‒ BU4 ($3.5M)
Contribution Margin Growth 46%
 CM expansion of $9.2M :
‒ Higher revenue ($7.2M)
‒ CM expansion from standardizing critical processes
for EE and Consulting service offerings ($2.0M)
 Overall, CM growth offset by higher S&M for customer
awareness and TrakSmart sales team (-$1.5M)
EBITDA Increase 183%
 EBITDA driven by higher revenue and contribution
offset by:
‒ Strategy Work ($0.7)
‒ CPO/CSO/CMO ($0.5M)
3
28
%
Preliminary 2013 Plan vs. Target
Consolidated
$M
2013
2012
Actual
Worst
Case
Most
Likely
Best
Case
Most Likely
vs. 2012
Revenue
BU1 $34.2 $43.0 $45.6 $47.5
BU2 $36.3 $38.1 $41.6 $43.8
BU3 $30.6 $42.0 $43.0 $44.7
BU4 $16.4 $16.9 $19.9 $23.9
Total Revenue $117.5 $140.0 $150.0 $160.0
Y-oY Growth % 29% 19% 36%
Total Contribution Margin $20.0 $23.4 $29.2 $33.1
Y-oY Growth % 12% 17% 46% 65%
Total CM% 17% 17% 19% 21%
BU1 30% 30% 31% 32%
BU2 25% 27% 29% 28%
BU3 9% 9% 10% 10%
BU4 -15% -24% -6% 4%
Corporate (incl corp srvc ctr) $11.9 $12.5 $13.0 $13.0
Bonus $4.1 $4.1 $4.6 $4.6
EBITDA $4.1 $6.7 $11.6 $15.5
3% 5% 8% 10%
Y-oY Growth %
% of revenue
-50% 63% 183% 278%
2013 vs. 2012:
*

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Optimizing Critical Processes
and
ID Critical Metrics For Success

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Key ERP Suite Business Processes: CFO
Partnership Opportunities Abound
Brand to Demand
• Marketing & demand
creation
Idea to Market
• Developing new
products and services
Prospect to Cash
• Sales and order
creation
• Fulfillment
Procure to Pay
Bill of Materials to
Finished Goods
Storage to
Shipment
• Inventory & warehouse
management
Sales Planning to
MRP
Customer Need to
Resolution
Record to Report
• Finance and accounting
Hire to Retire
• Human capital
management
Project Conception
to Completion
Find to Fix
• Asset management

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Key Steps In Critical Business Processes
Lead Oppty Quote Order
Order Fulfill Invoice Revenue Collect
CRM System: Lead to Order
ERP: Order to Cash
Professional Services: Bid to Bill
Oppty Bid Resource Manage Bill
Request Approve Procure Match Pay
Procurement: Procure to Pay
Human Capital: Recruit to Reward
Recruit Hire Payroll Develop Promote

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Sales Function: Order to Cash Improvements
Craft a
Thorough
Process Map
Standardize
Process Steps
Create
Improvement
Culture
Build Business
Case for
Automation
Set Credit
Limits

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Manufacturing: Procure to Pay Improvements
Controls,
Controls,
Controls
• Segregation of Duties
• Buy-in from Audit
Process
Standardization
• Continuous Improvement
• Purchase Order Utilization
• Maintain High Quality
Automate Key
Process Steps
• Implement Right Technology
• Determine Cost/Benefit for P-
Cards, Thresholds, Etc.

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Systems Play A Key Role
Flexibility:
Ability to support processes accommodating new and/or multiple sales offerings for your
customers
Data:
Get on one system across as many processes and as much of each process as possible
Cloud:
Keep the system current even as technology evolves, new features become available and
regulations change
Complexity:
Stay on one system even as new subsidiaries are opened, companies are acquired and business
evolves
Performance:
Scale to meet the increasing volumes coming from expected and unexpected growth

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One Suite to Streamline Core Processes
Siloed information
Disparate processes
Time-consuming data management effort
One version of truth
Streamlined, integrated processes
Nimble decision-making turnaround time

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What’s On My Dashboard To Stay Aligned?
• Real-time
• Global
• Bookings
• Pipeline
• Revenue
• Segment/Vertical
• KPI’s

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SaaS: Churn & Downsell
We measure a combined gross churn/ downsell number on a revenue $ basis defined as the ARR Lost/
annualized run rate of recurring revenue for the period (in a business with fast-rising ASP, customer
count churn is a less useful metric)
We measure the metric on a gross (i.e. before upsell) basis, because the focus on this number and the
effort to drive it down is a separate exercise from the effort to expand in existing accounts
Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212
Lost Customers Downsell

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Sales and Marketing Efficiency
Because the SaaS company spends such a large portion of the P&L on S&M, it is critical to ensure the spend is
delivering what it is supposed to: bookings and then revenue. We focus on two simple metrics:
Gross S&M Efficiency: Ratio of S&M expense to current period bookings – answers ―how much S&M expense
do we spend on each $ of bookings?‖
S&M Revenue Efficiency: Ratio of S&M expense to following period’s increase in revenue – answers ―how
much S&M expense does each $ of incremental revenue cost?‖
2004 2005 2006 2007 2008 2009 2010 2011
S&MRevenue Efficiency
GrossS&MEfficiency
2004 2005 2006 2007 2008 2009 2010 2011
S&MRevenue Efficiency
GrossS&MEfficiency

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Measuring and Managing

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I can’t stand predictions. What I have to do is
try to visualize the world, and I have to be agile
enough to live with it and win in it.
—Jack Welch

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Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12
LTV Recurring/COCA
LTV Recurring + Upsell/COCA
LTV/COCA: The Meta-Metric for SaaS

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LTV/COCA
The Meta-Metric for SaaS
Lifetime Value /
CoCA
Cost of
Customer
Acquisition
Lifetime Value
The Ultimate Measure of SaaS
Effectiveness
Is Calculated By Which are Functions Of
ARR
Breadth of solution
Pricing & Competition
Ability to upsell
Avg. Customer Life Churn rate
Recurring Gross
Margin
Data center operations
Architectural efficiency
Support costs
Total Sales and Mktg.
Expense
Efficiency of sales cycle
Cost of lead generation
Addressability of mkt.
# of Customers
Acquired Conversion rates
Effectiveness of lead gen.

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Actual data
Integrated ERP and CRM
Operational analytics
Continuous planning
Strong accountability: actual vs. budget
Collaborative forecasting
Integrated Business Planning Process
Actuals / ERP Financial Planning
Integration
Strategy, planning and execution linkage
Integration between actual and plan
Able to continuously monitor performance

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Forecasting Philosophy
Multi-Year Strategy Drives Tops-
down approach
Fund top line growth while
maintaining profitability and
generating cash
We are focused and valued
externally on revenue growth
Forecast used to manage the
business
Robust feedback loop
between finance, executive
team, and business owners

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Forecasting Summary
What do we forecast?
Revenue, Expenses, Deferred Revenue, Operating Cash Flow
Rolling eight quarter view updated monthly
P&L forecasts saved as different versions in Financial Planning module
Forecasts that are unique to SaaS companies
Deferred Revenue
Customer-level revenue forecast by month
Churn
Headcount – expense lever

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Execution: Discipline & Flexibility
Discipline:
FOCUS on key priorities and their impact on revenue
Establish routine of updating forecasts at regular intervals
Develop a set of relevant metrics to measure success, review manically
Use dashboards to monitor real-time results and KPIs on a regular basis
Flexibility:
Update forecast models for proposed changes in the business
Ensure you have the right team and tools to facilitate fast answers
Make sure mindset is in synch with business environment
Be ready to switch from cost control mode to investment mode and back again
Be open to new ideas and approaches

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Wrap-up and Your Thoughts
Does an LRP planning process really have value?
Do you have access to real-time financial information?
Are your input and output metrics clear?
What is the quality of your revenue visibility?
Where does your forecast break down or excel?
Anything else?

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