It is only really in recent years that people have started to speak of the CFO as a driver of growth. Before, finance leaders were there primarily to monitor it - some would likely have even accused them, probably wrongly, of doing everything they could to stifle it. However, this has changed. We are now living and running businesses in an age of hyper growth, where organizations like Slack and Groupon reach their $1 billion valuation within just two years, and FP&A has been at the heart of it.
One company to have experienced growth at a particularly rapid rate is job aggregation site Indeed. Just five years ago, Indeed employed roughly 350 people across 6 offices in the US and UK. Today, it has 22 offices in 13 countries across the world, employing more than 4,000 people. Its revenue has risen from $434 million in 2014 to almost $700 million in 2015, with its latest results for the first 9 months of 2016 showing $750 million in revenue. It attracts more than 200 million unique visitors per month, and operates in more than 60 countries and using 28 languages.
This presents a number of clear challenges for an FP&A team looking to position them at the heart of the action, especially with Indeed’s emphasis being so focused on global expansion. Johnny D Patino, FP&A at Virgin Mobile Latin America, for one, notes that: ‘While Finance Leaders are intrinsic in creating the initial growth plan, their most important responsibility comes at moment of execution or inception of the company into the new country, this is when they will have to be the most cautious and most alert to market stability. At the onset of operations, they need to ensure their finance team is closely tracking all the different KPIs and macroeconomic variables that were set during the prior arduous months of planning.’
In his recent presentation at the FP&A for High-Tech Summit in San Francisco, Sean McSherry, Senior Finance Director at Indeed, similarly discussed how FP&A had been integral to the company’s success. As they opened new offices abroad, they needed to understand the regulatory requirements of each new region they opened offices in, had to negotiate different tax regimes with different authorities. They also had to do this with a smaller team. When McSherry arrived, he notes, they didn’t have a corporate real estate team, the legal team consisted of just one person, there was no corporate treasury team, and so forth. All the information was vital, and as the complications of expansion grew, so too did their understanding of what they needed.
It is not just in compliance that McSherry says FP&A proved important at Indeed, though. Forecasting in any company today is difficult, with an uncertain and rapidly changing climate to adapt to. This challenge is amplified at hyper growth companies because things happen so quickly, it’s like attempting to jump between two trains going full pelt in the opposite direction, on a bend. In business, you have where you are now, point A, and you have your goals, point B. The quickest way to get to point B from point A is to take the shortest distance - a straight line. In real life, there is no straight line. There are multiple paths to get to the summit, McSherry says, each with its own challenges and opportunities. It is up to FP&A to try and help find which of these lines is going to be best for the company, and to stay constantly aware of anything that could change the best path so the company can take strategic action.
You deal with multiple paths by fostering ideas and growth. The natural tendency as a finance person to put constraints on the business, but this impulse needs to be contained to make an impact or it can hold the company back. In FP&A, Financial Planning is the plans and frameworks. This is the blocking and tackling, says McSherry. In a hyper growth organization, FP&A wants to aim to be spending between 20-30% of its time on this. The remainder of the time needs to be focused on analysis. This is where FP&A can really be driving growth by helping the business make the most informed decisions based on the most accurate and up-to-date data available.
The best way out of this quicksand is through automation and systems, essentially handling the blocking and tackling activities over to machines. This, McSherry says, allows FP&A to focus on doing three things to get to this point. Firstly, partnerships. At Indeed, the FP&A team embeds analysts throughout the business. Things are happening so fast, you need someone sitting there when, for example, the CMO makes a decision to help brief them for what the CFO is going to want to know. FP&A is in a unique position to provide a 360 degree vision to the whole company. They are the only ones with full exposure to every area of the business. This means that they should understand every data point and use it in models, and if a department is using the wrong data point, they need to tell them about it so that it can be corrected.
For these partnerships to work, there needs to be trust and credibility. They are achieved through flexibility and transparency, McSherry’s other two focuses. Flexibility means adapting to partners needs and their voice. It’s not enough to be a financial analyst in the basement with a calculator. A growing company won’t know enough about what they are going to need to do for finance to be rigid in terms of hiring and areas of growth. The most important thing here that Indeed have implemented is a rolling forecast. While they still have to have a budget, they also have 18 month rolling forecasts which are set on a monthly basis and reviewed by p&l owners. These allow for continual review of targets and re-allocation of spend/resources. These need to be comprehensive but also light so as not to become a time burden.
Lastly, there needs to be transparency. This is gained by reviewing forecasts with different departments and keeping everyone in the loop. In this way, there is joint forecast ownership. This means everyone needs to be speaking the same language - using the same metrics, using the same data etc. Finance needs to steer other teams, not tell them what do, otherwise you look too rigid for a hyper growth company and will not be trusted.
Ultimately, growth is an opportunity for FP&A. Indeed has succeeded in no small part because they have understood this and allowed FP&A to get on with it. Its importance to a hyper growth organization cannot be underestimated, and anyone who still thinks they are a hindrance needs to think long and hard about the future of their company.