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Questions From Colleagues & Preserving Sanity…

April 24th, 2017 Comments off

It’s always interesting to me how cycling manages to work its way into professional conversations, even with a population of folks that don’t participate in the sport with any frequency, if at all. However, there’s a certain curiosity to people when they learn that you are actually spending 350-400 miles a week “on that little seat”. Most often they say nothing, might make a passing comment, or sometimes ask how the training is going with an obvious sincerity.

I’ve always talked about how strong a correlation there is between the disciplines I practice in my personal life and those I practice in my professional life. Very seldom are the two very far apart from one another. However, I was asked a very interesting question by one of my prior colleagues at Cylance. Knowing how much I ride, and that my training rides usually started at 5.30a, I was asked “if the effort required for those hours and rides were worth it and did it provide some balance to the turmoil of life at a start-up?” It was a great question and one that I had discussed with folks on my direct team, as well as friends and vendors.

Simply answered…YES. It really is too easy to get caught up…or I should say buried in the weeds and lose your perspectives when the pressure is high, there is change coming at you from every direction, and there is usually a loosely defined direction that is dependent on tracking against a business that is difficult to predict. You can really get caught in an escalating pace of analysis paralysis. Analysis that has you running every possible scenario, discussing every possible outcome with trusted folks on your team, balancing the hourly or daily interruptions that occur “because you need to be in this meeting…” while never really reaching conclusion or final decision. I learned very early on during my time working in equity research to quickly synthesize information, inquire with a few trusted colleagues, and make the necessary decision…and move on. Not all decisions can be made in that manner, but the vast majority can. Exceptions occur when they are going to have a material and lasting impact on the P&L….hiring, capital expenditures, etc.

When those decisions tend to be more prolonged I always found that my time on the bike, in the early morning hours, would give me the opportunity to weigh the alternatives and think about my decision without the inevitable interruptions that come in the office. When you have hours on the bike you sometimes you pass a certain business, recall a pertinent conversation, or simply realize a new idea that would have never materialized in the office. When you are on the bike, and in the dark, the only thing out there is your commitment to achieve specific performance objectives on the bike…and the thoughts of what you need to accomplish in the office. As I mentioned above, those two are seldom far apart. One moment your making sure you are tracking against the wattage number your supposed to maintain for the 40-minute block you’re in the middle of…and the next minute your thinking about the utilization rate that was just reported by Services, what effect that is going to have on their margins for the Quarter, and recalling the last Quarters activities and the contributions to the performance of that group. Was there a specific project where billing was delayed…was it not properly quoted at the beginning? How are the two large Product opportunities progressing with only two weeks left in the Quarter…and there hasn’t been an update in the most recent few days. These are the things going through your mind in the predawn hours of that ride…

Sometimes those hours in the saddle can be with a key member of the team that might be struggling with a certain decision. Very early on our CEO was faced with making a decision to fully replace the first generation Sales team and basically start from scratch. He and I had know each other for years before he made the commitment to start Cylance so bikes were nothing foreign to the two of us. If we got out on the bikes it was never predicated on having a meeting or certain discussion…but only to get out for a training ride. Inevitably it usually went in the direction of business, as it had that day. There was a long discussion about the challenges and potential risk of making the change, but in the end he knew the decision that had to be made…it was only the process of rolling along at 20mph discussing the subject that made it a bit of a therapy session.

That’s exactly what cycling is for me relative to my chosen profession…it’s part therapy, part challenges, part perspectives, part bonding with friends…and one more way for me to quantify & measure my efforts. The conversation I’ve had with colleagues is not about the specific activity of cycling, but to choose any activity that can give you a similar parallel with your activities at work, provide those perspectives, and allow you to avoid getting so embedded in the weeds that you are unable to make effective decisions that are in the best interest of the company, your team, and the objectives that everyone is working towards. Whether it’s running, rock climbing, cross country skiing, or swimming….what’s that activity that is going to keep you healthy, your brain engaged, and sharp for the next stretch of hurdles that you face at the office?

Thanks for reading…

Jeffrey Ishmael

Anaplan…& Implementing a Robust Forecasting Platform: Billings & Revenue

March 24th, 2017 Comments off

For the first few years at Cylance there was not a huge reliance on our forecasting platform and the need to put a pricey tool in place. There was simply no need to spend a six-figure amount when our business was still an entirely domestic story and the core revenue stream was still Professional Services. While we implemented NetSuite within our first few Quarters as a company, we opted for the NetSuite as our core platform so we could then bolt on additional modules as needed. We opted for their forecasting module almost immediately, but for a very basic forecasting function. As a Professional Services story, we only had a basic need to forecast gross labor hours, utilization rates, hourly cost rates, as well as estimated billing rates. At this point, we still did not have any consideration to Product revenue, and in the absence of, did not have any considerations for revenue recognition at that point. Considering that our Services revenue was not invoiced until completed, it was a very straightforward modeling exercise.

Fast forward to the launch of our Product offering and we knew it was going to necessitate a jump to a new platform as we were already starting to see some weakness in the NetSuite module. This new phase required an entirely different level of forecasting considerations for which there was no historical activity and for price points that had not been previously seen in the security sector. Would we actually realized, and stabilize, at a pricing level that would be many multiples over the incumbent first generation AV offerings. With consideration to the Product forecasting;

  • Average price per node on an annualized basis
  • Billings distribution by contract length…12, 24, and 36-months
  • Flexibility to easily adjust the anticipated weighting of billings
  • Subscription or Perpetual agreements (very few perpetual, but still present)
  • Robust deferred revenue modeling as a result of signed contracts
  • Sales staff hiring and assigned quotas.
  • Implementing any “seasonality” consideration into the model
  • Existing quotas, annualized growth, as well as ramp up period for new hires.
  • OEM, Consumer, and Government assumptions.
  • International entities & expected exchange rates for a consolidated USD view
  • Contra revenue accounts

It’s pretty easy to see that, even the short list above, there was going to be an entirely new level of complexity to our forecasting efforts, which could not be accommodated in our original module. After meeting with one of our key investors and discussing some of the options available, Anaplan seemed to emerge as a strong candidate and we made the decision to move forward. It was time to put a more robust tool in place as we started moving towards 9-figure revenue goals.  Even with the move to a new forecasting tool, we also had an entirely unique challenge as in developing a the components of this Forecast without a wealth of historical performance metrics. This meant that we would be constantly updating the Forecast as we compiled more Product transaction data. Fortunately for us, we saw a relative level of stability in our average PPN and our contract lengths. The two most difficult elements we had to work through during the implementation was the buildout of the deferred revenue forecast and the buildout of the revenue forecast that was supported by a detailed hiring plan and the assigned quotas for each one of those individuals. This was not going to be a simple spreadsheet exercised based on modifying a few cells and voila’…you have an annual number! The goal was to build a platform that would hold up to the scrutiny of our investors as well as easily identify & bridge any performance shortfalls that were realized versus planned.

In taking one example of where Anaplan excelled was in the modeling of our domestic revenues through the quotas that were assigned to each of our sales staff. While a painstaking exercise, there was an itemization of every existing sales staff, as well as those who were recently hired, or planned to be hired. There were individual quotas assigned to each one of these individuals. For those new hires, there were additional considerations to a ramp up period as they learned our tech, the inner workings of the Company, as well as seeding their existing network in their new employment. While these assumptions were usually conservative to reflect a few Quarters of nominal contribution, most were ramping extremely quickly. However, were we going to see the same level of immediate success as we scaled from a few dozen to sales staff to a multiple of that? That’s where we would have flexibility in Anaplan to adjust the model accordingly. From a billings and revenue modeling perspective, the only limits in Anaplan would be those that we placed on ourselves. However, we also had to be careful that the levels of planning detail we opted to incorporate would be important in the planning of the business and not turn into an exercise of planning paralysis.

The second painstaking, but worthwhile effort, was the buildout of the deferred revenue model. With the help of one of Anaplan’s premier implementation staff members, this was efficiently tackled and resulted in a clearly mapped Forecast that was easily trackable after any changes were made to new sales hires, quota modifications, or changes to average contract lengths. It was no longer the “black box” that we were challenged with on our prior platform. The additional benefit of the new Anaplan deferred revenue forecast is that it was easily audited and reviewed against the underlying assumptions. This would have played a pretty key role in our prior financing round in which there was a divide between the models presented by investors and our internal view…on the older platform. As one investor had noted during those efforts…”We’re familiar with that module and it is a bit of black box…”. A nice affirmation of our decision to move to Anaplan, but we were not yet fully deployed on Anaplan to supply the new view.

With respect to our choice to move to Anaplan, we also chose to work directly with the Anaplan implementation team as we wanted to keep our entire efforts and focus inside the Anaplan camp. I opted not to risk having a point of weakness between Anaplan and the efforts of a 3rd party reseller for implementation. It was a great decision and the Anaplan team was fantastic. In the end, the primary goal of moving to Anaplan was to be able to provide complete transparency to our investors, provide them the confidence that there was a robust set of underlying assumptions in the Forecast, and to allow for an intelligent dialogue on the integrity of the underlying Forecast. That once unbundled, it would be easy enough to see where any weakness might be occurring if there was a shortfall against Plan. We’ll jump into the cost of goods and operating expenses in the next round…

Thanks for reading.

Jeffrey Ishmael

Do You Stay On The Gas With “Unlimited” Resources…?

March 20th, 2017 Comments off

     It’s been just over four months since I made the jump to start a self-imposed sabbatical to “recharge” and look to define the next chapter after 4.5 years in a hyper growth start-up. In essence, it was 4.5 years training at a redline pace that ultimately demanded a level of moderation, but at a pace that wasn’t mine to control. But what does a hyper-driven and intensely competitive individual do to “recharge” the batteries and spend some much deserved down time do? Well of course you decide to set your sights on doing one of the longest paved climbs in the world, as well as deciding on racing two of the most notable Classic races in Europe that will have no less than a combined 100 kilometers of cobbles between the two events. Those are natural next steps in getting some rest…right?

I’ve always made some pretty strong comparisons between the training for my cycling and the disciplines that have to be practiced in a Corporate environment. While some may balk at the comparison, it comes down to managing the resources you have available, using those resources in an effective manner, while accomplishing the goals or commitments you’ve made to yourself…or others. Let’s look at the very macro comparison of the resources available at a Corporate level versus Personal level. At the Corporate level, imagine having complete open access to the checking account of your favorite VC and being able to deploy those resources in any way you could to your business…ANY way. You can spend anything from $1 million…to $100 million…or more if you felt you needed it. Let’s say you settled on the amount and burned through that spend. What have you been able to accomplish with the deployment of those resources in the end? Have you built a healthy business that has a strong foundation for future growth and have you been able to establish a strong pattern of increasing performance metrics that strike the right balance between aggressive growth, establishing a healthy corporate environment, while positioning the company to deliver on your commitments? General questions, but you get the point.

Let’s talk about the Personal side though. I find myself on sabbatical and all of the sudden I basically have an “open checking account” for training time and can do whatever I want. I can train for 10 hours per week, 20 hours per week…or even 40. However, as with a Corporate environment, there is the same consideration to resources and a healthy foundation as there is for an athlete training for an event. It has to be methodical, planned, sustainable, with appropriate periods of reflection and a tempering of the pace. The attached picture is the actual chart of my training since November and the progressive peaks and subsequent tapering as I move towards my goal of leaving for Europe next week. In the chart the magenta line is the shorter term acute training load while the blue line is the longer term chronic load, which indicates a core fitness base. The yellow line is the fatigue line and the more it dips, the higher the fatigue and time and indication of need to rest. Think of the magenta line as the 200-day moving average for a stock…you can see spikes above the norm, but ultimately it’s going to come back down before hopefully making the next run up. It’s the same concept here. You can see where I’ve had the spikes, but ultimately, you taper down before making the next training push. It’s about finding the right balance, creating a healthy foundation, and continually pushing forward.

Just like the Personal level, there is an equal penalty for “overtraining” at the Corporate level. At the personal level, overtraining can lead to becoming ill, an inability to achieve peak performance, and an extended recovery time to get back to a healthy state of training. In the Corporate environment, the equivalent of “overtraining” is essentially excessive spend, excessive hiring, and a deterioration in the performance metrics of the company. At that point, there’s no choice but to move into a period of recovery to get back to a higher level of performance.

Over the last four month I’ve managed to put in over 9,200 kilometers in the saddle, climb in excess of 300,000 feet, and during that time burn almost 210,000 calories on the bike to achieve that. Again…that’s just in the last four months. Putting 210,000 calories in perspective with some of my favorite foods…

  • Roughly 2,100 packets of energy gel…
  • 131 pounds of pasta…
  • Roughly 1,750 Chobani yogurt cups
  • 1,500 cans of that nectar of the gods…Coca Cola

You get the idea…it’s all about the long game and establishing a strategic and achievable result. Imaging trying to cram all the stats above into a shorter window…say even two months. The likelihood is that you don’t have the proper foundation in place, will overtrain yourself, you’ll likely get sick…and ultimately your fall back weeks or a month…or in the case of a Corporate scenario…potentially losing Quarters due to overtraining.

Happy training my friends…

Jeff

Not All Levels Of Transparency Are Created Equal…

March 13th, 2017 Comments off

Transparency

Over time it’s always interesting to see how individuals and organizations define and operate under varying levels of “transparency”. These insights may take weeks to play out or may ultimately take years. While I will agree out of the gate that there should be varying levels, depending on the sensitivity of the underlying data, an extremely high percentage of transparency should exist within an organization to build trust with internal and external customers, as well as investors and other key constituents. In summary, Transparency should be defined as…

a :  free from pretense or deceit : 

b :  easily detected or seen through : 

c :  readily understood

d :  characterized by visibility or accessibility of information especially concerning business practices

As mentioned, there are always certain types of information that need to be contained to a small group depending on the level of sensitivity, but 98% of discussions should be open and collaborative with the broader team. Are you planning a reduction in force that may cross over multiple departments…then yes, that is going to require an incredibly amount of sensitivity and confined to a small group in the planning of the event. Releasing this information to the broader group would result in a paralyzing decrease in productivity across the teams and produce undue anxiety for those that aren’t affected. Absolutely painful, but these are actions that need to be controlled with military precision.

Are you doing an IPO? The group in the know on this activity obviously widens as it becomes necessary to involve more people in the process as you continue to bolster internal functions, coordinate functional area contributions to the drafting of an S-1 and the characterization of the business, working with investors, bankers, and legal partners. A large group…absolutely, but still a relatively combined group of folks. Will there be leaks in this pool and others find out…absolutely. But again, not necessarily doing regular updates out to the broader organization and discussing in an open environment in a regular cadence.

I’m really not a fan or subscriber of playing semantics with certain topics. The allowance of “access” or inclusion in a meeting or systems is also not equal to transparency. It’s just exactly that…access or inclusion. You may be given access to a courtroom to view a criminal case, but that doesn’t mean that you’re given access to all the details of the files held by the defense and prosecution, but you have “access”. In a corporate environment, that absence of financial information, historical activities, investor information, or operational performance will simply result in the failure of a team to succeed…period.

When it comes to strategic planning, hiring, geographic expansion, financial performance, facilities expansion, or other operational initiatives, there’s no reason not to be working in a fully transparent manner to build trust and effective collaboration across the teams. It’s not about spinning the information or results to create a sense of vagueness of lack of definition for the team, or withhold information that creates a hurdle in allowing the team to make a fully informed decision. Ultimately, as reflected in the definition above, any level of deceit will always be discovered and the subsequent erosion of trust can seldom be recovered.

This is not a topic that should require extensive discussion…it comes down to just recognizing the DNA of an individual or organization. For a team, and ultimately an organization to succeed, there needs to an environment free of pretense and deceit, an environment that is easily translated and readily understood, and is characterized by high visibility & accessibility of information concerning the vast majority of business results and practices. It’s an insightful walk to observe how different people and organizations promote these conditions, but in the end, it’s critical for the success of the team, company, and ultimately promoting a healthy environment of trust and collaboration.

Thanks for reading and sharing in my walk…

Jeffrey Ishmael

You Didn’t Have To Provide A Plan To The Board?

January 20th, 2017 Comments off

BUDGETOne of the benefits and enjoyments I get from updating my blog are the questions that I typically received from people asking for certain clarifications. This comes as no surprise since the original intent of my blog was to bring a little more transparency into how the Finance department operates relative to every other functional area in the company and what might be driving the actions or decisions of the Finance department.
With that said, I received a follow-up yesterday on the update I wrote on planning within a hyper growth environment. One of the main messages in yesterday’s post was that you really can’t plan, or at least effectively, in a hyper growth environment. With that message I was asked how the Board would accept that an operating plan wouldn’t be presented to them for the year. I have to say I was a bit amused at the question, but completely understood why it was asked. Not to mention, the Board would never allow such a hall pass from any team. There is ALWAYS an operating plan that is highly thought out, detail oriented, and usually has a number of additional scenarios that will convey what the impacts will be to cash and profitability if targets are missed or exceeded. For ballpark references, you might have the base scenario, as well as a +20% and a (20%) view. For a more mature company these ranges will obviously be tightened up when you have a higher degree of predicability and more history to base the plan off of. When you’re really just a handful of Quarters into a trajectory, which you are anticipating to double, and the trajectory starts looking like a 6-8x, then you have an entirely different beast to deal with.
So how do you plan for such a scenario? Again, as I mentioned yesterday, you really don’t “plan” for it, but you react to it and adjust the allocation of resources to support that new growth trajectory. As with any business, you have key indicators you look to gauge the health of the business and whether you are tracking to achieve the commitment made to the Board. The elements below are certainly not all inclusive, but are merely a sampling of the items that could be watched when encounter a growth rate that is entirely unplanned.
Billings & Revenues: While this is the key driver on which all spending decisions are made, the total number is not the overriding driver. There’s further review that should be done on the quality of that revenue, what the concentration is, and whether there are any key areas that are potentially missing against Plan. In the case of Cylance, we were constantly watching what our price per endpoint (PPN) was at every level. What that PPN was at a macro level, a channel level, a vertical level, as well as what they were for the duration of a deal. Looking to this number would indicate what the true health of the business was. Was there a single customer that accounted for a disproportionate share of the Quarter business, which in turn, might prompt a tapping of the brakes to ensure that hiring and spend weren’t getting ahead of themselves relative to the Plan and a normalized trajectory. Prudence should always reign supreme.
Gross Margin. Definitely a key indicator, but it also depends on what the structure of the billings are and how the terms being written may be influencing GAAP-based reporting. For a situation where multi-year deals are being done, it might be best to look at early results on a non-GAAP basis if a disproportionate amount of the activity is headed for the balance sheet as deferred income.
Headcount. For me, this was one of the key indicators as it related to our burn and this is certainly not just a single macro number, but a more complex element to dive into. First, what is the overall cost per head and what is the trend line on that figure? Are you’re costs per head staying constant or are you seeing an increase in that number, which might be tied to incentive plans that aren’t aligned with results, increasing benefit costs, or all of the above? Second, what are the average billings and revenues per employee? While the overall headcount might be increasing, this number should also be increasing with the results that are being achieved in excess of plan. It’s not a problem increasing headcount over the Plan, so long are you are seeing the achievement or increase in this planned metric. Third, what is the distribution of the headcount by functional area? Did the original Plan call for 12% within the Marketing area and now the revised number puts Marketing at 18% of the headcount? Is there a disproportionate growth in any one area because that functional area has successfully lobbied for additional staff that is not consistent with industry norms?
Facilities. This area is obviously heavily influenced by the increased headcount that is occurring to accommodate the unplanned growth. If historically Rent expense has been 2% of your operating expenses then this is the approximate metric that needs to be followed in order to stay consistent with the Plan. If you’re exceeding Plan and need more staff then this number, while increasing on a constant dollar basis, should still remain at approximately 2%. As an example, you’re planning a $25M year, which would allow for approximately $500k in rent expense. If the new trajectory is now $100M, then theoretically you would have $2M to spend on rent to accommodate the additional headcount needed to support that growth. Ideally you also start achieving economies of scale where you can actually see that number go down as a percentage of spend. If you fail to miss you billings number, hire all the folks, commit to even more rent expense…then you’re going to find yourself in a bit of bind. It’s akin to “I’m going to get a big raise next year so I’m going to buy my second home and a new car for my wife and I…”. And when it doesn’t happen?
Systems. This is another area that needs to be heavily strategized and managed in a hyper growth environment. There will be unplanned upgrades that will necessitate spending in the $500k-$1M range that, while necessary for growth, were previously balked at due to their cost and the original trajectory you thought you would be on. You might have thought you had another year…or two…to bring them online, but now seeing a 6x freight train coming at you there is no other choice than to starting throwing a ton more coal on that fire and get up to speed.
Culture. We’ll discuss this in another post…or posts.
This barely scratches the surface of “planning” in a hyper growth environment. It’s more about regulating the health of the patient, making sure the vital signs are remaining healthy, keeping your finger on the pulse and knowing how to respond. It’s the doctor that has decades of experience, treats every patient the same, only to realize he has misdiagnosed the patient and either administered the wrong medications…or too many. It’s about collaborating with the broader team in making key assessments, discussing with the team their needs, and ensuring that the resources (MONEY) are properly allocated and within the range of the original Plan that was discussed.
Thanks for reading…

Jeffrey Ishmael

Employees, Facilities, & Systems In A Hyper Growth Environment…

January 19th, 2017 Comments off

IMG_0219     I’m really enjoying the conversations that I’m having with prospective new teams, as well as the vendors that I partnered with during the hyper growth phases at Cylance. The most predominant question is “how did you guys plan that out and accommodate the growth you did?”. Really, the level of success we achieved was not planned, at least not in the timeline that it was achieved in. From the outset, we had “modest” growth that still had us doubling our billings on an annual basis. We knew early on that we were going to have a relatively aggressive trajectory, but certainly not the hyper growth we were confronted with. While it has its blessings, it also tables an entirely unique set of challenges. Challenges on finding that appropriate balance in planning out employee growth, facility growth, as well as the systems you want to put in place…all with a focus on prudent spend knowing that the wrong decisions will result in unnecessary cash burn.
Employees. While we were extremely surgical in the original hiring, there were also unplanned surprises that increased our headcount, and thus our burn. Take for example the assumptions about our product and what we were anticipating relative to the ongoing support of our customers. Early on, the assumption was that our product would be entirely turnkey, that any deployments would be extremely rapid, and that the product would be easily integrated into any customers native environment. Well…not so fast. We quickly determined that we would indeed need a more robust customer support team, and one that was going to be more than just a few people. It was not a difficult decision to make as we knew this was the best decision for the customer and the best decision in support of our product and future success. We just needed to ensure that we moderated our spend in other others to accommodate the unplanned spend. As with some of our other spend, these were not black & white spreadsheet decisions and we worked through all the shades of grey as a team. Also early on we were aggressive in the buildout of our Sales Engineering team. This team was the technical complement to our Sales team and would be responsible for any pre-sale technical questions, proof of concepts, deployment issues, etc. As we started to close more business it was determined we needed a dedicated team just to handle the proof of concepts with prospective customers. Again, not in the plan, additional headcount, and thus, an increase in our cash burn. More conversation that thad to be addressed by the broader team and ensure that the metrics that we were operating under continued increasing in the face of rapid employee growth.
Facilities. When you start out in a living room on fold up tables you tend to maintain that same prudence planning and moving into new locations. We had early support for an investor with some temporary space. Following that, it was then a big commitment for us to assume a five year lease on a 12k square foot space when we still had barely secured our first Services customer. Even more surprising was outgrowing that space in less than two years. The other three years? We had always negotiated great leases so we had no problems maintaining cash flow neutrality when we subleased that space and moved into a new 16k square foot space, but with the opportunity to expand to additional floors within the same building. Imagine our surprise when we realized that in less than a year we were going to be out of space due to a dramatic increase in bookings after we signed the lease. We then renewed our relationship with The Irvine Company to lease additional space in an adjacent building and could easily expand to additional floors. As with our earlier leases, we always ensured we had negotiated leases that we could sublease if necessary if there were any unplanned corrections to the business that had us with excess capacity. However, it wasn’t excess capacity that was the issue, but a lack of. As I had successfully worked with other companies in a campus type environment, we started leasing vacant space in adjoining buildings to accommodate the rapid growth. There was little cap ex for buildout and we had exceptional flexibility. Even as we started to occupy a significant amount of space in prominent high rise buildings adjacent to the airport, while also securing prominent building top signage, we were able to keep our facility expense to less than two percent of our total operating expenses. Building top signage on two buildings that would essentially create the Cylance corridor near the airport.
Systems. As I was handed a laptop with Quickbooks on my first day i knew that this would not be our platform moving forward and quickly looked at what we might deploy that would carry us out over the next 2-3 years…or more. It was determined that Netsuite would be the platform and we could add additional modules as we grew and our needs changed. Whether commissions, deferred revenue, fixed assets, or multi-currency, Netsuite provided an economical platform that was widely adopted and could scale. I had just completed an SAP implementation and it was clear that we didn’t need to go in the direction of Oracle or SAP, both from a complexity, as well as a cost perspective. There were also some other great platforms that we had looked at early on. As an example, we had looked at Domo as a candidate for our dashboard platform. However, at a full implementation cost approaching six figures it just didn’t make sense early on as we had very little to report on in a pre-revenue capacity. A great platform, but not for the nominal amount of financial data we were compiling. Fast forward to a year of accumulated product bookings, pipeline data, channel data, etc. and we were properly positioned to take advantage of it, which we did. As we also started to push towards employee growth of almost 500 we knew that the HR & Payroll module in Netsuite was not going to be robust enough for what we needed and determined that Workday would be the appropriate platform as the company started scaling towards a headcount in the thousands. A year prior and headcount of barely 120 there was certainly no reason to spend high six figures to license and implement Workday. However, a year later and employee count approaching 500 it became a much easier discussion to have.
So how do you plan for employees, facilities, and systems in a hyper growth trajectory? You really don’t. There is no Board meeting that your going to roll into and legitimately say your going to go from $10M to $100M in the next year…not unless you’re going to sedate them and move quickly through that slide. However, you do put the systems and decisions in place that will give you the most flexibility to continue altering your course without having to look back with the realization that you’ve incurred a significant amount of sunk costs that really didn’t deliver any value or provide you with future flexibility. Decisions have to be made in tandem with the broader team, the key vendors that you’ve established relationships with, as well as the input of the Board and key advisors. It’s a heck of a ride and one your not going to be discussing in B-schoool…although look for a Cylance case study in the future!
Thanks for reading…
Jeffrey Ishmael

Hyper Growth…Do You Know Your Company CTL Level?

December 22nd, 2016 Comments off

ctl-chartFor my friends and colleagues that know me, they know that I am fiercely driven both in the office…and on the bike. While I’ve tempered the shoulder and elbow bumping criterium racing these days in favor of career preservation, there is no decreased focus in the pursuit of achieving the best results I can on the bike. In fact, it was a laser focus and a very defined training plan that allowed me to achieve a 2014 title win for the SoCal Time Trial Series, which covered more than a dozen races. Some would think that this is a futile pursuit and an endeavor not worth the investment of time. However, I continue to realize the correlations between what happens on the bike and what happens in a corporate environment. It comes down to disciplines, awareness, proper planning, and executing on the strategy that you put in place. There’s no cutting corners, there’s no accidental or chance success…it’s about appropriate planning and execution. Period.

For me, getting out on a bike ride doesn’t mean just heading out for 3-5 hours, plugging in some music, and getting some good exercise. It’s about have a specific plan for that day. It’s about having specific time execution in specific power zones with specific cadence output…and REST in between those efforts. How does this even relate to corporate execution? We don’t go into the office and hope that the Quarter comes together in the last 5-10 days…although we all know this seems to be the case in just about every industry. HOWEVER, we do head into the Quarter with a blueprint that is typically part of a larger annual plan, that has Quarterly quotas, quotas that are supported by the necessary Sales headcount, as well as a host of other preplanned Marketing and operational support elements. While I commit to a daily training plan and see the immediate measurements of that output, that same realization doesn’t happen in a corporate environment. We continue to put in the “training” on a daily basis, but sometimes the runway to actually see the benefit might take a few months…or possibly a few Quarters on a more significant deal. It’s about having a plan and executing against it. A plan that is achievable. You break that plan down into its core elements and you execute against it. Period.

How does this all relate to hyper growth and corporate performance? Very simply…it’s the ability to maintain a sustainable pace that doesn’t overheat the engine, doesn’t waste resources in an inefficient way, and will allow the individuals, and ultimately the team, to cross the finish line…together. In cycling and the tracking of fitness, there are two lines that are followed during the course of executing a training plan…the CTL and ATL lines. The CTL line, or Chronic Training Load, measures your cumulative output of a trailing 28-day period. The ATL line, or Acute Training Load, measures the short term extreme spikes in training that indication your ability, or inability, to continue putting in sustained efforts. Think of the CTL line as a 200-day moving average for a company stock. You don’t want wild fluctuations in this line, and when there are, it typically isn’t healthy. You may have shorter term efforts that bring your CTL line up…but the ATL line realizes an extreme divergence away from the CTL and starts to indicate potential exhaustion and the need to rest. It’s the same concept at a corporate level, but drawn out over multiple Quarters than multiple weeks. Just like the cyclist, employees can put in a hell of an effort, but continued redlining will lead to that overextended ATL line, an unhealthy and unsustainable spike in the CTL, and eventually a condition of overtraining where either the team gets sick or rest is mandatory.

Knowing how to pace yourself and your team is critical to maintaining a path and a cadence that can continue driving a level of hyper growth. It’s taken multiple lessons for me to learn from others that it’s necessary to know and understand all the inputs that help maintain the pace. I don’t know how many times I was told to slow down and get some rest in the training by my coach. REST?!?!? Are you joking?!?!? “I’m feeling great and I don’t need to rest…”. Follow that with either getting sick or starting to see a drop in the performance level. “What do you mean rest…this isn’t the first time I’ve ridden a bike and I’ll know when I need to rest.” is what I might convey to my coach dismissing his feedback and experiences. I’ve since come to appreciate his valuable feedback and it was his feedback that was a major factor in securing a regional title.

Coming back to a corporate environment and the link to cycling…it’s all about the plan and managing all the necessary inputs to achieve that plan.

Revenue.    Corporate…what’s the Quarterly and Annual Plan? Cycling…what are the major event goals and the power level necessary to achieve the result?
Cost of Goods.    Corporate…what are all the elements necessary to produce? Cycling…what are the dietary needs to stay properly fueled, recover, and continue building on the achieved results?
Operating Expenses.    Corporate…what is the necessary cost structure to support the Plan & the resources available to achieve the plan? Cycling…what is the cost of nutritional supplements, tires, tubes, equipment, travel, etc.?
Net Income.    Corporate…with consideration to all the inputs, is the company achieving it’s planned result? Cycling…are you making progress towards achieving the wattage goals and distance goals? If not, is there a tweak to the inputs that can be made that may result in the same outcome?
It might be a bit simplistic of an analogy, but you can see the correlation between the two. While some might see my quantitative view on cycling as a bit unfortunate, it’s what makes me tick and it’s what I love about my career. For the same reason that I can’t just show up in the office and put in 8-9 hours and collect a check…nor can I get on my bike and just go for a ride…at least not with any frequency. I’m completely driven by performance and performance doesn’t happen without a strict plan in place, a set of metrics to track the plan, and the commitment to deliver. Period. In a situation of hyper growth, you need to be keenly aware of the elements and their impact on, and contribution to, delivering performance. You also need to realize that an excessive use of resources, which may ultimately be waste, will not necessarily deliver the desired results. There is no set formula…but it’s all about having the experience to know how to balance the inputs, drive a sustainable cadence, and deliver on what you promise. Changes to the plan? They happen, but don’t introduce a new race to the calendar next week, load up at the buffet with a ton of carbs, and hope that is going to get you through with a successful result…

Thanks for reading…

Jeffrey Ishmael

Off To The Races & Billion Dollar Valuations…

December 13th, 2016 Comments off

With the original Cylance team established in July of 2012, the orchestra came together and at that time there as a unified vision to transform the security market and change the way that corporations were thinking about their security infrastructure. We were less than a dozen people working in the living room and bedrooms with a goal of security transformation, and in the eyes of our founder, achieving a billion dollar valuation inside of 4-5 years. When you’re starting on fold-up tables there is no blue print to getting there…only a bit of a dream. However, that’s exactly what the team was doing in those early weeks and few months…creating the blueprint on white boards and oversized post-it notes. The team was sparring on a daily basis on what approach would achieve the best commercial results. It was all about specifically identifying the value proposition behind the vision of the tech that had been decided. While we were not trying to build a new company in a high growth sector, we knew the security sector was dominated by dinosaurs and there was billions in revenue that were ripe for disruption. Cylance was going to be the disrupting force in the equation and that exactly what the team was focused and unified on accomplishing.
We also knew that we could accomplish the goal while being very surgical in our spend and that our success would be based on a breakthrough tech and not spending tens of millions on advertising campaigns, spending ridiculous amount early on trade shows, non-value add events, as well as keeping our hiring cadence under strict control. The company cash burn was extremely minimal in the early stages and it was nearly 18-months before the company received its second round of investment in February of 2014. As we continued to bolster our headcount, invest in the Services team, and gradually moved into new offices, the original $15M investment lasted that first 18-months. Again, we were extremely surgical in our spend and spent every dollar like it was our last dollar. A philosophy that managed to last the better part of almost 4-years…
While the Research team was focused on developing the product there were a host of other operational issues to address as we started to grow as a company and would need a foundation for the first few years. First on the list was to find commercial space as we would definitely need to move out of the house. While a remodel was imminent, we were also working in a space where there were water leaks, open beams with exposed nails, and all the other fun elements of a home start-up! You can imagine the response received when you’re trying to meet with The Irvine Company on a commercial lease, as a new company, no revenue, and you want to sign a 5-year lease and then have them pick up all the buildout and incorporate into the lease rate so as to minimize any immediate cash burn. On top of that…and as a start-up…you’re also asking them to have certain restrictions on competitors worked into the lease as well. Suffice to say that we had a pretty weak position and it took more than a few meetings to get them to buy into our vision and the growth we were looking at achieving. At that stage, it was a huge accomplishment to get our lease signed with The Irvine Company, in a premier location, with building top signage on both sides….and all with a minimal security deposit. Score one for Cylance!
Even with our new lease, we kept our spend to prudent levels that were consistent with our philosophy. Rather than spend six-figure amounts on furniture, we committed to a new entry level offering from Steelcase that could easily be added to as we grew…but not before staying on fold up tables for many months before getting into our new space. We all tended to joke that fold-up tables had become part of the Cylance DNA.
Next on the list was our corporate insurance portfolio. Rewind to the start-up that had no revenues, still had less than a few dozen employees, had actually been turned down by Marsh for being “too small”, but seeking coverage in the low 7-figures. I looked to a prior relationship and again found a partner that believed in our vision as well. Fast forward a few months later and securing our first few customers and we were already going back to ask for additional increases in coverage to the mid-seven figure range. This drill continued on almost a quarterly basis until a final larger customer pushed the coverage limit again…to a point that exceeded our billings on even a cumulative basis. Again, transparency and strength in our relationship got the coverage in place. While there was certainly some raised eyebrows, they believed in Cylance and continue to realize the benefits of the relationship, which now extends on a global basis. Again, it came down to relationships, communication, and a mutual respect on both sides to manage the expectations on such a hyper growth path.
Marketing? The first few shows were an absolute kick to plan being the new kid on the block. Our burn was primarily aimed at headcount support, but we also knew we needed to start getting the Cylance name out there. For the first few RSA and Blackhat shows we had the luxury of being an unknown and used it to our full advantage as the team rolled out a full guerrilla assault on the show. With everything from custom napkins dropped in bars, to rented suites to meet with potential customers, to other similar means, we made a huge impact in those early days and clearly got the Cylance name out there. Not immediately recognized post-show, but we established the open ended question of “Cylance?”. We were clearly on the radar at that point…and already starting to create discomfort with our competitors.
At this point, there was still a unified team, all engaged in the same direction, and we knew the end play we were headed for. We knew we were going to be able to achieve our objectives without putting excessive spend in place. What I appreciated at this point, which was similar to the philosophy we had in place at DC, was that we were operating in a brand first capacity. There were no decisions made in the best interests of a person, department, or other agenda…it was all about Cylance. With this philosophy politics were still being avoided and there were no silos in place. We all bled green. Along with this approach was the continued prudence in spend throughout every level in the organization. We were pacing well, the product was coming along, and all indications was that once product was commercialized in 2014 we were going to start eating our competitors lunch. What our competitors didn’t hear was the increasing sound of the Cylance war drums and their sunset turning a bright shade of green…
Thanks for reading.
Jeffrey Ishmael

Exceptional Value Is In The Sum Of The Parts…

December 2nd, 2016 Comments off

The original goal when I started my blog was to bring an insight into financial strategies and operational disciplines that often drive the actions of the Finance team and why they often wanted to be involved in so many other parts of the organization. More involvement than just reporting what was happening in the other functional areas we work with. Quite simply, exceptional value is almost always created and driven by the entire sum of the parts and not just the actions of a single individual, department, product concept, or operating division. It’s all about the sum of the parts…the team that has been assembled to execute on a commitment made to the Board, Executive team…or a commitment to employees.
My point of view isn’t just based on a single company or a single experience of corporate success, but the pattern I’ve seen played out over a number of companies. Whether it’s been most recently at Cylance, strong financial and brand performance at DC Shoes, or aggressive EBIT initiatives during my time with a division of Schneider Electric, the exceptional results could not have been accomplished without the strength and commitment of a competent team. It always started with defining the mission and breaking down that mission into a set of directives that would shared across the functional areas. It was NEVER about closed door initiatives, secret meetings, or selective transparency on key topics. It has to be about clear communication, transparency, and honesty with the team on the direction that everyone is moving and the expected outcome. Measured, achievable, and sustainable changes to the business. There’s no room for short term thinking or decision making that alienates key team members.
In the case of MGE UPS Systems (Schneider Electric division), we were moving into some key periods for the company and were starting to see compression in our margins, our operating metrics, and ultimately the results we were reporting to corporate in France. All this while we were seeing massive fluctuations in just about all of our raw material prices, which at that time were primarily copper, lead, and steel. As a larger Executive team, and under the direction of our Chairman, we identified approximately 15-20 initiatives that ranged from increasing Services utilization rates, to improving battery pricing, to improving revenues in underperforming segments, as well as headcount related metrics and expenses. Additional initiatives included balance sheet management for the improvement of A/P terms, improving DSO metrics, and bad debt expense. None of these in any sense were a smoking gun, but as a collective and through the commitments of all the teams involved, we’d be able to make some very material improvements to our EBIT results. This overall initiative spanned the course of approximately 9-months and we met on a monthly basis, with our Chairman in attendance, and reviewed the progress being made on all initiatives. The reviews were not done on a 1:1 basis, but as a collective in a larger conference room. It was the purest form of group accountability. While a significant grind during that period, it was amazing to see that the team not only achieved the originally targeted results, but exceeded the commitment made. Still an amazing accomplishment by that team in what was a very mature / static company that was not experiencing anything close to hyper growth. It was about absolute efficiency in execution.
Fast forward to DC Shoes and this was about a huge amount of uncertainty. I walked into a situation where there was a heavily entrenched culture that was operating under the Quiksilver corporate umbrella, but operating completely independently and in a different location than the rest of the organization. A truly independent team and company. The goal going in was to partner with the new President for DC, as well as the likely relocation of the company to Quik HQ since the DC lease was expiring. At this time, barring some selective improvements, DC was a high performing brand, had tremendous additional potential, and was highly accretive to the overall corporate results. Corporate results that were driven primarily by the Quiksilver brand, DC Shoes, Quiksilver Retail, Roxy, as well as a host of smaller brands. DC’s continued results were so strong that it was a near impossibility to sell the brand due to the deleveraging it would create in the corporate P&L for what would remain and the subsequent results that would be reported moving forward. There was also the development of a full 5-yr Plan that had the DC brand growing to almost $500M, which in the few years after the brand was moved to HQ, would have exceeded the market cap of the entire company. The unfortunate part for DC is that while the brand was performing exceptionally well and aggressively growing market share, the sum of the corporate parts were anything but a synchronized and collaborative team. There was infighting between brands, selective support from corporate oversight teams, key executives making decisions they weren’t qualified to make for other brands, and ultimately, a complete scarcity of financial resources after extended periods of poor spending decisions and declining results. We know the unfortunate position that Quiksilver found itself in.
Cylance…a completely clean slate. No baggage. A complete blue ocean scenario to chart a path as a team and to start executing. We had a CEO & Founder who had an incredible security vision after decades of being told it wasn’t possible. We had a Chief Scientist that is probably one of the most brilliant folks that could have been chosen to head up our Research team. We had a CTO that was a CISO for a top telecom and moved his family from Australia for the crazy dream. An SVP of Product that was laser focused on building out the entire product team, while also building the product! We had a CMO that had a strong pedigree in security and did whatever it took to get the Cylance name out there…and in brilliant fashion. An SVP of Business Development that delivered on whatever was asked…including the collaborative and successful closing of the Dell OEM agreement. We had a VP of Professional Services that started generating revenue in our first Quarter. We had a VP of Legal that kept us out of the courtroom and played a key role in our corporate foundation. We had an SVP of Global Sales that partnered with everyone on the team to deliver the first $1M order…$10M order…crazy sales growth every Quarter, domestic team expansion, and international expansion. We finally got our first CPO that in just one short year oversaw employee growth of over 500 employees. I can’t imagine Cylance experiencing the level of success we did without the team and their amazing contributions. I can’t imagine that the team would have been able to share in the extreme success we did absent any of these individuals. Would there have been success, absolutely…but at what moderated level? Truly exceptional team results…and in the case of Cylance, exceptional value was in the sum of the parts.
Thanks for reading…
Jeffrey Ishmael

Who Is Your Go To Mentor When You Don’t Have The Answer?

August 20th, 2016 Comments off

One of the staples that I have had in my career has been a mentor. Fortunately for me I was able to meet this individual and strike a good relationship, and friendship, that has lasted the better part of 20-years. He’s been there in my early career transition days where I was moving from Operations and Product Planning into a more Finance-specific track. In fact, it was his prompt that really directed me towards the Finance path I am on today.

While he has been a staple through those years, I’ve also aligned myself with people that I very much enjoyed both working with…and for. Folks that challenged me individually and people that I was able to learn from as well. There were three CFO’s in particular that I was able to work for that really challenged me and gave me all the rope I ever wanted…with the challenge presented that it would only by my actions that would cause my hanging. Fortunately I always kept the rope pretty taut…

However, as you move higher on the climb, the challenges become more pronounced and quite often the experience you bring to the table may not be sufficient to get you through the next challenge. This is when both the strength of your mentor(s), as well as the strength of your network, need to be of sufficient levels to carry you through. Each individual’s challenges will be unique, but still a minefield that needs to be walked and navigated.

In particular at Cylance, there is nobody on our team that has been through the kind of growth that we are currently realizing. From the increase in our billings, to the increase in our headcount, or the international rollout and rapid formation of subsidies. We’ve never seen anything like it, and typically have only come across it in a B-school case study. We’re living the case study right now at Cylance…

  • How do you accurately forecast growth when you continue to blow out your numbers and nobody has seen similar growth in quite some time?
  • How do you ensure that you’re preserving the culture, intimacy, and execution in the coming years that you’ve seen over the last 4-years?
  • What are your key metrics to measure and how often will those metrics evolve as the company continues to mature?
  • What are the key areas of risk that you need to have on the radar and keep a focus on regardless of how well things are going?

For someone that measures every watt, pedal stroke, and heartbeat when I’m on the bike, these are the things that I completely geek out on when measuring the performance and health of the Cylance organization. This organization is an athlete that will be continually be subjected to fine tuning and unplanned shifts. Shifts that will be influenced by our employees, our executive team, our investors, and the mentors that we all should have in place to successfully navigate a race that is ours to lose…

Who is your go to mentor when the race stakes get high?

Thanks for reading…

Jeffrey Ishmael