Archive for the ‘Working Capital’ Category

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

Proactive, Reactive, & The Need To Balance Resources…

March 13th, 2014 Comments off

As we’ve recently come off a successful Series-B fundraising effort that included our original partners Khosla Ventures and Fairhaven Capital, as well as our newest partner Blackstone, it really affirmed the delicate walk we’ve managed over the last 18-months. With the initial $15 million in funding we received we knew what our mission was and the support structure we would need to have in place to make it happen. This consideration was not just to the staffing we would need to bring on, but the systems we would have in place to support our decision making.

I still remember the amusement I had when, fresh off an SAP implementation, I was given my laptop with QuickBooks installed. While that was fine for the first few months, that certainly wasn’t going to be our longer term solution. Nor was I going to pony up the dollars for an Oracle or other similar platform. With a commitment to be surgical about our spend, we mapped out what system would be needed to support our sales efforts, service deployment, as well as our financial reporting….all of which needed to be integrated. We were trying to be as proactive as possible, but new we’d have to pivot at points along the way.  We successfully brought online, and with the hire of a VP of Sales, who developed the necessary criteria to report on our bookings activities. We then integrated our services management platform, which then final rolled into our financial reporting system.

However, as the business continued to mature, we found ourselves having to react to changes that forced us to pivot. We reached a point that it was necessary to extract ourselves from an early PEO commitment and bring all of our payroll and benefits administration in house.  Although we did not originally commit to the HR module, the time had come to add this on and react to our expanding business. This obviously meant more time and more money…that precious commodity we were so diligently managing. We continued to walk the path of being proactive on the critical elements, but reactive on those that we could push until the moment we actually needed to spend and weren’t creating any risk to the business.

Our earlier decisions on whether to spend proactively or reactively were put to the test during our due diligence efforts. Our earlier efforts to invest in systems have allowed us to continue operating in a very lean manner operationally. With myself and a one analyst, we were able to manage through the onslaught of document requests, additional modeling, and review of systems to achieve the final sign offs that led to our Series-B funding. Although there were some smaller operational elements that we could have fine-tuned in advance, it was a derivative of our decision to operate in a lean manner. Those elements are obviously being addressed moving forward, but do not affect our ability to service our employees, customers, or business partners.

Even now with a fresh round of funding, we will continue our prudence with spend and walk the delicate line of when we should be proactive or reactive. While it’s always preferable to head down the path of proactive decisions, it’s not always best for the company if the deployment of those resources aren’t necessarily mission critical and have an extended window for return. The one certainty…this period of early stage growth will continue to be a target rich environment!

Thanks for reading…

Jeffrey Ishmael

Are You Striving For Improvement or Optimization?

July 16th, 2012 Comments off

     As my prior colleagues can attest, my pursuit of improved financial performance has never been focused on our results versus a prior year, or even a competitor, but in striving for the optimal position for our business relative to our goals. While I will always report our position relative to a Budget and the promises made to key stakeholders, we know Budgets are a static view in the midst of market dynamics that are constantly changing. Improvement in an of itself can very often be characterized as mediocrity, while a sincere drive for optimization implies a focused drive on pursuing the highest caliber of result. You might say that’s a rather general statement so let’s put this in a more specific context.

     Let’s take one of the more significant categories relative to working capital management…Inventory. Let’s make the assumption that a company is growing at 15% and has determined that there is a goal to keep inventory growth to no more than 5%. In this situation, you’re essentially going to realize a higher velocity on that inventory, thus a lower amount of inventory days on hand, and theoretically, a more “optimal” position. Right? Not necessarily. You reach the end of the year, pat yourself on the back for achieving the revenue growth and keeping inventory growth to only 4%. Hitting your goals doesn’t imply that you’ve achieved an optimal position. It could easily be the contrary.

     Have you taken the time to run a more detailed analysis of your revenue stream, what those trends are in the most recent 4-8 Quarters, and how that compares to the anticipated growth in the coming year? Have you taken the time to run a more detailed analysis of your on-hand inventory relative to the revenue statistics to ensure that you have an appropriate pairing between the two? What’s even more challenging is to add the complexity of multiple seasons, product categories, demographics, or even regional elements, and you have a very challenging situation to manage.

     This is the analysis that is so critical when it comes to not only the management of working capital, but the management of resources throughout the entire organization. Whether you’re the CFO, CEO, or the Director of a key functional area, have you taken the time to analyze how headcount or marketing resources are allocated throughout the company? During my time with MGE, this would have been a question for not just our own operating division, but a question that Schneider Electric would have been tabling across all their brand divisions. These are the tough questions that need to be pursued when you’re really striving for optimized results.

Thanks for reading…

Jeffrey Ishmael

Account Collections – Is It Really So Black & White?

September 9th, 2009 Comments off

                Tomorrow I’ll be heading to the ASR Show down in San Diego where I’ll have a great opportunity to meet up with so many of the accounts that have contributed to our success over the last year. Some of those accounts are smaller one and two shop location that have been around for decades, to a few of our larger accounts that are hundreds of doors deep. It’s no surprise that we have been working in a very difficult environment over the last few years and that the level of expertise that can be found amongst the account base can drastically differ. Unfortunately for some, they have found themselves in difficult situations and are having a difficult time digging out.  Our role as a vendor is to support our customer base, which in some cases means more than just on-time shipments or going in and doing a bit of remerchandising.

                Some accounts have found themselves getting behind in their payables, have purchased the wrong or excessive amounts of inventory, or have not made the necessary adjustments in their operating expenses to weather the current climate. For me, when I find myself confronted with a problem account that may be 90/120+ days, that’s when I start getting the heartburn. When we actually have to write-off that account or send it to collections….we’ve lost that particular game. I don’t like to lose. First, it’s an expense that I don’t want to incur. Second, it means that we didn’t appropriately do our job in monitoring that account, or if we did, we were hopefully able to mitigate the risk. However, third and more importantly, it typically means that we’ve lost another participant in our industry, which is one of the sadder elements. It means that someone has potentially lost years that they have invested in building that business.

                If the latter is the case, then hopefully we have done everything we can to help that account through a difficult period, without being taken advantage of ourselves.  In working with such an account, there are a multitude of considerations, which might include:

§  Is your account carrying an inventory level that is aligned with their payable or have they used your product to fund other portions of their operation or pay other vendors?

§  What is their current sales performance and outlook against prior periods?

§  Does the current outlook support the workout plan that is being considered?

§  Do you have a workout plan that is addressing the balance in a reasonable amount of time?

§  Does the plan take into consideration the continued supply of product without increasing the exposure of risk to the company?

§  Does your account have credibility in place based on prior commitments or have they failed to follow through.

                The easy way out is to send the account to collections, but that will likely result in a stalemate on the outstanding balance, not to mention create an irreversible level of ill will. We know the cost to acquire new customers…and the cost is high. What is the cost to the company if you show a little flexibility and put in place a workout plan that will allow that account to make it through the difficult period? Perhaps during this period your customer can better align their inventories and return to a stronger position where they can then give you the support that they had offered in the past. The cost is very little and the return that you will receive on that investment is much higher than playing an unnecessary game of hardball.

Thanks for reading . . . .

Jeffrey Ishmael

Inventory Planning in an A/O Environment….

August 5th, 2009 Comments off

                In some of my previous posts I’ve discussed the diligent efforts our Company has put in place to bring inventory levels down over the last year and the focus put on working capital levels overall.  However, if you are a follower of Retail or Apparel companies, you’ve probably been reading lately the shift of retailers, across all segments, to decrease their pre-book activities and move towards buying on an At-Once (A/O) basis depending on how the current season progresses. We started to see this trend in the Fall selling season, but it has become more pronounced as we moved into Holiday. It’s worth noting though that this trend is primarily occurring within the smaller retail operations, which may have 10 doors or less. This is a much more difficult, and extremely risky, proposition for the larger retail operations which are under pressure for comp performance and risk not getting the product they need to drive their comps.


                So what’s a manufacturer to do in such a situation?  What do you do when you’re lead times are 90-days+ out of Asia and you can’t just do a quick ramp-up in a domestic manufacturing facility? Don’t start looking through your B-school textbooks looking for the answer, because you won’t find it. Unfortunately, this is really one of those game-day calls that need to be exhaustively discussed before committing the capital. It’s an especially difficult commitment when you’ve spent the last year right-sizing your inventories, increasing the velocity of your turns, and no longer have that “problem” inventory that’s affecting your gross margin results.


          Do you go increase your current inventory buy based on low-volume Holiday bookings?

          Do you bring in an early release of Spring-10 product based on great verbal feedback?

          Do you offer extended dating to prompt retailers to step up to the plate for the season?

          Do you offer discounts to keep make sure you keep that valuable shelf space?


                Ultimately, it’s the shelf space we’re all fighting for and don’t want to find ourselves in any situation where that space is jeopardized. Especially when the smaller shops aren’t pre-booking. What are they planning on filling that space with if you don’t order the necessary product to accommodate their A/O needs?  How do you service the needs of your dealer base when they aren’t providing the necessary insights for you to make appropriate inventory decisions?


                It’s really a judgment call that involves the entire management team and determining the level of risk that the company is willing to take. Any poor buying decisions will effectively saddle the company with more working capital issues and poor margin performance for at least the following 2-Quarters, if not more. Unless, of course, you take the step of blowing out that inventory through your available close-out channels at a loss. Fantastic, right back in the same place you were previous to this shift in buying mentalities. So what’s your game-day call for inventory planning when you’re customers shift to an A/O purchase mentality?


Thanks for reading . . . .


Jeffrey Ishmael

Resource Management – Steel trap or steel sieve?

April 10th, 2009 Comments off

     The last Quarter has seen no shortage of financial folks in my network asking about my perceived prospects for the rest of the year. Unlike many others out there, I am not going to make any predictions for what lies ahead for the rest of the year. As of now, I am treating each Quarter as a new battle with different conditions that will have to be dealt with and the need to employ an altering strategy. The analogy that I continue to reference is that we are living a lesson in Darwinism and only the fittest will survive. There is no room for complacency.

     With that in mind, I treat each day as an opportunity to review the deployment of our resources and determine if our capital is being utilized in the most efficient manner. Whether this is in the form of headcount, operating expenses, small capital purchases, or vendor contracts, the week:week management of these resources will determine if we are going to make our Quarter. Don’t get me wrong, I am certainly not micro-managing and losing sight of the longer-term picture by playing in the weeds all day. However, as I’ve written in a previous post, it’s about those smaller incremental Base Hits than going for the huge home run. We are managing our resources with the approach of a steel trap and not letting our results get diluted through smaller expenses trickling through because they fall below the radar.

     Fortunately, we have a great team and there is little concern that needs to be placed on our personnel. While there’s always improvements that can be made to productivity, we’ve made huge leaps over the last 8-months. Our spending is significantly down over the prior year. We’ve implemented new payment terms with vendors that allow us to take early pay discounts, which were previously non-existent. We’ve brought our inventory levels down by over 30% on a year-over-year basis, while being able to achieve an increase in sales.  These results are only achieve with a strong discipline, short-term management of resources, and a long-term goal that is clear to all employees.  There’s no question we’re operating with a steel trap mentality. How are you managing your resources ?

Thanks for reading . . . .

Jeffrey Ishmael Working Capital survey. Not all bad….

August 15th, 2008 Comments off

From the first summary read on the 2008 Working Capital scorecard that was published on yesterday, you would think that the majority of the companies fell short of expectations. At a top level, working capital levels increased by 1% versus the prior year levels. Considering that these results were through the end of 2007, there was certainly an opportunity for things to deteriorate a bit more in the 4th quarter. However, what is not reflected in the summary is that these results are for only European-based companies. While they obviously have their U.S. results on a consolidated basis, which we would have been a part of the Schneider Electric figures, the figures recently released are absolutely European-centric. These results do not reflect a full global economic slowdown, as we are now starting to see.

Getting into details of the results a bit more, DSO levels have continued to fall over the last 2-years by 4.1% and 3.6%, respectively. However, this is on the heels of revenue increases of 7.4% and 10.3%, respectively, over the same period.
Interesting enough, Gross Margins were flat over the last 2-year at 32.7% and 32.6%, respectively. Considering the increase in sales, it is a concern that Inventory levels (DIO) was up 3.5% this year versus a 2.5% decrease last year. It certainly tables some interesting questions about whether growth expectations were even higher than results or if there were shifts within product offerings that left companies with an improper mix. Also interesting is the fact that gross margin levels have only fluctuated by 0.1% over the last five years with a range of 32.6% to 32.8%.
With respect to Payables, DPO increased by 1.9% in the most current year versus a 4.2% decrease in the prior year. At the current level of 45.6 days versus 44.8 in the prior year, it’s not a huge push still not as high as the 2005 level of 46.8 days.

One of the more notable figures in the scorecard released by is the change in EBIT levels over the last 5-years. Revenue levels have increased by approximately 7.9% per year while EBIT levels have increased by approximately 18.8% annually. EBIT levels among the participants has been achieved through an effective leveraging & control of operating expenses rather than increased performance in product margins. It would be interesting to look at 2008 Working Capital proforma results with a flat to low-single digit sales increase. Also, in further review of the study, there was a huge range in results among the participating countries with respect to a total DWC metric. But we’ll dive into those comparisons in a later post…..
Thanks for reading . . . .

Projects: Sales & Operations Planning

August 12th, 2008 Comments off

During a career we can look back & recall projects that shaped our experience level and positioned us better to take on new challenges presented in our career. Some of those projects also involve pulling together such a large group of folks that it simply eclipses any “projects” you might have encountered during your B-school stint. For myself, one of these projects was the Sales & Operations Planning (S&OP) implementation that was started during our integration with APC. This was a project that was kicked off with a North American meeting that pulled together approximately 40 key individuals throughout NAM and was introduced by the company President. There were also other global kick-off meetings that happened in the other regions. This was a major corporate effort.

As the company moved farther into the implementation process, it became clear that there were going to be some major challenges to effectively integrate our two entities and leverage our operational resources. However, in the short-term, there were a number of issues to address. At a consolidated level, there were a number of potential concerns in this $6.5b merger. Primarily:
1. The potential for declining customer service levels.
2. Inaccurate sales forecasts.
3. Declining product margins.
4. Rising inventory levels.
5. Misaligned performance metrics.

Any one of the potential areas of risk listed above had the ability to materially effect our results and compound an already difficult integration process. As we kicked off the meeting, this was a process that many were not familiar with and there were only a few that had gone through a similar situation with previous employers. The meeting was focused on covering some key areas such as:
1. Why were we implementing S&OP? What are some the signs that would signal such an effort?
2. Conduct and overview of S&OP and the efforts we should anticipate would be necessary.
3. We needed to review the common terminology that would be utilized globally in this effort.
4. We need to review the necessary roles & responsibilities for this effort and individuals assigned.
5. What was the anticipated timeline?

It’s pretty apparent from just this topline synopsis that this is not a multi-week project. This was a project that was anticipated to take the better part of a year to complete and fully implement. This was a project that was going to involve just about every functional area in the organization and had an equally opportunistic ability to improve our financial results and improve our working capital performance. I do plan on covering the elements of this implementation in more detail in further postings. If you have participated in an S&OP implementation I’d love to hear from you…

Thanks for reading . . . .

Finance 101 – what do the results really mean?

August 11th, 2008 Comments off

I have written a number of posts regarding questions such as “Who really owns the Budget?”, as well as speaking about my belief in developing collaborative cross-functional relationships to enhance the budgeting and forecasting efforts. It’s so easy to assume that key managers and directors should be clear about balance sheets and cash flow statements since they are always covered in even the most basic business and accounting classes, at the both undergrad and graduate level. Naturally, everyone should know the interaction between these two….right?

While I have successfully created these cross-functional relationships and have been able to have these same managers & directors embrace their budgeting efforts, they are typically not clear about the relationships between the three main financial statements. For most, the absolute bottom line question is whether we are profitable as a company. No question that this is key, but profitability does not always ensure that the company has the resources it needs to support the growth it might be experiencing. For the most basic example, lets assume a $100 million revenue company is growing at a modest 15% and produces net income of 7% per year. This gives the company, without incurring any additional debt, $7 million additional current capital to support the 15% increase.

    But what are the additional investments that need to be made by the company?

-What additional inventory will need to be added to support new growth? New product line?
-Will the company need additional sales people to invest in future sales? New sales group?
-Are their system upgrades or implementations that need to be invested in to support growth?
-Is the company outgrowing it’s current facility and needs to consider expansion?
-What inflationary increases need to be accounted for in the Budget? Wages and insurances…?
-Is the company currently servicing an existing level of debt previously incurred?

Once we start getting into the issues of working capital management and the effects on the balance sheet and cash flow, it’s quite possible that the picture may not be as optimistic. After running through just the few questions listed above it’s easy to see how quickly your profit from the year has just been whittled down, or may not even cover the needs of additional growth. It’s when the management from all functional areas understand these relationships that it becomes much easier to rally their support and involvement in the forecasting process. While your colleagues don’t need to possess the skillset to build these financial statements, their understanding and support will go far when the business environment is challenging, as it is now.

Thanks for reading . . . .

Do you know the financial strength of your customers?

July 30th, 2008 Comments off

     I’ve posted a number of commentaries regarding Working Capital and the necessity in managing this portion of your financial portfolio. A significant element is obviously the management of your receivables and ensuring that your DSO metric is maintained at a healthy level. One of the largest areas of focus each month is the top receivables outstanding and the aging report. Within this report there are always those names that we quickly recognize since we have been doing business with those customers for years, and in some cases, decades. However, in the current economic environment, do you know the current financial strength of your customers?

     We all played a role in defining the credit policies that our staff employs for the approval of new customers and the credit levels assigned.  On an ongoing basis, there’s usually no need for concern so long as the customer is paying within normal parameters. However, what happens when those payments start slipping a bit and there’s perhaps been some turnover in staff, and they’re not quite up to speed on the history of the customer?  When is the status of the customer elevated to you for further decision making? At what point do you start asking for updated financials from your customer? At what point do you track the commercial successes or failures of your key customers?  The answer to these should be that your tracking this information on an ongoing basis.

     The financial partnerships that we develop with our customers should not be centered around the initial credit approvals or the periodic payments received.  For significant customers, that partnership should be an active one and it shouldn’t be unusual or viewed as intrusive to be contacting our financial peers at our customers to request this updated information.  For customers losing significant contracts, ending strategic partnerships, or other material events, these would be a significant enough events to revisit the credit decisions made on the account and whether the original credit decision should be reaffirmed or reduced.  It’s the continued maintenance of your customer relationships that may aid you in prevention of significant bad debt exposure.

Thanks for reading . . . .