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Posts Tagged ‘budgeting’

Preserving Culture & Success In a Hyper Growth Environment…

February 22nd, 2017 Comments off

After my departure from Cylance, one of the biggest topics that I’ve been asked about, and given extensive consideration to, has been that of culture and how you preserve the success factors that were part of the early stages. Cylance was started with some key cultural goals in mind, which were primarily based on the disdain and avoidance of silos and politics. We had all experienced it at larger companies. The early efforts and decisions were all focused on the building of a product that would change an industry…nothing else mattered and everyone was committed to that vision.

As we had shared with investors, analysts, and media, it took us the better part of 3 years to reach 115 employees. There was a focus on our burn and regulating our spend in a prudent…and almost surgical manner. It then took another year to grow our employee base to 450. Even this number, while certainly aggressive, did not give us an undue amount of concern. Yes, we did tap the brakes a few times to make sure our billings were continuing to trend as they were…multiples above our original plan. However, as I’ve discussed in prior posts, we were also focused on making sure the underlying metrics of billings and revenues per employee were also continuing to trend upward, as well as ensuring that our cash burn was in the confines of the original plan. Some might take the view that a tripling our headcount was an unhealthy growth, but we were cognizant of the number increase and actively discussing the potential risks with our key investors. We wanted to learn from their other portfolio companies and couldn’t afford the distraction of having to correct course under the trajectory we were on.

Let’s take that tripling of headcount and why that wasn’t necessarily an unhealthy number. When you look at the hiring of 335 over the course of a year that equates to 6.5 people per week that are hired in across every functional area…Sales, Marketing, Engineering, Research, etc. While the new hires might be coming in with some of the “corporate baggage” from the larger companies, there was a significantly larger number of incumbents that are able to offset that influence, properly onboard the new employees, and successfully indoctrinate them into the culture that had been the foundation of our success. Even in the latter part of the year, when you’re bringing in the other 165 hires, you still have a fairly large & established group that can help in the absorption and molding of new employees. Will you make some mistakes in hiring? Absolutely. But you also need to take the necessary steps to course correct early on. I also believe, but wasn’t successful in enforcing, was the need to have hiring managers outline the roles & responsibilities for their newly requested hires, which would later play into assessing the quality of their delivery, and ultimately, qualifying their work relative to bonus payouts. This was an extreme challenge as we were also confronted with a trajectory that was multiples of our original plan, which meant that we also were having to manage headcount growth that was nowhere near the original plan, or the first revision…or the second or third revisions. You get the picture…hyper growth demands quick reaction.

The biggest question though is where does the process actually break? What is the percentage of “tenured” incumbents that need to be present relative to hyper hiring…and is this even a valid statistic? This becomes the key question when you find yourself in a Quarter where headcount grows by 50% and there is a push to increase an incremental 30% the following Quarter…or effectively doubling your headcount growth in two Quarters. When you start hiring at the rate of not 6.5 new hires per week, but 18 per week…and then mix new hires with an equally new group of individuals who have not fully adopted the success elements of the existing culture. New hires, who when combined with undefined roles & responsibilities and a lack of guidance, are treading water at best and not sure how to direct their efforts in the rapidly expanding environment they just got tossed into. Combine the cultural challenge with the financial challenge where the majority of the cash flow is affected by headcount and how the Company is then performing relative to the billings and revenues per employee…and the cash burn metrics that have been committed to the Board. It’s all about keeping an engineered and discipline approach, but balanced with the unplanned needs of the business. There is no textbook approach in hyper growth and you can’t look to your past experiences to guide you through this scenario because in all likelihood…you haven’t been there. Ultimately, the success will be predicated on keeping successful communications going with the team, healthy collaborations, and knowing the pulse of the business…PERIOD. In the absence of these your destined for performance mediocrity, or worse yet, course corrections that will affect morale and momentum.

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

What Are The True Symptoms? – Part 2

December 17th, 2012 Comments off

As I mentioned in my last post, I had the enjoyment of sitting down with my sister to help her through a hypothetical hospital P&L walk. Although her interest in the subject was forced due to a Hospital Finance course she was being forced to take, it was still enjoyable to walk her through what I do on a daily basis. As with any P&L, we started at the topline and discussed revenues, or in her case, the billings a hospital would recognize in their delivery of services. I explained to her that the hospital will assemble a Budget based on certain historical trends that would likely include patient volume, service offerings, anticipated growth/decline in the surrounding community, and other similar factors. That the actual billings would be tracked against these figures and any changes would be reflected as a variance. We discussed the possibilities that might significantly affect the billings of a hospital, which might include natural disasters, significant weather impacts, major accidents (airline), or possibly a viral outbreak. While these might seem extreme, they are examples of what could drive variances in a hospital’s P&L.

We kept the walk very simple and segregated only between billings and the operating expenses of the hospital. With that in mind, we started discussing some of the common elements to a hospital P&L. The biggest factor in this portion of the walk being labor. We discussed how a hospital, based on historical activities, would likely set up a labor matrix for the staffing of the hospital, and what the effects would be if admittance rates drastically increased or decreased, and the subsequent variances this would cause. She started to see the pattern here and started drawing similar analogies to the use of supplies, as well as what the effects would be if inferior supplies were used….& the potential liabilities this would create for the hospital. I could sense that her grasp of the subject was taking hold and she was actually becoming enthused about the topic.

As we walked through a number of the other P&L elements she actually commented that I seem to have a pretty interesting job. I told her that the biggest key to executing on the original Budget, and the ability to address changing market conditions, was ongoing communication & transparency with the staff. It’s the job of the Finance department to provide the proper level of transparency and help keep the team informed and educated on the results being achieved. It’s the obligation of Finance to communicate with the rest of the staff, and as I advised my sister, it’s critical to understand what the true symptoms are of the variances that are being presented.

Thanks for reading…

Jeffrey Ishmael

Qualifying The Elements Of Your Forecast….

July 29th, 2009 Comments off

     We’ve recently began the process of transitioning to a 5-Quarter Forecast process, primarily to provide a greater level of insight to our Sales & Marketing folks. As we speak, they are already making trade show commitments, planning regional sales meetings, and finalizing ad placements. How can you be making these significant commitments without your plans in place for the following year? For the previous company I was at we were able to work under a more traditional annual budgeting process. This worked because we had a predictable activity flow, did not have large marketing or development efforts,  and we typically did not have more than 6-8 weeks visibility for our revenues due to the nature of the offering. But now, in the midst of a much more volatile & dynamic environment, not to mention, a Sales & Marketing calendar that is working almost a year in advance, such an approach isn’t feasible.

 

     As I regularly speak with folks in my network, which isn’t just inclusive of my finance friends, I’m surprised by the lack of information that is tabled/submitted with respect to qualifying a Budget or Forecast. I’m surprised that there are still Management teams that accept Budgets which don’t itemize the individual areas of growth or improvement for the coming year. How can you hold specific teams accountable if there are no specific actions tied to achieving the goals?  For instance;

 

          You’re citing revenue growth of 10%.

a.                   For the coming year have you itemized the various channels that will contribute to that growth, or taken into account any shrinking channels?

b.                  Have you timed the growth of your revenue to coincide with the calendars necessary to drive the growth plan?

c.                   Have you erred in forecasting a linear growth plan w/o even a plan to support that?

 

          You’re forecasting an increase in gross margin.

a.                   What are the contributing elements?

b.                  What are the non-recurring elements that will support the increase?

c.                   Have you reviewed the make-up of sales and looked at the margin quality of those transactions? Do you need to look at Domestic vs. Intl or any inter-group sales?

d.                  What portion of your increase is volume based vs. productivity based?

e.                   If productivity-based, what are the specific areas that you are targeting?

 

          Have you discussed your assumptions for OpEx with the rest of the team?

a.                   Do they buy into your preliminary assumptions or are you facing a potential shift in the business model that will necessitate new expenses?

b.                  Are there certain areas that need to be bolstered for a turnaround in 2010? Do your expenses support the revenue growth being projected?

c.                   Have you incorporated the necessary amount of consideration to mitigate unforeseen shifts increases?

 

     No matter what, you’re not going to be able to capture everything within your Budget. At a previous company, we received an unannounced increase in our utility rates from Southern California Edison. This happened a month after the Budget was approved by the Board. When your annual utility bill is $1.3 million, a 22% increase is not a minor element. We were able to make the necessary adjustments, but not without some difficulty for other areas. Whether you’re sitting in the CFO chair, CEO chair, VP of Sales or a Director chair, do you understand all the elements of your Forecast and are the assumptions that are incorporated sound? It’s redundant to start asking about why I may not be discussing other elements of the Budget, but again, this is the 40k foot commentary. Are you clear about the elements that comprise the foundation of your Forecast?

 

Thanks for reading . . . .

 

Jeffrey Ishmael

Discipline #3: CFO as the Architect of Adaptive Management

June 2nd, 2009 Comments off

            In the last segment on “Reinventing the CFO”, I covered the CFO role as the Analyst and Advisor, which mainly dealt with the CFO creating a high-performance team that uses the highest level of information available to support the executive team in their decision making efforts. In a slight continuation of this theme we move into the 3rd discipline for the CFO; Architect of Adaptive Management. In Jeremy Hope’s book he discusses the need for the CFO to move away from rigid reporting structures, static sources of information, and to begin adopting new approaches to viewing market information and to try and anticipate negative market forces.

 

            As an “Architect of Adaptive Management” there are 6-key points that Hope believes needs to be in place to effectively master this area. Specifically:

  • Design adaptive systems from the customer’s perspective
  • Manage through continuous planning cycles
  • Make rolling forecasts the primary management tool
  • Report key metrics daily and weekly
  • Enable fast access to resources
  • Focus accountability on the relative improvement of teams

 

            While these might seem pretty remedial in nature, my most recent experience has reminded me how much of a challenge these points can be if the systems in place will not effectively support the generation of these data points. Although the data available has supported basic budgeting and forecasting efforts, the data/systems are not robust enough to support the daily delivery of key metrics or provide fast access to accurate information. The information has to be continually reviewed to ensure consistency with prior reporting. The management of the information is a continual struggle, which is why we’re headed towards a Q4 system upgrade. With the above factors in mind, it makes it difficult to drive accountability when the reporting that is being distributed has an inherent level of doubt that takes 3-times as much work auditing than to actually prep and export.

 

            However, when the systems are trusted and the data has a history of accuracy and integrity, the impact on the team is immeasurable. Towards the end of my tenure with MGE we had a high volume of reporting being requested during our merger with APC. We were operating on an older AS-400 platform while our partners were operating on a new Oracle system. We had years of passing audits with PwC, Mazars, and Moss Adams without a qualified letter. All we heard from the other side were excuses on why data couldn’t be pulled. We were achieving above industry results in Sales and EBIT. Our partners were never quite sure of their results.

 

            Although I was only responsible for the North American operations prior to the merger, we enjoyed a very collaborative approach with our HQ staff in France.  Through an efficient management of data resources, as well as systems that supported our end strategies, we were able to effectively execute on Hope’s 6-points. While not always executed at a perfect level, they were nonetheless strived for and often executed well. Accountability was driven from the Boardroom to the customer’s site through our Field Engineers. It was balance and execution that I look back on and appreciate.  What was achieved at MGE keeps me motivated to achieve at the companies that I now call home and strive to deliver the same excellence.  A single summary page does not do justice to Hope’s view of the CFO as the Architect of Adaptive Management, which is why it’s highly recommended reading.

 

Thanks for reading . . . .

 

Jeffrey Ishmael

Your lack of planning is not my new “emergency”. . . .

April 28th, 2009 Comments off

     It’s really amazing how quickly you can progress from a rather nicely paying Project on a Friday afternoon to a complete implosion over the course of a weekend, culminating in a withdrawal from the project. I certainly wasn’t anticipating it, but that’s exactly what happened last weekend.  The crazy part about the situation is that it was really the product of two inappropriately worded emails outlining the disappointment in progress and the lack of execution to date. Funny, while discussions had been happening the better part of 6-8 weeks, the engagement wasn’t supposed to start until May 1, and the majority of the time until now had been gratis…or perhaps “ungratis”.

     The entity I had been having discussions with was effectively a 3rd round funding candidate who had developed a pretty fantastic product, and in the characterization of any MBA student, was looking to legitimately be a “disruptive technology”.  They had been able to keep their operations lean and were making effective use of existing cash resources. However, as early as the open of Q1 it was clear that they were going to need to bring in additional operating funds. However, there was an incumbent “CFO”, who really did not have the background for the position, but nonetheless was tasked with the responsibility. Quite simply, the Company had an obligation to support this individual so long as they allowed him to remain in the position. Unfortunately for the company, and their need to aggressively pursue additional funding, there were no results on the part of the incumbent. The Company finally decided last week that they wanted to move forward with an agreement that would have me pursuing funding (#1 priority), but would also be setting the foundation for the broader finance function within the company. From the development of a new software platform, to the tracking of cost standards, the development of all their financial reporting, to representing them at certain investor events. This was all last week.

     Within the span of 72-hours after having my first on-site meeting after agreeing to the engagement, I immediately was being called to task as to why the fundraising wasn’t happening in a more agressive manner, that I had been provided all info over the preceeding 6-weeks, and questioning whether I was truly committed to the project. Did I miss something, or did we just agree on a May 1 start to the project?  The wording of the emails was also strong enough, and disrespective enough, that I knew immediately that this was not a long-term engagement I wanted to be a part of.  I was basically being held responsible for the inactions of a previous incumbent and the lack of action on the part of founders to ensure that their financing goals were on track for achievement. The situation was no different than missing key patent filings over the last quarter, hiring a new VP of Design/Engineering, and asking why patents weren’t filed….before their arrival.

     There’s no question working in the role of Finance, we are all accustomed to having to deal with emergencies and having to reprioritize tasks as conditions shift. However, there is also the element of appropriately placed accountability and following up on deliverables that were properly planned for.  It’s also quite clear, that even with proper planning, certain goals aren’t achieved, and that strategies need to be altered. However, a complete lack of planning, a lack of collaboration with current staff, and not supporting them in the necessary way does not translate as my emergency and something new players should be held accountable for. High caliber Finance consultants can provide solutions, but when the work is conducted under a condition of desperation, the results will never turn out positive, and quite often, result in the least desirable situation.

Thanks for reading . . . .

Jeffrey Ishmael

The Q1-09 door is closing – Are you on target?

March 27th, 2009 Comments off

     Between a DJIA that dropped into the mid-6,000 range, a continued loss of jobs, ponzi schemes that seem to be coming up left and right, there is certainly no shortage of news events to distract us from the job at hand. While I am normally one to go through every peripheral news source and scan for info that might give me cause to adjust forecasts or gain some insight into sales channels, it seems most of the news lately has been more of a distraction. I’m not exactly sure when the switch was flipped, but it seems for the most part I have shut most of the information out and have retrenched and narrowed the focus to only what is happening in my specific industry. Right or wrong, that’s my approach right now.

      Not sure if it’s a source of validation, but we are coming up on the close of Q1 and have only a few days left to get last minute orders out the door. I am pleased to say that Revenues will hit our expectations, employee morale is good, Operating Expenses have been kept in check, and we will actually pay out nominal bonuses in Q1. No, I’m not particularly worried since hopefully nothing that will occur in the last 3-days will change what has already happened in the first 87-days of the Quarter. Staying focused on our target was not something that started in the last few weeks, but something that started in the first week of January. Monitoring open orders, monitoring incoming shipments to see what might be late, contacting customers to confirm order activity, reviewing A/R activity to monitor collections…and the list goes on. Nothing can be left to chance in this environment and you have to proceed as if the entire existence of the company and achieving your annual goal will hinge on what happens each week, and cumulatively, each the month.

     We’ll close the Quarter next week, we’ll validate our assumptions regarding Q1, and determine if we need to alter those assumptions in any way going into Q2. Don’t get me wrong, it’s something we’ve already had discussions on and incorporate into our weekly discussions. Where are we against Budget? Slightly off, but then again, I’ve written about the Budget, how that document is dated from the time it’s published, and where I then put a heavier reliance on the Forecast in order to incorporate unforeseen elements in the market that weren’t there during the budgeting process.  With respect to your company’s results, hopefully you already know where you’re going to finish and are already far into discussions for Q2 activities….because it’s already here.

Thanks for reading. . . .

Jeffrey Ishmael

How dynamic is your Forecasting process?

July 28th, 2008 Comments off

     Recently I commented on contingencies in the forecasting process and having not only your Plan B…but your Plan C and Plan D.  However, some of the follow-up converstations I’ve had on this topic is the burden in putting together additional forecasts and the time it takes to change embedded assumptions and degree to which forecsating models can be manipulated.  For the majority of my colleagues, Excel seems to be the most prevalent modeling and offline analysis tool.  In my discussions, I posed the question of how the model would reflect changes on the income statement, by functional area, if there was a simple shift or reduction in headcount and the collection of benefits expenses associated with those positions. A very difficult dilemma for each one of them in an Excel-based format.

     One of the tools we used at a previous company was Hypierion Pillar. We used this for all our budgeting and forecasting needs. Although it’s being phased out by Hyperion, along with available support, there are similar tools with the same functionality. It was an incredibly dynamic tool that allowed for an easy categorization of headcount, expenses, and variable benefits by functional area.  If we were to move a handful of individuals from one functional area to another, all the expenses associated with those folks moved with them. If we were to see a change in our workman’s compensation expense we could easily change the assumptions and it would flow through the entire model. Through the use of global calculations we had an incredibly dynamic tool that allowed multiple scenarios with ease. 

     With solid Excel skills, some of these same assumptions can be built in but you end up having a VERY complicated model that can be highly prone to error without the appropriate cross checks built in. Within the Hyperion platform it was very easy to audit for errors, run checks on cost centers that shouldn’t be used, or for inactive cost centers that have inappropriately had costs booked against them. Which leads me to the next point, there’s the ability to combine actual and forecasted data in a very easy to use and TIME EFFICIENT format.  In the end, it’s all about having the ability to produce accurate, timely, and dynamic forecasts that eliminate guesswork & allow for intelligent decision making.

Thanks for reading . . . .