Over the next several weeks, I’ll be talking with some CFOs that I admire about the massive disruption happening in finance departments today. I’m kicking off this semi-regular series with a finance professional who impresses me enormously — Todd McElhatton, the brand new CFO of Zuora! The last 20 years of Todd’s career have been marked by helping multiple enterprise software companies make the shift to the cloud: HP, Oracle, VMWare, and most recently, SAP, where the CFOs of Successfactors, Qualtrics, and Concur all reported to him. He just wrapped his first week at Zuora, and we’re incredibly excited to welcome him to the team.
Welcome, Todd! So let’s start with the big picture. You’ve played an instrumental role in scaling several companies to billion-dollar run rates and higher. How has the CFO role changed since you started in finance?
When I started at HP as a financial analyst, I wore a suit and tie every day to work. I still have my trusty HP 12C from back then (that’s a financial calculator, by the way). Closing the books generally meant lots of copying and pasting across spreadsheets, with lots of sanity checks on scratch paper.
The people in my department were rarely seen, and rarely heard from, at least from a corporate communications standpoint. If you did hear from your finance department, they were usually telling you no: no, you can’t buy that new system, no you can’t hire that person. The CFO was Dr. No.
Of course, it’s very different now. You mentioned scale. CFOs that are leading the most respected companies have really taken their companies to the next level of growth, and they share a few common traits.
First, you need to be well-versed in soft skills like communications and leadership. That means you can’t have your hair on fire all the time. You need to be calm and thoughtful. You’ve got to provide enthusiasm, but at the same time be truthful and authentic with people, and give them the context around what’s happening in the business. You can talk to customers and prospects in a way that’s a lot more grounded, because while you’re getting paid, you’re not getting paid on the deal. CFOs spend a lot more time talking to people: analysts, press, customers, employees.
Second, you need to be intellectually curious about technology. Take a look at the companies that are the most respected and have the highest market cap. One thing you’ll see is they are either technology companies, or they are companies that are heavily using technology to drive their businesses. So you can’t just look at technology as a means to an end, or something that your CIO takes care of. It has to be something you’re really interested in and passionate about.
Third, you need to be an active partner in the business. You need to be sitting at the table when those final decisions are made: How do we allocate capital? How do we allocate resources? What strategies do we want to pursue? You need to formulate not only the “why” of the business model, but also the “how.” That’s how you scale your company to that next level of growth.
You’re coming aboard Zuora in the midst of some pretty unusual circumstances. How do you think the COVID-19 crisis has affected the job?
It’s given us all a chance to step back, and take a hard look at our spending and our processes. It’s also given us a chance to assess our current technology needs, and to make smart investments that will ultimately help us succeed in the long run. There was a pause, but now it seems like a lot of companies are seizing the moment. A short term crisis like this can have enormous implications for the long-term growth of your company.
A lot of smart companies have accelerated their own internal IT projects, in order to capitalize on the moment. From my experience, technology has consistently provided the best return on investment. Not because it solves all your problems, but because it helps you identify your real strategic growth drivers. Your best competitive intelligence is probably sitting in your servers right now, you’re just not aware of it.
Speaking of those IT projects, let’s talk about automation. Tools that improve efficiency are great. But the companies that I’ve seen really thrive use that efficiency to enable agility — they use those tools to move quickly and take advantage of opportunities they’re seeing in the market. They’re not just filling potholes. We’ve seen a ton of creativity from Zuora customers in response to the COVID-19 crisis in terms of new offers and services, for example. What are your thoughts on efficiency as it relates to agility?
I agree. I’m always going to be looking for more efficient ways to run the business. But the real reason I love my job is all that creativity and agility you just mentioned. Your finance systems have to give you agility (that means being able to take action today not in 6 months when systems can be re-coded), because that’s what your customers (as well as your competitors) are mandating. You can look at automation as just a way to solve a few pain points, or you can look at it as a “super power” that enables your finance team to engage in much more meaningful and creative work.
There was a PWC study from a few years ago that noted that the top quartile of companies actually spends 40% less on their finance function than their peers. Now, what does that tell us? Those companies are letting automation take care of compliance and efficiency, so their finance teams can focus on strategy and driving growth.
Do you think CFOs and COOs are becoming interchangeable? What’s the difference between the two these days? Does anyone know?
So here’s another interesting stat — the percentage of Fortune 500 companies with a COO has actually decreased by 50% over the past ten years. Can you guess where a lot of those responsibilities are falling? That’s right, the CFO. And it makes sense. The CFO used to be a control function. Today you have to execute the business model. The CFO used to monitor the numbers. Today you have to identify opportunities and anticipate risks. The CFO used to just write up the financial reports. Today you have to convey the equity story to stakeholders. In other words, the CFO job is way more strategic and way more operational. Believe me I’m not trying to help make COOs redundant! But I definitely agree that a lot of the function has shifted over the CFO side.
Do terms like “back office” and “front office” still make sense? How has the dynamic between the two changed? Does it still make sense to describe one as “customer-facing” and the other one not?
Well, let me put it this way — does your customer care that there’s a back office or a front office? Probably not. If your customer doesn’t care about the distinction, then as a company you probably shouldn’t either. When it comes to customer satisfaction, it’s all part of the same function. Think about when you order something from Amazon. The online order, the fulfillment, the shipping, the billing, it’s all part of the same thing. You don’t care, you just want the stuff you ordered to show up on time. I just bought a new desk so I can work somewhere outside of my kitchen. I ordered this desk from a company that I will refrain from naming, because I have no idea when this thing is supposed to show up. They haven’t told me. I’m not sure which corporate function is responsible for this mystery, but to be honest I don’t really care. I just want my desk!
So here’s the thing. All this focus on back office efficiencies, on automation, this continues to be important. But if it results in a terrible customer experience, then that won’t work in today’s world. Your back office has to enable the company to spin up new services, help your install base grow like crazy, attract new logos, to stay nimble and drive growth. But notice how those all sound like “front office” type activities, right? So I agree that the distinctions between the two are starting to evaporate. If anything, your back office needs to drive your front office.
Good luck with the desk. We also need to get you a security badge, but I guess there’s no immediate rush on that.
Thanks for your time, Todd.
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