To Be or Not To Be a CFO

Ananth Avva: It’s an interesting journey. So originally born and raised in India, then moved to the States at the awkward, awkward time in the middle of high school. I did my undergrad and grad from University of Illinois Urbana-Champaign. It was a combination of economics as well as accounting. Accounting was more to make sure I had a job. Economics was actually the true passion. I didn’t think I’d work — I thought I’d go into the PhD program. But prior to getting admitted to any PhD program, you needed two years worth of real-world experience. And so one of my professors, he was either going to the East Coast and working in banking or coming out to the West Coast and working in public accounting, largely because of the network through academia. Purely for weather reasons, I ended up in the Bay Area with my first role being with KPMG in the Silicon Valley office. So that was my entry point into corporate America.

Rohit Agarwal: How was the move from India to the US? Were your parents moving out, or did you make the choice to move to US for high school?

Ananth Avva: No, it was a family decision. My dad worked at Motorola and he was asked to come to Schaumburg, Illinois. I have a brother who’s also differently abled, so we felt, okay, maybe he’ll have better resources coming to the United States. That was largely the motivation. So I’d say the transition, yeah, I mean, it’s an awkward time, where you’re finding yourself and you’re trying to understand the world and how you fit in. I won’t say it was easy. It had a lot of ups and downs. I really appreciate the connected world of like social media and other things right now because then there was nothing — there was no email, no social media. So just keeping in touch even with high school friends, et cetera, that kind of organically died out very quickly and you almost have to rebuild right from scratch. So yeah, it wasn’t easy. But I’m sure people have gone through more dire circumstances than that. But I think it also almost acted as a catalyst to really find yourself and make sure that you’re not in your comfort zone. Talking about operating outside your comfort zone — that’s one quick way to do it.

Rohit Agarwal: How did the move from KPMG to the corporate finance side in companies happen?

Ananth Avva: Again, very indirectly. So I was at KPMG, I had the opportunity to work on a couple of companies that were going IPO, and this was back in the day where everyone would be at the printers. And it was — I’m not, this isn’t to say like it’s good or bad. It is just what it is. Yes, we had a lot of SEC comment letters. Yes, you have to get the S1 out, et cetera. But frankly, nobody cared about the work that’s being done there at a strategic level. So if you zoom out when you have to do a road show and build the book, while this mattered, it was largely viewed, at least for the first stage, almost as a compliance checklist as opposed to the necessary driver. It really struck me how a lot of non-GAAP metrics and sort of the broader story, right, because especially with the bankers driving it, was something that folks were keying in on significantly more. And as I continue to sort of look at how, you know, the earnings call versus the 10-Q, like what mattered at the end of the day. This may sound very obvious in retrospect, but there was a lot more dynamism there. And I wanted to say, okay, what’s going on there? What’s interesting is I transitioned to sort of a hedge fund on the sell side where we focused on shorting stocks. And of course one of the triggering elements to build your short thesis cannot just be fundamentals because timing is everything when you’re shorting and so the best way is to see okay where is there distress in the accounting and in the financials to build to that triggering event. That was actually probably at least from a career perspective an incredible learning experience largely because I could anchor on what I knew really well, which is sort of the technical accounting aspects, but then fold in doing your classic, not even corporate finance, but investment finance and then looking at fundamentals. So it was the right intersection of three Venn diagrams, where I would say at least as a finance professional, the growth arc was quite significant. After that, I did that for about two and a half years. And shorting is a bit niche. I said, okay, what do we do next? It was busy. It was quite stressful because there’s a lot of ups and downs going through that side. But Google had reached out to me for two or three interesting roles. So this is back in the day where you come on campus, you’d be amazed at all of sort of the perks. Now obviously things are changing. I really enjoyed the experience, enjoyed the people that I met, and that’s how I made my first foray or step into corporate finance.

Rohit Agarwal: And you were there at Google for a couple of years, right?

Ananth Avva: Close to about three years.

Rohit Agarwal: And then you moved to LiveOps, which was sort of your first CFO role.

Ananth Avva: That’s right. That’s where we met. So LiveOps — Mark Westover, who was the head of corporate at LiveOps, reached out. Just as a background, the company had been effectively the first Uber for customer service and support — if you called a 1-800 number, there was a huge pool of independent contractors that would come on. Very much a combination of a labor marketplace with a delivery aspect on top. And the business model was fundamentally very different than taking the same core architecture and platform and repurposing it to a cloud-based contact center solution. They were really looking for someone who could reconcile the two and help build sort of the right financial model. And this is the classic, as you know given your background, the thesis that the parts are worth potentially greater than the whole, just because there’s different buyers and different markets and different journeys and different financial profiles. So that’s the reason I was brought in and that’s the transformation that I led there.

The CFO-to-COO pivot#

Rohit Agarwal: And then after LiveOps, you as a CFO ended up moving to Wrike as a COO, which is quite unusual to think about from a corporate finance professional’s perspective. Not many people have done that transition after just one gig as the CFO. What was the thought process? And what did you have to switch in your mind to be more of a business driver? Not to say that CFO is not, but there’s a different muscle as a COO than a CFO.

Ananth Avva: I must confess it wasn’t planned or as linear as perhaps it might look. When I joined, the primary mandate was to run the back office. It was like a CFO plus — you got HR, you have a few other things. Not a true COO role in the traditional sense, with the exception that some of the sales ops, marketing operations, pricing — sort of a gray area where if you’re building your driver-based model, because that’s so critical, you start participating more. And I think the fancy term that I’ve heard is, okay, that’s now strategic finance, right? So pretty much like the brains of orchestrating the go-to-market side, starting to build out that muscle. So as things rolled up, we were going through incredibly quick growth. And what had happened through a series of events is we lost three executives in quick succession, in a space of two months. I always say if you’re going to go into a boardroom and the number of board members outnumber the management team, you kind of know you’re in trouble, and you probably need to do a better job. And so it was at that time — sort of six months into the role — where they said, OK, purely for practical purposes, why don’t we split the company? I’ll take the go-to-market, GNA, and the founder, Andrew, who’s a phenomenal product visionary, sat more on the product and R&D side, and of course the classic role as a CEO. And so that was my first foray. And the funny thing is the business was doing well. I mean, we definitely had all the normal growing pains, but I think half my calendar was just hiring. So one of the muscles that I quickly had to learn was hiring. And I think finance, at least in my previous roles, you have the luxury of planning. If I had to use the cricket analogy, it’s like playing a test match — you can kind of anticipate how the pitch would deteriorate or how the ball is going to start turning. And then accordingly, the coaching staff and the players can sort of decide what the plan will be and then appropriately hire to it. The second you start going into go-to-market, it’s chaos. And not because you can’t plan and not because there’s anything wrong with it. It’s just that you have to respond to the market while you’re trying to scale your organization. While the reality is you have a lot of amazing people and they’re going through incredible growth, personal growth, and they’re going to look for new opportunities. So balancing that three-way dance is something that I would say is the switch from a classic finance role — or any corporate role where you have some distance and you have the ability to plan — to getting into the frontline action of things. Even engineering is sort of a close cousin to finance in that sense. But once you go on this side, you have to build your fast-switch muscle and it turns into a T20 match and it’s fun, but it’s also very exhausting. The second thing is the voice of — it’s not to say that finance executives don’t appreciate the customer, but the lens with which we would evaluate the business is very much in terms of numbers, the business model, et cetera. But the lens that you have to apply in go-to-market has tangible aspects and a lot of intangible aspects. In fact, one of the things, not necessarily at Wrike, but one of the things at Pipefy, this was during COVID, that the reps said is we were competing against a very good firm in India. But the only reason they went for us is because they liked the fact that they were talking to someone, and that it wasn’t just like a pure PLG model — they needed like a Sherpa to guide them through some change management. So there are these subtle things that you start hearing from customers and individually not a big deal-breaker, but when aggregated, they actually help really influence pricing, packaging, and how you should think about your business model. I wish I knew a good way to solve that because you’re really relying on a lot of human touch and a human being correlating those signals to then drive or change the business model. But I think that was a really big shift. And the third one I would say is really getting into product. If you have a lot of change combined with a lot of signal coming in from customers, your best defense mechanism, especially if you’re in the software side, is product. So the product is phenomenally important. Without that, no one’s going to be doing anything. But it’s obviously rare for a finance person to go really deep into the product. The high-level classic IR pitch is understood and the fundamental value prop is understood. But going in and saying, wait, why are we doing the user onboarding like this? This seems like a lot, why can’t we do it differently? — that’s what I mean by going really deep to understand where value is created and how value is consumed becomes that much more important. So yeah, for me, the Wrike journey was more going from a marathon runner or a test match to, okay, you have to build a very quick fast-twitch muscle. And I must confess, it’s very hard to do both. That was my first one where you’re asked to do both simultaneously and you’re burning the candle on both ends. But it was invaluable to take that to the next stage.

Rohit Agarwal: And you did that once again at Lastline, however hard it was. So certainly you had a lot of steam left in yourself to be able to repeat that. And then continued on that COO or more on that true business path with Pipefy as well as now with Altium. So tell us about the thought process behind continuing your journey on this path versus molding it more towards the CFO path.

Ananth Avva: I would say that after that things got a little more deterministic and I said, okay, I have to really think about my career and what I want to do. I definitely have a passion for the build stage. And I always thought, okay, what’s the gold standard for a CFO? And what’s the gold standard for, let’s just call it for lack of a better term, an operator of the business? I genuinely believe the gold standard for a CFO is someone who can take a company public. And many reasons for that. Largely because, at least in my view, you’re a creationist. The market, largely speaking, the long sort of pension funds, et cetera, they don’t know who you are. How do you articulate what the business does and then the storytelling aspect and then how do you translate that into numbers, which is the symptoms or the outputs of the business model? That’s invaluable, and I think if you want to get the gold medal — if you’re able to do that, that means you’re probably one of the best. For an operator it’s sort of: how are you going to muscle through this product-market-fit journey and get through a certain traction, and then after that it becomes more of an optimization exercise? That’s not to say there’s no value with optimizers. Obviously scaling a business from a $200–300M to a billion-dollar business takes a lot of skill. But then it becomes a combination of portfolio management and platform management versus going through the grind of either disrupting an existing player or creating a whole new market category. So I think, at least in my simple mental model, that would be like the second gold standard. When I was thinking through this, I had equal passion for both. I don’t think one is better than the other or one is more valuable than the other. Financially both are very lucrative if you’re a professional — so there’s not a big delta between the two. But the reality is there’s not that many companies that have gone public. Maybe things will change now with a much more disciplined private market. To get to even the goalpost to take a shot at it, it’s incredibly rare. Largely because companies will get acquired or — at least when I was in the public accounting realm, the goal was, yeah, get to $100M roughly, billion-dollar market cap, you’re good to go. And now that has shifted to $250M, to even I would argue $500M in revenue, and your market cap better be well north of $5–10B for you to be able to do it effectively. So it’s not to say there aren’t other IPOs happening below that, but at least one that passes this “gold standard smell test.” So it was really, okay, how many of those opportunities existed? Very candid — maybe I had a shot at one. And that was also a very loose one. I had a lot of people telling me, you’re just never gonna get that shot because you’ve never been a public-company CFO, which is very fair. So it wasn’t about ability or intellect, it was just risk management. Which I totally get — if I was on the board, I would say, I want someone who’s actually done this before. The other one — people are very risk-averse, so there’s plenty of talented people who could go through the grind of that journey but choose not to. They know it’s fraught with a lot of risk and a lot of pain and a lot of tribulations.

Rohit Agarwal: Everyone looks for proof points.

Ananth Avva: I keep getting called for those types of opportunities. I must be doing something right because I’m correlating product, marketing, and sales together to go through that journey. So I said, okay, maybe I’ll double down on that particular motion. And that’s what largely led to the next series of changes.

Inside Altium and Cloud Platform#

Rohit Agarwal: Sounds quite interesting. So maybe before we move on, tell us a little about your current role as the GM of Cloud Platform at Altium, as well as introduce Altium to the listeners.

Ananth Avva: Altium is a very interesting company. It has a long history. Founded I think in 1985, but it’s gone through a bunch of iterations and publicly listed in the Australian Stock Exchange. The fundamental early days, at the inception, the idea was computer data drafting — ECAD, Electronic Computer Data Drafting, was the software product. For the longest time, it was a sleepy space, but very steady — 20–30% growth, 30%+ operating margins, so very healthy business, but niche for lack of a better term. Now things have changed pretty drastically over the last five years. Everything from Tesla to SpaceX to planes to computers to IoT devices — the proliferation of electronics is incredible. And it’s not stopping; if anything, it’s only accelerating, and definitely the ECAD space has continued to see this resurgence. There’s also been some geopolitical things with sort of the Chips Act and manufacturing coming back to not just the United States but even Western Europe, largely because of COVID. Some of the supply chain disruptions that companies experienced — they’re really rethinking about diversifying, which has propagated new centers for design and manufacturing. So that market fundamentals reality has been an incredible tailwind for not just Altium but the entire space in general. COVID also opened up and accelerated the company’s product roadmap on this virtualization layer that was sitting on top of the desktop software, which is now branded Altium 365. Altium 365 basically is the system of engagement — that’s the way I would frame it — on top of not just your ECAD tools. We certainly support Altium Designer, but we do it for everyone, right? So whether you’re talking about Cadence or a low-end tool like KiCad. Not only that, you can also think about integrating into PLM systems, into MCAD tools like SolidWorks and others. So as you’re designing the electronics, you basically have a one-stop shop for all of the users, everyone from manufacturers to software folks, to mechanical engineers, to system engineers, to interface the product and see it come live. The whole notion of shift-left — the manufacturer can come in and say, no, no, you need more copper wiring carrier, or this is too close to the edge; or the mechanical person saying, okay, I need to now shrink my encasing because you’ve miniaturized your board. These conversations are happening in a very collaborative way, and effectively what we call co-design is happening in a way where it’s not happening all the way at the end where we violated some requirement and have to restart the entire design cycle. So the biggest value prop, in my view, of that layer is accelerating the time to market for product. In that organic journey, we’ve also discovered other things, and what’s close to your audience’s heart is procurement. Electronics procurement is interesting. As things are being built, the engineer is not thinking about part availability — sometimes they make up parts that don’t exist. So, okay, I need a resistor, there’s a resistor in there with the parameters, but they haven’t selected an actual resistor from any of the components available. In that environment, we’re seeing procurement folks coming in and saying, okay, I want to be involved sooner, because if you’re going to pick something that’s in short supply, I need to know. We’ve then brought in the data tooling. We have another asset called Octopart, which is a marketplace for electronic components. We brought that data in and there’s a bunch of other third-party service providers where we can give you a real-time assessment as you’re selecting your components — the health of your bill of materials — essentially to say, okay, this is a 52-week time window, and then alerting even the engineer who can say, oh, okay, we have a six-week window for new product release, so let me swap out that component. Altium is probably going to be the best bridge between the interaction layer of this very complex $2 trillion supply chain and design, bringing in procurement professionals, manufacturers, et cetera, to make sure that this entire process is A, much more efficient, and B — I read a statistic that over 10–15% of the waste in terms of plastics comes just from this process where they make it and then they’re like, oh, this is not going to work. So even at a human level, making things more digital and driving the digital transformation to reduce waste in the physical world — we’re definitely pushing very hard in that journey.

Defining the modern CFO#

Rohit Agarwal: Sounds like a pretty cool company. So moving on — as you have been a CFO yourself and have seen many CFOs and worked with many CFOs, would love to understand from you: how do you define the modern CFO, and how has this role evolved over the last 10–15 years?

Ananth Avva: That’s a great question. Going through school and the classic business model casing — and I would still argue this is largely the case for most companies — the role of the CFO is effectively there to manage downside risk. Now the risk can come in terms of, hey, we’re losing a lot of engineers because salaries are going crazy and we need to be more effective in our compensation plan, all the way to: there’s some new disruptive thing that’s come up, it’s fundamentally going to change our business model, so we need to adjust it. That’s always been the traditional role of the CFO, the voice of reason — or the perceptive voice of what the downside risk is for this business. And certainly the CEO is speaking more to the upside. What has shifted — and this may be a very biased view because of Silicon Valley, and this is before the shift in the private marketplaces about a year and a half ago — the role of the CFO shifted drastically to be this growth agent. And so if you are supposed to articulate the business model and really validate a business model that’s going to get us the best shareholder value, the best way to do that is through growth. So nobody cares about the OpEx side; we need growth, because growth solves all problems, as the famous Eric Schmidt said. So the mindset shifted drastically, at least in my tenure as a CFO, and a lot of Bay Area CFOs and other high-growth software company CFOs like yourself — yeah, you’re managing the downside risk, but if we’re intellectually honest, how much time are we spending on, gee, I wonder what would happen if Silicon Valley Bank goes down? And where’s the distribution of my cash? Or, I wonder if I have the right expense reimbursement policy. In fact, there’s one CFO who said, I don’t even believe in the expense reimbursement policy because nobody reads it, which I agree with — but I’m speaking to the shift in mental mindset of, well, what happened to governance, what happened to controls? They’re okay, there’s another personality, the controller, that’s going to take care of that. But my job as the CFO is to go and help the business figure out the next growth arc. I was talking to another friend of mine just this weekend — he came from the corporate controller world and shifted to the CFO world, and you can definitely see a complete shift in mindset. Now, the last year and a half may have completely changed that, with all of the fun things that have happened in the capital markets, including the unfortunate challenges at Silicon Valley Bank. Maybe they’re like, well, hold on, you can’t just manage the upside. We need you to play defense and really stress-test the model. What if you don’t get to your numbers? How much cash do you have, and how are you managing to 24 months of cash flow? So at least definitely in the startup-to-mid-market ecosystem, that’s the conversation. In the public-company arena, it hasn’t changed much. As companies have gotten bigger and bigger and gone public, the role of the CFO of building confidence and trust in your long-only investors and driving to plus or minus 3% of variance on quarterly earnings — that playbook has largely remained the same. I’m sure risk and compliance has actually probably worsened — even when I was last signing cybersecurity, the involvement of the CFO in cybersecurity and other areas escalated, especially in larger public companies because the financial risk associated with a breach was quite significant. The role of the CFO is still the anchor to manage the downside risk — not to say they’re not participating in the upside, but there’s a bigger ecosystem that grounds you because of all the public-company rules and regulations. In private companies, the pendulum swung one way and maybe is coming back to the center on the role of the CFO.

Rohit Agarwal: Makes sense. As you mentioned, on the security side there’s a bunch of other automation that is now falling in the lap of the CFO, whether it’s around data, the technology stack of the finance organization, or legal/HR/admin. Any commentary on how COVID has changed that, or where you think the automation quotient looks like for the CFO’s office over the next three years?

Ananth Avva: I was listening to this podcast about Auto-GPT and how a game that took three-plus years to build was done in a matter of a day by an agent.

Rohit Agarwal: Go ahead.

Ananth Avva: So in terms of automation, I was reading this story, and I might be butchering it — an agent took a day to build a video game that took developers three-plus years. There’s a lot of hype now, but I think there was Web 3.0 hype before; this feels very real because there are actually active proof points coming versus imagining a world of the future. There’s going to be a pretty big disruption to developers and a lot of professionals where one would have said, well, that’s a very rare skill set. And obviously software is going to move to address the area where there’s the biggest shortage. The Wall Street Journal also says, hey, there’s a big shortage of accountants because people are just not interested in accounting anymore. If you look at any labor report, accounting is in the top five — it’s a safe profession to go into. If you look at smart entrepreneurs, today I also read on TechCrunch — Trullion, I don’t know much about them, but it seemed to be like this accounting system where your auditors, your bankers, and your internal stakeholders can all manage the entire system in one platform. Those roles get completely disrupted. I was talking to a partner when I was at KPMG and he was echoing, you know, the good old days were so great because we didn’t have any Excel and we didn’t have any computers — so you couldn’t take the financials home with you. They had these big binders, you’d work eight-to-five, do your reviews, manually put things together. I was this 21-year-old saying, that sounds crazy, that would drive me nuts. Now that took some time to disrupt. But three years from now, wait, people were taking pictures of their receipt and uploading it to an expense reimbursement platform? Can you just have an ETL directly into Starbucks or the restaurant, because the credit card knows what happened and can authenticate it and push it back? Why do you need a receipt? I know certain tax authorities need it because you have to classify it as food and beverages, et cetera, so I get the rationale. But if one receipt and the AI agent is trained that, oh, this is where this goes, the amount of automation that’s probably going to happen is pretty significant. Even at a Workday-like model, where now you have these agents that can train on just looking at a software stack and saying replicate the software stack for me, but make it better with an easier UI/UX — it’s going to be a pretty big change. So a long-winded answer — maybe I’m being overly optimistic from a technical perspective that these things can become reality very soon. But the implications for the back office are pretty significant. Over the next decade, if you’re a finance professional, you may almost have to rethink: where’s my value-add? Because if data entry, data management is a big chunk of it, that is probably going to get disrupted in some way, shape, or form.

Rohit Agarwal: Tell us maybe one piece of work or an area within finance that you hated or didn’t like much to spend time on.

Ananth Avva: I think consolidations and getting the financials together. I must confess, every time there was FX involved and there was a foreign entity involved, and even the accounting for it — what goes into equity and what goes into the P&L, the translation charge and the transaction charge. And then consequently, because of that one thing, the impact on the cash flow statement, which would delay the release of the financials, sometimes by weeks. There are some poor souls trying to figure this out in the accounting organization. They say, why isn’t this working? And you just sit there and wonder — and I haven’t done this myself — how is this possible? We have a double-entry accounting system. Things are supposed to flow the right way. There’s some system issue with NetSuite or whatever, however we set it up, on the third entity that’s not recognizing this. But then I’m like, shouldn’t we have caught this way upfront? Why is this a fire-drill moment right now? It was frustrating because it seemed like such an insignificant thing and that was holding up things. The other one is share-based compensation. That’s a whole other story, but that one I understood. What really irritated me about the consolidations one is I actually could never get to the ground truth of why it was happening. With the other things, I could finally get to the bottom. But that one thing — I still don’t get this. How could this possibly happen? Why are we moving to Excel now to solve this? And then we have to do this every quarter. How does that make sense?

Rohit Agarwal: One area that you did like the most within the finance domain.

Ananth Avva: I would say I loved raising money and the storytelling. Not because it every time went swimmingly well — I mean, there were a lot of times where it was really bad. But I really enjoyed the storytelling because there was a lot of feedback that you would get on the metrics, but you also got a lot of feedback on the business and the downside risk or the upside risk that you’d have to manage.

Rohit Agarwal: One thing that you like about the COO or your current role as this GM, one particular area that you love the most.

Ananth Avva: It brings you much closer to the customer. And there’s a people aspect — just because of the nature of your role, you have to spend a lot more time with product, customer success, marketing, sales, and finance. So the whole notion of company building or nation building, where you have a lot of stakeholders and a lot of different views, comes through very strongly in these roles versus the classic divisional role where sometimes you might be in an echo chamber where everyone’s complaining about something. There isn’t the other voice to say, well, the reason we have to do this is because X, Y, and Z.

Why operators outgrow the CFO chair#

Rohit Agarwal: Now that you have worn both hats — one on the finance side as CFO and on the other side as a COO or now a GM — what would you recommend to a CFO to be the best way to work with you as a GM or a COO?

Ananth Avva: That’s a great question. There are several areas, but if I had to pick one, I know this is a cliche, but people say you should learn the business. Like, you should actually understand the business. A lot of people think, oh yeah, I understand the business — there’s the metrics, I see things. Then you ask, okay, what’s the total cost? How much are you spending on people and programs? Good finance professionals say, oh yeah, it’s about 80–85% people — let’s say we’re a classic software, non-manufacturing. And then you ask, okay, what’s my turnover, what’s my attrition rate? And they’re like — oh, I don’t know. Okay, so then how are you modeling for the fact that I’m going to lose a few people and have to backfill them, but in the current market condition I have to put a 10% premium every single time? Oh, okay, I didn’t realize that. And then — by the way, what’s my average cycle to fill that role? Because I’m really struggling with the recruiting team and getting the right talent. We saw some of this in the 2020–2021 cycle. I’d be shocked if most finance professionals had — I’m not saying an explicit line item and an assumption baked into the model, but they kind of step back and say, okay, maybe I should think about this and then fat-finger in a delay in the budget or assume a pretty interesting inflation rate for DevOps/SecOps and those architecture roles that are very sensitive. That’s what I mean by, no, you have to really get close to the business — where the numbers actually are wonderful because they help you see the symptom after the fact versus before the fact. The other thing I’d say is the bane for most finance professionals is something weird just got sold and it’s going to create an insane rev-rec issue downstream. Is it sell-in, is it sell-through, what is it? Some basic concepts — if you kind of knew and you participated in the monetization strategy upfront, what is product thinking, et cetera. Part of it is just resource constraints in finance where you don’t have the time to do it, and the rate at which thinking happens and evolution happens is fairly quick. It’s impossible to be in all those meetings as a finance professional, but I can almost guarantee if you spend one hour, once a quarter, with all the product managers and whoever is doing pricing and packaging, and say, look guys, let me just explain the downstream implications when you make a decision like this and what does it mean for rev rec — and what do we need you to track in your systems and processes so we can do this effectively. Are you going to prevent every single weird thing happening? No. But the ability and flexibility for the business to adapt to something that doesn’t create problems downstream is significantly more than an accountant going and changing FASB’s mind on some rule. If they’re educated, they probably change it. Even myself included when I was wearing that hat, it kind of happened in a very abrasive way, like, what were you guys thinking? We’re not set up to do this. And they’re like, well, it sounded like a good business plan, and nobody actually educated them that this is simply not possible to do — or if you were going to do it, what would be a different approach? Finance is sort of seen as, well, you should just go and approve this. If there’s more education done, then you might even get invited to the thought process of, OK, we’re thinking about baking in hardware with our SaaS tools — how should we think about this problem and the best way to avoid rev-rec issues?

Rohit Agarwal: I love the part about communicating with the upstream stakeholders. Tell us, how did you hold back overstepping your boundaries and advising the CFOs that you work with? I’m sure you have a lot of ideas, being able to see the finance side of things as well as the customer side a lot more closely than a typical CFO would. So how do you balance that?

Ananth Avva: Generally I appreciate the challenges and complexity. In fact, even yesterday I carved out 30 minutes to sit down and say, I don’t know what’s going to happen, but these are the three things we’re thinking about doing and we’re not set up to do them. It’s not going to happen now, but it’ll happen three to six months out. And there was a big discussion on, who’s going to own RevOps — is it sales, is it finance, is it a combination? So the good news/bad news is you kind of see the storm coming. Again, this is one of those other things I’ve never understood — the crazy last-minute, oh my God, we have to file our taxes, we have to do R&D capitalization, go through and do the allocation for your developers. And of course my head of product engineering is going to completely ignore those Excel spreadsheets and say, just do what you did last year. I kind of know, yeah, that’s stressful, it’s a pretty big deadline; it’s probably going to take these guys 30 minutes at most to go through 150 rows. I’m able to at least say, guys, if you don’t do this, we may not get $500–600K. And they’re like, oh, okay, I didn’t realize that’s the implication. Because nobody sat down with them and said, because we’re doing this R&D cap, this is the bottom-line impact. Most people are good corporate citizens — and if they know that, then they will hustle to do it. So it’s been largely goodwill-building: I’m moving these blockers out of the way, can you help me? We all know the flaws in budgeting — okay, you’re going to assume all of the TBHs are going to be done in the next 30 days, but I know this rec has been open for 200-plus days and it’s not going to be filled. Yeah, but that’s my buffer for other things that happen. You can cut through, I don’t understand why there’s this overhead allocation into my cost center. It’s just been easier to communicate, and as long as the intent is understood, you just do what needs to happen. If we have to cut costs, we’ll do it. If we have to accelerate because we’re not spending enough, that’s also very easy. The bigger challenge is the metrics. If you’ve trained the public markets on certain metrics, or in private companies if you’ve trained the board on certain metrics — I remember one previous company had an LTV-to-CAC ratio, but the way it’s being calculated has a lot of assumptions on the perpetuity of the revenue stream. Now you have to say, no, no, let’s just look at simple payback, because when you’re looking at LTV-to-CAC we might be overestimating the benefit; whereas if you look at payback, how much you put in customer acquisition cost may change pretty drastically. The issue is the why and the how — especially if you have a board member who’s passionate about LTV-to-CAC for some reason, sort of retraining them on the reality. I wouldn’t call it overstepping the bounds; it’s more, I’m not sure that’s the best metric to measure the performance of the business — but it’s logical, so most people get to the answer fairly quickly.

The CEO-CFO relationship#

Rohit Agarwal: Let’s talk a little about the CEO-CFO relationship — one of the most important relationships in any company. You’ve had your fair share of exposures to different types of CEOs. Tell us, how did you think about that relationship throughout your career? Any specific tips for the listeners?

Ananth Avva: The way I’ve always approached it is: what are the strengths the founder/CEO had, and what do I need to do to compliment it? I’ve worked with technical founders, and they’re incredibly good with numbers — even a quick 20-minute session with them, they’ll probably school you on, hey, you can’t treat this as an annuity, that’s just not possible, what about the software upgrades that have to happen, et cetera. You’re not baking that into your costs. The left brain is kicking in really well. They’re very good at articulating the technology, but not necessarily the implications. You clearly know, okay, you probably have to take on the role of being a better storyteller, especially during capital raises. Even internally in the organization they may struggle to rally the troops at an emotional level — intellectual level 100%, but at an emotional level there’s a different style needed. Then there’s the professional CEO who is, my god, amazing at bringing the team together and incredibly charismatic. But maybe numbers aren’t the strong suit. Not to say they were weak at it, just more style and where you’d invest more time. Okay, there you knew, I really have to spend more time upfront before we go into these board meetings and train on this and why something is doing what it’s doing and how to interpret some of the outcomes. So I always think it’s a team sport. And one of the things I thought was useful is actually talking about your own weaknesses. Certainly I’m not a developer and I don’t know certain things at an architectural level. I’m very open to say, look, I’m going to have a hard time measuring the performance for the engineering organization when it comes to these things. I’m much better at these other things — and I need your help to coach me on how this is built, how were you measuring the throughput? As long as it’s open, it works. So far I’ve been generally very fortunate — not a lot of fireworks in those relationships, especially if you have a CEO with integrity. The challenge is more the balancing act between the CEO/CFO/COO and the board. This is an interesting triangle. That’s probably where I would say I’ve struggled most. You kind of feel like, wait, are you guys talking? Or there’s just a marriage that the CEO entered into with an investor or whoever, who fundamentally had a completely different understanding of the business, the trajectory of the business, or what needs to happen. You have to be very careful about the reset because you’re obviously trying to protect the integrity of whatever your CEO said or did, especially if it’s a founder, but at the same time ensuring you understand why the particular investor thought one thing versus another. That’s a harder thing to navigate, especially if you were not there during the raise process when that person was brought on board, or you were not there in the storytelling. It’s like the Odyssey or the Mahabharata — it’s not one story; people have just kind of evolved it. And so you have to figure out, what’s the right pickoff point from here so we can actually start moving the story in a slightly different direction? That’s hard. That’s where I’ve struggled.

Diligence before joining as CFO#

Rohit Agarwal: Let’s move into a little bit of a hypothetical. Let’s assume that I’ve joined as a CFO of a company and this is my day one. What would you advise me on my first 100-day plan?

Ananth Avva: First, I would say don’t start planning on day one. It should be day negative 30 or negative 60. One of the recruiters said this to me — he said, I’m shocked at how little diligence CFOs do before they get into the company. And this is true. I’ve been surprised by some things, and I’ve made mistakes myself. You have every right to go very deep. And this is the other thing I’ve never understood — where founders are like, I can’t share the financials in the forecast. What do you mean you can’t share the financials? That’s literally going to be my job when I come in. Not in the first meeting, but once you’re progressing, it’s your right to know exactly what happened. It’s your right to know who’s on the board, who resigned, what’s been the turnover. Because you really have to know what you’re getting into. I almost would say not the Vista or Thoma Bravo-type deep diligence, but pretty close. You have every right to do that. Without that, the worst thing is you come in day one and what’s the first complaint I hear — there’s not enough budget and finance is under-invested in. Well, that’s true and that’s going to be the case. But you know, if this happened upfront and you said, well, what are your billing systems, how do you charge, show me an invoice, are you dealing with sales tax — you could have easily built that inventory of, hey, I’m just letting you know, here are the gaps in your tech stack.

Rohit Agarwal: Seems like a perennial problem.

Ananth Avva: I’m not saying day one I’m going to get Avalara or whatever sales tax platform, but there’s going to be a big issue we’re going to have to deal with, or you don’t have jurisdiction in certain states, or your pricing is completely off the rails. Whatever it might be — if you do the gap analysis and you have it day one, that should train your next 100 days. Then it’s a question of, okay, what fires do you let burn and which ones do you have to put out? Then you go through the prioritization exercise. And it’s frankly very different for every company. The other thing — let’s assume that was done. The bigger thing is, a lot of people will immediately go into, okay, I have to go and fix this, which is good. The FP&A aspects, the business modeling aspects, getting to know the sales/marketing side — yeah, get your nails and your hands dirty and get into the weeds of what’s happening. But, “oh, I have to go build a GL system or do something” — some other fire is burning there. It definitely needs your attention; you can’t ignore it. I would say even if it means your first 30 days you’re just looking at it, you’re recruiting and hiring someone to do it. Having the right controller, or the right FP&A person, is a godsend. So I would over-invest time in interviewing and having a good pool of candidates, and making sure they’re with you on that build journey — because they may have a better way to solve those problems and the ability to go deep in areas that frankly don’t directly impact the business in the short term to give you the credibility as a CFO, but long-term have pretty big implications on scaling. The diligence has to start negative 30 to negative 60 days before, and any CFO can do that incredibly well — it takes very little effort to put that together. I’m almost surprised where I’ve heard from a couple of CFOs: well, you don’t really know until you get there. No, no — you can know. The understanding and access you have is significantly more than a chief revenue officer or CMO or any other person. You literally have to approach it as an investor-plus-operator, which is what PEs tend to do much better than the venture guys. If you take that approach, you’ll know very quickly where you’re going to be spending your time.

Rohit Agarwal: Makes a ton of sense, both on the diligence before joining as well as building a solid team. I totally agree. From my experience, when I joined Zenoti, I kind of knew where the bodies had been buried. So it became quite easy to hit the ground running from day one, because I knew the major areas to focus on.

Ananth Avva: I think what you did is actually a pretty innovative thing. I’ve seen that a lot on the go-to-market and product side, where maybe someone comes in as, for lack of a better term, a consultant. The company gets a trial run of their style, and you get a trial run of, okay, is this what I’m going to do. And then you’re able to come in. Whether it’s in a banking capacity, in an advisory capacity, whatever it might be — I actually think CFOs can do a lot there. A lot of times, even if you’re a founder, you know it’s going to take three to six months to get a quote-unquote CFO. But if you’re really excited about a company and you’re like, hey, look, I’ll just do it for equity or even free, I just want to understand what you guys are up to and contribute — you get the front-row seat. That might actually be like what bankers do — the free advice you guys used to give to land the deal. Why not? That might be a more interesting way to know what you’re getting into well ahead of time.

Rohit Agarwal: You come across as a pretty calm person, and I’m sure you’ve come across a lot of “shit hit the fan” kind of situations. So how do you keep your calm in those tricky situations?

Ananth Avva: My wife tells me I don’t save lives. So she just says, you’re not that important. Your job is not that important. No one’s going to die. Just go in, think about it, fix it, and move on. Because nothing happens. It was kind of depressing, but it was a very clairvoyant statement — I just tell myself, no one’s going to die, we’ll get through this. So there’s this notion of eustress and distress. I’ll make another cricket reference — I’m a big fan of MS Dhoni. You have to absorb the pressure, because if you panic, then everyone panics and it’s just not clear what that would do.

Rohit Agarwal: Makes the two of us.

Ananth Avva: You could say, well, you should exude some passion, but — great, but passion with that performance is probably not what you want. So I do think definitely for a CFO, having that mindset where, okay, this is really bad — an employee is suing us, or we got some issue that’s completely out of your control — but if people know you’re not going to go crazy, they’ll come to you with the problem and then you can prosecute the problem. If you’re viewed as a mercurial, temperamental person, they just don’t come to you with the problem, and that’s even worse. So as much as we say it’s super important and what I’m doing matters — which I’m not saying it doesn’t — frankly speaking, in the spectrum of things, it’s probably not as bad as we make it seem to be.