As the coronavirus pandemic touches every country around the globe, Catherine Birkett’s job as CFO of fast-growing London-based GoCardless has quickly evolved.
As its finance chief of 15 months, Birkett was previously tasked with preserving the startup's future ambitions while also continuing to attract potential investors. And before joining GoCardless in 2018, Catherine was CFO for one of Europe’s fastest growing telecoms providers, Interoute, where she took the business from $20 million to over $700 million in revenue turnover over 16 years while fundraising through both debt and equity markets.
Birkett has spent over 20 years as a CFO and is no stranger to economic adversity. She has weathered several recessions and guided a telecoms company through the dot-com crash in 2000. But, she told CFO Dive, the coronavirus pandemic is a different beast entirely.
"In high-growth industries, the CFO focuses on growth, rather than cost control," Birkett told CFO Dive in an interview Wednesday. "Up until we hit this crisis, we saw growth as the big value generator. Growth means you’re successful."
But that world, where growth is king, does not exist right now.
"I came to GoCardless because the culture was different from my previous business in traditional telecom," she said. "I had to be willing to understand that money in this new tech world can be spent for good purposes like staff happy hours, a tennis table, food and drink in the office, and things like that. Many successful businesses have been built on that kind of culture."
And yet when the pandemic arrived, "suddenly, now everybody is coming to understand the other part of my job: controlling spend and cost, and advising on where I think cutting costs is appropriate versus where, if we cut back too severely today, it could harm long-term business. That's a difficult line to balance."
GoCardless, like many businesses, has targeted discretionary spending. Birkett describes "discretionary" as anything not under a contract. Employee salaries, which are based on contracts are not discretionary spending, so layoffs are not part of their plan.
"The focus was much more around things we don't have a contract for, such as staff wellbeing, like food and happy hours," she said.
Birkett keeps a close eye on each of the company's contractual commitments. "When any come to an end, they become discretionary." Cutting spending also means giving a critical look to things like software. Is it vital? Is it something we want to continue investing in?
Those are the key decisions to make, she said, not things such as travel or entertainment.
GoCardless, which operates branches in London, Paris, Munich, Melbourne and San Francisco, has yet to make a uniform decision on remote work going forward. "Expenditure on office space, specifically in luxurious cities, like London or San Francisco, is a very material number," she said. "We have to think about it in a different way going forward."
But cutting discretionary costs carries its own kind of risk. Birkett advises CFOs be "really careful" not to cut anything without considering the long-term impact. "Ultimately, we will return, at some point, to a world of growth. And be that in six months, a year, two years, we will return, and you’ve got to be ready."
Long-term funding and near-term KPIs
Birkett recommends her fellow startup CFOs to be clear on how your funding will last, and devise plans on how to manage and measure what you've got.
GoCardless is dependent on external funding; it posted a pre-tax loss of nearly $20 million in 2018. Fundraising, in the near term, is going to be hard, she said. "In a world of conservative planning, the best time to fundraise again will be 12 to 18 months out, not six months."
With future sources of funds cloudy, CFOs must rethink their KPIs. "Focus on the KPIs that tell you what will happen in the immediate term, in the next two or three months, not so much on the long-term. Think daily revenue," which will fill the coffers while the company waits for the global economy to right itself.
GoCardless splits between revenue they create through contracts and revenue that comes through transactions alone. In the midst of the pandemic, she's paying special attention to daily new merchant sign-ups, and understanding the verticals in their merchant base, trying to predict how they might behave.
Planning and transparency
Birkett has engaged in extensive scenario planning. The worst case, she has realized, would be a second serious outbreak that would causes economic growth to deteriorate even further.
"As a payment business, we're linked to GDPs, and how they grow," she explained. "That's a macro-factor that could hurt our business. Nothing in this world is certain, but with the best insight we've got right now, we can get through this crisis and eventually begin growing again because we won't have altered the basic fundamentals of our business."
Birkett advises CFOs engage with their management team. "I’m naturally that type of person, but all CFOs may not be," she said. "You've got to understand what’s happening in real time. What are sales doing? All this impacts where numbers are going to go."
Birkett says although maintaining an open line of communication with her workers is vital, it also can be very difficult. "When we were making the decisions, it was a very difficult period," Birkett recalled. "And we managed it by telling our staff four weeks ago where we were, and what we were planning to do at our regular town halls."
GoCardless has an ethos of transparency, both inside and outside of the business, Birkett said, citing CEO Hiroki Takeuchi as a "hugely ethical individual who believes in being transparent with everybody."
Takeuchi has received praise for sharing a transcript of his Town Hall comments in a blog post in an effort to help other startup CEOs forge a plan forward. In the post, Takeuchi outlined GoCardless' four-pronged plan to deal with the economic crisis: reducing non-headcount spend; furloughing a small handful of employees; reducing salaries by 5-25%, staggered by income; marketing restructure.
Throughout the planning and decision-making progress, Birkett continued to prioritize protecting the long-term. "We must be a business that can create growth and jobs in 6 to 12 months' time. That really matters," she said. "Therefore, if we have to make some sacrifices today, when we know our revenues will be hit in the short-term because some of our merchants simply are not operating, to me, that’s the answer."
Birkett’s approach in light of GoCardless' CEO's vision has given the company a substantial degree of flexibility, retaining its workers and keeping its margins healthy.
A word of advice
Birkett offers advice to her fellow CFOs across all industries, countries, and stages of development — you must not panic.
"You've got to keep a cool head," she said. "Pull yourself away from [getting] emotional; you can go back there when you think about implementation. But when you're thinking of the long-term, whether you're a large corporation or a small startup, give yourself [space] to think about the benchmarks, and which decisions you can make. To me, that's the key."
Even if you aren't planning for the absolute downside, such as a second wave of COVID-19, Birkett advises CFOs to always keep that scenario in mind, lest it catch you unprepared.
"Think calmly and logically, and remind yourself that you're doing the right thing for everyone, ultimately, by focusing on the business' long-term," she said.