Cornerstone OnDemand CFO Brian Swartz has become laser-focused on annual recurring revenue (ARR) as his go-to metric for tracking how his company is doing since it pivoted from a services company to a products company 18 months ago.
Cornerstone launched in 1999 as one of the original SaaS companies. It provided a platform for organizations to train and provide development opportunities for their employees and also manage HR talent-development tasks.
At the time Swartz came on board about three years ago, the company was generating annual sales of about $350 million. But it was clear the company needed to move from services to products if it was to continue scaling at the rate it had been.
"I remember the first thing I said [when I came on board], not knowing anything about software or recurring revenue or what we really did, was, 'Why are we in the services business?'" Swartz said in a CFO Thought Leader podcast last week. "I don't know how unique that was, because others had asked that same question, including some who had been there a long time. But as you fast-forward the business three years from that point, it became very clear that because of lots of dynamics in that services business and in our products business, it did make a lot of sense to transition."
After it completed the pivot, the company's ARRs from the sale of its products took off, and today it's on track to generate ARRs of $600 million.
"There are too many companies that can do services really well, and [too many that can] build world-class software products, and focusing on one or the other makes sense," he said. "Focusing on one of those, and doing it well, allows you to be more successful. That's effectively what we're doing today."
Alliances feed sales
To get its products into the hands of organizations, Cornerstone partners with both large system integrators such as Deloitte as well as boutiques. When these companies respond to a request for proposals (RFP) or otherwise have an opportunity to meet with a potential client, they bring in Cornerstone as a content partner. The reverse is also true: When Cornerstone meets with clients, it will bring in a consulting partner to be part of the package on the integration side.
"For the vast majority of the time, we actually don't exchange economics with [the partner] directly," he said. "Rather, we have an opportunity for a client who wants one of our products. We will bring in one of our partners to sell their services to make that product go live for the client, or it could happen the other way when one of our partners has a new client that wants to buy an incremental product or a new product from us they will bring us in during some sort of RFP or bake-off."
Swartz started his career 25 years ago as an accountant with what was then a Big-5 accounting firm. After quickly moving up the management ranks, he took a finance position with a traditional industrial company, Eagle-Picher, and helped it navigate bankruptcy after the CFO and other executives left.
"One thing I learned was, I never wanted to do that again," he said. "But it was a terrific experience that really helped set me up to think about things differently as I went on to become a CFO."
Among the key lessons, he said, was how important contracts are, because they become your safety net when things go badly.
"As a relatively young finance professional, you really learn to understand in that type of environment all the reasons we have contracts," he said, "what all the provisions in the contracts mean. Because the reality is, they're really not relevant unless things don't go as planned, and that's basically what a Chapter 11 is. About 18 months later, we got the company out of bankruptcy."
Swartz moved to Apollo Education Group, the owner of the University of Phoenix and other for-profit education providers, for almost 10 years as CFO before moving into the technology sector with a short stint at online retailer Zulily.
He joined Cornerstone in 2016 to use his experience working for big companies like Eagle-Picher and Apollo to help the company scale quickly.
"What the company was looking for and what attracted me was they wanted someone who had come from much larger enterprises," he said. "We were and still are a growth company, but there was this balance between how to optimize the business and how to think about that in scale as you approach $1 billion in revenue. I brought a lot of that experience given the platforms I had been in before."
Swartz said he brought in a couple of senior finance leaders whose marching orders were to think differently about scale as it applies to their enterprise.
"As you double a business in a three- or four-year period, at that size and scale, you do need to think about doing things differently," he said. "You do need to think about cadence in meetings, levels of communication, cascading of communications, to make sure you have alignment, and just the support of all the managers through the whole organization. We want to obviously attack issues, deal with them quickly, but you also have to make sure you're bringing people along, particularly in a business with 2,000-plus employees globally."
Looking back, Swartz said he would advise new CFOs to be more present than he had been. "My wife really taught me over the last 10 years, you really need to appreciate the journey and not just the destination," he said. "Be present day in and day out. It's not that I would have done anything differently, but in hindsight you would have more points of memories along the way, making it that much more rewarding."