When the pandemic hit, executives at Cherwell had to focus growth on existing customers, as the mid-sized businesses it targets with its enterprise service management software would be too hunkered down to try something new.
"People are more cautious in their purchasing decisions," Gary Golden, Cherwell's CFO, said this week in a CFO Thought Leader podcast. "In a COVID environment, it's harder to sell to new customers."
To adapt, the company showcased the extent to which its subscription-based software could help its customers by improving the efficiency of their IT, HR, and other processes, which, in turn, could help those companies manage through the downturn.
"We sold them a lot more licenses," said Golden, a veteran CFO who joined the company as finance chief in 2019. "They see the value of the product and so we focused on that much more heavily, which offset some of the softness of selling licenses to new customers."
Cherwell was founded in 2004 as an IT process improvement software company, and later expanded into other process areas within companies, including HR, facilities, and finance.
"It might sound arcane and narrow, but it's important for efficiency," he said.
The company's main competitor is ServiceNow, but the two companies focus on different markets. Cherwell's sweet spot is companies with 1,000 to 20,000 employees, while ServiceNow focuses on enterprise solutions for the largest companies in the world. "They're the 800-pound gorilla," he said.
Golden started his career as a lawyer in a large private law firm, Akin Gump Strauss Hauer & Feld, and then migrated to industry as a lawyer with American Airlines and then its subsidiary, Sabre, a travel management company, before moving to the finance side at Sabre.
"American Airlines had a reputation for moving lawyers onto the business side," he said. "That was something I wanted to do."
As a finance chief, he said, he holds tightly to a skill he developed during his lawyer days: the ability to spot risks others might miss.
"Our CEO sometimes teases me and calls me Dr. Caveat," he said. "I'm constantly telling him, ‘Here's this, but think about this implication, or what might happen next.' You're always thinking, ‘What can blow up?'"
Golden focuses intently on the quality of the analytical constructs he and his finance team use, a focus shared by the partners who've invested in the company, KKR and Insight Venture Partners, two of the largest private equity firms in the world. Insight put in $25 million in 2012 and KKR, $50 million in 2017.
"It's been a lot of hard work getting ourselves ready and mature enough to be able to operate in a smart, efficient way ... and perform to the standards they expect," he said. "But I feel we've laid a lot of that groundwork over the last couple of years and now we're getting to the point where the flywheel is starting to get that momentum."
To keep company executives focused on growth, he and his team generate reports on all the standard metrics a software-as-a-service (SaaS) company like Cherwell depends on, including bookings, revenue and customer acquisition costs.
The metric he focuses on "manically," he said, is contribution margin, which depicts costs to sell a product minus variable expenses, because that determines how much profit a company gets from each product.
"It's a combination of our cost of sales on a deal and our customer acquisition cost attendant to that," he said. "We derive that from models and analytical constructs. We want to make sure we're getting full value for our product and generating profits for the organization."
His calculations helped him make the case for maintaining full-value pricing during the downturn.
"We tried to help them with the overriding message that we have a great product," he said. "Don't get into discounting wars."
His focus on contribution margin to guide pandemic-era pricing was core to the company's Covid response, as was its all-remote workforce strategy. Golden also worked to ensure the company didn't spend money on people it didn't need.
"We never put in a hiring freeze," he said. "But we very carefully managed our hiring process. We always ask ourselves the question, if we're back-filling a position, or if we're hiring a new position, ‘Do we really need it?' We looked really carefully at … overlapping functions and, sure enough, there's, like, on a Venn diagram, [places] where the circles overlap. So, we tried to make sure we defined responsibilities in such a way that we were efficient."
Just getting the metrics right and providing insightful analyses to the executive team doesn't make a CFO an effective leader, Golden said; the findings must be communicated in the clearest, most simplified way.
He likes to point to an Albert Einstein quote that says the inability to explain something in its simplest terms means the person doesn't really understand it.
"So, getting people to force themselves to boil things down — not only be analytically correct but explain it in common-sense, layperson terms — is critical for an organization to align behind a recommendation," he said.
It also betrays a lack of understanding if someone says they can explain something to another but can't make that person understand it.
"I totally reject that," he said. "It's incumbent on the explainer to make the concept clear, and if you can't do it, you don't understand it well enough."
With his team, Golden's goal is to give them more room to run than he has in his past CFO positions, trusting them to take the lead even if it leads to mistakes.
"I've always been obsessed with quality of analysis and presentation, so I think I tended to be controlling with my teams," he said. "[I would] bring them along slowly [and give] multiple reviews. In hindsight, I would be less controlling. Giving them more room to run means having the courage to back them up when they make mistakes, differentiating between big and small mistakes."
The benefit of doing that: "You can cover more ground faster," he said.