Anup Singh led flash data storage company Nimble Storage through its initial public offering and listing on the New York Stock Exchange in 2013. But two years later, the market shifted, and the company missed its earnings expectations one quarter. His course-correct strategy as the company's CFO started with transparency: it had become more important than ever that investors, the board, and the company’s own employees knew whether the company could meet expectations.
"The stock dropped in half, so investors, employees, everyone else was unhappy, morale was low, and we had to work really hard to rebuild the confidence," Singh, now CFO of cloud and data center security company Illumio, said last week in a CFO Thought Leader podcast. "So, we doubled down on employee engagement, even more transparency around our business and strategy and reached out to new investors."
The company also had new products to introduce in the market, and when it did so, it took precautions to execute the launch without a hitch.
"The result of that was the business turned around and in the spring of 2017, Hewlett Packard acquired Nimble for a substantial valuation, about 40% above the price the stock was trading at," he said.
The lesson he took away from the experience, he said, is that success in times of difficulty depends on transparency. But he also learned a second lesson: the team you’ve built before trouble hit is integral to how well you do during the turmoil.
"The culture you build and the team you have with you is really everything," he said. "During times of adversity, that’s when when you have a true test of character."
At illumio, where’s hes been CFO for about a year, Singh is putting the lessons he learned about transparency into practice. He’s instituted quarterly Q&A sessions in the break room where employees can ask him anything about the company's financials or strategic direction. He’s also set up an "ask the CFO" Slack channel in which employees can ask him questions at any time.
"It’s just so employees feel they have a channel, an avenue to contact you, and you’re going to be straightforward, very transparent with sharing info," he said.
This approach might come as a departure for many CFOs, he said, because, by training, CFOs see themselves as "masters of complexity." These types of communication require the opposite mindset: to be as simple and concise as possible so non-finance people can understand the company.
"The notion of the CFO being the green eyeshade guy, the bean counter with just the numbers, I think is long dead," he said. "Now you’re truly a cross-functional executive. You’re wearing the hat of a general manager of the business, if you will. So, the need to be able to do the cross functional conversation and having a deep understanding of all aspects of the business is really being a partner to the entire executive team, and getting in there with sales and marketing and product and everyone else."
Illumio is a subscription-based service, and, as he would with any company that depends on recurring revenue, he tracks bookings, annual contract value (ACV), and net dollar retention (NDR) rate, among other indicators that help him anticipate future business.
The NDR rate takes the customer base's temperature, which Singh says is critical to a subscription business.
"It’s really a measure of how our customers are expanding, the churn you might see in the business," he said. "So, when you have a model such as ours, which is very much a land and expand, having a healthy NDR is a great indicator that the customers you’re winning are coming back to buy even more."
He also looks at how the company is doing on its margins. "Are we achieving that healthy mix between growth and improving our margins and leverage in the business?” he said. So, ensuring that, over time, our gross margins are healthy and improving every year."
Standardizing non-GAAP metrics
Many of these metrics, as useful as they are for getting a detailed picture of a company’s health, are outside traditional reporting practices under generally accepted accounting principles (GAAP), and Singh thinks pressure is building on regulators to standardize them.
Singh said the accounting profession should welcome processes that create common definitions for these metrics. Right now, they often mean different things to different people.
"How do you define churn in your business?" he asked. "Is it only the customers who choose not to renew a subscription or do you include, say, a renewal at a lower value, which is called a downsale? I know from experience that, depending on the companies you talk to, or the CFOs you talk to, their interpretation and disclosure of metrics may be different."
Because they’re outside of GAAP, the SEC hasn't gotten into the area, Singh said, but he thinks that will change soon.
"It’s coming," he said. "These are all huge changes in our industry, [impacting] the kinds of things we spend out time and energy on. It keeps it really interesting."