When Todd McElhatton joined VMware in 2014 as its CFO, the company had a plan for transitioning its traditional on-premises business into a cloud operation. Among other things, it was going to build and host its own data centers. But in his first board meeting with the company, it was clear the data centers had to be scrapped.
Although it was a sizable business, it would be competing against the tech industry’s biggest companies — Microsoft, IBM, AWS, Google — each of which was spending billions of dollars a year on data centers; VMware was only in a position to spend a few hundred million dollars.
“Ultimately we disposed of all the data centers and [moved them] to third parties and partnered with AWS,” said McElhatton, today CFO of subscription-revenue company Zuora. “Rather than dig in and try to make something work, we were objective about it and said, ‘Let’s go back to the drawing board,’ and came up with a new strategy. That’s a great story on how they were able to serve their customers in the cloud but do it in a different way than what they initially envisioned.”
That wouldn’t be the last time McElhatton pivoted after an initial plan proved unworkable. At SAP, which he joined as North America CFO after leaving VMware, a $60-million deal he worked on was turning out to be a money loser. Assumptions he had made in pricing the deal weren’t panning out; staff whose job was to operationalize the assumptions weren’t executing as envisioned.
“What I learned was, we had all these great financial assumptions, but nobody had sat there and made sure we were interlocked with the people that had to interlock with them, the people who had to deliver on that,” McElhatton said last week in a CFO Thought Leader podcast.
To make things right, he flew back and forth to Toledo, Ohio, where the deal was centered, to help operationalize the pricing assumptions.
“In about nine months, we were on track and the deal was doing what it said it was going to do,” he said. “Anybody can put numbers on a spreadsheet, but how you interlock that with the business, and understand the dependencies and operationalize those [is key].”
FP&A as business partner
With those kinds of experiences behind him, McElhatton is making sure at Zuora that his financial planning and analysis (FP&A) team is structured to work hand in glove with the operational teams.
“That’s really what our FP&A team spends a lot of time doing,” he said. “They work with their business partners and make sure that, if we say we’re going to grow so much, do we have the sales people in place? Does that mean HR and recruiting have the engine to bring those people in place? Does marketing have the budget to make sure we’re going to be able to develop the pipe? Do we have enough product to sell? So, making sure all of those things interlock is super important. That’s where FP&A can make a huge difference in an organization.”
Since assuming the CFO seat at Zuora a year ago, he’s moved some finance and accounting staff into new positions so they can learn new skills and better understand the business. He’s also brought in people from previous companies he’s worked at, including Oracle and SAP, to leverage their experience managing functions at scale.
The changes are part of Zuora’s priority to attract and retain the best talent, an integral part of any software company’s long-term success.
“At companies like SAP and Oracle, they’re great companies with great training, but you go into something that’s pretty narrow,” he said. “Here, you can spend time in accounts payable, Securities and Exchange Commission reporting, financial planning, help put deals together, investor relations — opportunities you just don’t get at large companies. You give me 4-5 years here and I’ll give you 10-15 years of experience.”
In addition to how well the company is attracting and retaining talent, McElhatton tracks metrics that look at product development and quality, the company growth rate, and cash flow.
“With these metrics, whether you’re on the product side of the house, go-to-market, customer success, finance, HR — every one of these metrics [tells us] how we’ve been running the company.”
To make the metrics more useful, he’s aligned them with the company’s objectives and key results (OKRs), a first for him. With OKRs, a line is drawn from an employee task to the company objective it relates to.
“It’s just an iteration of how you take goals and distribute them throughout the organization to make sure you have alignment,” he said. “So, any time you have these, you have people focused on the things that really move the dial.”
Keeping staff aligned with goals will be crucial for Zuora, which launched in 2007 to help companies manage their subscription operations by powering billing, revenue accounting, and collection processes. The company, capitalizing on the growth of subscriptions as a business model, went public in 2018.
“Zuora is where enterprise resource planning (ERP) was in the 1990s,” he said. “We’re really at the cusp of this, really changing how people operate. When was the last time you bought music? More and more kids don’t have an interest in buying a car. There’s a subscription, a way they can buy something, a service, on demand. That’s really changing how things are working. We’re going to play a pivotal part in that.”
The changes he’s instituted in his finance and accounting functions, and his willingness to scrap plans and move to Plan B, are how he intends to help the company get its share of that growth.
“I want to make sure we have a company that’s ready, not only to deliver to our shareholders but to our customers,” he said.