Navigating the Storm: A CFO's Guide to Thriving in Economic Uncertainty

Alright. Welcome to another data driven podcast. I'm Chris Detzel. And today, we have special guest, Gordy Brooks. Gordy, how are you?

I'm doing well, Chris. How about yourself?

Oh, man. I'm doing really great. And I've been looking forward to doing this podcast for a couple of weeks now. I've been meaning to ask you, like, a month or 2 ago, and then we were at our company SCO, and then I just said, hey, man. Why don't we do a podcast?

And you're like, oh, let's do it.

Yeah. I'm excited. So I think there's a lot of great content to cover, and looking forward to having a conversation with you about it.

Yeah. Me too. So, before we get completely started, just tell us a little bit about yourself, what you do today, and then your journey, background, and stuff like that.

Yeah. Absolutely. I've been in I'm born and raised here in Silicon Valley. I've been a financial executive for the last 30 plus years. Overall, I've been a CFO in the Valley since 2009.

Public companies, private companies, took the company public, took the company private, took the spun the company out, as you remember, with the Strix GetGo, and merged with LogMeIn. So I've done about every transaction you can imagine. Started out life as an auditor, but I actually started out life as a musician. So I studied piano as an undergraduate. I was involved

a lot of people don't know that. Yeah.

You know? It's there's a big as everybody likes to say, there's a lot of relationship between music and math. And my dad was a CPA, so I grew up in that environment, had no interest in it whatsoever, and wanted to be a musician. Realized I was a pretty mediocre musician, so I better find another line of work. And so I ended up gravitating all the way back to finance, which kinda made my dad happy.

Yeah. Yeah. It's been great. It's a lot of the same skills and techniques of recognizing patterns and being quantitative, looking through through information for those patterns. So I think those great tool sets to learn from that background.

So you're now the CFO at Relteo. How tell us a little bit about how you get to Relteo

and see

what that looks like.

Again, I love this size company. So the the company I came from, FinancialForce, was about a $150,000,000 company at the time. Ralteo, when I joined 3 years ago, was $75,000,000 of ARR. Relatively small, but, really, again, where I am interested is coming in, building the foundation for the companies in their background infrastructure and be able to get ready for that next step. I love that that classic.

I like bringing order to the chaos. I'm not I've been in larger companies, but you tend to maintain the systems you've already put in place as opposed to, you know, putting them in place from scratch. So that's what attracted me to Relteo and the data space at the time. So it's been a great journey so far.

Yeah. The data space is booming. So we'll talk a little bit about that. But last year, into kind of this year, in the current economic climate, what are some big challenges Relto is facing and probably other SaaS companies? And how do you address them to ensure we continue to grow and and we stay stable in a lot of ways?

The one real change that occurred in the last 18 months was really the change in interest rates. Right? As inflation obviously, a lot of things coming out of the pandemic and so many unforeseen items and cause and effect. But, ultimately, after many years of basically 0% interest rates, Inflation finally started to rear its head as people know it was going to do, and interest rates started to climb. And the impact for us is and for companies like us, was a couple of things.

One is valuations are based on discounted cash flow. So the the higher those interest rates go up, the bigger the impact is on your valuation. So every private company and public company started to see an impact on the expected valuations overall, and our valuations have been at the height 18 months ago, and they just gradually started to tick down because the cost of capital became higher and higher. And the other thing that happened is as investors looked at companies, they started to change their mind about what used to be growth at all costs. All I want you to do is grow as fast as you can.

I don't care how much money you're burning through. And it came back very quickly into a different balance. So, yes, we'd like growth, but we'd like you to start aiming for profitability. And every company, everybody was on this track of the faster I can grow, however I get there, that's my priority. Had to go ahead and reset their expectations, and you don't change those things overnight.

You know, so having to digest those things, go through planning processes, figure where your your options are took companies a lot of time. I think we did a really good job, and we having been through a couple of these crises before, we saw some of these things coming and got ahead of the curve, as far as our cost structure, but really taxed a lot of executive management across companies to, adapt to the marketplace.

You've had so much experience in doing this. My assumption is that you are completely caught off guard and or, like, some people just freak out. How was your mindset on how did you have to temper the your the executives at Relteo to, hey, look, I think we're okay. Here's why we're okay. I don't know.

Did you have to do some of that? And what was your kind of thinking?

Yeah. I know there's a little bit of that. Have having the gray hair in the room, having seen some of these things before, being measured about it. You never want to feel like you're freaking out over it. So in CFO role, your role is to really be measured and try to provide guidance and counseling, but be stern about actions needed to be taken.

And so I think it's about laying out choices quickly, the ramifications, get buy in across the team, and, obviously, to Manish, our CEO. And think hard at our size company to think longer term, but what actions can we take to really protect ourselves in the medium and long term? But you're absolutely right. I my approach, and I think we'll probably talk about this, is that as a CFO, it's not just all the technical things you do. It's really being the agnostic person in the room to help guide an outcome and provide a little bit of that to the infrastructure of thinking for the team.

Well, I think from a culture standpoint, you brought a lot of, obviously knowledge and stability to, I remember you getting on calls and just saying just you were very, just very good at calming everyone. And

not with my blood pressure raised.

And sure. I'm sure. But, at the end of the day, you can't freak out on Yeah. Especially as an executive.

Yeah. Only one day did I freak out, and probably the listeners here will, remember just about a year ago in Silicon Valley banking crisis. That was probably the worst day of my professional life, where he just realized that something's happening that nobody foresaw. You have no control, and you have your your company's resources at risk in something. You have no idea where it's going.

It's those type of black swans that I think are the hardest because you have absolutely no control. Other ones, you can take steps or you can maybe scold yourself for not taking the right steps. But in that one, it was like, hey. There's nothing I can do here. Yeah.

I I think overall, though, you handle it like a professional and and it was really good. I couldn't tell, like, you were just, oh my gosh. But yeah. No. I think everybody was.

Right? So it's not Yeah. Totally. You, but I can't imagine being, you know, the CFO of a company that just probably lost everything.

Absolutely. There's a great I for the folks who've watched the film, The Martian, which I love to quote. At the end, they asked Matt Damon who got stranded on Mars. Like, he's talking to a bunch of students. He goes, what did you do?

And he goes, you just do the math. You take one problem at a time. Yeah. We all have a tendency to just be overwhelmed. Just break it down into what you can control and solve the problem at a time and try to thing together and really hold yourself back from getting freaking out and getting overwhelmed by the elements.

Yeah. And so thank you so much for that insight and being very upfront and honest. I certainly appreciate that. And just turn this back around is you slightly mentioned this, but with over a $100,000,000 in annual recurring revenue or AR, could you share some, like, insights into some of the key strategies that have driven Realtio's growth and scalability in the data unification and management industry?

Sure. Absolutely. In the, development of start up companies, there are certain milestones along the way, and, certainly, a $100,000,000 of revenue or ARR is one of those. And, really, what it's demonstrated for Relteo is that we the products and services we have to offer have value to our customers. And so the take rate goes ahead and accelerates, and your revenue begins to expand and it builds on itself to create that momentum.

We focus obviously on a lot of high end enterprise customers. Those enterprise customers spend. They, invest in your products and continue to build that out. So it shows that we are providing value in the marketplace. There's an opportunity, and we're providing value into that marketplace, and our customers are adopting it.

And that's really the key. However, once you get to that mark, the game just gets more difficult. And, you just it it never stops, so you have to continue to evolve and expand along those lines and adapt to the expectations and and all in the marketplace.

Yeah. I remember when we hit that milestone, there's this huge thing. We went to New York. It was on the ticker and so exciting. And we celebrated for a day or 2, and then we're off to Yeah.

How do we get to the next 100,000,000? So are we number

1? Exactly. What are we doing next week? Yeah. Exactly.

Exactly. That's It's like poor sales folks. They always go, what have you done for me today? Just close the quarter. Great job.

Now it's day day 1 of the next quarter, and you got a bigger expectation.

That that's right. And being on some of these sales calls as of late, that's exactly how it is. Like great quarter last year and great year last year. And so we have this quarter. What's going on?

So you move on. Something that you've mentioned a lot in the past for our company is the rule of 40. It's a popular metric for SaaS companies balancing growth and profitability. So how does Realtio interpret and apply the rule of 40 in its financial planning and evaluation?

Sure. And just for the audience to remind them, rule of 40 is really was created by the banking community because they as they looked at public companies, software companies that had the highest valuations, they really went ahead and did a a kind of a regression test of, well, what factors do they have leading that appear to be leading to those valuations. And it was a combination of growth and profitability. And the idea was if your growth rate and your profitability percentage or free cash flow percentage. The best performing companies have that profile.

So if I got 30% growth rate and my profitability is 10%, it adds up to 40. And so that really started to evolve to 18 to 24 months ago. But what started to happen again as valuations came down with interest rates is the combination of growth and profitability matters as well. So 40% growth and 0% profitability is a little different than 0% growth and 40% profitability. So you still wanna grow, and growth still gets a premium overall in that equation even though, again, investors had an expectation of profitability is now a little bit more important than it was before.

So we take a look at that as far as the evolution of our model of who we compare ourselves to in the marketplace and where we are, where we want to get to based on our size. So we try to triangulate, whether investor expectations, what do we think is realistic, how does our financial model work, and really look at our size now at a 133,000,000 of AR. We're still a growth company, so we still wanna continue to grow at a quick pace. Yeah. But we've layered in getting to profitability as a higher priority than, say, we may have had 2 years ago.

And and and you can't turn on a dime necessarily, so you have to massage all the elements to get there and prioritize them too because you can't do everything at once. So we yeah. Definitely, last year and this year, we dialed in around, hey. How are we tracking? Where do we think this model can go?

And what choices do we need to make to get it, dialed into that particular set of expectation?

Yeah. So it brings me to something that you brought up to our company not so long ago around this thinking of a rule of x.

Yep.

So given the emerging discussions around the rule of x as as an extension or alternative to rule of 40, which it sounds like it's more of an extension, How do you view its, applicability to Relteo's financial health and growth strategy?

Yeah. Absolutely. And rule of access and extension really incorporates this notion that, hey. It's not just rule of 40 however you get there. It's rule of 40 with the premium placed on growth.

Mhmm. And therefore and and why is that? If you think back on it, investors are most interested in the highest growth companies because the higher your growth, the quicker you'll get bigger, the more profit you'll have in the future. Right? It's a simple equation.

It's a you don't wanna be a slow growth company just because it takes so long to get to larger and larger profit expectations. So higher growth is still at a premium to profitability for our size stage company, and so we incorporate that as well. And as we look at, do we wanna grow, Try to grow x percent versus y percent, we always, tend towards a higher growth outcomes. And and, especially, it's also driven by the market you're in. So in data unification, it's a high growth market.

And, therefore, you wanna keep pace with that market or even excel beyond it, so you're taking market share in that marketplace. There's no reason to be a slow grower in a high growth market because then you're losing traction overall.

What kind of strategies have you proven most effective for Realtio on maintaining that healthy balance sheet while still investing in that growth?

Yeah. It's a hard one. It's more probably more art than science. That's the thing as we've all become attached to metrics in a SaaS model. Everything is measured based on metrics.

And so we really try to look at, hey. Where are we making investments, and are they re returning? Are we actually getting something for our investments, or what's ROI or return on those invest but within certain parameters. We might have investments we'd like to make, but we only have a priority set of so many things we can do and the resources to do them. So what are debating those priorities and those outcomes?

And then really trying to measure what you're getting for the investments. As we talked about at kickoff the other arts, company kickoff the other week, this notion of the dollar you're spending today is still an investment. It may be the dollar you had yesterday, but you're still making we are still making a choice to invest in that activity. So the change in the mindset to constantly challenge where we're spending the resources that we are, and is that the highest priority outcome we're looking for? And that's what the best companies do is they just constantly challenge themselves on where they're applying resource to move the company forward.

That's great. How does how does Relteo adapted its customer acquisition and retention strategies in response to all this economic, uncertainty?

Yeah. The key for all of us is it goes back to customer first. We're in business because we provide value to our customers, and our customers are the ones that are in us and consuming our services and our products. And we really I think it it just highlighted how important it is to stay, connected to your customer and make sure you're providing value, understand the challenges they may have, especially, I like to say, in a SaaS model, customers on a subscription. So they're really looking for value day 1.

Right? They're on the clock. Right. And, therefore, it's really incumbent upon us to constantly monitor and make sure the customers are getting the, the value out of what they're receiving from us. Also, I think as we all realize in the SaaS industry, maintaining and keeping your current customer is a lot less expensive than having to go get a new one if you lose them.

Right? Yeah. One of the key parts and one of the reasons retention rates are monitored in the SaaS industry is it really talks about your economics and how efficient you are. So you can hold on to your customer base and build on top of it. It means that there's less you have to go garner from a new customer standpoint.

Now you gotta have a nice balance between what new customers, and I wanna keep my keep my install base happy because I gotta keep growing. But, yeah, keeping your customer base satisfied and engaged is critical, and I think for every function within a company.

I love your answer. Basically, it's customer first coming from a CFO. I thought there would be some numbers or something, but I think I I love the answer. And and as I'm focused in on solely the customer and truly believe that, and and so I I love that.

Yeah. And I think in in addition to that one item is that for all of us, I think during the challenges of the last 18 months and the economic environment and uncertainty early last year, we all look towards, hey. Let's make sure our customers are locked in. If there are things that we need to do to help them, that they're coming up for renewal or they're having their own challenges, how do we make sure to really go above and beyond to to reinforce that relationship financially as well? I think a lot of SaaS companies really made sure to lock down their customer base and make sure that they were satisfied.

An off the cuff question here is, as you look at the uncertain times, are they passing? Or what's your view of these uncertain times? Is it another here for another year or 2? Or

Yeah. It's a great question. If I had a crystal ball, I would say the height of uncertainty was calendar q one last year and 2023 between the the invasion of Ukraine, the banking crisis, the uncertainty, interest rates rising so quickly. It was nobody really knew what to do. And and a lot of business just stalled out because companies spent more time evaluating their spending rather than think about spending more.

Yeah. I think that level of uncertainty has certainly played itself out, and we're at a stage in the last probably the last year or 9 months of stability. Yeah. You know, I think we saw, especially with valuations starting to increase in q4 and early q one. Your valuation changes don't necessarily mean uncertainty is gone, but I think that you see it, change in the tenor as far as that's concerned.

However, we had all, you know, elections on the horizon. Those create uncertainty. So I think a lot of the folks in the banking, the investment bankers have good fingers on the pulse of where things are going. And the feeling is we need to get through this year through the election cycles and all that before people feel like so many of these things are behind us. But there's always, new things on the horizon you didn't think about.

So probably steady course and speed is just continue to hunker down, do what we can do, and hopefully get through this year into into 2025 with a better view of things.

Yeah. And it does seem like that companies did slow down on buying other companies. And then I would just from looking at news, it seems like it's, I wanna say, completely picking up, but you are starting to see more Yep. Some more of that. And so that's, at least, I think, a positive sign to some degree.

And I think the other thing that's happened, especially for private companies, is for those that didn't react quickly and reduce their burn, they started to run out of capital. And with interest rates having risen as high and valuations coming down, they didn't quite have as many choices to raise new capital. I mean, debt was very expensive. Shareholders weren't going to support the prior valuations, so nobody wanted to do a down round from a valuation standpoint. So I think companies that didn't plan ahead got into a pinch, and therefore, some of them made themselves available in the marketplace to be purchased.

So I think that's still working its way through.

Yep.

And I think what you see too is that private equity has been very active but they tend to take out larger, more mature companies. You're starting to see more strategic activity of companies buying other smaller companies. So, again, these things come in cycle. They're probably in their mid wave of of that overall cycle.

Wow. Lots of wisdoms there, man. Really appreciate that. Yeah. Absolutely.

So when you look at the next 5 years with Realtio, what do you see as the biggest challenges and opportunities for Realtio? Any thoughts and and things like that, sir?

It's a it's a slam dunk. No. Just kidding. The yeah. I the again, as I noted, once you get to this level, it's just not only sustaining the level of growth, but it is scaling.

Yeah. Right? So to get larger, you need to continue to expand your operations, be efficient about it. As we've done internally, we have a big focus on automating things. Right?

How can we free up resources to do more value added things and automate the repeatable processes? I think that's key scaling a company is hard. And it's just as as we referenced earlier, it's just the cons expectations getting larger and being able to be, again, efficient in growing the company and still meet those expectations. Keeping those things in in line are really hard to do and require a lot of time and effort overall. So I think that it's what and the other one I'd add to that is that a lot of companies at this juncture start to figure out, do we are there things we need to expand into beyond what we do to keep the growth moving at the

Yeah.

Yeah. And that's, again, more art than science about, was it time to diversify the portfolio or how far can we go with what we have to offer. You don't wanna diversify too soon because it spreads the resources too thin. So, yeah, trying to make those choices along the way and hit each of those growth clip levels is something you just gotta constantly monitor and and pursue.

We could probably have a whole pat podcast around that particularly. It's just so intriguing to me. Well, when you think about r

and d r and d processes, and you can't tell r and d I need it tomorrow. They've got 6, 9, 12 plus month cycles unless you go out and buy something. Yeah. And so you gotta you plan in the short term, but r and d plans in the medium term overall, so you have to have those two things in balance too.

So that that was really, inspiring and helpful. There's so much more I wanna ask. But my last question for individuals looking at becoming a CFO in the tech industry, what skills and experience do you believe are crucial for success in that role?

Yeah. It's it's a great question. I was pondering this, which is that CFOs, sorry, a little phone in the background. CFOs tend to have 3 different places they come from. They either come they used to traditionally come from the accounting side of the house.

Yep. They come from the finance side of the house or the a lot more folks are coming from the investment banking side of the house because going ahead and developing the model and working with all the investors and constituents buying companies. But whatever side you come from, I think the key is that I've always viewed the CFO as the business partner to the CEO. Yeah. Right?

And I

I was talking about that last week.

Yeah. And you look at it, you know, you need to be agnostic You're like the, the umpires in baseball to some degree. I have an opinion that the but you gotta help be the one with credibility to come to that has agnostic information without an agenda and to be able to learn how your leadership, including the CEO, operate to best influence or provide information or sometimes criticism in a way that's not threatening. And that's there's a nuance to it. And every leader, every leadership team is a little bit different, and I've always felt that I have a certain way of operating, but I'm also trying to be attentive to the culture of the leadership team to to be able to magnify my effectiveness.

So I think you gotta come to the game with the chops no matter what, but it's that nuance of really working with the team, influencing the team is critical. And then, ultimately, it's also that relationship with the investors. And whether you're a private company or a public company, you have investors, and the communication, the transparency, the credibility that you need to go ahead and engender is critical, you know, for the company as well. So those those are more soft skills. Yeah.

Ultimately, you gotta know your chops on all the other things, company model, etcetera, but it's really around, I I think, how you manage and interact that can be can be a real game changer.

Wow. Gordy, thank you so much. I really appreciate you coming on data driven podcast. So my name is Chris Detzel. Please don't forget to rate and review us.

And until next time. Thanks, Cody.

Yeah. Appreciate it. Thanks, Chris.

Alright.