What Makes a Great CFO: The Journey of Transformation

Randy Wootton (00:04):

Well, hello everybody. It's Randy Wootton, CEO Maxio, and your host of SaaS Expert Voices, where we bring the experts in SaaS to you to talk about what's going on today and what's happening tomorrow.

(00:15):

With me, I am delighted to have CJ Gustafson join us, incredible leader, thought leader in the space, if you haven't signed up for his newsletter, he'll tell you about it during our interview, but really interesting background. Started in PWC in M&A, and worked in PE, FP&A, he's been a CFO, really, just since 2022, but has been leading the way in terms of the people he is interviewing, the thoughts he's espousing about what's going on broadly in the SaaS space. He started a newsletter three years ago, now has 43,000 people that get that newsletter. I read it weekly, love it. Then the podcast, Run the Numbers, you started about six months ago and you have 16,000 downloads per month. Dude, you're doing something right. Welcome.

CJ Gustafson (01:02):

Thank you so much for having me on, Randy. I'm a big fan of Maxio, I'm a big fan of metrics, and I know this will be a fun jam session.

Randy Wootton (01:08):

Cool. So when we were talking about this, I mean, you've had the chance to talk to an enormous number of CFOs. You've talked to a bunch of CEOs as well. I think our conversation will focus on a couple of components, but let's start with this idea of, what qualities do you think separates the good CFOs from the great CFOs that you've met?

CJ Gustafson (01:26):

This is my all-time favorite question. I ask it to every CFO and some of the answers surprise me. What I have boiled my job down into is three buckets. The first is the chief resource allocator. So I'm always making bets on where to hire and where to spend money. So you only have so many poker chips you can place on the table. Where are we going to get the most incremental value for every chip that we put down?

(01:54):

The second area is the chief truth teller. This is perhaps the hardest of the three that I'm going to give you, and that's knowing when to pick up the phone and deliver bad news. I got this one, I stole this one shamelessly from Charly Kevers, the CFO of Carta, and he was saying that as a CFO, you need to know when to talk to the board and when to deliver bad news. The second you tell somebody, hey, we're not going to hit a target that we told you we were going to, you should probably clue them in on what's going on. Sometimes it's even just communicating difficult or more nuanced conversations around the operating model to employees or your boss, the CEO.

(02:30):

Then the third bucket that I chalk my job up to is the chief risk officer. This one's fun because a lot of times as the CFO, Randy, you feel like you're the only one who's playing defense like there's no goalie on the field. So you want to give people the resources they need to succeed, but you're also brokering risk on this imaginary frontier. You have the board who wants you to be a good steward of their capital, and then you have a CEO who a lot of times is saying, damn the torpedoes, because that's what got he or she there in the first place, by taking these big risks. You're caught in the middle and you need to find your own voice. I stole this one from Mark Hawkins, the ex-CFO of Salesforce, helped take them public.

Randy Wootton (03:16):

I knew him yeah, right, yeah.

CJ Gustafson (03:18):

Amazing guy. Worked with Mark Benioff for a while, and he said he had to find his voice on that risk frontier.

Randy Wootton (03:24):

I can imagine, couldn’t have been comfortable-

CJ Gustafson (03:25):

... and say one of my...

Randy Wootton (03:26):

... in particular making all those acquisitions and I mean, just out defining the future. It's like, no, more, invest more money, more money.

CJ Gustafson (03:34):

So you're always looking at the bank balance, you're looking at the people that you have on board and you're trying to say, what's the best decision here and who are the stakeholders involved? There are varying voices at the table, some louder than others, and then eventually you also have to just listen to your own voice.

Randy Wootton (03:48):

Yeah, no, I think the three are great. I think for me, the number one thing I look for having been CEO a couple of times is, the CFO has to know what our cash position is and the cash flows, the inflows and the outflows. I think that then helps inform, that's the core source of data that they own by owning the GL and the financial statements and no one's going to second guess them. But if a CFO is not confident in that, it can really create uncertainty and nervousness, not just in the executive rank, but with the board as well. The cash position for early stage startups is critical. With that though, I think then you get to the chief resource allocator, even as a CEO, I often turn to the CFO and say, well, can we afford this? Where would you put the money? So I think they hold the keys to the castle or at least the keys to the bank, because I may even say, no, this is a great idea and the CFO is like, oh, we'll slow play that and we're going to do this.

(04:44):

So when I was in the Navy, there was this construct of, you have a commanding officer and an executive officer. To become a commanding officer, you have to work through the executive officer in your career. The executive officer is the one that's always busting chops and doing the inspections and making sure the troops look right and “tell me why everything's screwed up.” The commanding officer is kissing babies and like, hey, isn't it great, we're going off on cruise, we're going to go to Australia, we're going to do these cool things, we're going to fly our missions. Everybody loves the CO, and learning how to have that balance between not good cop, bad cop, but they are two different and very complimentary skills and capabilities that you need.

(05:24):

You do need the CEO, I think to be articulating the vision, talking about the strategy, pushing the edge, and the CEOs, the best CEOs are going to rely on the CFO as Batman, Robin, whatever you want to call it, is like, I need you to do your job and have your voice to your point, to be able to step up and tell me truth and not be scared if I go, I don't want to hear that truth. Do it in a way that respectfully, but also data-based, like, hey, Randy, here's the set of things we're looking at. Here's why we're missing these targets. So I think there is this real opportunity for the CFO to move from just compliance and reporting to strategic partner.

(06:04):

So I know you've started as a role, 2022, as CFO for your company. How have you seen that role grow over the last two years in terms of what the CEO is looking for you to do and how you envision what you want to do going forward?

CJ Gustafson (06:18):

Well, I want to drill into the cash piece that you brought up because it links to this. I think a lot of my role has been, what do I need to feel confident in as a first time CFO based on my own skillsets? Being super honest and vulnerable of what I'm not good at. Then also, what is the role asking me to do based on the people we already have at the company and the stage that the company is going through?

(06:43):

When it comes to cash, I came up in the FP&A world, and I know my way around a balance sheet, but I'm not the one who is playing Tommy Treasurer every day. I'm not calling up suppliers for payments, I'm not getting on the phone and trying to get better terms on our interest rates. That was a big learning curve for me. It was something that I came in and said, first of all, I need to hire an amazing controller, admit my weaknesses there. Full stop, don't try to fake it till you make it in this position. That's something that a lot of people said, don't do that, because you will get exposed. Then I wanted to map out every single possible way cash could enter and leave our building, Randy, because I said if there's some way that cash can enter and leave the building that the CEO knows about but I don't, I've failed. I've failed.

Randy Wootton (07:32):

Totally.

CJ Gustafson (07:33):

I need to be the guy. So that was the personal development piece that changed the most when I came. That and also reading through all the contracts because I push those to the side when you're in FP&A and someone in legal can do that, but sometimes you don't have somebody who can do it, it falls on you, so you have to read them all.

(07:52):

Then in terms of how my role has evolved as the company has grown, I think once I got past just the blocking and tackling of the accounting piece and the budgets and the operating model, it's becoming a thought partner to not only the CEO but the CRO or the COO.

Randy Wootton (08:07):

Totally, right.

CJ Gustafson (08:07):

The greatest compliment that they can give me is when they ping me and say, hey, I've got this idea, can I run it by you? Now I've elevated myself from the person who they look to just like, can I buy this? To, hey, CJ's going to help me think through, can we actually monetize this product? CJ's going to help me think through, is the market big enough for this? So that's been the most fun and the most, I guess, complimentary piece of my job that I've added on.

Randy Wootton (08:33):

Well, awesome. Well, congratulations. I've talked about that as moving from the back office to the front office, where you are deeply integrated with the CEO and the CRO in terms of monetization strategy. What pricing should we be using, and packaging should we be trying, for which segments, for which products, in which regions? How does it impact our win rates, and how does it impact our churn? That, owning pricing and being able to provide options and being willing to experiment.

(09:01):

One of the things you said in our pre-brief that I thought was really interesting is we talked about the technological advancements and globalization has shifted the role to be a more integrated and strategic function within the company. You talked about this metaphor of, you need to play eagle and play mouse. Can you describe what that is and how that plays out for you on a daily basis?

CJ Gustafson (09:20):

This is a common trend. I am a trustworthy person as a CFO, but I do steal a lot of sound bites. This one comes from Jenny Decker, CFO of Front. She explained that she's constantly changing the altitudes that she flies at throughout the day. So she needs to be able to step back and fly at 40,000 feet and say, how does this tie into our three-year plan, our five-year plan? But she also needs to be able to get into the weeds and say, why are we pricing something like that in this segment? What's our win rate when we go to this type of ICP? I've been working on that myself, trying to use technology and getting automated reports that will report on something that's 40,000 feet, and then will also report on something that's on the ground level. I look at it like, how can technology improve your diet of information, because we only have so many hours in the day and I have only so many emails I can open, and so many pings. How do I get it delivered to me in a summarized fashion that I can download and it's in a format and structure that I'm used to?

(10:22):

This is something that I've tried to implement into my own life with technology because I found that I was training my board on certain metrics. I've trained myself on certain metrics that I'll have come out of our BI tools. So we use Stigma, where we are with some of the metrics that link to the sales stuff, and you can do it with a tool like Maxio as well, to drill into your SaaS metrics and get them on a pretty consistent basis.

Randy Wootton (10:45):

For all the listeners out there that've listened to more than one episode, they'll hear of this pitch that I make, which I was CEO of Percolate and my CFO or finance team brought SaaSOptics, which is the legacy Maxio product in, and I said, I don't want it, we can't afford it, we're spending too much money on internal software. They banged on the table and they made us buy it and it changed my life and my CFO's life. So we went from a world where the CFO would spend the first six to eight days, business days, closing the books and then turning his attention to the operating metrics, and we'd spend the next six to eight business days doing that. We'd slide into the board meeting hoping we had stuff right, and that was consistent with what we showed last time we went to a board meeting and it was always wrong, someone had screwed up the Excel file, pushed a button, screwed up a cell.

(11:28):

Then we got SaaSOptics, which is what is Maxio today, and we could push a button on day one, it would have our revenue reports, our ARR, and so we would be able to get into all of that cohort analysis from day one. So you're able to have, I think that what you're describing is a business dashboard of what's happening on the operating side, as you go through and make sure the financial statements are working and you're closing those out. I think-

CJ Gustafson (11:53):

Exactly. A tool Maxio makes you look like a hero as well, because what I do is a flash report to the board too. So I'll say to them, listen, I don't have GAAP revenue yet, but here's what I do want to give you and boom, boom, boom, here's what we ended the period. It becomes this thing where I'm pushing data to them, they're not pulling it out of me, and that's a huge shift in the dynamic of me giving data to them faster than they can ask for it.

Randy Wootton (12:16):

That's right. You get those Excel jockeys something to put in their pipe and smoke it. Here's the data before you start jamming on me for the data.

(12:27):

The thing I really like about your construct of the eagle and the mouse, I talk about one of the things coming into growth stage companies, 30, 40, $50 million, hitting that next inflection point where you've moved from core basic startup, is the altitude at which the executive team needs to operate. I describe it as, if you're the C-level, you need to be, you're getting paid to make decisions that are going to make an impact over the next two to three years. Your VPs need to be focused on the set of things that are going to make an impact over the next year. Your directors are folks that need to be focused on the next 90 days. Your managers are people that need to be driving stuff in the next 30 days. So if you, an executive, are helping to drive decisions or prioritization for people within the next 30 days, you're over functioning and you're disempowering your management chain.

(13:14):

Having said that, you do need to set up like what you described, these systems of monitoring so you can see what's happening and then you can push, call it management by exception. When you see something pop red, you start asking questions, but as long as everything is tracking green, you let it run because you've established your operating system, you've established your operating plan, people are executing, they're making the decisions, truth is on the front lines, they know how to do it better than you do. You have this container in place to allow you to then shift your energy effort, a life force to those questions which are important but not urgent and strategic.

(13:52):

What I think is interesting about your point though for the CFO in particular, is you do have to be, I rely on the CFO to be bifurcated, to be able to be the eagle, but also be the mouse that knows the cash. So, how do you think about, other than the systems that you've set up, how do you manage a team of people so that they don't feel that they're being micromanaged, but you're asking all the questions because I'm going to ask you as CFO, are we good? Are we going to hit payroll? Do we have enough cash? Do I need... Are you pulling back on the DSO? How do you do that in a finance function? Because that's very different than what I ask every other executive to do, which is be out in front, help us tee up the questions we need to be worried about and the decisions we need to make for the next two to three years.

CJ Gustafson (14:37):

I templatize a lot of things with my team, so I ruthlessly make templates. I'll give you an example on the cash piece. I know that I can't spend a whole day just going through cash, but my controller puts together a 13-week rolling cash forecast, me and her sat down and designed it together. We had to go slow in order to go fast in this sense that it took us a while to construct it and to get into a groove of, hey, this is what you put in for me every week, you're going to have it done by lunchtime on Monday. I know it's a habit-forming thing every Monday afternoon, I look at it and there are certain metrics on there that my eyes gravitate towards first. Me and her have been doing the same thing for over a year now.

(15:19):

It's similar with my director of FP&A. He knows what metrics are going to be reported in the flash report for the board. He knows what metrics are going to go into the board deck, and we've actually built in a lot of the data feeds, so it's automated, and that frees him up now to answer some of the other questions I have.

(15:38):

But I love the point that you made earlier, Randy, about knowing enough about the business to ask the right questions, because my worst fear is always that I'm wasting somebody's time by sending them down a dark alley. What I mean by that, it's like the analogy to sales reps getting bad leads from marketing. They're always saying, oh, you're wasting their time and you're sending them down this dark alley to chase something that's not there. I worry about that even though I'm technically G&A and I call it strategic overhead, but am I sending my BI guy on some suicide mission or some wild goose chase with this question? So how do I stay on top of the ground truths? I think a lot of that is having conversations day to day with the people who are actually selling the product and the people who are actually building the product, and not just sitting in the back office.

Randy Wootton (16:26):

That's great. Yeah, I think the more senior you get, the more it is required for you to understand how to ask a good question and then be sensitive to the fact, I used to talk about it, like the whisper at the top of the mountain turns into the thunderclap at the bottom.

CJ Gustafson (16:45):

Oh, I haven't heard that.

Randy Wootton (16:45):

When I was at Microsoft, you would have these VPs, corporate VPs that would say something or ask a question. It may have been a rhetorical question, they didn't really mean it to generate a bunch of work, but then the worker bees like me would be down at the bottom of the mountain going, oh my God, George said at this. Let's go spin up a work stream and go answer that question so we can run back to George and say, hey, we heard you at the last QBR ask this question. Here's the analysis that we spent 200 hours building. George would be like, I don't even remember that question.

CJ Gustafson (17:14):

I have an example of that. It literally just happened to us. So I was meeting with my BI team and they said, hey, and we just finished this report for our CMO. I'm like, well, what is it? It's weather patterns all over the country. So I work in a vertical software company where we are a marketplace for selling car parts. It was the weather patterns and how they impacted certain demand in certain regions.

Randy Wootton (17:38):

Wow.

CJ Gustafson (17:38):

Then I think they went to the CMO and showed him, we've been working on this for a week, here it is. He's like, oh, this is kind of cool. That's not what you want to hear when you finish it, that's kind of cool. We want people working on impactful things. It just drove home the importance to me that people listen, if you're a CMO or a CFO, do not give them something that you're just interested in, kind of cool because interesting and cool don't move the needle. Then you're like, did I just waste 20 hours of manpower on this kind of need analysis that I don't know what to do with now?

Randy Wootton (18:07):

Yeah, I do think there's this tension though at the same time where when you're looking at data, you're trying to figure out what's going on and you're pulling on different threads, and it helps to have... So I was just in a board meeting and we've shared our data on churn. We had our cohort analysis going and the board asked some good questions about this one cohort in this year and what happened there. I was sitting on the call going, oh gosh, is this going to spin up work? Is this worth spinning up the work? I think my role as CEO is after the board meetings to come back and clarify, here are the actions we took. How important is this to you on a scale of one to 10? Because our level of effort is on a scale of one to 10, X, and if you want us to do that, we will.

(18:50):

I found with PE, this is my first PE gig, I've been CEO of a couple of other companies. One was VC, one was public. With PE, they do like to ask a lot more questions and they do want the analysis. So they ask very good questions and I think often drive a deeper understanding of the business than me and my executives would necessarily have without them pushing on us, which is good, but I'm always sensitive to, gosh, is this value or tax? In terms of the work that's being requested.

CJ Gustafson (19:22):

I love how you put it in terms of value or tax, and then there's a derivative of it. Is this something that I'm going to get to that's going to help me actually move the business or is this just something that's going to help somebody from the outside understand it better? Because I do think there's this inherent tension between operator metrics and VC metrics, where VCs are looking at it like, is this going to give me a signal on a binary buy or sell kind of thing? Whereas if I give you the LTV to CAC, Randy, you're going to go back and be like, I don't have one owner for this metric if I want to move it. This is the most compound of compound metrics, but it's still very important to a VC.

Randy Wootton (19:59):

Yeah. Let's just pause there. We're going off script, but talk a little bit more about VC metrics versus operating metrics, because I do think for CFOs, that's one of the things is they fleet up into the role of CFO, being able to advise a CEO on both because you have to provide both. Especially if you're a venture backed company, you're trying to raise money, you got to have them sorted out. I'm a big fan of Ben Murray's, the SaaS CFO's matrix where he is got 27 metrics and five different columns, and I think it's really powerful. But for you, how do you draw a distinction between VC metrics and operating metrics?

CJ Gustafson (20:37):

Well, so I do empathize with VCs in the sense that they do have to remember business models from say, five to 10 different companies that they sit on. So it's only human nature to try to force things into a box that makes it more transferable and understandable, but... and I know there are a lot of people out there saying, my business is unique. It's like it is true to a certain extent that your business is unique and maybe a certain retention rate isn't very representative because of the way the customers ramp over time or if they're on monthly versus annual contracts.

(21:06):

So what I try to do is I create different dashboard views like you can do in Maxio, of the metrics that you prioritize as a leadership team, and then the derivatives of those metrics which drive them. Then within my operating plan, to take it a step further, like for our sales capacity model, we map it all the way from top of the funnel registrations to bottom of the funnel buyers. Then each lever along the way, we try to put a sub-team or a person's name next to it.

(21:33):

Now, I would never go to my board and say, hey, this person over here is specifically responsible for reactivations in this segment, but for me to run the business, I need to know that and to be able to tell where it's going. Some of this is, what type of metric do you want? Do you want a lever that you can pull today with a name next to it, or do you want a compound metric that's going to reflect the overall state of the business? The first step is to figure out who your audience is. That can even differ when you talk to the person running FP&A, who's building the operating plan and in the weeds and going through the expenses, versus talking to your CEO. Because CEOs also have a different way of talking about metrics, which I've realized over time, and I'm guessing you might have an opinion on that.

Randy Wootton (22:15):

Yeah, well, I think what you say resonates on so many levels. I always talk about having a scorecard. The scorecard has a list of metrics. There's a name next to the metric, there's a source file for how that metric gets calculated, and there's a target associated with it, and you use benchmarks to inform it.

(22:33):

My big lesson learned on this was I was chief of staff for one of the top 14 people at Microsoft at one point, a guy named Bill Vecti, wicked smart dude, grew up in Microsoft. We had brought two divisions together, so it was Windows and online services, and it was about a $20 billion business that he was responsible for. He told me as chief of staff, Randy, I want you to go build our scorecard. I don't want any more than 20 metrics, but those 20 metrics all need to have a name, what I just described, and those are the metrics we're going to review in our MBRs.

(23:04):

At the time, I had an Excel file printout of the scorecard, and I'd go around all of his directs and I'd say, okay, well I got to learn those Windows business, tell me about sockets and blah, blah, blah. What I didn't fully appreciate was the political angle. If you had a metric, you are going to have time at the MBR and you would be reporting and talking to Bill Vecti. If you didn't have a metric on the scorecard, you were secondary.

CJ Gustafson (23:27):

Wow.

Randy Wootton (23:28):

So literally, I had 50 versions of the scorecard printed out. So I'd talked to someone and say, okay, we talked about this last week and you had said you wanted to have this metric defined by this report with this target. They said, no, I want to do this now. I'd be, no, no, no, stop. Wait, hold on. I'd just cycle with this with Bill. Then honest to God, we would, maybe that took me a month or something after that, every MBR, those were the only 20 metrics we looked at.

(23:53):

So I do think as a CEO, there's this... And so I've kept this in my head. He was running a business with 20 metrics for $20 billion business. I love metrics and so I often have more than 20 and I'm always thinking about, well, which one am I going to cut? Which one is really the ones that matter? Gratefully, I haven't been at the larger company as the CEO where you have people playing the political battle, but I do think you get what you inspect. So your job as the CEO or the CFO and the other executives is to make super clear, what are the metrics that matter that are going to be either leading and lagging indicators of support of what your strategy is. It may be a segment-based strategy, it may be an attach rate for a different product. It may be, of course you have your employee engagement scores, but there's only a set of metrics that are going to make the news that hour.

CJ Gustafson (24:41):

I love how you said that because you can only expect what you inspect.

Randy Wootton (24:44):

That's right.

CJ Gustafson (24:46):

So what we did at the beginning of this year, so this is my second year as CFO at this company, is we had originally had 10 core metrics that went on an exec dashboard. We brought those 10 metrics again to the table and said, let's figure out what the 10 are for this year. We had a debate as an exec team and we had to ruthlessly cut what was going to be left. Then we said at the end, who's going to report on this metric each week? I wouldn't say we're at that political stage because we're still smaller where everyone's doing a million different things, but there is true power in you owning that because that means-

Randy Wootton (25:17):

That's right.

CJ Gustafson (25:17):

... you own a lever in the company that has resources and dollars attached to it.

Randy Wootton (25:22):

Absolutely, and I think that is as we think about at the end of the day, the executive team, if you're privately backed, are there to create shareholder value. So your ability as an executive to hook to one of the levers that is going to drive shareholder value, understand what it is, and then it's up to you as the operator to go through and build the operating plan and the tactics and the investments you need to show and then report on it like. Hey, this quarter we're going to do X, Y, and Z. Then over the course of the quarter, you see how it plays out. I guess that's maybe one of those things I was articulating before was that operating plan process where you spend the time with your team to build out what you're going to do over the course of the year is so critical. It's never going to be right, it's always just like battle plans. As soon as you hit the shore with your battle plan, it goes to hell in a hand basket, but the act of planning and being thoughtful about what are the things, the leverage you want to push on and what are the activities you're going to do to make an impact? Then having a mechanism for reporting on it is critical for getting people aligned and driving shareholder value over time.

CJ Gustafson (26:26):

I believe it was general Douglas MacArthur said that I found in my time that plans in battle are useless, but plans in preparation are indispensable.

Randy Wootton (26:36):

Right, exactly. I think it was something like planning is indispensable, but yeah, you're spot on. Yeah, one of my favorites.

(26:41):

Well, great. So gosh, we've already cooked through a whole bunch of time. Let's shift a little bit.

CJ Gustafson (26:44):

But we're having fun, let's keep going.

Randy Wootton (26:45):

I know this is great, we can go on for two hours. Let's just keep going. One of the topics we want to talk about. So what is a CFO? We talked about that definition, the eagle and the mouse, and you had a quote, one from Rajat at FloQast, that great CFOs are enabler of the CFO vision versus the CFKnow, which I loved from our pre-brief. But as you think about the current disruptions in the office of the CFO and the impact of digital transformation on finance functions, can you talk a little bit about how you're seeing that playing out? Again, you're talking to so many people, I'm sure there are these patterns you're seeing across the types of teams they build, the way they think about data, the way that technology and individuals work together. Then we'll save a little time for how you're thinking AI is playing out in this new world order.

CJ Gustafson (27:31):

Yeah, totally. So when I get a request, the first thing I look at is, is this person trying to solve using humans, using technology or trying to combine two to get a better result? Because I've made mistakes in the past of approving technology because people were looking for a quick bandaid but didn't have the bandwidth to implement it. So the biggest scare for me when it comes to non-people costs is we're buying something that's going to sit on the shelf. That's not indicative of it being vaporware or anything like that. It's just that, did we buy this just being hopefully optimistic, but then we didn't have a person to implement it. So that's the first thing that I always have my spidey senses out for

Randy Wootton (28:10):

CJ, just one question I ask a lot of people this. What in your experience, and I'm sure you've talked to a bunch of CFOs and companies, is the percent of revenue generally, and I get it varies based on size, but I don't know, pick an early stage company, $10 to $50 million, the percent of revenue that you would think should be spent or budgeted for internal tools and software?

CJ Gustafson (28:31):

Yeah, so maybe just to answer it in a different way, because some people out there are still at cash-burning companies these days, but if I think about 100% of total spend at the company, at most software companies, it's between 70 and 75% on people, and I'm counting all effective labor. So W2 people, contractors, flex capacity, etc. That leaves about 25%. The biggest piece within that is software. So what I see is between 15 and 20% will be spent on software, then you have some left for rent and other stuff, but I would say at least 15% end up being software decisions, technology decisions.

Randy Wootton (29:06):

Can you pull out hosting costs? So outside of AWS, I'm talking email solution versus SEO optimization solution versus Zoom versus Salesforce.

CJ Gustafson (29:17):

Yeah, so then I think you're still left with at least 10% of total spend. Yeah, it's a good chunk.

Randy Wootton (29:25):

Awesome. Okay, great. So we were talking about digital transformation and you were talking about, hey, people are looking for tools. You make sure that it's something that they're going to actually ingest and deploy. We had chatted a little bit about business intelligence teams, clean data lineage from sales through product. How have you seen that be a requirement that CFOs need to really embrace now?

CJ Gustafson (29:44):

Yeah, so I inherited a data and analytics team or a BI team for the first time, which was really exciting. I felt like somebody had given me a sports car.

Randy Wootton (29:53):

Sure.

CJ Gustafson (29:53):

It was pretty cool, because I'm a total data nerd, and now I'm like, I have this high-powered machine, but I also had to make sure what fuel I put into it because like I said, I don't want to send them down a dark alley. So I was-

Randy Wootton (30:04):

Just like Seal Team Six, where do you deploy them, right? You want to make sure they're in the-

CJ Gustafson (30:09):

What do I do with this now?

Randy Wootton (30:10):

Yeah, right.

CJ Gustafson (30:10):

So I was talking to Sruthi Lanka, CFO of Public, and so they run an online brokerage for trading stocks, bonds, all sorts of things. What blew my mind is the way that she thinks about the different types of data. She said you'll have your data from production, so that's what's coming out of your product. It's not going to be financial or operational data but it's very core to what you do and how you look at activity-based stuff. You need that to be overlaid with your financial data. So she was explaining to me, CJ, you as a CFO, you have to also understand the production data of whatever you're selling and marry that with the operational stuff. She said you need to have one database or data lake it's flowing through. So for us, we use Snowflake, we use Talend as the connector between that, and our analytics tool, Sigma, that marries with what we're piping in through Salesforce, our CRM, and then also our ERP on the financial side, NetSuite.

(31:05):

So I'm trying to marry the best of both worlds to make product activity based metric decisions, to make financial P&L based decisions, and to make operational capacity sales based decisions. Getting all those into one spot and having one owner within the company I think is very important because what I've seen go wrong in my career is that you'll have a strategy and ops team, then you'll have a sales team, and then you'll have the finance team. All three people show up to the meeting but they all have different data. At that point, the meeting is just a complete waste because if you're arguing over definitions or who has the right data, square one, you've lost already. So that's what I try to eliminate using technology and having one owner in the company.

Randy Wootton (31:46):

That's awesome. Do you guys have a customer success tool like Gainsight or ChurnZero, or do you use Salesforce for that data?

CJ Gustafson (31:52):

We're looking into that as we speak. So we recently bought Gong on the sales side to hear what the reps are saying and look for certain keywords and see if we're working the upsells and cross-sells correctly, but we do need something on the CS side now.

Randy Wootton (32:07):

That was my background at Salesforce. I ran customer success, product marketing, sales, and product management, and learned an enormous amount and got to know Nick Mehta, over CEO of Gainsight.

CJ Gustafson (32:17):

Oh, wow.

Randy Wootton (32:18):

Then we work with You from ChurnZero, and I would say that the only other piece of data that you would want in that data lake is the customer data.

CJ Gustafson (32:26):

That's true, yeah.

Randy Wootton (32:27):

So when you're doing the [inaudible 00:32:28]. So you have them engaging with the product, but you also have them in whatever else they're doing in terms of tickets they're supporting or health checks that you're doing. That can help inform in the subscription business especially, and even in the usage business, when you're seeing if they're issuing invoicing or not, what's coming out of your product, but also what are they doing, I think gives that full view.

(32:46):

I do think the CFO at the end of the day needs to own it. It's often that they don't own the Salesforce instance, so they can't guarantee the accuracy of the Salesforce data, but it's up to then the RevOps person, I think to own the integration of data and technology across sales, service, and marketing. I think years ago, I mean, four or five years ago, you would have different ops like marketing ops, and sales ops, and a service ops person all in their silos reporting to the head of or VP. Now in our world at Maxio, we have a wonderful woman who runs RevOps and just the power we get, the leverage we get by her owning all of those systems in terms of connecting them and the data flow, one source of truth, connect it with Maxio, just makes it... We start with a consistent view of the data.

CJ Gustafson (33:34):

It's a total unlock. You're starting on second base by the time you get to the meeting.

Randy Wootton (33:37):

That's awesome. How about this idea of the tech savviness and the adaptability among CFOs to navigate the current business landscape? I often talk about CFOs saying they're going to let go of their Excel from their cold dead hands. They're resistant to going to technology because many CFOs want to actually build it themselves and see the bits and bytes in the model. So I do think this next gen CFO needs to be a bit more tech-savvy, embracing some of these technologies like Maxio, for example, pulling it into the FinTech stack. Maybe part of the issue is CFOs don't want to spend money, so Excel license is a lot less expensive than a Maxio license, but how do you think about that relationship between people in technology and the finance function going forward?

CJ Gustafson (34:23):

Yeah, I mean, I've alluded to this earlier, but at the end of the day, software is truly about enabling people to build, whether they're in sales, whether they're in finance, whether they're closing the books, whatever they're doing. What a lot of people mistake is they separate the people from the technology. So you change the people, you change the technology, and vice versa, you have to remember that. So your hiring decisions also have to link to your tech decisions. I think the improvements come from improving one or both of those, but changing one or both will change the other as well. That's what a really smart product guy once told me. I worked at a cybersecurity company before and he was describing the way that people interacted with our product and he's like, this is a beautiful product, but if we don't enable people to use this and they don't understand what the value props are and they don't have that aha moment, then we're lost. It doesn't matter that we gave them tech. So I'm not a technologist, I can't code, but I always think about that even within the finance function, that people need to have goals and milestones that are linked to how we use the tech. You can't separate one from the other.

Randy Wootton (35:24):

100%. I remember someone said this in my career around the weakest link in technology is actually that last inch of getting users to use the technology, especially if you're in a seat space model where you're selling and you're driving MAUs, DAUs, or whatever, but trying to ensure that the people that you're building it for, both the buyer and the user are getting the value and feel it on a regular basis, or you become shelf-ware.

CJ Gustafson (35:52):

We're going through that now at my company too. So we just purchased Tropic to help with our procurement, and so I love their tech and I love to nerd out on the price checks too, where if I'm negotiating a deal, I can use their database to see if I'm getting a good deal, but I can tell my CMO, my CPO, they're like, now I got to put the data through this and it's going to be workflows and I have to ask for approvals. I'm like, no, guys, remember you kept looking for those contracts in your email every time you had to talk to someone? Remember we kept forgetting about auto-renewals? So they're like, yeah, okay, fine, we'll slow down in order to go faster later.

Randy Wootton (36:27):

Yeah, I think they're really coming on the market. So Spendflo, Tropic, Vendor, and I think it's driven by what we were talking about before, is companies are spending an enormous amount of money on these tools. What you find is a lot of, the price point is such that each functional leader can put it on their own credit card and they can expense it. So unless you have someone like CIO or CFO that's being responsible for all of that, it's madness. We have, I don't know, 200 different SaaS subscriptions. To your point, we had to go through and look at each of them and say, is it required? Go talk to the owner, an enormous amount of time and energy there. Then we said, okay, we're going to kill this, kill this, kill this and everyone's like, wait, you're killing my special project. But I think the Vendors, the Tropics and the Spendflos of the world are almost like an outsource procurement, and they can help you manage your subscription so that you are using them and getting the most use out of them.

CJ Gustafson (37:22):

Some of it's just awareness too, right, Randy? you want to know when is a renewal coming up?

Randy Wootton (37:26):

That's right.

CJ Gustafson (37:27):

Because the worst thing is not necessarily the spend outlay. Sometimes it's the surprise that you feel like you don't know what's going on.

Randy Wootton (37:33):

Yeah, right, totally. Yeah. I always solve for the spend outlay like, okay, when do we got to pay? What terms can we negotiate? But I do also think that. It's been interesting in the B2B recession that we've been going through, how many CEOs of vendors are calling me directly and saying, hey, Randy, you've got this renewal coming up and I can't get your team to contact me. Are we-

CJ Gustafson (37:56):

They've been calling you directly?

Randy Wootton (37:57):

Well, sending emails. I don't want to have this be out and every CEO now calls me directly, but I do think it's not atypical for a CEO when we're a big, maybe we're big for them, will reach out and say, are we all good? Is this going to happen? Then I got to go, I don't know, maybe. Can you give me the best friends deal you got? [inaudible 00:38:18]-

CJ Gustafson (38:18):

The CEO inside baseball people came for.

Randy Wootton (38:20):

That's right. Well, good. As we shift to the last part of this conversation, would love to talk about, everybody talks about AI and in our pre-brief, we chatted. My first CEO gig I was actually at a real AI company, first generation AI, predictive analytics, logistic regression models. It was enormous. I mean, we had spent $250 million on the data centers. What we were doing, AWS at the time couldn't do for us. We had 30 data scientists on board. We had these analysts who would work with customers to deploy the models that we had built. So it was real AI, programmatic advertising. Now we're in the second generation and we were chatting a little bit earlier, and help us understand what your view is on AI. It's a little counter to what I've heard from other folks.

CJ Gustafson (39:03):

Yeah, so I think everybody's looking for this 10x or even 1,000x engineer that people have been promising. Maybe someday, but where I'm seeing the biggest gains in AI is it brings mediocre performers up to the mean. So that 30 or 40% of your team that you want to rise up, it helps them get up to an average worker. I think a lot of AI helps you be just that, it helps you be serviceable. I don't think it's creating five LeBron James to take the court necessarily with some of these tools. So that's my first observation. But make no mistake, 30 or 40% improvement is a huge game changer. I'll take that all day.

Randy Wootton (39:44):

Yeah, that's what when we were positioning AI at that time, I describe it as there were... Today, I think they call it the boomers or the doomers, but when I was positioning, it was like the Jetsons versus the Terminator, where it was AI to put everyone out of their jobs. So we actually started talking about not artificial intelligence, but augmented intelligence, that this is to help make, in this case, media planner's jobs better and easier. It wasn't about replacing them though over time the programmatic advertising marketplace did replace a lot of media planners. So maybe it was a little Jetson, maybe it was a little Terminator, but I think what you were suggesting before, it's the advantages that you're getting is you got data at your fingertips, you're getting workflows that are automated. What else is it about these tools that you're seeing people, that mid-pack that are able to be more successful, create more capacity, do things they would rather do than just the grunt work of what the job may have entailed?

CJ Gustafson (40:38):

I think there's a lot of idea generation that's made easier and then being able to link together different areas of work. So there are a lot of cool tools that are coming about that'll take basically information from the front of the house, from a customer support or maybe a BDR getting information, to then link and say, does this person actually have an account with us? What's their historical spend? Have we ever talked to them before? So it's linking data from different parts of the organization in a way that you can tell a story and then go back and actually have a conversation with a customer, which I think before would've taken a lot more time. So like you said, it's having information at your fingertips in order to have more quality interactions.

Randy Wootton (41:20):

Awesome. So this revolution, second generation of AI, generative AI is based on large language models. As a finance professional, what are the challenges you're seeing as people start to embrace this and apply it to the use cases and workflows?

CJ Gustafson (41:36):

I'm so glad you brought this up, and I think it's right there in the LLM acronym language. It's not a number. So their large language models are great at building structure and then filling in that structure with ideas, but if you just tell it to go and calculate something, it actually may hallucinate. That's the biggest thing that I've had to wrap my head around, because humans make mistakes all the time. I've made a mistake calculating net dollar retention rate, but it's a human mistake. I didn't make up a number that wasn't there. A hallucination is scary in the sense that you have no idea where it came from. Then it makes you say, well, do I trust this black box? So it's a different type of human error I'm getting used, to where if my head of accounting makes a mistake, it's probably because she didn't carry the ones, it's not because she made up a $100,000 check that just like wasn’t there.

Randy Wootton (42:27):

Right, so how are you checking for that? How are you doing the QA on the hallucinations? Are you having to duplicate the work so you get the output and then you got to go back and double check or do you have the AI check each other? What's the way that you-

CJ Gustafson (42:39):

They check each other's work. The first is to give better guardrails. So I was talking to my friend about building a discounted cashflow model using AI, and he said, I use Python script. I wish I knew Python, but he would create the Python script and then feed it to the model. So that way it had more rigid guardrails to fill it in with, rather than saying, I'm trying to build it this kind of cashflow model, can you sketch this out from scratch? So he would build the structure ahead of time, and it also allowed him to run it more easily on his own and back calculate it a couple times. But what I've been doing is I run things a couple times because I think a hallucination is just that, it's a one-off thing that's imagined, but if you run it three or four times, even though it may take a little bit longer, it's not going to hallucinate in the same way each time.

Randy Wootton (43:25):

Have you heard this? So we had a marketer, this wonderful woman, come and do a seminar workshop for our marketing team on the latest and greatest in marketing and how to use ChatGPT and other models to help your marketing. She said she's done tests where when she says, please and thank you, she gets better results. Have you seen that play out?

CJ Gustafson (43:46):

No, but when I say please and thank you to my team, I get work faster too.

Randy Wootton (43:50):

But I mean, it's a little unnerving that it has a conscience and that it's going to give you more, or if you say, this is really important, this is a critical prompt, I really need you to spend time on this for me, that there's an added benefit. I haven't had a chance to try it yet, but I'm like, oh my God, really? I mean, I'm gracious and kind in general, I grew up in the South, but please, and thank you to the AI is a little unnerving.

CJ Gustafson (44:13):

One time I asked it to do something and I said, this was ChapGPT and it said, oh, I can't come up with anything like that. I said, come on, can you try harder? It said, okay, and then it did it. I was like.

Randy Wootton (44:22):

Oh my gosh.

CJ Gustafson (44:23):

Yeah. So I was like-

Randy Wootton (44:24):

That's proving the point.

CJ Gustafson (44:25):

That's scary, you holding out on me this whole time. What do I not know about?

Randy Wootton (44:30):

I guess it just pays to be nice, be nice to your friends, be nice to your partners, be nice to your AI model.

CJ Gustafson (44:36):

Exactly, don't let it hold a grudge against you.

Randy Wootton (44:40):

Well, I mean, maybe that's a good place to wrap. CJ, it's been awesome chatting with you. I really enjoyed learning more about your background. How do you think about the role of the CFO, the evolving role of the CFO? What's it going to take to be successful going forward and how we're walking together into this brave new world of augmented intelligence.

CJ Gustafson (44:58):

I got to thank you for all the thought leadership that the Maxio team puts out, seriously, because I'm a student of the game as well, I'm always trying to learn and there's always something that I can absorb.

Randy Wootton (45:06):

Awesome. Thanks, CJ.

CJ Gustafson (45:08):

Thanks, Randy.