Executives at Aryaka, a business Internet connectivity provider launched in 2009, were obsessed with getting gross margins as high as possible, like most software executives. But when Brad Kinnish came on board last year as CFO, he got company leaders to consider accepting lower gross margins in service of accelerated growth.
"If you're at 75% gross margins, do you want to tick that up to 78%? Of course," Kinnish said in a CFO Thought Leader podcast. "But if it comes at the expense of growth, maybe not. So, if we agree to peg them at 75% and don't try to increase them, would that allow us to price more aggressively, to accelerate our growth?"
Kinnish's discussion about the metric reflects the kind of leadership CFOs can provide to help C-suite colleagues think in ways they might otherwise not.
"If you're overly focused on gross margins, you may not be taking certain deals because you're scared of the gross margin impact," he said. "But there are these trade-offs."
Long-term insight
The importance of leadership didn't hit Kinnish, a Big-4 auditor and investment banker, until he had spent several years as CFO, first for Marin Software and later for Aryaka.
"Finance and accounting and analytics skills, those are table stakes," he said. C-suite executives and board members want something more: insight, communication skills and trustworthiness.
Kinnish realized this when he applied for his first CFO job, after 17 years as a banker, and was turned down. One of the board members who interviewed Kinnish later told him he had over-emphasized his analytical skills instead of his leadership qualities.
"Spending half the interview explaining [your analytical skills] to us doesn't push the conversation forward," the board member told him.
The advice proved crucial years later, when Kinnish was CFO, and the year was winding down. He and others were locked in a meeting trying to close a big transaction that would enable the company to meet its quarterly numbers. But time was running out and the meeting got bogged down in a 45-minute conversation over allocation of the commissions.
"I started to get uncomfortable, because I wanted us to be focused on the deal, not the commissions," he said. "So I said, ‘I think we're spending time on the wrong thing. I think we need to be focused on closing this deal, and I want you to trust that I'm going to pay this commission fairly — to the company, to the rep [and] to sales management. I want you to trust me because you know me and you've worked with me for a long period of time, so you know I'm a fair arbiter.'"
They agreed, the internal discussion led to the answers they needed, the deal closed on time, and Kinnish made good on his promise about the commissions.
"No one is 100% happy, but people were 95% happy," he said.
The key, he said, is the exercise of leadership. "In that moment, what needed to be done wasn't an analytic framework; I needed to rely on the fact that I had built relationships and trust with these people, and get them to focus where they needed to focus."
Growth metrics
At Aryaka, Kinnish looks at sales velocity and other metrics typical for a software-as-a-service (SaaS) company, like customer acquisition costs (CAC) and lifetime value (LTV).
"We're a growth technology company, so we're not overly focused on profitability and EBITDA," he said. "Much of our value-added reporting comes around things like sales growth, new bookings, how our funnel is going from a lead to a qualified lead to a sale. What was the average size of our sale? How much money did we get from the sale?"
When the pandemic hit, shortly after he arrived, the company was in relatively good financial shape. It had, not long before, closed a $50 million capital raise with Goldman Sachs, bringing its total raise over the years to $180 million. At that point, the company had about 400 employees in five geographic areas.
"We wondered if the private fundraising market would be available to us," he said. "Luckily, we didn't need to explore that; we were sufficiently capitalized."
The main competitors to the company's WAN-as-a-service business model are telecoms like Verizon and Lumen on the network services side, and manufacturers like Silverpeak and Versa on the hardware side. WAN-as-a-service refers to wide area network (WAN) connectivity delivered to companies in such a way they can distribute traffic load across multiple connections to make transmission more efficient.
His finance operation includes a three-person FP&A team, something any company of comparable size or preparing to go public should have, at a minimum, he said.
Although the CFO should be expert in the data analysis and calculations, the FP&A team should do the work. Doing the work would be an inefficient use of the CFO's time.
"You're not going to have four hours to sit at your desk," he said. "So, you need a really good No. 2, No. 3, and No. 4. Of course, you're going to review the forecast, and know it."
Where CFOs add value on things like the forecast is on the communication side. It's incumbent on CFOs to see the story behind the numbers and be comfortable communicating that, whether it's to the CEO, board members or investors.
"Communication has been a long journey for me," Kinnish said. "I've had to work really hard at public speaking. In investment banking or finance and accounting, you spend so much time focused on the analytic, presentation PowerPoint deck, but little time thinking about how you communicate it. So you have to reverse that."
He said he likes to see the work a day or two in advance just to fine-tune his communication.
"If you're actually walking someone through the density of a really complex analysis, you're going to lose them," he said. "They want to know the answer. What is the punchline? Don't be afraid to practice, and think about the advice you're giving."
