In the aftermath of the 2008 recession, when John Bonney headed FP&A at procurement software company Ariba, he and the CFO made a counter-intuitive recommendation to company leadership. The recommendation: once the economy rebounds, Ariba should divest itself of a side business whose profits had helped it weather the recession.
Executives agreed and, after the company sold its outsourcing services division, that spun-off asset became a global leader under its new owners while sending customers back to Ariba (now SAP Ariba).
“What we realized was, coming out of the recession, [the success of the division] was actually going to distract from our recovery and software efforts,” Bonney, now CFO of software development platform Harness, said this week in a CFO Thought Leader podcast.
He and the CFO calculated the division would thrive under a different kind of ownership, making it a valuable asset whose sale proceeds could help the company leverage its software expertise.
“Pushing the divestment of a business is never popular,” said Bonney. “You’re separating people who have worked together forever. I have to give the CFO a lot of credit. He pushed me, and together we pushed to sell the business. It ended up becoming one of Accenture’s global divisions, a powerhouse that grew amazingly well and we could focus on the software and create more recurring revenue, which drove our valuation up.”
FP&A role is central
At the root of the sale was the insight the finance leaders gleaned from the financial planning and analysis (FP&A) function, which is the lens Bonney has used throughout his career to understand the big-picture needs of a company.
“You’ve got to look at the business in its totality and understand the parts, where some can be accretive and some may not be,” he said. “You can’t just look top-down. You’ll miss a lot. A good CFO looks at all of the components, not just the P&L.”
Bonney joined Harness a year ago as its first CFO. He’s built a team and put in systems to position the company for what he expects to be fast growth, even given the pause caused by the coronavirus pandemic.
“What we’re seeing is, yes, there are impacted industries, like cruise lines, but there are a lot of companies saying, ‘let’s use this time to get stronger digitally.’ And we help companies do that,” he said. “So, we’re lucky to see some of that tailwind.”
To help the company gear up for growth, he brought on board a controller, head of accounting, head of FP&A, and legal and IT function leaders.
“[The CEO] was looking for a business partner, not just a numbers person,” he said. “We’re going to build a really big company, so we have to start early with the right foundation, right set of people with the right set of skills.”
To enable the company’s operations to scale in sync with its growth, he’s relying heavily on software platforms to manage functions traditionally managed by staff: credit cards and invoices, payroll, billing and revenue recognition and travel. He set up a dozen systems in all.
“As you go from hundreds of employees to thousands, you don’t want to have to continue to hire tons of back-office folks to do [functions] manually,” he said. “That creates a lot of cost, more error, and service levels [can] go down for the people relying on you.”
Among the systems he set up is Airbase, a software-as-a-service (SaaS) platform that manages credit cards and invoicing. “It automates everything and gives everyone approval chains and budgets,” he said. “That would be a full-time equivalent if I didn’t have that. That’s something we adopted early and can scale.”
The use of systems has enabled him to focus his hiring on people he can turn to for their strategic insight. “I look for who sees the why in the numbers and can articulate that and can influence people,” he said. “Having computational expertise needs to be shifted to systems. It’s judgment that’s important.”
Depending on the industry you’re in, until your company reaches between $10 million and $30 million in revenue, there’s little reason to have in-house staff for accounting, he said.
“Early on, accounting is more about getting people paid correctly and keeping your payroll outsourced and accurate,” he said. “Accounting is still critically important to understanding the tracking, but that typically comes later. Early on, [outsourcing] book closings makes sense.”
The more important in-house expertise for small companies is in FP&A, especially for recurring revenue companies, because the crucial function is projecting revenue.
“If you’re a software company, revenue can quickly become complex,” he said. “However, the revenue piece of that puzzle typically doesn’t become [most sensitive] until you’re maybe north of … $30 million. When you’re south of that, a lot of companies look at annual recurring revenue (ARR), so a lot of that can be done from an FP&A lens.”
The FP&A lens is also crucial to the CFO when the company relies on investor funds to fuel growth.
“When you raise millions of dollars in a series A, B, or C, the CFO really needs to have an impact on where you’re putting your capital, where you’re going to invest, how it’s monitored and who’s using it,” he said.