Ed (02:48): David, welcome to Scaling Up. This is part two of a little miniseries for our podcast of trying to really lift the hood on what makes a great CFO. We see so often with the amazing founders and CEOs that we talk to; they call out the importance of the CFO in their scaling journey and there’s no one who’s seen more parts of that scaling curve over the last 25 years than you. And it’s an absolute honour to have you on the podcast. So welcome to Scaling Up.
David (03:18): Thank you for having me.
Ed (03:20): Just to dig in straight away, you’re someone who has seen scaling across that growth curve and really become a specialist in this scaling from a hundred to 500 plus in revenue. And so, the company has already seen some product market fit. It’s been through a few growth speed bumps, but then you are really brought in to supercharge these companies and I’m really keen to understand what are some of the core skills as a CFO that have made you so successful?
David (03:51): A great question. You’re right. I think I’ve had the opportunity to scale and commercialized a number of great software companies and it all starts with the CFO is in a unique seat. In this seat you’re able to see the business holistically, you can see across the business and that puts you in a great seat if you have the right skillset to partner with the management team and the CEO to scale. And so, in particularly in very high growth software companies, these are some of the roles that I think CFO needs to play to be a good partner. The first is to understand the business drivers and create a set of metrics to be able to help the business and the business leaders make really good decisions. So, mastering that data long with that comes resource allocator. Most companies can’t do everything at once, so the CFO is often caught on to be the sage evaluator of resources.
In all the situations I’ve been in, it’s been very important to be a scaler of people, organizations and systems to provide the bedrock for growth. And that goes along with being a developer of talent. You can’t do this. You can’t scale a company unless you’re able to scale the talent base, develop management teams and partners and be able to delegate. You can’t do it all yourself. Often the CFO is also a risk manager. How do we make sure that we make the right risk managed decisions to not jeopardize the company? And then often the CFO is a partner in being a strategist and that comes to organic and inorganic and often has M&A attached to it. And then once you developed and you go public or you deal with boards, you’re a communicator and marketer, you have to put your marketing and sales hat on and communicate to investors board inside the company and analysts, et cetera. So, all of that are parts of the role that a CFO in one of these situations I think has to bring to the table to be the right kind of partner.
Ed (06:05): You’ve called out so many key things on my list already a passion for systems and processes, laser focused on the metrics, being able to see the wood from the trees, but most importantly, you’ve really enjoyed this role as a strategic CFO and the emergence of CFOs over the last 25 years from what was very much a financial controlling role, a bean counter so to speak, to really this partner hand in hand with the CEO as a strategist, as a people leader, as a cultural carrier, what do you think has really been a catalyst for the emergence of this type of CFO.
David (06:44): In high growth? The CEO can’t do it all by him or herself. The CEO needs a partner and a partner who’s broad, who can think in scale, can think in a commercial success, can think in strategy, and the CFO, a good CFO has at their fingertips the data, the information, and the broad view in order to play that role. This is the role I’ve been lucky enough to have a number of times. It’s why I love this role. And I think often other functional parts of the management structure are focused on one or two things. The head of sales, the head of R&D, the head of legal, but the CEO and the CFO can really look together across the whole company to make balanced decisions and decisions on how to scale a business.
Ed (07:40): Such a, a wonderful insight and when you’re talking about hyperscale, you really have seen it back in the, the mid two thousands RiskMetrics was one of the fastest growing companies anywhere in the world, let alone in in software as software emerged as a category. But most recently at Datadog, I think you joined the revenue was let’s say circa 200 million, 360, 600. This is hyper hyper growth. Can we pull the, the covers back a little bit because I don’t think people understand what happens behind the scenes in these hyper growth businesses. Almost like a duck on the pond, we see the revenue growth numbers, and it all looks swimmingly, but the legs are furiously kicking underneath to keep the head above water. Can we pull the covers back a little bit and you can give listeners a bit of a sense as to sometimes the chaos that happens in these hypergrowth companies and how the CFO can pull the threads together to keep that chaos intact.
David (08:36): In terms of scaling, most of the companies Datadog, were heavily in investment mode. So, we’re hiring a lot of people, we’re spreading it around the world, we’re entering new markets and all of that requires infrastructure and support. Whether it be setting up your metrics, setting up your sales operations, forming the right commission plans, deciding companies you’re going to acquire, developing partnerships, all of that needs support and all of that can’t happen as fast unless somebody is worrying about systems, scale, people, processes, et cetera. So, one of the roles of the CFO in one of these high growth companies is worrying about that and making sure that they are looking to the future and providing that scale in addition. Alongside of that comes very rapid decisions on strategy sales growth. And in order to do that, you need to have information, you need to know how this sales group’s doing. You need to know how this channel’s doing, how’s this product? Are you able to bundle? And all of that comes from the command of information and I found it’s invaluable for the CFO to be able to set up the data and information infrastructure in order to educate everybody and share information to make good business decisions.
Ed (09:58): You’ve called out the scaling of the people and the systems, but if you are onboarding 100, 200, 300 people in a quarter around the world, how the executive team actually manage the rigor and process around this.
David (10:14): In a great end market like we have with a great product, our limiting factor is the ability to attract, train, retain people. So, you have to make the right investments in terms of people function, recruiters, offices, training, et cetera. You have to lay all that groundwork in order to scale very rapidly. Since you can’t hire everyone out at once, you have to have a very good and well thought out budget that stretches but doesn’t break a company. You can’t hire all thousand people on January 1st you have to plot that out, create that kind of budget and thought leadership in order to prioritize things. And then as you bring people in, you have to communicate with them, educate them, bring them up to speed, and all of that is the role of the management team. I also have found that you can only do so much unless you develop a scaled management team. In other words, you just can’t have everything going into one C level. You have to develop the next layer and the next layer below that. And that takes a lot of time, education, mentorship, et cetera in all the functions. It’s hard work.
Ed (11:28): That it is, but the rewards I’m sure are plentiful. Maybe you can just give a little bit of context and contrast to a few of the roles that you’ve had that maybe haven’t succeeded and reflect on. You’ve had two I’ve you’ve had multiple successes, but of course over everyone’s career there are ups and downs and maybe the lessons that you drew from some of the occasions that companies didn’t scale.
David (11:53): First of all, it always helps to have a very big end market and to have it the center of the company and the best companies I’ve been involved with have had this intellectual property R&D product vision. If you have those two things, it’s execution and then distribution. So, I think in the best companies it’s being able to create order out of chaos and be a facilitator of taking advantage of that opportunity. And in other companies where let’s say the market’s not as big, the product fit may not be as good to make hard decisions to create the best possible enterprise out of the company. And that’s involved in some of my companies’ making decisions on where to invest and where not to invest, making harder choices and making a choice at the end of the day, whether it might be best to sell the company ally with somebody else to create a better entity, go public, stay private. So, in each of the circumstances, I think I’ve been involved in every one of those, take a company public and sell it. Don’t take a company public and sell it, restructure a company, take a company public and then stay independent and scale. And so, it really depends on the situation and some of those tasks I spoke about come to the fore and are more important at different stages in a company depending upon the fate of the company.
Ed (13:30): Wonderful answer. You, you called out the need for this product vision and that usually goes hand in hand with these visionary founders who are obsessed with product, but after a moment, once the product is out in the hands and in the wild and is scaling, they bring in the experts and that’s you. And so, I’d love to know your relationship with the various founders over time and maybe compare and contrast them. You’ve had someone like Ethan Berman at Risk Metrics very measured, equally product obsessed, but not necessarily a background in product and then more recently with Alexis and Olivier, it it’s fascinating this relationship of the expert CFO trying to keep a lead on these big visionary founders and how that dynamic plays out.
David (14:19): Right? I think there’s two questions in there. First of all, and you had asked me before this, what makes a great founding CEO that it starts with product, vision, passion, being able to crack a nut and I think being a very strong people leader and developer, that is true of the CEOs. You mentioned what also is true about the CEOs that you mentioned is that they are open to new ideas and people like myself coming in. So where I found the partnership to be most satisfying and it’s a beautiful thing when it works, is you have somebody that is that visionary leader that drives to growth, really cares about the people, the customers, et cetera, but understands that it takes a bigger team and is willing to bring in people like myself and listen to my ideas and meld them together. Now I found that I can be most successful and what I have to do is I have to listen, understand the culture, understand what made the company great and not come in like a bull in the China shop, but essentially learn from the great things that the company and the CEO have done.
Gain the trust, getting the founder CEO to believe that you’re in it the same way you’re an owner, you want to build a great company just like he or she wants to. Then slowly as that trust and communication is built to exchange ideas and make an impact on the company. And I found that to be the great formula and as much on me coming in as it is the partner, I have in the CEO,
Ed (16:07): Maybe I asked the questions the wrong way around because my next question was going to be what makes a great CEO? And I feel as though you really tied that off.
David (16:17): When one thing I want to add though, in the case of Oli, Alexis Ethan, et cetera, essentially when a founder is a great CEO that is appropriate for the company long term, they think of scale and commercialization. They are in addition to being product people, visionaries, motivators and leaders they have within them or can develop the impetus to scale and to think commercially and that that’s hard to do. And when you’re able to found the company and then scale a company, make a company great and continue. I found it’s because that CEO is a very broad person and executive and has all of those inside of them.
Ed (17:25): For the listeners that have previously listened to our episode where Ethan Berman, you can get a sense why David and Ethan were such a great duo leading RiskMetrics through the early parts of the millennium. David, you’ve seen various cultures grow over time and as the CFO you have a strong job to be a culture carrier, but over such a long career you would’ve seen so many various cultures, many wide-ranging ways of building teams and people. I am curious as to how you yourself have gone about ensuring that not only are you a carrier of these new and varied cultures as you come into the businesses, but also how you’ve tried to maybe sprinkle a little bit of your own flavour in there as well.
David (18:13): Yeah, and I’ve learned a lot along the way. I’ve had great partners and I’ve gotten more experience about thinking that because it’s the people and at the core of it is engagement and engagement means the people are committed to a vision and a plan for the company and the people are getting a lot out of it. They’re growing their careers, they’re gaining economically, they’re learning. And one of the biggest metrics I’ve come to is, are the people who have worked for me are they CFOs? And a lot of them are, and that’s because I’ve learned over the years that creating that type of engagement and concentration on development is great for everyone in the company. It’s great to build value in the company, it’s great for the culture of the company, it’s great to attract talent, it’s great to retain talent and it’s great to make people’s lives.
I think when we get together in these companies like RiskMetrics and we see what’s become of everybody, people like Ethan and myself are so proud of it and seeing how everyone’s grown. I try to bring that to the companies that I go to try to think about communication, delegation development, career planning, all these things I’ve found are the ways that you get engagement, you get commitment, you get people who really want to stay and develop at a company and you get a lot of the times, their life’s developed. So that’s what I try to do. I find that when you’re scaling so rapidly and you’re bringing in so many people, you have to overcommunicate, you have to over evaluate talent, you have to make sure it’s the right person on the way in, you make a wrong decision and they’re not the right person culturally you don’t mesh that takes a long time to unwind. So, all of that are things that I think I’ve learned over the years and bring to the companies that I’m at now.
Ed (20:13): It’s been a successful recipe I think at last count from your finance team at RiskMetrics that you led, I think there have been seven public markets, CFOs just incredible career development and trajectory.
David (20:27): And when I got to know Datadog, one of the things that really impressed me was the board, the investors and the management team asked me that right away. They said, can you tell me about your track record in developing? And I had thought about it a lot. I had developed a lot of people and I think we shared a common interest in that and since that time it has stuck Datadog, I talk all the time about engagement and development of the teams, and I find it very satisfying. One of the reasons I continue to love to do this every day.
Ed (21:00): One thing I’d love to explore with you is investor relations and the ingredients and process in, in really creating great investor relations because ultimately that falls to the CFO to produce the right metrics that investors can understand that the key drivers of the business but also creating trust and fostering relationships with the right investors. So maybe you can give some insight into how you’ve gone about that over the course of your career.
David (21:28): You’ve touched on some of the things that I think are part of the recipe for success in creating great IR. You have to, at the core capture and understand the metrics and drivers of a company, get control of them and then communicate them in a transparent way that leads to trust. So, if you don’t know if you can’t capture them, there’s no way you can establish that trust. You have to become very reliable. And so, I think at the core you have to really understand the business. When I think about going out and when I think about hiring IR and when I think about what we’re going to say, I think at the very first about really capturing the understanding of the company and the metrics with that, you have to essentially develop a reputation for reliability and trust that comes from transparency and performance.
So, you really have to understand how you’re going to make, exceed your numbers all the time and do that over and over again. Then you also have to understand from the investor’s seat how they’re going to digest the understanding of the company and you have to develop that type of story. For instance, Datadog’s a platform story, we’ve grown substantially in the development of a multi-product sale. We think of it as a platform, but the investors think of it as are you selling this product or that product? So, we think every quarter about how do we go out without doing revenue by product? How do we tell the platform story and we evolve that every quarter by giving some bits of information that are going to illuminate that and the investors appreciate that. They come back and they say, wow, your willingness to stick to the metrics but give kernels of information that tell us and evolve the story are really helpful.
Then as you rightly said, you have to understand who your long-term investors are, and you have to develop a communication with them over a long period of time. For instance, after every one of our earnings calls, we go the night of, and we give back by answering the questions to every one of the 19 analysts that cover us. It’s hard. We basically allow them to get questions answered clarifications and then in the weeks after it, every one of our top long-term investors we do a one on one with and that’s the kind of servicing and giving back to the investors that creates that relationship. If you’re able to get command of your metrics, tell your story and get reliability that gets, investors want to invest with you and your management team over a long period. So, you’re absolutely right. Identifying those long-term investors, cultivating that sometimes before IPO and staying with them are some of the recipes of developing good IR. And then you have to have a good team, you have to have the right people not only the CEO and the CFO that investors want to speak to, but you have to have a great head of IR and great support for that in FP&A product et cetera in order to continue every quarter to tell the story.
Ed (24:44): Of course, great investor relations is a two-way street. The nature of the relationship is the investors are on the other side. I’d love over the course of your journey to hear some of the things that you appreciate from investors and also maybe some of your pet peeves if you are turning up to investor calls and maybe they’re unprepared or asking questions that are inappropriate.
David (25:06): Very good questioning because I have developed great fondness and some pet peeves so it’s like any other human relationship, someone that knows your industry has thought about it. Many of our investors are doing customer checking and bringing back feedback to us that is very valuable. That kind of interaction with that type of investors will want to do all day long. We learn a lot and that comes I think from investors having experience in the industry, thinking strategically about the industry and the trends, and doing some of their own research. So, when you have that type of relationship and it’s been the same investors over many years that do that and we’re the largest investors in RiskMetrics, the largest investors in MSCI, the largest investors in Datadog. So that is the great pleasure of having a long-term relationship with investors that my pet peeves, my pet peeve is you essentially aren’t doing your homework.
You’re basically trying to evaluate maybe even other stocks and have us say something that might be negative to another stock, which we’re not going to do. You’ve maybe seen us, you’ve been sitting there, you’ve met with us three times and you have constant waves of your staff come at us with the same questions. Yes, if you have a track record developing long-term investment and this is your first time, fine, we’ll spend all the time in the world developing your knowledge base if really what you’re trying to do is trade stocks on momentum short term and you really just want information on the industry. We know that and that’s a pain.
Ed (26:54): Wonderful answer. The next theme I’d love to explore with you and something that you’ve been a master of is transitioning fast growing companies from the private to the public markets and this is a skill in itself and people really underestimate the volume of work that goes in behind the scenes and how long it takes to get these companies public market ready given the rigor and process that’s required. So maybe some insights, what are the key steps that a CFO needs to take control of to make sure that this is a really manageable transition?
David (27:28): Great question. I’ve lived through it a lot and one thing at the very center, and this is something that Ethan and others have told me, is going public is really a liquidity or funding of that at the core you have to remember what you’re trying to do is create a great company. Going public if you’re on that route is just one milestone along the way and the things about creating a great company are the same if you’re public, private, et cetera. So, at the very beginning I try to step back and say this is part of the journey and let’s keep our eye on creating a great company. Then one of the things you’re alluding to is if you’re going to go public, you have to build, you have to make the investment and you have to do that a certain amount of time before you’re public.
When I came into Datadog, the board said to me, we want to go public, but we want you to tell us the right time to go public and that’s based on creating the right infrastructure, creating the right team, understanding the metrics. So, at FP&A sales forecasting, understanding the predictability of the business is really important and don’t go public until you have that. If you have a very valuable long-term asset, you have to always do that. So, this involved at all the companies scaling out the teams in finance, in FP&A, in control, in tax, in legal, in people in hr because you have to build, you have to do all this creating the right systems. You’ll never be able to scale a company unless you make the right kind of system investments and then making sure that you’re able to deliver.
So just because you put a system in doesn’t mean you’re ready to go. You have to see does it have the right outputs that are reliable and then conditioning the company for the volatility of being a public company. Often changing your equity, sometimes from options to RSU, building the board, building the committees, all of these are the infrastructure that has to happen to take a company public. So, I know what to do, I can make the case for investment, I know what parties we have to get on the outside, I know what it means to get the right metrics and that builds confidence within the company, within the management team, within the board, et cetera. But it’s not something you can do overnight. You have to have a plan and it’s usually a year or two plan to step into these things to go public or else you’re going to harm the company in the long-term enterprise, and you don’t want to do that.
Ed (30:14): Something you called out there is the power of a strong board, and you say it time and time again. Ultimately the board is not just a governance measure for checks and balance. It’s about thinking ultimately as owners of the business too and how the best way to grow that business. I’m curious, in your experience you’ve dealt with many types of different directors. What are some of the ingredients to make for great directors?
David (30:42): I would say having experience, and an appetite for growth and investment in all the ways. So therefore, having really good investors that we’ve had over and over again who have seen the process of investing in high growth companies and scaling have been really valuable. Then having other executives who are not investors or maybe they become investors who have seen a lot of things we have on our board, the CEO of Mongo. Just the ability to share the ideas on scaling, compare notes, get feedback is really, really helpful as you are scaling your enterprise. So, I think business leaders who have been through it and been through it in similar ways is very valuable.
Third, leaders who have scaled beyond where you’re at, who can see out into the future and as you become a five, 10,000 person multi-billion-dollar revenue company can help you see out there. So, we have directors on boards who have been on boards of much larger companies, have worked in much larger companies and the ability to have those eyes and see out into the future is very valuable. And then I think those that have a lot of experience in areas like cyber security control and people and being able to scale and making the human investment I found have been very valuable partners on boards as we’ve grown companies.
Ed (32:15): It’s a wonderful call out that pattern recognition, not just for the stage of which the company’s at today, but where the company wants to be in, in five- and 10-years’ time. I think that’s a great place to wrap this up, David, almost every answer you gave was just full of golden nuggets, so I’m sure everyone will love to have learned as much as they did in the last half an hour. Thank you so much for your time.Read The full Article