CFO Priorities Inside Fast-Growth Firms: A Talk with Jeff Epstein of Bessemer Venture Partners

 

Jeff Epstein is an operating partner with Bessemer Venture Partners and the former chief financial officer of Oracle.  Prior to joining Oracle, Epstein served as chief financial officer of several public and private companies, including DoubleClick (sold to Google), King World Productions (sold to CBS) and Nielsen’s Media Measurement and Information Group.

Event Venue: Modern SaaS Finance Summit, San Jose, CA

Guest: Jeff Epstein

Company: Bessemer Venture Partners

Headquarters: Menlo Park, CA

Connect:  www.bvp.com

Transcript:

[[00:00]] CFOTL: We’re here at the Sage Intacct Modern SaaS Finance Summit, and we’ve caught up with Jeff Epstein, operating partner for Bessemer Venture Partners. He is the former CFO of Oracle and had earlier CFO tours of duty at Doubleclick and King World Productions, just to name a few. Jeff, welcome.

[[00:21]] Epstein: Jack, It’s great to be here.

[[00:22]] CFOTL: Jeff, earlier today you were talking about the different stages of growth that fast-growth companies experience. I want to ask about the CFO and how the CFO’s role sort of evolves in companies that begin to grow rapidly. Where should they be focusing as a company begins to rapidly scale? What happens to their focus?

[[00:47]] Epstein: Well, I would say that the first rule of thumb for any CFO is, Don’t run out of money—so you need to understand what your cash position is and how much you’re burning. Every company that we invest in is losing money. That’s why they need venture capital. Typically they raised enough money to last a year, sometimes two years, and they’re somewhere between that one- and two-year mark. And then the question is, What are you trying to prove with that one to two years’ worth of money, which will put you in a position where you can raise your next round. So if you invest the money and a year has gone by and you haven’t really changed very much, you’re probably gonna find it difficult to raise the next round. And that depends on where you are in your life cycle. So in the very early-stage company, you’re trying to prove product, market fit, you’re raising money, you’re experimenting, you’re trying to find your first few customers.

[[01:37]] If you’re a B2B company, you want to get to 10 referenceable customers who think that you’re great, who are paying you. If you get to that level—10 is an arbitrary number, it’s 9 or 11, it’s just a handful of customers—an investor can talk to the customers and hear them say, “Yes, I am delighted with this product. It solves my problem. All my friends should use it.” That’s what we’re looking to hear. Now, once you’ve done that, you’ve now earned the right to get the next round. That was the pre-seed round, and the next round is going to be where you now raise money and I’m gonna prove my revenue model. So at each stage, there’s another thing that you’re trying to prove so that investors will find it more attractive.

[[02:13]] CFOTL: Something that I’m not sure you touched on today … but I’m curious: When it comes to communication with the board, what is the role? Do you see that CFOs have a play in fast-growth firms?

[[02:24]] Epstein: The number one rule is that there be no surprises, so there’s always going to be bad news. You could have things that go wrong, and experienced board members expect that. They know that it’s not going to be perfect. They don’t want to be surprised. So if something happens bad, if you lose a big customer, if you miss your numbers, as soon as you as CFO know about it, make sure that the CEO knows about it, and then either one of you or both should tell the board and say, okay, here’s the problem and here’s our plan to try to mitigate it.

[[02:54]] CFOTL: Do you have any advice for CEOs—and this goes for CFOs as well—who are busy trying to scale but don’t have time to properly hire the people they need. What would you tell them?

[03:07] Well, if I think about my own career, I started off as an individual contributor as most of us do, and I did 100 percent of everything. And then you become a manager and you hire some people, and then maybe you’re doing 75 percent and delegating 25 percent, and then you get more senior. When I was the CFO at Oracle, I had 6,500 people in my organization, and I did 1 percent and delegated 99 percent. So what you’re trying to do as you grow is to think about how you can leverage your own time to hire people who are very skilled and experienced and take some of the burden off. There’s no easy answer, because you don’t know exactly when the time to hire is, but if you have enough capital, it’s usually gives you great leverage to take something that you’re doing repetitively—where you’re perhaps not the best person to do it—and hire someone to take that off your plate to free up your time to do other things.

[[04:06]] CFOTL: Can you supply us with some examples of what might be classified in your mind as CFO priorities inside a fast-growth firm? These are items that often fight for attention inside a company that might be scaling like crazy, but they’re still priorities for CFOs.

[[04:26]] Epstein: Well, I think that the first priority for any CFO, as I said, is making sure that you have enough cash. Also the setting, the tone of ethics and compliance, is very important because if you end up with people cutting corners when you’re small, it’s just going to get worse as you get bigger. You need to try to be the company that you want to be when you grow up. Then there’s a tradeoff of efficiency and effectiveness and you’re trying to experiment, try new things, you’re adding new products, you’re going after new customers, and while you’re doing that, you’re necessarily inefficient. But what the CFO is trying to do is sort of follow the product development people and the salespeople and say, Now that you’ve been doing this for a while, how do I try to get the same results with fewer resources, try to be more effective and efficient? And then, finally, the area that I think is very important is resource allocation. So, any company is going to have limited resources. If I have one product, when do I add a second product? If I’m only in one geography, when do I add a second geography? And if I have a product line window, how do I add another feature? So the CFO can bring an analytical rigor to that resource allocation decision to make sure that you’re investing in the highest-priority projects.

[[05:41]] CFOTL: One of the points you made was bringing the ethics forward. Again, I think that what happens sometimes is that finance leaders become more guarded, and they don’t communicate as much as they should—perhaps because they’re kind of trying not to send any wrong signals at any given time. So it’s a real leadership test to put forth and build the trust that’s needed in organizations and at the same time remain guarded. Any thoughts on how CFOs can better communicate ethical boundaries?

[[06:12]] Epstein: Well, the general rule is underpromise and overdeliver, from a business context. And I think that the same thing is true on the ethical side. There are always temptations to cut corners. Salespeople will be encouraged to give customers special deals and maybe not tell the CFO about it. And if you let that get out of hand, you’re asking for trouble.

[[06:35]] CFOTL: Jeff Epstein, thank you for answering our questions.

[[06:38]] Epstein: Thank you.

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