Bruce Felt Jr. was the finance chief during the initial public offerings of SuccessFactors Inc. and Qualix Group Inc. [both since acquired]. Last August, he was named CFO of Domo Inc., which offers cloud-based tools to help companies likeeBay Inc.EBAY -0.31% and National Geographic keep tabs on their finances and supply chains. Mr. Felt spoke with CFO Journal’s John Kester about the pitfalls of IPOs. Here is an excerpt:
Q: How do you bring a company public the right way?
A: First, you have to have a business model that works. It just is working. And that means, with confidence, you can tell investors, ‘This is what’s going to happen,’ and you make it happen.
You have to be able to close books quickly. They need to be correct. You need to be able to file [Securities and Exchange Commission] reports on time. All your systems need to be in place and buttoned up. The whole era of [Sarbanes-Oxley] is here where internal controls matter a lot and the accountants have gained an incredible amount of power over companies, the public accounting firms in particular.
Q: What are some of the pitfalls of bringing a company public?
A: One of the worst things you can do coming out of an [initial public offering] is miss your numbers…If you went public and the expectation [for growth] was 85% and you came in at 75%, you’re going to get hammered and the whole company’s credibility, the CEO and the CFO, and the prospects of the company will be severely diminished. And the cost of capital will go up and the amount of time spent with investors will go up…
When the business is doing very well, it’s very easy to oversell what you’re going to deliver…To be able to bite your tongue and hold back: very hard to do. And the fear of screwing up, I think you can only learn through experience…Your fear overcomes that optimism and you do the right thing.
You’ve got to get your revenue accounting correct. There’s no playing around with the numbers. You have to be iron-clad on when a deal’s a deal, when you start recognizing revenue and know exactly how to do it. And no monkeying around with dates, effective dates, when a deal came in or didn’t come in – all kinds of temptations, that’s in the world that we work in. You just have to have the discipline to say, ‘No, we’re doing it by the book.’
Q: How much was your IPO history a factor in Domo hiring you?
A: As a CFO, as a résumé-enhancer, you really need to check that box. I’m able to get a higher salary, which is nice to have…Back in the good old days, you didn’t even think in terms of multiples of revenue…So valuations are up there and the stakes are really high. And so boards and CEOs get a lot of comfort in somebody that’s done it before.
Q: What advice would you give CFOs?
A: You have a boss. Realize that. Be the boss’s partner. That means you don’t work for the board; you work for the CEO. You want to make yourself a very trusted advisor to the CEO at the same time.
Come to work every day with a service-oriented attitude, with the whole concept of ‘What can I do for the company?,’ and I contrast that against those that come to work every day and say, ‘What can the company do for me?’
Know your trade. Be on top of everything that’s going on in the finance world where a CFO ought to know. That can cover technology, strategy, systems, vendors, talent.
You’re only as good as the people under you, at the end of the day…[and] whether or not you like the numbers, you better know them.
Q: What is the most challenging aspect of your job?
A: I’ve always put myself in a situation of hyper-growth. And it’s just a different beast…Hyper is like 100% growth. You’re doubling your workforce every year. You’re doubling the top-line every year. So we’re four years old going on five. When you’re doubling, that means in the year you’re in you’re doing as much business, and have as much activity as you did in the whole history of the company before that.
It’s just harder to manage in that environment. It’s hard to get enough talent. It’s hard to control the business. It’s extremely difficult to put together 100% growth year after year after year.