Do You Live in London?
Attention all London based finance professionals! I’m coming to your city and would love to meet you. I’m renting out a bar for a happy hour next week. It’s on Thursday September 4th. If you want to join me and 40 of the smartest CFOs, finance, strategy, and ops pros in the city, please RSVP below.
Hope they serve Miller Lite across the pond
In 2023, MUFG made a bold move to expand its Growth & Middle Market Tech Banking group — a team built to deliver more than just capital to ambitious, high-growth companies.
In just two years, the group has committed over $4 billion in debt capital to leading VC-backed, PE-backed and public Tech companies across subsectors including Enterprise SaaS, Cyber Security, Fintech and more.
Backed by the global strength of a $3 trillion institution, MUFG’s team brings startup-caliber insight and institutional-grade execution to every relationship.
Global resources. Startup-caliber insights.
Contact Group Head Bob Blee ([email protected]) to discuss how MUFG can empower a brighter future for you.
Back in college, I spent hours reading Bill Simmons’ Grantland mailbags and Drew Magary’s stuff on Deadspin. I practically memorized them. Then I’d recite them to my roommates like they were scripture.
And honestly? That’s how I think of all of you. Roommates.
But we’ve been missing something: a mailbag of our own.
So we set out to change that back in May with our inaugural mail bag. And now we’re back to wrap up the summer with all your best questions.
Got a banger of a question? Just reply to this email.
We’ll do this again, come the end of fall.
LFG
“What’s your favorite non-business book that hypes you up to do business?”
The Alchemist by Paulo Coelho. This book gets me AMPED UP!!!!
TL;DR: It’s the journey of a young shepherd named Santiago who embarks on a quest to discover his Personal Legend, or true purpose in life.
The book’s core message is that the universe conspires in your favor when you go all in on something. It’s a very positive take on being crazy enough to combine what you’re good at and what you enjoy, and just stick with it. I read it like five times when I was trying to push myself off the ledge into the abyss of entrepreneurship.
And the book is right - when you give something 80%, you get 80% back. But when you give 100%, you get 1,000% back. It’s in that extra 20% where the magic happens.
(Note: Since going all in, the podcast has gone from ~25,000 monthly listens to +50,000)
“Given the proliferation of AI tools for finance (e.g. Aleph, Rillet, Campfire, Tabs, Quanta, good ole fashioned ChatGPT & Copilot, etc.), much has been written and discussed around the future of Excel + financial modeling skills.
I'm building a model as I write this; I just can't see how AI will ever be able to fully replace this skillset. Each model is too unique, complex, and dynamic; requiring creativity and strategic thinking. But maybe I'm missing something about the capability of what's out there.
What are your thoughts on this?”
Scott!!!!! I was having dinner with some CFOs last month and we were talking about how wild it is that some of the new college graduates will never have built a DCF from scratch, or wrestled with an absolute ogre of a SumIfs statement. The type of Sumifs monster where you gotta drag the toolbar down to see the whole thing.
There are pros and cons of not being deep in the guts of a model.
Positives:
How much faster you can start a model
How much faster you can run scenarios
How fast you can write high level takeaways
Negatives:
The models are less “knoweable” than a deterministic PxQ model. It’s a black box.
I firmly believe you need to be in the model to understand the most sensitive variables, because, like, you moved them.
You have the talking points but not the narrative, which is often earned from interrogating the numbers.
As a result they make what OGs would call “silly mistakes”. Me and the CFOs at dinner were reflecting on the “obvious” stuff you wouldn’t have overlooked if you built the model. Like, why would the sales and marketing spend decrease quarter over quarter if revenue is growing? Or why does it assume we hire the entire sales pod on the same day?
You lose the context that is often more important than the answer.
The inherent rub is that in order to attract top talent out of college you’ll need to provide an environment that leverages AI in a cutting edge way. No graduate wants to be handed a gameboy when there’s a new XBox. I’m sure the graduates from my alma mater, Boston College, won’t wanna work at a place that still prides itself on manually color coding the model’s inputs using blue hex code #0000FF.
Back to your question - I hope my skills don’t go to waste. This is entirely selfish, and probably the same feeling switchboard operators and ice block cutters felt.
Now, if it does go in that direction, does that mean learning these skills were a waste? Not at all. I made above market money at the jobs I used those skills at. It put a roof over my head and bought my dog lots of ice cream. And more importantly, I like to think I learned something… built character in the excel wilderness. That I emerged on the other side with an understanding of the economic machinery that I wouldn’t have been able to grasp depending on a robot.
Plus, if I’m ever at a party in the Hollywood Hills and they need someone to center across columns without merging them, I can hit them with a ALT HVS down down enter like a MF Ninja.
“How do you ensure you are measuring operating activities appropriately and fairly? Financial metrics can get the benefit of GAAP principles to use a source of truth. Most operating statistics lack a universally accepted definition, especially as you get further away from GTM stats.”
I recently wrote about how many different ways there are to measure Annual Recurring Revenue.
Summary: you can just say things.
You’d also be surprised how difficult it is to define what a “customer” is. And don’t get me started on defining “churn”. I once arm wrestled my CRO over this. That’s why I now type with just one hand.
A good metric has 4 key qualities:
Understandable: A good metric is one that’s easy for everyone to understand and track. That allows it to be part of the company’s common language.
Comparative: A good metric allows us to compare things over periods of time to see trends. This is often what we think of when we talk about cohort analysis. For example: Active Users vs. Active Users/Month. If I tell you I have 10,000 active users, it’s difficult to know if that’s good or bad. If I tell you that last month I had 1,000 active users, that’s a 10x increase, and that looks pretty good!
Ratio / Rate: If you take a comparative number and then turn it into a ratio or rate, it becomes even more valuable. Using my example above, instead of Users/Month, I should track % Monthly Active Users. So last month I had 1,000 active users out of 2,000 that joined my platform, which is 50% of monthly active users.
Behavior changing: We already covered this above, but as a reminder: a good metric is one that you use to make decisions. Imagine looking at a metric and thinking to yourself, “If this goes up, stays the same, or goes down, I don’t know what I’d do differently.” ← stop focusing on that metric
(Per Ben Yoskovitz, Founder and Managing Partner of Highline Beta and writer of the superb Substack Focused Chaos)
I always come back to this framework when trying to decide if we should keep measuring something or not.
“How do you guide leadership to cascading metric management through the Organization at the appropriate levels and focusing the dialogue on moving the key ones. The other extreme of not having enough is having too many, “metricaholic” companies, so to speak. Metrics don’t often evolve with the company, and their uses cases (reporting, operations, action) all get blended together.”
Isn’t it great how these reader questions build upon each other? I paid them to do this.
I’ve worked at both types of orgs - one that measured like nothing (I’m actually not sure we measured which day the quarter ended) to another that was probably measuring employee bathroom breaks. The latter company had a quarterly deck that ballooned to, I kid you not, 240 slides that needed to get updated.
I felt like Quentin Tarantino throwing scenes on the cutting room floor… Q2 Gross Dollar Retention in APJ? Toss. Active users who logged in but did not invite a co worker? Keep. It felt like showing up to the party with a big deck was more important than the actual discussions that took place.
What I’ve found helpful is essentially voting metrics into the top ten that you review (live) as an exec team each week. Why ten? Because it’s enough to have meaningful conversations that span all sections of the P&L, without forcing people to spend more time measuring than making choices using the info.
This doesn’t mean you stop tracking everything else. It just helps you reframe the guardrails conversations revolve around. It helps you avoid starting discussions with edge cases. Because we’ve all worked with the co worker who’s the king of edge cases. They are literally the worst.
“What is the best vendor proposal you’ve seen and why?
What metrics helped the CFO make a decision to proceed with a project / purchase?
What are the most critical factors when selecting a vendor for a project?
What does the decision making process look like?”
This probably wasn’t the answer you were looking for, since you are out there hawking your wares to people like me. But it’s actually the work the budget owner inside my company has done ahead of time to shape the proposal that matters most.
How many people will it take to get up and running?
Do we have the expertise in house to use this?
Are we hiring new people as a result of this?
Who else within the company has been read in on this proposal, and do they approve?
It’s a terrible sign if you are making a tech decision that will impact someone else in the company and they have no idea
I remember our head of sales ops once went and chose a customer knowledge management tool without talking to the head of customer success. Total awkward turtle.
What’s the “all in” cost of committing to this
There is literally nothing worse than buying something for $50k and then finding out it will take another $25K to implement ($75K total).
It honestly would have felt better to hear it was $100K total upfront.
With that said, the best vendor proposals get straight to the point, and are not a novel. I do not care that your technology was carefully sculpted in the volcanoes of Valhalla while angels sung. I want to know, in like simple English that a 12 year old can comprehend, what your technology does. What’s the purpose?
The mistake most vendors make is trying to win the CFO over with a marketing collage. Just cut to the chase. If you made it this far, I already support the business unit owner who wants this tool. So I need you level with me and make it easy to procure. Give me the T’s and C’s. Do not try to blind me with your science, as there are no style points.
A small point, but important - provide the key terms outlined in a simple table; DO NOT put it in narrative format where I gotta ctrl F to find:
Price
Quantity
Term
Table, table, table!
“Any advice for those trying to make the transition from PE / investing seats to the corporate side? How do you think about potential skill gaps / advantages / disadvantages in the recruiting process, effectively communicating experience, and how to think about the various roles companies offer (e.g., strategic finance vs. FP&A vs. corp dev) and where those roles can lead to in your career?”
The biggest thing I had to unlearn was that something had to be “perfect” before shipping it.
In consulting, the work product was all we had. That was literally what we sold - advice in PPTX form. I remember debating the shade of green I used one time with my manager at PwC. Apparently it was too bright. Or too dark. IDK.
I was like, this has zero impact on what the report says. We’re telling them to fire half a division. The color is not a main character in this story.
And she was like, well it’s our product. We don’t have a widget or a piece of software to sell. So it has to be perfect.
Honestly, she was right.
Then in private equity I felt like a financial tourist. I didn’t have the same type of skin in the game when it came to driving outcomes, not that I could jump in and tell a company to do xyz anyway. At that firm it was more about drawing a financial illustration of what was going on than shaping the reality.
At companies we are measured by revenue. By profits. Nothing else.
Now, this doesn’t mean I won’t nerd out over font sizes or spend the extra ten minutes to make something look 95% great. I will. And the answer is Georgia size 11.
I still take this seriously because it’s attached to my personal brand. And I want people when they hold that piece of work to know someone took it seriously.
When you use Comic Sans in a corporate presentation.
But I won’t live in a prison of perfection. I know how the scoreboard works.
“Why is LinkedIn, the most powerful B2B networking site, not developing any AI features for better user experience?
Examples: better search bar experience, better experience with saved searches, better control of one’s feed?”
LinkedIn is a post apocalyptic cesspool right now.
“download my guide to machine learning”
I’m pretty sure 75% or more of the comments on my posts are AI. Just total throw away stuff.
It would be great if LI could actually help ROOT OUT the AI. There are some places online where the value and the presence of AI is an inverse relationship. The more AI, the less I want to be there.
LI could certainly use AI to improve the ability to search for people. The number of times I’ve tried to do a fuzzy search of “John [Company Name] CFO” without success is embarrassing (not just because it didn’t work but because I continue to do it whenever I have partial info).
I think LI, and any social site that is predicated on the combination of writing and human interaction, can become better by using AI to aid in discovery. AI can help accelerate match making.
But encouraging us to use AI to draft a post?
I don’t go to Dunkin Donuts for decaf and I don’t go to LI for robots interacting with robots in the comments. That shit is for the birds.
What metrics actually matter when you’re trying to build something that lasts vs. something that just looks good for a raise or acquisition? Curious to hear your take.
I used to joke with my last CEO that
“If we’re going to the dance, you gotta tell me when, where, and the dress code. Because we don’t want to show up with an operating plan that is business casual and it’s a black tux event.”
It’s true - you don’t want to be deep in the dark days of investment mode, with nothing to show for it, when it’s time to weigh the cow for slaughter (sorry for the imagery, but it’s the truth).
To go a step further, I think there are metrics you not only optimize, but maximize for for when you are selling.
When you are fundraising you want to show you are credibly moving towards the next revenue milestone. Much of this story is based on your unit economics - how much does it take to acquire a customer, how long do they stick around, and how much more can you get them to buy?
When you are exiting, especially to a strategic, you want to show that you have reached a destination that will be immediately margin accretive to what they have already built, and, most importantly, have derisked the future.
The two are similar, but not the same. Fundraising is built more on the promise of what you should do. Exiting is built more on the evidence of what you’ve accomplished.
Now, if you are try to build something enduring, that means you’re playing to keep playing.
In fact, what I’m doing is not a venture scalable business. I can’t throw a million bucks at a newsletter or a podcast and make it grow like software. If you threw boocoo money at it, sure, I might get a nicer mic and upgrade my wallpaper. But what do we do with the other dough? You’d quickly run out of cupboards and drawers to put it in.
Not that people haven’t tried to play venture games with businesses that wouldn’t support it. I was talking to a founder of a community centric business. He raised money and regretted it. He did it because he thought it was the definition of success. And, to be honest, he made a whack of money. But he’s been in the wilderness trying to bring it back to the state it used to be every since.
I think of building an enduring business as continually earning the right to play the game again tomorrow. Therefore, in many respects, my moat is the time horizon - that I’m willing to do this for 30 years. Doing something hard and letting it compound is defensible.
Got a question you’d like us to answer in next month’s mailbag? Simply reply back to this email with your best.
Thanks to MUFG for making this post possible.
Wishing you a banking single sign on that works the first damn time,
CJ
