Path to Becoming a CFO | Mike Scarpelli, CFO at Snowflake

[Music] welcome everyone it's great to see you here at another air base path to becoming a CFO webinar series and we have a special guest today Mike scarpelli the CFO of snowflake welcome Mike thank you for having me today Jeff Mike has had an incredible career not one not two but three incredible technology success CFO stories starting with data domain then servicenow and now snowflake which of course is the iconic incredibly successful Cloud software company we'll hear all about it but Mike I'd like to start off with something early in your career you started at PWC so you were a public auditor and you joined a company at a time when it had more challenges than maybe you thought can you just tell that story of leaving public accounting going to your first Finance internal Finance role and what happened next sure um and I'll I'll I'll say one thing too I started at Coopers in library and I'm very uh Cooper's in library where I may partner and then we merged with PW so yes PWC oh there you go um I always joke with some of my former partners I still keep in touch with and we still um missed the Coopers and Library days but um anyways to see it's they kept the C yes they kept the CD only reason they kept the C is because they didn't want the they were going to do WC and they didn't think that was an appropriate acronym that you're right so uh anyways uh yeah no I was a audit partner at um PWC and you know I was made partner in Canada and when I was in Canada we used to do a lot more of the work it wasn't just being an audit partner I did a lot of m a support transaction services but when they moved me to the Bay Area it was really just focused you had to choose and I love the client relationships and so I stuck with the audit track and then I quickly realized this isn't what I wanted to do for the next um 25 years and I joined a company which I never joined to go be the CFO that was never my intent my real passion I used to love doing m a support so I actually joined a company called hpl Technologies to run corporate development and it was a very acquisitive small company but what industry was again what what product it was yield optimization software for the semiconductor industry and um there were I joined that company looking at doing a number of M A deals and I was six months into that had closed three transactions I think and had three other term sheets and uncovered a massive fraud within the company and it was more the Auditors were calling me and asking me questions and I'm like well that doesn't seem right and then I started digging into it and what was interesting about that is um the CEO ends up fleeing in the country and because he fled the country um and I was the one that called the board in the outside Council and because he fled the country I didn't realize this but the FBI got involved which is quite interesting and I had to deal with three and a half years of dealing with the dno carriers rescinding policies all the executives got fired but me half the board got terminated had to deal with dno carriers for sending policies I had to deal with derivative actions and State Court had to deal with Securities litigation and federal court SCC and uh NASDAQ and going through a delisting so it was quite it was a challenging time because I was I had my first child was literally born a month and a half before all this happened and um um it was probably at the time I thought the biggest mistake in my life leaving PWC but in hindsight it was probably the best experience that I've ever had in terms of what I learned from a legal perspective had to go through a massive riff in the company that I had to make quick decisions on to preserve capital in the company and that really set me up for my next role that I went to was a company called Lexar media which once again I joined that company because the Auditors were actually contemplating resigning and they actually came to me and said if you come in and clean this up we will stick around and that was a challenging thing literally the first day I joined January 2nd 2006 was my first meeting was with the CFO who did not know he was being replaced and I had to inform him and deal with that and that was another interesting company because that was really the start of activism within Elliott that was if any of you know Jesse Cohen you've probably heard of he got involved in that deal and this was really his first real activist deal as well as Carl Icahn and Glenview capital who were known activists and had to deal with there were a number of things happening in that company and ultimately we sold it to Micron which was the best thing for the company and then I was trying to decide I was talking to two other public companies that wanted me to come in and I won't give their names that wanted me to come in and kind of fix things within their company that there was some stuff they weren't happy about and I just decided I'm sick and tired of cleaning up other people's messes for the last five years I'd rather build and so I made the decision I'm going to go to a startup company I'll forgo the cash compensation I was getting and do the startup with the role of equity and um I um ended up meeting Frank slootman at data domain through a recruiter I would never have heard of data domain and I was looking at a number of other companies at the time and I really just chose to work with Frank because he and I think the same way and he's also a CEO that does not claim to know everything about Finance really what attracted him to me was he wanted to take data domain public he had no one on his executive team that had ever been an officer of a public company they really didn't have any infrastructure and he hired me to come in and build that infrastructure and take the company public so I think we were on file with the SEC six months to the date that I joined the company even though I think the board was shocked they didn't think we would be able to go public as quickly as we did and um you know going public is actually not hard it's actually pretty easy it's just time consuming um and it's just really I guess I tell people that are looking to take a company going public the most important thing is the project management of the process and holding everyone accountable to what they need to do it's not difficult it's just you need to be a driver and don't let any of the schedules slip and I think that was the key and so took data to Maine public ultimately sold that to or EMC I stuck around at EMC for almost two years after trying to working on being responsible for the West Coast finances for EMC but I quickly realized that's not what I wanted to do and then Frank joined servicenow and he called me and literally the day he got his offer I got my offer like a week later and then I gave EMC a 100-day transition and then I joined servicenow and um once again had that on file almost literally six months from the date that I joined the company once again I had nothing to do about me it was about just driving people and um holding people accountable um and then I um Frank left service now and literally two years after he left service down he pretty much left data domain two years he approached me on Snowflake and I was actually going to just retire at the end of December of 19 and he convinced me if I would do it with him he would do it again and I joined I would have had it on file six months to the date that I joined but unfortunately covet happened and we didn't become public until I joined in August of 19 we were public in September of 2020 and I think the really unique thing about the three companies data domain servicenow and snowflake um the success of those companies has nothing to do with me it's all about the great product and I think it's really important that everyone understand to have a successful company who need a great product and it's really those a great product in a market where you have a real competitive differentiator over anyone and I'll kind of stop there wow what what a career and what a story let's go back to the beginning so uh tell us where did you grow up uh When what when you were a child did you want to be an astronaut or a fireman or whatever and you know I grew up in Sarnia Ontario Canada small town about three hours from Toronto border teleport here in Michigan and you know I really never knew what I was going to do even when I went to college the only reason why I went to college is I wanted to get the hell out of the house and be away from my like a lot of kids at that stage when you're 18 years old you want to get away from your parents and um I was actually thought initially I was going to go down the medicine route in my first year college I took all the courses you need to do kind of for that pre-med and I did extremely well but I just decided it wasn't what I wanted to do for the rest of my life and I had always worked my way through high school and even um in in the Summers I worked a lot but even when I was in first year university I would go home a lot on weekends and worked and I worked for this company that literally owned two stores that sold produce fruits and vegetables and other things and I was very close to one of there were three young owners I was close to one of them I used to do all the buying at the Ontario food terminal the Detroit food terminal actually drove the transports and Summers and stuff and did all that and the one owner was leaving and the other who did all the buying and the two other owners wanted to hire me out of college and to do it full time and work with them and I remember I seriously thought about it because of the time this is back in 1986 or whatever they were offering earned me fifty thousand dollars a year to start and a profit sharing and all this stuff and I um I want to do it but my father is like there is no way you're ever going to do that and so I said fine I actually switched universities went to the University of Toronto and um three four days a week I got up like quarter to three in the morning I went to the entire food terminal did all the buying got it loaded on the truck went to school all day came home did the paperwork and I rinsed and repeated that for a year and then I quickly realized this is not what I want to do for the rest of my college life just working all the time and going to school and I went back to Western and I decided you know I'm going to do an economics degree and then I quickly realized that what am I going to do with an economics degree and then I started taking Finance and Accounting courses and I only chose Finance and Accounting because I grew up very I would say I don't even know if you want to call it middle class but I never traveled never did anything in the accounting firms were all on campus recruiting and um and they were pitching International work experience and so I literally joined an accounting firm because I wanted the opportunity to work abroad and I did that with Coopers and labrin I worked in Italy it was interesting when I was working in Italy I went over there purely for the purpose of wanting to learn Italian better I grew up when I was young I could speak it not bad but I wanted to learn that so I chose Italy thinking I'm going to be working with all these Italians and literally two weeks into being there that's when invest Corp was buying out the other share of Gucci like you probably saw the house of Gucci that movie well I lived through that I was actually working but everything I did was in English and once again I was working seven days a week when I was there and that's not what I signed up to go to Italy for so I almost went to work for invest Corp and Gucci both had offered me jobs but I decided that's not what I wanted to do and I went back to Canada and became a partner very quickly there and that's kind of my history well that's that's pretty extraordinary so you're you're at uh Cooper's and then PWC you joined hpl Technologies and pretty quickly you personally uncovered the fraud um our Auditors PWC called me that they weren't getting the answers to what they wanted and then I dug into it and started looking at I was not the CFO and I started questioning the CFO and I wasn't getting the answers and then I went in to the CEO's office and started questioning him on all these transactions and he said he'd get back to me the next day with all the support and then he fled the country that night and when I couldn't get a hold of him that night is when I called their external Council and then the chairman of the board and which initiated the everything and was the CFO involved in the fraud I would say she was um not knowingly involved in it I would just say maybe incompetence and it's kind of funny I had already said as soon as I joined the company that that CFO was not the right CFO you needed someone else and I understand why he wanted her she was I don't want to say anything bad about her because super nice lady I don't want to use her name but she just was not a strong the CFO and she needed to be replaced I've talked to the reason he wanted her was to hide the fraud yeah yeah I I've I've talked to other people involved in or who were involved in uncovering fraud and they said their initial reaction was disbelief like they saw numbers that sort of didn't quite make sense they didn't immediately think it was fraud they said there must be some explanation and the more they uncovered the the more problems they've had is that what did it take you a while to jump to the how long did it take from the time you first saw the anomalies to the time you realized it took me about four hours so what was the tell what was the you know just some of the transactions did not make there was no money stolen from the company just a bunch of fictitious documentation on fabricating deals and as I dug into it looking at source documents and like this which PWC were questioning um made me really realize that something's wrong here and that's why I initially went to the um the the CEO I have to tell you the CEO was a really good Storyteller and my bad for I should have caught up caught this when I so this made me a lot more skeptical of people um so I generally will question any transaction a lot more so now than probably I did in the past even when I was an auditor professional skepticism is a pretty important concept skill for for an auditor for CFO yes it's you know you don't you don't run into fraud very often but when you do it it's pretty serious and yes so in this case it was they they fabricated Revenue yes yeah yes he actually put money into the company that he borrowed to cover those deals no kidding yeah and there was a circular of money and it was actually quite elaborate tracing the wires and stuff yeah so follow the money follow the cash yeah yeah so uh so then uh you you'll tell you a funny story when he got out of jail that um CEO he actually reached out to me about a year after he got out of jail asking if I would invest in his next company true story he must have been a pretty good salesman and it had a pretty high opinion of his persuasive ability yes yes needless to say I did not so then through a recruiter you met Frank slootman and you said that you and Frank think the same way what do you mean by that so Frank is likes to keep things simple he likes to just you know as he always tells people and this is what I tell people too is you can't do everything at once you just need to focus on a few things and do them really well and Frank thinks that way too and um um and he also believes in just kind of and I believe in this just and deal with you got to multitask but when you just got to keep knocking things off that list and follow through on things and Frank makes very quick decisions like me um Frank is very customer focused his whole thing is and I firmly believe this too is in any company I believe it's customers first and if you take care of your customers your investors are going to be taken care of and your employees are going to be taken care of it's not employees first because without customers you have no company that makes a lot of sense uh we'll get back to for you're working with Frank in a minute but I wanted to get back to the activist work you did earlier you said you at one point interacted with both Jesse Cohen and Elliot and Carl Icahn yes so two incredible personalities obviously very successful in what they've done let's just start with Jesse did you you have any thoughts about what was that experience like well actually I think Jessie's a really smart individual and I think he was 26 at the time of Lexar because I remember I had a few dinners with him and I actually became quite close to him I actually didn't disagree with anything he was saying because I bought a lot of the same things so you were the CFO of the company at that I I was the CFO of the company and I didn't disagree with all the things he was saying but the board presumably disagreed or the board didn't take action the board did not take action initially and more the CEO did not take action on things they quickly did come around and then where all got really involved Carl Icahn got really involved was when um I won't go through all the history but anyways we ended up deciding to sell the company in a micron and it had to go to a proxy vote and Carl Icahn was against the deal and the reason he was against the deal is the company had a big award on a litigation with the Sheba and I think it was at the time back in 2006 it was the largest patent award um at the time it was like 480 million or something and back then that meant a lot um and we knew that was going to get appealed and we would lose on appeal internally even our lawyers were shocked that we got the award and so we knew we were going to have to sell the company because there was going to be some cash issues and we also knew what was happening was SanDisk and other things and um what was happening with flash was the price of flash was dropping dramatically there was new controller technology for your flash drives and so we made the decision to sell the Micron um Carl Icahn did not think that value was enough and so I had to go spend time with carlite on to convince him why this was the right deal to do and it was quite interesting meeting with um Carl at the time I was kind of in uh meeting him because of all the stories about him it was actually quite interesting meeting him and um ultimately he was against the deal and I remember when we were going through the vote we were short deals and I had to call him to see if I could convince him to change his price we got or his mind we ended up having to get Micron just to increase the price by a quarter of a dollar and that got us over the line with he still didn't vote for Carl but it got it through with some other people it was quite interesting that proxy vote went down to the 11th hour and that was the right thing for Lexar to be sold what was your impression of Carl what did you learn from him you know I think he's a really really smart financier and he is he can be a little bit of a he was really nice for me to deal with but when in negotiations like with Micron he could be a little bit of a a bully I would say he's definitely not a technologist and does not understand technology that well but you wouldn't expect him to I remember this was probably the most memorable thing is the real value in Lexar media was the controller technology and you have a controller with the flash to control your thumb drives or your SD cards our controller technology we weren't even using it much we were buying third-party controller technology even though we had a lot of patents around controllers it was too big and I was showing Carl icon he wanted to understand more than I'm showing him this is what we own the controllers and that's where all of our patents are and the Flash and he literally said look at the size of the controller versus The Flash it's bigger it should be worth more no no no baller is better technology so was there what did he want the company so he didn't want it to be sold what did he wanted more money for the company but he didn't realize and he thought there was value in that patent lawsuit with Toshiba which we knew and even at the end of the day Micron put no value on that and that ended up getting turned um over and the company got nothing for it which we suspect that we were going to get nothing for it I would never see a dollar that's that's interesting so he just was going on Instinct as opposed to it and it's funny I've kept in contact with Jesse over the years I will say the last few years not as much but um after that time Jesse would always call me and ask me about companies and then lo and behold he's an activist on them he's asked me twice to be his board representative on um companies they went publicly active on and I was like Jesse a sitting CFO as a sitting CFO I would never be you're representative on any board for an activist I don't necessarily disagree with you and I won't tell you the companies I I actually agreed with him and all the ones that I've seen him do I've actually agreed with his thinking on those you know that's a fascinating question if when you retire at some point if he invites you again would you be a board member working with an activist I'm never gonna say no it depends on the company um and but you know I have more than enough I'd rather spend my time working with startups looking to go public that's the real value I can add to companies um yeah I could do it but I don't know it depends upon the company right well tell us about taking company public you said that it's it's not complicated it's just time consuming you have to have a project uh plan uh did you say you could do it in six months from a standing start I did servicenow in data domain in six months from joining and both companies I did an Erp migration during that time as well too to sap from what to sap one went from QuickBooks the other one went from netsuite no kidding and did you have an outside consultant in both cases to help the implementation I used outside people but the first thing I hired good I.T people um to do it I'm not a big I'm not a big believer and I've never used where a lot of companies will want to bring in a third party whoever sop projects or Moss Adams or something to come in and own all the sock stuff I've always been a believer in we need to own it I will use people to augment my staff but at the end of the day my people need to own it and that means we run the project we're doing it not a never going to turn things over to a consultant to do and that was the same thing too I remember at data domain the first thing I did when I made the decision I want to go to sap from QuickBooks and I had looked at Oracle and sap and I had just come off a big sap or an oracle migration at Lexar media and it was painful and given what we were doing with the supply chain for our contract manufacturer I wanted to tie into them sap made sense actually hired when I was doing reference checks I've done this a number of I'll ask sap give me some reference checks for similar companies and what they did did reference checks I met with people I ended up hiring one of the people I talked to um and I had also brought him onto when I left data domain I brought him on to servicenow to do the sap migration as well to a number of the people that I had so you're thinking is it's important what the Consultants offer is experience in having done this 20 times yes but you can hire individuals as full-time employees who've done it several times and get the same experience but then they work for you and then there's content yes yeah that is exactly the case yeah I remember at Oracle Oracle had not made Acquisitions for most of its early life and then it bought PeopleSoft and and made an acquisition a month for the next 15 years uh and what they did initially is I think they brought in Deloitte to help with the merger integration and they said you're going to do one project for us you're going to help us with this merge integration and you're gonna write playbooks and we're never gonna hire you again because we're going to have our team side by side with you to learn how to do it and then we're going to have the in-house capability yes there was some value there have you ever do you ever advise hiring Consultants either strategy Consultants or other kind of consultants and have you found them valuable um you know I think the people that work at Consulting companies are really good and I'd rather hire them I am not a fan of and I shouldn't say this because I have a bunch of Partners I personally do not like going engaging on a big project with on strategy we know our business better than other people and we don't I need to hire the people that know it um I have done a little bit at service now but that was driven more by when Frank left the CEO who believed in using Consultants but my personal opinion is is Consultants just tell you what you already know and are kind of a little bit of cover your ass on making your for making your decisions don't get me wrong I think Consultants are good when you're doing a big project and you need to augment your staff with people they're really good on the I.T side if you're doing it for instance we partner a lot with the Lloyd Accenture emphasis on big teradata migrations for our customers that's good but when it comes to the strategy even I know Boston Consulting Group does a lot of helping companies around pricing and thinking through your pricing um I believe we know our pricing and we need to we need to know it so I'd rather hire those type of people um than just turn a project over we have used them a little bit more because they're a customer and to appease them but I'm not a big um I'm not a big there's been zero big Consulting projects I've handed over to them I've had KPMG come in and do a security assessment because we want to get a third party evaluation on our security posture but it's a very defined project not a really expensive project that's where I think it can make sense to use Consultants to come in right that question about Consultants came from JW who who referred to Frank sluten's book amp it up which is an incredible book so and when our feel free to ask questions for people in the audience we're all happy to be put in chat I'll I'll get to the questions uh I wanted to follow up on uh I think something you said about the IPO project management which is you set a deadline and timetables and then you hold people accountable uh what's what have you found works most effectively when you say hold people accountable how do you actually do that in practice um well in the case of the data domain IPO I was actually rolling my sleeves up and working out there and driving people I remember I remember one weekend we're in a drafting session on a Saturday and I had all the lawyers and everything and the one head lawyer on the other side says I can't come tomorrow and I'm like that's okay he said well we're not going to do the session and I just I won't give you the name of the law firm I said the last time I checked I didn't hire and I said his name I hired the firm and get someone else out here and I just kept and people were I don't mean to say this I think at that time I probably had instilled a bit of fear in people and they were all I led by example though that I was literally at every single drafting session rolling my sleeves up you have to remember at that time I probably had two lawyers in the company and 10 people in my finance group and we're really the ones who drove that right um so did that particular partner show up or did it did he showed up the next day yeah so all it is is to say these are my expectations and I'm going to be and like a good setting expectations you were there yeah and and I will say in the data domain case because that was still my even though when I was in my public accounting days I worked on piles of IPOs I worked on piles of debt financing actually being in house owning it is very different I did rely a lot on um Goldman Sachs and Morgan Stanley at the time probably a little bit too much on taking their lead on what to do on certain things especially when it came time to pricing the servicenow one I definitely did not rely on them as much and at the snowflake one I'm like before I even engaged Bankers I had everything drafted and said here this is the S1 we're going with oh really yeah and I learned too in the data domain one I let too many Bankers have an opinion in the drafting session in the servicenow one I limit it to two bankers and it was literally I think um two days before we filed it is when I turned into all the banks to give comments and I made it very clear I only want substantive comments no wordsmithing and you have more than enough time to get it through your committees and in the snowflake one I literally just dealt with one Banker pretty much right to the end and in the snowflake one in the early days the data domain one I pretty much let the bankers do all the allocations in these servicenow one I built up more relationship with investors and I knew who the good investors are and the ones I wanted I I had to say in this snowflake one literally I allocated 100 of those shares where they went well let's follow up on allocations on I've been on Boards of companies on public a few years ago and we talked a lot about the allocations and the theory is that you you sell stock to the long only funds that would be long-term shareholders and and then I said you know I've never actually seen the data about whether that's true and so we went back six months later after they after the lockup expired and the next public filing and the company had done very well the stock went up and we went back and we looked at all the people who got stuck in the IPO who still owned it six months six months and ten days later uh it was very few probably only twenty percent of the original owners held their stock everyone else had sold for 100 premium snowflake IPO was one of the most successful in history did you ever go back and look to see whether by giving an allocation to these long term holders did they stay long-term holders or not yeah so um my big shareholders are still pretty much the ones that got the biggest allocations in the IPO but I think an important distinction is you can't just sell you can't just allocate too long only because you're never going to create a market in your stock you need to allocate a piece to you know who are the people who believe in your story but will sell to create that market true story when we did the and this is what and once again this isn't me or anything but you know we knew we had could have priced snowflakes IPO bigger but what I wanted to do is to price it at a point where those long only guys that I was allocating to would come into the market and buy up to a certain price when they do their weighted average price I knew what their target was and I knew at the time we priced it 120 bucks I knew there were a bunch of people that kind of had viewed it at 180 bucks and so I never expected us to go up as high as we did but I did see it going to 180 at the time given the market the way it was um but if you recall when we went public we it took us quite a while to open and the reason it took us quite a while to open no one was willing to sell even the people that we thought would sell and I remember I'm on calls with Goldman in the capital markets people and we're literally on calls with one guy and they had one guy who was willing to sell but they said they would only sell if scarpelli knew they were selling because he was afraid they wanted your permission I'm like sell yeah we need to we need to create a market I never told anyone you can't sell yeah well in hindsight uh are you happy with how it went or because there's always a trade-off of you want the IPO to be successful you want to press and the perception that that the company is more valuable on the other hand there's a pretty strong argument that you left a lot of shareholder money on the table and you just gave it as a gift to the people who bought in the IPO and you could have made billions of dollars more by the higher price you know I really think that people who make those arguments that you've left money on the table are kind of naive and you're in this for the Long Haul and it's such a small piece of dilution um to the company at the end of the day and it's really you want your investors to make money and because then they're willing to buy more and to support you more in in in tougher times if you try to maximize for the um the the maximum price um you're going to lose a lot of good investors for the Long Haul and you need those good investors for when you're locked up is coming off to be in their buying stock and so I am happy with that but you know the the biggest thing for me and what's important in an IPO is you do want a stock you do want to pop in your stock price yeah we pop way more than I could have expected but I think that was more an indication of the markets at the time and the euphoria that was going on and you know the cost of capital was pretty much zero and people needed a place to put Capital but that Pop in stock price makes your employees feel good that they're with a successful company not the reality nothing changed from the company but that reaction that um uh the morale and employees is unbelievable when you have a successful IPO it also caused it so such a branding event for snowflake we were on the news all the time and all the the newspapers and stuff that really opened up brand awareness for Snowflake and I don't think we would have had that if we weren't as successful in terms of the the way that we traded and the price of the stock do I like the idea that the stock dropped in price the way that it has you know the whole Market has come down and I knew we were overvalued I remember before going public I was convincing Engineers that when we're trying to hire key Engineers coming out of Google and I was putting my valuation models now it tells you why I'm not a valuator as I was coming down that 85 bucks a share was a fair price that I thought we could get to in one to two years I was not expecting that we would have priced at 120 but the markets were crazy at the time and um so would I change anything no I think it's I'm I'm very happy with where I am I'm happy with our shareholder base and the company um but even when we were going through our first year and doing our AMS or our AMR our annual Merit review and refresh grant for modeling purposes I was never using our current stock price as the price it was a much lower price is what I thought because I knew that was going to pull back and as interest rates were going to go up that was going to impact that well Mike when you when you're in a situation like this where your stock goes way up but then comes down with the market and as hundreds of other tech companies stocks have how do you think about stock-based compensation and whether employees understand what the stock is worth how do they you have one employee who joined one day and they're at a certain strike price and employee joins a year later a different strike price yeah what what's the optimal way to run a business in terms of cash versus stock compensation yeah so you know as you mature as a company you do switch more to cash versus um Equity but your Executives you still want them heavily incentivized for um Equity um and you do realize too there are certain countries around the world that just don't value Equity that you need to do um cash I think one of the things about switching away from options that is a huge value or huge concern and issue when you grant options at a certain price and the person who joins the next day if your stock price has gone down that they have a much lower strike price because the last thing you want to do is revalue your early pressure options we give pretty much rsus to people and when we grant our shoes we do it based upon a this is the fair value of what we're giving you and then obviously we do the the the price we did have an issue in when the initial drop in the markets we did go back and look at all the people who had joined in that period of time who did not have any of the pre-ipo equity and we did do a special one-time Grant based upon performance so it was not a spreadsheet that got people automatically got Equity we looked at performance and we did a special one-year vesting grant for people to True them back up until we get into our normal refresh site vehicle and we only like to do refresh grants once a year for people and it's um we try to hit 40 to 50 percent of the people it's not peanut butter spreading it's based upon performance and and the way I look at stock based Compass I focus more on the dilution versus the actual stock based comp expense because at the end of the day the stock based comp expenses an accounting term and at the end of the day investors care more about dilution um and so I look at dilution and I've always tried to I tried to Target we're still growing very fast I try to Target as close to two percent dilution while growing as um and over time I'd love to get that down to one percent but that'll be when our growth rate slows down and over time you can offset your dilution through buyback we announced a buyback a two billion dollar share buyback we talked about our last earnings call why because we're generating significant cash I realize one of the reasons we generate significant cash is because of the stock based comp that we do that we forego give we had for gone cash compensation for people and we're we're switching that but we're using all of our free cash flow over the next two years to buy back stock and why am I doing that you may say isn't there more efficient use of your Capital we're sitting on 5 billion in capital and our business is not one that's going to do a lot of Big M A they're all small M A's that I can just fund through cash flow as well too so that just so people understand that dilution Target is you're saying two percent a year so if you had 100 shares outstanding you're only giving out two new shares two yes employees a year correct very low number relative to basically and I said Target is two were actually probably more around two and a half 2.6 this year but depending on Performance Management I could get that down but many other companies Salesforce and others are probably you know 10 20 it's a big there I don't know if they're that high but they're definitely higher than us yeah we've always been very we you know I always tell employees too is you got to spend money like it's your own money um within the company and we and this is why I say Frank and I Frank very much thinks this way too um I've never had a CEO like Frank expenses next to nothing in the company he just he spends money like it's his own and he is very good about that and he's like this is investor money it's the same thing too that he and I feel very strongly about this is that you know we're not a charitable organization in terms of this is our investor money we don't give through the company a lot of things to different charities and stuff we do some but what I will say is I know Frank does a lot personally I do a lot personally and I think our my investors I know my big ones do a lot personally I think that is a personal decision doesn't mean we don't do things in the company I'll give you an example what we've done in the company is when the George Floyd and black life matter and all that was bubbling up we said fine employees wanted the company to do something said fine we as an executive team will match whatever the employees do in the company up to a cap they didn't even come close to the cat when the Ukraine crisis hit the comp employees wanted us to do something we're like fine we'll do we will match up to um the number we gave we'd say we'd match up to 50 000 per executive we'll commit to doing and I know a number of Executives did a hundred thousand plus the employees didn't even come close to that so that's a fascinating way of uh having people have skin in the game which means the same thing with sales people too when sales people want you to support the cio's charity to do stuff and I'm like fine I'll do half you can do the other half that's a very good point uh we have a question from uh the audience about and elaborate on that in terms of your management leadership style you've talked about uh some of these things already how would you characterize your management leadership style I'm very transparent and direct um where we have a pretty flat organization I have a lot of direct reports but I also do I believe in um communication is the key to running successful businesses um I'm the one that has forced people I just told all my directs today expect you in here four days a week and then the initial thing is then people are like well does that mean all of our employees are four days a week and I said no I said you are in four days a week it's your choice what to do with your people but if you don't see the value of being in person I question your judgment so you have everyone coming in four days a week now I do I just started that today and my things my functions and I have a lot of I have legal I have um my directs I have legal I have I.T I have for security I have HR I have a bunch of stuff on the sales Finance side and Deals desk and stuff and I just I I I it's funny and you can actually see it in the snowflake data too where across companies is you know during the early days of covet everything was locked down your kids weren't going out everyone was home you had nothing to do you worked and it's funny you see it in the daily because I can see daily our revenue and I can look historically and I can see even on weekends our Revenue was higher relative to other days today I see and a lot of companies are Tuesdays to Thursdays in the office or other days you see the usage of snowflake and this is our customer base around the world Tuesdays Wednesdays is the spike the highest Thursdays and Mondays and Fridays drop off and the weekends drop to kind of that base rate that is really just to schedule jobs so it tells us how people are working so your point is if your customers were working they'd be using snowflake on Mondays and Fridays exactly right low usage means they're actually not working and if they're not working it means my employees and I just want people to work a solid 40 hours a week yeah there you go I'm not asking people to work the same number of hours as everyone just put 40 hours in at least of real work and by the way commuting to work is not working yeah good point well Mike you talked about the roles the functions besides finance that you're you're leading and of course one key uh role any Finance leader has is interacting with sales and marketing uh or generally the revenue functions uh one question from someone in our audience talks about uh their experience with disconnected silos where finances here and marketing there there and sales is there how and the finance is more quantitative Revenue people are more qualitatively typically if you were going to go into a new company today and you found that the company didn't have data and visibility what would you do to try to break down these silos not if you've done it actually before or whether well I'll tell you the number one thing is to use Snowflake and have all your data in one location by the way we do that but you know when I joined snowflake there were silos in terms of people did not communicate that's where I went back to it's important to be in person to communicate and I think we have very tight alignment between sales and finance and I.T and others we used to have that everyone in the company could procure whatever SAS application they wanted there was no I really chain and why this is so important is when sales procures a SAS application the chances are it actually impacts Finance or another group or same thing with marketing and so I believe in having a really strong central I.T function that is involved and it's super important from a security standpoint today too that you want to understand when you're procuring a software that is it's maybe a cloud software but that could be impact your supply chain and if there's a security incident there how's it going to affect your company and potentially your customers and so I believe you have to have tight alignment doesn't mean it is driving what we're using we'll listen to the business but that decision to buy something has to go through my CIO which comes up through me and all procurement the company goes through are my central procurement organization nothing can be bought in the company without going through my central procurement on the sales piece in particular it really takes work as a finance person to be engaged with sales understand I spent when I first joined the company I spent so much time as much time with the sales organization as I did with the finance and even to today I have regular one-on-one meetings with our cro with the head of sales Ops I actually own a bunch of the stuff you may have seen traditionally in sales Ops like all the deals desks sales Finance I actually have Finance people that help the sales people structure the deals in front of customers I am very much in front of customers as well too so I think to break down those silos you have to be proactive and reach out to them build up that trust and partnership it's it's interesting I actually just I have a um a a really really strong person in my finance organization that wants to be a CFO one day and he will be a CFO one day at a company um and um I literally just before this I just had a conversation with him there's tension between him and my cro and this goes back from before I joined the company and it just bubbled up again last week and I just went into him and I said you need to understand that you want to be a CFO of a company one day any company you go to if they're any good they're going to do a background check a back door check with the head of sales at Snowflake and ask their opinion of you and if you don't have a good relationship that's going to reflect poorly I know I would do that if I was trying to hire someone because it is super important that the CFO and the um and the cro are very tightly aligned and when I was at servicenow and data domain there was an individual Dave Schneider he and I have a great relationship doesn't mean we didn't agree all the time we actually got into many heated arguments but we always walked out of that room aligned and that's actually something that Frank really taught us is you have to be willing to have hard conversations and those hard conversations you need to be very direct and do them at our staff meeting so we understand the conflict so we can get it resigned or resolved but when we leave that staff meeting we all have to be behind the tip of the spear as he likes to talk about it Frank and driving sales and we're all aligned on what we're going to do there can't be any disagreement because if there's disagreement at this level it's going to create all kinds of issues within the employee base of the company and so that is really really important as a finance person that you get you may disagree but you have to be aligned Mike that's a fascinating example can you can you give an example of a an issue that you had with Revenue had where you ended up agreeing with them and the decision was to go with the head of Revenue and then another example where they sort of compromised the decision was to go with you well I would say I'm a strong personality so most have gone kind of come my way I have some real examples I've been working on right now but I don't want to I I actually I don't want to publicly say what those things are if that's okay but how do you you know if you're going to win most of the time how do you persuade the head of Revenue to go your way if it's data data it's all about the data you data doesn't lie is it usually about pricing or is it about yeah you know what are the key issues that come up I have a pricing is one is really opening new markets a lot of it is on the timing of opening new markets um pricing is somewhat but usually you can quickly come to resolution on pricing um um commitments you're willing to make with customers there have been some things that have caused some issue not a snowflake but historically um issues on [Music] um alliances teams you know I'm not a huge um you know a lot of company customer success is another one creating those organizations um you know sales people you could measure what they do because they generate POS with customers alliances really it's hard to measure the value of the alliances team and so that's generally where I'd have a lot of disagreements and I know Frank kind of thinks similar to me on that that's again that alignment creating a customer success organization I've had issues with this where sales doesn't think they need to own it and we believe and I think it's in Frank's book as well too is that um everyone in the company needs to own customer success so why do I need a separate organization to do that doesn't mean we don't care about customer success but everyone needs to own customer success right and in a consumption model and this is a dispute that I've had with our head of sales here because the first thing I did when I joined the company is these sales compensation used to be just you do a booking the rent gets paid their commission and they move on to the next deal and I'm like no no no no no no no a you've oversold customers and you're giving them unlimited rollover that doesn't make sense these commissions we've been paying in B I need customers to consume I need them to actually migrate to Snowflake and drive to so I can recognize Revenue I need the sales people to continue to be involved in that customer relationship so switch the comp that they get paid part up front and part on monthly on Revenue consumption so it's it's is it half on booking and half on it's not average on average is half it changes based upon the whether you have a big installed base or you have one big customer that is um doing 50 million in revenue and there may only be a small amount of growth opportunities so they could go anywhere from kind of 90 10 90 on growth to 10 on consumption to 10 on growth and uh or 90 or 10 on growth at 99 consumption it really varies based upon the opportunity the rep has well how do you deal with uh if you add up all the booking that people think is going to turn into revenue and then it doesn't turn into Revenue because these aren't these are these contractual bookings they're contractual bookings oh okay so you get paid on you're guaranteed to get it eventually yeah eventually we're guaranteed together but the way that I do it this is a very unique model that I never had you know in the my days of data demand you ship a product and you get the revenue and then you have a subscription for the support and the days of service now is SAS you sign a contract and this readable recognition you go into a quarter and you know 97 of the your Revenue it's the easiest business to forecast a a SAS company and and snowflakes case you literally start a quarter with zero Revenue now the reality is is you know customers are going to use it because it would take them a long time to get off of it but we have built in and this was built before my time in the company um I actually have a data science team within my FP a organization which I've never had before and they're not accountants they're data scientists they have through machine learning models looking at historical patterns within our customers I literally forecast revenue on a per customer basis for the year and by the day and um that gets re-forecast those models are refreshed daily to give me a new snapshot of what my forecast revenue is going to be compared to plan by customer so I can see every day exactly what customers are over consuming what are under consuming and I can do I can see through my visualization layer I have a graph literally that shows what is my forecast revenue and my models and it shows the weekends how it drops holidays and then I have another line to show how am I trending and as long as I'm trending above that line I'm doing well relative to my internal forecast and I've never had that visibility in a company before and I realized so much on my data science team that's that's very valuable if you have a customer who you think is going to use a million dollars worth of your service over the course of a year and you sign let's say an 800 000 contract and then there's a little bit of an overage that creates friction rather deciding a hundred thousand dollar contract and still thinking he's gonna that customer will use a million dollars because they have to make such a big upfront commitment is have you thought about that trade-off did you yeah so so week we give customers complete flexibility by the way and yeah so typically a sales rep is incented to get a customer to sign a one-year commitment or a three-year commitment with an annual payment in advance we give customers the flexibility in our pricing table to you can do if obviously if you sign a three-year contract you pay annually in advance you're going to get your best deal and depending on the volume it could be better um if you want it you're willing to sign a three-year contract but you want quarterly payment terms or monthly in arrears you're going to get a different discount you want to go to the ultimate flexibility as we allow customers to go into on demand where they make no commitment and they just pay monthly in arrears and then what does the sales person get on a no commitment deal no commitment deal A salesperson gets paid monthly they get paid the following month after the revenue was recognized on the consumption piece so they don't get any estimated they don't get anything estimated is that your philosophy interesting it's not our philosophy and by the way even if you if you sign a deal that has deferred payment terms your upfront payment gets deferred as well too uh okay so it's it's a cash you could pay it on Revenue unless there's an unusual deferral and then you get paid later correct fascinating so uh we're about to wrap up Mike and I have two last questions that I'd like to that I'd like to ask all of our guests what's the best advice anyone has given you you know literally the best advice I ever received early in my career was and it was a young partner at cooperson library and Eric Demarion and he told me he said Mike just put your head down and do your work and let your work speak for itself you don't need to tell people all the great things you're doing and I've lived by that motto my whole life I've never asked and asked Frank I've never asked him for anything other than my initial contract that's uh that's tremendous advice and clearly has worked for you if you were going to write a CFO Playbook what's one thing CFOs practically can do tomorrow morning to help their companies or or in their personal life you know I think the number one thing is instilling a culture in the company where there's cross-functional communication happening I see too many companies where the CFO or different groups are just not communicating and sharing what they're doing and so um I think that is um really really important and I think the way that Frank runs his weekly exec staff meeting is we have open dialogue of what's going on in the company and I always do my staff meeting the day after Frank's executive staff meeting so I can feed down from that what's happening in the company with everyone so all of my people know what's going on and I have a I I also think too that is a really important thing as a CFO is I do a lot of I do a lot of one-on-ones with people that are the direct reports into my direct reports because I want to know what's going on in the company and I don't want that filter through my direct reports that's two two terrific two for the price of one two great practical suggestions having skip level 101s and then also having instilling a culture of cross functional Communications and doing it by cascading you know when when things when you hear about things then the next day share that with your team and presumably they share with their team well Mike it's been a real pleasure talking to you today lots of fascinating stories and learning for all of us we very much appreciate it well thank you for having me

Channel: Airbase

Views: 447

Keywords: SnowflakeInc, SoftwareIPO, DataStorage, CFOInsights, FinanceLeadership, TechnologyCompanies, SuccessStories, CFO, Finance Careers, Airbase, Path to Becoming a CFO

Id: vh39yygB4ec

Length: 60min 35sec (3635 seconds)

Published: Tue Jul 18 2023