Customer-Centric Finance: A New Era for CFOs

Megan - 00:00:28: Today, my guest is Howard Wilson. Howard is the chief financial officer at PagerDuty, where he leads the strategic and internal execution of the company's financial operations. With over 20 years of experience in software and operational management, Howard is responsible for building and leading the finance organization to support PagerDuty's scaling and growth initiatives. Prior to his role as CFO, he served as chief commercial officer, focusing on delivering customer value and empowering decision-making. Before joining PagerDuty, Howard oversaw the SaaS business at Dynatrace and was chief operating officer at Keynote Systems, where he managed all customer-facing operations. His extensive experience also includes senior leadership roles at Oracle, spanning over 13 years. Howard holds a BS in Information Systems and Psychology from the University of South Africa and is a board advisor at Comwave. His unique blend of commercial and financial expertise positions him to navigate the complexities of the tech industry effectively. Howard, thank you very much for being my guest on today's episode of CFO Weekly.

Howard - 00:02:09: Thank you, Megan. I really appreciate the opportunity to chat with you today.

Megan - 00:02:12: Yeah, today we're going to be talking about your journey and the insights you've learned along the way regarding scaling finance in tech. And I'm super excited to learn about you and your thoughts and experiences with this topic. So let's jump right in. First of all, and just so that we kind of get a sense of who you are, but can you just give us a brief overview of your career to date?

Howard - 00:02:34: Yes, sure. So I started out my career originally as what we would call a software engineer today. At that stage, we called them software developers, which was a few decades ago, working in South Africa at the time. And then over the years, I've been through a number of different roles, including being a consultant, managing a technical services team, running a sales organization, and various operational roles. To the point where eventually I'd had senior executive roles as an operations leader, both as a chief operating officer and as a chief commercial officer. And then most recently, the role I'm currently in and have been for a number of years as the chief financial officer of pager duty.

Megan - 00:03:17: And what initially drew you to finance and technology? And how have your early experiences shaped your approach to your current role as CFO?

Howard - 00:03:26: It's interesting. You know, when I think back to when I started out my career as a software engineer, I never imagined that my role would end up being one where I was a public company CFO. I can't say that that was sort of part of my role. But as an individual, I've always had a high level of curiosity for how businesses operate and function. And that curiosity is what really took me through the various roles that I've had over the years. Also, that's been complemented by like a real desire to solve problems. And that really is what motivates me is trying to understand where there's an opportunity to do things differently or to improve a process or to solve something that hasn't yet been solved. And, you know, that dragged me into financial problems to look at from a business perspective. So the earliest applications that I worked on developing were financial applications to solve business problems for finances. And this was in the days when we were thinking about building better applications for accounts receivable or for how you manage organizational structures. And so that problem-solving mindset drew me into the finance world. And I've lived alongside finance for most of my career because the roles that I've done have always had a strong intersection with finance. In some roles, I've had finance reporting to me as a COO. I had finance reporting to me at one stage. But the role that I have today is very well in the finance space as a CFO. But even within this role, today I have corporate development. I have corporate strategy. I've invested in relations. And then I have the other typical finance functions that you would imagine. And that breadth just creates an opportunity for me to think about how do we continue to solve problems and how do we do things better?

Megan - 00:05:20: Yeah, I've heard the CFO role referred to as the chief everything officer these days.

Howard - 00:05:26: Yes. And I think increasingly, it's become more and more of a business role. And I think sometimes even the evolution that I've been through from when PagerDuty was a smaller company, when I first joined PagerDuty eight years ago now, we were not even at $50 million of revenue. And now we're approaching $500 million in revenue. And during that time, the role of finance changed from being what I would say was an issue role that was like, you know, most startups, you try and minimize what you spend on finance. It seemed purely as a support function to then evolving to a function where you are partnering more with the business to one where you're actually driving the change. And so I think as a CFO, depending on where your company is. In its stage of its evolution or lifecycle, your role does change and the expectations of what you need to deliver change. But the underlying element of it is that you're there to really be able to position the business, whether it's with investors or whether it's with customers or whether it's with employees. And I think in a public company environment, people often expect that the CFO and the CEO can be like hot swappable. Like if the CEO is not around. The CFO should be able to tell the story to investors or to public markets or to the media. So I do think that the role has continued to evolve into having a really strong business orientation and one where you require a different, you know, an evolving set of skills to address a differing landscape of expectations.

Megan - 00:07:12: And let's talk about your experience in commercial strategy and customer value and how those two roles influenced your approach to financial leadership. And then what were the key adjustments that you had to make as you stepped into the role of CFO?

Howard - 00:07:28: For me, your commercial strategy has to be aligned with your business or finance strategy. And if I think about even an example that we've been through recently as a company, which has been about evolving our focus on how we serve the enterprise segment. So sometimes you could look at how you think about your go-to-market as being purely a commercial strategy. And I've been responsible for that in the past, defining what are your routes to market? How do you think about the customers that you serve? How do you think about the problems that you solve? And then you try and build a go-to-market strategy in support of that. But you can never do that in the absence of the financial strategy. And so as we as a company were going through, and I think an example sometimes helps to illustrate this, as we as a company over the last 18 to 24 months saw the change, that was happening in the market where because of economic dislocation and uncertainty, companies were becoming far more cautious when it came to spending, particularly in the enterprise segment. And at the same time, they were dealing with the fact that they were having to allocate budgets to a new emerging technology around generative AI, which was not yet well-defined for them in terms of exactly what it would deliver. And so they were then trying to manage their costs really carefully. We went through a process of thinking about our business and our customer base and how we could maximize the benefit for enterprise companies. What that meant for me as a CFO, I could apply the knowledge I had around building efficient and effective go-to-market together with looking at the economics of what would be the net retention we would see out of an enterprise customer? What would be the gross retention we'd see out of an enterprise customer? What were their paths to expansion? How could our product portfolio support them? So that allowed us to put our focus on the enterprise because the economics behind it made a lot of sense. And that would offset some of the volatility that we were seeing in the SMB market, which everyone around the globe was seeing in terms of pressure within that space. So I think that as a CFO, being able to think about both the commercial strategy, understanding the economics of the commercial strategy, and then making that allows you to ensure that the... If you like the business case for the change in the commercial strategy is really well understood.

Megan - 00:09:59: And scaling finance operations is always complex, but it becomes especially complex in a rapidly growing environment. So can you walk us through a specific instance where you had to navigate significant growth at PagerDuty or any of your previous roles and strategies you employed to ensure that things remained financially stable and things ultimately became scalable?

Howard - 00:10:24: Yeah, and I think PagerDuty is a really good example for that for me, because as I mentioned, we went through, you know, when I joined the company being less than $50 million in revenue. And at that stage, you know, we had growth rates north of 40% to, you know, where we are now as a company approaching $500 million with lower growth rates. But we went through, you know, a number of different phases. And if I think about even when you went public back in 2019, we were a relatively small company going public with just slightly north of $100 million in revenue at the time. And I think the key thing for me was around understanding when we needed help. Because when you think about scaling a company and being able to address the needs of a rapidly growing company, sometimes we have a tendency to think that the resources are available to us or only the people who are on our team. And sometimes trying to define or getting to the point where you understand what are the things that only your team can uniquely do versus the skills that are not available within your team that someone else could be uniquely positioned to help you with. And so one of the things that we did to accelerate our scaling when it came to preparing for the IPO was that whilst my team would have been keen to learn a number of the things that were involved in going public, we actually brought in external consultants who could work alongside our team. Who were then out of the box, had the capabilities to help us understand how we need to think about our equity programs, how we had to think about modifications to our forecasting, how we had to develop a more robust equity story, how we had to think about the changes that would be required around being able to meet the timelines of public reporting. So all of those were key elements of scaling. And the differentiation was being prepared to recognize where we needed the help and where we could benefit from that external expertise. And I've noticed that sometimes companies battle with that because they think that they need to do that uniquely on their own and not always leverage the help that's out there.

Megan - 00:12:39: And talk to us a little bit about PagerDuty. What is it that you do?

Howard - 00:12:43: PagerDuty is the global industry leader in digital operations management. And what that means is we help the world's biggest companies anticipate disruption, learn from it, and ensure that they have processes to mitigate, you know, whether it's business risk or reputational risk that would result from disruption. So, to put that into practical terms, if you think about yourself as a consumer, how much of your life is online, whether it's watching a live stream of an event or doing your banking or trying to book concert tickets or doing some shopping, any of those things, those are all things that you're doing digitally. And behind that, there's a complex environment of technology to support that. Now, if those services start to deteriorate or get downgraded in some way and get disrupted so that you're not able to complete that transaction, that effectively, that disruption is what in the technology industry we would call an incident. And so sometimes those incidents are more than just an inconvenience. And what PagerDuty does is we provide a platform for companies to be able to manage their digital operations so that they're able to get ahead of those incidents. So that they can see when an issue could be building that could become customer facing. So that we're able to then orchestrate teams around that building of an issue or a problem, or in some cases, it might have already arisen as degraded performance. And then ensuring that we can resolve it as quickly as possible or get ahead of the issue, but then also learn from it so that we can build that learning in to prevent those issues happening again. And so our goal is really to make sure that our customers can deliver flawless experiences to their customers.

Megan - 00:14:35: And during periods of rapid growth, what KPIs do you feel are most important for companies to be paying attention to?

Howard - 00:14:43: You know, the kinds of things that we would typically look at from a SaaS company, a software as a service company, there's a well-defined set of metrics that SaaS companies would typically look at in terms of understanding the difference between their new annual recurring revenue versus their expansion. But one of the things that I think is key, and this is a metric where you are looking backwards, is your dollar-based net retention metric, because that's a good indicator of how your existing customers are expanding with you. So I think that's always a key metric to think about. The other is to really look at your customer acquisition cost, to see what is it costing you to bring new users onto your platform and how is that varying by financial segment that you serve. But increasingly. Those metrics are often metrics that you measure after the event has happened, either a renewal of a customer or an expansion of a customer or the acquisition of a customer. So I have been orienting our team over the years to focus a lot more on some of the leading indicators or some of the input metrics, which are around what's the usage pattern that you're seeing? And what are the items of usage that are most associated with customer value? So those things. I'm not going to be consistent by company because your platform will dictate different levels of usage. Whereas things like those SaaS metrics that I referred to, you know, are fairly common standards. So I think you need to do both. You need to look at those critical financial metrics or KPIs like dollar-based net retention and customer acquisition costs. But you also then need to look at the input metrics around like what are the usage trends and what are the pathways to which customers actually get to you?

Megan - 00:16:32: You touched on this a bit with your background, but integrating commercial strategy with financial management can be challenging. So can you share an example of how you successfully align these areas at PagerDuty to drive business value and the impact that this alignment had?

Howard - 00:16:49: Yeah, so I think this is really about adaption. I think adaption is like such an important part of being a financial leader. And that's about being able to have a high level of precision in your strategy. There's often a tendency when people think about even their corporate strategy to include a large number of items that they would want to accomplish or large goals that they have, often an inspiring vision. And I think that a key component for me when it comes to strategy is levels of precision. What I mean by that is you should have a look as a company, at, what are the different business or financial segments that you serve? Do you only serve the enterprise or do you only serve the mid-market or do you only serve SMB or do you serve all of them? So being clear on the market segment, do you serve all verticals or should you nail that out to a precise set of verticals? How do you think about geography? So for us at PagerDuty, this is a process that I lead each year, which is about ensuring that we have a very precise view of the market segments, of the industries that we serve, of the geographies that we serve, and where our opportunities expansion exist. That then allows you to build an investment thesis around any expansion of those segments, financial segments, industries, verticals, et cetera. And what that helps us to do is to then figure out like what are the bets that you're wanting to make for the long term, but how do you translate that into the first year of a multi-year plan? And that's something that we've been able to do successfully, even to that example that I referenced earlier around, as a company, our presence within the enterprise, you know, large companies like the Fortune 500, where we have almost half of the Fortune 500 as customers, or the Fortune 100, where we have 70% of the Fortune 100 using the PagerDuty offering in some way. That's helped us get very specific on where we direct our efforts in terms of an execution perspective.

Megan - 00:18:57: And no finance conversation would exist today without talking about technology and data analytics. So how is it that you're leveraging these tools to enhance financial decision making and efficiency? And what emerging technologies do you think are going to shape the future?

Howard - 00:19:15: Yeah, so we use a lot of the, I would say, the typical products like we use Anaplan for financial planning and analysis, and also for things like our sales compensation and planning elements. So those have become, if you like, standard elements of our financial planning toolbox, if you like, and how we think about the use of technology. Obviously, there's a set of all the regular players from an ERP perspective that would exist there. But increasingly, what we've been doing is we embarked on a strategy a number of years ago where we've been using essentially a data. Lake with key data that we would use as a business going into that data lake. And we built through the use of some of the data science capability within our own organization, our own customized reporting using, again, a product like Tableau to be able to help us to get to better insights in the business. So I think the data analytics and technology has become such an integral part of what we do. Obviously, we couldn't talk about technology and data analytics without mentioning AI. For us, AI. AI has also become an area where we're trying to move beyond the exploration of the use of generative AI because we do have AI already built into some of the tools that we use within the finance organization. But increasingly, we're trying to think about how we can use this to be able to do more than some of the activities that people are doing today around summarization or creating a job description or creating the beginning of a memo that you might be writing. But rather to see how we can use that more practically. I do think that I get excited by the thought that we have these capabilities within generative AI today. My expectation is that a lot of those capabilities are going to be reflected in some of the products that we use today in terms of managing our workflow, whether it's a procurement product or a financial planning product or an ERP, any of those things. But increasingly, I think it's about how do you deliver insights to the business in new ways and being able to interrogate the data in a far more intuitive way to the way that we do today by simply running reports.

Megan - 00:21:31: And looking back at your time overseeing customer-facing operations at Keynote Systems, what are the key lessons that you learned about managing finance in a customer-centric environment that you've taken with you and applied today?

Howard - 00:21:44: I think one of the key things is if you're really going to champion the customer, you can't think about finance as not being a customer-facing organization. And by that, I mean that at the end of the day, you want your finance team to have a high level of understanding and visibility around the impact of what they're doing. So any interaction that a customer has with you as a company needs to be an interaction that is a good interaction. And I've been able to do this both at Keynote and at PagerDuty around getting to a point where our team understands how they're contributing to the success of our customers in some way. And we have a framework that we use within PagerDuty, not just in terms of our values, and champion the customer is one of our values, but also in terms of we adopted the Salesforce B2MOM planning method as a way to be able to bring strong alignment between the company's overall goals and how the different departments or functions within the company operate. And so that allows us to bring a high level of continuity and alignment in terms of how the individual teams operate. So if I might be somebody who's working in a function in finance, advising the sales team on their deals as part of a deal advisory, deal desk type function, I can see how that aligns with the company goal to be able to grow and expand our presence within the enterprise. So that awareness around the customer is something that I bring with me in my role as a company executive, but also as a finance executive.

Megan - 00:23:26: And as someone who's been involved in both executive leadership and field operations, how do you balance strategic planning with operational execution in your role as CFO? And what challenges have you encountered in balancing those two?

Howard - 00:23:39: I think like strategy and execution should be two sides of the same coin, but it's incredibly difficult to do because often when we think about strategy, particularly corporate strategy, people can look at that in isolation as though it's the blue sky exercise and you're thinking about where the company needs to go. So I take the approach that you need to think about your strategy. Most companies do in like a three to five year time horizon, but you need to then make sure that you're building a very strong link between that strategy and execution. And that's one of the things that we actually accomplish with the two mom approach in that we also are saying, how do you balance strategy and execution? How do you go from taking that multi-year strategy and find the first year or define the first year and the second year of that strategy so that you are bringing that alignment? The challenge always is that as humans, thinking tends to gravitate to the here and now, to the things that seem most urgent, as opposed to being able to balance the important with the urgent. So what we continue to do, and I try to... Lead this ethos within our team, is to keep evolving our thinking around any investment decisions that we're making. Don't only plan with this next year in mind, but how do you actually start getting your teams across the company to do planning that's truly multi-year? Things like having a rolling 12-month plan as opposed to waiting for an annual planning process so that you've got a continuous planning model engaged. How do you ensure that? You as a leader are bringing back the discussion always to say, what is the strategic choice here? And that's one way that I think you can start balancing the strategic planning and the operational execution. At the end of the day, you still need to deliver the numbers for this year, but it can be very nearsighted if you haven't contemplated the impacts of investment decisions that you should be making now in order to service an aspiration that could be two or three years out.

Megan - 00:25:51: And it seems so critical these days for CFOs to be close to operations. So what advice would you offer to a budding finance leader who's coming up through finance and hasn't been blessed to have spent time within operations?

Howard - 00:26:06: I often tell my team that they shouldn't feel obliged to stay in their lane. So I know from a career perspective, I've had the opportunity to not stay in one lane. I've tried a number of different lanes along the way. But all with the goal of being able to solve problems and deliver more value to either the company or to our customers. So I encourage our team to even look at opportunities outside of their domain of expertise only. And we've done some things like that in terms of having stretch assignments where we have allowed folks to go and work on a project in an area outside of their regular field work. Or we're lining folks up from within the finance. Organization with some other person within another part of the business. And we do that quite well as a company in terms of having a very collaborative operations group or set of operations leaders across the business who partner very closely with a set of finance leaders. And I would encourage people always to have that mindset of don't feel if you have experience in one area that you're obliged to continue in that area. Most skills that you have. Can be used or portable to another function within the company. So one encourage leaders to always have an open mindset to those opportunities for the team. But then proactively look at ways in which you can encourage people to move into other roles. And I also actively mentor a number of folks both inside and outside of finance. And part of my goal with them always is to help them have a growth mindset around what they could do that's different from what they've done before.

Megan - 00:27:49: And given the rapid evolution of the tech industry, how is it that you stay ahead of financial trends and anticipate future challenges? And can you discuss a recent trend or shift that you've observed and how PagerDuty is adapting to it?

Howard - 00:28:03: Staying ahead of it is really, really difficult. I don't know if I'm successful with that. I try. And of course, I try through all the common mechanisms. I am a person who does a lot of reading. I listen to a lot of podcasts. I am part of a CFO forum that I helped instigate. And I nurture that so that I have a set of peers across the software industry who I can regularly get their reading on things. I believe a lot in looking at benchmarks in terms of being able to understand how different companies are performing and then try to understand what are the things that they would be doing differently. The recent trend or shift that I think most folks would have noticed is really, really around AI and generative AI. And I look at that on two levels. For one, for us as a company, PagerDuty has been an AI company for more than 10 years. But our approach to generative AI has been to say, well, how do we leverage that foundational data model within our product to be able to serve our customers better? And so we have a number of offerings within our product today that leverage generative AI. But in terms of from a finance organization, what we've done is we put automation and AI together and we've assigned ownership. So we've had a person in the role of finance transformation and their mandate is to understand how we can use automation and AI more effectively across our team to drive a transformation in finance to improve our level of business partnering. And the individual who owns that then works with the CIO and CIO's team. And, around ensuring that we can progressively introduce these different elements of automation and AI into our team. And that's helped us ensure that we've been able to deliver higher levels of service to the organization, able to partner more effectively without adding headcount because we've been able to save thousands of hours. Either manual work or work that's more routine by being able to use technology so that we can help our team be more effective.

Megan - 00:30:19: And finally, what advice would you offer to other CFOs or financial leaders in tech companies or really within any industry who are facing the challenge of scaling their finance operations? Are there specific mindsets or strategies that you believe are essential?

Howard - 00:30:36: The first thing is that I think being careful about your hiring. I know this sounds really obvious, but hiring the right people who have the ability to almost raise the standards for the team is important. So always look to make that hire that I know some people say hire people that scare you. Well, hire people that you know have got immense capability. I have done that. I have amazing leaders on my team and all of the things that they can deliver. The second thing I think is around ownership. Sometimes we try and think about ownership along the functional lines of how finance is organized. And sometimes that's important. I know that as a company a few years ago, we were battling. As we scaled with our procure to pay process, we hired someone who was talented, who had done this before, and she has transformed our procure to pay process, right? So that we're far more efficient, better vendor relationships, driving better service levels, if you like, with the team, and also saving us money. And so that ownership that we've given to that individual to be able to drive that process, a whole process, not just a subset of the process has been important. And to that automation example, assigning someone who looks after finance transformation, which spans across all the teams, means that they have to operate in a cross-functional way. And that gives them the ability to be successful. So I think ownership is a key ingredient. And the third thing I would say is benchmarks. Don't be shy to look at either published benchmarks, which you can find online using a gender of AI tool like ChatGPT, you can ask some questions and do your research. There are things like clouded judgment, which gives you a lot of the SaaS metrics and some insights there in multiple podcasts. But also then speak to your advisors. If you're using an accounting firm, whether it's a PWC or an EY, ask them for the benchmarks. Don't be shy to ask for the benchmarks. And then introduce those benchmarks to the leadership team so that they can see how they're performing, whether it's around sales efficiency or, a research development index. So that way you're able to always level set along benchmarks that can then help the company drive forward with a goal that aligns with improving financial metrics.

Megan - 00:33:02: Excellent advice. And Howard, thank you so much for being my guest today.

Howard - 00:33:06: Well, thank you, Megan. This has been fun.

Megan - 00:33:08: Yeah, I really enjoyed speaking with you. And thank you for finding the time to be here with us today to share your experience and knowledge.

Howard - 00:33:14: Thanks, Megan. Hope that was helpful.

Megan - 00:33:16: Yep, I wish you all the best. And to our listeners, please tune in next week. And until then, take care.