Driving Strategic Value for Business Growth

January 19, 2023 Mimi Torrignton

business growth strategic value background

Growth. It's the value most businesses focus on. Growing in numbers, increasing sales, expanding as quickly as possible. Companies set targets on achieving these goals to ultimately drive strategic value for business growth, but to successfully realize that, companies need to leverage their opportunities, manage risks, and focus on all aspects of their business, including finance, resources, innovation, culture, and people.

Tom Fencl is the Chief Financial Officer at Pricefx, a provider of full suite price management and CPQ SaaS solutions. Today, he shares his expertise and insights from Pricefx on how companies can successfully apply specific tools, strategies, and policies to grow and expand their business.

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Welcome back to CFO Weekly, where we're talking with financial leaders about how to build efficiency in their teams, create time for strategy and ultimately get results, with your host, Megan Weis. Let's jump right in.

Megan: Today, my guest is Tom Fencl. Tom has over 20 years of experience in financial management and investment banking. Before joining Pricefx, he held CFO positions at several privately-owned middle-market companies and advised on M&A and financing transactions across multiple industries, both in Europe and in the United States. Tom teaches a private equity class at the Institute of Economic Studies at Charles University. Tom, thank you so much for being my guest today.

Tom: Thank you for inviting me. Great to be here.

Megan: Today, we're going to be talking a little bit about you, a little bit about Pricefx, a little bit about your journey to the position of the CFO, and just some of your viewpoints and outlooks. I'm really looking forward to learning about you, learning about Pricefx, so let's get started.

Tom: It sounds great.

Megan: First of all, and I always ask my guests this question, but can you start by telling us a little bit about yourself, your journey to how it is that you ended up where you are today?

Tom: Sure. My journey started-- I'm going to date myself, but the important point is the fall of the Berlin Wall. I grew up in what was then communist Czechoslovakia, and the change of the political climate has had a great influence on my choices in life. When I finished college, which was shortly thereafter, I decided that I wanted to move to London and see how the big financial centers work. I guess this juxtaposition of the central planned communist economy and the all-new capitalist system and market economy was something that was fascinating to me. Really, from then on, even though I changed my jobs in different roles within finance, I've really been in finance ever since then.

Megan: As you look back on your career, and I can imagine that living through the falling of the wall must have been very significant. Can you point out any particular stories or moves that really stand out in your mind as turning points in your career?

Tom: Absolutely. As I said, I first moved to London. I then went to the US where I got my MBA at the University of Michigan, Ann Arbor. From there, I knew that I wanted to be an investment banker. I went to New York, I joined Salomon Smith Barney, now part of Citigroup. I worked for about four or five years in New York. I worked also for another firm after, as an investment banker. I left Wall Street shortly before the 2008 crisis. Part of the reason besides being done with banking was that I wanted to go back to my country of origin and see how things were changing there and what opportunities were there.

I joined a small private equity, M&A boutique and I started working as an investment professional in private equity.

The turning point you were asking about for me suddenly came as a result of a failure if you will. One of our portfolio companies had gotten into pretty serious trouble. When we first bought it, it was profitable and had a pretty good market position. All sorts of things were going right for it, and then crisis in 2009 hit it. Within a year, it ran out of cash and got into a very negative financial situation. I was asked to join initially as an interim CEO, because we got rid of the CEO that we had there. Then when I hired my successor, I was asked to stay as a CFO. That really, for me, was the launchpad in how I ended up in financial management. It was originally from this crisis management point of view.

Megan: That must have been an amazing experience, turning a company around, pulling it out of the grave.

Tom: Indeed. It was probably some of the most stressful months in my life. Nothing before or after really was like that. For me, this is now maybe 15 years, 10 years back. It was also for the first time realization that what I'm doing for a living, as I told you, I've been doing finance at that point for quite a while. What I'm doing is not just working with spreadsheets and numbers and analysis and so forth. It's really driving decisions that affect people's lives and fates of companies. This company, locally at least, is pretty well known, and lots of people cared how it's going to end. You all of a sudden realize that you have quite a lot of responsibility in making your decisions, and that was definitely a formative moment.

Megan: I'm just curious. How did you handle that stress?

Tom: Good question.

Megan: [laughs] Did you find some sort of outlet? I don't know. I always wonder how people manage through such stressful times.

Tom: I guess you need the support of family and friends. It's definitely important to have someone to go back to and talk about your work without it being work. I was also lucky that the CEO with whom I then worked as the CFO, we became friends. I've never been in military, I've never been in war, God forbid. You read these stories or movies and stuff, how people in those crisis situations become very close. That suddenly was my experience with this guy where the way I describe it, sometimes the people is like, "You strip down to your underwear." You can't hide anything from each other because you need to trust yourself. You can't bullshit each other. You just have to rely on each other. I think that that bond, that feeling of brotherhood does actually help you deal with the stress.

Megan: Let's talk a little bit about Pricefx. What is it that they do?

Tom: We're a SaaS solutions provider of price optimization and management. That's basically dealing with companies when they set their prices and they want to optimize their prices to the software that allows that. The software, essentially, what it does for companies, increases the efficiency and agility of that process, the pricing process. It also allows to grow revenue and expand margins. The efficiency is achieved and agility is achieved by automation. That is the story that nowadays, hundreds, thousands of companies are some way or another dealing with digitalization of business and automation. We're part of that megatrend, if you will.

The part where our customers achieve growth in revenue and margin expansion has to do with better analysis and optimization. Here, I would say that from my own experience, this is something that even before I joined Pricefx, obviously, was one way or another dealing with pricing either as a financial manager or before as an investor or banker. These things are for larger companies with more complex businesses. They get very complex very quickly. You have a choice of dealing with it one of two ways. One way is, you have a small army of people that take a lot of time working with Excel slowly, repetitive tasks, and maybe you get the right answers with all the detail necessary, but it's certainly not agile and it's prone to errors. Or, which we would often do as investors or advisors, you do a quick and dirty analysis where you get a reasonably good answer quickly, but at a cost of losing some of the detail. That obviously then suffers. Often, consultants suffer from this because they come up with a good recommendation, but to put it in practice, you need to translate it into actual processes within the company, which we are trying to improve its profitability.

This tension has been in pricing, in finance, in price management as far as I can remember. It's only now with the technologies that are available in the last few years, that you can do both at the same time. You can change prices at a level of SKU, but at the same time, you can do it quickly and have a pricing manager see holistically the whole company. That's a really exciting change in how people do business.

Megan: Yes, that is very exciting. Is there a target client or customer that you guy are a good fit for, or is it any size company, any industry?

Tom: In terms of industries, we can apply our software to pretty much any industry. Exclusion would be maybe couple regulated industries and so forth, because their pricing is done differently. Any good old industry that you can think of can apply our software. In terms of size, it's less about size, it's more about maybe complexity if you will. There is some cost both in terms of time and money to obviously implement a software like this. If you have a really small and really simple business, then it's not really worth the effort. You can apply it, but the ROI is not there. For us, any business over $500,000,000 in revenue is probably good candidate for applying this. Generally, the differences between businesses are, do they have a lot of SKUs or keeping units? Do they have a lot of different channels? Do they price transactions or price things frequently? The more frequently you change your prices, the more complex is your channel management and the more complex is your inventory, the more likely it is that you will benefit from a software like this.

Megan: Is it just a monthly subscription fee?

Tom: We started with a monthly subscription. We still offer it occasionally, but given that most of our customers these days are what we call enterprise customers, so that will be $1 billion and more, they are used to paying on an annual basis.

Megan: You've now been at Pricefx for about four years, if I'm not mistaken. As you look that-

Megan: Congratulations.

Tom: Thank you.

Megan: As you look back on the last four years, what are your proudest achievements?

Tom: The thing that I'm most proud of, besides the narrow thing that-- I was privileged to be able to build a fantastic finance team and general operations team that we have, mainly residing back in Prague, Czech Republic. The biggest proud moment for me is that we're still here with the original spirit of can do attitude. We still have very flat organizational structure. We have lots of internal communication about how the business is going, and that's exciting. That's what really brings me to come to work.

I worked in some very large businesses, large corporations before, and the stifling of the human spirit which is sometimes experienced there is something that I'm trying to fight. So far, we're still pretty successful at that, so that's something that makes me very happy.

Megan: Let's talk about that growth. I think when you started, you were employee number 74, and now the company has over 400 employees. I love that rapid growth and the challenges that come with it. Let's talk about a couple things related to said growth. First, the talent. How do you attract and retain the best talent, especially in a growing organization where you're constantly hiring and people are pulled in lots of different directions?

Tom: The growth itself is clearly part of the things that attracts people. With growth comes opportunity, and as an employee, you realize that as the company grows, then there's more opportunities for you to go into more senior role or maybe change what you're doing to maybe move to a new geography or whatever else attracts you about growth. If you don't have any growth and everything's stagnant, then you realize that it's very hard to change whatever is your current lot. I think that clearly is one of the attractors.

The second thing is what I talked about a minute ago, which is the culture that we spend quite a lot of time and energy fostering and maintaining of openness. I'm not sure if I'm allowed to swear on your podcast, but we call it No Bullshit Culture. We actually have a button that can press in a meeting and it screams, "No bullshit," and stuff.

Megan: I love that.

Tom: It sounds like a joke, but it's really something that I think is critical to making people excited about working for your company. I think we've been pretty successful at maintaining that, and that helped us to both hire and retain great talent.

Megan: Next, let's talk about processes. How do you make sure that processes are in place without maybe stifling that startup mentality or the innovation that goes along with it?

Tom: You have to be selective. You need some processes, but you want to really think twice before you implement a new process or make any given process more rigid. I think that the one aspect here which is important to mention, we not only grew in total numbers, but we also for the size of our company, we're a pretty complex organization. We're global, we operate in seven different jurisdictions with five or six different currencies on three different continents. It is pretty complex to keep this together, and they wouldn't be possible without modern technology. I spoke about what our own software does, but you can flip it around and our success is dependent on our ability to use similarly dynamic software for our processes, whether it's accounting, whether it's sales operations, whether it's HR or anything else. We heavily use different SaaS systems, and coupled with the responsibility and freedom that we give to people at all levels of management of the company, I think that's what keeps it together.

Megan: Lastly, risk. How do you enable growth, I know that that takes some risk-taking, but still maintain control over how much risk the company is taking, especially as the CFO?

Tom: You're right. Obviously, before you make any big decisions or any risky decisions, you want to analyze and you want to think about. Ultimately, there is nothing like eliminating risk entirely, especially if you want to grow and expand your business. For me, it's been always two things. One is, our fundraising that we've done, I've always pushed for doing it at a time when we weren't out of money. I didn't want to be in a situation where we have no reserve, because that obviously doesn't allow you to respond to any adverse development. Having some cash reserve, I think it's critical. It's not something that I, as a CFO, tell my colleagues too often. They know that it's there. They can take risks and we will survive it if they didn't [unintelligible 00:19:12]

The second thing is monitoring the business. I believe in understanding the business, whether it's from the financial role or top management role. Understanding the business in really great detail and not running the business just by one or two numbers, but really understand it inside and out. That understanding allows you to see if things are going well, or if things maybe are beginning to show signs of heading in a wrong direction. Then you can respond to that before the problem really becomes big. I think those two things combine allow you to manage risk.

Megan: Speaking of funding, you've raised over $120 million in venture capital funding. What was your strategy there?

Tom: From the start, from the first series A which happened the year before I joined, the strategy has been, we are raising money to grow. By the time we raised our first funding, the product was completed. Obviously, it keeps developing, but it was a functioning product with paying customers and successful implementation. That wasn't the issue, but we were originally founded as a company in Germany. The European software market is not nearly as dynamic and large as the one in the US, so we've known that if we want to grow and grow aggressively, that means growing in the US as well as in Europe. That was really where most of our investment has gone into, growing both this, also marketing effort, and ultimately, support operations as well.

Megan: How has that expansion into the US been going?

Tom: It's going great. I think in the year that I joined, I think US contributed something like 25%, 30% of the revenue, or what we call the annual recurring revenue, ARR. It's now over 50%. It's a market that still allows us a lot of opportunity for further growth, and we keep focusing on it.

Megan: I know your software probably makes life easier for a lot of companies, but as you look internally, are there tools or technologies that you are using that are helping to make your life easier?

Tom: Absolutely. I already mentioned that we use things like Netspeed or Salesforce for accounting and sales operations. Just last week, we've launched a new initiative where we are rolling out Tableau as a data analysis and visualization platform, where basically, we're moving what used to be Excel-based monthly reporting or quarterly reporting into this automated platform which we're giving access to initially the first [unintelligible 00:22:36] about 10% of the company. Ultimately, the idea is to roll it out broadly to everyone. The idea here is that people should know up to the minute, how the business is doing and have the ability to really get into not just the top-level KPIs, but understanding how those performance metrics are driven by the underlying drivers. This is an initiative that took us about a year to pull off, and we're hoping to see returns on that in the near future.

Megan: Having used Tableau, I can say that it's an amazing tool. Just to be able to take data and create a picture, and then drill down into that data. It's pretty amazing.

Tom: Indeed. Although, it wasn't easy, to be fair. It's not as much thing with Tableau. Tableau is easy to use, but cleaning up and sorting out the underlying data sources was a big challenge. You were asking of some of the challenges in the growth. One of the big challenges that we face is that as the company gets bigger, different functions, whether it's sales, whether it's product development, whether it's operations or what have you, are growing further apart from each other. It's the siloing of the business, which is natural. It's not something that it's surprising. As humans, we like to operate within a group of people, which is maybe 30, 40, 50 people.

When it was most of the company was comprised in the group, then you naturally connected whether personally and directly, or at least mentally connected with pretty much the whole company. As the company gets bigger, the same group of people that you hold in your mind's eye, now it's comprised almost exclusively of people in your department or function. That's the issue, and this is something that we definitely grapple with. Cross-departmental corporation and communication is a critical thing for us to address.

One of the ways in which we had to grapple with this was cleaning up this data set. The data came from different systems and each system was maintained by different group of people. We believe or we hope that having done this exercise, and we'll have to continue in it as the business develops, but having this one platform where one dataset feeds into reporting or analysis for all different functions, will be the platform which allows communication between groups being meaningful.

Megan: I've heard so many times that having one version of the truth is critical to making sense of data and using it in a smart way. When you started at Pricefx, were they using NetSuite, or were you part of the transition from something else over to NetSuite?

Tom: When I joined, we already have selected NetSuite, but haven't been using it as an accounting system. When I started, we still relied on outside accounting firms in the different jurisdictions to do accounting. Then we struggled a little bit with consolidation, and clearly, that wasn't a sustainable system. One of the first things that I did was hire a new chief of accounting. Under his leadership, we moved all but one of the entities in-house and are now using NetSuite as actually the bookkeeping system where all the transactions are recorded, and it's a big difference.

Megan: What advice do you have for CFOs that are looking to drive strategic value to grow revenue and margin?

Tom: It's funny you asked about revenue, because CFOs are often expected to just talk about cost and cost-cutting. What I would say is that the first advice is that there's always more value to be created on the top line than there is on the bottom line, on the cost-cutting side of things. There's only so much you can cut before it starts hindering the business. Not to mention that these days, lots of businesses are running fairly lean, but you can always do better on the top line, whether that's volume, which as a CFO, maybe you cannot affect as well, but certainly on a gross margin side. It's one of the reasons why I think that in our pricing software is something that CFOs should really look into. It allows them to really contribute to the strategic discussion by driving the agility of decision-making and identifying opportunities, what I would maybe call surgical opportunities. Where you just make a fun decision that you're going to raise prices across the board, where you can really identify where you can change your prices, where you can change your terms. It's not just about list prices, it's about all the discounts and rebates that your business may be giving away. This is an area which I think CFOs would be well-advised to pay attention to and get into, and they could be driving really strategic discussion in the boardroom.

Megan: Yes, absolutely. I think that's part of the evolution of the CFO's role.

Tom: Absolutely. I come from the background where I was being in banking and private equity. I came with the ambition of really having all the aspects of the business subject to analysis or subject to understanding of the CFO and something that you don't understand, but you can therefore also plan on, and it's satisfying. If you're a thoughtful person and you like to understand things, I think it's something that these days is lot more accepted. It wasn't necessarily the case a decade or two ago, but nowadays, I think CFOs are expected to really be stewards of the business. If you have the opportunity to do it, then you should rise up to it.

Megan: Yes, absolutely agree with that. Lastly, as a CFO, what's keeping you up at night right now?

Tom: I sleep pretty well. I think that there is the one area which we already talked about, which is keeping me up a little bit, which is the communication and coordination. When I zoom out from just our own company's situation, I think that everyone who reads the media or follows the media knows that we're not necessarily in a great place in terms of the global stability. I think that businesses will face quite a few challenges. Hopefully, not something too drastic. I think that assuming that you will always operate in a benign macroeconomic environment is probably not the safest assumption. I think that looking further ahead and making sure that your business is prepared for even downturns and worse situations is probably something that I think keeps people up.

Megan: Yes, absolutely. 20 years ago, I don't think it was very important to be a sustainable business or have a mission, but these days, yes.

Tom: Life was simpler, for sure.

Megan: Absolutely. Tom, thank you so much for being my guest today.

Tom: You're welcome. Again, it was fun to be here.

Megan: Yes. I really enjoyed speaking with you and hearing about your experiences and all the resulting insights that you've shared with us today. I appreciate you taking the time to be here with us today. I wish you and Pricefx all the best.

Tom: Thank you very much.

Megan: To our listeners, please tune in next week, and until then, take care.

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In this episode, we discuss how Pricefx grew from 74 to 400 employees, how a company can maintain processes and manage risks, financial tools, and tactics for growing a business, amongst other interesting topics.

A Journey Into Financing

quote about business growth strategic value

Tom grew up in communist Czechoslovakia. Back in the day, the change in the political climate opened new doors for him. Being attracted to capitalism and the market economy, Tom decided that he wanted to work in finance. He first moved to London, then to the United States, where he worked in various financial roles. Eventually, he returned to Europe in the Czech Republic and became the CFO at Pricefx.

Pricefx is a SaaS solutions provider for price optimization and management that increases the efficiency and agility of the pricing process. The company was founded in Germany and today is a leader in B2B price optimization and management software.

''For the first time, I realized that what I'm doing for a living is not just working with spreadsheets, numbers, and analysis. It's the driving decisions that affect people's lives. All of a sudden, you realize that you have a lot of responsibility in making your decisions.''

Growing in Numbers and Growing the Numbers - Focusing on Strategic Value to Drive Business Growth

Tom Fencl CFO quote

When he joined Pricefx, Tom was employee number seventy-four, and now they have over 400 employees in five locations across North America, Europe, and Asia. This rapid growth comes with specific challenges and opportunities. Tom states that this growth becomes a part of what attracts and retains people. The second thing is the culture in which the company spends time fostering and maintaining openness.

''Growth itself is a part of the things that attract people. As an employee, you realize that there are more opportunities for you to go into a more senior role, change what you're doing, maybe move to a new geographical area, or whatever else kind of attracts you about growth.''

Maintaining the Processes and Managing the Risks

expanding business growth with strategic value ideas

You have to be selective in managing the processes. Pricefx's success depends on its ability to use similar and dynamic software, whether in accounting, sales, operations, or HR. Secondly, you need to offer responsibility and freedom to people at all levels.

Managing the risks comes from two components. Firstly, you need to have some cash reserves. And the second thing is monitoring and understanding the business.

''Before you make any risky decisions, you want to analyze and think about them. But, ultimately, there is nothing like eliminating risk, especially if you wish to grow and expand your business.''

Tools and Technologies to Use to Achieve Business Growth While Adding to Your Strategic Value

Price Fx uses tools like NetSpeed or Salesforce for accounting and sales operations. Their new initiative is using Tableau software as a data analyzer and visualizer platform.

''People should know up to the minute how the business is doing and have the ability to understand how those performance metrics are driven by the underlying drivers.''

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