Beyond the Numbers: The Cross-Functional CFO in the Age of VUCA & AI

Megan - 00:00:22: Today, my guest is Tom McDermott. Tom is an experienced executive that has spent the majority of his career in global technology companies based both in the US and also in the UK. With a focus on finance as well as sales operational management and leadership roles, Tom has worked in private equity, public, and privately owned bootstrapped companies. A true partner to business leaders, Tom gets excited by building value through strategic thought, challenging and influencing thinking, streamlining and automating cadences, data analysis, and the rhythm of the numbers, and finally building and empowering a high-performing team. Tom comes with a wealth of experience in helping grow and build value within businesses. Tom, thank you very much for being my guest on today's episode of CFO Weekly.

Tom - 00:01:43: I appreciate it, Megan. Happy to be here.

Megan - 00:01:46: Yeah, today we're going to be talking about business partnering and value drivers for private equity CFOs. And I'm looking forward to learning about you and your experiences with this topic. So let's jump right in.

Tom - 00:01:57: Of course.

Megan - 00:01:57: To start, you've had a diverse career spanning private equity, SaaS Companies and education. So can you give us kind of an overview in your own words of your career and maybe share a pivotal moment that shaped your career?

Tom - 00:02:11: Sure. So, I started out relatively traditionally in public accounting, spent a couple of years in the UK in sort of a mid-sized public accounting firm in all facets, working with small books and records all the way up to larger audits and spent some time with the insolvency team as well, which was an interesting sort of foray into a different area of accounting. But I think relatively quickly on in my career in public accounting, I realized that a CPA traditional accounting route was not what I was interested in. I was more interested in. Being in the business and really sort of understanding what the drivers are to support a growing business and to really sort of help facilitate that growth. And so whilst most people were going down the chartered accountancy route, I pivoted into the chartered management accounting route and a professional body called CIMA versus the CPA route in the UK. And that kind of stood out within the public accounting group. And I think it was pretty clear that my career wasn't going to stay there. And so I started to look around. After gaining some qualifications for my next move and I landed in a small software company called MATRA. They were a retail point of sale manufacturer and they were privately owned and it was for sort of founder owners that were still in the business. And it was growing and profitable, but it was relatively small, but it was a fantastic first landing place for your sort of first controllership or financial role within a business. And I got lots of exposure to all facets of the business and really enjoyed my time there. MATRA were eventually acquired by a public company in the UK, a company called Clarity Commerce listed on the AIM Stock Exchange, so small cap stock exchange. And that gave me my first sort of foray into M&A. I was on the sort of selling side and worked through all of the diligence requests for finance, HR, legal, really all of the back office functions. That M&A culminated in me moving into the acquirer's company. And they sort of founded me a role within an FP&A function. There was no FP&A function at the time. So it was, here Tom, go create some forecasting for us and do what you need to do and come back to us with a plan. I spent sort of six months traveling around the country to all of the various acquired entities because Clarity had grown through M&A. It wasn't really a massive organic grow. It grew through M&A and they never integrated any of the acquisitions. So without really knowing it at the time, I sort of spearheaded the integration of all of these disparate entities into an overall consolidated view for Clarity. And did it through my sort of first true FP&A focused role. My previous role at MATRA was sort of all things finance, but primarily on the accounting side. That was a really good experience and that culminated in me getting promoted into a group financial controller position for Clarity, which came with Investor Relations because it was given it was a listed company. And that was an interesting experience sitting in board meetings and investor calls and talking about things for the first time in front of people that had invested their money in your company is exciting and nerve-wracking at the same time, but after a couple of years there, I was given the opportunity to move overseas and get some first sort of international experience and lead the finance function for our US operations that were based out here in Atlanta. I didn't know at that time that Atlanta would become my home. But it was essentially meant to be a two-year stint. And this was my first real, I would say business partnering experience, because I came out here partnered with the president in between us . We were running all things US related, whether that's the engineering and the development teams, or that's the sales and the go to market teams. That was a really good experience for me. He wasn't office based. And so I was kind of the head in the office and got exposure to all facets of the business at that point. And that was really a sort of a pivotal moment, I would say, in my career, knowing that whilst finance and accounting is my sort of background and my skill sets, I really wanted to be more than that and be more operational, be more involved in decision making as it relates to non-finance and accounting specialties or skill sets. So I really enjoyed that. As I said, I was going to be here two years. That was almost 15, 16 years ago now. So I obviously enjoyed Atlanta and enjoyed the US, we were then the subject of a hostile takeover, which is something that not many people want to go through. But it was a good experience for me. We were essentially delisted by a private equity group in the UK who bought up shares and Clarity with the idea of taking them private. But it wasn't something that the business or the investors or the larger investors truly wanted, but ultimately happened. That was an interesting period of time. Again, lots of diligence and lots of, I would say, getting to know some private equity folks on the not so friendly side. Of private equity, there's a world where you get some really fantastic private equity groups. But this particular group were more interested in asset stripping and combining a number of their other portfolio companies to create a larger entity. But we did what we needed to do here out in the US. And I decided that at that point it was time to take my leave and go do something different. And I sort of looked at my resume, I stood back and looked at my resume. And whilst I got sort of larger company experience with Clarity or public company experience with Clarity, I didn't really have any true big company experience. And so I took a role in NCR, which is a sort of Fortune 500 company based here in Atlanta. And I moved into a pricing role, which sounded a bit weird, very sort of narrow focus. But again, looking back at it, it was a really good pivot for myself to really partner with a number of sort of go-to-market businesses within a much larger organization and really help to provide and add value. And we were working with the product teams who were developing the new products. Working with the sales. team, and how to sell the new products or how to price it. Working with the legal teams on how to contract these new products. And that role grew, got some exposure and I ended up getting some investment from the CEO, Bill Nuti at the time to build a deals desk, which was the first deals desk of the NCR company had had. And that was more again, business partnering, working with the sales teams, working with the regional leadership teams on how to get large and sometimes sort of cross border deals done with our large key customers. Really enjoyed that, I got to sit across the table from customers for the first time without the pressure of carrying a bag and a quota over my head. But really sort of saw the value of what me and my team were able to do in terms of deal wins and deal generation and helping the sales teams meet their quotas. My final role after sort of five or six years at NCR was a business unit CFO. So I was the CFO for the retail business unit partnering with the global leader for retail. Really responsible for about $3 billion worth of revenue. Which is an awful lot. But when you're looking at spreadsheets, it's a couple of extra zeros in sales. And so whilst it's a huge number, I think a lot of the mindset that you use within a smaller company really, really translates into productivity within a much larger organization. And we have four to 5,000 direct employees and access to many of the other 30,000 employees at NCR for support for the retail business. And I really enjoyed that piece of it. I got to partner with the corporate CFO as he was preparing for investor calls and building up investor decks on behalf of the leadership team. Which again, you get to hear your stories being translated into investicles and then seeing that the impact of those stories on stock prices is pretty rewarding. And so helping to grow a much larger company that moves at a lot slower pace, but seeing it translate into the rewards for investors is really interesting. After seven years, I felt like my time was up with NCR. And I started to look around. And started to build my network. And this is something that I think is important for anybody is that certainly within this new CFO realm is to have a network and to be able to build a network when you don't need it is important. And maintain that network when you don't need it. Because when you do need it, you can reach into it. Maybe that gem of a role that you didn't know was around to sort of fall in your lap at the right time. And so I started to build my network within private equity. I knew that I wanted to get back into smaller companies. And so I started to reach into and to meet with various people from large private equity groups and the people operations teams within those large groups to lawyers that were connected within the software industry to private equity recruiters that weren't necessarily tied to the private equity companies themselves. And so I started to build my network. And after a little while, an opportunity came to move into a Vista-backed company and took the opportunity. Relatively small software company in the hospitality space. But it was growing and had some pretty good ARR for a company of its scale. And Vista were a fantastic partner for a first time CFO in a private equity-backed company. I think you can take all of the experiences that you have from all of the roles that you have had over a period of time. But to move into a company which is backed by a sponsor like Vista, who are, I wouldn't say like running a playbook that this is how you do it and this is the only way you do it. But they come with the infrastructure. To support first time CFOs with operators that know what they are doing and can provide you with the guidance that you may need on where you need to go with your role, especially as I say, as a first time CFO. And so that was a fantastic landing spot for me. Really perfect partner with Vista. And we ended up merging with its largest competitor and creating a much larger company. And at that time, again, sort of my time to move on, I moved into PSG. So Providence Strategic Growth, the growth equity arm of Providence. I moved into a PSG-backed organization. PSG, again, fantastic partners. I think I've really lucked out with the private equity groups that I've been involved with over the course of my career, certainly over the last 10 years or so. PSG were fantastic. Again, not as operator-led as Vista, but they certainly do have operating skill sets that they leverage across their portfolios. But I already sort of had a good idea of what it is I wanted to do from a sort of first 90 days perspective. And started to operate against my own playbook that I created with the help of my experience with Vista. And we went into M&A mode and we acquired a really large company. And this was my first foray into private equity sort of M&A from a bolt-on or an add-on acquisition perspective. First time that I had to raise debt. And so we acquired it with majority of debt with some equity funding, but majority of debt. So I've started to work with lenders for the first time and understanding their requirements from a, a diligence perspective. We ended up completing that acquisition and spent another year sort of integrating that business. That's another pivotal moment for me, I would say in terms of my business partnering and value driving, really understanding that when you do M&A, unless you are that true sort of holding company profile where you're buying a bunch of different assets and you run them independently, integrating as quickly as possible, your acquisitions is incredibly important. And having an M&A playbook, and having a, an integration playbook is a true value driver and a value lever that is incredibly important and will aid the value creation upon exit. Having a string of pearls that are all independent is fine, but I think fully integrating M&As with a playbook is a true value lever. After that experience, that's when I ended up where I am now, which is a Career Certified. We're a WOD portfolio company, WOD are a middle market private equity group out of Chicago, really focused in Healthcare and software. And this was my first, first sort of experience outside of pure software. Obviously NCR has a large hardware element, but a lot of the business and the strategy that was in place while I was there was converting from a true manufacturer into a software led, hardware enabled company. And so moving to Career Certified was my first sort of instance outside of pure software. We're an education technology company. And so we are not necessarily selling a subscription to some platforms software. What we are doing is selling access to our vast content of educational resources for professionals in regulated industries that aid in their, their journey as they become licensed in the field that they're in. So you could look at this as a transactional type business. You buy it once and that's it. But one of the things that was my sort of strategic imperative when joining Career Certified was to help create a reoccurring or recurring revenue story. It doesn't necessarily mean that you have to sell subscriptions and the billing profile, but how does that story hang together that we are reoccurring? And we have a very strong continuing education revenue stream in the majority of our business units. And so tying that learner's journey from a pre-licensure acquisition through to them coming back to us year after year or two years after two years, depending on the CE cycle to buy that continuing education from us does create that reoccurring revenue story that we are not transactional, that we don't go into every year and going to have to generate our full quota or a full plan of revenue, that we do have a recurring element to our revenue stream that we can count on as long as we can continue marketing to those students. Ensuring that they come back to our business to buy those CE hours from us.

Megan - 00:15:43: Wow. You've had an amazing career. That's for sure. You've seen a little bit of everything.

Tom - 00:15:48: No, exactly. And that's been exciting for me. But one of the final things I would just touch on with Career Certified is that whilst I've got a CFO title, my remit is a lot broader than just finance. And so this is something that's really important to me. Again, as I mentioned, I want to be business partner, I want to be in the business. And so I see my role more as a business operator, I've got legal HR, data and analytics, I've got some project management, as well as the traditional accounting and finance reporting into me. And as of about 12 months ago, I now have internal IT and security reporting into me. So I have a pretty broad remit of functions that report into me, which is what's exciting about getting up and having a new challenge every day.

Megan - 00:16:29: A few questions based on what you just said. You mentioned focusing in on private equity. What is it that drew you to private equity to begin with?

Tom - 00:16:36: I think the entrepreneurial spirit that still exists within portfolio companies is what drew me in. We've got the comfort of having a financial sponsor that's got some relatively deep pockets that will allow us to make investment decisions and maybe take a few risks that we may not have done if we were still true privately owned. But the fact that we are encouraged to still be entrepreneurial, that we are still seen as the operators of the business. And then from a finance point of view, really having that sort of full cycle coverage on all finance elements from not just being responsible for a P&L, but understanding that the balance sheet and the cash flow is really important and that you really have control over all elements.

Megan - 00:17:18: And tips for building a network. You mentioned having had to do that. So what advice do you have?

Tom - 00:17:25: Get out of your comfort zone and just introduce yourself to people. I think finance folks are sometimes, not all, but sometimes reserved and don't necessarily want to put themselves out into uncomfortable positions. But reach out to people, say hello, go to networking events or local rotary events and things like that. Go to events where you'll be able to meet people and introduce yourself. But have a sales pitch as well, that elevated pitch of what it is you are and what you stand for, how you would see yourself in the future, what you're looking for. Again, do it early. Don't do it when you need it. Do it early and maintain those relationships across the course of your career, no matter what job you're in. There are, I would say, four or five recruiters that are in the private equity space that I speak to on an annual basis, just to touch base, not necessarily because I need a job or not, but they're trying to recruit into my organization. Just to touch base, keep in contact with, and again, keep them updated on where you are in your career. And as soon as things become available, you're, sort of front and center in their minds when they want to reach out to CFO candidates.

Megan - 00:18:27: Great advice. And business partnering obviously requires understanding the business. What advice would you have for CFOs who maybe work in a bigger, I mean, you've had the luxury of seeing a little bit of everything, but maybe someone in finance who's kind of stuck in finance or unable to do a rotational program. What advice would you have for truly understanding a business?

Tom - 00:18:52: I think, first of all, from a career point of view, I would say take control of your own career. You can, rather than being tapped on the shoulder and say your next opportunity is in treasury or your next opportunity is in BU controllership, take control of your career and map it out, talk with your manager and make sure that they're aware of where you want to be going with your career. Because ultimately, good managers, good leaders are there to grow you and not hold you back. And so making sure that they're aware of where you want to go with your career, is important. But to help you understand the business, it's as simple as setting up time within your calendar to meet with people that are outside of your direct sort of relationships with the business. Go have a chat with somebody in product, understand how they do things, why they do things and what they're responsible for. People, in my experience, are always willing to help educate your partners across the business and to talk with one another. But it does involve a little bit of self-guidance and prioritizing who you want to talk to, when you want to talk to them, but just get out there, really ask questions. And more importantly, when you first join a business, I like to call it the new card. You've got a new card and that might last 30 or 60 days. And that allows you to ask all the dumb questions that you think are dumb, but you get away with it given your new card.

Megan - 00:20:10: And you've worked with companies at various stages of growth from startups to established firms. So what's one common thread you've observed in the most successful financial strategies that have driven growth across these organizations?

Tom - 00:20:23: I wouldn't necessarily say it's a strategy, but being able to embrace VUCA is something I think all good companies and good leadership teams understand and can grapple. So VUCA is an acronym. It's used a lot and heavily in sort of the Army and the Navy, etc. But it's volatile, uncertain, complex and ambiguous. So understanding that we live in a VUCA environment and that we need to adapt as quickly as the environment changes, being okay, with that uncertainty or that level of volatility is really important. And the best companies are the ones that can sort of manage through those VUCA environments. We're heavily Career Certified. We're heavily dependent. When I first joined the company in real estate, 100% of our revenue was generated from the real estate market. As you may know, the last 18 months to 24 months within real estate has been volatile. The issues with the NAR settlement, the uncertainty that real estate agents and brokers have of how they will earn their commissions going forward has created a really volatile environment. Low inventory, high interest rates. Whilst we have not managed to hit our sort of stretch plans, we've been able to manage and support the real estate business through this time of VUCA. Because we were able to sit back and say, okay, there's nothing we can do about the economy. There is nothing that we can do about the market as a whole, but we can control what we can control. And that's really set US out in good stead. So whilst it's not a direct strategy in any of those sort of growth stage, labor stage, et cetera, companies, just the mindset of being able to manage within VUCA, I think, is important for everyone.

Megan - 00:22:04: And you mentioned the importance of fully integrating. So for companies out there whose strategy is M&A, what advice would you have for making sure that you fully integrate your acquisitions into your operations?

Tom - 00:22:18: Yeah, I think having a thread within the diligence process as you're going through the diligence on an M&A would be for the acquirer to have an integration strategy. It doesn't necessarily have to be fully vetted out. It doesn't have to be as detailed as it might be post-acquisition. But having an integration strategy is going to be important. I truly believe, certainly from a back-office point of view and what the CFO has within his purview or her purview, is, I would say, the most important part of early integration. Getting those back-office functions integrated, leveraging common ERP systems, leveraging. We've built a large data lake and have a DNA team here at Courier Certify. Having the DNA team get their hands on the acquired company's data and able to integrate and absorb that data into your data lake is incredibly important. Having a single payroll, making the acquired employees feel part of the overall parent company is incredibly important. I think there's a lot of things that you can do from a back office point of view early to really integrate and to make the acquired company feel part of the buyer's sort of go forward plans. There are a lot of things certainly on maybe the go to market side and the product side that you can sit back and work through more appropriately. You don't want to integrate for the sake of integrating, but certainly from a back office function, integrating as quickly as possible, I think is key. And it will set you up well because within 10 minutes of an acquisition, the CEO is going to come to you and say, so how are we doing? What did we do? What did they do for me yesterday? What are they going to do for me tomorrow? So getting ahead of that and getting those things done as quickly as possible, I believe is incredibly important.

Megan - 00:24:04: And you mentioned that it was important for you to take your revenue stream from transactional to recurring. What advice do you have for companies out there that are struggling with being able to do that?

Tom - 00:24:14: Yeah, I think there's the billing profile, which obviously a subscription-based revenue stream sort of lends itself to recurring revenue and sort of all the ARR snowballs that are out there within SaaS. I think that's one element of it. But I do think that there's an element of story that you can tell to create the reoccurring revenue profile or recurring revenue profile that you're looking for. The story is only as good as the data, though, so it needs to be supported through. Through the data. And so that's what we've done here at Career Certified. We have the story around our reoccurring revenue model. We have the data to support it. The only thing that we don't have is a billing profile that says Megan's bought a pre-licensing course and she's paying for it on a monthly basis.

Megan - 00:25:00: And when you look at the role of CFO within private equity-backed firms, how do you see it evolving, particularly when it comes to driving growth and delivering value for investors?

Tom - 00:25:09: So I think being able to partner with the business to truly understand what those growth levers are is incredibly important. I think the overall profile of value creation within the private equity ecosystem is changing. What used to be growth and growth at all costs, and maybe even the rule of 45, whilst that's still very important, I think it has changed or is changing given high interest rates, debt's not exactly cheap anymore. And so acquirers are looking for more, more from the sort of operating leverage story or a scalable operating environment that will add, when you think about the value levers, or will add to the multiple expansion outside of just pure growth and growth at all costs. And so this fits squarely in the CFO realm, how are you setting yourselves up for the scale? How is the business from a back office and a business operating perspective set up so that when you go from $50 million to $100 million to $250 million and are able to support that growth, whether that's within the team, whether that's within the systems and the processes that you have set up, working incredibly tightly with either the CIO or the CTO, all that sort of that technology arm of the business. Because a CFO is becoming more and more, I would say, technologically advanced than ever before. And truly understanding how your systems talk to one another, are integrated with one another, the data flows within the business are key responsibilities of the CFO in today's world. And so partnering with the CTO, CIO to understand that really aids in that operating model and being able to tell the story of how that next buyer is going to be able to grow and achieve value, that creation without having to invest millions of dollars into the back office function is incredibly important.

Megan - 00:27:02: And how do you ensure that financial strategies align with constantly changing business environments and models and customer expectations? I mean, you mentioned VUCA and being able to thrive in that. But how do you personally thrive in that?

Tom - 00:27:16: I think I'll go back to the network conversation. I really, I still talk to people. I talk to whether it's other private equity groups that I've worked with in my past or old CEOs or people that I've been lucky to work with who have moved on in their careers or in different organizations. So getting a well-rounded view from multiple sources, I think, is important. And just staying on top of trends, maintaining that clear communication path with the private equity group is incredibly important. Their needs are changing on a daily basis. Their limited partners are requiring more from them or different information from them. And so making sure that they are comfortable with what you're providing them, whether that's data or information or your monthly reporting pack, is incredibly important, too. So leveraging your network. Talking with people, talking with the PE firm. Making sure that what you're delivering is satisfying their needs. And really just staying close to doing a lot of reading, staying close to what is happening, either within the markets that you're directly in or the broader economy, I think, is important.

Megan - 00:28:16: And no conversation would be complete these days without at least mentioning AI. So how are you looking at AI these days? Is it integrated into your processes? What are you doing with it?

Tom - 00:28:29: Yeah, I would say that we are adopting AI in some strategic areas and we are evaluating AI in other areas. And I know that's a it depends type of answer, but to give you a little bit more Clarity, I think there's certainly areas within our business that we've immediately adopted AI in or are working towards adopt AI. In our accounting team, we're looking at how do we leverage AI within our accounting ERP to improve the AP process, how are we absorbing invoice information from our vendors and sort of not having to post every individual invoice. So having the ERP system do that. We are using AI within our customer service team for chats and leveraging chatbots who use AI and a large index of information that we've created over the course of the years around common FAQ questions. So we're leveraging AI in customer support and directly interacting with our customers. We're evaluating AI in areas like content creation. Marketing, and how do we become more productive or efficient in our course creation if we could use AI for those elements as well. We actually have an AI task force. There's a sort of a cross-functional task force of key folks within the business that are looking at AI and its best uses within our own business, but constantly evaluating what are the sort of strategic wins or quick wins that we can make for either efficiency or productivity gains using AI.

Megan - 00:29:57: Thank you for sharing that. So last question, but as we look to a fast-paced future, how are you preparing yourself and your team for what's ahead?

Tom - 00:30:07: Good question. I think for me, I like to be busy. I like to be able to sort of move from one task to the next. My remit is pretty broad. And so looking at a security issue one minute and then moving into an accounting question to an HR problem is exciting to me and sort of keeps me on my toes and keeps the brain ticking. But I think my team and what I'm a big proponent of is making sure that they're enabled and empowered to make decisions. We don't get upset if we make the wrong decision. We pivot quickly and we learn from it. So empowering the lowest levels of the organization to make the decisions that are applicable to them and knowing when they need to move either up the sort of the leadership chain and where to go from a decision making perspective. So making quick decisions is the most important thing for me. Learning from those wrong decisions is important. But the worst thing, time kills all deals, I think is a common saying. Well, the worst thing we can do is to delay and not make decisions. I think that's worse than making the wrong decision and quickly identifying it. So making quick decisions, empowering the organization to make those decisions and knowing where to go if they don't feel they are appropriately at the right level to make those decisions using an approvals on authority type matrix to know where and who to go to within the organization. And then leveraging tools that are going to provide the insights to support those decisions is as important too.

Megan - 00:31:31: Thank you so much for being my guest today.

Tom - 00:31:34: I really enjoyed it. Thank you very much for your questions. And I hope my CFO community find them valuable.

Megan - 00:31:39: Yeah, thank you so much for finding the time to be here with us today to share your experience and knowledge. I wish you all the best.

Tom - 00:31:46: Thanks, Megan. Have a good week.

Megan - 00:31:48: Thank you. To all of our listeners, please tune in next week. And until then, take care.