Strengthening the Financial Engine of a Future Publicly-Traded Company

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 Michael Keogh. Michael is an experienced finance professional and tech industry veteran with over 20 years of building teams, driving transformational change, and instituting operational efficiency. Prior to joining Bright Machines he was president of STANLEY X and was also the CFO for the company's emerging markets business.

Previously, Michael ran R&D finance and held leadership positions in corporate FP&A and operations at Apple and at Intel in finance and strategy roles with a focus on manufacturing operations. Michael holds a bachelor's degree in industrial relations from the University of North Carolina and an MBA from Cornell University. Michael, thank you so much for joining me on today's episode.

Michael Keogh: Thank you very much for having me.

Megan: You're the CFO for a technology company that is transitioning to a new phase of growth with an eye towards going public. Today, we're going to be discussing your journey to get to this point, as well as the challenges and opportunities that come with this type of transition. Let's start with you and how it is that you got to where you are today.

Michael: Okay, great. Regarding my background, coming out of business school, I knew I wanted to be in the technology industry, and specifically targeted moving to the West Coast and joining a technology company. I started out at Intel, out of business school, and had a good career there, spent almost 14 years in a variety of roles, they have a pretty good program with moving people around to get a good breadth of finance experience to eventually make someone CFO-ready. I also had the opportunity to move around to a bunch of locations all over the world while working for Intel.

I happened to be living in China. At that time, I had an opportunity to go work for Apple while living there. I had a great experience leading their finance supply chain while living there in China and helping manufacture all the Apple products. After a couple of roles, there as well, I actually spent the last several years in something very different. I was helping industrial company Stanley Black& Decker try to set up their first software products. That company that really was trying to begin the phase of digital transformation for the company.

I set up an office in Silicon Valley, hired the very first software development teams, and created an incubator where we were developing software products for the same industries that Stanley Black & Decker was already in, but really trying to develop SaaS subscription revenue type model for the company. I did that for several years. Then just recently, last year, I've joined Bright Machines as the CFO. Really here, this is a fast-growing company that I came to help them go through the IPO process and prepare to be a public company and scale for the next phase of growth.

Megan: Wow, it sounds like you've had an amazing career. Just going back to your experience at Intel, you mentioned moving around through different roles for that company. Were any of those roles in operations or was it all within finance and accounting?

Michael: Just about all the rules for finance and accounting?

Megan: Okay.

Michael: There was some brief periods where I stepped out of the role, but those were not the norm. I spent most all the time in financials.

Megan: Okay. I know the role of the CFO is becoming more operational as time goes on. Yes, I'm always interested in those leadership programs and how they develop the future CFO.

Michael: I think you're right. The need to be able to step in and take on operational roles or act in a capacity outside of just a finance leader, I think, is increasingly necessary and almost an expectation in a lot of finance leadership roles. Ideally, as a finance leader, you understand the business well enough, and you've got the respect of all the rest of your peers in these roles that, should the need arise, you're always able to step in and fulfill operational roles.

Megan: As you look back on your career, are there moves or turning points that stand out in your mind at all?

Michael: Yes, I think there is a couple. One of which is a part of, I have taken on many different roles. Everything from doing M&A type of work to even doing a stint in internal audit. In trying to go around and develop a breadth of experiences as part of my career journey, I had some good advice early on, that I truly believe in after having followed that advice, which is not always to pursue the roles that are considered the most desirable. That sometimes taking on roles that are considered maybe less visible or less desirable from a breadth or scope of work type of perspective, that sometimes those roles that could be underappreciated, but that there is a huge amount of opportunity to add value.

When considering the next step in a career to think through what you're going to do, what skills you may develop or what type of opportunity there may be, it's don't overlook some of these underappreciated type roles. I think that sometimes that comes together with ambiguity, roles that are not necessarily clear on-- they may not be completely clear regarding is this going to turn into something big, is this temporary, is it just a need for the time being? It really boils down to, I think, where's there a need? Sometimes where there's the biggest need, it's where there's either a situation where it's not a great situation, and maybe a part of something that's not growing, it may need to be getting smaller, but help is needed.

Following the roles where you think you can add that most value is one, and I've done that several times. One example I can think of is, I took a role in supply chain at one point in time that was really just working on logistics. I think it was underappreciated, but I learned a lot. To me, it was one of the more rewarding roles just because I broadened some of experience in a space I didn't know much about but also had just great business partner relationship with people I worked with, and ultimately, it was a skill set that I realized, even in today's world where we've seen fragile supply chains, it's been some experience I've been able to leverage for years.

A second example that I just share is making a decision to leave a company. I'd been at Intel for a long time, a company that is well respected, treats employees well. After 14 years there, I made a decision to leave. It seemed like it was a really difficult thing to do after having established relationships, and developed a track record, to go make a change and go someplace new, it's a switching cost. At the time, I think I overweighted how important I was. After having made the change point to, and now several times in my career to new companies, I think it's just valuable in learning to grow new networks, but also learning to adapt to change in different company cultures and how decisions are made.

Those are all things that I think are valuable because they keep you fresh and also they prevent you from only viewing things in a certain way, in a system that you've learned. By making some of these changes, I think I've become much more rounded.

Megan: I think that's great advice. I think oftentimes, people shy away from change or uncomfortable roles and in doing so, they really miss out on opportunities along the way. Let's talk about Bright Machines and what it is that they do?

Michael: Sure. Bright Machines is a company that is focused on intelligent manufacturing automation. Essentially, what that means, it's software-defined automation. If you think about manufacturing, there is the final assembly of many of the products that are used in the world today, which is taking the various components and then assembling them into the final finished goods that consumers buy. That end of the manufacturing process is about 95% manual around the world today. What we've seen with the environment today, which there's a lot of influences at play.

If you think about the fragile supply chain that we're experiencing today, driven by many factors, whether it is the fact that the worldwide supply chain has relied upon various different geographical locations to do certain portions of manufacturing process. They all need to be coordinated to get to that final product and customer's hand. We've seen that can be proven to be fragile with just the time delivery and with supply chain shocks. Companies have been looking to adjust and some of that means manufacturing more locally, manufacturing where they sell, that has run into challenges. It's run into challenges with getting factories up and running quickly, finding available skilled labor to manage them.

All of these things have been driving demand for what a company does. Essentially what we do is we help automate some of these assembly processes. We know that this portion of manufacturing is one of the last holdouts of all the industries in the world regarding adoption of software. We really take whatever a company is assembling, whether it is consumer products, whether it's servers that go into data centers, whether it's automotive sub-assemblies, it could be medical equipment, all of these products which have huge demand today, companies are struggling with manufacturing fast enough, and so whatever type of assembly process they have, we can help them automate.

It makes it less manual, it makes it higher available so you can run 24/7. By automating to a super high-level precision, you can improve yields, reduce waste, and also help set up smaller manufacturing footprints closer to end customers. That's what we help do. It's essentially a layer of software, our manufacturing operating system, which allows this to happen.

Megan: Is it just the final assembly or every step along the process?

Michael: Our focus is primarily final assembly. That is the part that is still so very automated. It doesn't necessarily have to be complete lights out manufacturing, which means that you can just have a completely automated factory that you don't even need to have people walking around at all inside that four walls of the factory. We are still years away from that ever happening. Really, what I think this addresses, is some of the portions of manual labor today that are still very fraught by user error by judgment. A lot of visual inspection that happens today, you can automate and get much higher reliability and yield.

It really just takes on some of the elements today that can absolutely shut down a manufacturing line because if one person doesn't show up for work, or if they're not trained adequately, can really create bottlenecks that we help address.

Megan: Or if there's a COVID outbreak, which we've seen a lot the last two years.

Michael: Absolutely. I didn't even go there because it's so ubiquitous in conversations today, but COVID has only accelerated the demand for what we do and highlighted how fragile supply chains can be. That's absolutely the case is, it is helping companies address that as well.

Megan: You mentioned that you joined them about a year ago, so that was right in the middle of the pandemic. How was it joining a new company, or how has it been, in the last two years? Any unique challenges? Are you guys remote or working on-site, and if remote, how has it been acclimating into the company culture?

Michael: Yes, I think there's a variety of challenges, but yes, I did join last year during this pandemic time. I'm working out of our San Francisco headquarters, but we do have a pretty global footprint with offices in Israel, Mexico, China, Austin, Texas, and San Francisco, and so we're spread out. We have been in a somewhat hybrid environment. People were going into our San Francisco office some period of one or two days a week. That certainly helped. The company's two and a half years old, but a lot of the growth has been experienced during the pandemic, and so there's always this risk of what culture are you creating?

I've always believed that for a company that's been around a while that pre-pandemic times was the traditional work in the office. That as COVID began and everyone started working from home, these companies could benefit from the relationships that people had built prior to the pandemic and they could leverage this. Working remotely was more seamless than people may have imagined simply because, I think, those relationships could be leveraged because of the time spent together in the office because of the team dinners.

The real challenge, I believe, exists with the companies that have been experiencing rapid growth since, and how do you leverage relationships that have only been built in and nurtured [unintelligible 00:13:59]? I don't know if everyone has a great answer for it. What we've had to do with that is we have placed value on trying to get people together in person. Some of the things we did is saying, "Following all the correct COVID protocols, these are the days that we're going to target to have everyone come work together, please join." We would buy team lunches. That always seemed to be a great way to get people in the office. Even with long commutes, free lunch seems to always be a huge draw.

We were actually getting a lot of people in there to meet during those times, so we'd still be primarily working from home. Building this team, I think what we've done like many others is definitely opened ourselves up to bringing in talent from many other locations. From day one, knowing that we're hiring people that are based out of locations that we do not have offices and that these employees are going to permanently be remote employees. That's helped. It's helped significantly because we have a much bigger talent pool to draw from and while we continue to work in this work-from-home or remote time period, I think everyone's adapted pretty easily. Everyone's available. You call them online, doesn't really matter where they're sitting.

I still believe we're going to have to navigate the post-pandemic period, which is when we get to whatever the next step looks like, which I believe is going to be some hybrid environment. However that's defined, whether it's work a few days from home or not, how you incorporate the rest of the remote employees, that we have value and there's talent, but they don't have the option to come in a couple of days a week. I think that's just everyone's got some thoughts, but we'll have to scale that place out because I think we'll have to figure it out, but how those people feel like they have the right visibility and have the same career prospects is a story that we're still writing.

Megan: Definitely been navigating through some unchartered territory the past couple of years, but as you look back on the time you have spent at Bright Machines, what are your proudest achievements? I know it's just been a short period of time, but--

Michael: It's a good question. I think that there has been much to do. On that list of things to do, it was, build the team. There were some finance team in place, but not the size or experience level needed to be a publicly-traded company. Part of it was building up the team. Something, in particular, I think when I got in was preparing the narrative for the investors. The whole, what is the story that we want to tell, how do we develop the relationships with the investment community and really get them excited and on board with our story?

I think our vision has been something that implicitly people understand the need for what we're doing today, automating this portion of manufacturing, has been something almost not questioned. People feel there's a need. It's more around how we've been telling this story about how we will achieve it. The investors have been particularly interested in how we invest smartly. This is something that a lot of companies have tried, but have not solved in any scale way so far. What we're trying to do is a little more difficult in that we're trying to do a full-stack. We're selling and out of the box hardware with an integrated software solution. Many companies are trying one or the other, but both is taking on more.

I think that narrative for the investors and those relationships and getting them to understand what we're doing has been something that I think has gone well. Another one has been raising money and continuing to give us runway for the growth. The last piece is some of the necessary work as far as getting us from private to preparing to be public, which is going back and redoing some of our prior years' audits to get us at PCAOB standards, getting some of our basic processes and controls in place that we need for that next stage of growth. There's a lot of, I'd say pain that's experienced from going through a company that wants to move fast, make decisions quickly without creating bureaucracy.

At some point, there are trade-offs that need to be made around. We need to make sure that there's some segregation of duty here that people that need to make certain can also have someone else reviewing those decisions and people are not making things in a complete silo where not only, you're not trying to prevent people from making bad decisions, but you're also trying to make sure that you've got a well-rounded business decision. Some of those basic controls. I think we've got some in place, but a good roadmap for how to get to what I think we need to be.

Megan: To your point about processes, how do you identify which processes are probably not going to scale when growth happens? Is there any way before it's actually broken?

Michael: Yes. What happens is at the stage we are, I think a lot of people can probably identify with it, is that they're breaking around you. You don't often have the luxury of thinking ahead about, "I'd like to fix this one by next quarter," or, "By next year, I want to have these done." You start to address the ones that are just not working today. That is when a company is growing fast, that starts to happen, often enough that that's-- your prioritization process is driven by necessity and that's where you focus on, "This one needs to be fixed now," and, "Oh, look what just happened over here. We need to go fix that now."

It's more a matter of-- well, I think the real art is not so much the sciences, there's processes. How much is good enough as you build a team and you bring in people that have various backgrounds, some from a smaller company and some from bigger? In some people's mind, there's an ideal standard, but a gold standard, it all depends on what you're measuring to. Is it for a company of a certain scale that it's overly complex and overkill for what we need at this stage of our growth? That's where some of the art comes in as to what's good enough and what isn't, what's just not meeting the minimum.

I think the goal is to try to set, here's the minimum criteria we need for a process to ensure that we either have the right controls in place to feel that we have, again, a segregation of duty, need met, but we also have the proper input. Does this need legal review, or does finance need to understand the accounting implications so we have the right decision-makers? Then the element of timing, how quickly do we need to get this decision made? Those are the elements that come into agreeing upon a process. You have to be open to carrying it down and doing something different if that proves not to be successful.

I do think it's an iterative process and it's not check the box and you're done. It's in an organization like finance, I think it continues to evolve.

Megan: What advice would you offer to CFOs out there who are about to make this transition to a publicly-traded company? How do you prepare for that?

Michael: I was asking the same questions myself. I think it's one of those experiences that all the preparation will only get you to a certain point of readiness and some of it is living through it. I do find valuable to have your network, whether it's trusted mentors or even just a network of peers, you can rely upon. There's a huge comfort that comes from knowing you can ask people certain questions. Give you an example, as we were going through, right when I joined the company, we were in the process of reauditing some of our last two years of financial statements. The auditor was drawing some conclusions about our state of controls and the things we needed to address.

I was not completely confident in how to work with the auditor on what is the right outcome. There's a balance between, let's address the issues that need to be addressed versus a standard. What is the right standard for the stage to the company? Within auditing, there are certain frameworks that you need to be within, but I really wanted to rely upon-- I had some people on my team, that had some experience there, but I also just wanted to get some outside advice as far as working with an auditor to get this audit closed. What are the things that I should be pushing back on? What are the things that we should just say, no, we all agree and we move on? Because there's some ambiguity there.

I absolutely got help from some people within my mentor networks just that have had more experience here. I think it's very helpful to have that as you're going through some of the learning that just come with this. I think the other advice I would offer is just that you've got to rely upon some of the team that you're bringing in is know where the areas of strength that you relied upon throughout your career and be keenly aware of the things that you haven't been. When you're building your team, is make sure you're bringing on people that fill in those gaps for you. Because I think part of being public is just a different level of visibility and scrutiny.

Of course, I think there's a couple of black and white standards Being public means, you have to be predictive. As a finance team, I think that's one of the absolute top priorities, is have you helped build predictability into your company? You've got to be able to talk to that as the company. Everyone within the leadership team, that has to be woven into their DNA at this point if they're going to be an executive leader at a publicly-traded company. They've got to help with that predictability of the business and play a role in that process.

That's the standard that I think you've really just got to make sure around is you don't want to be in a situation where you're unpredictable to the extent that you have processes in place to help with that. A private company, you still have that same level of scrutiny. You're trying to scale fast growth and there's some quarters where your forecast can be off. Then you can figure out what went wrong and course correct. When you're public, there's just different level of tolerance for that. I think that's the biggest thing you're trying to measure is, when do you think you're ready on that predictability measurement?

Megan: That's some great advice, know your strengths, know your weaknesses and build the team around you that can supplement for those weaknesses.

Michael: Exactly.

Megan: You have quite a bit of experience working at technology companies. Is there anything specific to technology companies that a CFO at one of those companies should know or be prepared for?

Michael: Yes. I'll speak to my perspective. It may not vary significantly from other industries. I just don't have the depth of experience in those others, but one thing that matters a whole lot in the technology industry, given the industry, the products you have may be extremely complex. They may be, by the definition of a tech industry, there's something technical about the product that you bring in the market. I think it's understanding the product at the technical level, as well as the business partners that you're working with, is what is going to be one of your absolute top measurements of success.

It's really having a passion to know the product and not just product itself, but it's what differentiates it? What is your competitive advantage? If you understand that at somewhat technical level, I think it makes your chances of being successful far greater. I think it makes your impact to the business far greater. Your ability to help the company go in the right direction, I think is very much predicated upon that. Just being willing to spend the time, to try to understand that differentiation, to understand the technical merit to the product, and to act like an engineer, whether or not you are one, I think is just one of the most important things you can do in the industry because everyone you're working with is going to respect that you've gotten that level of knowledge.

People want to know that if you're trying to help them invest smartly, to grow the business, and help make the right business decisions, is that you're understanding this element. You're not just worried about FP&A and having accurate tracking of numbers. You really understand there's going to be decisions that you're going to have to make regarding spending. It could be whether you're developing defensive IP portfolio, it could be M&A, it could even be just with our limited cash. What is the most important thing we invest in to continue to grow or win in our space? People want to know that you understand this. That's my long-winded way of saying how important I think it is for a CFO in this industry to do that.

Megan: I imagine it's also a very fast pace of change within technology too. It's not like some other industries where you have the luxury of being able to pause for a moment. I imagine that you have to deal with a lot of change.

Michael: Yes, certainly. I think if you look at the market environment that we've been in, right now I'd say is just a really good example, super volatile environment. I think in the past periods where we've almost relied upon just straight upward trajectory and growth in the tech industry is, feels like we're entering a different period. Certainly from a stock price perspective, which is not the same thing as the economic fundamentals of the business, but from a stock price perspective, you're seeing volatility and how the market reacts to, with prospects of these companies.

In reality, I think what we're seeing is, there has been and continues to be massive investment in the industry from the early on venture capital side, but what we've seen is also a big sea change over the last five years or so with PE getting into this space, as well as even just fortune 500 companies themselves with companies that have not traditionally been technology players, but investing in this space. I think all of that means that the pace to change is fast because huge investment is going into it. What's the differentiator for you? Have you developed a product that customers are willing to pay for long term?

There's such a change from buying a product to paying for a subscription to actually now paying per use. It's been a very fast-evolving model. Even from that perspective, it's I may be buying the same product, but how I'm paying for it over time has evolved very quickly. That requires a lot of nimbleness from a finance organization regarding how are they building out this business model? How are they able to talk to a transition sometimes between those types of payment models? Have we figured out the right level of stickiness for us as a company to keep up with this market change?

Megan: What advice, speaking of volatility, do you have for CFOs who are maybe looking to drive strategic value to grow revenue or increase margin, particularly in this inflationary period? Costs seem to be spiraling out of control.

Michael: Well, you're right. Inflationary environment, we certainly see what's happening with wage growth. We see that and with number of open jobs today, one of the first and most important issues that I think we have to address is employees. What is the company doing to ensure that it's a good place to work and people are being paid prevailing compensation? The markets move quite quickly and so employees have choices.

Of course, we've heard a whole lot about the fact that the massive number of job changes people are making or the amount of people that are leaving their jobs, there's certainly been some pent-up demand there that is now that pressure is being released. Given the fact that there's now more remote work options, I think just this whole, that how you retain employees, because the cost of turnover is extremely high. That's one strategic value really comes from having the right level of talent in your team, I think that is the big differentiator for companies.

Another one, if you think about a rising interest rate environment, the long recent history we've had of super low-interest rates, and almost free cost of borrowing is going to be changing. I think we're entering a phase where we've got to be preserving capital, thinking much more about, like I talked about an evolving model of how people pay for their products and services, is the companies have to be ahead of that. I think the most important thing when you're talking about strategic value is, do you understand your end customer? It really comes down to that.

The CFO has to understand that as well. CFO's got to be out really looking and ideally, have some conversations with customers to know how their product's being used because I think that really helps, but when it comes to strategic value, a CFO can be a part of those conversations to know how their product is being used and that value. That's really where you're trying to invest in the future, is continuing to provide that value so that there continues to be demand.

Megan: Great answer. Last question, and perhaps you just touched on it a bit. As a CFO, what is keeping you up at night?

Michael: Right now, for my situation, it's really, how can we meet our customers' demand? We have a wonderful problem to have, which is going back to what I mentioned earlier, that the market loves our story about trying to help address supply chain fragility, but how do we be a bit judicious about how we work with customers. Sometimes that actually means saying no to some customers, because we can't take on too much, or we'll be spread too thin. Where we are right now, it's we have to be very selective, and working with the right customers to deliver the right value that leads us to the next step.

We have learned that across many, many industries, there's demand for what we do, but we have to focus on the right ones that allow us to have margins so that we can have some profitable growth. It would be too easy just to say yes to everyone. Saying yes to everyone, I think just means that we're inevitably going to make many people unhappy. Part of it is let's be selective, and given that I want to make sure that we preserve capital to survive, it's how do we have the right framework for what we say yes to? That's really the biggest thing.

Then the second is we talked about with employees in this environment today in the industry, people have choices, so good talent, you always want to keep it. Those are the two most important things that I'm focused on.

Megan: I think you're right, that sounds like a good problem to have when you can be selective about the customers you take on. Michael, thank you so much for being my guest today.

Michael: I really appreciate you having me, Megan. I enjoyed it.

Megan: I really enjoyed speaking with you and hearing about your experiences and all the resulting insights. I appreciate you taking the time to be here with us today, and I wish you and Bright Machines all the best. It sounds like you're both doing wonderful things. To all of our listeners, please tune in next week, and until then, take care.

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