It’s not hard to find CFOs who profess a people-first view of what creates value for their companies. But Chris Lynch seems to walk the talk a bit more than most.
It’s not that Lynch is so taken with people that he wants more of them. On the contrary, staying lean is a core component of his strategy for running finance at a young, fast-growing software-as-a-service (SaaS) company like Sprinklr, which hired Lynch as its first finance chief last July. Rather, it’s that he routinely measures progress and makes forecasts based in significant part on people-related decisions and strategies.
That mindset may not be overly surprising, given the people-oriented nature of Sprinklr’s business. The company provides large organizations with a platform that compiles and aggregates what consumers are saying about them on social media, enables interaction with those consumers, and helps them create data-based marketing and other strategies based on consumer sentiments.
New York-based Sprinklr, launched in 2009, has only about 200 employees (100 or so in each of the United States and India). But it has 350-plus clients that average more than $1 billion in annual revenue and include giants like Cisco, Intel and Microsoft. Included in the head count are just two finance staffers.
The company’s sales are running roughly 300 percent higher this year than in 2012. Lynch recently spoke with CFO about the keys to growth, running a lean ship and the role people costs play in forecasting.
Some companies that are half the size of Sprinklr have more than two finance staffers. Why are you so lean?
Part of my job is to eliminate stuff that is not necessary. So we outsource all transactional aspects of finance and automate everything else. We should spend our time on analysis and become better predictors of outcomes. We’re forecasters, not scorecard keepers.
I don’t want to hire somebody to do accounts-payable processing. An organization that does that all day every day will do it 10 times better than I can, and it’s better than trying to layer that on as a responsibility for somebody who can help me forecast the business.
You’ll obviously be hiring more finance people as you grow.
Of course. But I love capacity constraints on a team. It forces us to eliminate nonessential tasks. People will do stuff that’s not important because it’s always been done. It’s a natural thing to do — somebody once said “produce this report” and you keep doing that, but maybe nobody is using it anymore. Capacity constraints force us to constantly re-evaluate what we’re doing.
I prefer to hire fewer people and pay them more. I want to hire only the best, highest-intellect, A+ players. Navy Seals, if you will.
Everybody wants those, and they’re in short supply. How will you attract them?
It’s about the opportunity at Sprinklr, growing as quickly as we are. At a company like ours, I talk about “dog years.” Every year is like seven years somewhere else. You get to experience so much, because we’re accomplishing so much in a relatively short period of time.
We’re in the U.K. right now, and at some point I’m sure we’re going to France and Germany and the Nordics, and Asia-Pacific and Latin America. Think about the opportunities that creates if you’re part of a very small team. We won’t have a huge finance organization. Instead, the folks that are on the team will do lots. They’ll all wear 17 different hats and get experience in far more areas than they would if they went to work for a much larger organization. The broad experience they will gain is like gold dust for a young, intelligent person coming into a finance career.
I understand that stock options are a component of pay for every Sprinklr employee.
It’s a wonderful philosophy. I want everyone here to share in the company’s success. It is hard work at a small, super-high-growth, start-up company, and people make a lot of sacrifices with their time and spending time with their families.
Everybody at Sprinklr could probably earn more cash compensation somewhere else. Here in New York, I could get significantly more if I worked for a financial institution. But it’s not about that. It’s about being part of something special, making decisions knowing that you are an owner of the company and being rewarded for its success. There is no market for our stock at the present time, but if it gets monetized in the future our people will share in that.
You helped orchestrate an IPO at your previous employer, BazaarVoice. Is it fair to say you’re at Sprinklr to do that again?
That’s not a specific target. We’re going to make sure every possible avenue is available to us. But a technology company growing at the rate we are can get a significant multiple in an IPO scenario. To the extent that’s a path we want to take, we’ll be ready for it.
Let’s come back to forecasting. Isn’t that a pretty dicey exercise, at best, for a company of Sprinklr’s size and maturity?
It varies with SaaS companies, but generally between 60 percent and 75 percent of costs are people-related, and those costs should be pretty darn easy to forecast. Well, maybe not “easy,” but it’s the least challenging of the forecast dimensions. I control when we hire. I control most elements of the variable compensation structure. We have third-party hosting costs, some outside professional fees and some marketing costs. Outside of that, it’s mostly people-related.
What about R&D?
That’s people. We don’t outsource R&D.
But you’ll have to hire to accommodate growth. How predictable is your growth?
With some roles I’m going to lean into the wind a little bit and hire ahead of the growth — salespeople, for instance. I’m going to hire them predicated on an assumption about how productive they’re going to be after a period of ramp-up. But yes, forecasting the revenue is the trickier piece of it.
So how do you do that?
I’m on the phone every day with our senior vice president of sales and his five area vice presidents, talking about deal flow. A budget is out of date about 10 seconds after you’ve done it, so I have a real-time forecasting thought process that’s based on how we’re tracking with our revenue.
We also do a lot of data analysis, and the next finance people I hire will be on the FP&A side. Right now we are evolving a pretty good predictive model of new sales staffers’ productivity.
What do you think is the key to good data analysis?
I feel that many CFOs get bogged down by trying to create pretty charts, graphs and dashboards. When you articulate the meaning of data to business leaders, of course it has to be in a format that is organized for their consumption. But for purposes of data analysis, perfection is the enemy of good. As long as I can extract the data, I don’t care how I get it. Somebody can scrawl it on a napkin in crayon, and I’ll take that data and use it to help shape the future of Sprinklr.
You talk to your sales leaders on the phone every day? That’s old technology!
Yes, and it’s an interruptive technology to me personally. But it’s not about me. It’s about making sure my area VPs can make real-time decisions when they’re with a customer negotiating a software deal. That’s the most important thing, and it’s about the velocity of our business.
I live by the motto “Today, not Tomorrow.” Call me on the phone. If I don’t get to an email within 30 minutes of receiving it, it’s below my view pane, never to be seen again. I pick up my phone every time it rings, if I’m not already on it.
What KPIs do you pay most attention to?
Head count, revenue-to-head-count ratio, growth vs. customer acquisition costs, and customer churn. The revenue-to-head-count ratio speaks to the scale of the organization and its ability to grow. We benchmark ourselves against other peer SaaS companies. We’re a bit more immature than the ones we benchmark against, so it’s somewhat of a harsh metric to look at. But we do so because it’s aspirational in nature.
For a SaaS company, churn and customer acquisition costs are huge. If it costs me 50 cents to acquire $1, I’m going to do that all day every day. If it costs me $1, I’m going to do that all day every day too, because I have to assume that my customer life cycle is going to be at least three years and probably more. If it costs me $1 today to acquire a dollar of business, that dollar is going to come back in years two and three and hopefully beyond. If you have a lot of churn, then your investment in acquiring new dollars is flowing back out the door.