Mark Peek has been through this drill before: running finance at a fast-growing, newly public technology company. He overcame that challenge at VMware, where he was finance chief from April 2007 through May 2012, a period during which the virtualization software company’s annual revenue ballooned from barely over $1 billion to almost $4 billion.
This time, investors are making a big bet that Peek’s employer since June 2012, Workday, will become a powerhouse in the market for enterprise resource planning (ERP) systems. That’s been the case since Day 1 of the company’s initial public offering in October of that year, when shares opened at $48, a startling 20-buck premium over the IPO price it had set. Fifteen months later, on Tuesday morning, the stock was trading near $88.
Workday, which was first to market with a complete, integrated, fully cloud-based system for core human capital management (HCM) tasks, is busy trying to replicate its success in that technology arena with an integrated set of cloud-based financial applications. That is hardly guaranteed, but the company is comfortable with growth. VMware, according to Peek, was Workday’s 157th HCM customer, switching on the system on Jan. 1, 2011. Two years later, Workday had about 350 such clients, and by early 2014 it has added 200-plus more. Notably, these are large employers; the vast majority of them have more than 1,000 employees.
Workday is betting that its entry into the financial software market will add to the customer roster. While it currently has only 60 customers for its financial products, half of its research-and-development dollars are being invested in that side of the business, Peek says.
Peek’s journey to Workday started when, while still at VMware, he joined Workday’s board of directors. “The way I like to tell the story, one of my jobs as a board member was to help the company hire a CFO that could take them public, and I failed so miserably I finally had to step off the board and become the CFO myself,” he says.
If Workday one day achieves its goal of becoming a huge force in its industry (the ERP niche), Peek will have been there, done that as well. Before VMware he was chief accounting officer for seven years at another company that recorded some decent growth numbers: Amazon.com.
Peek recently spoke with CFO about his career and his role at Workday. An edited transcript of the discussion follows.
It seems like you had a pretty good thing going at VMware. Why did you decide to go with a much smaller company?
We signed our contract with Workday in July of 2010 and were live globally with the system on Jan. 1. I was amazed. I hadn’t believed it was possible to get enterprise software up and running so quickly. So I took the opportunity to meet Workday’s founders that summer. [Co-founder and co-CEO] Aneel Bhusri [now a billionaire thanks to the run-up in Workday’s share price] was out networking, trying to find a CFO and also board members.
At the same time, VMware’s CEO had announced he was leaving. I figured I’d be going through a big transition anyway, so it was a good time to move to something I was a little bit closer to from a product perspective. The thing I missed when I went to VMware was that it had been really easy to talk about Amazon and its products. Everyone knows what Amazon does. VMware is enterprise software that does virtualization and operates beneath operating systems and software-defined data centers. It’s is not exactly cocktail talk. People’s eyes glaze over pretty quickly. Coming to Workday, we have products that I frankly understand better.
You’re the CFO of a company that sells stuff to CFOs. Does that influence the role you play? For example, do you make sales calls?
I do make sales calls. Initially, before and shortly after we went public, a number of our customers wanted me to explain our business model. They wanted to know if we were financially viable. Now it’s more about our financial products. I can share the experience of taking Workday public on that system, and we use it to report our earnings and do Sarbanes-Oxley compliance — and everything else a public company has to do.
What else about the nature of Workday shapes what you do as the CFO?
We’re building a company that is designed for the long term. It’s not about getting by for a few years and then having some kind of event happen. The intention is to be one of the largest ERP vendors in the world. That means taking care of our employees, because we believe that’s how we will take care of our customers in the long term.
Our HCM product is mature and can — and does — serve some of the biggest companies in the world. On the financial side we’re not there yet. For example, Hewlett-Packard is an HCM customer, but we’re not ready for HP to be a financial-software customer.
There’s a continued perception, not held by everyone but certainly by many, that putting proprietary financial information in the cloud is risky from a data-security standpoint. What do you say when that issue comes up?
It’s a question of market maturity and educating customers and potential ones about our security practices. There are many companies large and small that trust their customer and sales-pipeline information in a cloud system like salesforce.com. Many have become comfortable with their employees’ data being stored in the cloud too. Some may argue that your financial information is less valuable [to hackers] than either of those.
Workday is obviously not a retailer, but do you think that all companies are going to be scrutinized more closely on data security because of the breaches at Target?
That was unfortunate, because e-commerce and credit-card transactions are really driving the global economy. Certainly people want to understand what happened and how to prevent it. It’ll be interesting to see what the causes of that were and what lessons we can learn.
Other than supporting the sales process, what do you spend your time on?
At this early stage of the company, much of what I’m doing is around our internal HR. I’m doing a lot of recruiting and interviewing in the areas that report to me: finance, IT and legal. I’m also participating in the hiring of country-level leaders and key positions in HR and other parts of the business to help us grow and scale.
We’ve hired 1,000 people in the last year. How do you create good decision support so as to not stifle growth but also to hire in a controlled way so that we maintain quality and an organized approach to how we invest our dollars?
About a third of my time is spent around traditional finance activities. We are going through our first Sarbanes-Oxley compliance this year, for instance. We’re approaching it in a way to make it something other than a pure compliance exercise. If we identify a key control and it doesn’t somehow help the business absent SOX compliance, we have to challenge whether it’s really a key control or do it differently.
And even though we’re a young company, I spend a chunk of time looking at how to modify business processes so that we can continue to act like an innovative startup. It’s pretty easy when you first go public to layer on excessive and bureaucratic policies, procedures and processes.
Before Amazon you spent 20 years in public accounting, mostly at Deloitte. What did you learn that’s still important in your work today?
I was working for Touche Ross in Seattle at the time of its merger with Deloitte, which had this little startup client called Microsoft. I spent almost a decade working on Microsoft as an audit partner and later doing all sorts of M&A work and an ERP implementation for them. I got to experience most of the 1990s from Microsoft’s campus when it was really growing quickly.
It shaped me, partly because I fell in love with software, but I also had to adjust our services to handle a company that was growing so explosively. We were providing services for Microsoft in over 100 countries; prior to that I didn’t even realize there were 100 countries in the world where software would be sold, let alone where auditors would be doing things. So I got a very global perspective from my years at Deloitte.
After 20 years, why did you leave Deloitte?
I really didn’t want to, because I was happy there. But as part of auditor rotation it was time for me to move away from Microsoft, and I was told I’d end up in either Michigan or New Jersey, but I wouldn’t know for a few months — and my fourth child was on the way at the time. I got a call from Amazon, which was based in Seattle and was looking for a chief accounting officer. I met with the people there and it seemed interesting and compelling.
And what did you learn there that’s still relevant to you today?
It was 2000, and the economy was faltering — in fact, my first day at Amazon.com was March 13, the day NASDAQ hit its all-time high. So I see myself as the person who officially burst the Internet bubble! Shortly after I arrived, we no longer had access to the capital markets. So for the first couple of years I was mainly involved with finding ways to become more operationally efficient, to generate cash flow so we could continue to grow.
I learned a ton. It was, and is, a company that is maniacally focused on the customers. If you’re trying to solve a problem, you start with the customer and work backwards. That has shaped me. The day after our first earnings call, [CEO] Jeff Bezos said, “The thing that’s slowing us down is that people get to checkout and look at the shipping charges and decide not to buy. So we’re going to find ways to offer free shipping.” And all the finance guys and analytical guys were going, how can we afford to do that? But we did find ways.
How did VMware come about?
I aspired to be a CFO, and at Amazon we had Tom Szkutak, who is still there. I got a phone call from Mike Brown, who had been CFO at Microsoft and was on the board of EMC, which had acquired this software company and wanted to spin it out in a public offering. My profile was that I had a strong accounting and controls background, a strong background in software and perhaps the personality to deal with a complicated organizational structure. So I left Seattle after 25-plus years, moved to Silicon Valley and arrived at VMware about four months before we went public.
There I picked up some of the skills needed to operate more broadly across a business — managing the board relationship, shareholder communication, and interacting with other constituencies. I also learned how to bridge the quarterly necessity to hit operating numbers with a longer-term vision for making investments in the future and running a planning process. That’s definitely relevant to me today at Workday.