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Jack Sinclair is a the CFO at Stack Overflow, an online community for developers. Their Q&A format on niche topics inspires 40 million unique visits every month. He presented this talk at our CFO summit in NYC.
To see more from the summit click here.
Hi. So I’m Jack. I’m CFO at Stack Overflow. And just to give a little bit of context, Stack Overflow is the world’s largest community for developers, primarily in Q&A. We are a secretly large community, we’re a top 30 in the country for traffic, and if you’re a developer, you use us all day.
What I’m going to talk about here is a little bit about how we’ve scaled the business. Even though we’re a developer community, our revenue is more of a SaaS business and more a software business. So a little about how that’s worked here, and how you really help get your business ready to be a public company.
Here we go. The first thing is a little bit of just an overview of how you want to build your team. How you want to think about it. Obviously there are a lot of other groups thinking about scaling your business to be public. We’re just to focus on sort of the finance economy and legal for a second.
So early on, you talk about bookkeeping, which I guess use a different term now. We talk about finance. Finance, the early pioneers are really the analysts. Starting to understand finance as a partner in your org, as you go down, you want to get more sophisticated. You have FP&A, you need a VP of Finance, investor relations in the very end. On the accounting side, I’d say the general progression is similar, except that near the end, you’re going to get some things that are very specific, whether it’s a Revenue Controller just worrying about how each contract is booked … Internal tax, internal audit, but most of these things are the last year or so. You can probably get through with the generalist CPA up until then.
Legal is something that I find interesting. It has evolved over the years. In our current organization, we were able to do without in-house legal for a long time. We’ve used a law firm helping, almost acting as the general counsel, but right now, we’ve hired a corporate counsel. Someone who’s worried about contracts, worried about vendor agreements, worried about IP. Later on, eventually, you really don’t need, I think, at this point, a real senior in-house general counsel until really near the end.
The other part I found, at least early on, it’s really important to get your external team set up pretty well. By this I mean the legal firm, which may be your most important early external partner. You want to find this legal firm that will scale with you. You want to avoid changing lawyers a lot because they have a lot of the … They make your later life a lot easier because they work with compliance or about cap reps and so on.
Audit’s a little different. I found audit, you can have a small firm at first, and it will cost you a lot less. Then if you start to get on the track where you consider you are going to be able to go public, you want to make sure you have the Big Four firm in house about three years before. Ideally five to three years, you can usually be all right with that. I’ve also found with audit with that transition, the first couple of years are pretty ugly. You generally find a lot of mistakes that the initial auditors do, especially around equity, so you want to make sure you give yourself time to run through those. I know with our … we use PWC now, the first two audits took months and months and months; the last audit, six weeks. So you want to give yourself time to get that process going.
Tax, let’s keep it separate from the auditor. If you’re a public company, you can’t have the same firm do both. It’s something we were able to outsource a lot. I’ll talk a bit about compliance later, but having a good tax partner, having an auditor partner, having a good legal partner is going to be critical to save you a lot of headaches later on as you scale.
Lastly, something you’ll probably start having as you get within a couple of years of going to be a public company is advisors. Especially if you are in enterprise, You have enterprise clients, like banks, financial institutions they’re going to want certain audits done like SOC type 2 audits, so you need partners for that. As you get closer to public, you have to worry about other audits, like SOX, SOX 302, 404. You don’t want to worry about them too much till the very end. You also don’t want to worry too much in house. You want to rely on external partners. So, you’re going to make sure you have them lined up. Also, what I found, too, you have your audit firm doing your audit, but then you’ll have in-house things you’ll want to work on, very specific around rev rec (revenue recommendation) or around segmentation around your accounting. That’s where you can also leverage some partners to help you get into the system and work with your team, maybe an employee to hire those people internally.
So, getting all the internal team set up, I find is a important part of scaling, because the team’s starting to deliver a lot of things as you get past the Series B and Series C rounds. And it gets sort of ugly. There’s a long tail of things you have to worry about as you grow.
Just as an example here. Tax and state filings get kind of crazy. At Stack Overflow, we are big believers in remote workforces. We have 85 people that work remotely out of our 320, or so employees. So, we have people in 18 states.
Each state has its own NEXUS rules, own sales tax rules, use tax rules, filing things. It’s really hard to deal with, and the internal team, the corporate team, the accounting teams, have to deliver. We can’t say, “No, we’re not gonna let you hire anybody in Illinois because we don’t want to deal with their paperwork anymore.” Right, so you have no choice.
So, it makes you build a process with partners that you can manage these things, because the longer you put it off, as you get closer to going public, that stuff gets really difficult to fix and really sort of expensive. HR, there’s a lot of things that you don’t realize when you start a company, when you’re 30 people, you don’t have to worry about it, but you get past 150 people, you have to have your 401K audited. There’s a bunch of, especially in New York State, you have to send a letter to all your employees every year confirming their comp. There are all these long-tail HR compliance things you have to worry about.
So really, and I know each one of these is kinda dry on the slate, but the key is organizing in a way where you have, between your external partners and internal partners, sort of like compliance calendars. You have a checklist of everything they have to do. You can certainly have, like, we have our tax partners help us with all the NEXUS stuff. We have a law firm help us with all the HR compliance things. So we have our sort of foundation set up. So as we scale, this becomes something that scales with us, and nothing we have to fix later on.
So, the other part is, that as you scale, you have to worry about is how you’re company’s structured, and, especially with international entities. We have a couple, and each one has an equivalent almost as the US, so we have a UK entity, which has its own little compliance things, and again, you can scale by making sure you pick the right partners. you know we have … Where as in Germany as well, and same thing: it’s really about finding the right partners and trying as early as possible doing it the right way. Spend a little bit of extra money to make sure you do the right filings, make sure you get sort of the compliance calendar set up.
I know prior to this company, company called Return Path, and we started in 2000. We were all looking scrappy, went through two recessions, so you had to be scrappy, you couldn’t hire a bunch of teams, so you know we took some shortcuts to make sure we’d get things done, and hire the extra engineer, and that was a mistake. I learned it’s such a thing to being too scrappy as a CFO, and you want to make sure that you spend the time up front to do these things right around compliance and around corporate structures.
Another thing I talk about is option plans. You know, that’s something where as you know a technology company, all employees have options, and you know there’s a lot of subtlety and complexity around option plans, especially in different countries. You know, I know in the UK we’ve already had three different kind of plans because of the requirements of our employee size and asset sizes dictate different plans over time, and you have to kinda stay on top of that.
The foreign aid evaluation is another one. I know, like ten years ago, this was a bigger deal as far as making sure you had a sensical progression of foreign aid, before you go public. It was a big issue around cheap stock as you file your SON. It’s less of an issue these days. Basically, everybody is doing foreign aid to have a good progression so that’s great. One thing I’d say about that is evaluation partners become important as you get bigger and what I mean by that is you need to have an evaluation person doing your foreign aid or at least has an opinion of other person that can talk and argue with evaluation of like during an aid.
For example, audit firm and a great relationship with your audit partner. When they have to evaluate something. Let’s say you made an acquisition or you did a tender something like that and that becomes during audit. Their evaluation team gets brought in and their independent of that auditor and they will grill you on every little assumption you made no matter how arcane. So, you need a foreign aid partner that can stand up to that evaluation group. So that’s and example there.
The other one is contract manager systems. Something we’re in the middle of dealing with right now. But, it becomes increasingly important as you get bigger and it is one of those things that you will spend a lot of money on if you’re going through any kind of major diligence. Whether it’s a series D-RON, an acquisition, you know, an IPO where you’ll end up spending a lot of money with a law firm because some associate will go through every possible client contract trying to find out what they talk about marketing rights or talked about limitation liability, or ownership of IP. So, you want to assist them as soon as possible before it gets to difficult that’s why it’s tracking all these exceptions to your templates. That’s why it’s tracking all your requirements from your vendors and cancellation rights and all these things. Again, it’s kind of a theme here where the longer you wait for all these items it’s going to get harder and more expensive later on.
So, this is sort of my favorite topic of scalability and it’s my favorite topic. As your a CFO and you want to scale your business you want to spend a lot of time on as early as possible. And you know ,one thing that’s been great about being a finance executive over the last ten years or so is how much this has changed. And how much the industry now allows you to do so much internally with a much smaller team because of software, because of systems. And the danger is if you throw systems.
An early adoptive of our Salesforce. It was like one of our first 500 clients. And back in the day we just like put on opportunities but on stages we didn’t give much thought we just grew and grew and grew. At some point it was just ugly. It was hard I’m sure it was familiar it was ugly unmanaged Salesforce. Then we stepped back and we made it sort of organized. It was almost like Manhattan where downtown Manhattan is a mess of streets, no organization, no thought processes. It was whatever they wanted to build they built. Then at some point they have a grid. That was like our system and so what you want to do is get to the grid as soon as possible. And now a days it’s not just one see around it is a maze of things. And I … This is an example of our internal tool maps. We are running about 80 pieces of software around our business. We’re not that big, we’re like 300 people. So, we’re still using software to run the business.
This is what I mean. This is great. You can do so much. We get so much information to so many parts of the business you can use data to drive decisions you can use it to drive compliance. I mean you can see how integrates. You know, but, if you didn’t have organization and you think about this you can see how this can be really difficult to manage and some of the tips that I have ar have an internal development team. This is has been the biggest win I’ve ever had with systems. In past companies I’ve always wanted this. I’ve always wanted to have dedicated developers. Where you build your own systems. But, we always put it off because it was always more important in our mind to be scrappy and less higher up the DBA. Not someone to make sure the salesperson could add his work. And at Stack Over Flow we have a team of three people. Their main job is making sure that the amoeba of systems works well together and it’s been great. It has really paid off in a lot of ways and I feel like it’s helped a lot.
The other thing is be really disciplined around single sources of truth. So, what I mean by that is you have one place where people’s names are, right. You have one place where the company, client names are. Where client ID’s or pay role or whatever it is. You don’t have to manage multiple, basically, databases of truth. Create maps, I showed you one example of a map. I’m going to show you another on in a second.
I’m a big fan of also effective tools. I think there’s a lot use to a looker. Which it’s worked really well for us. And I think the key is that as you build these systems out you have an immense amount of data. And data can be confusing if you have to much of it. You’re trying to have tools that will help give the right people the right data the right time. So, it’s driving decisions. It’s not just dashboards right. You want to have, you want to be able to drive decisions. That’s what tool can help you do. And the other thing I like to talk about is you know back when the cloud stated happening. The version of the cloud for us running businesses was about storing data, in the cloud not on your server. Not on paper. That was helpful you know I could see where I am with my leads in sales force. I had some, some version of of a cap table. It was like ten years ago so it was data in the cloud.
What I’d love to talk about now is move work flows in the cloud. Move services in the cloud and there’s a lot of things you can do now. We have all these servers. We have equity of these Carta where yes we have a cap table in there and it’s all organized and that’s all fine. But, the cool thing about something like that is it moved the whole, you know option acceptance processes allowed. We didn’t have to make PDF’s anymore send them around to people have them sign them, store them, we never got them all and then when you do diligence there were all these holes to fix. So, that’s one example. In A.P. (accounts payable) you know we used to deal with processes. You get invoice, you get approved by the business person, accounting; create the check. Check goes in my desk, I sign checks. All right, and them I stamp checks. That was a big improvement. But, now that’s all in the cloud. Right, so now we use someone can do it by call. It’s a work flow process an improved process. I log in on my phone, I just hit some buttons and vendors are paid.
Accounting close. This is another one I found … Accounting close is a big part of scaling. In having organized team be able to close in some number of days, right? I always use ten days for whatever reason, ten days. Ten business days you should be able to close by. Nope. You know, it could be different or it could be closed in one day, right? But, for us a team of five kind of people ten days is reasonable. The thing that made that possible was, in some ways was we got this. It’s this whole close process in the cloud that creates automatic tasks for people to do, order of things to happen of these sort of organizations of work and that stuff. So, that’s been great.
Contract manager is the next one. I talk a bit about that earlier. Is that having a way that you can create contracts with the clients. So, we have 7,000 clients, right. So, it’s really a high scale process to do where every contract gets done by hand and sign by hand and delivered by hand. So, you want to have something that goes right from the order entry. So your order entry when you close a deal to creating the the contract and hopefully the clients signs without any hits.
It never happens exactly that way so goes to legal. But, either way the contracts are managed and created in a way that is sort of the whole work flow now that is in the cloud. You know, because in the end what you are trying to build because you’re public you have to be able to not only have accurate data timely data. You have to have predictable data. You have to be able to predict bookings and revenue, you know six revenues out. So, in order to be able to do that you have to have a good pipeline, you have to have good financials, you have to have an accurate understanding of expenses and, you know and also auditable, big deal.
So, it’s part of effective audit. You can only do an audit in six week if a lot of the things are automated. If you have a lot of manual pieces a lot of, you know. A lot of data entry, a lot of exceptions, auditors just live at your office and it’s, you know. They will expand at any time that they can, right. So, you have to have really hard deadlines on them. Manage auditors, the only way that you can manage auditors effectively is if you have processes that allow it to happen.
One thing, this is kind of an ugly thing, so, not suppose to be able to read it. But, this is one thing I think effective CFO tools you can have at a latter stage is. Can you map yourself? Interest to order, and order to cash. Those are two really important work flows that not only you can map it out, right. So this is ours like I said so we have for example we have a client in it’s sights through Hubspot interest, great. Automatically send that to Salesforce , read contracts they get assigned to sales, whatever. So, then it goes into order entry, order entry gives it to contract, goes into our system, you see. So, then, order into cash and so what we did we mapped this out. Where are our holds? Where is it automated? What’s not going to scale? What’s the future?
In fact, when I looked at this, this was a little while ago. I said, well we’re pretty good. We scale well on interest to order is actually really well done now. The order entries section now that’s all automated. Invoicing is a little bit of a problem. Rev rec (revenue recommendation) for us at the time wasn’t scalable. Because it was done through a, you know, systems, spreadsheets, this and then the accounting system. So, I mapped it out. It was clarity of what do we have to work on in order to be able to be a pubic company. Just from the systems reflective. Nevermind, adjustable revenue, adjustable markets and all those other business questions. But, your systems where is the problem? Where is the possible problem? With being scalable.
So, I like having a map like this. Because A, traditionally before you map it out it’s in peoples heads a little bit but not the whole thing, right. Usually, sales and marketing gets an order and accounting gets order to cash and maybe it’s in your head but this is a helpful tool as well. Just to role out once in a while. It helps the team understand. Especially, if you have an internal systems team. This is, developers love this stuff. They seeing what the answer should be so they can build the in between things. So, operationally I think this is a good tool I use to scale to make sure we have that and that’s it. Thank you.
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