Having been in finance for more than two decades, it's fair to say Todd McElhatton has a good understanding of how the sector has evolved.
On the one hand, he's had a front row seat for the digitalisation of the whole space at big-name companies including HP, Oracle, VMware and SAP, including the shift to automation and increased strategic thinking.
But on the other, Todd still has the trusty HP 12C financial calculator he used when starting out as a financial analyst at HP, back when employees were manually copying and pasting spreadsheets and using scratch paper to check their work.
These days, he's leading the charge for strategic, tech-driven finance as CFO of Zuora, and is excited to take finance in new directions.
For those new to Zuora, how would you describe the company's core activities?
Tien Tzuo (CEO) founded Zuora fifteen years ago with a really straightforward, fundamental insight about how businesses and customers interact. He coined the term “subscription economy” to describe how businesses would move – and, now, have moved – from having a series of one-off sales interactions with their customers to building ongoing, recurring, direct relationships with them.
Today, all kinds of products and industries are being transformed, creating entirely new businesses and ways for companies to monetize. SaaS was at the forefront of this transformation, evolving how businesses price and provide their customers with ongoing, instant updates to their technology. Publishing companies, whose long-term survival was once questioned, are now providing ongoing value with personalised bundles and expansion packages. Manufacturers are creating new revenue streams through complementary services to physical products, from connected vacuums to smart tractors. Consumer-based services have changed how we receive our daily essentials such as coffee and vitamins. All of these new business models are possible thanks to digital services like ours, which enable businesses to nurture and monetise customer relationships.
We’ve grown a lot in our capabilities over those fifteen years, creating tools to deliver different kinds of recurring revenue pricing models, improve collections, recognize revenue, drive customer conversion and retention, and join all that complexity together through the engineering and IT function. Throughout it, we’ve also been evangelical about promoting the agility and resilience that comes with innovative monetisation and helping our users unlock new kinds of growth strategy.
How tough have the last few years been for Zuora given the pandemic and global economic uncertainty?
The last few years have undoubtedly been a rollercoaster for everyone. While some businesses struggled during the pandemic, the subscription economy boomed. Stay-at-home orders encouraged individuals around the world to think differently about the way in which they purchased and consumed both products and services and, as a result, we saw a surge in digital services as subscription growth doubled.
Thanks to their use of recurring revenue models, many of our customers managed to thrive in this period of uncertainty. For example, Zoom went from 10 million to 300 million users in less than a quarter. I can’t think of another time where Zuora’s system has been more important to an online business, both in terms of helping it scale to meet unprecedented demand, and ensuring it could rapidly pivot services to meet customers' changing needs.
One thing we all learned from that period is that change happens fast. Organisations need to constantly iterate new features and pivot quickly to survive.
This has also never been more apparent than in our current economic landscape. Despite high inflation, we are seeing that recurring revenue models continue to be more resilient. In fact, the most recent Subscription Economy Index data shows they help businesses continue to grow through acquiring new customers, retaining existing ones and expanding revenue with new add-ons and packages. Ultimately, subscriptions help companies understand their customers better and strong customer relationships are the foundation of every successful business, especially right now.
For finance teams, these models also help to boost predictability, which can help the bottom line. For example, they enable a business to start the year already with revenue on the books, which enables better financial planning.
What are the biggest challenges you face in your role as CFO?
One of the current biggest challenges has to be the need to balance the issues we are facing in the short term with long term strategy. In times of uncertainty, you cannot afford to get tied down with only addressing what is immediately in front of you. If you do, you risk fighting for a future that might not be all it’s cracked up to be.
While you need room to be agile, it’s important to set a strategy and stick to it. As a CFO, you have to believe in order to make your shareholders believe. At the same time, this strategy should account for the ebb and flow of economic realities. In most cases, short-term changes should only be made if necessary for survival. The reality is, if you’re constantly pivoting your strategy, there really isn’t a strategy in place. Given they are inherently less variable, recurring revenue businesses can provide a better opportunity to do this.
Given the economic climate, is the CFO's role more important than ever?
We should look at this in the big picture context: yes, the economic climate is of course having an impact on what is being asked of CFOs, but the role has really been evolving and expanding for some time now. In earlier parts of my career, I think that the main interaction that other departments had with finance was hearing the word ‘no’: "no, you can’t hire more staff"; "no, you can’t upgrade that equipment"; "no, you can’t bring a new marketing partner in".
That made more sense when checks and balances in terms of things like profit and loss or ROI required more laborious processes and were more obscured from the business at large. Data is more connected now, workflows are more automated, and ‘no’ just doesn’t fly any more as a CFO’s contribution to a business.
So, the CFO’s job today is much more strategic, piloting the business towards growth by identifying where financial opportunities lie. The economic climate is tough, but it’s also an opportunity for CFOs to flex their creativity and demonstrate their value to businesses that need their voice more than ever.
How strong is the case for predictable business models in terms of protecting revenue, jobs and customer satisfaction during this period?
The benefits of recurring revenue are clear and transparent. Even in an uncertain macroenvironment, being able to confidently predict a baseline revenue stream six or 12 months down the road is hugely beneficial. It makes financial planning much more efficient and can create confidence and psychological resilience within the business.
Something that’s important to emphasise, though, is that the big winners in all of this are those that leverage the efficiency and resiliency they have carved out for themselves and use it to create new levels of agility. With stronger financial foresight and the right technology, you can respond to market changes as they happen, rather than waiting for six months to see how things pan out. And when you’re responding to challenges and opportunities in real time, you can start to make the customer relationship surprising and delightful, not just necessary. And when you can delight your customers, you start building a new kind of brand equity which makes your future forecast that bit more stable, that bit more primed for growth.
Recurring revenue models are no longer a new idea in the market – but I think businesses have a lot of runway to fully exploit the virtuous cycles that they create.
What's your favourite thing about working at Zuora?
At Zuora, we’re on the frontline of a secular shift that’s happening. As companies across all industries transform, they’re coming to Zuora because of our differentiated technology to power these new business models. These companies are looking into new business models and digital services that create and nurture direct relationships with their customers. While many companies can say they can offer subscription services, we’re differentiated by our ability to scale, numerous pricing models, and opportunities to help rapidly experiment and improve. We’re enabling companies to make this shift in how they monetise, from subscription to consumption and beyond, which requires a robust infrastructure that can power the full order-to-revenue process.
Zuora’s out-of-the-box solutions are purpose-built to handle these complexities. Think about connected cars: Juniper Research predicts that, by 2025, US$86 billion worth of payments will be initiated from inside the car. Zuora is already working with 12 out of the world’s 15 largest automakers – a clear leader in this space – and we are in a unique position to help large enterprise customers scale their business. For example, we are working with Stellantis, the world's fifth-largest automaker of brands like Fiat, Chrysler, Jeep and Maserati, to monetise their connected services offerings.
What professional goals do you have for the next 12-18 months?
In times of market uncertainty, like we’re seeing now, we are focused on remaining committed to our long-term strategy and goals. By sticking to that strategy, we are able to deliver long-term value to our shareholders, customers and employees. For example, in our second quarter earnings call, we shared that we’ve continued to progress toward our profitability goals, and we achieved record-breaking retention for the third time in the last five quarters.
As previously mentioned, it’s important to only make short-term changes if they’re absolutely necessary. You don’t want to get short-sighted and change your long-term view if the market gets bumpy. You don’t want to always be optimising for the next three quarters and neglect thinking about the next three years.
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