CFOs: Leadership Beyond Finance
The bruises that chief financial officers suffered during the Great Recession might have prompted them to exercise caution about taking risks in today’s modestly recovering economy.
But Lois Martin, chief financial officer of Bloomington-based Ceridian, says without hesitation that “companies begin to decline and fail when they become too risk averse.”
She took a personal risk in 2012 by joining the professional services company when its earnings and revenue numbers were weak, but she was tantalized by the prospect of having a big role in the company’s transformation.
Martin shared her perspective on those challenges and the business opportunities that top financial officers face, along with three of her peers, at a recent Twin Cities Business CFO Forum.
The risks inherent in business restructurings, acquisitions and financing deals were among the key topics probed at the event held at the Nicollet Island Pavilion in Minneapolis. Joining Martin on the panel were chief financial officers Jason Bristow of Code42 in Minneapolis, Gabby Matzdorff of Magnet 360 in St. Louis Park, and Jennifer Mrozek of Marco Inc. in St. Cloud.
How to jump off the ‘burning platform’
When a company needs a major overhaul because its future is jeopardized by a “burning platform” business environment, Martin argues that’s the precise time for a CFO to make “high-risk, educated decisions.”
For example, she says, Ceridian wanted to develop a state-of-the-art workforce management solution for its customers. While it had expertise in payroll, taxes and benefits, she says it lacked some software expertise, which it could gain by pairing with a Canadian start-up company.
“We had some tough decisions to make; cash flow was tight,” she recalls, so she and other executives explored whether they could shift some dollars away from their core business to invest in their growth.
“We actually did a stop-sell on our existing product,” she explains. “That was a white-knuckle opportunity for about three to four months as we finished development on the new software, knowing we were no longer selling the old software.”
In the final analysis, she says, the risk paid off as Ceridian and its Canadian partner—later acquired by Ceridian—developed a human capital management cloud-based system that has achieved strong sales.
“It’s a great example of having to make key investment decisions when you don’t have complete clarity,” Martin says. “Any decision includes risk, but I’m a huge believer that any decision is better than no decision.”
What do you do when you need to raise money for your business, but you are struggling to gain access to the capital markets or banks?
Gabby Matzdorff was facing that dilemma in 2009 when she joined the start-up company Magnet 360, which provides integrated marketing services.
When she was searching for capital for the company, she recalls, “Capital was extremely tight, the valuations of businesses were low and investor risk tolerance was also really low.”
In this challenging environment, she says that Magnet 360 looked for angel investors. “What we were able to do is really shift the risk,” she says, and the business had the flexibility to do so as a limited liability company. “We gave preferential treatment to the new money coming in.”
She stresses that the new investors, who provided badly needed capital, would get to share in the profits first.
To secure a bank line of credit in 2009, she says Magnet 360 had to sign an agreement that exceeded 80 pages, and owners were required to provide personal guarantees.
Eventually that bet paid off. In the past three years, she says, Magnet 360 has been “able to grow by 73 percent, 98 percent and 49 percent year-over-year,” and bank financing has been much easier to obtain.
Growth by acquisition
Marco Inc., an information management business, has acquired 17 companies since 2005. At the outset, Jennifer Mrozek says, Marco would “approach companies randomly” that they had identified as possible targets for purchase. But once Marco’s growth strategy of successfully buying and merging companies began to unfold, she adds that businesses started to contact Marco directly.
Marco had been a small, family-owned business, but it is now 100 percent employee-owned. Its workforce has grown from 144 to 750 in about a decade, and Marco employees now work in several Upper Midwest states.
The aggressive acquisition strategy dates back to 2003. Mrozek and the CEO wanted to increase share value in the company. “We decided to build a growth strategy,” she says, explaining that 50 percent would come from expanding the existing business and 50 percent would be achieved through acquisitions.
Marco took a cautious approach during the recession and saved cash, which then allowed the company to use its large cash balance to buy businesses hobbled by the tough economy.
“There haven’t been many acquisitions we have walked away from,” Mrozek says. Marco has a team that works on deals. (If it were left up to her, she says, “I would analyze the thing until it was dead and we wouldn’t have done many.”)
Assessing multiple risks is commonplace when Marco leaders are weighing an acquisition that could increase market share or provide an excellent opportunity for sales teams.
“What I’ve learned along the way is there are certainly spectrums of risk,” Mrozek says. “As a CFO, that’s certainly an area of responsibility that we need to take seriously, and we can find risk in just about everything.”
After learning something from each transaction, Mrozek says that Marco was able to understand risks in their proper business context.
“There are times when it is appropriate to take risks and those risks aren’t as serious to the organization as you might think initially,” she explains. “Through the due diligence process, we’ve just learned where we can take risks.”
Retaining top talent
Jason Bristow, who recently joined Code42 as CFO, worked for Amazon for 11 years.
In his prior role, he was in a strong position to see what works to attract and retain top talent at the national level. The workforce at Amazon grew from 7,500 to 140,000 during Bristow’s tenure.
“When you’re growing a company—both from the size of revenues but also the size of the [workforce]—preserving the culture is incredibly important,” Bristow says.
In particular, he indicates, younger workers want a collaborative environment and different types of employee benefits.
“Gone, I think, are the days where we wear a suit and tie to work every day—with apologies to the public accountants in the room,” Bristow says. He stresses that a new generation of workers doesn’t want to sit in a cubicle or office all day and work at a desk.
“We’re seeing people doing work in dramatically different places,” Bristow says, adding that he’s observed the trend at Amazon, at West Coast technology companies and in the Twin Cities.
“I’m seeing employees who want to sit on the patio and who want a collaborative work space,” he says.
At Magnet 360, Matzdorff says, “As you move to more collaborative working arrangements and flexible work schedules, it’s not like it was when you entered the workforce 20 years ago and the three people who worked on your team were right there with you.”
When employees are in New York, Chicago and California on business, she says, they have to have the tools to communicate effectively with colleagues. “For us, one of the biggest challenges has been making sure that we learn how to do business in a different way,” Matzdorff says. “Being a manager doesn’t mean looking out and finding the person at their desk and knowing what they’re doing. You’ve got to find different ways of staying in touch with people because everyone, frankly, isn’t going to be in the office.”
New generations, new benefits
Pay, benefits, challenging work and company culture are all major considerations for talented people who are continually assessing where they want to build their careers.
“Each generation is looking for something that continues to evolve in how they’re compensated and what they’re willing to give back for that same compensation,” says Ceridian’s Martin.
She expresses concern about compensating younger workers based on their expectations.
“It’s going to be a challenge, as we continue to drive productivity, to be able to compensate them at the levels that they’re insisting upon,” Martin says.
While profits allow companies to hire more workers and invest in the business for the long haul, Martin says some younger workers want to see the profits flowing to them in the short term. “We have to find creative ways to give [young workers] benefits that also don’t cost a lot but that mean a lot to them,” she says.
Bristow envisions changes that move compensation away from traditional wage and benefit packages. He thinks some companies will have a broader view of compensation that goes beyond base pay, bonuses, and health care and other benefits.
He argues that workers care deeply about non-financial aspects of their jobs. “People really appreciate how the workplace looks,” he says. “People really appreciate how the workplace functions. Nine-to-five is dead—we’re all working on devices 24/7.”
Jason Bristow, CFO
Bristow joined Code42 this year after serving as a vice president at Amazon.com, where he worked for 11 years. In his Code42 role, he oversees global financial and corporate operations and works cross-functionally to support the company’s mission and culture. Before Amazon, he held financial positions at General Electric and Campbell Soup Co.
Lois Martin, EVP and CFO
Martin, who is responsible for global financial management, came to Ceridian in early 2012 after serving as senior vice president and CFO at Capella Education Company. She serves on the board of directors of Meritas International Schools and Delta Dental. Earlier in her career, she worked in executive positions at World Data Products and Deluxe Corporation.
Gabby Matzdorff, CFO
Magnet 360, St. Louis Park
Matzdorff focuses on financial performance, process, information and controls. She joined Magnet 360 as chief financial officer in 2009. She had a long tenure at Allianz Life, joining the firm in 1990 and serving as CFO from 2002 to 2007. After earning her bachelor’s degree in accounting from the University of Iowa, she worked for KPMG.
Jennifer Mrozek, CFO
Marco Inc., St. Cloud
Mrozek, who gained early experience in public accounting, has spent the vast majority of her career at Marco, where she was hired as an accounting supervisor in 1998. She rose to the controller position in 2003 and to CFO in 2007. She has played a major role in implementing Marco’s acquisition strategy. She earned her accounting degree from St. Cloud State University.
Liz Fedor is the Trending editor of Twin Cities Business.