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Asked to reflect on his path to the CFO office, Dan Fletcher characterizes his years in private equity as being more operationally focused than transaction-based–or at least he recalls being drawn more to the challenges facing CFOs and other senior members of the management team than to the deal-making mechanics of the banking side.
As CFO of Host Analytics, Fletcher has an operational view that is now fully unobstructed. Meanwhile, HA’s finance leader has managed to keep one foot inside the private equity realm. Today, in addition to being HA’s CFO, Fletcher remains a vice president at Vector Capital, the private equity firm that acquired HA last January. It’s a finance leadership tour of duty that is expected to unlock new value for both HA and Vector as Fletcher decodes the synergistic benefits of growth capital and technology-enriched performance.
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Guest: Dan Fletcher
Company: Host Analytics, Inc.
Headquarters: Redwood City, CA
CFOTL: What metrics are top-of-mind for you as a finance leader?
Fletcher: The most interesting metric to me on a day-to-day basis is net retention. I love looking at it. You can look at it on a dollars basis or in percentages, but the question should be, For the average dollar of customer revenue, how does that grow or diminish over time? That, to me, is the customers voting with their money. So the question is not how to procure a customer, but how do we sit with that customer a year down the road, three years, five years down the road? I look at that metric and then go and hold folks accountable for the movements one way or the other.
CFOTL: What about customer engagement? Have you begun to pay more attention to certain metrics than others?
Fletcher: Well, certainly you’ll hear folks talk about the net promoter score and the different metrics that they get when they have touchpoints with the customer. And these are very important. What I see a lot of energy around is access to the user data, where we can tell if activity is ramping up or tailing off and which modules are getting a lot of attention from customers and which aren’t. This tells us a lot about user adoption. Indeed, customer satisfaction. For example, if we know that a certain customer runs their budget process starting in October and we look at the prior year and there was tons of activity and this year it’s tailing off, well, we’d better be getting boots on the ground and going to talk to them to discover what’s driving this change in behavior. Is it new folks? Can we help to train those folks? Is it an issue with the product and the implementation? So, using data to assess the relationship is very important.
CFOTL: We always like to ask for a finance strategic moment. Feel free to share one from earlier in your career if you like. What comes to mind?
Fletcher: I think I’ll actually dive into my consulting career years. For four and a half years, I was a management consultant with Alvarez & Marsal in between private equity stints. This is where I really became an operator, especially from the finance perspective, and while a strategic moment can mean a lot of different things to a lot of different folks, I think of making a big splash across the organization by influencing the path forward as being table stakes for strategic moment labeling.
But what I think of is the work that we did at a $3 billion building products wholesaler. We said, Look, this is a massive business with global operations and 30,000 SKUs. This must be a ripe opportunity to rationalize those SKUs and find out where we’re making money and where we’re not.
So we built a contribution margin model. I can tell you that this was about six to eight weeks in Excel, wrangling massive volumes of data, but the ultimate result was to reduce SKUs by about a third and increase gross margins over the next 12 months by about 23% to 25%.
When I talk about why this was strategic, I will tell you that it changed the way that the company did business, including cutting or firing customers. These were customers of those SKUs that were then retired. And on the execution side, I mean, it takes a village to roll out something this big to a global organization.
CFOTL: As you look forward, can you share some of your finance leader priorities with us?
Fletcher: Well, there are really two things, a two-pronged approach. Invest in the product and continue to hit those road map milestones, and then invest in the go-to-market to get it out there to the people who can benefit from it.