637: Experiencing the Market Economy Spirit | Tom Fencl, CFO, Pricefx

Listen to the Episode Below (00:46:04)

The son of two doctors, Tom Fencl recalls that while growing up in communist Czechoslovakia, to him a free market economy was more “an intellectual curiosity” than a possible career destination.

“When the Berlin Wall came down, I was midway through high school—it was a very formative experience,” remembers Fencl, who says that the historic happening suddenly released “a market economy spirit.”

After studying at Prague’s University of Economics, Fencl says, he was “drawn to the big financial centers” and worked in London for 2 years at Stern Stuart & Co. as a consultant before heading to the University of Michigan for an MBA.

“From a university standpoint, the University of Michigan may not be the most obvious place for a European to go—but they found me more than I found them,” explains Fencl, who notes that years earlier in Prague he had met students from the University of Michigan who were involved in a study of post-communist economies. “They were virtually the first MBA students that I had ever met,” he observes.

From Michigan, he went directly to New York and Wall Street, where roughly 10 years after the fall of the Berlin Wall Czech-born and -raised Fencl became an investment banker.

“I worked as sort of a traditional investment banker, meaning that I covered everything from capital market transactions to M&As,” says Fencl, who worked for Salomon Smith Barney (later acquired by Citigroup) and Bank of America.

“I left Wall Street just before the 2008 meltdown,” he reports. “That was some lucky timing. I moved back to my home country, the Czech Republic, with my newborn and my wife, and there I joined a private equity boutique,” explains Fencl, who over the next 10 years migrated from what he describes as “transaction-driven” finance roles to more traditional CFO posts.

“I joined Pricefx in Prague—which was its largest office and where a lot of the banking office functions are,” says Fencl, who was named CFO of the company in 2017 and subsequently relocated with his family back to the U.S.—a market that Pricefx now views as a primary source of future growth. –Jack Sweeney

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Guest: Tom Fencl

Company: Pricefx

Connect: www.pricefx.com

Headquarters: Pfaffenhofen, Germany

When allocating Capital to Scale up …

CFOTL: What are the numbers or metrics that are top-of-mind for you these days?

Fencl: To remind your listeners, we’re a SaaS company, or rather a subset of the industry where there’s one metric above all, which is ARR—annual recurring revenue—and, more specifically, the growth of ARR. Then you rank companies based on where they are. For the past few years, we’ve been somewhere around 80% year over year. That’s a pretty decent clip. Now, you ask, what did I change since I arrived? I didn’t have to introduce this. They had already been told by the very first investors, “You need to watch your ARR growth.”

The thing that I had to work on doing—and it was obviously a cultural shift—was understanding how to operate when using other people’s money, when you’re not governed by whether you have cash or not. When you have a lot of cash, the right questions are, How are you deploying it? How efficiently are you using this capital? The metric that I had to work on and make sure that the organization understands is payback—customer acquisition cost payback. Understanding the growth. How much did I have to spend to get this growth? This, of course, is something that then leads to further analysis because you break down the metrics into their components. You can’t just buy the growth, right? You have to have a certain level of patience.

We just finished fund-raising, so we have plenty of cash to give us what they call “runway,” meaning that we don’t have to worry immediately about the short-term funding of the business. But conversely, we need to deploy this capital and to scale up. As I was saying before, it’s about not just growth but also how efficiently the company grows. A big priority is to make sure that we deploy capital efficiently and achieve the growth in such a way that it will satisfy our requirements for the return on capital.

To do this, one of the key areas of focus today is working with data. There’s obviously a lot of data in the business, but not all of it is structured perfectly and not all of it is organized in the right way. We’re currently spending a lot of effort on making sure that we clean this up, which will allow us going forward to make decisions based on data. Data-driven decision-making is a big priority internally. jb