- 16th April 2018
- Posted by: Manolis
With his eye on growth, CFO of Planview, Vic Chynoweth sees private equity (PE) as his catalyst. Having embraced this as his growth strategy, Vic explains that PE has accelerated Planview’s ability to innovate, making it more enticing to investors. I connected with Vic this month to discuss his use of PE as a strategic partnership, how to navigate the lengthy and overwhelming process, and why transparency is key.
This interview has been edited and condensed.
Jeff Thomson: Your experience is largely in the enterprise software and technologies industries, where you focus heavily on creating and implementing strategic plans, managing finances, integrating acquisitions, and optimizing operations and processes for scale. With the “pace and peril” of tech, how do you ensure you and your accounting team keep current on the skills required to maintain the company’s financial health?
Vic Chynoweth: I think about employee enablement on a few planes, with responsibilities at each of the enterprise, functional, manager and individual levels.
At the enterprise level, it is our job as leaders to put into place learning and development frameworks and resources that promote and drive ongoing skills development – this includes things like tools, people (i.e. trainers), content, certifications (internal and industry standard). We have done this by creating a Learning & Development function within HR that supports the entirety of Planview.
At the functional level, I always include in my annual departmental objectives and KPI’s at least one organizational development goal oriented toward enablement, with associated supporting initiatives. In 2018, this objective is manager focused primarily, as I want that layer to be increasingly capable of scaling (and they are the folks I directly engage with the most). The exact wording of the objective is “solidify, engage, and enable teams.” One supporting initiative is to “make world class customer service tangible and real.” I have a framework that I use for this that includes a definition, monthly manager/employee discussions (documented), quarterly leadership meetings dedicated to evaluation, discussion and recognition, and finally quarterly recognition via a “world class customer service all-star award” that is presented to those that best exemplify the concept (this includes a small “trophy” and an article published globally across Planview).
At the manager level, there is a cascading of the organizational development objective(s) I set, as well as a cascading of participation in the associated initiatives. Likewise, certainly many of the enterprise level learning and development tools are localized/leveraged at the manager level (i.e. continuing education, certifications). I am working with one of my direct reports now on career planning that includes broadening her functional experience, deepening it in certain areas and, carving out time (with company sponsorship), to earn an executive MBA.
At the individual level, I encourage every employee to take control and ownership of their careers and to set long-term goals and shorter-term goals. More importantly, I encourage folks to carve-out time to regularly “step back” and re-examine those goals so as to question the continuation of them and to consider if they are doing what they need to do in order to support or attain them. The ability to “step back” and really take a parallax view is something that is a skill in and of itself and one that has helped me to be an effective strategic thinker and not purely tactical or analytical.
Thomson: As CFO of Planview, you embraced private equity (PE) as a growth strategy and navigated a PE partnership with Thoma Bravo. How has this strategy benefited Planview? How can such investments spur innovation and R&D at a capacity that a company can reasonably handle?
Chynoweth: I’ve found working with PE to be a catalyst to growth and scaling. The core attribute I consider this founded on is disciplined decision making. Thoma Bravo, for example, talks about proprietary metrics and KPI’s that they leverage across their portfolio – these metrics and KPI’s are one element of a set of decision making frameworks. I have created certain decision making frameworks that I leverage as well and have found it easy to gain alignment with PE ownership given this structured approach to the world.
The metrics we leverage, in cooperation with Thoma Bravo, support enabling innovation and R&D capacity, in addition to capabilities in sales, marketing, implementation, customer success, support and other functions in a balanced and sustainable manner. At a recent board meeting, our PE partners challenged us to consider “how to double R&D capacity.” Sustaining competitive advantage is fundamental to sustaining growth, which successful PE ownership understands and promotes.
Importantly, PE also brings monetary and business development resources that augment M&A capability materially. We have grown the Planview business by about 3x since the initial PE investment at the end of 2013 via a combination of organic and inorganic growth – this would not have been possible (or not likely at least) without PE support. With a very well-founded strategy, the inorganic growth vector has created a ‘one plus one equals more than two’ path. A great example is our recent acquisition of LeanKit which immediately advanced our Work and Resource Management solution while maintaining or improving retention across both customer bases. One of Planview’s value propositions includes the simple breadth of offerings across the Work and Resource Management category that our customers are able to leverage via a single partner – again, we are able to make this happen both organically and inorganically.
Private equity as a strategic partnership has accelerated our capacity to innovate, making Planview that much more enticing to investors – and an exciting place to work.
Thomson: Navigating private equity investments can be a consuming and overwhelming process. What’s the secret to doing this efficiently, effectively and successfully?
Chynoweth: Success, transparency, and empathy! My experience is that establishing credibility with PE ownership is paramount to an efficient, effective and successful tenure – and that credibility is founded in success, transparency and empathy.
The leadership team at Planview has established a track record of success, which is a starting point. Importantly, that success wasn’t by accident and we have established and can articulate the bases of that success, along with the bases for continuation of that success.
In addition to a track record of success, transparency is critical. Bad news doesn’t get better with age, and the reality is things do and/or will go wrong. We are transparent about what is working and what’s not working – even when the message may be difficult (this, by the way, goes with ownership, employees and customers). We are also transparent about potential risks and mitigations, so that when we do have to address something, it is rarely “out of the blue.”
Finally, the concept of empathy is imperative to any customer relationship and it is foundational to the world class customer service framework that I have worked to ingrain within myself and across my organization. Our PE owners are a customer to me and my effectiveness in serving that customer (or partner), and any customer, is greatly enhanced if I can “put myself in their shoes” so as to better understand, or feel, what they require. The way I articulate this to my team is with this aspirational goal: “understand your partner/customer’s business so well that you could do their job if required.” Having worked with PE for nearly 10 years now and having applied this concept habitually, I’ve gained an inherent understanding so much to say that I could do the PE job.
The value proposition that Planview brings with Work and Resource Management is inherently aligned with the operational scaling and efficiency aspect of what PE ownership demands. This alignment makes speaking to our PE ownership that much easier, as we connect the dots not only to how we do things internally, but how we help our customers scale their own businesses.
Thomson: Historically, PE was limited to cost cutting initiatives while new tech-focused PE is invested in growth strategies and revenue expansion. Can this, in part, be attributed to SaaS business models that offer recurring revenue streams (subscription based models) or is there another driving force behind this trend?
Chynoweth: PE has historically been focused primarily on EBITDA growth, and I’d suggest they continue to be focused as such. Importantly, EBITDA growth is not sustainable without revenue growth. Some of the “historical PE” perspective is likely based on larger, mature company buy-outs, where top-line growth was limited, but efficiencies were left to be had if the right operators were involved. A zero or low growth software company can command EBITDA margins near 40%, maybe more in certain circumstances.
The focus on top-line growth is about sustainability, which offers compounded value creation via sustainable EBITDA growth and multiple expansion. Higher growth equals higher EBITDA multiple, compounding valuation uptick. In terms of why SaaS has presumably brought this out, or put a spotlight on it, is really about the recurring revenue nature of SaaS. Recurring revenue offers a much more reliable base from which to grow, with two relatively simple to understand KPI’s that are easily measured and understood: bookings and retention. That visibility creates two value enhancers: the first is the multiplier uptick mentioned previously; the second is leverage. With the high revenue visibility associated with a recurring revenue model, a successful SaaS company can borrow upwards of 6-7x EBITDA. The ability to leverage an investment makes the PE valuation that much greater.
For Planview, this leveragability serves as a growth catalyst – we have, and continue, to leverage expanded EBITDA and the associated expanded debt capacity to fuel our acquisition strategy. We have made three acquisitions since I joined the company and we have financed each of those acquisitions with debt, thereby avoiding incremental equity checks (and the associated dilution). This creates great win-wins with our PE owners, our customers (via accelerated realization of strategy and the associated benefits to them), and our employees (career growth opportunities and association with an expanding greater purpose).
Thomson: You have said your biggest strength is “connecting the dots between numbers and operations.” You have also expressed the desire “to pass that on to my peers so that all of us, myself included, can continue to grow those capabilities.” How do you build this capability and competency in your peers and staff? What are the key skills necessary to serve the rest of the business as strategic advisors?
Chynoweth: First, I use principles and frameworks to make decisions. There have been times certainly where I made decisions based on “intuition or judgement.” I have attempted over time to distill the drivers for good decisions I’ve made, and bad decisions – and did the same analyses against decisions by others. Over time, I’ve documented a handful of decision making frameworks that I use ubiquitously in some cases and project or functionally specific in others. I use scalability and world class customer success principles the most universally. While something like integration principles are more specific to corporate development and compensation principles are specific to organizational development.
Anytime we have a difficult decision to make or something that requires cross-functional buy-in, I typically try to establish agreed-on decision making principles prior to even suggesting an answer. A simple example: who gets equity and who doesn’t? The wrong answer is “Thoma Bravo says so.” The right answer is grounded in principles and these usually have multiple elements, as it is a question of total compensation: salary, bonus, benefits, and equity.
I’ve probably gone a bit deeper on the examples than needed.
The reason for doing this is that I want/need my folks to understand inherently the why, along with the what of decision making frameworks, so that they can truly appreciate the value and adoption is consequently improved. Adoption of this approach is fundamental to my enabling the broader business, as I’m really asking them to be enabled to make great decisions (without me) and I believe that can and does work in this model.
In addition to the framework/principle based decision making, I do look for fundamental capabilities or characteristics in people, plus another set of fundamental capabilities in managers and leaders. The framework I use for this is based on Aptitude and Attitude. Aptitude is around things like analytical horsepower (this is not just a numbers thing), communication and technical skill-set (having programming experience/capability is a big uplift as opposed to just financial or accounting skills). Attitude is about how one works: as a teammate, as a continual learner and with gratitude and determination.