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The CFO of a rapidly growing deal-of-the-day company is building a multinational finance function on the fly. An interview with LivingSocial CFO John Bax.
Kate O'Sullivan, CFO Magazine
October 1, 2011
Marathon interview sessions, major technology upgrades, global expansion plans: LivingSocial finance chief John Bax has a to-do list that many CFOs would envy in these slow-growth times. Nearing the end of his first year at the fast-growing daily-deal website, Bax is helping the four-year-old company explore the market for an initial public offering while simultaneously managing a financial-software transition from QuickBooks to PeopleSoft.
LivingSocial, which had 450 employees and did business in 4 countries when Bax started, now has some 3,500 staffers in more than 20 countries — and lots of competition in its niche, where rival Groupon dominates but which has attracted many competitors — including Google. Recently, Bax talked with CFO about the challenge of building a finance function to support such rapid expansion.
How hard is it to plan your staffing needs given LivingSocial's rate of growth?
At this pace, whatever position we think we need today, we might be wrong. We have to look at least 6 months or 12 months ahead. What we think we're going to need then we may actually need right now.
For example, our treasurer is a two-time public-company treasurer with experience all around the world. When I started interviewing people for the treasurer position, we were in four countries and were using three currencies. It didn't look and feel like we needed a world-class treasurer. But if we had hired only for what we needed then, it would have been a mistake.
How do you as CFO decide how involved to get?
Our controller is upgrading the team across the board with people who have international reporting and public-company reporting experience. On the treasury side, our treasurer is bringing in people with global treasury operations experience. Every step of the way you have to bring in a senior person, and that senior person builds the team. You have to trust the people you hire. Early on you feel like you need to interview everybody in your department, but you can't interview 25 people a week. It just doesn't work.
How do you get senior people from larger companies to take their chances with a start-up?
You have to lay out the vision for where the company is going. Occasionally you come across people who are big-company types; you can tell pretty quickly that they may not be the right fit. A red flag you may see is when they ask, "What's my office going to look like? Who's my assistant going to be? What's the vacation policy?" That sort of person may not be the best fit for a company growing at the rate that we're growing.
What specific qualities are you looking for in key hires?
We look for people who have a lot of room to grow. You have to picture the company being twice the size, 5 times the size, 10 times the size, and picture whether this person would still be the right person in that role. From a cultural standpoint, people must be very comfortable with processes that may change daily or weekly, and with a lot of things being figured out on the fly. The whole company grows so quickly that you've got to get used to working with new people every day.
How can you tell whether someone has those qualities?
It's not scientific. For me it boils down to the feel. You can see when they come into this office whether they're excited by the look and feel of the place and the energy — or if they walk in and they're shocked that we have concrete floors and no cubes and not many walls and just desks for most people.
Sometimes I don't get a chance to return e-mails until 9 o'clock or 10 o'clock at night, and I have had some candidates respond to them with, "We're not really going to work this late, are we?" If someone reacts that way right off the bat, then you know that it may not be the best fit.
Another thing I look for is someone who gets excited about consumer-facing web businesses. You can sense really quickly when people get excited about it. If they come in and tell you what today's deal in Washington is, and talk about the deals that they've purchased, it not only shows intellectual curiosity, it shows professional curiosity. That's important, because people talk about deals all the time. I can tell you that today's deal in D.C. is Café Asian. I bought it this morning.
This rapid staffing up must pose a huge budgeting challenge.
We put forth a relative budget rather than an absolute budget. So instead of saying that your budget is $500,000 for salaries, we say you get this many heads per cities rolled out, or this many heads per deals sold, and we look at that on a monthly basis to see how every department is doing.
If we had tried to set an absolute budget, it would have stifled the growth of the company, because people would have said, "I've got to stop. This is what my budget is. I'm not allowed to hire." We've added subscribers and merchants and cities and countries and everything else a lot faster than any budget would have told us. If I had done a budget at the beginning of this year that said we were going to go from where we were to where we are today, I would have been laughed at.
What are your biggest challenges right now in terms of building infrastructure?
We're still on QuickBooks; we're in the process of switching to PeopleSoft. QuickBooks is phenomenal for a small company, but it is a limitation on our business today. If you're in 25 countries and nearly as many currencies and have some very material partially owned subsidiaries, it's difficult to manage that with a smaller, less sophisticated general-ledger package.
What advice do you have for would-be CFOs of fast-growing companies?
If you're growing at a phenomenal rate and you can't predict that rate of growth, you have to have a relative budget rather than an absolute budget. And you need to have rolling forecasts so you know where you need to be. (See "Let It Roll," May.)
Also, when you hire a lot of people you do make some mistakes. You just have to realize pretty quickly that you made the mistake and then correct it, and get that person into the right position or else get the right person into that position.
How can CFOs in slower-growth companies help identify paths for growth?
Make sure you are identifying the right investment cases and are not being shy about taking on those cases. If you have a certain capital budget for the year and you find investment opportunities that you are very confident in — but that are a lot bigger than your capital budget — you can't be shy about raising additional capital and pursuing those opportunities. You have to find a way to let your sales team or your marketing team or your operating team go chase them. And you have to be willing to take a few risks along the way.