For a guy who spent his early days as a number cruncher at manufacturing and energy companies, Thom Weatherford’s career sure has gotten sexier of late.
After graduating from the University of Houston with an undergraduate degree in business administration, Weatherford joined Texas Instruments, where he held a variety of positions during an 11-year period. “I ultimately decided to leave TI,” explains Weatherford, “because the finance people there were very narrowly focused. All I did in my last position was planning and closing the books. I wanted to learn more about treasury, currencies, and tax.”
So Weatherford made a big career move, leaving TI and signing on with energy giant Schlumberger. “That experience allowed me to learn an entirely new industry and the importance of working with financial models,” he says.
It wasn’t until 1993, however, that Weatherford really changed the direction of his career. At the time, he was offered the CFO job at Logitech, the Swiss maker of keyboards and mice. Weatherford jumped at the chance, even though Logitech was losing money at the time. After getting the struggling company back on track, Weatherford joined Netcom On-line Communication Services Inc., an Internet service provider. “My job was to get a financial model in place and get more fundamentals into a business that was consuming cash like water,” he recalls.
Using techniques he picked up during his days in manufacturing, he was able to help Netcom cut its cash burn from more than $100 million a year to almost nothing. “We were able to become the first ISP to have positive operating cash flow in the Internet space, as a result of managing it like a manufacturing operation,” he recalls. Two years later, Weatherford joined Business Objects, a French analytics software vendor. “Wall Street was very negative about the company at the time,” he notes, but he says he nevertheless believed in the company’s technology. “It seemed like the only thing that was missing was the financial side, and I knew I could do that part.”
Indeed, Weatherford has given Business Objects a strong financial footing. The company has managed to meet or exceed earnings expectations for 18 consecutive quarters. And despite the recession, revenue increased 19 percent in fiscal 2001, reaching $415.8 million versus $348.9 million in 2000. What’s more, the company was also able to win over some 680 new customers in the fourth quarter, including heavyweights like Honda and Allstate Insurance. The share price of Business Objects has almost doubled since September.
Weatherford recently spoke with CFO.com’s Jennifer Caplan about the challenges of going from Old Economy manufacturers to high-tech businesses and keeping Wall Street happy through a recession.
You spent 11 years of your career at Texas Instruments. Was that a good training ground for becoming a CFO?
I couldn’t have gotten better training. When I joined Texas Instruments, there was a policy of moving people around every 2 years. They were always promoting from within. In 11 years I had about seven different jobs in three different countries in a variety of different divisions. They also had a tendency to throw you in right away, so you really had to learn how to survive very early on in your career. I joined Texas Instruments in production planning, and got into accounting as soon as I got the chance. The production planning experience was good because I learned about the challenges of working within a manufacturing operation, which gave me a very good foundation for my future positions. Throughout the years I have always been able to fall back on my manufacturing experience. Running a manufacturing operation is one of the hardest things to do from an accounting as well as from an operations perspective. It was truly fantastic training.
You joined Business Objects with experience in manufacturing and some knowledge of the Internet. Was it difficult for you to transition into the software space, which can be so technical and fast paced?
I think you are always reluctant to leave a space you really believe in, and I very much believed in the Internet space. But manufacturing and software are not as different as you would think. You still have gross margins, operating expenses, and operating income. When I arrived at Business Objects, license margins were 95 percent. We now make 99 percent license margins because I went to our director of manufacturing and said, “I want to know what makes up the 5 percent cost.” I found out we were shipping out tons of documentation around the world, whether the customer needed it or not. So we started cutting back. By doing that we took margins up in less than two years.
From a finance perspective, you have to understand that in the end it’s all about fundamentals. There are some differences, of course. In software you don’t have long backlogs, for example, like you have in manufacturing. So you just need to make sure that you don’t overcommit and that you’re really tracking linearity. There are different challenges, but in the end it’s really the same.
Although you are with a tech company, you are nevertheless a finance person. How have you been able to educate yourself and keep up with technological developments, not just in terms of Business Objects’s products, but also in deciding what technologies should be deployed within your company?
I’ve never been a technologist, and I have done that on purpose. I really try to take on a user’s perspective as we develop new products and enter new markets. There are enough smart R&D and engineering people within the company, and what I feel I need to do is really understand the user base. You just really need to sit down and listen to the customer instead of trying to sell your thousands of features. I try to identify with the end user.
Business Objects’s extranet strategy was a key growth driver throughout 2001. How are you seeing companies using extranets to make their businesses more efficient?
With the extranet, companies can start communicating with their vendors, for example. They can allow vendors to access inventory levels and in turn can access their vendors’ manufacturing activity. It allows companies to use that data to deliver inventory just in time. Admittedly, just-in-time inventory has been around for years, but it has been done through a lot of hard work, not with the use of intelligence. When I was in Japan, we would deliver our products to the Japanese. They wouldn’t accept our product until they ran out of inventory. In the past, the vendor would depend on the company to give it the right demand. But people often make mistakes. The extranet allows you to have access to more-timely information and be much more accurate.
How pervasive have extranets become throughout Corporate America?
Extranet development is still in its early stages in terms of its adoption by companies. The original problem around extranets was concern about security. People were worried about opening up too much data to nonauthorized people. People have slowly become more comfortable sharing information with key partners. We are now starting to talk about the next step beyond extranets: business intelligence networks. An extranet is a link between two companies. Networks link many companies together using business intelligence as a communication tool.
Companies delayed buying large software systems last year, but as BI’s recent success shows, they are still willing to dole out cash for some software. Why do you think BI is something that companies have continued to spend money on?
First, business intelligence is not a large purchase. Also, with business intelligence you can calculate an ROI a lot more easily and clearly than you can for an ERP system, for instance. Companies want to have information at their fingertips as long as it is simple to understand. In the past, you didn’t have the data sources that ERP and SCM systems have provided. Companies are now realizing that they need to make those data sources more productive by using business intelligence, whether it’s ours, our competitors’, or internal systems.
During your tenure at Business Objects, you have been able to meet or exceed Wall Street guidance on revenue and profits for 18 consecutive quarters. How have you been able to pull that off?
That is true. In fact, I’ve hit 22 consecutive quarters in my career. I think it all goes back to my days at Texas Instruments and Schlumberger, where I was known for hitting forecasts. I think it’s not any different doing an internal forecast for a division than it is working with Wall Street. As you set expectations that are realistic, you make sure that you have a forecast internally that supports that, and you never get carried away with yourself. You try to position yourself as much as possible to allow for upside and not stretch yourself to the point that everything needs to go right for you to hit your numbers.
Once you get in that mode, then you start to hit the numbers and that’s what Wall Street is looking for. They’re not looking for sandbagging, but rather consistent numbers. I think companies often get in trouble because they try too hard to meet expectations that should never have been set in the first place. We try to set realistic goals and manage to them.
A number of software companies have come under fire for improper revenue-recognition practices. Is that an area you keep a particularly close eye on, and how do you make sure that revenue is being booked properly?
Revenue recognition is important from our perspective because we are a software company and the SEC has some very tight rules on software recognition. What we do is make sure that we always leverage the expertise of our auditors. I know these days with the Andersen issues, you can no longer say, “the good news is the auditors have signed off,” because of the skepticism out there. But the reality is most audit firms are doing a good job. We work closely with our auditors every time there is a new rule or announcement on revenue recognition. In some cases, we chose to be even more strict than the auditors think we have to be. Revenue recognition is indeed a tricky one in the software space. We therefore try to always err on the conservative side when it comes to revenue recognition.