Michael Levine prefers a WYSIWYG — “what you see is what you get” — approach to business.
The CFO of business-to-business payments company Payoneer, Levine doesn’t believe in providing purposely understated forecasts in order to be an over-delivery hero.
If he doesn’t understand why a number is what it is, he says so.
When in hiring mode, while he looks to bring in very intelligent people, Levine’s top priority is to avoid those who simply appear to be “jerks.”
Even while regularly getting calls from recruiters because he’s the CFO of a fast-growing company, he’s dug in at Payoneer — he arrived in October 2011 — in part because he likes the transparency its products offer.
The company is something of a business-to-business version of PayPal. It facilitates business transactions, mostly for midsize and small companies, that are less expensive than checks and ACH payments.
“The money gets there … with more transparency, so you can see when it arrives, and we work with companies to figure out in advance exactly what the final amount will be after bank fees,” Levine says.
CFO recently spoke with Levine about Payoneer and the way he goes about running finance for the company. An edited version of the conversation follows.
You told us in advance that accurate forecasting is very important to you. Please explain further.
When I was getting my MBA at Wharton, the best class I had was about valuation. The professor talked about people always taking their numbers down in their forecasts so they could hit their numbers.
And of course, that’s often how you’re judged at the end of the day. Boards expect everybody to always beat their numbers. But what does that mean? It means they don’t want the most accurate number I can give them. If they want me to guess a number, I’m not giving them any value. They can pick a number out of the hat as easily as I can.
The problem is, we have to make business decisions. So what you really want to do is fine-tune your model and be honest with people as to the potential for ups and downs.
In my first three years, our topline numbers were always within 2% of forecast. We weren’t beating our targets by 10%, but I built up gravitas with the board by giving them honest numbers that I wasn’t inflating or deflating.
One time we increased operating expenses from what I’d estimated a few months earlier, even though our revenue hadn’t moved dramatically. A board member asked me to reconcile that. My answer was, we can make that investment because an opportunity is there. We’re planting seeds that are going to grow out in years two and three, and less so this year.
With the gravitas you can build up with honesty, the board trusts you on a whole host of issues. When we say we want to take a chance on an opportunity, we have the board’s support.
Why is there a need for what Payoneer provides?
If a business wants to send a payment to another business, it’s probably doing it the same way it did 40 years ago, with a bank wire or paper check. In the banking system, one bank sends funds to another, and maybe [the funds pass to] one or two others, before the payment gets where it’s going. The banks have invested so much into building that system at some cost that there’s really not a lot of incentive for them to change it.
Can you provide more detail about how your products work?
Our US Payment Service, for example, allows a non-U.S. company to effectively get a U.S. bank account. Say a midsize company in China wants to sell in the United States. It’s very easy to do that today through a platform such as Amazon. But Amazon doesn’t want to be in the international payment space. It will only pay the company with a check or by ACH to a U.S. bank account. And it can be a big challenge for a midsize or small company in China to get a U.S. bank account
With US Payment Service, a non-U.S. company becomes a customer of ours, and we provide a bank account number. It’s really our account number, but a prefix identifies the customer. Then the customer can immediately repatriate the funds, whether that’s putting it on a card, sending the funds to its bank, or paying somebody else that’s on our network.
Also, Airbnb, for example, is one of our clients. The company sends funds to apartment owners, but it’s still a business transaction even though it’s not going to a corporation.
You’ve been at Payoneer for four and a half years, which is a long time for a CFO to be in pre-exit mode at a company that’s funded by venture capital and private equity. We assume there’s some kind of exit coming.
Our earliest institutional investors came aboard in 2007 and 2008. They’re really in no rush to get out. We’ve been growing at a 60% [compound annual growth rate] for the last six years. We’ve been profitable for several years and are now a [more than] $100 million revenue business. I don’t think [the investors want] to take the chance of missing whatever potential upside is still in front of us.
How does the fact that you’re the CFO at this particular kind of company influence what you do day to day?
We try to keep the entrepreneurial spirit going as we scale. I’ve been involved in companies that went from pre-revenue to multibillion dollars of revenue. There’s a gentle balance you want to keep as you bring in people with more experience from larger companies.
There were about 100 people here when I started. There are 650 people now and we’ll be over 800 by the end of the year. Keeping that spirit alive is a challenge. So culture is a significant responsibility I share with the rest of the executive team.
How do you go about recruiting for your finance team?
Culture, again, is a really big part of it. We have what we call a “no-jerk” policy in the company. We don’t want people who yell and create a hostile environment. We look for personalities that are extremely cooperative, team-oriented, and low-key. It’s actually pretty easy to tell who they are.
We recruit in the most stringent ways. I get people coming straight out of college because I want to train them. And we only go to one school: Wharton.
Only one school? Why?
Because I want to focus, and I’m only taking one person a year for my lead team, what I call our Navy Seals group. It’s a five-person data analytics group — soon to be six — that I can give any project to, and they’ll work around the clock and it will be ready the next day exactly the way I envisioned it.
I consider these people internal consultants for all the managers who don’t really know what to do with data. Data can be very dangerous in the wrong hands, and these guys can really peel onions and look at what’s underneath, not the headline news but the real core drivers.
Is it challenging to keep people who are really low-key engaged all the time?
I’ll tell you how I do that, but first, a quick anecdote. I came in one day and one of the guys was looking pretty down. Family problems? I pulled him aside and asked if he was OK. And he said, “The numbers are soft this month. I’m really disappointed.”
It felt really good to know that someone cared. He’s vested. It was meaningful to me that I’d gotten through to him. It’s all about passion for what you do.
But isn’t it rational to feel down about the numbers only to extent that you can influence them?
I disagree. I’m a Mets fan. [Until last year] we suffered for a long time. I can’t tell you how sick I felt so many times when we played the way we played. Why do I care? I don’t own the team. It’s because we all want to be associated with success, and when you think you can achieve it, but you’re not reaching it at the level or speed you want to, you feel bad.
All right. So again, how do you keep your low-key Navy Seals so engaged?
One thing we do is get together once a month, and they try to figure where we’re going to be on revenue for the month. They put down five dollars each. They each have a coin, and I name a forecast, and one by one they either show their coin, meaning they’re still in at that number, [or don’t]. Then I ratchet the forecast up, and they do it again. [Editor’s note: a person wins only if his final forecast proves to be at or below the actual revenue figure.]
The guys have a hundred variables going through their heads and are trying to weight them. Now, none of them are in control of the numbers — they’re analysts, not accountants. But it’s forecasting combined with a bit of game theory. For example, if you think the number is going to be $15 million, and somebody else gets out at $14.9 million, you may want to lay an extra $100,000 so you have a buffer, but you don’t want to go too far off your forecast.
You should see these guys getting ready for this. They could land a spacecraft with the science they’ve developed. This game gives them a little outlet to shine without violating the no-jerk policy.
This all makes it sound like you’re entirely focused on numbers.
I’m really not. I started off as an investment banker. I focus more on valuation than reporting per se. Too many people get caught up in headline numbers. “We’re great. Everybody should be happy!”
But while the numbers were great, where is the growth coming from? Just a couple of places? Are we seeing the seeds we planted starting to bubble? I call it the narrative.
In some cases I don’t understand why a number is where it is, but I want to alert the board that I think it’s something I’m potentially nervous about. In other cases I’ll say, you know, the numbers look flat, but that’s actually not so bad. We had two fewer business days in the month and we had an adjustment in the previous month, so flat is actually good.
I would say there’s a wide discrepancy, among companies and CFOs I’ve seen, in the ability to understand all the pieces and explain what’s important and what’s not, to understand how they fit back together to make a whole.