Ian Charles – CFO of Host Analytics – was recently featured in CFO Magazine discussing the importance of finding the right pre-IPO growth-profits balance.
Host Analytics provides a scalable, cloud-based alternative platform to Excel that automates planning, consolidation and reporting. Based in Redwood City, California, the company was founded in 2001, and whereas many start-ups keep their cards close to their chest about their exit strategies, CFO Ian Charles has a very clear plan – an IPO offering within two years provided the company achieves the right pre-IPO growth-profits balance.
“Today,“ Charles told CFO Magazine, “you have to grow the business smartly, with a focus on unit economics and customer success. You can’t just go out and spend hundreds of millions of dollars anymore.” Profitability – Charles believes – doesn’t necessarily generate a premium for valuation purposes if it’s not backed by growth. However, it would appear there are substantial opportunities for growth for the enterprise performance management (EPM) systems vendor.
Less than 5% of the EPM market has been penetrated by cloud-based providers or cloud versions of on-premises EPM software sold by market leaders SAP, IBM, and Oracle – although the product is not for everybody warns Charles. “A relatively basic business that’s not growing rapidly shouldn’t be a customer of the product,” he said. Nonetheless, Host Analytics has a 700-strong customer base including familiar names such as the Boston Red Sox, the Mayo Clinic, OpenTable, and True Value.
Avoiding Churn is Key to a Stable Pre-IPO Growth-Profits Balance
Charles considers a good portion of the company’s success to date is due to its policy of walking away from businesses not suited for the product´s complexity. Charles says: “We can find a lot of bad customers that will be set up to fail and will churn at some point, whether in one, two, or three years,” and he believes avoiding churn is key to finding the right – or at least a stable – pre-IPO growth-profits balance. The company´s success can also attributed to the use of its own product.
Host Analytics employs a finance team half the size of any comparable company, yet the team analyzes 114 separate key performance indicators on a weekly basis. “When you eliminate Excel and replace it with purpose-built financial applications, you create a workflow that takes less time, makes fewer errors, and requires fewer people to perform,” he says. The same system is also used by the company for its marketing, services, engineering, and sales teams.
Another driver of the company´s success is the fact that Charles himself uses the Host Analytics´ ERM system. For the first time in his career, Charles is the CFO of a company that uses its own product. “I find myself in front of customers much more often than I have in prior roles,” he says. “For many of the larger deals, they want that CFO-to-CFO connection.”
The CFO-to-CFO connection is also helpful in measuring the market´s appetite for growth versus profitability. What constitutes the “right” pre-IPO growth-profits balance is a moving target, and being aware of market changes is critical in the run up to an initial public offering.