CIO turned VC Brian Hoyt draws on his experience prepping companies for IPO and other liquidity events, including his own, to outline a playbook for crossing the start-up to scale-up chasm.
This article was originally published on CIO.com by Michael Bertha, Partner at Metis Strategy and Duke Dyksterhouse, Senior Associate at Metis Strategy
Suppose you lead IT at a VC-backed startup. It just crossed $100M in revenue and is approaching a major liquidity event, such as an IPO. It’s exciting stuff. But as you speak with an expanding cadre of lawyers, accountants, and bankers, you start to appreciate what such an event means for your department.
You start to see the cracks in its foundation. You see the data by which Wall Street will judge your business is scattered across the company, stored and formatted unsystematically. You see the systems that must be repaired (or built) if the firm is to comply with SOX. You even acknowledge that IT has been kept afloat by managed service providers and fractional employees. All of this, you realize, must change. You’ve reached a tipping point at which your IT capabilities must be formalized, but you don’t know where to start.
Fortunately, Brian Hoyt does — and he’s been there, having served as CIO of real-time 3D content creator Unity Technologies, for which he prepared the IT department for IPO in 2020. Today he serves as partner and chief operating officer of Parkway Venture Capital, which invests in software and AI/ML companies across various sectors. He helps the firm’s portfolio companies tackle the intricacies of crossing the start-up to scale-up chasm.
Here, Hoyt shares what he’s learned from scaling IT in rapid-growth companies, both as a CIO and an investor, and what should be considered by digital and technology leaders whose firms are heading for major liquidity events — how they might structure their departments so that the company can weather that liquidity milestone and the S-curves in the years that follow.
There are no exact thresholds for formalizing your IT capabilities, including hiring or promoting a CIO, says Hoyt, but there is one important sign: talk among your colleagues about redoing the company’s ERP system.
“I think people usually go QuickBooks, NetSuite, then onto something else, or they redo NetSuite. And often your accounting team had to implement NetSuite without IT’s support,” he says. “It works for their purposes for the time, but when it needs to be refashioned so that it can scale, that’s the time to bring in someone with some seniority, someone who’s been through it, because it’s really hard.”
Why does an ERP redo or implementation present such a great opportunity to evolve your IT organization? A couple of reasons. First because, as Hoyt observes, ERP implementations are notoriously difficult. Few leaders will volunteer to drive the work and often it will fall to the accounting team. “In many cases that won’t work out,” he says, “because the accounting team must devote themselves to their principal work, which is critical, and because they have lives and implementing ERP software sucks.”
But also, ERP systems rely heavily on IT-supported capabilities, so any work necessary to implement one will likely involve your team anyway. You might as well be the one to command that work; as a tech leader, you’re especially well suited to it, and doing so will give you reason to acquire resources that lend themselves to causes beyond those related to ERP. In other words, remodeling your ERP can afford the chance to remodel your department — to effectively say, “If we’re going to do this, I’ll need the following.”
Of course, the ERP sign is only a rough guide, says Hoyt. The right time depends on your business and industry; the more regulated it is, the sooner you should start. He uses selling into enterprise software as an example. “If you’re going through a lot of security reviews, plan on hiring a CIO earlier. My first question [to entrepreneurs in that space] is: How are you getting through security reviews? And they all groan. The people who have a clear answer are going to do better.”
As it happens, regulation — or compliance — is another area for which you’ll need to hire or promote a leader. Although Hoyt stresses he isn’t one to “insist that you hire from outside,” here you likely need to.
“You need someone who knows the territory, who knows Sarbanes-Oxley and the language of the auditor and preferably someone who’s even worked at your auditor’s firm and can speak their language and prepare everything,” he says. “Otherwise [the auditors] will grind you into a fine powder because they have an endless bench of people to schedule meetings and ask that processes be explained.”
There are plenty of candidates for this role, Hoyt says, but you might need to look outside the box. “They might not be in a job called ‘Head of Compliance.’ It might be ‘IT auditor,’ and they’re tired of flying between Nebraska and New York every week. And I think this has been a huge part of what I’ve done in the past, is finding this person.”
You’ll also need someone to lead infrastructure and ops, which rarely gets the attention it deserves when the firm’s still young and focused on core products and the viability of its business model. Often by the time the firm’s leaders start talking about going public or agreeing to sell, the firm’s foundational technologies may be in need of a closer look. A major piece of this domain is security, which Hoyt says can roll up to the infrastructure and ops lead at first but must eventually become a separate function.
“As your firm grows and starts looking to go public and becomes a bigger topic, you become a bigger target,” he says. “Some attacks from sophisticated bad actors are unavoidable, but you at least want to ensure that you don’t leave yourself vulnerable to avoidable slips.”
Finally, you need someone to lead your financial and business systems. “I love accountants interested in systems,” says Hoyt. “They’re often perfect to lead this area, and a lot of modern CIOs need technically minded leaders that they can trust to know whether a system is out of whack or a piece of work can be executed.”
Why is this leader so vital? Largely, Hoyt says, because of the projects you’ll have to undertake to prepare for your liquidity event.
Hoyt suggests that CIOs can learn much about the projects they’ll have to drive for a liquidity event from the focus of Wall Street earnings calls.
“They’re all about financial predictability and accuracy. Your firm’s viability as a financial asset largely comes down to investors asking, ‘Can we trust this company’s numbers? Will they be delivered on time?’ And if you get your numbers wrong, or they’re late, you can’t fix things by saying, ‘Well, you know, my IT person didn’t come through,’” he says. “And you can’t continue to spend 90 minutes in exec meetings arguing about whether the data you’re all looking at is right or how it’s defined. If those conversations are still going on, then you know there’s work to be done and that you need to start it as soon as possible.”
Getting the numbers right may sound simple, but it’s grueling work, Hoyt says, starting with getting your data right at the source.
“You have to stop fixing problems in the data layer, relying on data scientists to cobble together the numbers you need. And if continuing that approach is advocated by the executives you work with, if it’s considered ‘good enough,’ quit,” he says. “Getting the numbers right at the source requires that you straighten out not only the systems that hold the data, all those pipelines of information, but also the processes whereby that data is captured and managed. No tool will ever entirely erase the friction of getting people to enter their data in a CRM.”
The second piece to getting the numbers right comes at the end: closing the books. While this process is a near ubiquitous struggle for all growing companies, Hoyt offers two points of optimism. “First,” he explains, “many teams struggle to close the books simply because the company hasn’t invested in the proper tools. They’ve kicked the can down the street. And second, you have a clear metric of improvement: the number of days taken to close.” Hoyt suggests investing in the proper tools and then trying to shave the days-to-close each quarter.
Get your numbers right, secure your company, bring it into compliance, and iron out your ops and infrastructure. Do these things and you’re a long way toward being ready for a major liquidity event — or just your company’s next chapter.
Hoyt is so knowledgeable in this area that he answered virtually every one of our questions without hesitating. So it should say a lot that, when asked what one bit of advice he’d leave with CIOs preparing for a liquidity event, he pondered his answer for what seemed like 10 interminable seconds.
“Make sure you have the full support of the top officers — the CEO and CFO, or COO. It’s hard work. And to some extent you’re going to have to make people’s lives harder, so there’s going to be friction,” Hoyt says. “The only way you’re going to overcome it is if you have top-down alignment. As time goes on, more CIOs are reporting to CFOs or COOs or CEOs. But in some firms, the CIO still reports to someone farther down the food chain. That won’t cut it in a firm preparing for an IPO.”
And that’s good news for IT leaders looking to take a step forward with their careers at startups and beyond, he adds.
“CIOs hold a unique position,” says Hoyt. “They can see every part of the company. They see the challenges regarding real estate and ERP and so on. That purview has to be recognized and respected if a firm is serious about playing in the big leagues.”
As CIO and Chief Shared Services Officer, David Johns has yielded valued for Owens Corning through Centers of Excellence.
by Peter High, published on Forbes.com
01-14-2013
David Johns has been CIO of Owens Corning since 1994, which is extraordinary considering the average tenure of CIOs today is roughly four years. In that time, he has had multiple “pluses” to his CIO role. He is currently the Senior Vice President, Chief Information Officer, and Chief Shared Services Officer. Prior to his current role, he was Senior Vice President, Chief Information Officer and Chief Supply Chain Officer. He also led the Owens Corning Technology Center as Chief Technology Officer for a time. Johns’ experience at Owens Corning highlights how solid work done in transforming IT, developing shared services or centers of excellence can yield value that translates to other parts of the organization quite well. Especially since the economic malaise began in earnest in 2008, a number of leading CIOs have seized the opportunity to develop shared services have have yielded more efficiencies and value for their companies in the process. There is no reason why this should not be done in other parts of the organization as well. The best CIOs, like Johns, realize that they are ideally equipped to lead this in other parts of the organization, as is highlighted in my interview with him below.
(This is the sixth in the CIO-plus series. To read the prior five interviews with the CIO-pluses from Waste Management, McKesson, Merck, Red Robin Gourmet Burgers and Ameristar Casinos, please click this link.)
Peter High: David, you led a transformation in Owens Corning’s IT department that seems to have been the model for the transformation of other parts of the organization. What is the common theme among these transformations?
David Johns: Peter, you are right that there have been multiple transformations. The common theme between what we have done in IT and what we are now doing well beyond IT is transforming into a services model. What was Global Information Technology is now referred to as Global Information Services. The idea of developing standard services for our diverse set of businesses to leverage makes a lot of sense in our minds. IT was simply the first of these services, but as we have extended the service philosophy to other parts of the organization, I have had the opportunity to lead other areas in transformation. In some cases, we have turned over responsibilities for a function to a business leader elsewhere in the company, and in others, they have remained in my organization.
Peter High: Can you talk a little bit about your time in having responsibility for supply chain and the rationale for moving it back in the business?
David Johns: Supply chain is a relatively new science, and when we first implemented our global ERP instance of SAP, and built the integration across the phases of plan, source, make, and deliver, it made sense to pull supply chain as a function out and try and build new set of capabilities and new processes and really try to leverage the technology we were able to deploy across the corporation. Once we did that and we made good progress in setting out some of the basic principles. We felt it made sense to move back the supply chain strategy and execution into the business first once we set up those processes and got them operating. We then kept customer service and logistics within the organization, probably for four or five more years.
A lot of this had to do with the fact that we had a different number of businesses reporting into the CEO, and then we made an organizational change within the business where the building materials business moved under one group president. At that point, it made sense to move it out of a centralized organization; so we moved logistics and customer service into different areas such as Composites and Building Materials.
We took shared services out of some of the business and moved it into IT to focus on building additional platforms. We reached a point where it made sense to move supply chain back into the business. The continuum we traveled was from strategy to execution to stable organization.
Additional topics covered in the article include:
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As the former EVP of Global Services and Chief Information of Merk, Chris Scalet oversaw the centralizing of IT infrastructure, Human Resources, and Finance, but the devil was in the details.
12-17-2012
This is the fifth article in the CIO-plus series, covering CIOs whose roles have been augmented due to the good work they did first and foremost as CIOs, but also recognizing that the good work translated into other areas. (You can access the prior four articles here) I recently spoke with Chris Scalet, the former executive vice president, Global Services, and Chief Information Officer at Merck & Co., Inc. as part of the Forum on World Class IT podcast series. Scalet developed one of the first shared services organizations at Merck when he centralized infrastructure, yielding a nine-figure savings per year in the process. The CEO of the company was sufficiently impressed that he asked Scalet to do the same in other parts of the company. Scalet began with Human Resources and with Finance, but eventually took responsibility for a wider array of functions. Scalet humbly surmises that the path he pursued should be accessible and achievable by most CIOs, no matter the industry, though he readily admits that the devil is in the details.
Peter High: Chris, you began your time at Merck as the company’s CIO. Your role was augmented substantially as your tenure continued. What was it about the CIO role that lent itself well to this augmentation?
Chris Scalet: There are four factors that come to mind. First, most CIO’s have a strong business mindset. They have a strong tendency to focus significantly on the business processes that underpin the operations of the company. Throughout their careers, they have likely digitized the majority of these processes and have developed a broad and deep understanding of how they fit together as well as how they flow to move the business.
Second, CIO’s today are strategic in their thinking. They have been forced to be in both a business and a technology sense. Both business environment and technology are changing quickly, often at paces that are considerably faster than in the past. Reacting to change is no longer acceptable. To be effective today, CIO’s must anticipate where both are going, make choices, and put actions in place that make sure the two are effectively aligned.
Third, CIO’s are operational thinkers who are organized and methodical in their thinking. They can break down complex business problems into simple tasks, and work to solve each simultaneously. They are also effective risk managers who can see around the corners and ensure proper contingency plans are in place to manage the business.
Finally, CIO’s are generally very good influencers up, down, and across the organization. They have developed the appropriate skills to set a vision and sell the vision across the organization.
To listen to Chris Scalet’s Forum on World Class IT podcast interview, please click here.
Buying over building — Standardizing processes across units– Two CIOs are bucking these trends for good reason
10-31-2012
The economic malaise of the last several years has led a lot of organizations to think about standardizing infrastructure and processes in order to cut costs and to run more efficiently. It has also led many IT departments to rethink their mix of homegrown systems versus those purchased from a vendor, erring more on the side of the latter than the former. However, a few companies have bucked these trends, and believe they are better positioned during good times and bad as a result.
Many companies have developed a standard around purchasing off-the-shelf solutions wherever possible, and only where necessary developing their own homegrown systems. In a recent interview with Jay Vijayan, the Vice President, IT & Business Applications of Tesla Motors, as part of the Forum on World Class IT series, Jay discussed the reasons why his team sought an alternative path to this trend. In fact, his team has reversed this trend, even developing a homegrown enterprise resource planning (ERP) tool suite. In this day and age, you will not find many executives who choose to develop their own ERP, but Vijayan explains that as he and his team looked for comparable examples of the use of standard ERP solutions, they were left wanting for a specific fit for Tesla’s needs. Recognizing that the usual suspect solutions would be formulated with average cases in mind with a variety of “bells and whistles” that would never be of use to Tesla, while making the application heavy and hard to maintain, Vijayan elected to build one for Tesla specifically. It was hard work, but since it has been up and running, it does all that his team and his business colleagues need.
(…)
Norm Fjeldheim, the CIO of Qualcomm, has bucked the standard trend, and has been successful in the process. He has chosen an iterative, agile development process in some areas, and others have relied upon the traditional waterfall method, which entails a less iterative, stricter-staged development process. Fjeldheim points out that it would be inappropriate to standardize on one method over another in his case. Moreover, he has not developed a single PMO to oversee all projects and methodology. Rather, each group associated with different divisions of the company set up their own PMOs. Fjeldheim says, “There are certain product areas that we work with that have many release dates, and where requirements change based on information gathered from customers through development. This is clearly an area where agile methods are needed. Our colleagues in Finance, for example, prefer more structure, and have relatively few releases each year. Agile is not warranted in that situation, and so we use waterfall methods for them.” It is this flexibility that creates a better partnership between IT and each of the business units with which it works.
To read the remainder of the article, please visit Peter High’s Technovation column on Forbes.com.
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