Earlier this year, I sat down with Tyler Sloat, CFO of Freshworks. After nearly ten years, Tyler had recently left his job at Zuora, an early pioneer of the Subscription Economy, to lead the finance and accounting functions of Freshworks. In case you've been fresh out of the loop, Freshworks creates "refreshing business software that your teams will love", which is used by over 150,000 businesses around the world.
Our conversation ranged from predicting the future of the finance back office to how "audits are fun" to how to attract and retain top talent in finance organizations.
▶️ We also created a video of our interview, which you can view here.
Tyler, you recently left Zuora, where you were the "guardian of the business model" for nearly a decade. I'm sure you saw a lot of changes in that time. Can you talk about how the role of the CFO has evolved?
It’s really interesting. I think the role of the CFO has changed dramatically over the last 5 to 10 years. The CFO of today is expected to be the business model architect.
Because they have the most access to data, more than anybody else in the company, they’re expected to use that data and provide true decision support to the rest of the organization. They’re the ones empowered to make the decisions in terms of where the strategy of the company should go.
It’s a fun time to be a CFO, but the burden is pretty large.
And where do you see the role heading in the next five years?
I think CFOs are going to essentially evolve into COOs, where they are operators in some context as well as the financial guardians in the other context. I think they are the ones who can naturally take over functions because they’ve had purview into all the functions, at least from the quantitative perspective, but also because they have a whole vision of where the company should be going from a strategic perspective.
They are the ones who can be the operators as well.
That's an interesting observation: CFOs are evolving into COOs. As if being a CFO isn't challenging enough already! But if you could magically solve one problem CFOs face, what would it be?
I think the ultimate goal for any CFO is 100% predictability. And when you think about what that means, there’s a trickle-down all the way down to the way the business is run. But in the end, predictability of revenue, predictable of expense, predictability of cash flow—those are the tough things to go solve.
We are all striving to get there. Right? And when you get to become a public company, you know, you go tell The Street what you’re going to do. If you knew exactly what that was going to be, then you have the ultimate goal in terms of guidance and beat and raise cadence and things like that. So that is the ultimate goal.
You just mentioned cash flow. Let’s drill down on that. What are some of the challenges around forecasting cash flow?
Yeah. The challenge in forecasting cash flow is that it’s easy to have the cash go out. In fact, you can control that at the end of any period. You can choose whether to make disbursements or not. And typically, one day or two days doesn’t really impact you.
Cash flow in is a more difficult part. Understanding your receipts and where the cash is coming from and getting that truly in your bank account at a certain point in time—which there is a hard date for any accounting close—that’s more difficult.
How concerned are you that errors are lurking in your financial data?
Every CFO should always be concerned that errors are lurking in your financial data. In fact, I know there are errors in financials, there are errors in every single balance sheet and income statement cash flow I look at. Not just our company, but any other company. So then it’s about materiality and about “how significant are those errors?”
And, oddly, there’s actually a gray area to accounting, right? So, an error for one may not be an error for another. The real risk is making sure that there are no material errors, that there’s nothing in there that you really don’t know about that should or should not be in there.
And that you have purview over everything that’s really going on in your system. But you’ve also set up a system of controls and people and processes that give you the comfort that things are being recorded the way they should be.
Let’s talk about audits. How long does your team spend preparing for an audit?
Audits are fun, right?
And there’s no way around preparation for an audit in crunch time. You end a period. Whether you’re doing quarterlies or you’re doing annuals, crunch time can’t be solved. But the reality is you’re always trying to solve for it. Unfortunately, you get to the end, and there’s a whole bunch of tasks that are always built up at the end, and you have to go through these manual processes to get there.
So the prep time is one thing, which is just kind of governance of what you’re doing every day. But the actual crunch time of audit itself is a burden that lasts for weeks until you get through it.
Right. And in order get through an audit, you’ve got to have the right people in the right jobs. What are the challenges around building back-office teams and retaining talent?
Retaining talent is difficult. It’s really difficult in different areas. The [San Francisco] Bay Area is extremely difficult. The biggest problem that I see is, you want folks who are really smart, and you need leaders at the top, and they are going to be career people. They need to progress. But at the end of the day, you have a set of tasks and jobs that need to be done. But a lot of them are very rudimentary, and a lot of them are just repetitive in nature. You can’t expect somebody to keep doing that year over year over year.
And so you have to promote people, you have to give them career progression, things like that. Which naturally, if you don’t, they’re going to leave. Yet the tasks are the same, right? And so unless you solve the tasks and make that easier and allow them to do something different, they’re going to leave you.
So you have to constantly be thinking about this pipeline of individuals that would need to come back in and knowing that you’re going to lose them over time.
Well, a lot of that routine work can be solved with automation and AI. How do you see automation and AI helping with those repetitive tasks?
Yeah, there’s a ton of opportunity for automation in the accounting world, and I separate out accounting and finance because they are two distinctly different disciplines. Still, they work very, very closely together.
One, simply the tying together of what those two disciplines do, meaning that finance is forward-looking and they’re close to the business, understanding what the business is doing, they’re capturing data in some finance tool about what is being committed and what the strategy is.
Accounting’s backward-looking, right? Where you close the books, and you’re trying to capture what has already happened. The gray line is what happens in between there. It happens at accounting close so that where you’re using an FP&A finance organization to provide insight to what should be recorded to make sure your books are capturing everything they need to.
That is one area that is still a manual interaction in most times. You have two different systems, and data is captured in those two different systems. Still, there’s no actual automation of what should be happening. If I look at being able to bridge that gap with technologies, is simple things like looking at, “Okay, we have made the same accrual every single month for the last 18 months, and we could estimate what that accrual should be without having to talk to FP&A.” Even though they might have better insight, we can estimate it just based on intelligence.
I look at some rudimentary tasks, which are employee onboarding and vendor onboarding. The capture of data across those elements is still something that every company that I know grapples with, and it’s the integrity of that data, which is the hardest thing. It doesn’t show up until a payment is made way downstream, whether it’s a payroll or a vendor, a check, and that payment can be incorrect or going to the wrong address or something as simple as that, which can cause havoc upstream.
These are all areas that can easily be solved through AI and things like that.
That's all for now. Stay tuned for part II of our interview with Tyler Sloat, CFO of Freshworks.
▶️ We also created a video of our interview, which you can view here.