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Tackling the Top Challenges in Finance and Accounting at Silicon Valley Companies Today

Small or large, private or public, companies all around Silicon Valley are facing many of the same challenges in finance and accounting today. These issues can affect morale in the finance team, prevent the company from getting at the information it needs to advance the business, and hinder the company’s growth. They’re not all surmountable overnight, but their impacts can be minimized if they’re given due attention.

Crushing Workloads Conflict with Efficiency Mandates

Often motivated by the need to reduce costs as well as the need to focus on high-value deliverables, companies are on a constant hunt to streamline processes and drive efficiency. At the same time, we see a lot of companies with very bright, knowledgeable and capable employees who are buried under a hefty backlog with no easing in sight.

How did they get there? The reasons vary: They may have been brought in when the company was in a crisis mode, which hasn’t let up. Or the company’s growth has outpaced the finance department, which has been under budget constraints that prevent hiring. Or, as we’ve seen with many companies, it’s been a perfect storm of extra projects that all hit at once—such as the back-to-back adoption of the new revenue recognition and lease accounting standards, and related systems implementations that went along with that. No matter the reasons why, the team feels behind—never mind trying to make progress on improving or streamlining processes.

Unfortunately, sometimes it’s simply a matter of not having the right staff to handle the work—we’ve seen underappreciated individuals perform heroic acts to hold things together as long as they can until they finally quit. Only then does the organization wake up to the workload the person was under and responds with three new hires. How much better would it have been to address the issue before the original employee burned out and left?

Rapid Changes in Technology

Emerging technology trends bring the potential for greater efficiencies and better access to critical information—along with the need to stay on top of what’s new and how the company can adapt. Automation of manual processes and moves to cloud-based ERP systems require a shift in traditional ways of working while vastly improving the timeliness and reliability of essential financial data. Artificial intelligence tools making their way to the market could transform the way finance teams operate, from how we reconcile documents and conduct reviews to realizing increases in productivity levels.

Evaluating the latest in technology should have a regular spot on the finance team’s agenda. Think about whether you are using your existing systems to their full potential. Are they being optimized to help streamline your existing processes? The things that worked great five years ago might be out-of-date today. Sometimes bringing in a third-party resource can help identify ways to streamline and make better use of existing technology. 

The War for Talent Rages

The battle for finance and accounting skills and specialties continues, and there are no clear winners emerging. Companies keep looking for top talent to add to their team—employees who can think strategically, uplift the department to a higher level, leverage use of technology to automate and innovate, and who possess deep subject matter expertise. It’s a tall order for any one person to meet in the traditional, full-time workweek.

Flexibility in expectations can raise the talent of the team. It also makes sense to remain flexible to handle fluctuating workloads, and supplement with particular skills and talents when you need to. It might be the perfect time to supplement some skills for special projects and invest in training to raise the expertise of your talented team already in place.

How to Move Forward in Finance

So what’s our best advice for how to tackle these challenges? First, assess the situation and find the blockers. Carve out some time to really analyze your top bottlenecks and blockers in the finance department. Find out what is preventing you from delivering high-quality, value-add information right now. Are your business plans rooted on information that is not as credible or reliable as it could be?

For a bogged down department or an inefficiently run company, there may be little time for innovation or meaningful streamlining. If you are struggling just to get your books closed, there’s a bigger problem underneath it all. Oftentimes there are process issues upstream that just float downstream until they land in accounting. Take a look at the entire process to see if a bigger discussion is in order that may involve more than the finance team. Maybe the issue is trying to work with data from various sources that need to be reconciled, integrated or somehow manually manipulated. Investigate the spreadsheets—how many are you using to manage data and book your entries?

The answers to that could be a combination of staffing and technology issues. As you get at the root causes of the department’s issues, you may find there are opportunities to automate manual processes, harness improvements in technology or bring in another level of finance expertise. Sometimes you have to make an investment before you can see results.

As for the talent wars, sadly, we don’t have a magic bullet for that one. We find it gets harder and harder to find those “unicorn” employees who can do it all. They do exist, but they are really hard to find. So, companies may find they need to build today’s flexible team—hire someone with a reasonable financial foundation, and invest in training and upskilling the staff you do have. Our finance pros have stepped in to help companies wrangle the workload while helping to raise the level of the team in the process.

Despite the many differences among companies at various stages of the business lifecycle, they deal with common challenges in finance and accounting operations. We experience it firsthand as we help a range of fast-moving Silicon Valley companies face a host of new situations. We see it when we are consulting emerging growth ventures on a high growth trajectory and with midmarket companies grappling with a recent M&A change and new regulations. And we see it in large enterprises dealing with ever-increasing volumes of data from disparate sources, spinning out parts of their business and acquiring other firms.

Armed with ideas for finding and fending off the blockers in finance, the team can push through their latest challenge—until the next one comes along.

Pat Voll is a vice president at RoseRyan, where she provides strategic guidance to several practice areas, including corporate governance, strategic projects and operational accounting. She also manages multiple client relationships, develops new solutions for the firm, and oversees strategic and corporate culture programs. Pat previously held senior finance level positions at public companies and worked as an auditor with a Big 4 firm. 

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We love to give back—RoseRyan volunteering in action

Our gang loves to give back to the community. It feels gratifying.

The latest request came in from Second Harvest Food Bank for our annual volunteer event in late October. This is the fifth year we have gone to the food bank to help them out with a gang from RoseRyan. This time, we needed to carry out some due diligence, reconciliation and a bit of fixed asset inventory for 4,600 cans of fruit that will be delivered to hungry families in Santa Clara and San Mateo counties. And we delivered—after two hours of sorting and labeling, we had helped pack up boxes for distribution.

Giving back with our time is a gratifying experience for our consultants, and we take on numerous opportunities throughout the year to help out those who are less fortunate. Despite the amazing economic growth we see firsthand throughout Silicon Valley, there are also families in this region who are still struggling. It’s great to work for a company where employees actively give back to the community.

THE ROSERYAN CREW AND FAMILY MEMBERS HELPING OUT AT SECOND HARVEST

THE ROSERYAN CREW AND FAMILY MEMBERS HELPING OUT AT SECOND HARVEST

 

Volunteering at Second Harvest Food Bank (San Jose)

Each year we bring a big team to volunteer at Second Harvest Food Bank after work. One year, we packaged oranges and apples, another we were dealing with pallets of carrots. This time, we were asked to label canned fruit donated by Del Monte. Each can had to be inspected for any rust, leaks or breakage. Small dents were okay but any others had to be discarded.

Then came the fun part: reconciliation. We looked at the code on the bottom of can and matched it to the correct label (for example, OMP was the code for peach pieces). As accountants, we love reconciling everything and anything! Plus, it was kind of like a fixed asset inventory where we locate items and make sure they are tagged. Then, once they were labeled, in they went, into boxes of 100.

Our sorting was a small part of the more than 1 million pounds of food Second Harvest Food Bank manages to deliver to low-income people every week. We love to know we are a part of the engine that makes Second Harvest successful; in fiscal year 2015, 314,000 hours of service were donated by volunteers like us, and those hours add up to real dollars: Second Harvest says it has saved them the equivalent of $7.8 million in personnel costs.

Some of the team gathered for a last picture before the school supplies were hauled out for delivery. Thanks to everyone who donated!

SOME OF THE TEAM GATHERED FOR A PIC BEFORE THE SCHOOL SUPPLIES WERE SENT OUT FOR DELIVERY

 

Backpacks of school supplies for Grail Family Services

We’re passionate about education, so it’s no surprise we’re helping the Grail Family Services with both literacy volunteers and a back-to-school backpack drive. This worthy non-profit, which is also a client, supports needy families of East San Jose. One of our consultants sits on their board, and the RoseRyan team donated dozens of backpacks loaded up with school supplies for kindergartners to start off the school year right.

Literacy Volunteers for young kids

Another way we have helped children in our area is through literacy and mentoring. We have signed up several volunteers for individual reading time with elementary school students. It’s a critical time in their lives to learn to read and to nurture the love of learning. And, who knows, maybe there are some budding accountants that we’re helping!

A big thank you to our colleague and friend Dorcas Kelley for helping us out with this partnership with Grail Family Services and rounding up the contributions from our troops. She has also been invaluable in coordinating past giving events, like the Family Giving Tree, where we provided presents to children in our community who are in need.

Giving back to the community is satisfying on so many levels, and I am grateful to my RoseRyan colleagues for rallying together and all doing what we can. As we live and work with clients across the entire Bay area, we do not always have a chance to work elbow to elbow, so these moments together are a great opportunity for camaraderie and to work toward a common goal.

Theresa Eng, a member of RoseRyan’s dream team, is a superstar whether she’s working with a client or rallying her coworkers to volunteer for a good cause. Her areas of expertise include financial planning and budgeting, finance operations, and SOX.

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A Silicon Valley viewpoint: How to ‘fail fast’ without failing miserably

I have always believed the following adage is true: “You don’t plan to fail, you fail to plan.” However, more recently in business, and especially fast-paced Silicon Valley, the mantra has been to “fail fast.”

Many Silicon Valley CEOs are on record saying they are trying to instill this concept into the DNA of their corporate culture. They want their employees to be able to develop products quickly to gain market share, like now, and profit in a high velocity and often fickle technology marketplace. It’s so critical from their perspective that they say they actually embrace failures as part of the process. (“You have to break some eggs to make an omelet” would be the appropriate folksy analogy for such a strategy.)

Much has been written in business and management journals about slight variations on this theme: Fail fast, fail often. Fail better. Fail smarter. Create room for the honorable failure. Iterate quickly and often. Whatever wording you decide on for your own organization, it should have these guiding principles:

Managing risk doesn’t mean risk avoidance: The sentiment here is pretty obvious, that risk taking is needed, especially in fast-paced technology businesses. Those who don’t innovate will definitely fall behind and might not survive in the long run.

However, I think all too often, in their need to be quick with solutions, employees may get the wrong impression. They may think the company doesn’t need a managed product lifecycle process, product development roadmap or even a reasoned method for providing limited resources to unlimited R&D demands. CEOs need to ensure that even with the “fail fast” mantra, people are still expected to give it their best shot the first time around.

This is not about just pushing stuff across the line and scrambling to fix it once it’s in the marketplace. You’d get stuck with a broken product, impaired customer loyalty, rotten PR, increasing warranty claims, and more.

Make sure that you walk the talk: In my experience working at both hardware, software and medical device companies in the Valley for over 25 years, I have seen my share of failed product strategies, product launches, marketing launches, and even accounting projects, ERP implementations and audits. However—and this may come as a shock to you—I have never been invited to a party to celebrate a failure. I have never listed a failure on my list of accomplishments at the end of the year during performance review time. And I have never seen anyone promoted immediately following a major (or even minor) failure.

The reality is that management has a tough challenge for ensuring that “fail fast” isn’t just a slogan that everyone pays lip service to while being secretly terrified of making a mistake. How mistakes are dealt with on an organizational and personal level will be critical for the “fail fast” mantra to become a natural part of the evolutionary cycle of any company.

Do the hard stuff first: I think this is the key message of “fail fast.” It’s all about having your eye on the right ball. All too often, human nature is inclined to do the easy (and cheap) stuff first to show some progress. But it might not be the most important stuff. In organizations, this manifests itself in glowing status reports that a project is on track and on budget when in truth the targeted release date is in serious doubt. It will look like a lot of the to-dos have been crossed off, but when you look closely only the easiest parts of the product development have been tackled.

Using an example, assume a product has two key projects that need to be completed for it to go to market. Project A is estimated to cost $1 million, and the engineering group figures it has a 90% chance of success. Project B costs $1.5 million and has a 50% probability of success.

Now let’s say the organization doesn’t have much of a product development strategy and immediately wants to focus on completing Project A, mostly to gain favor with management because of its lower cost and higher probability of success. This would be a mistake from both a cost and timeline perspective. Statistically speaking, the probability of success for the completed product before any work begins is really just 45%—the 90% multiplied by the 50% (which would be extremely high for most companies in Silicon Valley, but let’s just stick with this easy math). However, after completing Project A, the probability of success for the whole product increases only to 50% and the organization is still left having to spend $1.5 million to complete Project B.

Consider what happens if the organization took on Project B first. The results can follow only one of two paths. Either Project B is successful and therefore the probability of the entire product’s success skyrockets to 90%, or the company “fails fast” and avoids 100% of the cost of doing Project A. Doesn’t hurt as bad, does it?

Failing fast is still failing: Arguably, failing fast is only the third best choice in a four horse race. The only thing worse than failing fast—after succeeding fast or slow—is failing slowly and not vectoring quickly to take on the next attempt. Again, not to be overly simplistic, but the wording can matter here (I would recommend ultimately adopting some internal slogan that didn’t use “fail” as the first word—but I get the appeal of the slick alliteration of “fail fast” that’s easy to remember).

So what to do if the organization does making that losing lap? Make the most of it and move on. Try the next strategy. Some of the most successful companies had initial failures and got right up and tried again. It might not have been until their third or fifth product evolution that they hit it out of the ballpark. This work is all about absorbing key learnings and vectoring quickly to a new strategy that makes more sense.

Ensure that robust processes are in place for the organization and employees to review and understand what went wrong. Did the market shift? Economics? A major competitor threat emerge? Today’s business environment, especially here in Silicon Valley, is moving at warp speed. This is especially true of a large multinational organizations where visibility into all of its parts may not be that good. Internal communication forums like blogs and websites where employees can share lessons learned from product development and project management will help the organization move in a new direction—to succeed fast.

Not all risk is created equal: While the failing fast and vectoring quickly strategy is a natural part of the tech product development world, it is not a wise choice for the accounting and finance functions. It is important to take appropriate risks and move quickly but wisely. Taking too much risk in projects like a new ERP implementation to accommodate a newly issued revenue standard or other structural items probably isn’t the right approach. The cost of being wrong is too high. Compliance type functions like SOX, external reporting, tax, etc. demand extraordinary precision and careful processes. Fast growing companies upgrading systems should plan carefully and not shortchange the testing and deployment phases, or their project might crash and burn.

I believe inventor Charles Kettering was right when he said that “a problem well stated is a problem half solved.” Iterate fast and get that prototype out in the open for a test drive. If the reaction is horrible, live and learn. The final product will be better off based on those lessons learned.

John Cook is a member of the RoseRyan dream team. He is a CPA with over 25 years of experience working in finance and accounting organizations in Silicon Valley with a focus on operational finance and technical accounting.

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Why Bitcoin’s demise could be good for Silicon Valley

It’s the end of Bitcoin as we know it, and I feel fine.

My apparent giddiness over this news is not about Bitcoin per se — although my RoseRyan colleagues had tracked its progress and discouraged CFOs from taking on the risk — I wouldn’t wish such big losses on anyone.

But it has created buzz in more ways than one. I don’t think I have had more e-mails and comments from my friends and colleagues in the last few years than I have over the past several weeks regarding the cryptocurrency. The heat was turned up with the recent announcement that Tokyo-based Mt. Gox, one of the largest Bitcoin exchanges, rapidly closed up shop amidst a potential loss of $473 million of its users’ money.

Now the buzz will shift toward the complete revolution happening in the payments business and its effect on Silicon Valley, and this is a change I’m excited about. PayPal, Square, Google, Apple and others are transforming the world of payments, by inserting themselves into a process that has been owned by the banks (full disclosure: I actively use PayPal). Gartner estimates that mobile payments alone will top $720 billion by the year 2017, up from $235 billion last year. The expansion of payment options will mean everyday Americans will hopefully no longer get so nickel-and-dimed on financial transactions.

In regard to the next “big thing” mantra of Silicon Valley, the payments business is already in full frenzy. It is your classic innovators dilemma: Venture capitalists are funding young, innovative startups; midsize players are adopting the changes; and banks — typically slow moving elephants — are running scared. Why? Those teeny-weeny payments add up. There were $15 trillion worth of retail transactions last year. The upside is huge not only because of transaction fees but also the ability to harvest large troves of consumer data. Security concerns will be an issue as players position themselves for the gold rush. This fast-moving train is a tough one for bureaucrats, who try to promote innovation but who must also put in place adequate consumer protections.

With Bitcoin, things did move too fast. The Bitcoin issue reminds me of Napster. Initially, Napster was a site to share music files and was frequented mostly by teenagers who were not willing (or couldn’t afford) to pay for digital music files. Napster caught a lot of heat for allowing a forum of users to access illegally obtained music, and it was subsequently shut down. A result of the Napster shutdown was that Apple came into the same space and built an incredible music delivery engine — iTunes on the iPod, then the iPhone and now the iPad — off the back of 25 billion–plus songs that have been downloaded since 2003.

How does the disruption to the music industry relate to Bitcoin? Stay with me here. Bitcoin’s ubiquitous network has allowed people throughout the world to anonymously transact commerce. It was envisioned to have tremendous ease of use, to be something as simple as email.  Although there are many differences with the PayPal network (and other networks), a key differentiator is that Bitcoin does not take a toll every time a payment is made. Once you have created a digital wallet, it is very simple for you to exchange money pretty much the same way that you would purchase something with cash.

So where is this leading? I expect there to be many issues that will continue to impact Bitcoin (lack of a governing owner, security concerns, and exchanges going out of business are among its many challenges). And I do expect innovative firms to emerge in this digital cryptocurrency space — and perhaps there will be multiple winners. Bitcoin “could, in the long run, give rise to one or several very robust currencies,” writes George Selgin, an economics professor at the University of Georgia in a paper on Bitcoin’s properties. “That’s how competition works generally, with winners and losers but with quality generally improving as the struggle goes on.”

And in an MIT Technology Review article, Tom Simonite notes that “even if interest in Bitcoin fades, it could still have a lasting legacy as an inspiration to better-designed forms of digital money.” It took Apple 10 years to get to 25 billion downloads — perhaps the next cryptocurrency will have 25 billion transactions in 5 years!

Chris Vane is a director at RoseRyan, where he leads the development of the finance and accounting firm’s cleantech and high tech practices. He can be reached at [email protected] or call him at 510.456.3056 x169.

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Real-time data driving businesses—and changing the CFO role

It wasn’t long ago that real-time financial information was available only to those who worked in companies with expensive data collection and analysis systems. CFOs of less-wealthy companies had to make decisions on the basis of historical information (or hunches, never a good idea). Lacking timely information, they had to forgo decisions that could have increased revenues, improved inventory management or otherwise helped their companies, because in the absence of good information, certain decisions were just too risky. The default was to make no decision, and that’s what most CFOs rightly did—but at a cost to their business.

Today, real-time information is inexpensive to obtain, and the role of CFOs has changed as a result. Having access to real-time information allows CFOs to make appropriate business decisions without the risk that used to exist. Many CFOs are taking advantage of that fact—and nowhere more than in Silicon Valley, where many businesses are driven by real-time data.

I’ve become part of that trend as a consulting CFO for some of the Valley’s up-and-comers. One of them is a social media company with data gathering systems that detail sales volumes and revenues every 10 minutes, 24 hours a day, 7 days a week. The company’s accounting systems allow the executive team to see the financial status of the company in real time, at all times. As CFO, I can access this information from anywhere around the world and help the company make appropriate decisions that will immediately affect its business. For example, if we see revenues dropping, we can instantaneously initiate a promotion, sale or other activity that will drive revenues back to the target, at which time we can instantaneously cease the activity. We can see the drop and recovery all in real time and keep sales on track with the overall business plan.

What I am doing with this company is now the norm in Silicon Valley. We can expect to see more and more CFOs of businesses outside the Valley follow the same path.

The growing availability of real-time data is forcing a shift in the role of the financial executive. Today’s CFOs need to understand where to get the data, how to interpret it and how to use such real-time information to drive a business forward. If they don’t, they risk becoming a statistic themselves.

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