How CFOs Can Win: Be Switzerland

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Optimism is still strong on Wall Street. Following a string of economic news that wasn’t necessarily great last week, markets still climbed steadily upward.

It started last Wednesday, when Federal Reserve Chairman Jerome Powell announced that inflation was still too high, and interest rates would not be cut. The decision was no surprise, considering inflation has been stickier than many hoped all year. But Powell’s press conference announcing the lack of movement significantly rallied the markets, because he also said it is “unlikely” the Fed will raise interest rates further.

Markets rallied again on Friday, after the Labor Department showed job growth cooled in April. Just 175,000 jobs were added last month, far short of consensus estimates of 240,000. While fewer new jobs isn’t good economic news, it seems to show labor demand is slowing, which in turn could make inflationary pressures ease up.

And then on Monday, news came that Hamas had accepted a cease-fire agreement that could step down the intensity of the Israel-Gaza war. Markets swung upwards and stayed there, even as Israel ignored the potential agreement and vowed to press on with its offensive, attacking the Gazan city of Rafah.

Forbes’ Mitchell Martin delves into the apparent exceptionalism of the U.S. economy. While other countries have seen recessions, supply chain problems and falling markets, Martin writes the U.S.’s limited reliance on international trade, policies encouraging reinvestment and government spending have made it the “cleanest dirty shirt” on the economic scene. Markets continue to grow, despite pervasive inflation, high interest rates and geopolitical conflicts. And optimism will likely continue to rule.

The last several years have not been easy for startups, especially as investors have been less generous with capital. Jason Godley, currently CFO at Xactly, has served in the same position at other small companies as they’ve worked to scale. I talked to him about his experience and how he’s worked with companies’ important stakeholders: the CEO, investors and board. An excerpt from the interview is later in this newsletter.

NOTABLE EARNINGS

Following discouraging news about sales and demand, and declining stock for much of the year, many were expecting the worst in Apple’s most recent earnings report. But that’s not what the tech company delivered. Earnings were solidly above expectations—even though total sales were 4% lower than the year-ago period, and 7% lower than this time of the year in 2022. Much of the declining demand came from China—as analysts expected—but CEO Tim Cook said on the earnings call that the long-view for China is still positive. Apple’s stocks rallied following the earnings report and have stayed more than 4% higher, though part of that could be based on a couple of moves Cook used to flip the script. Apple announced a $110 billion stock buyback, and Cook alluded to big new developments using generative AI coming later this year.

With all of that promise, it seems a bit odd that Warren Buffett’s Berkshire Hathaway sold off about 13% of its holdings in the company. However, Buffett suggested at Berkshire Hathaway’s annual meeting over the weekend that selling the stock now could help the firm pay larger taxes, as he believes a federal tax hike may be imminent. Buffett said it’s still “extremely likely” Apple will still be Berkshire’s largest investment at the end of the year. Forbes senior contributor Peter Cohan writes it’s hard to tell exactly what Buffett is thinking, though this could be a chance for Berkshire to make more money by selling off a larger portion of his $135.4 billion stake.

HUMAN CAPITAL

At-home exercise company Peloton was a perfect fit for the early days of the Covid-19 pandemic, when gyms nationwide closed their doors and people craved both exercise and interaction. It’s been a harder road in the more recent past, as the company has seen its revenues steadily drop amid an oversupply of equipment, several recalls and people wanting to get back into the world to exercise. Last week, Peloton reported a quarterly net loss of $167.3 million—and layoffs of about 400 employees, as well as former CEO Barry McCarthy stepping down. The cuts impact about 15% of Peloton’s employees, and are seen as a way for the company to reduce annual spending by more than $200 million by the end of the 2025 fiscal year. An internal memo indicated Peloton’s layoffs took place because the company “simply had no other way to bring its spending in line with its revenue.”

Boeing also has seen no end to its recent problems, and just added a new one: It locked out its unionized on-site firefighters at its manufacturing plants in Washington. Forbes senior contributor Marisa Garcia writes Boeing had insisted on increasing the time it took for a firefighter to reach maximum pay to 19 years. It had been 14 years in the previous contract. With its private firefighters locked out, Boeing is using public agencies for primary response now. In a statement, the International Association of Firefighters union said the lockout is intended to “punish, intimidate and coerce its firefighters into accepting a contract that undervalues their work.”

The firefighters union has just 125 members, but this isn’t a good indicator for Boeing’s future. It’s currently in its first negotiations in 16 years with the 32,000-member International Association of Machinists and Aerospace Workers union in Puget Sound, Washington and Portland, Oregon.

STOCK MARKET NEWS

Luxury cruise ship operator Viking Holdings is sailing toward a bigger share of the multibillion dollar industry following its IPO last week. The company’s shares debuted at $24, and quickly rose, steadily climbing to more than $28 per share. Viking’s $1.5 billion IPO is the biggest so far this year. It offers ocean, river and expedition-style cruises geared toward adults with high income, and makes an average of $7,251 in revenue per passenger. The company’s prospects are enhanced by a booming travel market and its unique offerings.

OFF THE LEDGER

Xactly CFO Jason Godley On How Strategy And Communication Help Startups

Jason Godley has been in CFO positions at venture-backed startup companies for almost a decade. He’s currently in this role at SaaS provider Xactly, where he started in early 2023. Through the years, he’s learned a lot about how to balance priorities and really listen to everyone, working with CEOs and founders to ensure that they are getting the cash they need to grow a business, but ensuring the company can go on. A portion of our conversation is included here. This has been edited for length, clarity and continuity.

You’ve said it’s important to always come back to the strategy. How much strategy do you generally set as the CFO? Are you talking to the board and the CEO about where they see the company going and their priorities? Or are you looking at the numbers and saying what priorities should be based on the finances?

Godley: I do have this bit of a funny saying: When you’re doing your job, people are generally kind of dissatisfied. Your investors would love for you to be at the perfectly optimized business model. The CEO wants everything to be up and to the right. I want the same thing. At the same time, we have to be super thoughtful around what we can and cannot do. I think the CFO needs to be able to understand holistically all of the art of the possible. We see a lot of stuff. We understand ROIs, either at the business level or in the function level.

How do you articulate the trade-offs within the business of what you can and can’t do to make sure that CEO and investors really understand the trade-offs? It’s not saying, ‘No, we can’t do something.’ It’s like, ‘Look, I get it. Here’s how we should think about the pros and cons of that decision that we may be able to drive for gross margin improvement today.’ Or maybe we need to invest in something today that holds down our profitability, but that’s going to improve long-term terminal value. I think you have to be very comfortable—kind-of be Switzerland, if you will—in balancing all these things, because they do want to hear our perspective as the CFO because we do have a pretty good pulse on the things that can work or not work.

You’ve said that communication is key for the CFO to harmonize with all stakeholders and to minimize conflict from disagreements. Financial professionals haven’t always honed their communication skills. How would you recommend CFOs and those who aspire to the position improve this skill?

I would say it starts with awareness. I’m a big student of ethical mindfulness. There’s some data that says [47%] of the time, we are not even paying attention—like we’re lost in lots of thoughts. So step one is being mindful of the fact that maybe my communication style may or may not be working. Because if you don’t even know it, it’s very difficult [to make a change]. I think then you have to get comfortable that you want to change it, because behavior change is difficult unless you actually recognize that you want to change.

It is probably being very honest in getting feedback from everybody around you. How am I showing up as a leader, getting a 360 review? Maybe you get angry and just rub people the wrong way. I have learned I can be overly nuanced in my communication style sometimes to blunt the pain of the conversation, which sometimes doesn’t work. But I’ve learned that through asking for feedback. It’s asking for feedback, and then literally being very explicit on the two or three things that you can do to try and institute change. And then with time, they become more habit and evolve over time. With habit change, there’s this notion of you want to feel like you’re getting better. I think when your communication starts to improve, the receptivity of the people who you’re talking to actually will improve.

For a CFO who is trying to deal with all of the competing pressures, what would you tell them to do? And what would you tell them to absolutely never do?

Nothing is black and white. I’m going to come back to a quote that is what to do, which is a zen quote: In the beginner’s mind, there are many possibilities. In the expert’s mind, there are few. As a CFO, you are both expert in some ways, but also should have a beginner’s mind. In all of the things that are happening, having this framing of [finding out] how [other stakeholders] are thinking about stuff, for me personally, works. It could also work for others in the same situation.

FACTS + COMMENTS

Amazon shattered expectations in its earnings report last week, pushing the retailer and web services company closer to beating its all-time high stock price.

$143.3 billion: First quarter net revenues, up from $127.4 billion a year ago

17%: Year-over-year increase in the AWS cloud computing business

‘The appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate’: CEO Andy Jassy said in a statement

STRATEGIES + ADVICE

For small businesses, borrowing money when interest rates are high is difficult. Here are some tips to ease the pain.

AI can really be a strategic asset for your business. Here’s how to take advantage of its power.

VIDEO

QUIZ

European consumer goods titan Unilever reported 4.4% overall sales growth in its most recent earnings. Which division posted the biggest sales increase?

A. Ice Cream

B. Beauty and Wellbeing

C. Personal Care

D. Home Care

See if you got the answer right here.