FP&A at a Fast-Growing Company
Our Inside Axon blog series is updated every Wednesday and features letters from executives within Axon. This week's post was written by Arvind Bobra, Axon's Director of Financial Planning. Check again next week for more experiences and insight from Axon leaders.
FP&A, or Financial Planning & Analysis, is a pivotal but often less glamorous role in all companies. At its most basic level, it helps managers spend at the budgeted or forecasted levels, but it also has moments of glory when it can glean insights that guide a CEO to make quick and informed decisions.
FP&A at a slow-growing company is an exercise of repetition and precision. Future periods will look similar to historical periods, key metrics and indicators remain static, and there is pressure to optimise expense levels. It exists in a fairly predictable world with a low tolerance for variance.
At a fast-growing company, there are surprises at every turn. Metrics and indicators evolve, emphasis is on top-line growth, and there is a higher tolerance for variance during rapid growth. The focus for FP&A becomes an exercise of creating discipline while remaining fluid to the rapid growth.
At Axon we have the fortune of living in both worlds. Our TASER Weapons business is not a slow-growing company by any means – it grew 25% in 2016 – but it can't compare to our relatively new Software & Sensors business, which grew 85% in 2016 and is 3.5 times the size it was in 2014.
How FP&A can provide the most value in a fast-growing environment:
- Monitor a lot of KPIs, even ones that are not initially meaningful
- Find something predictable. This often means segmenting the customers or lines of business into different buckets
- Focus on medium-term goals. Single events early on can skew metrics, rendering them less meaningful from quarter to quarter
In my experience, finding something predictable both requires the most creativity and is the most insightful. At Axon, this has meant dividing customers between international and domestic, separating beachhead accounts in new countries from the rest of the customers, or separating large agencies from small agencies. Finding something predictable also requires adjusting for known and explainable anomalies. While this is often manual and requires ample footnoting, this allows managers to understand averages and trends, and better predict the future.
Some of the components required for FP&A success:
- The right data. Early on, systems may not capture every source of data. At Axon, we have a unique challenge where the allocation of customer payments differs materially between invoice and recognised revenue due to accounting guidelines for long-term multi-element contracts. Getting the right data requires working with IT to ensure that information is captured up front and flows through the CRM and ERP systems.
- Knowledge of your audience. There are three main stakeholders for FP&A data: executives, product managers and investors. The three often require different perspectives and different levels of detail. It is very important to ensure that the data a stakeholder receives will not lead to the wrong decision or conclusion.
- Scrappiness. With rapid growth, there are often needs for metrics or data that don’t exist in the way they are needed. Data can’t just be pulled from a system, so you have to know how data is inter-related to find a proxy for the desired data. It’s important at this juncture to set up the right process to capture data so it can be efficiently accessed going forward.
- The right people. When things change and evolve rapidly, you need people who enjoy that type of environment. While you must automate as many reports as you can, there will always be work that changes from quarter to quarter.
- A focus on details. It is important to not just produce reports and information but also to understand the source of data and any anomalies in it. At the end of the day, it’s the responsibility of a good FP&A team to ensure that the end user makes the right inference from the data provided.
There are no simple formulas or rules for FP&A at a fast-growing company. It is important to always be re-assessing what you are producing and thinking about your future needs. There will always be unpredictable changes and challenges, but if you can find what is predictable and meaningful, FP&A can be one of the most valuable assets to an organisation.