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Can Spend Actually Influence Revenue? Here’s Why Your CPO Will Be Your Next CFO

06/26/2018 By

In 2017, Parsa Saljoughian, vice president of Institutional Venture Partners (IVP), one of the most high-profile Venture Capital funds in San Francisco, set about the monumental task of analyzing each and every shareholder letter that Jeff Bezos had published since Amazon went public in 1997.

In the course of studying the 20 letters, Saljoughian made a curious discovery: For someone helming a company that increased its annual revenue from $148 million in 1997 to $178 billion in 2017, Bezos doesn’t seem particularly fond of the word “revenue.” In the course of those 20 years, Amazon increased its revenue by 120,000%, and yet “revenue” is mentioned only 12 times in those 66 pages of letters.

Instead, writes Saljoughian, Bezos used these shareholder letters to talk at length about the company’s “inputs.”

Consider this extract:

Senior leaders that are new to Amazon are often surprised by how little time we spend discussing actual financial results or debating projected financial outputs. To be clear, we take these financial outputs seriously, but we believe that focusing our energy on the controllable inputs to our business is the most effective way to maximize financial outputs over time.

It’s hard to dispute most things that Jeff Bezos says or does, and that’s partly because, being Jeff Bezos, he holds the rare distinction of building the world’s third most valuable company, in less than 25 years. But if we go back to a time before Amazon was considered a blue chip company, we will realize that the stock market, and indeed Amazon’s board of directors, saw Bezos differently. His somewhat indifferent attitude to revenue was not only considered detrimental to the company’s interests, it infuriated prominent investors and leading hedge fund managers who had built vast fortunes out of their ability to read a company’s pulse. Wall Street preferred CEOs who would lose sleep over the slightest fluctuations in revenue, and Bezos’ resolute  indifference eluded their understanding.

On the face of it, Bezos’ emphasis on inputs over outputs seems intuitive and hard to negate. Inputs, by their very nature, can be controlled, and outputs are merely an outcome of said inputs. But in the contemporary milieu of American industry, it’s rare to find companies that do not obsess over the push and pull of short-term revenue changes.

This constant fixation on revenue gives companies tunnel vision, blinkering their management from inputs — or to put it more broadly, from areas that are actually within their control. And as it happens, chief amongst these areas is spend.

Spend control (or spend management as the modern usage goes) is a lever well within a company’s reach, and yet it’s scarcely ever pulled in any meaningful way.

Traditionally, any high-level decisions or concerns about spending have sat under the purview of finance. Larger companies do have dedicated procurement and purchasing managers who deal directly with the outflow of money, but they have always operated under the shadow of their finance and accounting teams. As a consequence, terms like spend control or spend management have become synonymous with cost-cutting, which is something of a special talent within the finance function.

Let me explain.

Consider Snap Inc. Since it went public last year, Snap has been at the center of the tech industry’s attention. Snap commands breathless press coverage, with both news reporters and market watchers trying to decipher the rationale behind every move it makes. In the last five months alone, it has laid off more than 100 employees, creating a media circus of sorts. Every tech and business publication worth its salt tried to build out a cause-and-effect relationship between the layoffs and the usual set of problems beleaguering the inner workings of Snap — workplace silos, marketing strategy, user experience, product flaws and on and on. Not one commentator, however, paused to question the company’s spend management.

Like everyone else, they are missing the point. The issue at the heart of this issue is that layoffs — blanket cost-cutting in general — are hardly seen as an admission of losing control of spending; they are, instead, seen as a strategic recourse to salvage a company’s balance sheet and placate board members and investors.

Cost-cutting is not a strategy; it is the finance department’s knee-jerk response to a company losing its grip over how its money is being spent. Cost-cutting, therefore, happens when a company neglects spend management.

That is where cost-cutting and spend management differ. For too long now, finance professionals have controlled the reins of company spending, without having the granular insight or the expertise that are crucial to ensuring spend management. It’s time procurement and spend management claim their high seat at the table.

To read more of this, download our free e-book, Spend Culture: How To Master Rapid Growth Without Running Out of Cash.

Procurify, a spend management company, has helped hundreds of career procurement and spend management professionals make deep and lasting impact in their organizations. If you’re curious to find out how we can help you, get in touch with us.