Innovation, leadership are dominant qualities of EY Entrepreneur of the Year Award recipients

Economists like to debate about the level of economic growth that is driven by innovation. Some think that the days of rapid growth in the U.S. economy is over and any new inventions won’t make up for the slowdown in growth. Others think that innovation and new ideas are still taking off and will fuel lots of economic growth. I’m not an economist, but the one thing I know for certain is that Northern California has a group CEOs who aren’t waiting around to find out. They are leading their companies in developing new technologies and new and better ways of operating their businesses, all while building high performance teams.

I met them firsthand during the recent 28th EY Entrepreneur of the YearTM Awards gala for Northern California at the Fairmont Hotel in San Jose. The theme for this event, for which RoseRyan proudly served as a sponsor, was “honoring the best of the best,” and it was successful at that. There were 27 finalists out of an original group of over 110 CEOs. Of the finalists, the regional award winners were chosen from nine categories ranging from software and technology to life sciences and digital advertising. There was a very good mix of entrepreneurs from all different kinds of backgrounds and experiences.

This was one of 25 programs in U.S. cities and in 61 countries around the world; the overall national winner will be announced later this year. There were over 14,000 individuals involved in this global endeavor. Some were from established companies, some from startups, and others from large companies. For our area, here are the winners announced at the gala (for quick videos about each company, go to EY’s website):

  • Technology: David Gorodyansky, CEO, AnchorFree
  • Services: Fedele Bauccio, co-founder and CEO, Bon Appétit Management Co.
  • Emerging: Marcin Kleczynski, CEO, Malwarebytes
  • Life Sciences: David Hung, founder, president and CEO, Medivation
  • Software: Vladimir Shmunis, CEO and founder, RingCentral
  • Digital Advertising: George John, CEO and co-founder, and Richard Frankel, president and co-founder, Rocket Fuel
  • Large Companies: Amir Dan Rubin, president and CEO, Stanford Hospital & Clinics
  • Internet: Pete Flint, CEO and founder, Trulia
  • Real Estate and Finance: Doug Brien, co-founder, and Colin Wiel, co-founder, Waypoint Homes

A theme that I heard repeatedly during this year’s program and in the past is that innovation doesn’t just involve the CEO or founder, but rather it is a bottom’s up process involving many people at all levels of the organization. Those honored at the EY event recognized that truth; the first people many of them thanked in their acceptance speeches were their employees. Those who will go far know they need to develop a team of key people who believe in what they are trying to accomplish. “The best advice I ever got from anybody is … get the wrong people off the bus as quickly as possible and get the right people on the bus,” said Kleczynski in a video about Malwarebytes, an anti-malware software provider. “They will get you going; they will get you where you need to go.”

With the help of the right people, entrepreneurs look for ways to disrupt and change industries, and that is what drives them. AnchorFree, for instance, aims to give everyone across the globe freedom when using the Internet and privacy protection when doing so. In his video, Gorodyansky said the company faced “headwinds” in its goals “but also knew in our hearts that we’re doing the right thing.”

Certainly, younger companies have more freedom to get changes made quickly. This is particularly true of the private companies involved in this program (over 80 percent of all award winners are privately held). Studies have shown that what really make the finalists different are their independence, freedom and flexibility. The overarching value they all share is outstanding leadership plus a willingness to try new things. Once a quarter, Trulia lets its engineers pursue any idea they have in mind, without the red tape that oftentimes ties down more established companies from realizing innovation. “It’s an incredible way for us to create an environment where creativity, where ownership is part of the culture,” according to Flint of the real-estate listing site. “So, new employees can come in, they can build a product they’re passionate about, solve the problem they want to solve, and release it to the public soon after.”

Indeed, their nimbleness and openness to ideas are continuing to make entrepreneurs the job engine of our economy, and all indications are that this will continue for the foreseeable future.

We can all learn from their stories, particularly in my industry. The world of finance and accounting consulting has been constantly changing over the past 10 to 20 years. Innovation in the way companies approach the market, deal with clients and look for talent is critical to success. Evolution in our business is oftentimes driven by regulatory changes and new ways of interpreting rules and principles. A firm that doesn’t embrace change and work with it will be left behind. The firms with strong visionary leadership are the ones that are leading the industry and staying ahead of the curve.

Stan Fels is a director at RoseRyan, who joined the finance and accounting firm in 2006. In addition to helping the finance dream team keep their skills sharp and stay true to RoseRyan’s proven processes, he matches gurus to clients in the high tech and life sciences sectors. 

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Unearthing revenue and expense opportunities through SOX

It is easy to see why, after Sarbanes-Oxley became law in the early 2000s and internal-control testers and reviewers became sought-after professionals, that the demand for their talents sometimes went to their heads. From being the mostly ignored internal audit department to becoming the highly noticed glamour boys and girls of their own movie called Corporate America, their first instinct was, “The power is with us and let us start policing.” I admit that happened to me, but only for a minute.

Two things happened to make me quickly snap out of it. First was a reflective process where I decided that I did not want to make a career out of solely pointing out errors that other people made — that would be too much negativity day in and day out. Then, during a chance encounter after hours with a corporate controller, she blurted out, “You know the best thing about having you on our team is that I feel more secure when I go home every night, that things are working optimally and the world will not fall apart tomorrow morning.” Viola! The statement was made by her, but the big impact was on me. In her mind, I was collaborating with her and giving her peace of mind, but in my mind, I had seen myself as the cop. I preferred her outlook and embraced it.

From that moment on, finding SOX errors became secondary to my working as a thoughtful partner who uncovers positive opportunities in the organizations I work with. Consider these real-life examples from my experiences:

  • SOX became a revenue generator when testers helped a disc drive maker realize that it had been needlessly throwing away material that was actually quite valuable. The finding began with a control test that read, “Excess inventory is classified as scrap and authorized.” Looking for authorization controls, the SOX testers wondered why the excess material from the precious metal (the inventory) used to make the disc drives was not worth anything. It was just thrown away. A group of employees, who had previously been ignored on this issue, revealed that the metal could be recycled at a fraction of the cost of discarding it, to actually make new disc drives and add new revenue to the bottom line. An outside perspective, through a SOX exercise, brought this opportunity to the forefront.
  • A company that took a conservative approach to its SOX control for the cycle counts of inventory had a monthly reconciliation process. The cautious way of doing things had an upside when management looked at the results of the reconciliation and decided to streamline the entire inventory management and supply chain process, which saved millions in costs and contributed to the closing process getting cut down by a week.
  • A retail giant was planning to implement a new system in the supply chain area and wanted to consider SOX upfront to ensure that prior to going live, the new system would pass all the relevant IT general computer controls (including user and developer access, termination, passwords and change management). This was a first for the retailer, which didn’t usually take SOX into account in the early stages of a new system. The proactive effort saved it time and money. The SOX readiness testing led to the operations side working more closely with the IT side, granting early buy-in, creating better communication between the two groups, and leading to an overall more efficient supply chain process. The net impact was a savings of $3 million, and the project went live and operational three months ahead of schedule.
  • The reach of SOX sometimes spills over to IT security and PCI compliance (the data security standard used by the payment card industry). This was evident in a retailer that was planning to break away from its publicly listed parent and go public on its own. As the team I was working with was putting the SOX controls in the various areas, we realized that although it did not having a direct impact on the company’s SOX compliance, the IT security systems did not rein in customers’ credit card information as much as it should. While this security gap sounds like a huge hole in today’s privacy-conscious environment, this finding was made back in 2007. Even then the very prudent upper management team, including the CEO and CFO, saw the need to plug the gap; they had the foresight to put in place strong IT security measures and encryption technology and prevent their customers’ credit card information from getting plastered on Times Square. If only all the retailers had followed suit! This company was not just ahead of the game in IT security; it also met PCI compliance, thanks to the initial recommendations that turned up during the SOX work.

The above is only a short list of the process improvements I have seen firsthand during my time working heavily in SOX. The point is that, if the only cap I had worn while going about my SOX testing was that of a policeman, I would never have seen past the brim to play a part in those process improvements. These are examples of positive changes from SOX that revealed new revenue opportunities or saved money. And, on a personal level, they have reinforced my profile as a “trusted partner” even in the eyes of the people being subject to SOX controls. This, as any SOX tester will testify these days, is the ultimate goal. Any feeling of being a SOX cop is long gone. All it took was a slight change in mindset and approach.

Vivek Kumar is a member of the RoseRyan dream team. He has been working in SOX since the time it became law and from both sides, in-house and as an external consultant. When not doing SOX, Vivek keeps himself busy playing tennis and making feature films, the first of which hits theaters this summer.

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Does the FASB need to step back and simplify?

Having been involved in accounting for over 30 years, I have seen quite a few changes in accounting requirements, all enthusiastically introduced to “help the reader understand the financial status of a company better.”

I have to say that I believe the opposite is happening. Reading (interpreting) accounts is getting harder to do, as more and more intricate rules are introduced. In just the last 20 years, we have seen significant changes, including the introduction of stock compensation standards, revised fair value accounting, rewrites of revenue recognition rules, to name just a few. The changes have become intricate and mind-numbing.

There’s little sign of it stopping; although recently the FASB announced it will be focusing on reducing complexity and promoting simplification in its accounting standards, the Board has taken no meaningful action to date to do so. Board members have stated they want to simplify how inventory is measured and eliminate the need to disclose extraordinary items from income statements, but these pale into insignificance when compared to the revamped revenue recognition rules and the new operating lease accounting rules likely to be introduced too.

The bottom line is that unless you have a sophisticated understanding of accounting, you probably are unable to fully understand the accounts and what they mean to the health of the business. I don’t believe I am the only one who thinks the rules are going too far, and I understand sophisticated accounts! Every time I listen to a public company announce its quarterly financial results, I hear the CEO or CFO announce their earnings, and then they follow it with a pro-forma result, usually described as an “adjusted EBITDA,” which is to them a more meaningful result to disclose to their investors. Absolutely every company will back out stock compensation costs and other non-cash charges to get to a baseline cash-based result. Observers who trend these revised numbers on a quarterly basis can probably get a more meaningful trend of financial performance of the company and can make more meaningful decisions affecting their investment than if they tried to follow along with the pure GAAP figure.

I’m not saying cash-based accounting is the way to go. That is accounting at its simplest but that, too, doesn’t give a true picture of a company’s financial health. The reality is a simplified disclosure process is in desperate need. Maybe if this was introduced, companies would stop releasing pro-forma results, and I wouldn’t keep being asked to interpret accounting results into meaningful information. Seeing the proposed new rules on the horizon, it looks like it’s going to get worse before it gets better, which is unfortunate.

Until we see more progress, I expect to hear more and more complaints that financial statements are becoming more difficult to interpret. That to me is doing the U.S. accounting profession a major disservice.

Stephen Ambler is a director at RoseRyan, where he manages the development of the firm’s “dream team” of consultants. His interim CFO stints at RoseRyan have included a social media company and the management of the financial integration process at a company acquired by Oracle. He previously held the CFO position for 13 years at Nasdaq-listed companies. 

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Why an underfunded finance team is risky business

In a new small company, all the focus — and funds — tend to be on the development side, where the company’s product or service gets fine-tuned for the marketplace. The finance organization as a support function is often low on the priority list. But as the company grows — and tracking and managing the finances gets more complex — almost all spending will continue to be concentrated on other areas, leaving the finance department to fight over the bread crumbs.

Being a team player means making do with what you have, not complaining, and doing what it takes to meet your objectives. But sometimes, being a good soldier is detrimental to the overall good of the company. Consider just a few examples why finance should demand its fair share:

  • Systems that don’t keep pace with your business put your company at risk: When the business grows in complexity, so should the methods and technology for tracking its performance. Workflow that is highly dependent on top-side adjustments to close the books and spreadsheet tracking of critical information (revenue recognition, stock awards, etc.) are prone to error.
  • Rules and regulations are constantly changing — which means the company has to keep up: Staying current can take considerable time and effort, and not knowing what you don’t know can be harmful. Misapplying accounting rules to significant transactions can result in significant errors to your financial statements.
  • Understaffed and underperforming accounting teams can result in delays to the close process: The slowdown not only hurts morale and the department’s ability to keep moving forward — it can have a direct effect on the company if management is running the business with inaccurate or insufficient data to make decisions.

In addition to jeopardizing your own reputation, the inability to produce timely and accurate financial statements can result in a decrease in the company’s valuation, its ability to attract financing at favorable rates (or at all) and win (or keep) strategic partners and clients. The problems could also derail a business combination or IPO.

It doesn’t have to be that way. Finance organizations are beginning to be looked at as more than just a cost center and are on their way toward becoming key players in the overall business strategy. To get to that point, they need to improve how they anticipate and support the needs of other departments and get recognized for such work.

Here are a few questions to consider as you evaluate how others perceive your finance organization:

  • Do your cross-functional peers know what the finance organization does to add value to the business? How is finance communicating its value-add?
  • Does finance take time to understand what the business is doing, and provide information to support the tasks that are underway? Is it proactive in this, or does it wait for others to make requests?
  • Does the organization meet regularly with other departments to find out, from their perspective, what they need from the organization and how the team is doing in filling those needs?
  • Is finance able to support the organization with reliable information on a timely basis?
  • Does finance have a handle on the company’s current needs and realistic growth plans?
  • Does the organization know what best practices are for your industry? Is it in line with your competition?

When finance teams make progress in these areas, their stature will be elevated and they will be seen as key contributors to  the business, not a cost drain. This in turn makes getting finance’s piece of the pie much easier. And much more deserved.

For more information about building a foundation of financial integrity, read why timely, accurate financials are valuable for your company.

Pat Voll is a vice president at RoseRyan, where she mentors and supports the dream team, and heads up client management, ensuring all our clients are on the road to happiness. She previously held senior finance level positions at public companies and worked as an auditor with a Big 4 firm.

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