Recession-Proof - a podcast by Ramp

In this episode of Recession-Proof, Alex Song is joined by Anul Singh, Chief Financial Officer at Illumio. They discuss winning practices to manage your business efficiently during market volatility, an IPO, or M&A processes.

Show Notes

Illumio’s CFO Anup Singh chats with Alex Song on the podcast this week about  strategies for finance leaders to manage their business efficiently during market volatility, IPOs, and M&As.

His insights come from the leadership positions he’s held at a wide range of companies, including Anaplan, Nimble Storage, Clearwell Systems, Warranty Corporation of America, and others. Notably, Anup led the $410m sale of Clearwell Systems to Symantec and the $1.4bn sale of Nimble Storage to HP.

Key takeaways

  • Ensure you have liquidity: three to four years of cash on your balance sheet. With this buffer, there should be an opportunity to innovate on and expand your business during challenging times.

    “Depending on the depth and duration of that recession, it impacts everybody because you will hear that deals take longer to close, or maybe they're slipping from one quarter to another. The customers that we have obviously are very cautious regarding the money they have to spend, the budgets, and so forth. And so we are very careful in terms of the metrics”

  • Regardless of the economic environment, a CFO should support the business, control the financial model, automate processes, and build a scalable business infrastructure and a world-class team.

  • Before an IPO, have scalable processes inside your business, a great set of advisors to help you on the journey, and clean audits and financials. Do your homework, learn about the process, hire people with IPO experience, and understand how to forecast effectively.

“The IPO is a transaction. It is just a milestone along the journey of growing and building a business, which is the most important thing. I guess employees and executives should consider that, sure, you go to bed the night before the IPO, but as a private company, you wake up the next day, and you become a public company, and you're trading your stock every day. But that's when the hard work really starts”

  • Facilitating an M&A process starts by managing best-in-class financial operations and ensuring that your audits build confidence for the acquirer and reduce risk from the process. Emphasize your competitive advantage and leverage this during negotiations.

“You should never try to build and manage a company for sale. Ideally, your company should be acquired. It shouldn't be sold. And there's a distinctive difference between these two. You can smoothen that process by managing best-in-class operations, just having a clean house and clean shop, and ensuring that your audits are clean too”

Learn more about Anup:

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What is Recession-Proof - a podcast by Ramp?

Welcome to Recession-Proof - a podcast by Ramp. Join us for in-depth, thought-provoking conversations with finance leaders, executives, and investors on the current state of the market and what this means for your business through 2022 and beyond. Hosted by Alex Song, VP of Finance & Capital Markets and Kimia Hamidi, Head of Savings at Ramp.

Anup Singh Transcript
[00:00:02] Anup: Having the processes, having the automation tools, et cetera, absolutely key to building a scalable large company. Controls and compliance, especially in a tough environment, super important. Ensuring our audits are completely clean, we are doing the 409As or insurance or a security or data privacy, all of these things, absolutely essential. The way I've tended to manage companies, even private companies, is I run the company as if it's a public company.
[00:00:35] Alex: Welcome to Recession Proof, a podcast by Ramp. Join us for in-depth thought-provoking conversations with finance leaders, executives, and investors on the current state of the market and what this means for your business through 2022 and beyond. I'm your host, Alex song.
Anup, welcome to the podcast. Thanks so much for being here.
[00:01:00] Anup: Alex, thanks for having me. It's great to see you again.
[00:01:03] Alex: Absolutely. I know it's getting close to quarter end, so I know that you've probably got a million things happening all at the same time, so really, really appreciate you being here. I know we've got a ton that we want to talk about. Some of it is going to be very macro-related, very relevant and timely to what probably a lot of our listeners are wondering about. Some of it is going to just be a deep dive into your career, your experiences, and just advice that you may be able to offer to folks like myself and folks who are listening to our podcast right now. Would love just to dive in.
[00:01:41] Anup: Sure. Happy to. Let's do it.
[00:01:43] Alex: Maybe for a brief introduction, why don't you tell our listeners a little bit about your own career trajectory, your own background, and some of the stops that you've made along the way?
[00:01:53] Anup: Sure. No, happy to. I've been in Silicon Valley now for just over 25 years. The last three and a half years at Illumio. Illumio is a late-stage Series F cyber security company. We are the leader in Zero Trust segmentation, so essentially the containment of breaches. We stop the spread of ransomware and bad things from happening to companies. Prior to Illumio, I was CFO at Anaplan, CFO at Nimble Storage. I actually took Nimble through its IPO. I was the CFO of Nimble until they got acquired and is now a part of HPE. Before that, I spent time as CFO at Clearwell Systems, CFO at Asurion. I was in senior leadership jobs at Trimble, Excite@Home, 3Com.
Earlier on, I was actually in public accounting. I started off at Ernst & Young in the UK, EY, in the London office, then EY in San Jose for a short time. I was educated in England. Now, the Bay Area is home. I'm married with two kids. It's a great environment and place to be. That's a little bit about me.
[00:03:14] Alex: That's awesome. Here's what I'm hearing, a very long and illustrious career, a ton of experiences along the way involving at least one acquisition, is what I heard.
[00:03:24] Anup: Quite a few. Yes.
[00:03:24] Alex: An IPO, and obviously, quite a tremendous wealth of experience. I know that there's going to be a lot that we can talk about over the next 30, 40 minutes or so. This is awesome. Why don't we start at the very beginning? What got you interested? What got you interested in finance, public accounting? How did you know that the CFO path was the right one for you?
[00:03:47] Anup: Look, I think early on, I had an interest in the business world, the finance world, of course, I did not have any clue about the CFO role. Actually, I did a degree in economics, a master's in economics. I'm a chartered accountant, which I did afterwards. I knew I was going down the path of something in business, something in finance. I have got a lot of gratification and personal excitement just from going into high-growth, largely tech companies, and helping them to scale, helping them to build.
That's the passion I have, and that's the energy that gets me out of bed every morning to come to work at Illumio and all the companies I've been in in the past. To know that I'm taking a company from 10 million to 100 million to 500 million in revenue, and scaling that business at a global level.
[00:04:42] Alex: Absolutely. Here's what's interesting. I think a lot of our listeners probably know Anaplan, right?
[00:04:48] Anup: Yes.
[00:04:48] Alex: We're finance guys. A lot of us are probably thinking about how do we level up the organization. How do we get ourselves public-market ready? A lot of people probably are not familiar with some of these other places that you've worked in the past. Did you have a specific industry that you wanted to go into? Is there anything that you, in particular, wanted to go after, or was it, you liked the job of running finance, of leading through the growth? What was it?
[00:05:15] Anup: No. Look, I think I've taken a highly selective approach to companies I've joined. The common trend, all of these have been technology companies. These have been high-growth companies. There's a set of commonalities that the companies I've joined all have. Essentially, being the geeky finance guy that I am, I have a list of criteria on a spreadsheet against which I grade opportunities. There are three primary things I remember I tend to consider as I look at opportunities.
Number one is the product or the technology. Is this something that is disruptive? Is this a game changer? I try to stay away from companies that are a me-too from a technology or a product standpoint. I look for companies that are doing things in a different way, solving hard problems, being disruptive, cheaper, faster, superior. The technology is really important to me, that's one.
Two is the market opportunity. How big is the time? How big is the market, the addressable market? Because it tells me, can the opportunity be massive? Can the company really grow, scale? Is there a demand for the products, for the solution that you sell? How big is the market? Then number three is team, quality of team. By team, I mean, who are the investors in this company? Who are the board of directors? Who's the executive team? These are the key stakeholders that I tend to work with day in and day out.
For me, I look for companies that have high-caliber teams across all of these tiers. It's a combination of having a disruptive platform or technology, addressing a market that's huge, substantial, big problem, and then having a high-quality team, investors, board, stakeholders, in order to execute against that. I go down this checklist of criteria I have, and that's how I've tended to choose the companies I've been to in the past. Good news for me is that it's worked out so far.
[00:07:34] Alex: I like it. I like it. Talking like a true finance guy. Put an investment framework around the whole thing. High-quality management team, big-time disruptive technology. I love it. That's awesome. Switching gears a little bit. You've been around the block. You've had the fortune and misfortune.
[00:07:49] Anup: The [unintelligible 00:07:49] shows it.
[00:07:52] Alex: You've had the great fortune and maybe misfortune of having seen a couple of different business cycles now, right?
[00:07:58] Anup: Yes.
[00:07:58] Alex: A couple of different recessions, great financial crisis, dot-com, et cetera. Would love to hear your opinion and just your observation about the current-- I don't know what to even call it. Maybe it's a recession, maybe it's just market volatility, maybe it's just a slowdown. Any advice or any observation about what we're seeing today and how it compares to your experiences in the past?
[00:08:20] Anup: No, it's a great question. As you said, I've had the experience of going through these cycles, I guess, I'll call it in the market. We have real companies and businesses that are generating real sales and margins and profits in several cases. The advice or, I guess, commentary I would give around the current environment is, we've seen the recommendations from some of the top-- the VC firms to cut back and be very careful in terms of how much you invest and make sure you get to cash flow to break even and generate EBITDA and all that stuff.
I would say, absolutely, the viability and survival of your company is most essential. Having cash on the balance sheet, having liquidity, having three to four years of cash is the benchmark I look at. Make sure you have the runway to get through this period of time and to emerge super strong on the other side.
Something we have seen, Alex, is that sometimes having a tough economic environment can be an opportunity as well. You look back at, say, some companies like Amazon, eBay, Google, came out of the dot-com era actually stronger and have grown to be large enduring companies and franchises. More recently, companies like Airbnb have done a retooling of their business and have emerged incredibly strong. I think it is an opportunity for companies, as long as you have the liquidity I talked about, three to four years of cash on the balance sheet, that this is the time to really evaluate your business.
Certainly, you can do a cutback of the fat. You can trim the fat, look at unnecessary investments, expenses, but as long as your business is fundamentally solid-- By that, we look at a ton of KPIs and metrics, and I can go into that in a bit more detail at a later stage, but this is the time to perhaps invest more in innovation, invest in R&D. We have seen some smaller companies or companies that aren't as important in the marketplace be absorbed or they've gone away.
From a customer standpoint, the distraction probably is less in the marketplace, and if you are able to sell, which you should, demonstrating the value you bring to customers in this time, and again, it could be that the ROI from the solution you sell-- and you can say I'm cheaper, faster, and better, and therefore, it's an opportunity to learn to expand and to really grow your business during a tough time.
I actually see this time for companies that are structurally sound-- By structurally sound, I mean you've got-- the margins are healthy from a gross margin standpoint, you're looking at metrics like LTV, the CAC, and payback period, and these kinds of things and you know your investments are working, that it could be an opportunity actually to gain share and get even stronger as long as you have that liquidity to come out through the other side of this.
[00:11:43] Alex: Yes, that makes sense. Let me ask you this. Just very tactically, it sounds like, Illumio, well-funded cyber security-focused company, which presumably is going to be pretty robust through up cycles and down cycles and whatnot. We'll love to hear a little bit about your day-to-day today. In terms of managing your company through market volatility or a potential recession, how are you splitting the pie of how you're spending your time? Is it hiring? Is it cost-cutting? Is it thinking about acquisition opportunities? Where would you say is the division of labor and bandwidth for yourself right now?
[00:12:22] Anup: No, I will get to that question on time and where I spend it. I think the point I would make about, though, I think in a recession that depending on the depth and the duration of that recession, I think it impacts everybody because you're going to hear that deals are taking longer to close, or maybe they're slipping from one quarter to another because another signature is required on the purchase order as an example.
Even though, obviously, we are fortunate to be in an industry that is recession-proof to some extent in this environment, but still, the customers that we have, obviously, are very cautious regarding the money they have to spend, the budgets, and so forth, and so we are very careful in terms of the metrics. Like we look at the pipeline, as an example, every single day to see, how is the pipeline evolving? How is it changing? Again, what is the sales cycle or deals taking longer to close, and so on?
The way I have always tended to run the companies I'm in, which gets to somewhat how I spend time in the business, is we build our annual operating plan as most companies do, at the start of the year, but then we manage our company in real-time. I mean, we really do, and we are very much a data-driven environment, culture of data-driven. We're basically tuning the knob as we go.
If I see, for example, that, hey, the pipeline is growing, and we see some acceleration of sales, then, basically, we step on the gas and invest a bit more in sales and go to market and expansion opportunities. If we see the market becoming a bit tighter, it's harder, the pipeline is slowing, deals are slipping, then we do the reverse, and maybe, we're a bit more cautious in terms of how much we lean in and lean forward and so on. We manage a company in real time against the objectives we have for the revenue numbers, the margin numbers, the cash, the numbers for the company, and so on.
At the end of the day, the time I think any CFO investing in the business is divided up into a bunch of different areas. It comes down ultimately to, how do I see the role of the CFO in a company? This could be during a tough economic environment, or it could be just in a normal environment. Number one is supporting the business, it's really partnership with the business.
I talk to our CRO, I talk to our head of product in engineering all the time. We're looking to say, okay, how should we look at these international expansion opportunities? Should we be increasing in breadth or depth our international investments? How do I do the design of plans and quotas and comp plans for the teams that we are bringing on board? Engineering, how do we do a standup of our data center? Looking at AWS as compared to Colo opportunities. Supporting the business is absolutely something I spend a chunk of time on, and my team also is spending a chunk of their time.
Number two is, we own the financial model. We own the business and financial model, so it's the managing of cash flow, it's the managing of our expenses or gross margins, all the rest of it. Number three is a scalable infrastructure. I see it here as we are trying to build a skyscraper at Illumio, and basically, all of these high-growth companies I've talked about. In order for you to build a skyscraper, you need to have a foundation that is really strong, because if not, Alex, then as you add floors onto that skyscraper, is going to what? It's going to shake. It's going to be the Salesforce Tower.
Essentially, you need a foundation of automation of processes. The quote to cash, order to cash needs to be automated. The purchase to pay, hire to retire, et cetera. Having the processes, having the automation tools, et cetera, absolutely key to building a scalable large company. Controls and compliance, especially in a tough environment, super important. That is number four. Ensuring our audits are completely clean, we are doing the 409As or insurance or a security or data privacy, all of these things, absolutely essential.
The way I've tended to manage companies, even private companies, is I run the company as if it's a public company. We close the books in one week, as an example. We've got our board meeting in week three after the end of quarter, which is the same sort of cadence I would be on if it was a public company. We have our processes, the reporting, et cetera, as a public company.
Last but not least is building a world-class team. That is where I spend a chunk of my time because I think the hiring, the coaching, the mentoring, the development of great teams is arguably the most important thing a leader does. Certainly, it's the most important thing I do, is the building and leading of great teams.
Regardless of the environment, but I think especially during a tough environment in which there is greater uncertainty inside the company, outside the company, everyone is concerned, and they're concerned about the COVID situation, they're concerned about the war that's going on, they're concerned about the politics in the country, whatever it may be, but I think demonstrating a great deal of empathy and being able to coach and manage and help your employees through this period of time, absolutely the role of every leader.
In a nutshell, all of those areas, the partnering with the business, controlling the model, owning and managing the financial model, the scalable infrastructure, controls and compliance, and the building and leading a world-class team is the stuff I spend all my day doing.
[00:18:54] Alex: I love it. I love it. There's obviously a lot to unpack, but I think a lot of that definitely resonates with me personally as well as, I'm sure, most of the team here at Ramp. The automation, the controls framework, making sure that you're able to do things quickly, accurately, you're able to automate processes. Hopefully, that resonates with our customers and our listeners. Moreover, I just think the most important innovation to underscore is just the finance function has always been extremely important. I think we can both agree on that.
[00:19:28] Anup: Yes.
[00:19:28] Alex: In today's environment, that's probably even more so. I think there's ever more need for incremental guidance from a strategic perspective and a tactical perspective. Yes, that's very, very cool. I want to switch gears a little bit. I would be very remiss if I didn't spend at least some time delving into this topic. IPO readiness.
[00:19:49] Anup: Yes.
[00:19:49] Alex: You've both sold companies in the past, you've also taken companies public. Would love to hear some of your thoughts there about how it all went down. What happened? Any best practices, any key learnings that you might have. Just run us through getting a company through the IPO process.
[00:20:08] Anup: Look, the IPO is a transaction. It is just a milestone along the journey of growing and building a business, which is the most important thing, and that is the thing, I guess, employees and executives should consider. That sure, you go to bed the night before the IPO as a private company, you wake up the next day and you become a public company and you're trading your stock every day, but that's when the hard work really starts because, all of a sudden, as I said, you now are graded and measured on a daily basis in the public markets.
The actual process of doing the IPO, look, there are lots of conferences and materials and information out there, but, in my opinion, it's not any type of a rocket science event. It's the things I talked about earlier on, Alex, which is having the scalable processes inside of your business, having the controls and compliance, having a great set of advisors to help you on the journey.
I've been a fan early on of selecting the best advisors early. Even though it may cost you a bit more, I always have said, you know what, I'm going to go with that big four audit firm early on in the process from day one, ensure I have really clean audits and financials, no issues from a REVEX standpoint, whatever it is. Whoever is doing the 409A, whoever is my insurance, whoever investment bankers I use. It's usually the top tier of invest.
Similar to how I believe in building a world-class team inside of my organization and-- Here is a fun, I guess, anecdote. I remember when I was at Nimble Storage and I was doing the IPO, for me, it was the first time. I had not gone through that process before, so I did two things to really grow and to learn the process. The first thing was I did a ton of homework. I remember I scheduled probably a dozen or so coffee meetings or breakfast or lunches with CFOs and others who had gone through the process. I went with my questions in a notebook, and I asked them, "Who is the research analyst you think understands the space and you recommend, you like?"
I would get on the internet at night, and I would listen to earnings calls just to understand the cadence of an earnings call and the types of questions and the responses. It's doing your homework, doing the prep.
Then the second thing I did was, everyone on my team, all of my key team players, controller, GC, FP&A head, IT head, all of those people on my team had gone through an IPO before. I hired this team and built this team of people who had seen scale. They had seen companies transition from a private to a public company, understanding the scale, understanding the requirements to go through that, and so I had this great group of people around the table helping me.
That is a classic real-time example of, you don't need to be the smartest guy in the room. As a matter of fact, you shouldn't be the smartest individual in a room. Surround yourself with really, really smart, great people with great experience, and it's all going to go really well. I think having the controls and compliance, having the scalable automation, and that great team, I cannot say it enough, of people who had seen scale, had done it before, super, super important.
Then, of course, the most important thing, I think, you need to be able to do, if it's the one thing, is understand how to forecast your business. FP&A, highly, highly important because the very last thing you want to do is to come up the gate, and after a quarter or two or three, is to miss your number. It takes a long time to recover, if ever, if that's the case. Understand you have the cadence of understanding the model, understanding how to forecast your business, being able to call the numbers, being able to build a beat and raise framework over ideally three to four years as you look out. It's a lot of fun. It's a lot of fun.
[00:24:40] Alex: That's fascinating. What about M&A? Both in your personal experience, professional experience, looking at them in the past, what went well, what doesn't or didn't go well, and in today's world, if someone was contemplating M&A, what should they be thinking about?
[00:24:56] Anup: Look, I believe you should never try to build a company for sale or try to manage a company for sale. Ideally, your company should be acquired, it shouldn't be sold. There's a distinctive difference, obviously, between the two. The things you can do to really smoothen that process, facilitate that process is, again, managing best-in-class operations.
Just having a clean house, clean shop, and ensuring that if your audits are clean, Alex, if you are able to hand an acquirer, "Here are my audits' financials from day one, from E, Y, P, W, C, K, P, M, J," you name it, is completely clean, "Here are the books, the records, our contracts, et cetera, et cetera," number one, it builds the confidence that the acquirer has in the acquiring company, "Okay, these guys have their processes all sorted out. They're a well-operated outfit," and it takes the risk. It takes a lot of the risk off the table in a transaction as well.
You get asked questions like, can you give us a list of non-standard deals or terms and conditions that you've agreed to in your enterprise contract so we understand the implications if there's a change in control? Be able to say straight off the bat, "Here is a report that we can generate from our ERP or our CRM system that shows you, here is a list of customers with nonstandard terms and conditions, and these are the condition," and so on.
The more of that you have available or easily available to get to and having even things like the offers for employees, or your option agreements and your equity plans and all of that straightened out, because some of those things can really slow down the ultimate consummation of an M&A deal. If you're trying to track down a shareholder for approval or a group of shareholders for approval and you don't have all the paperwork or you can seem to find people and these kinds of things. Having the books, the records, and so on.
Ultimately, it's growing your business, managing your business in a way that-- Operate as if you are looking to build a standalone, sustainable, big company. Understand the reason that someone is interested in your company. Are they trying to buy you because of the sales you have, the revenue you have? Are they trying to buy you because of the technology, the IP you've built? Are you of strategic importance to them, and so on and so forth? Then, obviously, you want to emphasize that and market that as part of the deal negotiation. Really understanding the motivation of the buyer.
As an example, a lot of of companies say, well, our ARR is a hundred million dollars, therefore, the price should be a multiple of the hundred million dollars. Well, I say, hang on, not necessarily because the question to ask yourself is, how much ARR is that acquirer? How much ARR are they going to be able to generate if they had the product from your company and the portfolio in the hands of their sales organization? If that hundred is going to grow to half a billion in two years, then the conversation should really be about what is the worth of that to you acquirer in two years? Changing the narrative of the conversation to say, the value of this company in the hands of an acquirer I think is much more interesting.
[00:28:42] Alex: Yes. 100%. It's synergy secretion. Or maybe dilution if things go south.
[00:28:48] Anup: That's right.
[00:28:49] Alex: That's fascinating. Just curious, when you do consummate an M&A transaction, whose job is it to integrate the ultimate consummation of the merger of two companies or more? Does it fall into ops, does it fall into every single group, does it fall into the CFO suite? Who manages that?
[00:29:12] Anup: Are you asking from the standpoint of the acquirer? If I'm a part--
[00:29:15] Alex: Yes, generally.
[00:29:16] Anup: I've seen it handled differently in different companies. Even the integration question. Way back early on in my experience, I worked at Trimble. Trimble was a very small, I think, version of GE. It is a conglomerate of companies highly acquisitive. I was the VP chief accounting officer at Trimble, and we did about a deal every quarter on average. During the tenure there, we bought about 20 companies. That's a lot, and we did not have a dedicated M&A team or a dedicated M&A group.
In that scenario, a lot of the work, everything from the initial work, the diligence, and then a lot of the subsequent integration of ERP systems or HR practices and the finance stuff, the burden was on the CFO's organization, the finance team, me and my team during that time. Then I've some of the larger companies. When I was at Clearwell on the other side of The Transaction Symantec had acquired us.
I remember at the time Symantec had a dedicated team of-- a group of people whose job was actually to integrate acquisitions that they had made. It was a whole team of people that would be the conduit to different organizations inside of Symantec and really helping with that integration. I think it depends on the company, but I've seen the gamut of it. Regardless of the exact root and outcome, it is, for sure, the finance organization is absolutely key and play a significant role in that process. All the way, the gamut is from doing everything to doing a large amount of it. It's a broad spread.
[00:31:16] Alex: Yes. Got it. There you go. Very cool. Switching gears one last time. Would love to hear your views on just the industry, the practice of the CFO's responsibility of the finance organization. In particular, I understand you have some very strong views of how GAAP versus non-GAAP metrics and SEC filings and just how the industry should be reporting their metrics. Would love to discuss that a little bit.
[00:31:43] Anup: I'm sure you've heard me on this one at some point in the past, but look, I think obviously we operate in a world where GAAP is King. GAAP is absolutely essential, important. You need to be consistent and accurate in reporting the revenue and cash flow statements and really the net income of your business. It helps for the purposes of consistency and comparing the results across industries and companies looking at the business drivers and indicators that drive the value of companies.
I think investors often look beyond the GAAP numbers and metrics. In some cases, they look at metrics. There may not even be a financial metric at all. The one that comes to mind, it's been all over the news is, if you take a company like a Netflix, as an example, the valuation of Netflix, the gyrations and the stock price of Netflix almost entirely comes down to the number of subscribers they've either required or they've lost in a given quarter. I think we saw in the recent announcement that the street was expecting them to lose two million subscribers, but it turned out that they lost only a million, so the stopped, then it popped the following day. It wasn't as bad as you thought.
The subscriber metric is probably the most important thing that everyone who invests in Netflix and care about Netflix, they look at. If you're looking at like a Tesla, you're looking at the number of cars you manufacture and ship every quarter. As a metric, that is really, really key. Some of these are non-financial indicators, but they indicate the health. They're a leading indicator of the revenue and metrics that ultimately are going to show up in GAAP, the statements.
In that case, the question I have, or the point I would like to make is that, is there a consistency of definitions of some of these things? For example, when you talk about subscribers at Netflix, do we know if Amazon, Disney, Pandora, and Spotify, all of whom do a reporting of subscribers as Netflix does, are they all recording, defining, doing the measurement of subscribers the same way? How do you do the count of the multiple individuals who might be sharing a password as an example? I think if subscribers are a metric, the point I make is-- This isn't necessarily a regulatory thing, but is there a framework that the big companies or key companies can agree to as to here is how we define subscribers?
I think if I bring that closer to home, and I think about the world of enterprise software or the SaaS world, and I think of ARR and I think of the net retention, NRR, ARR, churn, these kind of metrics, I know for a fact that different companies define these metrics in different ways. I've even seen some companies that use a consumption model, which is a usage base. Snowflake is a prime example. If you look at the investor deck from Snowflake on slide number one, they say, "We are not a SaaS company." They're consumption based on the model.
Investors, though, try to then look at the revenue for Snowflake and convert that into some implied ARR using a consumption. Again, ARR, by definition, if you have a consumption approach and model, you don't have ARR, it isn't a contractual thing. I think I've seen how some companies, when they report a churn number, they basically say a churn is every account we've lost in a period, excluding, for example, the down sells you may get from existing customers. I have tended to take a conservative approach and say, well, I think I defined a churn as everything that decreases ARR. Regardless if it's A down sell, a lost customer, whatever.
There are several interpretations of the non-GAAP indicators, ARR, NRR, churn, et cetera, et cetera. The point I have made is, if I was chairman of SEC for a day, I would look hard at how some of these non-GAAP indicators and metrics are being defined and measured and reported because I think investors and stakeholders, generally, we tend to place a great amount of emphasis on these non-GAAP metrics as opposed to the GAAP stuff.
The common one you hear about is how the treatment of stock-based compensation. Some companies included in and to report their GAAP earnings, the vast majority of companies, certainly in this area excluded from their earnings. Again, the comparability becomes very difficult. I've got some views on this [crostalk].
[00:37:03] Alex: Definitely. It's interesting, though. Also just because I spent the prior decade of my career as an investor. That's also where you have some alpha opportunity because now it's the analyst job. Whether it's sales side, buy side, hedge fund investor, it's their job to see through that and jst say, hey, well I'm going to make my own modification and adjustments to make sure that a churn at Ramp versus a churn at Illumio versus the churn at Netflix could be looked at on a more like for like basis.
[00:37:35] Anup: It is. The challenge, though, is there is asymmetric information. There's asymmetric information because as an external analyst or an investor, you don't have access to all of the details, all of the information. Frankly speaking, I don't think you have the time because you have your coverage of 25 companies, 30 companies, even more, and so there is literally a maximum amount of time you can invest in trying to parse through and get under the hood of every single company in the coverage space that you're tracking. There is asymmetric information.
[00:38:14] Alex: Yes. That makes sense. I think there's probably a happy medium where the SEC does a little bit more. I think industry, certainly, can do a little bit more self-regulation and self-standardization. That definitely makes sense. Anup, you've been very, very generous with your time. I'm going to leave you with one last question before we wrap up. 2022 has been a pretty crazy year already. For the next six or seven months, what are you most optimistic about? What are you looking forward to for yourself professionally, for Illumio, for the markets, et cetera?
[00:38:45] Anup: Yes. It's a great question, Alex. Look, I would say I'm an eternal optimist, so that's the first thing. I think from a young age, I've always had a tendency to believe that the future is bright and it's going to be bright. That's why I've lived in three continents and have seized the adventures that I have. I think I am really excited to be, especially in the San Francisco Bay Areas, Silicon Valley, I think all the rumors about the death of Silicon Valley are greatly exaggerated, Alex.
I think the innovation I see every day, it's mind-blowing, just being around here. I drive into work and I'm surrounded by cars that are on the road next to me. They're actually either autonomous cars going through a test period here. The investments that are going into EVs that are going to help the climate, the environment. Just the innovation in the cloud to see as transformation is continuing. Artificial intelligence is just a big, big area that I also think has huge implications for our industry. We'll have a conversation about that a different day and the implications of AI.
The chats I have with the kids around the table in the evening is, we're living in a renaissance period as far as innovation and the genius around here we see every day. It isn't something I take for granted, so I think it is super exciting. I see tons of innovation that is really going to make the world a better place. We're going to get through this period, the tough period. We've been through it a number of times in the past.
It isn't ever as good as it seems sometimes and it isn't never as bad as it students as well. I think we're going to get through this. I believe in the future of this country and I believe in the future of this area and the future of all the innovation I see in tech that's going on right now. I'm super excited.
[00:40:52] Alex: That's phenomenal. Ever the optimist. There you have it. That's a great note to leave this on. That's awesome. Anup Singh, CFO of the Illumio. Thanks so much once again for joining the podcast. Thanks so much.
[00:41:04] Anup: Great to chat. Thanks for having me, Alex.
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