Spooked: How CEOs Are Handling Their Cash Differently

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By Russ Banham

Chief Executive

Nearly a decade of bullish business has brought surging employment, resilient stock market indices and swelling consumer confidence. It also has created an unfamiliar issue for many CEOs: What to do with all that cash?

“There’s no shortage of money for CEOs,” says CEO Jeff Pedowitz of consulting firm The Pedowitz Group. “The big question is where to put it.”

Should the bounty be invested in acquisitions? A new headquarters? In product development or geographic expansion? New equipment? Or some other high-priced plan to increase revenue and market share?

The answer for many CEOs these days is none of the above. With nightmares from the Great Recession still fresh in their minds, many are choosing something a bit more hum-drum, like making their organization’s operations more efficient and resilient. Rather than bold bets, they’re carefully weighing their options and making more judicious, conservative wagers. In this period of economic resurgence, business’s Lost Decade still haunts their decision-making.

“As a CEO whose company has taken a while to come out of the recession, I’m frankly still in a state of considering that it might happen again,” says Therese Tucker, CEO of publicly traded BlackLine, a leading financial and accounting automation software firm. “Sure, our financial situation has improved dramatically, and there’s lots of capital to invest. But I’m not going ‘whoo-hoo,’ let’s go spend money!”

Instead, CEOs are looking internally at moves that will make operations leaner and less capital intensive. “I don’t want to spend a lot of our capital on moving into a new region and have to shut it down in a year, or to start a project with a lot of ongoing cost that it turns out we can’t finish because of reasons outside our control,” explains Tucker. “Investments in more efficient operations are sustainable. They’re not going to cause me pain later, when the economy inevitably turns south.”


This is not to say CEOs lack the intestinal fortitude to make big bets on new products, acquisitions and geographic expansion. It’s just that the surprising ferocity of the financial crisis and subsequent recession is tough to shake. Once burnt, twice—okay, maybe more than twice—shy.

“When a downturn happens, it usually happens fast,” says Gaurav Dhillon, CEO of data integration software firm SnapLogic. “Economic upswings don’t last forever, and few people can predict when things will cool down. While CEOs should be aggressive during an upswing and strike while the opportunity is hot, we also need to exercise caution in making expensive decisions that lock us in.”

Such capital resource decisions are the ones that Tucker described, where companies have no way out if a big bet backfires. On the other hand, investments that improve operational efficiency, sales and marketing tactics and customer service are less risky decisions. The capital savings flow immediately to the bottom line to improve net earnings.

The challenge for many CEOs is the pressure placed upon them to increase revenues. “You’ll often hear that this particular CEO has a reputation for being a good capital allocator or not a good capital allocator,” says Tim Koller, a partner in management consultancy McKinsey & Company’s strategy and corporate finance practice. “Activist investors have influenced the language.”

With the economy riding high, investors expect CEOs to make big decisions capable of driving big jumps in shareholder value. Interestingly, many CEOs aren’t caving in to their demands. Stephen Hall, a senior partner and co-leader of McKinsey & Company’s strategy practice, reports that in the last five years, most businesses were no more active in their capital allocations than they were during the recession. “There are a whole set of challenges that [CEOs] face internally in doing what they know they need to do and what they’re being pressured to do,” he reports.


What many CEOs “need to do” and are, in fact, doing is investing internally in transformative digital and data cloud-based technology solutions that offer enhanced operational efficiencies. Purchased on a subscription basis from software vendors, these systems, platforms and applications also are seen as a way to relieve the financial impact of the next downturn.

“You’re insulated if the economy turns,” Dhillon explains. “The CEO isn’t saddled with all that technical debt from over-investing on expensive hardware. This goes instead to the vendor. The company has the option to simply stop paying the monthly fee.”

Many CEOs are dining at the table. “Last year, we eliminated more than 30 different on-premises technology solutions as part of our operational transformation,” says Pedowitz. “We’re using more and more cloud-based tools to do what we do better. It makes it easier and less expensive to run the business, making us more profitable.”

Other CEOs also are eyeing investments in cloud-based solutions. “The capital allocation opportunities on my plate that I find most interesting are all cloud-based,” says Dan McDade, president and CEO of PointClear, a provider of account-based marketing tools. “For instance, we’re experimenting with a cloud tool that gives us insight into the intent of a customer to buy our services. The technology uses algorithms to analyze a customer’s digital footprint to predict their possible interest in buying something.”

Wayne Johnson, CEO of Accuform, a manufacturer of industrial safety signs, tags and labels also reports betting on big data cloud solutions. The company just signed a subscription with Salsify, a provider of a content management platform in the cloud centered on improving online product page sales conversions.

“We’re loading all our data from multiple sources, including our ERP (enterprise resource planning) system, web system and manufacturing system, into the platform, which aggregates this big data to get our products into the market and within each sales channel faster,” says Johnson. “Whenever our customers are looking to shop, our product content is instantly put before them, resulting in a higher rate of sales conversions.”


Not that all traditional investment is being avoided. To be sure, plenty of money, talent and management attention are also going toward traditional capital expenditures. Mike Flaskey, CEO of Diamond Resorts International, a global vacation ownership company that sells timeshares, has digested nine acquisitions in the past six years.

“We’ve grown organically, but the bulk of our growth has been through strategic acquisitions,” says Flaskey. “In some cases, we’ve bought a hotel or an apartment complex in a destination location and turned them into vacation properties. In other cases, we’ve acquired a competitor. I’ve been very focused on opportunistic buys, given the economic rebound.”

Flaskey has also sought ways to make operations more efficient, recently investing in a cloud-based email system, employee recruiting system and team member email system. “As the business continues to grow, we are constantly evaluating cloud-based technologies to make every department run as smoothly as possible,” he says.

Accuform announced three strategic acquisitions in the past year, giving the company new markets, customer bases and manufacturing capabilities. “We’d wanted to make these deals for some time now, but didn’t have the cash,” says Johnson. “The last couple years have been very good to us, making the timing right.”

The company is also evaluating a proposal to build a new, all-concrete manufacturing facility. At present, it operates a campus of four separate buildings. “We’d like to consolidate into a single structure,” says Johnson. “We’re also in the Tampa area and got lucky with Hurricane Irma, hence our interest in a more reliable concrete structure.”

BlackLine will also shell out money when it makes sense. Last year, Tucker inked the largest acquisition in the firm’s history, acquiring Runbook, an EU-based provider of financial close and automation solutions to the SAP market, for approximately $34 million. “It was an important investment that made us both stronger on behalf of our respective customers,” she says.


The bottom line when it comes to allocating funds appears to be, well, the bottom line—higher net profits. Big bets with the potential to send revenues soaring and build a CEO’s legacy will continue to make news. Still, one can argue that OPEX has become more attractive than CAPEX.

“This was the first year we didn’t have ‘sales growth’ as part of the strategic plan,” says Johnson, whose company chose to invest in a cloud-based sales order automation tool. “Even though we already run a lean company, we wanted to challenge people here to control their budgets even better. And it has resulted in nearly doubling our profits from the same period last year.”

While their coffers are full, many CEOs are willing to risk only so much of their hard-earned capital—and planning to do so conservatively. “That recession we came through was stark,” says Tucker. “Those of us that made it through don’t have short memories. Things look great right now, but we live in uncertain times. And when times are uncertain, you keep a close eye on your bank account.


*Still skittish from the Great Recession, CEOs remain cautious about spending.

*There’s a growing appetite for less capital-intensive investments in boosting operating efficiency.

*Cloud-based solutions are increasingly attracting interest—and cash.

*CEOs are still pursuing strategic acquisitions—when the timing and terms are right.

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