CFO Yeah! Podcast

Why Finance Teams Hate Surprises, with Soundcloud's Jan Gackenholz

Patrick Whatman Spendesk

Spotify

“Our job is to make sure there are no surprises. Like a lot of fast-growing companies there are so many things happening at the same time that it’s helpful to know that the finance team is on top of what’s in the bank account.”

Running the Finance and Workplace teams for a global, world-famous streaming service is no small task. You have the obvious challenges: fundraising, mergers and acquisitions, and finding new ways to optimize revenue.

But 2020 also brought a whole new range of issues for SoundCloud. How could the company support artists during a period with no touring, overcome a drop in advertising, and keep its teams happy and healthy around the world?

VP of Finance and Operations Jan Gackenholz has addressed all of these challenges and emerged with stories to tell. In this episode of CFO Yeah!, we got to hear them from the man himself.

You’ll find a few highlights in Jan’s own words below, but you should download the episode to hear the conversation in full.

A model built on subscriptions, advertising & revenue sharing

A real strength for SoundCloud is its diverse range of revenue streams. Of course, this also makes describing the business model more complex than the average tech startup.

“We have the SoundCloud platform which connects people who generate content with those who want to consume it. And then we monetize things on both sides of that platform.

“We have standard freemium models for creators and listeners. The product is free initially, and users can turn into paying subscribers. We also generate advertising revenue on the listener side. This revenue is put into a pot that we share with the rights holders of the content on the platform.

“So it’s a unique position to be in - we serve creators and listeners alike.

“We also acquired Repost in 2019, which provides creator services. It helps artists distribute their content, and we help them manage and market themselves. Hopefully this lets them become better known and continue their journey in music.

“We’re there to pick them up early - if they want that - and to help them grow.”

COVID initiatives for artists

As part of that business model, SoundCloud’s interactions with and responsibility to artists are paramount. So during the COVID crisis, the company has had to find new solutions to help out.

“We recognized that the situation would lead to artists and creative folk being in a tough place - they couldn’t do their normal gigs. We were an alternative for creators to turn to. And we also gave them the opportunity to pick up some of our products at a reduced price.

“We also introduced ways for people to help the artists directly through Paypal - not through us. And then we put some capital aside. We have a SoundCloud fund set aside through which we can give them advance-payments. This gives them capital to get through the tough period, and then we recoup that money through usage on SoundCloud.”

An invaluable business review cycle during the pandemic

On top of new products and pricing during the crisis, some internal processes became even more valuable.

“We have a weekly business review where we look at the revenue-driving side of the platform. (Which also means costs for us, since it’s a revenue-sharing model.)

“But three years ago, we also established a recurring planning cycle. We do a quarterly reforecasting exercise, and then the classic one-year budget which gets updated by the reforecasting. So it reduces the budget’s scope, but we revisit it every three months.

“That became tremendously helpful during 2020 and the COVID situation. We had to do our normal reforecasting in March or April 2020, and then we did it a few more times during the period. So we stayed very close to the numbers.

“It was an extraordinary year, but we had great visibility throughout.”

Upgrading from Excel

In an earlier CFO Connect interview, Jan noted that the finance team had moved away from relying on Excel and Google Sheets only, and is instead using a cloud-based planning tool on the FP&A side. So of course we had to know more.

“During the financial planning process, there are many things happening in parallel. If you have this all condensed and compiled in one big Excel file, there’s always this dependency. Someone has to put all this data in, and they’re always the last one to go home. I thought we could change this.

“Also Excel is highly flexible, and one of the great tools, but there’s the chance to make mistakes. If you grow the numbers and your controlling process becomes more rigid, I find it helpful to have something less flexible. It takes people by the hand and you ensure that everything that goes into this tool is actually 100% correct. Certain things can only be done in a certain way, so there’s quality assurance.

“Now, we use our tool (Adaptive Insights) on a daily basis to run scenarios, and multiple people can easily chime in. Which is quite exciting.”

Adding maximum value to the business

Finally, what are the key ways that finance teams can be better business partners and add value to their companies?

“We can do two things. First, we can make stuff measurable. We can handle the capital allocation, and guide and help teams to make decisions on a day-to-day basis. We need them to understand how these decisions impact the company, and ultimately our financial position.

“The other job is to make sure there are no surprises. Like a lot of fast-growing companies there are so many things happening at the same time that it’s helpful to know that the finance team is on top of what’s in the bank account.

“I think we have a very open-minded workforce and people want to understand what’s going on in finance. We always make a conscious effort to explain things. Finance can work a lot with acronyms that nobody understands. So we make an effort to explain acronyms like FP&A or EBITDA - terms that are standard language to finance people.”