I sat down with Snowflake CFO Mike Scarpelli, who is a fellow board member at Snyk, a few weeks ago in a candid conversation on company building in unpredictable market conditions.
Mike has made his mark in enterprise software over the past decade, most notably with roles at public software companies Snowflake and ServiceNow. Currently the CFO of Snowflake, Mike has been critical in scaling the business since he joined in 2019 and helped undertake its groundbreaking IPO in 2020. (At $70 billion, it was the largest SaaS IPO ever.) Mike also spent eight years at ServiceNow, the company growing 2,000% in revenue and going public during his tenure there.
He has obviously also seen the ups and downs of public markets during these years, and given the current climate, I sought him out to discuss his ideas on how entrepreneurs and investors alike should be navigating the landscape.
How has company building changed given the times? Is there an upside to the current environment today? What kind of things should companies be prioritizing right now? What should pre-IPO companies think about the next few years?
I summarized a few of his takes that came up in the conversation below. Keep scrolling for the insights, and check out the full video at the end of this post.
Thank you again to Mike for joining me in such a thoughtful discussion.
On Valuation: Focus on the Long Game
Founders and investors should focus not on company valuations today but on where they can go. Mike, rightly, noted that often for the best companies 90% of the value of a company is generated post-IPO, while many founders are too focused on the valuation of the last round. The better questions to ask are how much visibility you have into the company to predict future performance accurately. That should be the most important thing over the valuation. As Mike noted, “What's an extra 1% or 2% in dilution if you can go public and create that post-IPO value?”
On Market Uncertainty: Turmoil Breeds Opportunity
Now is an ideal time to be investing in and founding startups. It's cheaper to start a software company today than it was ten years ago, and that's all due to the public cloud and platforms like Snowflake that make software interoperable on any cloud you want to run in. That’s not to mention the advancements in computing power. Downturns breed opportunity, especially in terms of talent availability. Forward-thinking entrepreneurs and companies should be prepared to capitalize on this.
On Growth: Focus on Efficiency
It’s never been a “growth at all costs” mentality for Mike at Snowflake or ServiceNow. Sure, growth has been the top priority, but it has always been efficient growth that starts with unit economics. For example, a question he often asks is “How do I get my margins up?” Snowflake’s margins were in the high 50s or low 60s when he joined, and today, they’re much higher. He attributes that to assembling a laser-focused team focused on taking costs out and instilling discipline across the board.
On Sales: Beating Quota Isn’t Always A Good Thing
Having all salespeople pounding their chests about beating quota might make for an excellent talking point, but there’s often more to the story to Mike, namely missed market opportunity. If salespeople are blowing away all their numbers, that tells Mike that (1) they don’t have enough salespeople on the ground or (2) they mis”quota” -ed people.
On Investor Appeal: Show a Clear Path to Free Cash Flow
Every investor wants to know when companies can be free cash flow positive, and Mike argues the best indicator is always the history. He notes that showing continued progression and discipline around free cash flow is essential. If you struggle to establish a clear path to free cash flow, you will struggle in today’s market.
Here’s the full interview: