Finance executives have the ability to control the fate of their organizations—no mysticism or grimoire required. They simply have to chart a course toward profitable growth. But that may require a significant mindset change.
However, that’s a lot easier said than done. To make it (let’s hope) a little simpler, CFO Brew spoke with two finance executives who’ve helped lead their organizations toward profitable growth. They said the switch in mentality from pure revenue growth to a balance of growth and profit is imperative for long-term company health, but also carries with it some distinct advantages.
“You have to invest to grow,” Larry Roseman, CFO of tech company Thumbtack, told us. “I think the key is investing profitably, in profitable growth.”
The big why. With profitable growth comes more flexibility in business decision-making, according to Ben Gammell, president and CFO at fintech Brex. For instance, an organization can more easily acquire another when it has cash to work with.
“I think what it ultimately does for a CFO is it means that we have a lot more control of our own destiny,” Gammell told us.
A dramatic change in the economic environment over the last two years is driving the need for a new growth mindset, according to Roseman. For years, when interest rates were low and capital flowed more freely, “it was growth at all costs,” Roseman said. All investors wanted back then were signs of growth, along with an idea of how to eventually turn a profit. More recent macroeconomic realities—such as skyrocketing inflation and subsequent interest rate hikes—forced companies out of that “growth at all costs” mindset, he added.
“From a CFO’s perspective it was a blessing, because you really got your business partners, and your company, and the industry to start thinking about more fundamental corporate finance,” Roseman said, “which is, you’ve got to grow free cash flow, ultimately, in order to create value, not just revenue.”
Thumbtack raked in nearly $400 million in revenue last year, had “double digit EBITDA margins,” and had positive free cash flow, Roseman noted. “Being free cash flow positive is a good feeling,” he said, because an organization isn’t at the mercy of the “the vagaries of the capital markets.”
Eyes on the prize. Growing profitability requires organizations to shift their gaze from revenue, and also pay attention to how efficiently they’re spending their capital, according to EY research.
“In today’s complex economic landscape, CFOs are critical in shifting the focus from ‘growth at all costs’ to sustainable, profitable growth driven by capital efficiency,” Mitch Berlin, EY Americas vice chair of strategy and transactions, wrote in an email to CFO Brew.
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To improve capital efficiency, Berlin said CFOs should be “champions of return on invested capital” (ROIC), a metric that EY recently found to be key to improving shareholder return. They can do this, he said, by holding others accountable to reach promised ROI outcomes to manage their departments’ costs.
Finance leaders must also sell other execs on “the importance of disciplined investment and using appropriate metrics to show how their organizations are creating new value from capital,” Berlin said.
Roseman agreed that ROIC is an important metric. But CFOs must take things a step further by both “growing the invested capital base and having an attractive ROIC,” he said.
On a journey. Brex hit the operational reset button in early 2024. It eliminated two layers of management roles and refocused on which products and markets it wanted to go after, Gammell said.
Brex leaders decided around the end of 2023 that they wanted to reach a place where the company didn’t need to continue raising money to sustain its business model. They determined how much they wanted to invest across departments—from product development to back-office functions—to achieve profitability that “would enable us to be a sustainable, durable business going public one day,” Gammell said.
Since the reset, Brex tripled its revenue in 2024, grew its enterprise business revenue by 80%, and slashed its burn rate by 80%.
“I think we’re now in the place where we don’t need to raise additional funds to be a growing enterprise,” Gammell said. “As a result of that, I think it wrests some leverage…back in favor of the company so that we can be more intentional about if and when we do that, versus the need to do that.”
Balancing act. Like the magic carpet ride in Aladdin, achieving profitability can be a whole new world for organizations. But that new world brings new challenges.
One such challenge lies in investors’ shifting focus. Whereas investors have historically judged tech companies on revenue multiples, once a company reaches EBITDA profitability, investors hold them to a different standard, Roseman explained.
“Now it’s all about valuation multiples on EBITDA, and then EBITDA doesn’t just become a luxury, it actually becomes something that is driving your valuation. So it’s sort of good news, bad news,” he said. “You control your destiny, but then you also have to be mindful of continuing to improve profitability.”