Scott Lindquist | What Your CFO Wants To Tell You, But Won't

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1:37Learn more at typeface.ai.com. Welcome, marketers, advertisers, and those who love them to Chief Marketing Officer Confidential. CMO Confidential is a program that takes you inside the drama, the decisions, and the politics that go with being the head of marketing at any company in what is one of the most scrutinized jobs in the executive suite. I'm Mike Linton, the former chief marketing officer of Best Buy, eBay, Farmers Insurance, and Ancestry.com, here today with my guest, Scott Lindquist. Today's topic, what your CFO wants to tell you but won't. Now, Scott started his career at PricewaterhouseCoopers and went on to become the chief financial officer of Farmers, a position he held for over 13 years.

2:28He is currently the CFO of CNA Financial, which is another insurance company based in the Midwest. Now, full disclosure, Scott and I worked together during my eight years at Farmers, where he was a fantastic business partner and where we actually jointly managed the marketing CFO. welcome scott hey thanks very much mike it's uh it's an honor to be with you today and i just want to say i had a lot of fun ton of fun working with you at farmers over the years and i'd say everything i know about marketing i think i learned from you uh so thanks for inviting me to your pod and just a little fun fact here to cfo chief financial officer i was also known as you recall as chief fun officer too so you knew yourself yes that's right you were one i will say you were one of the more funny approachable cfos so and let's talk about that speaking speaking of cfos you know you you've met a lot of them obviously um and give us a quick overview of your take on cfos in the marketplace i mean i always think there's some cfos that are focused solely on cost there's of CFOs that are true business partners like you are.

3:39There's the folks that say no all the time. And obviously, some of those types are more receptive to marketing than others. Just tell us an overview of your take on what's really out there in the CFO marketplace. Yeah, no, sure. That's a great question, Mike. And, you know, my experience over the years, I've seen just a wide variety of CFO roles out there. And, you know, my experience, It typically tracks very closely to where the organization is in their strategic lifecycle, whether you're a startup, you're in aggressive growth mode, turnaround, you know, private equity owned, looking for a liquidity event or a steady state Fortune 100 type type role.

4:21and in my experience, the CFO needs to be, needs to really be joined at the hip with the CEO, with the chief executive officer, almost to the point where you can actually finish each other's sentences. You're always kind of on that same frame of mind and whatnot. And so, yeah, I've certainly seen the Dr. No type CFOs. I've seen the hatchet man, bad cop type CFO. I've seen financial engineering type investment banker CFOs. And then, of course, the true business partner type CFO. And, you know, it's really a neat trick to just kind of pull off all of those roles at the same time. Hey, just a quick question.

5:07How often would you say, percentage-wise out of 100, how many CFOs are really true business partners? This show is brought to you by Typeface.

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6:19now back to our discussion with cna cfo scott lindquist i i'd say the majority of them i think the majority of the successful um uh cfos are really at the end of the day true business partners that have really that deep and embedded knowledge of the strategic underpinnings of a company true understanding of the levers that that that grow a company um and not not just financially. I mean, obviously that's a key point, but, but strategically and able to kind of connect those dots as to how does a company make, uh, do business, the underpinnings for how does a company make money? And, you know, I think I learned from you and then certainly others, it's all about, you know, the end, the end consumer, you know, what are we delivering for a value proposition and then how do you make that actual linkage to, to the financial, uh, uh, dynamics of a company?

7:11And there's going to be a short-term view, there's a medium-term view, and there's going to be kind of very long-term view. And I've just seen a wide mix of that in my career. Thank you. I do think, and we'll talk a little bit about this later, I do think if you're interviewing for a CMO job, you should absolutely always meet the CFO in addition to the CEO to get a feel for what type of CFO you are going to be working with. and we can talk more about that later, like questions you might want to ask in the interview of the CFO, but let's stay on insurance here for a minute. Insurance has been a hotbed of marketing over the last two decades, really spending billions and billions every year, more than beer.

7:59I know commercial lines is a little different, but what's your take on that? Tell us about marketing in the insurance industry, which 30 years ago, you would have never expected what you have insurance now, which is this massive influx of money and brand building. Give us your take. No doubt about it. I mean, I certainly saw that in my last company being a retail-focused insurer. And no doubt about it, it's been a hotbed of marketing and advertising, particularly with the onset of the direct-to-consumer channel for auto insurers. a little bit lesser extent for homeowners. But you mentioned beer.

8:37I mean, I think I learned some years back. I mean, it's been a top five category for media spend right up there with pharmaceuticals and autos also, in addition to beer. So, you know, I kind of use the obvious examples of Geico and Progressive. And as you know, Mike, I mean, they have done a massive, massive tens of billions of dollars of investment in their brands over the years. And to the point where the Geico caveman or the lizard or flow from progressive or ubiquitous, right? Everybody knows who they are. And what it does is it just turned those companies into category killers now to the extent they've taken massive market share from the traditional personalized agency.

9:18Massive. I mean, we're talking about huge amounts of SharePoints in a billion dollar category. And also beneath all that is a pretty, I think, advantaged financial model as well. Yeah, no doubt about it. And, you know, they've really disintermediated the agency. I mean, listen, the big agency brands are still gigantic. But what the direct-to-consumers have done through the use, through the power of brand building, through the use and power of marketing is they've really squeezed out the second-tier insurers. And, in fact, they're right on the heels of the top market shares. And, you know, to the point where these carriers were like nothing 30 years ago.

9:58I mean, those carriers were kind of no market share. So, I mean, that, from my view, was just a massive strategic investment in brand building and leveraging that towards the direct-to-consumer channel and taking advantage of the technology now. I mean, you know, the internet, obviously, and social media, obviously. We didn't have that 30 years ago. But they've leveraged their brand to really just massively overwhelm those channels. You know, it's an interesting thing, and I'd love your opinion on this, which is you have an industry run essentially by actuaries and financial people with tons of surplus actually leading the charge over the last two decades on brand building and marketing.

10:43Is that a leap of faith by these companies, or is that a learn-as-you-go kind of thing? what's your take on how the industry got to where it is well you said actuaries and i know i'm tempted to do some actuary jokes here now but uh don't want to get a good off track here but you want to say one you can knock one out but no all right no no no so oh yeah no i mean it's a fair amount of it's a significant amount of leap of faith right because you you talk about the investment in brands and investment in marketing in the financial types the actuarial types are always looking for that immediate gratification right right you know when's my return am i getting a return predictability i mean one of the things about actuaries is their whole job is to predict stuff with as much certainty as possible and you have this kind of way of you're going to build this brand and then you're going to win at least the consideration and get people to come in and get a shot at the business but that is a pretty big leap of faith keep going reject that so no No, it totally is.

11:46I mean, if you're talking, you know, hundreds of millions of dollars or billions of dollars invested in a brand or marketing, you're like, wow, when do I get that return? And of course, it comes to marketing math. And I learned that certainly from you and your team several years back is like really, truly understanding that marketing math and understand the dynamics and the product management, the product pricing, understand how that helps retention. How does that drive new business? How does it drive bundling? And then, you know, it needs to all fit together to say, yeah, over a five to seven year period, we're going to have returns that exceed our cost of capital.

12:22And these days, cost of capital, you know, I'm just going to use, you know, 8 % to 10%. It depends on the company. But just so all our listeners know, just give us the top line of how cost of capital is calculated. Yeah. Yeah. So so for most insurance companies, I'm just going to use an example. Capital is comprised of a mix of debt and equity. Generally speaking, 20 to 25 percent of debt, 75 to 80 percent equity. The debt is going to be how much it costs for you to borrow on the open markets. And cost of debt is higher now with higher interest rates. So you could issue bonds, five, six percent there.

12:59And then the cost of equity, it's kind of a this black shoals option. on Bloomberg. So, you know, the listeners could just Google it, right? Cost of equity, you can find in Bloomberg, but most companies, you know, eight to 10 % is a good threshold. So when I'm looking to say, all right, we're going to invest a billion dollars in building a brand. How am I going to get more than an eight to 10 % return? And we measure returns by looking at present value of future cash flows and present value of future cash flows. There's going to be a lot of assumptions in there, but you know what? That billion dollars is going out the door today.

13:37You're looking to recover that over a number of years. So that's where the marketing math gets very important in understanding the levers around, is this product really going to sell? Are we going to gain market share? Are we going to make profit? Obviously, are we going to drive higher retention, which drives profitability? Are we going to drive bundling so adding additional products to households are we going to drive households yeah and that goes to you know how much you think a customer's worth and customer lifetime value which is if i acquire you am i acquiring you and you're going to be this at like a hundred dollar person or if i acquire you are you going to be a five thousand dollar person you know and that really is a lot of assumptions but beneath all this cost of capital and the spending is this leap of faith that you're going to spend a lot of money now on something that is kind of hard to put your arms around and it's going to pay out later, right?

14:37No, that's right. And like I say, a lot of judgment, you know, I, I, my career, we've been in big conference rooms where we've been kind of debating this and debating assumptions employed. And, you know, listen, I mean, it's, it's like anything else. I mean, it's always going to be, there's a certain amount of data driven element to it. There's going to be a lot of business judgment, a lot of business a sense, a lot of kind of gut feel on that. So it's actually very fascinating seeing that unfold. But listen, there's been several companies and a few of them I mentioned earlier have been very, you know, extraordinarily successful in making those big bets.

15:13And tell us, you moved from a B2C insurance company to what is much more of almost a pure B2B company. Tell us the difference. Yeah, you know, it's tremendously different, you know, and I joined my current company about two and a half years ago or so and absolutely drinking through a fire hose. I mean, I had exposure to a certain amount of commercial insurance through prior companies, but it was much more pronounced, much more significant of the current company. So it was really getting to know as soon as possible, like a hundred day plan, right? getting to know everybody immediately, all the various functions, all the strategy of the company.

15:53How's the distribution work? How's that interplay with the customers? Product pricing attributes, retention attributes. What drives the value proposition? What drives the brand, the importance of the brand? You are talking so much like a marketing guy. You're not even talking about the CFO onboarding. You're talking about the marketing onboarding. This is very exciting to me. Well, and I must say, you know, I've been doing the CFO thing for a while. And I kind of say kind of half jokingly, you've seen one insurance company, you've seen them all from a finance perspective. They all have the different nuances.

16:28But I was immediately very focused on on just, you know, how we make money. How's the company make money? And how does finance be an enabling function to drive that strategic growth? I mean, listen, you know, we have a great team, you know, that closes the books, that files the tax returns, that files the regulatory reporting. And then, you know, it's all the FP &A work. FP &A work, you know, that's and, you know, just excellent, outstanding type stuff. It's it's table stakes. I think like where can I add the most value to the organization? It's just kind of having that forward look and hoping to just drive overall, you know, value for the company.

17:12And so, yeah, that was kind of a big change going from that retail to the B2B. But it's been great. And so for our listeners out there, when a new CFO comes in to the org, what is the best way for marketing to onboard the CFO or to get the CFO to kind of understand what they're doing? Like give our listeners some tips as to what you, who is a believer in marketing, would like. And then maybe some of those other types. Give our listeners tips on how should they approach the CFO and onboard them? I think so. First thing is just build alliances with your peers. And that's one thing I did really immediately was just build alliances amongst, you know, everyone who you know throughout the organization running major businesses major parts of the organization and and and through that is just like i would always say how can i help you as cfo accomplish your job and it becomes kind of this i'm just saying i'm gonna just say not all cfos say that some cfos say i need 10 more back from you yeah um but yeah and you know it's all about building relationships, right?

18:32I learned that a long time ago. And it's all about, you know, learning. I mean, embracing lifelong learning. And that's what I've done. I know when you and I, when you first, I first met you many years ago or so, you and I met each other and built that kind of week to week kind of rapport and relationship and mutual respect. And obviously, we became friends very quickly. And so I think, you know, you learn from me, asking a ton of questions of me. I learned from you by asking a ton of questions of you. And we had a great marketing CFO too. Well, I think that was, I had that idea for you and you supported it immediately.

19:10And that was really a big help. I think that was key, you know, because, and I'm a huge proponent of any large function, whether it's, it's, it's marketing, or if you're running a distribution or, or, you know, running a business, you know, you just having your own CFO, if you will, kind of reporting to you. And that was, I mean, given the budget that we had, the amount of dollars that made total sense at our last company. And it was great because the marketing CFO, he took ownership of the marketing math, particularly around the performance marketing, took ownership around connecting the dots as far as investing brand dollars, marketing dollars into how does that build brand consideration?

19:50How does that build retention? How does that build bundling? And then kind of laying out and making the case to the finance community, say like, hey, here's our return. And we'd stress it up or down and really kind of understand that. Get the finance folks just really comfortable with the numbers. And I must say, great track for anybody in the finance area to go be a marketing CFO. Because I know you and I are thinking of the same person. I don't know if he's listening out there. Shout out to Scott Griffiths. Yeah, Scott Griffiths. Yeah. Thanks for the work. He's going to go viral now. But no, he learned a ton on marketing.

20:29And, you know, he learned so much from you and your team and about the business that I'm not sure he'll ever turn back. I mean, I think he's going to be kind of a lifelong marketer. We love that about him. Though he was also really good at saying no when it was appropriate. So, you know, you are obviously a marketing believer and in the power of marketing. But, you know, I don't think they train that at PricewaterhouseCoopers or in your accounting degree. How did this happen to you? How did you become a believer? You know, the last company we worked with, it was really the first company I worked for who had this gigantic national brand.

21:16but it wasn't big enough though. It was something that we needed to take to the next level. And the dollar amounts of investment required were eye-watering, eye-popping at first blush. So that's one of the things I spent a lot of time with you and Scott Griffiths, really just diving into that as far as, you know, what are we getting for our marketing investment? And it's how's that going to drive future value? And so that was just a tremendous learning exercise for me. And in particular, the performance marketing aspect of that. And I think you told me or somebody told me, you see a lot of these commercials, the call to action commercials on TV.

22:00And I always kind of shook my head. It's like, are people really dialing these 1-800 numbers? Are they really clicking? And I think you said, they said, hey, you would not see them on TV if they did not work. And so I saw all the data behind that. You guys showed me all the data about how all that stuff drove clicks, how it drove phone calls. And it was really just kind of fascinating for me seeing that investment manifest itself and actually the numbers turning into growth. And so I was a true believer pretty quickly. Then the other thing, too, and I think this is before I met you, we did a brand valuation study, which I had never heard of this, but we hired an investment banking type valuation firm that specialized in doing valuation metrics around brands.

22:47And, you know, the brand, we came up, you know, a certain amount of judgments and marketing math in there. But we're talking the value of these brands, I mean, are just multiple billion dollar brands just through the depth and breadth to reach and the power to drive the power to drive earnings. You know, it's super fascinating. and this is accounting thing that actually really bugs me is if I buy a company, the value of the brand shows up as goodwill when I buy that company. But if I build that brand myself, it is nowhere on the balance sheet. And that drives me crazy. Yeah. Anyway. That is interesting.

23:29Yeah, no, absolutely. It's always this kind of squishy and tangible asset. Until you buy it. When you buy it, it has a value, but it doesn't have any value until you buy it, Which makes no sense. But so, so this brings me to the, if I'm working with a CFO who considers marketing cost center versus a growth lover, what tips other than having a good relationship, would you give the marketer on that one? Because that, that is where, you know, I hear from our listeners, one of the tougher things, you know, they see me as a cost center only. They're unwilling to take long-term risks. What advice do you have someone with a CFO like that?

24:08No, I would take them into the data. You know what? CFOs love data. Obviously, they love numbers. They love data. They love financials. I know I, for one, years ago, had zero appreciation for the amount of math that goes into marketing. And I learned that from you and your team many years ago. I know this sounds like a gigantic suck up to Mike Litton show. We're kind of enjoying it on the show, actually. But I mean, I think you and your team took me through the data and through the numbers. And it was kind of fascinating kind of looking at that. And I learned that through the brand valuation study.

24:47Also, I think that would be the best thing I would recommend is just taking taking the CFO through the data, through the power of the marketing math underneath that. And, you know, my daughter, my younger daughter, she just graduated college Villanova a year ago or so. And no doubt she'll be listening. So, hey, Kelsey, just a little shout out to you. So she majored in marketing and marketing and data analytics and college. Those are those are actually merged together now, which is super important for marketing. Yeah. Not a surprise. Right. And I was like, oh, of course it is. Of course it is. It's all data.

25:20I mean, marketing, the foundation of marketing, there's a foundation of creativity, but there's a foundation of data. So that would be my top recommendation for marketers coming into the company is kind of get to the CFO and just show them the data. So we talked about the Hall of Fame best practices for marketers, build a relationship, show the data, you know, actually have a two way street discussion. Tell us some of the worst practices you've run into in marketing, like watch out for this. if you're doing it, you're probably not making the CFO happy? Yeah, that's a good question. I mean, I think, you know, the one thing that jumps to mind is, and not maybe directly related to the CFO, but I've seen stumbles in marketing presentations to board meetings, to board of directors.

26:15Give us a couple of examples of horror stories of marketing presentations. Horror stories. Well, first of all, just over-reliance on jargon, you know, and, you know, use of acronyms and marketing. You know, if you say, hey, D to C, well, I know D to C, direct to consumer. But that's kind of an example of kind of over-reliance on jargon. You know, if you're allotted 20 minutes for board presentation, don't show up with a 100-page deck. you know don't show up with gigantic you know data loaded deck pages there that you know it's more we used to say at my a couple of companies ago the CEO would say like horsies and duckies give me more horsies and duckies yeah right isn't that funny yeah use of graphs right use of bar charts or histograms and use of key messages so I have never heard horsies and duckies before yeah there you go there you go yeah I think that was a GE thing when I was at GE years ago um but you know very much focused on key messages because if you think about it you're you're going to board meeting the board members have you know they may be in a series of meetings that day it may be the third hour of the meeting you see board members starting to doze off and so you kind of have to read the room too right um so you know um uh oh and do not go over time do not and also get a lot of time get to the point don't take this conclusion for the last 30 seconds yeah oh here's a funny one here's a funny one i'm sure you've seen don't present a slide and say oh i'm not going to drain this slide and then proceed to drain the slide so that's how's that for recommendation so that's very pithy very pithy scott um all right so you know we we ended up having a really good relationship, obviously, between the two departments and the marketing CFO is critical of that.

28:10Talk to our audience about how you manage the marketing CFO and then your take on how the marketing CFO is helping run the agency contracts, the sponsorship deals, in addition to doing all the math and the interface for the company and the finance department tell us give us some best practices for managing the marketing cfo from yours yes so i mean here's kind of my number one best practices as a corporate cfo i did not feel the need to have all the business or functional cfos direct report to me and i needed to control them i was like no no no you're you're you're working for you're working for the function head you're working for the cmo that that's that's your job i'm happy to help wherever i can you'll be dotted line we'll have we'll keep lines of communication so i think that's very important i think it's very important for chief marketers to really kind of have have their own cmo as far as putting them in charge of sponsorships and and agency contracts yeah yeah yeah i mean obviously there's a ton of math on that you know it's a great development opportunity for the finance organization too i mean you're you're a leader like like like i believe i think i was is you know let your people have enough rope to kind of do their thing and not enough rope to hang themselves on, right?

29:32And I know the individual we're talking about, he just did a masterful job on that. So yeah, that's my best recommendation is just own your own CFO. The corporate CFO should be relatively hands-off. Give them enough rope to kind of do their thing and always be there if they need help. That was kind of my mantra. Yeah. The other thing I would add to that, we had an operating principle of surface bad news as fast as you can. Well, boy, isn't that the truth? Yeah, because I can think of some examples where we got some bad news kind of late. It's like, geez, I would have liked to have known that a little bit earlier.

30:12We could have done a little bit more to mitigate that. So, boy, I mean, that's I wouldn't say that's a CMO advice. That's an advice to anybody. It is an advice to anybody, but one of the things about marketing is if it's bad news and it's going bad, yeah, it might correct itself, but it's probably like a cavity. It's only going to get worse. And it's going to hurt. You know, it's going to destroy more of it. Like, get it filled right away. That was kind of how we ran it. So we're closing in. We're almost out. We're towards the end of the show. I should actually just say that right away. So last question.