Decoding the C-Suite: Part 3 - The Money

0:17Hi there and welcome to Decoding the C-Suite, a five-part miniseries from Recruiting Future about how leadership really thinks about AI. I'm spending the series with five senior leaders at Smart Recruiters, seven months on from their acquisition by SAP, decoding how each function around the leadership table is thinking about AI and what that means for anyone trying to drive change in talent. Today, we are following the money. If you've ever struggled to get AI investments signed off, this episode is for you. Tom DiDecidero is Smart Recruiter's CFO. And in our conversation, he explains exactly what he wants to see in a business case, why he backs pilots over big commitments, and how AI is breaking financial models that have held for 30 years in the SaaS industry.

1:10He also shares some numbers about the real economics of AI that genuinely surprised me, along with a prediction about where the whole industry ends up. This is Decoding the C-Suite, episode three, The Money. I'm going to start with a really big question. What would you say the biggest challenges are that AI is creating for CFOs? I think about it every day. I think that the CFO job revolves around predictability and hitting goals. And the AI landscape is one where it really doesn't allow for easy predictability, as one would hope. And then when you think about the underlying drivers to that, it's very expensive.

1:59And connecting that cost to the value that you're pricing to your customers is an ongoing observation. from an employee perspective as we look to to introduce and are introducing capabilities we think about general and specialized use cases and also acknowledging very candidly that people are uncomfortable in the environment and you know just acknowledging that point um and and setting goals and driving behaviors that say, hey, it's okay to be uncomfortable. Failure is part of as we learn to adopt. And ultimately you come out with good pieces too. And we embrace those. I suppose also from a technology perspective, just in terms of like the investments that you make in technology, AI must be making that really confusing as well.

2:53Yeah. So there's a bit of what I pay for as a CFO and what I sell to customers. Yeah. You know, I started from the pay example. It's much like any business case you would develop in that you look to understand the problem you're solving and the cost with which to do that. The goals you set to decide to move forward with something are really important to make them measurable and adapt as you go. So I'm very much a proponent to, particularly when I'm paying for something, the pilot focus. Give me something short-term, pretty well-defined, and then we're going to measure outcomes based on that before we commit further.

3:40And our customers look at it the same way. We went to market very quickly with our Winston product that others have spoken to. And I think part of that was making it credible and tangible to where, okay, we're going to start here. We're going to start small and prove the value before we know you'll be comfortable in committing further. And those two principles are largely related. And that's how I think about it. How do these times compare to what's gone before? Is AI the most disruptive thing that's come along? Or can you think of parallels earlier in your career that might be there? When I first came out of school, email was just coming out and then e-commerce and putting your card into the computer to pay for something.

4:27We were all uncomfortable with those things. I think as I think about running a business in this environment, there is clear value and opportunities as we move forward. But what is also similar is it's very expensive. And the cost of failure, both financial and opportunity costs, are significant. And so you really have to weigh and be accountable for how you're measuring success progressively along the way. And what's the tolerance for failure? Does that change because of everything that's going on? I think it depends on the type of company you are. I mean, we were a standalone company up until six or seven months ago.

5:03And, you know, the cash on hand and your balance sheet really sort of steers how fast you can go on investments and the level of risk you can take. one of the great things about being part of a much larger one of the largest companies in the world now at sap is there's more of a safety net to embrace the go big bold to and play to win knowing that you have more resources available to you to to be more aggressive let's sort of dig into that and talk a little bit more about the the sap integration so i mean tell us a little bit more about that. What is the opportunity that it's creating and how's that going to benefit the customers?

5:46Yeah. So in any acquisition, you know, the integration, they're challenging and we are learning mutually how to work together. Being a smaller company, now part of a much bigger environment. I think that the opportunity that others have spoken to as well is to take who we are in that we're decisive and quick and innovative people by our nature, more of a startup mold. And when you put that inside a large hypermatrix organization that has the benefits of scale and structure and resources, you can figure out how to make those two work through the integration process. And they're challenging, but that ultimately is how these outcomes will be measured.

6:31And in terms of integration, you've spoken before on other podcasts about the importance of execution over theory. How is that looking at the moment, sort of six months into this, how does it compare to the theory about when you started and what lessons have been learned so far? Yeah. So when you have these sort of pie in the sky opportunities that we all think about the shiny object. When you think about the execution point going beyond theory, everyone tends to focus on the big prize and the opportunity is exciting. I think the discipline that you must create though is establishing OKRs or goals that are both short-term measurable as part of the larger thing that you're developing and keeping people focused on those short-term outcomes is really a priority because distraction is something that you continually face.

7:34And while well-intended and maybe even good ideas that come out of those distractions, because the cost of success and failure is so significant in this time, I always focus on what are the next three to six months look like. Are we very clear on what those deliverables are? And you have to pivot as you go and adapt as you go. So while we do set an annual goal like everyone does, the most important goals, I believe, and we believe as a business are the OKRs that we set that are more short-term oriented, you know, in the first half of the year, for example. And that keeps you on pace. And when you see the success that comes from that, it gives you more comfortable in making decisions, again, with predictability in mind, that you can continue to put your pedal on the gas and move forward.

8:25You've sort of talked about this the whole way through the conversation, but I want to just really highlight it a little bit. That sort of discipline that you're talking about that needs to sit behind innovation in a very unpredictable environment. You spoke to some of the things that are in place to do that. But what's the kind of the big principle there for what would you say to any organization that has to innovate, but has to keep that under control at the same time? so there's a level of yes be excited about the opportunity but also match that with candor and realism and you know one of the roles that i get to play as a cfo is to encourage the excitement it's what the what the customers are looking for in terms of our product evolution it's where the great employees want to work they want to work in environments where they're creating cool things, adding value, uh, and then kind of temper that with, this is great, but let's define measurable, you know, items along the way here to balance both.

9:30I will love to throw as much money as possible, uh, into where opportunity goes, but it has to be done in a responsible measured way. And we're all facing that right now, uh, as CFOs. And is there tension in that? And how is that tension constructed? Yeah, I mean, it's like any emerging product that you've developed as a company, any of your other roles, that's healthy. I mean, you want that. The worst thing that can happen is to be a yes person where you have a leadership that tends to fall in line with whatever the board or the CEO wants to do. We have healthy conversations to figure this out as we go.

10:11there is like anything, a lot of uncertainty and you acknowledge that going in and we measure as we go and we hold each other accountable for falling behind on things. If other competing priorities might be popping up, you have to say no to those things at times. And it is one of the more interesting times in my career, I would say, when I look back on the last 30. Yeah, yeah, yeah. No, I can imagine. I want to kind of flip this out to talk about employers, because with everything that's going on at the moment, employers need to invest in new technology, whether that's with existing providers or new providers, whatever that looks like.

10:54And talent teams, HR, talent acquisition have not been good in the past at putting business cases together in a way that the CFO wants to see that. What advice would you give to them in terms of speaking the language of the CFO and putting a business case together that's going to get them the investment that they need? Yeah. So the principles of good business case development really remain the same. The problem we're solving for, how it applies to our product market fit, being able to clearly articulate the main drivers and assumptions so that they can be challenged, pressure test, and ultimately arrive at a decision that we're going to move forward in a certain way.

11:42I encourage people to bring evidence, not it feels like. I admit it, that's always a part of it. There's certain things I know I have evidence to, and there's other things that are more qualitative or we'll see as we go. And that's a very natural part of agile development. I think that you now have resources available to you to do better research on these business cases using Claude and other capabilities and take advantage of that. Your ability to be more depthful and bring other resources to support your conclusions has never been easier. Uh, and I looked for people to, to do that. I had met with someone this morning and I said to them, I see you put together this, this, this proposal.

12:29How did you go about it? And he said, well, I actually put through my initial draft through Claude. I said, there you go. Right. And it allowed him to supplement, uh, the ideas that were in his head very easily. I think when HR talent hears the word evidence, they think automatically that this needs to be hard numbers. This needs to translate into measurable value for the business. And sometimes that can be quite difficult in that area. Is that what evidence is or are there other ways of thinking about it? Yeah. So I think how ROI is being looked at in the AI environment is changing. The numbers matter.

13:13They do. And, you know, I look at some of the guidance coming out of the SEC, for example, or actually lack of, they're not pursuing real meaningful AI guidance on how they're measuring what's reported out publicly. And I think as an investor, you get concerned about that because you want to understand how they're progressing or not with their AI capabilities. So that's sort of a public market kind of perspective. um i still come back to the basic virtues of show me enough of the math that we feel good about and then i'll work on the gray or the softer parts of that particularly if i have to go help sell it beyond yeah you know our initial team um and i think that i also rely upon you know people's reputation and credibility as well if someone who has a good history of success brings you something that is maybe more risky, at least on its surface, you're more inclined to trust them.

14:19So think about how you present things and who's presenting them. Coupled with the research I mentioned, ultimately credibility leads to trust and it gives you the ability to push the envelope, to stay aggressive on these emerging opportunities. It's interesting what you're saying about the SEC there, because There's another level of risk with all of this, isn't there, in terms of the financial risk? We don't know what AI is going to cost or what the cost model looks like in the future. I mean, how do you think about and manage that? So I look at some of the vendors that we have, and I understand intimately what drives the cost of that part of our business.

14:58And where it's hard to predict is the usage, which really drives the cost. You know, there's a cost per token. It's for example, that, that, that, that drives a lot of this. It's referred to as inference cost in our world. Um, we all are, are struggling with keeping our, our predictive models up to date because usage is very uncertain. Yeah. And you really want to link it to the consumption that's driving it, what people are paying for. And I think good finance organizations in this age really have to develop that skill quickly. In the old SaaS world we were in, it was a lot easier. Users drives fee and it was well established.

15:40We've been doing SaaS for what, 30 years, 25 years now. So this is a different way of running a business. The underlying drivers are far more variable than they've ever been. And you have to acknowledge that and then work quickly to institute as much structure as you can around that. And I ask people, what's your degree of certainty or how do you feel about what you're putting in front of me? And they know I'm asking because I want to get to the right outcome. So it comes back to this is what is solid, this is what isn't. And let's help with that judgment. As you say, those SaaS business models have been in place for decades and decades.

16:19Do you think that they're going to fundamentally change moving forward? Yeah, I've been reading up on a couple articles the last couple of days. It is going to change. I think that you see investment now in AI services. Anthropic came out, I think it was yesterday, with some plans around that. They realized that in order to implement these very powerful tools, there are very real process and human impact changes to implement into workflows and ultimately be effective. So I see a whole opportunity around the world is now acknowledging that you need the people to make it work, to apply it into the business world.

17:03We're a very complex organization at SAP. okay. So the complexity there makes it harder to implement. But on the other side, a smaller company or an SMB business, they don't even know what AI is. They just know, maybe I should be looking at this. So there's an opportunity for people to help bring the capability into a way people can understand, digest, and then take their own piece of value from it. And to come back to that ROI bit around this, if you could change the way that the industry talks about ROI on tech investments or AI, how would you change it? What would you do? Yeah, so it's a little bit obscured right now as part of something much bigger in a business.

17:48There are no rules around reporting it separately yet. You see on earnings calls, people speak to it kind of tangentially or anecdotally. Yeah. I think that, you know, not to get too technical, but we look at gross margin as an old standard. In the SaaS world, being over 80 % is always a, you're in the good, you're green. We're seeing gross margins in AI. Some are negative, but like 25 to 60 % is the range. Wow. And that's, yeah, that's very low relative to what we're used to. We're going to figure out that sweet spot in the middle. But I think that what I am looking at internally is different than what I'm being asked to report externally.

18:32And that's the great connection that has to be made. If you're running your business in a certain way, looking at certain things, but you're not telling the public community that level of detail, that has to be reconciled. And I'm looking to see some progress there. When was the last time that we saw a shakeup like that? Was it when the internet launched? Yeah, I think the good parallel is the internet and the payments business. So gross merchandise volume, GMB, is the dollars you take in, but then your take rate, your revenue is usually a fraction of that. So it's understanding volume versus revenue are very different things.

19:10Engagement is a much different, less regulated measure than, say, gap revenue would be. And I think one of the interesting things is when we kind of look back at these previous technology revolutions, there's always this sense of invest, invest, invest, and the rules of business have changed. And those things don't matter anymore because this is a brave new world. And it's always sort of come back to actually, oh, no, the rules of business still still apply. Do you think we're going to, I mean, AI is in a very crazy place at the moment. Do you think that it's inevitable that we will come back to the normal rules of business or is this changing everything forever?

19:47So I had a conversation with the VC on this topic recently and I actually, where I think this lands is you have the SaaS companies over here, you have the AI players over here and they both have what the other needs. Yeah. AI doesn't have the customer relationships, but they could displace the tech very easily. Over time, maybe months, but relatively easily. SaaS needs the capabilities that AI is bringing to the market. Those two worlds will come together. No one's going to walk away from a multi-billion dollar or several hundred million dollar SaaS business and give it away. Yeah, absolutely.

20:27Yeah. But they need the customers ultimately to monetize what their investment is. Yeah. Those two worlds will come together. Yeah. They will come together. It's inevitable. Yeah. And final question for you, what does good leadership look like in this AI-driven world? Being comfortable with rapid change is critical. I think that as leaders, you acknowledge that. You also are mindful to project calm, even though you may be going a million miles an hour in your head thinking through things. uh i think that's important yeah um but i also think it's also important to to practice candor and realism with your employees you know they're on the journey with you and we need each other to make all this work um so i try to balance the optimism and the excitement with the yeah i know this is hard i know this is uncomfortable yeah it's uncomfortable for me too and and i think when people see the humanization of that and they can identify that, hey, we're all in this together.

21:37That to me has always been a principle of good leadership. And now it's being done in an environment where decisions are far more expensive than maybe what they've been. Yeah. Or at least what we're used to. Tom, thank you very much for talking to me. Thank you. Pleasure. That was Tom DiDecidero on how a CFO really evaluates AI. In the next episode, we go inside the product itself. Shefali Netkay leads product design at Smart Recruiters, and she faces a genuine dilemma in designing AI products for a market where some customers want to leap ahead while most aren't ready. Her answer says a lot about where all this is heading.

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