00:37:53 · CJ Gustafson, Paul Todgham
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00:39:17 · Paul Todgham, CJ Gustafson
[00:39:17] S0: Yeah. Absolutely. It isn't about I have to spend less in dollars on sales next year. [00:39:21] S1: Yeah. The absolute can go up. Right? You can spend more dollars. Right? I've been [00:39:24] S0: at very low growth companies. I've been at companies that have shrank and had to obviously still, you know, do something to manage profitability while you're doing it. I'm thankfully doing it in the context of a a business that's growing, you know, pretty healthy, kinda, you know, low double digits. And so I think we have good choices. But our costs are growing, but our costs as percent of revenue are are coming down. [00:39:39] S1: What do you ask for in a business case when someone comes to you, Paul, and they say, Paul, I I need to spend more on AI?
00:39:45 · Paul Todgham
[00:39:45] S0: I've approached AI with... Especially this year, you know, with a bias towards enablement and experimentation. So we did green light a bunch of stuff without a business case. And I wanted to make sure, as a company, that, you know, we could fund a certain amount of incremental cost this year, which we solved. And I wanted to make sure that we had sufficient guardrails that, you know, we weren't gonna have the $500,000,000 month, you know, that makes the Wall Street Journal, $500,000 month would would would make my, you know, my my my board's attention or my TE sponsor's attention. So making sure we had the guardrail to kinda keep that from from happening. I actually didn't start with, before we spend money on AI, I need a business case. It's, this is revolutionary technology. We're going to learn a ton by doing. The cost of experimentation is really low. You often find out relatively quickly whether those are there or there. So let's let people do that instead of get kinda hung up in bureaucracy, provided, okay. The total amount we're gonna spend is comfortable. I've sort of solved that elsewhere and provided, again, no no one person has the ability to go totally rogue, which we've, you know, largely solved with how our plans are designed and, you know, tracking and optimizing token usage. That's kind of my first piece is like, don't necessarily jump straight to a business case if, you know, the time it takes to get that through review is better spent just on pushing that initial idea into proof of concept and showing, you know, what's what's what's there. That's kind of the cool part of AI that I love. I've never been a builder before, but I love seeing... You know, if I spend an hour here, am I meaningfully optimize, you know, an activity or improve the quality of something I I do every every month or every quarter? Now that we're getting to maturity, are thinking about a little more as a traditional business case. Right? Just what's the cost? What's the return? Do we have good cross functional alignment that this return is gonna be, you know, is gonna be realized? Just recognizing you can get further in proof of concept than with a lot of other potential investments.
00:41:21 · CJ Gustafson, Paul Todgham
[00:41:21] S1: I think it's a a good segue to to talk about a framework that I'm I'm pumped to hear about. A, because it would sound amazing on a bumper sticker, but b, because I think there's a lot of merit here. So you have this framework called surges in savings. I'm hoping you can take us through it. [00:41:36] S0: We just had our twenty seven annual plan kickoff meeting this morning, so it's it's fresh in my mind. I was just talking about this with, you know, 30 of the top company leaders. This is not revolutionary, but I can I can thank an old FPNA lead of mine at Cognex for helping brand a fairly common finance exercise? But branding it as surges and savings, you ask everybody to deliver a budget on Target. While they're doing that, they're generating two lists for you. They're generating a list of surges, which is, you know, if I could spend 5% more than Target, here are the top priority things I would invest in, and what we think we would get from that effort. Rank from highest priority to lowest priority. And then savings, if I had to cut 5%, up to 5% more cost, here are the least painful cuts I could make or would make, and here are the risks and consequences of that. So that's kind of the core framework, and I'm happy to talk more more about that. [00:42:22] S1: Is the savings list a trick question?
00:42:22 · CJ Gustafson, Paul Todgham
[00:42:22] S1: Is the savings list a trick question? [00:42:24] S0: There's several reasons why I do this exercise. I'll start with the last piece is that I think it builds leadership skill and collective trust over time. You're asked if it's a trick question is usually the first question I get from folks who've kind of been burned by finance before. Right? Like the people who surface the best ideas are the ones who get their budgets cut the hardest. This is a repeated game with a repeated leadership team and folks. So to me, it's really important that I'm honest about it. If we have our budget submitted on target, it's gonna work. And, you know, it helps that I'm working at a a growth technology company where I'd rather have us grow faster than eke that last 100 basis points of EBITDA. So it's not a trick, but I understand why lots of folks, you know, think it might be. [00:43:03] S1: Have you ever looked at what someone offered to cut and thought, wait, if if it's so easy to cut, why are we spending it in the first place?
00:43:03 · CJ Gustafson, Paul Todgham
[00:43:03] S1: Have you ever looked at what someone offered to cut and thought, wait, if if it's so easy to cut, why are we spending it in the first place? [00:43:09] S0: It does pressure test the thoughtfulness of decision makers' trade offs. Right? Like, as a CEO or as a CFO, it's hard to to scrutinize whatever your cost base is. You know, for us, call it a $100,000,000 or a $150,000,000 at any given detail. But understanding maybe that marginal $10,000,000 of choice, which is maybe sort the degree of freedom you might have in a given year and stuff, is really, really helpful. This also does allow you to test two things. One, just your skill of your team and doing these work. So if someone surfaces the really, gosh, that was a dumb idea, it's like, that's valuable, maybe they need a little more education, or maybe they're not the right person in the seat. As well as sort of, we do our best in FP and A to come up with targets for everybody, but we're not going to get it right. And you can tell by how hard or easy certain trade offs might have been made across functions that maybe actually we do need to reallocate in the company. We'd be better off if we, you know, spend a little less on our finance function and spend a little more, let's say, on our our product function. [00:44:02] S1: What makes a good surge? What characteristics do you look for?