The Strategic Finance Revolution

A few months after I became the CFO of Dropbox, in 2016, I realized we had a golden opportunity to reinvent not just our finance department but the finance function across Silicon Valley. Dropbox, still privately held, had by then achieved enormous success bringing cloud-based file sharing to market, and the road to a public offering was becoming clear. Going public, however, is an arduous journey, and my finance organization had a choice: either serve as helpful passengers on the path to an IPO, or become essential drivers of it, by re-imagining our powers and purpose.

We became drivers, by developing Strategic Finance – a data-driven discipline that leverages financial modeling to help every aspect of the business (sales, marketing, engineering, product) make better decisions and efficiently allocate resources. Doing so changed not only how Dropbox operated but also helped lay the groundwork for finance organizations everywhere to evolve from mostly traditional, compliance- and accounting-based functions into engines of companywide growth.

“Strategic Finance elevated our day-to-day operations,” said Drew Houston, Dropbox’s founder and CEO. “I watched it evolve for us, and it came to impact so much of how we operated – from pricing and hiring to how and when we went public. As we prepared for our IPO, it also framed and informed the story we were able to share with investors.”

We didn’t stop at the IPO. In Dropbox’s early days as a public company, we further developed Strategic Finance into the dynamic, game-changing growth engine that dozens – maybe hundreds – of tech companies are now building for themselves.

And it continues to develop new capabilities. As my Dropbox finance teammates and I moved into new roles, we’ve applied the power of Strategic Finance throughout the tech ecosystem. I’m now a general partner at IVP, and I see firsthand how many of the world’s leading growth companies have adapted Strategic Finance to optimize every aspect of their businesses.

Strategic Finance is now a proven approach that should be applied to companies of all sizes. But it provides special value to emergent companies intent on turning innovative technologies into market-leading products and services.

Strategic Finance is focused on optimizing a company’s underlying business model to create long-term value by increasing revenue and decreasing costs. It’s a cross-functional effort that requires diving into every aspect of a business – from sales and marketing to engineering, product development and even HR – to make better, data-driven decisions.

“Strategic Finance tries to put a dollar value on every decision that a company is considering,” said Michael Miao, one of my finance teammates at Dropbox, former Partner at IVP, who is now VP of Finance at Glean. In the current macro environment, it’s difficult to think of a higher priority for the modern CFO.

Whereas traditional finance functions revolve around reporting, “Strategic Finance is about shaping and actively guiding the company in business and product design,” said Mark Goldberg, who was a Strategic Finance lead at Dropbox and now applies the method as a partner at Index Ventures.

That’s where things can get complicated.

Digging into every other department’s operations, spending and executive decisions is a quick, collegial exercise welcomed by all – said no Strategic Finance lead ever. To the contrary, working collaboratively with teams in every major area of a fast-moving company is a symphonically complex challenge that requires ample doses of trust and communication.

“Many people perceive finance as the ‘no’ part of the organization,” said Amy Sunderman, my chief of staff at Dropbox who later became head of revenue FP&A, “a pure compliance perspective that wants to save money at all costs, without being willing to do the partnership piece.” Only after demonstrating cross-functional comprehension and empathy, she added, can the Strategic Finance team truly become ­a trusted partner in enterprise-wide planning and decision-making.

Amy now leads finance at the AI company Jasper and uses Strategic Finance to inform tactical decisions, like the optimal number of new salespeople the company should hire.

Another Dropbox alum, Brad Lightcap, who is now COO at OpenAI, the creator of ChatGPT, is using Strategic Finance to model how OpenAI should price its services.

Strategic Finance is the only way for today’s tech innovators to keep ahead of the market, Brad told me. “The laser-like focus on data means that you see things in real-time,’’ he said. With the old-style FP&A model, “if you go back 20 years, there are many things you would only learn about after the fact.”

I’m quite sure Amy and Brad will continue taking Strategic Finance into new, novel directions. But every great application in Silicon Valley has an entertaining origin story. Here’s how we put Strategic Finance into practice at Dropbox, and how I see its tactical impact changing how growth companies everywhere can and will do business.

When I joined Dropbox, in 2012, the company was a startup making a name for itself by giving customers a way to securely store and share digital assets – documents, photos, videos – seamlessly across all their devices. Things were about to go, in Wall Street parlance, exponential. Six months after I joined, Dropbox surpassed 100 million users. Today, it has more than 700 million.

My background in investment banking and venture capital informed the approach we wanted to take, based on the mission envisioned by Sujay Jaswa, the company’s first business hire and my predecessor.

Given our wildfire growth and the rapid evolution of the market that Dropbox was pioneering, we didn’t want to rely on the traditional approach to finance that focused mainly on compliance and reporting the numbers. Those were important, but to navigate a world of technological supply-and-demand that seemed to be changing daily, we knew we needed to be almost superhumanly agile.

The finance team’s approach coalesced around three basic principles:

• Impact: We wanted to create a new category — and then dominate it.
• Collaboration: We practiced Strategic Finance as a team sport, involving the entire C-suite, the product and engineering teams and all other business units.
• ROI: As “numbers people,” we constantly measured, monitored and forecast our financial performance across the enterprise to ensure that quantitative methods translated to qualitative results.

We hired for intellect, grit and drive. Most of our hires, like me, had backgrounds in investment banking. We wanted them to be high-impact business partners, understand what they were doing and why, challenge what wasn’t working and suggest what we should do differently. It was the flattest org structure I’d ever been in.

The finance team’s goal was to be indispensable to every aspect of Dropbox’s business. For executives focused on infrastructure, we would help them make the smartest possible decisions on storing and serving data. For sales execs, we’d apply a similar analysis to the acquisition and retention of customers.

For us to succeed at the 3 principles I outlined above, our hires needed the intellectual aptitude to quickly and fully grasp what was happening within every business function — to understand that unit’s expertise and communicate the finance team’s business insights. That approach was new and a significant departure from the previous way of doing things, which, for instance, basically left engineering or server reliability teams to operate independently, unencumbered by a Strategic Finance associate’s persistent questions about operating margins and cost considerations.

Dropbox’s rapid growth also created significant growing pains. Strategic Finance helped the company adapt much more quickly than it might have otherwise. I’ll give you two name-brand examples that illustrate how.

In many ways, Dropbox was a pioneer of the “freemium” model — giving new customers free storage and then upselling them to drive profits. We made licensing deals with several mobile-phone manufacturers, including Samsung, the world’s largest smartphone maker, to preload Dropbox apps on their smartphones and give each of their customers 50 gigabytes of free storage.

We envisioned a vast legion of new mobile-friendly Dropbox customers converting to paid subscribers once they hit their free storage limits. Instead, “a lot of customers didn’t even know they had the service, they weren’t converting to paid subscribers,” Mark Goldberg, my Strategic Finance lead, recalled.

The Samsung deal drove up our storage costs significantly, Mark said, “and our approach to finance allowed us to see very quickly that the ratio was broken. Our costs for storage were beginning to threaten our model.”

We had no choice but to renegotiate the Samsung deal and other partnerships to alleviate our storage crisis. “We could see this because we were looking across the entire operation and were able to make the company healthier,” said Brad Lightcap.

We’d solved a huge, fast-moving problem for Dropbox because Strategic Finance provided a mechanism to identify and solve it. But that was nothing compared to making the decision to walk away from our partnership with Amazon Web Services, our longtime storage partner and the undisputed global leader in cloud computing services.

In its early years, Dropbox outsourced our data storage to Amazon Web Services, known as AWS. We quickly became one of AWS’ biggest customers. The amount of data Dropbox was storing on AWS was impacting us financially. “It was having a significant and accelerating negative impact on our profitability,” said Pouya Fatemi, a finance team member who had been embedded in the infrastructure team and who went on to become CFO of the financial services company Plaid.

Once again, Strategic Finance helped craft an approach that offered Dropbox the solution it otherwise may have missed: building a data center of our own.

But how? Where would we get the real estate? How would we establish the supply chain, source the hardware and design the software for an enterprise-sized data center?

The negotiations with Amazon were sensitive – AWS was an important partner, one we would need if our attempt to move all our data in-house foundered. Developing financial models in collaboration with the company’s engineers, the Dropbox finance team eventually persuaded leadership that the company could efficiently and cost effectively execute the migration without, as Pouya put it, “torpedoing the relationship with the most important vendor we had.”

Our data model withstood analysis even after AWS and other cloud service providers announced significant price reductions for storage. “We found that despite the decreases it was still cheaper to do it on our own” Michael Miao recalled, “because you could fine-tune the configuration of the server and have more control over your costs of computation and energy.”

There was a strategic consideration, as well. “If you want to build a $10- or $20-billion company,” Michael said, “it was going to be difficult doing that on the back of another infrastructure provider.”

Dropbox’s data migration — to our own facility that we called Magic Pocket — came to epitomize Strategic Finance’s value proposition. “It really required an understanding of our infrastructure from the finance side, and trust and commitment from the infrastructure team,” said Pouya. “It was a big win for the company.”

In 2015, Dropbox had a negative free cash flow of nearly $65 million. Trying to IPO while burning cash is usually not going to end well. The Strategic Finance team recommended a series of changes – for example, redirecting engineering resources to focus on more lucrative corporate users – and by 2017 Dropbox was cash-flow positive by $300 million.

By 2018, we were well positioned for an IPO, and in March of that year the company sold 36 million shares at $21, above the range bankers had projected, giving $DBX a market value of $9.2 billion.

Since IPO, several members of my team have gone on to other companies, applying Strategic Finance in new and novel ways.

• At Plaid, Pouya built and managed the company’s business operations, finance, accounting and investor relations teams. During Pouya’s tenure, Plaid grew from 30 employees in 2016 to more than 1,100 by the beginning of 2023, and it grew from roughly $3 million in annualized revenue to 100 times that level.

• Another finance team alumna, Stacie Faggioli, now CFO at Swoop Search, said she emphasizes impact orientation – one of the three Strategic Finance principles I mentioned earlier – when screening job candidates.

• “I want someone who is committed to solving problems throughout the company,” she said, “something that really might have only been the domain of the CEO in the past.”

• Praveer Melwani, who went on to NerdWallet and is now the CFO at Figma, says he instilled the Strategic Finance principle of cross-functional fluency in his finance team – which has helped attract investors. “I want fantastic storytellers,” Praveer said. “If the goal is to sell your stock, you want to excite investors about the dream of where you’re going.”

• At OpenAI, COO Brad Lightcap says he’s focused on turning paradigm-shifting technology into a long-term business model, making Strategic Finance particularly crucial. “We launch this new product, and it’s never been priced before,” he said. “That’s a dynamic question with a lot of inputs. So, we need to understand this like our engineers and infrastructure teams do— but also from a broader perspective. Who are the users? What are they trying to use this for? What are we trying to incentivize?”

• Paul Jun, a former Dropbox exec, is now CFO at Pilot, which leverages AI to automate back-office accounting for corporate clients. As Pilot grew from 50 employees to 350, Paul leveraged his Strategic Finance skillset to build a dynamic, integrated view of Pilot’s business units and functions – from the customer service org to the communications team.

• While at IVP, Michael Miao explained how he applies Strategic Finance in his role as an advisor to our portfolio company founders. During the recent market correction, he said that he proselytized the Dropbox approach as a risk mitigator.

“Tough times require greater agility, so you want to model,’’ Michael said. “Do you seek market resources? Cut R&D? You use scenarios to get the board and management on the same page, and that only happens with Strategic Finance.”

• Mark Goldberg said a shared pride of ownership in what they’d built at Dropbox has kept the Strategic Finance team alums close, as if they had all served on the same SWAT team.

Given its emphasis on data modeling to analyze every part of its operations, Strategic Finance will play an increasingly central role in emerging tech companies seeking to define and lead wholly new markets – if they can find the talent. Especially now that the age of AI is upon us.

Are there enough people with the hard skills and cognitive agility to lead those kinds of rapid changes? Maybe that talent pool expands as a new generation of smart, entrepreneurially minded talent recognizes Strategic Finance as a career path.

Paul Jun, at Pilot, predicts that AI will force tech companies to fly faster or be overtaken by more efficient, effective competitors. Trying to navigate the business future without Strategic Finance, he said, would be as irresponsible as “flying a jet at Mach 3 without a GPS system.”

My former Dropbox colleagues helped create Strategic Finance as a driver of growth. It’s hard to imagine any innovative tech company now flying without it.