Okta CFO: Pandemic forcing cloud adoption

At a time when many corporates have seen their value crumble, San Francisco-based identity and access management firm Okta’s share price has almost doubled since the start of the pandemic to give it a market cap of around $25bn by mid-September, reflecting a growing reliance on cloud technology.

“Companies by design are allowing their employees to access technology applications that are outside the firewall, that are not owned by the company,” says Bill Losch, the company’s CFO.

“Coronavirus has accelerated a trend for employees to use their own devices. So there’s a huge adoption of the cloud happening, both for companies for their workforce but also more and more companies are wanting to get their customers digitally on to it. We think this is a megatrend that is accelerating,” says Losch.

Okta was launched by former Salesforce executives Todd McKinnon and Frederic Kerrest in 2009 on a hunch that more and more enterprises would gravitate to the cloud. “They felt more organisations would move to the cloud because it’s more efficient, that it would make their workforce more productive,” says Losch.

But they also recognised, says the CFO, that moving to the cloud created growing challenges because there were increasing security concerns due to a lack of control over the identity of individuals clocking in.

Okta’s cloud software helps companies manage and secure user authentication into modern application, and for developers to build identity controls into applications, website web services and devices.

The firm now sells Workforce and customer identity products, including a single sign-on solution that allows users to log into a variety of systems such as Gmail, Workday and Salesforce, with one login.

“When I started, we were predominantly selling to medium-sized businesses that tended to be younger, because they were more inclined to go to the cloud first, and a lot of technology companies.

“But, as the world has progressed over the past seven years, what’s happened is a more diverse range of companies have adopted the cloud, both for their workforce and to deal with their customers digitally,” he says.

Such has been the demand that up to 145 million people logged on one day during the pandemic, says Losch. As a result, annual revenues have increased from less than $20m when he started at Okta to a forecast of $800m for this year. In its last annual results Okta delivered gross profit up 49 percent from the previous year to $426.6m on revenue that increased over the period 47 percent to $586m.

Tech- focused

Losch came to Okta after building a career at high-profile corporates in the tech and entertainment sectors. Having studied economics at University of California, Los Angeles (UCLA), and starting out at KPMG he moved to the theme park division of Universal Studios and joined his then CFO in moving to web hosting service GeoCities, which was acquired by tech giant Yahoo!

There he undertook roles such as controller, before becoming vice president of finance and chief accounting officer. He also got a chance to float the European business when he was European finance director. “There I learned a lot about international and how to float a business, but I also honed my skills on the financial planning and forecasting side,” he adds.

Another skill he says he developed was hiring quality people, and developing and training them. “Like most finance people, there was a tendency on my part to think I had to do a lot of stuff myself, but I realised that that’s not a scalable way to build an organisation.

“So I really learned that you have got to find the right people, that are smarter than you are, as much as you can, because as you develop them it makes the whole organisation stronger,” he says.

Working at Yahoo! also gave Losch the chance to learn a lot from a technical standpoint “because some of the rules around how revenue was structured that came out of the Financial Accounting Standards Board (FASB) evolved from things we were doing,” he says.

His next role – at DreamWorks Animation, a spin-off from the film giant part of Comcast-owned NBCUniversal, focused on new technologies for creating feature films and TV productions.

In the role, Losch says he developed a passion for tech that he took to his first CFO role at MobiTV, a technology platform provider of multiscreen video delivery services, in what he acknowledges was a “big step up.”

In that role he came to understand the importance of supporting the CEO by presenting information “with real analytical rigour in order to ensure deciosn are made in a very productuve way to deliver teh right levels of retuen on investment.”

 Supporting growth

On arrival at Okta, then a privately-owned entity, Losch set about finessing the finance function to best support the growth of the business, whilst adding the functions of investor relations and workplace services.

Losch also plays an instrumental role in managing the firm’s continued growth and expansion into new markets. He says that after the push to winning large corporate clients, there’s “strategic choices you have to make about global expansion- how quickly do we expand outside the US?”

In 2015 Okta raised $75m from venture capitalists Andreessen Horowitz, Greylock Partners and Sequoia Capital, for an initial valuation of $1.2bn, having raised $150m from earlier funding rounds.

When it came to capturing the data essential for the group’s IPO in 2017, Losch says it required a high level of discipline to ensure that there was ‘one voice of data’. “We tried to define what we thought were the key metrics that we wanted to disclose to Wall Street. I feel like as much as you can, you really want the metrics to tie into how you’re actually managing the business,” says Losch.

Having undertaken an IPO previously proved a hugely valuable experience, says Losch. “There’s always pressure to get things done quickly, but that process went reasonably well because I had a good relationship already with the bankers that we decided to use and I had already spent a lot of time getting to know the sell side analysts that were going to cover us,” he says.

Losch had also spent considerable time building a compelling story for investors, as it was initially not as well known in the market. He says the other issue was timing. “There was a question of when do you go, what’s the right time.

“We ended up sticking pretty close to our original agenda but wanted to make sure we did it in the right timeframe as you never know what’s going to happen. It was right after Trump had won the election, so there was a bit of uncertainty as to how the market world was going to react to that,” he says.

“A lot of companies kind of think the IPO as an end, whereas the IPO is really the beginning of being a public company. You really have to be prepared for being a public company. You need to practice as we did, for those first few earnings calls,” adds Losch.

Post-IPO and with a business model clearly set, based on the proposition of how companies are having to look at new ways of working in a changing environment, Losch says even in a post-Coronavirus environment the demand for Okta’s services is unlikely to slow down.

“We think that this trend of companies wanting to have a more decentralised workforce where people will have more flexibility to work remotely is going to continue,” says Losch.

Okta devised its Dynamic Work initiative for its 2,480 employees to work flexibly and remotely a year ago. “We did this because we realised that there’s a lot of talent out there that has the ability to work effectively, but not in an office. If you can go to where the talent is, not necessarily in Silicon Valley or in London, you won’t be limiting yourselves. It put us in a good position to react to the outbreak of the coronavirus,” he says.

Losch believes CFOs should always be focused not just on the present, but on how disruptive forces and other changes are likely to affect their organisations. “When a major disruption causes significant change in a lot of the ways work is done, you have to be thinking clearly about how that macroeconomic impact is going to impact your company and customers.

“Even from a finance perspective you have to appreciate you’re working in a different environment and people are dealing with different pressures. For example, there’s this psychological pressure of not getting the job done. You’ve got to be watchful for things that you maybe didn’t expect to happen,” he adds.

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