Building the Tool Kit: Phil Fraher

Phil Fraher knows his way around the C-Suite, having held various offices from President to CFO to COO of companies across the software and technology world. But now, continuing his 30+ year career, you won't find him behind the wheel as often as he navigates from the 'number two' position. As a consultant and advisor, Phil prefers the analytical side of entrepreneurial success. He discusses building your 'tool kit', knowing when you don't know something, and getting unique experiences that set you apart from other students and professionals. He also discusses business 'forensics' fundamentals, from how to assess your product idea in the marketplace to how to gauge the egos and attitudes in a board room for the overall health of the company.

Transcript

Narrator:

Welcome to the Harbert College of Business Podcast with your hosts, Sarah Gascon and Currie Dyess. Phil Fraher is a software executive with over 30 years of experience with energy and technology companies, including Dacart Labs, Zillian, and Brightman. He serves on the Entrepreneurship Advisory Council at the Harbert College of Business and is himself a 1988 Auburn alum.

Currie Dyess:

Phil Fraher, War Eagle, and welcome to the show. It's so great to have you.

Philip Fraher:

Hey, War Eagle. Pleasure to be here.

Currie:

You have done everything from CFO, CEO. You've worked in SAS. You are consistently in high level leadership roles. Can you just give us a 30,000 foot view of how you got from Auburn to a multi-decade career at an elite level?

Philip Fraher:

Wow. That's a great way to summarize it. I never have thought of it like that. But yeah, at Auburn, I started as a software engineer. I was one of the first computer engineering grads when that program became official. A lot of people ask, how did I get to Auburn from Connecticut where I grew up? And my dad had done some work with the poultry science school at Auburn. And he said, "You got to come down and visit the campus." And I came down and fell in love. Not many people from the northeast go south, especially back then. And Auburn was one of the few accredited computer engineering schools in the country. And so I got very lucky. So started out as software engineer and built that technical kind of reference and went to Exxon, and we can talk about that later if you'd like, but ultimately went to grad school and used that engineering kind of background of focusing on finance.

So it was a great combination of finance and software and development and structure. And so at Auburn, I always wanted to stay in software and I always wanted to, my dream was to run a company. So I knew I had to get the MBA. I think back then it was important to put yourself in position for that. And so I went through the finance track in my career, being trained by some of the best finance companies, and then ultimately did my first startup in 1999, and the rest moved its way from there. So happy to jump in on any of that you'd like.

Sarah Gascon:

You were pretty young as a founder and somebody climbing the ladder. It seems like that doesn't happen as often now in the world that we're in. What was your mindset going into after graduation and then going into your MBA of just staying on track of what you wanted to do?

Philip Fraher:

Yeah, good question. One of the things I've learned, and I think the best training ground for me was that first post MBA when I was working then a big conglomerate done in Bradstreet, where they owned so many different companies under one organization. And it was a great reading ground for finance people. So you basically had four rotations, six months each. And I was put in working for very senior level GMs or finance people at different organizations in different parts of the world. So I was in New York, Belgium, Australia, and then ultimately Boston for my four assignments. And so you really had to learn a couple things. One, how to be a consultant quick because you were only at six months to do something and they were usually very high profile projects. And so you had to learn not only how to get up to speed on their business, but also how to deal with people.

And so you were coming in in those roles as kind of like you had kind of a scarlet letter on like, okay, here's this hotshot MBA coming in from corporate. He or she's going to walk in thinking they have a huge ego on them. And I saw some of my contemporaries falling out of trap, but I tried to stick to my knitting, being grounded at Auburn and then the Simon School or I went to NBA and just focus on helping the team there, making them successful so that when I left, they'd be in a better position and leave the ego at the door. And that's one lesson I've learned my whole time. The second is build your toolkit of skills. So I always knew what I didn't know yet, and I made sure that I tried to continue to get breadth. And you see that in my career where I went from being a finance person to running operations, to doing sales and marketing, and then ultimately being a CEO, which is continuing to go wide on my skillset versus staying just completely narrow and just being a finance person my whole career.

So those are a couple things that I would say.

Currie:

We've talked to a lot of young folks and they dream of having careers like you've had. And was there a point in your career where you realized, I'm going to be the CEO and I'm going to do this the rest of my life. I'm going to be in the C-suite. I'm going to be running the show. The buck's going to stop with me. And not only was there a point, but what were some of the signals that told you this is what's going to happen?

Philip Fraher:

Yeah, I think that first startup is where I tasted the CEO role. I came in as CFO, I quickly got promoted to COO. This was a company that was doing the first generation email spam protection, and we had some of the who's who of angel investors because at that time email protection was critical and there was a groundswell of trying to protect your kids from getting emails with pornography or other things in there. So a lot of people tried to back us, which was really important. So it was a very high profile role or company at that time in the dotcom kind of fun and games, but we were one of the survivors. But when I came in as interim CEO there, it was really interesting. Our founder very typically moved into the chairman seat, and so they asked me to become the CEO for a while, and I loved it.

It was getting up in front of a board and helping drive direction and really got you excited. Now there's a lot of fear with that too, like, oh boy, you're now on stage. But then I went back to my normal role, but then my next company move was ultimately for a CEO job. So to your point, I started getting really excited by that. So I've been CEO a number of times, but what's interesting now is I look at other things I'm trying to do as I love being a number two because I've learned so much at the top. I don't necessarily want all that stress now at my age, but I'm a really good mentor and I have been mentoring founders and CEOs like Sarah for 20 years now. So even at the more professional level, I just love that role. I love to be the person that's working with the CEO, helping to groom them, being their number one person to call in a crisis and help to troubleshoot.

So once I tasted CEO, I had that Brightmail, the rest was history as far as this is pretty cool, but it can turn on you as you know, but so far it has all been good.

Sarah:

Yeah. You talked about working with some of the students here at Auburn and you've worked with TigerCage winners or competitors. You've been a judge before as well. The students that have the startups here at Auburn, is there any difference between them and their startups in what you see in starts from other companies? Are there very similar challenges that they all face?

Philip Fraher:

I think at the end of the day, like any business, it all comes down to fundamentals of do you have something that's tangible, a product, an idea that has a market? Are you building something to create a market or is there a market that just haven't your product or idea yet? And then from there, it's are the students or the founders having a methodical approach to trying to bring on the right people, come up with a good business plan, really understand the current market and what might be out there already in terms of competitor threats, and obviously money. Can they get access to money? And I know at Auburn, that was a big thing that we were trying to do is bring in more angel investors and things because without the capital, you might have the best idea on the planet, but you're not going to get anywhere.

So the problems are generally universal wide for every startup. Is there an idea? Is there a market? And can you get the capital and people, don't forget the people to get the best shot that something's going to move and take off. So it's universal. No difference regionally or different universities. I mean, Swiftski was one of my mentees at Auburn when same time I was with you, Sarah, and they won the Rice Business Case Competition against established cross-country competitors. So that was a very big pride moment for me and for Auburn. And so it just shows that, hey, everyone has an equal playing field. It's just you need access to capital people and ideas.

Currie:

And you've worked with a lot of founders. You talked about how much you enjoy mentoring. Do you ever meet somebody and you're like, "This person's only a founder or this person's only a CEO." Is there a personality shift there or do you have to make those people or are they born?

Philip Fraher:

I think on the founder side, there's something about a founder. I wouldn't consider myself a founder, but I'm a great person to help a founder. And I think there is a spark, a little different DNA. One of the interesting things in my career is I've replaced a number of founders, not by design, but I came in usually by the private equity or venture capital firm to help a founder who had brought the product to a certain stage, maybe got it to some revenue, started to build the team, but then that scale thing is where they struggled to really start to get emotion going and make sure that you're trying to march toward profitability, but you're scaling at a certain speed. And I've came in a couple times and where I was brought in to help be that number two and mentor the founder. Sometimes that worked out great.

Sometimes it was too late. The private equity firm already had in their mind that he or she had to be maybe go to a chair role or a CTO role. And so I've seen that a lot in my career just based on my circumstances of where I've ended up. But yes, I would say founders have a ... I don't have that DNA sell. I have to grow the company, sell, but I often sit back and say, okay, what could I invent? And I hit a wall. Maybe I don't give myself enough credit yet, or don't take the time to really think about it. But there's people like Sarah, I know your background, but that have that idea and really go for it. I just love to come in and support it. So there is a DNA difference, I think.

Currie:

Yeah. And as a follow-up, how often do you see founders white knuckle the idea and strangle the company, and then now you got to have a Phil come in and fix everything?

Philip Fraher:

Very common because a lot of times the founder, and this is the case where I was referencing where I came in via the board, the founder doesn't want to give up control. And so there's a couple different ... Well, the main founder's the one that's got the idea, did some friends and family funding, maybe some angel money, maybe they've gone as far as a Series A financing, but they still have the majority maybe on the cap table. But you can tell the private equity firm and they're like, okay, this guy's not getting us. He got us from zero to one, but he's not going to take us from one to 20. And there's usually that battle. And there was one startup in Houston that I was a part of that was exactly what you're talking about or referencing where the founder really just had the ego, great idea guy, like we talked about, but also had a huge ego, didn't want to give up control, but he didn't know how to scale.

He really knew nothing about sales. There was just all these other elements of his background that were missing. And he and the board, we'd have board meetings and the tension you could cut with a knife in the boardroom. It was just so unhealthy for everybody. And then he started having turnover because people were like, "Hey, we're not going anywhere. We're not growing." You got a big ego. And eventually he had to go out and they sold the company. And the product had a shot in the market. It was a tough one. It was a very narrow application in a particular industry, and so it needed all the love and caretaking to really have a potential opportunity to grow. But eventually, we'd burn the bridges and the board decided just to sell the company. But yeah, probably that was the ugliest chapter watching that whole thing unfold.

And not to say the venture capital firm was 100% perfect. They had their own challenges. Their general partner had a huge ego. And so you can just imagine these two clashing. It's like, what are we doing? We're burning ideas and cash and this is not good.

Sarah:

Yeah. So when you assess businesses, are you looking at it from more of a financial view or financial lens because that's more of your background?

Philip Fraher:

A little bit. Again, at this stage, that was probably early days, but now I look at it. What I look at, especially if I may be investing in a company, is do I really understand how this goes from zero to a trillion dollars? Do I see the market for this tool or product in my own? If I don't understand it, then I stay away or I coach the best I can to learn more and more about, okay, oh, now I see what you guys are trying to do. The financial part comes in a little later for me. It's more, I want to just hear the idea and see if I get it, and do I believe in it? And then the financial part is a tool then to see, okay, how do you use finance and the capital and the potential expenses to develop the product?

That all comes secondary to me. I don't start with it.

Sarah:

And just as a follow-up, what financial signals tell you it's safe to push growth with higher burn versus a little bit more discipline rather than pushing for speed and pullback and be a little bit more disciplined in that decision for business?

Philip Fraher:

Yeah, that's a really good question and it's a multidimensional answer, I think. So one is a common reference is the rule of 40, if you're familiar with that, where companies are measured on operating income and growth. So the idea is, because the common questions, when does a startup, when should they start going to profitability? Well, they should start going to profitability when their growth rate starts to slow down. But in those early days where you're doing 50, 60, 70% growth, let's say it's 50%, it's okay to have negative EBITDA, 10%, so 50 minus 10 equals 40. So that's that magic number. But if you're only growing at 20%, then you probably start need to get closer to profitability and maybe have 20% profit margins, so 20 plus 20 equals 40. So it's an interesting measurement, but it's a legit. So the other part is have you really gotten to the market yet?

So back to growing, are you still in acceleration mode? Did you get to the point where you are now just one salesperson? Very common. That first salesperson may be growing the company at 50, 60%, but why haven't you hired the second and third? Have you started really doing marketing? Have you come up with a partner program? So all these things need to be assessed and to determine, but also what's the competition doing? So if they're pushing the button down, you probably should be too, depending on how much capital you have in the bank because you don't want, if it's first mover advantage and they get a foothold, then that could really weaken you. So that's when you need to decide, okay, let's go get some more growth capital and go for it. The problem sometimes is companies raise private equity money too early. I've seen this before because their mindset is profitability.

Venture growth is where maybe the company should stay for a while, keep putting money in. It's okay to lose money, but we're growing at a fast rate. So it really depends on where the company is maturity cycle wise and where they are vis-a-vis the market and competition is probably where you should start with that question, if that makes sense.

Currie:

Sarah and I have talked very extensively about doing our own businesses. I know a lot of the listeners, that's their goal. I've heard several entrepreneurs talk about, our high level business people talk about the future of the economy is just everybody being an entrepreneur, solopreneur, whatever it is. Is it possible to create a company in which maybe you would come in as the CFO by just bootstrapping it, or do you have to go raise capital?

Philip Fraher:

Bootstrapping is clearly ... It's all about what's the mindset of the founder? Are they trying to maintain as much ownership as possible and not dilute their ownership? That's a good strategy if you have access to bootstrap capital, whether it's yourself or friends and family, and try to subside as much as you can with that funding. And some entrepreneurs can go super far just by doing that, but they've got to have a product that can quickly go viral in that kind of mode. If it's a lot of manufacturing or building, that may be very hard unless, again, you have good access to friends and family capital to really push it. So today I'm hearing like you're asking a lot of startups trying to go as far as they can on their own capital.

Then there's the whole concept of debt. So that's often another startup dilemma is do we take debt on? That has to do a lot with what structures out there for them and what the interest rates are, or do we bring in venture capital? And don't forget, a good venture capital firm, if you get the right one, can bring a lot of skills and support beyond just the cash. So a lot of times when I mentor founders and they talk, "Oh, we need to go raise money." A lot of it has to do, look, cash is cash, but what else do the VCs truly offer? And you can't just, because they always, when they do their pitch to you like, oh, we're so founder-friendly and we have all these support services. That's great. Everyone says basically the same thing, but you need to maybe dig in and do reference checking, talk to some of the founders of their portfolio companies and truly get on the phone with them as a reference call and truly, okay, what have they really done for you besides the cash?

So ideally you go as far as you can. There's tables out there to show your dilution as you grow into different rounds of financing. But if you're over constraining yourself, you could be missing out. So again, it's back to your other question of, okay, when do you put the pedal down or not? That also besides sales also is reference to the capital raise because you might be in a very tough market where you need to raise money and move faster, but you're being a little greedy, just trying to hold on too long and it could hurt you. So that's what mentoring helps do at the end of the day are these questions you're asking and every circumstance different.

Sarah:

So with your product to service, when you experience growth slowing down, what are the first two or three operational layers you analyze before making strategic changes? And is that different as a consultant versus somebody who's an executive? Do you view it the same way in either role?

Philip Fraher:

Well, first, you've got to do a forensics on why our sales slowing. Is it the team? Is it the fact that it's a marketing issue? You're not getting to the market. Have you constrained yourself? Are you really doing well in the partnership world and reseller channel? What are your channels and why are they struggling? Is it your product market fit has changed? Are competitors starting to take advantage of you and replace you? And so operationally, one of the big metrics for especially SaaS companies is your churn. Are you churning clients? What's your retention rate? And so if you're retaining well, but you're just not getting new sales in the door, that's one thing. But if you're churning, let's say to competitors or they're just starting to, "Hey, I'll just do it myself if your product isn't super valuable in that potential customer," that's a whole different thing.

So I love the scenario where churn is low, but maybe we're not getting to the markets and now we got to retool. Do we have the right people, the right geography? Is our pricing correct? So you just do this forensic through the product line and work through it and then ultimately decide where to go. So again, forensics is critical. Taking a break, maybe bring a consultant in, maybe not. Sometimes you can solve it yourself and dig in. So yeah, that's a tough point, but I much prefer non-churn because then at least it shows that your product is working for your clients and going and getting new ones is much easier.

Currie:

Phil, Sarah and I love talking about leadership. We love studying it and of course talking to the guests about it. And as somebody who's had a prolific career in leadership roles, what's one of the hardest leadership decisions that you've had to make and what did that teach you about accountability at the top?

Philip Fraher:

Yeah, one example where I really learned, this was my, I mentioned earlier when I had the interim role and then I took my next assignment was ultimately for a company that had been around a long time and I was then appointed CEO and it was a company stuck. They had basically layoffs every year. The prior leadership was just not totally focused on the business. It's kind of a complicated story in terms of what I walked into global company and it really needed shakeup. There were stars and this company had just fallen asleep because there was just malaise. There was no to your point about accountability, there was none. They just went about their merry way. And so part of what I had to come up with, and I did this one time on a flight, I literally built on an international trip, the entire flight I built a remake plan, and I got the buy-in from the rest of the executives, and then we went into action.

And it was very tough because we let some really good people go, but we had to. We had to refresh the business. And in fact, in some of those cases, those people went on and did new things and had good careers. But for us, we had to bring in fresh thinking and fresh life, but it was a big deal because of these people have been here a long time. I mean, the average tenure of this company, we're 20 to 25 years, and for a tech company, that's huge.

But my job was to get the company turned around and growing again and ultimately get it packaged up for sale, which we were successful doing. But to your question, that was really tough. And especially being my first real CEO job where it was just me on interim, you're often questioning yourself, am I making the right call? But you just got to, what I've learned is go with your gut. And if you believe in it and then you get the buy-in from the other executives, then you move on it and don't look back. Never second guess.

Sarah:

Were there any mistakes that you made early on in your career or maybe even later in your career that you wish you could take back?

Philip Fraher:

There's none that come to mind. I think as a general challenge that I've had sometimes is trusting the wrong people, whether that's outside folks in terms of maybe partnerships or whatever or internal leadership and maybe going a little too far with some people that I knew were not remediatable. No matter what mentoring or leadership I put on, I should have made a call sooner because the worst thing is when you leave somebody in power that might have a team and their team starts to leave, then you've lost their good people because you left that person in charge. The other lesson now that I'm thinking more about it is I have a new rule of thumb, and that is if there's somebody ... What you don't want ever is somebody quitting, and then you counter them with, let's say, a higher salary to stay. The idea should be you don't let that happen, meaning you pay them now

So that they're happy. And if you really trust somebody and you think you're great, take care of them now before they quit. The worst thing is trying to fight to save somebody, and you should have just taken care of them in the first place and made them feel good. So that's one thing. And then the other thing is just making sure hiring is a priority. I often see companies, and I've made this mistake too, where I just needed somebody and I hired them too quickly because they were a warm body in that concept and then the resume looked good, but I didn't dig deep enough to see, okay, personality traits, are they going to mesh with the company? I just needed to fill a role, and then all of a sudden they're churning six months later and you're back at it again. So when I've led recently and longer part of my career is I mandate hiring be number one.

You get an open person under your team, you better go hire them and hire them very rigorously. If you don't and it's not a high priority, then you don't need them in the first place. And I take the role back and take the old headcount and give it to somebody else. So it's probably the other big thing that people are not paying close enough attention to is how to hire. They just make it quick, look at resume, and especially in the age of AI right now where people can really goose up their resumes and LinkedIn profiles, you got to really dig deeper and make sure you're getting the right people.

Sarah:

Yeah. Some of the challenges from what we hear from students as well is even entry level positions now are saying you need five years experience in a certain role, so they almost feel like it's impossible to even get an entry level position now. What would you say to them?

Philip Fraher:

Yeah, so one of the things I did when I was at grad school is between your first and second year, you do an internship. And back in 91 or 92 actually that summer, jobs were tough. It was a tough job market. I ended up doing a free internship and actually I went to London and I worked in the Lloyd's of London insurance market, and it was a very interesting time for that market. It's a separate discussion, but they paid me a stipend to cover some expenses, but I couldn't be paid legally. But I got over there on my own and did the brute force, but boy, that really paid off because when I was interviewing for full-time jobs, market was a little better, but I had some unique experience that no one else had.

And so my interviewing was so much more fun and interesting than a lot of people that just did the rote typical internship. So for people that have that five-year issue, you just got to brute force your way in somehow to say, look, I'll come in and intern. I'll come in and let me demonstrate my skill. Maybe you don't get paid for a bit. So in a market like that, you got to get creative and just again, put your pay ego at the door and just get in. Because once you're in and you prove yourself, then you're off to the races. But it is tough that it's like, wait, I'm coming out of college, there's no way I've worked five years. But to that point, when you're in college, I co-oped at Auburn. So I work for IBM for two semesters. And so again, building that toolkit I mentioned earlier, make sure you're getting those type of jobs because that gives you as much of a leg up as possible. It's not five years experience, but at least it's something.

Currie:

Is there a tool in the toolkit that you feel like has really helped you become a well-rounded business person that these students may or may not get that in the classroom?

Philip Fraher:

That's a good question. It's obviously experience helps. I When I went to grad school, like you were saying earlier, they wanted a couple years of work experience was common. And we had students coming in that were kind of on this fast track undergrad right to grad school pace. And you always saw those folks struggling in class because they had no work experience. So experience is at the end of the day where you really learn. The classroom, there's certain courses where you'll use it. Once you get out, like accounting and things like that, I always look to wear if you're a software developer, you're programming. But at the end of the day, everything is decision-making. That's what I learned at grad school was what Auburn's engineering program helped me was making decisions quickly with the information you have at the time. And that's carried me through my entire career, was just you can't wait till you have perfect information.

And being a CEO, you take what you got and you then assess it, frame it and go. And that's one of the biggest toolkit things I've learned is how to decide, make decisions. You're not always perfect, but at least you have a framework. And it's just putting it all together and then reviewing it, thinking of outcomes, simulating it a little bit in terms of different options that might go down and then making it and making it quick.

Sarah:

Phil, as we wrap up, you've given us a lot of advice. Do you have any advice specific for our listeners? 

Philip Fraher:

Especially if the listener group is very startup focused and business focused, frame your ideas, be passionate around what you're trying to accomplish. If you feel it has a chance, go for it, but get the assistance. Use the available resources, especially at Auburn, like the NBA, your professors. Get as much input for either validating your idea or not. And especially for founders, validating an idea to the negative is almost as important as validating it to the positive. And if it's negative, go think of something else to do. But then you haven't wasted resources and time. But the biggest thing is leverage those resources and mentors. Yeah,

Currie:

Great advice. Phil, it has been really an unbelievable pleasure. And I know this could be a two or three-hour show. We missed a lot of things in your just an encyclopedia of knowledge. Is there any way that our listeners could keep up with your journey, follow along, see what's happening, and maybe even reach out to you if they have more questions?

Philip Fraher:

Absolutely. I love helping. So anyone can reach out. My LinkedIn profile you guys have, email address, anytime. I would love to help out.

Currie:

Okay. Now real quick, is that email address on your LinkedIn profile?

Philip Fraher:

Yes.

Currie:

Okay, perfect. Just got to make sure.

Philip Fraher:

No, I know. No, I put mine out there.

Sarah:

It's been a pleasure working with you today and chatting with you, and we are so happy to have you. Thank you so much. War Eagle.

Philip Fraher:

Thank you for War Eagle to you. Take care.

Narrator:

Harbert, Inspiring Business.