#271 How to Scale Without Burning Cash with Manu Diwakar, Chief Financial Officer, Virta Health

[Music] Gross UFO is where finance leaders grow together. Join thousands of like-minded professionals using Gross UFO to access the combined knowledge and experience of the finance leader community. You can join us today at Gross UFO. Well net, hello and welcome to the Gross UFO show. I'm your host Kevin Appleby and today I've got an experienced CFO with me, Manu Duacca, who is CFO of Verta Health. Manu has got a really impressive record of being CFOs in very fast growing organizations and growing them and scaling them to really major step changes. So I think it's going to be interesting to talk about Manu's career Verta Health and the future of digital health care and all those challenges of a fast scaling business. So Manu, welcome to the Gross UFO show. Thank you Kevin. I really, really appreciate you having me here and I'm excited to share my story. So Manu, you've gone from gaming at Riot to the creator economy at Victorias to Agtech and now to digital health. What's the thread that connects all of this together? Yeah, I'd say more than industry, it is the type of role and the type of company that has been always exciting to me. I think if you go back before business school, I actually spent a lot of time doing work in consumer and retail and the first years of experience I had was actually doing post merger integrations for a low tech medical supplies company as well as a firm leisure business. So I've been all over the place and all kinds of things. But I think the through line for being a CFO is more around the sort of companies you can work at where you were required to be the kind of CFO who's going to help build and grow a business. When you come to be a CFO or a financial leader for very mature companies, the name of the game is often optimization and finding pennies in the couch and just thinking through kind of everything and making sure you can find 1% hero, 2% there. When you're in these growth businesses that are venture backed, you have to actively think about how to build your team and help build a company at the same time. And that's the through line. The second through line, which I have not always hit but I've tried to it is I've tried to be a place where I'm proud building what I'm building. It either matters to me personally or I believe that if we're successful, it could matter to the world. You can spend your time in a lot of different ways in business to try to make money. It's important to me that I can do something where when I've retired and when I'm out to pasture, I can point to something and say, hey, I helped build this and it made the world a better place. So I'm picking from that that you need to be passionate about it that you must be a gamer who is really passionate about health care. I am 100% gamer. I am also passionate about health care. Turns out I am into and interested in many, many things and so for good or bad, that's me. But look at those two companies, Riots and Verta, they look very different from the outside. They do, yes. What would surprise you about the things that were common once you got inside of both? I think the biggest thing that is common about both companies, which is not as obvious from the outside, is every employee, every leader and even the founders are deeply passionate about what we're trying to accomplish. At Riot, almost everybody who worked there, especially who worked there when I was hired and as we were building the company, was a core video game player. It was their favorite hobby and League of Legends, which is the game that we were making at the time. There's not more than one game. League of Legends was a passion project for folks and so whenever we made business decisions or product decisions, we always made it for ourselves and thought a lot about if we were players, how would we want to be treated, what kinds of things could the company do to make our experience better or more fun? And that deep core DNA was there at the company and so what that meant was that we lived and breathed our customers and we lived and breathed our product. Healthcare can be a little bit trickier that way but in many ways, vertus orientation is pretty similar. We reverse metabolic disease. I think there's a McKinsey study that's been published very recently that suggests that I think the number is over 80 or 90% of people suffer some form of symptom due to metabolic disease and so it's a fairly common thing that a lot of Americans especially share. At our company, we're deeply passionate about delivering the care that these people need to help them be better. I myself, I probably weigh about 185 pounds now but when I started working in vert, I weighed close to 235 pounds, I've been obese most of my life and so this is a healthcare problem that hits for me deeply and so when I work in vert and I think about the care we provide and our patients and their stories, it's something I connect to deeply. Our founder, who at one point in his life was a championship triathlete, actually had prediabetes despite being in peak physical fitness and this story is shared amongst again many of the people who work at vert and health and I think what that does to the culture is it just makes it something where people are in it for more than the business so it's more than the job. They're actually trying to get something done. Brilliant. So tell me a little bit more. The sort of diseases that would treat. Yeah, so metabolic disease which has been relatively understudied and the causes I think are well understood but not broadly in medical practice he had. I think the easiest way to describe it is that your body has really three different sources of mapperonutrients. It can metabolize in order to get energy. Carbohydrates, fat and protein. Over the course of human history, if you think about the way your biology moves and the way that human society has changed, those are moving at two different places. What has happened is due to efficiency, we have biased more of our diets towards carbohydrates these days than fat or protein compared to hunter-gatherer ancestors if you will. It's okay but people's underlying biology responds differently to this and for many people a diet that is heavy in carbohydrates can create carbohydrate intolerance and it can create a lot of problems with insulin spike gain. When this happens it creates a whole host of health symptoms that are the symptoms of the root cause of metabolic disease. So type 2 diabetes, being overweight, being obese, having heart problems, having high blood pressure, kidney disease and liver disease, or some of the areas that are well researched and well understood to be symptoms of a root cause of metabolic dysfunction. So rather than think about all of these things as different diseases, we think they're really branches of the same tree. That tree is a broken metabolism and the cure is not procedures, it's not doctor visits, it's not medications. The cure is going to the root cause and helping people figure out how to adjust their own diet and their own nutrition in order to meet where their body is because again everybody's body is different. I use myself as an example. I ate the same thing as all my friends growing up, generally had the same level of physical activity. Yet I seem to be more overweight than all of them. And I think that just goes to the fact that my biology is different. Yeah, got you. Got you. And I've listened to that list of potential symptoms that you just gave. And I was ticking the box of half of them for myself. And I think like you, I've always been on the overweight side for as long as I can remember. And this is a very, very real problem. So what's the product that the vertor is selling? So what we sell is we partner with health plans and employers. And so it's the US healthcare context where a portion of healthcare is paid for by people. Portion is paid for by your employers and then a portion is paid for by the government. But mainly to folks who are low income or senior citizens, right? We primarily partner with employers who are responsible for the healthcare of their employees. Or we partner with health plans where people enrolled directly in the health plan in order to get health insurance coverage. The reason we partner with these folks is fundamentally what vertor does is we reverse metabolic disease at a much lower cost than the system can do it traditionally. So the financial incentive is with the people paying for healthcare. So you partner with them and the way we charge them is we charge them a per engaged patient per month fee. And so we say, send us your personal type to diabetes. We'll enroll them in our medical care. As long as they're working with us, we will bill you a flat monthly fee. And we guarantee for type to diabetes, we guarantee we will bring their A1C down. We guarantee that they will lose weight and we guarantee that they will reduce their dependence on that prescription medication. And so for a plan or an employer, it's a great deal because we fully guarantee the return on their investment from a fee perspective. And then for the patient, they don't actually have to pay for it. They just have to enroll and stay engaged with our care. And then we work with the patient to get them healthy. And the way we deliver care to the patients is a combination of technology and remote medical care. More than half the people who work at vertor or healthcare providers and econologists, internal medicine docs, nurse practitioners, registered nurses, health coaches. And we try to marshal a combination of people and technology to deliver care to help our people, our patients get better. Brilliant. So this is all about digital healthcare. So what are the key challenges then as a CFO in a digital healthcare business? Yeah, you know, it's funny. I often say that there are many, many easier ways to make money than going into digital healthcare. And I think if you look at the stock markets and digital healthcare, this has been proven out. These are a hard complicated businesses. There is a B2B element, which is you have an enterprise sales and marketing group, and you're working with employers and you're working with health plans to try to sell them. Then there is an entire different thrust of the company, which is a B2C offer, right? Which is how do you engage individual patients and take care of them when you're in their care? Once a patient comes to us, it doesn't matter where they come from. They're a patient in our system and we have to take care of them, right? And we generally build based on outcomes and based on engagement. And so as a result, like if you don't do a good job taking care of somebody, you don't get to build for them. And by the way, that's consistent because if you don't do a good job of taking care of somebody, you've not decreased the total cost of care. You've increased the total cost of care. And then you're not delivering on the value proposition for employers or health plans either. So it's a tight loop when it works, but making it all work and making it all work cost efficiently is not the easiest thing in the world. There is a very easy way to sell digital healthcare, which is you sell software that may or may not work. And sooner or later you get fired by your clients because they don't think that there's value in what they bought. Again, you increased the cost of the healthcare system. You did not decrease it. And so that is the hardest thing. And B2B B-botion, B2C motion, we also have technology and we also have human beings. When you run as a healthcare provider, you are subject to a different set of regulations than your average company is. And so the operational landscape is incredibly complex. And as a result, there's a hundred different things you have to do right in order to build a successful business. Yeah. So this is all about a tight integration of technology data and clinical care. Exactly. Yeah. Okay. So technology is moving fast. Healthcare famously regulated and traditionally slow moving. How does that go together? That must be the challenge. Yeah. This is a really good question. We talk a lot about this at Berda. I think for us, it is incredibly important to deliver innovation to our clients and our patients. It's important to deliver for our clients because again, in the US healthcare context, the thing everybody agrees on is there's a cost problem. It is simply too expensive to treat patients. The problem is is nobody has great ideas about what to do about it. And so as a result, our commitment, and I think this is what technology has done through the course of human history, technology lowers the cost to do things. So what we want to do is figure out how to rapidly deliver technology on behalf of our client. It's also important on the part of your patients. Delivering technology can make care more effective. And so one optimization function is we want to move quickly to deliver. The second optimization function is we do not want to do anything that puts patient health or patient care into jeopardy. In addition to that, we do not want end to do anything that creates issues with data security or data privacy because as important as us to take care of our people, they are relying on Berda for us to keep their healthcare information confidential. And so we want to make sure we optimize along those functions. And so whenever we encounter anything that looks regulatory, what we try not to do is to say how can we be the most compliant? Because regulations have a way of lagging what the reality of the world looks like. But instead, we ask ourselves how can we take care of our patients and how can we take care of our patients data and how can we go quickly. And when you think about the world that way, it helps you understand how to interact with regulations in order to create the best outcome for everybody. To what extent does the CFO end up getting involved in all of this regulatory stuff? Is that somebody else's problem? We have a wonderful chief legal officer. Her name is Jamie. She is spent her career in healthcare regulatory law. This is her superpower. And so I typically partner with her to find her way through it. But I think she's in the best position. She's got the most knowledge in the most judgment to help the company do it. And she does a fantastic job of that. Yeah. So your ambition is to scale? Yeah. I think our stated mission is we want to reverse metabolic disease and ambillion people in the world. Unfortunately, what the United States has done is it's exported its terrible food cultural world. And so the problem is only getting worse. It's not getting better. But we figured we'd start here at home. And I think as we continue to improve the way we deliver care. And as we continue to lower the cost of delivering care, we can continue extending out the care we deliver broadly to the rest of the world. And so yeah, we're a mission driven company. We want to cure the world of metabolic disease. You know, Sami says it's often not worth doing unless if you get it done, you can get it know of all prizes. And so that's how we're thinking about it. So a billion people that's a lot further afield than the USA. So there's a lot of other issues. That must mean the suppression you as CFO to plan for that growth to be able to raise funds for that growth. What does that all look like in your world? Yeah. You know, the capital raising environment is very, very tricky and challenging right now. I would say that there are two kinds of companies getting funded. Companies that are proven and stable and generate consistent cash flow can raise money. Again, interest rates are not 0% anymore. They're higher than that. And so as a result, cash flow is valued by investors. The second kind of company that can get funding today is anything with AI in its name. And so all risk-based investors who are investing in the future, not investing in present cash flow are all very interested in funding AI companies. Right. I think we can talk about whether there's a bubble or not, but there's no question that the valuations are really high and investors are clamoring to fund these kinds of companies. So I think the challenge is for anybody in the middle. It is not a good environment to raise funding. And so as a result, I think the way we think about it is the most efficient capital we can generate is capital we generate internally, which is again aligned and consistent with our mission because the way that you do that is you get more efficient at delivering effective care. And then if you get more efficient at delivering effective care, you can reinvest the money our clients give you and continue to spend the wheel and grow the edge. And so there is pressure on us to be excellent, but I don't think there's pressure on us to go fast because I think people understand that by going fast, you sacrifice efficiency, and this is not the set of capital markets for a health care company where you want to do that in. Yeah. So you're looking to bootstrap or rather than go for big funding rent. Totally brilliant. Yeah. That in itself has got challenges because all of those insurance companies and so on will all be looking for more bang for their own buck will always be putting pressure on you to lower the price. So that gives you a big challenge and finding those cost savings and efficiencies. Totally. You know, there's two ways we can deliver a value for a client. Right. We can cut our price or our care can be more effective. And so we want to make our care more effective because that is patient to line and client to line because of our care is more effective at the same price. We will save our clients more money. And I think that's pretty consistent. So we aim to continually deliver more value to our clients. And that's the way I think about it rather than cutting price because if you cut price, what ends up happening is you solve the value profit or the client, but you don't actually improve anything for the patient. And you also reduce your ability to invest in the business and invest in the patient. And so that just seems like it spins the flywheel the wrong way for us. So CFO, how do you go chasing those efficiencies? I think that there are two ways. And I think it's really funny because as an executive team, we were at dinner a couple weeks ago. We were talking about it. We're a remote company. Our thousand employees are stretched across the United States. And so as a result, we actually spend a lot of time flying to see each other to get together in person. So our executive team has a quarterly offsite. And we were talking about it. And one of my peers said, you're very different than other CFOs I worked with. Most other CFOs I've worked with come to me and say, cut 40% and then come back to me and like have a chat with it. And she was like, you don't do that. And I don't, and the reason I don't do that is pretty simple. When a CFO shows up and says, here's your plan. I'm signing you up for it. There is little to no grounding in reality of that. You're basically playing a game of bluff and you're saying, this is my number and you call my bluff or not, right? And I think while that can be effective in many organizations, what it does is it takes ownership of targets and numbers away from your operators and it puts them on the finance team. You missed the plan? Well, it wasn't because somebody didn't deliver it's because the plan got set in the wrong place. And that's just toxic to performance. So instead, what I would prefer is as I would prefer our finance team partnering with our operators, helping them think through the right things to optimize in the business, pushing their thinking to as far as possible to get them comfortable with signing up for something that is difficult, but not impossible to achieve. And that way you move the forecasting and the target setting to the right place for the company, but your operators also have a deep level of ownership and don't feel like it got handed to them. It also avoids disasters, which if you look at companies that do this traditionally, everybody says yes and nods their head until one day doesn't work and all the sudden you're falling way shorter your plans and nobody knows why. But this is what happened. Everybody said yes when they shouldn't have said yes, hoping to get out of it or point fingers later, and in the end, you ended up in a sub-optimal place for the entire company. It's not my desire to do that. Mano, I really like that and you told you about business partnering from your finance people. And that's something that in GrooseFro we're absolutely passionate about that I think the relationship between finance and the rest of the business and getting everybody involved in that decision-making process is really key. And I agree with you it's no good having a finance person says cut 40 percent, or the famous finance says no as the answer to every request for a for money, but you grew riot games from 150 to 2000 people, 50 million to over a billion in revenue. What lessons are you bringing from that? Yeah, I think the biggest lesson from riot games that I think I could share with anybody is that talent matters quite a bit to kind of where you are as a company. And the truth is that anybody that you hire even if they're stellar, I'll flip the question and say like the way I think about hiring and building a team is when you're in these situations you have to have incredible confidence that anybody you hire can get at least one promotion, right? And it's a short form of saying that there's a certain amount of near-term career growth that you have to be highly confident in that you can bake it. And so almost everybody I hire onto the finance team, we are confident that there's at least one promotion there for them. And so the second promotion ends up becoming the question and I think that ends up becoming too far out often to understand like you're looking at a five-six-year horizon, people change or priorities change, the job changes, and so it's very hard to tell. And so with from a talent perspective, when you're growing this much, you have to play the game heads up. So you hire people who can get at least one promotion to make sure that the scope can't get away from them because the business is moving so fast. And then you have to be ultra critical when the second promotion comes around to make sure that you're thinking about whether or not that person can be promoted again to succeed in that role or whether or not you need to bring somebody else in from the outside or whether you need to add technical specialty or not. Because again, the job just gets away from people really quickly and it's no fault of their own and companies that are rapidly scaling have this pressure, companies that are most slowly scaling do not have this pressure. And so you've got to play the game heads up there and you have to constantly be looking at your talent and kind of managing and poking and prodding. The last thing you need to do is to put somebody in a position where they won't succeed and then you have to end up terminating your employment. That's not good for you. It's not good for the business. The last thing you need to do is to make a hiring mistake and put somebody again into a place that are thoroughly unsuited for with the set of expectations that are realistic. And so I think a lot about that. And I think during my journey of Riot Games, it was probably the biggest thing that I learned is thinking about talent critically. So if you take the talent experience in from Riot, where you really were scaling fast and put that into the center of you, get the same problem. Do you think there there's going to be that real pressure and having to look for people that can operate two levels above where you're going to recruit them? Yeah, look, Riot was growing probably in 2011, 2012, 2013, was growing probably low teens, percent revenue, month to month. Right? So that is incredible growth. At Verda, we grew roughly 80% in 25 compared to 24. And so the growth is not as high as it was at Riot, but it's still quite high. And so at Riot, what I would say is we'd often have to revisit talent decisions every six months if we were thinking about it, right? At Verda, as long as we're on a cadence, we're we're thinking through it on a 12 to 18 month basis, we're generally okay. So same thing, again, time scale is very different. I think about what's going on at places like OpenAI and Anthropa, they're probably literally thinking about this every three months because just the scale is just getting away from people really quickly. Yeah, that you've run both finance and HR. What's that bits? And we're talking a lot about people here. So that piece of running HR, what's that taught you? Yeah, it's a good question. Again, I think I've always thought about myself as a business builder first, and I think a finance leader second. And so one of the reasons I have run people departments earlier in my career is because when you're building technology businesses and venture back businesses, mostly is a question of whether or not you have the right people assembled in the right way to make yourself successful. Almost all of the money you spend every month is on payroll. And so those two things kind of get connected really quickly, which is to say if you want to optimize or protect your investment from a finance perspective, the easiest way to do that is to make the right people decisions and hiring decisions. And so those two things have been kind of in lockstep. Look, I'd say the other thing, which is in these growing businesses, especially when you're talking about company sizes that are sub 200, is that there are three important things to get right on the people side. You have to get compensation right and compensation is a lot about equity, which has a lot of overlap with finance anyway. The second thing that you've got to get right is you've got to get compliance right. And again, compliance is one of those things that the people team shares with the finance team. And the third thing you've got to get right is recruiting, which is its own function inside of people. And so there is actually a lot of overlap there. And if you're good at one, you can often be good at the other one. Now, of course, is the business scales. This again gets away from you because now you have to be exceptional at all kinds of other things that you don't have to be when you're early stage. Those three things I share are really the basic building blocks. And if you look at as company scale, we have chief people officer at Verda. Her name is Lucia. She's been with the business for a long time. She's an exceptional culture builder and storyteller, right. And she's starting to think about these higher order problems because we've got a lot of the basic solve. And so that's again when this idea of your skillset and kind of who you are can get away from you really quickly. So, Mano, think came back. What would you say would be the critical two or three things in getting you from where you started fresh out of business school to being a CFI or a healthcare company like the one you're with? Yeah. Let me start with kind of personal skills. And I think because I do you mention that your audience are folks who are CFOs or folks who are trying to become CFOs. And so I'll try to be as specific as possible. So I think maybe your listeners can kind of think about that as it relates their own career. So the first thing that I would say is that I think CFOs in general have to have high technical expertise in finance. Now, it is difficult to be a technical expert at everything. Most people are not experts at M&A and capital markets and are experts at Gapacone and are experts at FX like it gets away from you again pretty quickly. But I do think that finance teams in general and strong finance professionals in general respect the leaders with a high degree of technical expertise. Right. And I think it's just important for culture building and important for them feeling like you can add value to their career and their work. That's the first thing. The second thing I would say which is perhaps underappreciated and it's a journey that I myself have gone through in the last 15 years. In finance, we talk a lot about IQ. We talk very little about EQ. And as it turns out, EQ is actually a lot more important to being a leader than IQ is. That's reality. And like IQ, EQ is a skill that needs to be honed in exercise except it's not one for many of us that we actively work on through our school and through college where we learn how to be good students. We learn how to learn. But we don't learn how to develop that part of our brains and that part of us being a person. And so being conscious about that development thinking critically about it and about yourself, I think is really important to making the transition. I'd say the third thing is never, ever stop being in a role where you're learning. If you're not learning, you're not growing. And I think that in mature organizations, especially as high performers are there in the same role for one year, two year, three years, learning decelerates tremendously. And it's comfortable because when you're not learning often it's also comfortable. Jobs are easy. You don't have to work that hard and it's okay. It's not risky. But if you want to grow and you want to be better, it's less about career runs and career ladders and chasing titles. And it's more about, are you learning the things you need to learn in order to hit the next stage of your career? So focus on learning and growth is kind of the third thing I would say. And I think in all of this context in terms of picking companies to be at. Because I think again, all of this is great, but if you're not in the right environment, you're never going to get those things. One, do not compromise on working with stellar teammates or stellar boss. To me, that has been the most important thing through the course of my career. I have had the most career growth in places where I've been surrounded by stellar teammates and I've had a stellar leader. I cannot emphasize how critical that is. Both Dylan at Riot, who was a CFO there and is now the CEO and then Sami at Burda or two of the best leaders I have ever worked with. And I worked with a bunch of other ones when I was at being in being capital as well. But in terms of multi-er engagements, working with those folks, they've done a lot for me in my career. And then the second thing that I would say is work in a business that is actually successful and growing. Momentum is I think really important. And again, when a business is succeeding and growing, it will throw lots of challenges your way that you have to raise yourself to meet those challenges so you can deliver for the company. When you're working in a business that's stagnating or headed the wrong direction, often what ends up happening is those learning opportunities, they just don't show up. And so again, if you're not learning, you're not growing. And so I would be very careful about working a place heading the wrong direction. Manu, some fantastic advice there. I think we need to bottle that and distill it for all of those aspiring and in fact new CFOs at there's so much to learn from those insights. But we're coming towards the end. I'd like to end with some quick fire questions. Sure, let's do it. Very, very fast 60 second answers. One word that describes a verse today. And this is okay. Spread sheet, dashboard or whiteboard, which do you read for first? Whiteboard. Like that said, well, KPI, you check most. Revenue. Okay. Biggest misconception people have about CFOs. That we are cost cutters and more cost cutters. The job done well is so much more than what. Yeah, yeah. It's a lot more than cost cutting. Favorite question to ask a founder or CEO in your first meeting? Why do you do it? Yeah, it's a good one. It's coming back to that good question of why, yes. Riot Games, Agtech or Healthtech, which was the steepest learning curve? Healthtech by far. What's the one habit that makes you effective in a high-grows environment? This is going to sound strange, but I'm actually a deeply lazy person. And so how that ends up manifesting is that I hate doing work that doesn't create any value. Like that yield optimization is really important to me. And so as a result, I am laser focused on only doing work than whom service is forward. Okay. Yeah. I like that. If you weren't to say, "F.O, what did you be?" I'd be a doctor. I never thought of qualifying that way. Much of my family are doctors. My brother is a doctor. It is something that I've toyed with, but four years of medical school and three years of residency. That's a 44-year-old. I'm not sure I have that in me anymore. Quite. Book podcast or resource you'd recommend to aspiring CFOs. It's called Money Stuff, and it's written by a gentleman named Matt Levine. It is, I think, by far, the funniest and most intelligent in-depth writing on finance that I can read. He's incredibly smart. And every time I read one piece of his, I learn something new, and so I always make sure to read it. Brilliant. Brilliant. One piece of advice for a CFO during their first hyper-growth startup. Think really, really carefully about what the most important thing is for the business and what you can do to help accelerate it or make it better. Manu, you have been a super guest on this week's episode of The Gross CFO Show. Thank you hugely. Thanks for having me. It's been super fun. [Music]