Finance Jam Session with Jan Gackenholz of SoundCloud
Jan Gackenholz is the VP of Finance and Operations of SoundCloud, the world’s largest open music and audio platform for creators and listeners. He started building the FP&A team in the Berlin-based company in late 2015, and is now responsible for the whole finance department with 18 people, as well as SoundCloud’s Workplace team.
We sat down with Jan to discuss specific challenges in the music streaming industry, the Berlin creative scene and hidden talent in SoundCloud’s finance department.
You have a background in business and consulting. Do you feel this something a modern finance leader needs? How do you see the CFO role evolving?
I definitely think it helps. If you have a bit of business experience, you can better relate to things. And ultimately, the numbers finance is responsible for are the result of the story that a business is crafting.
Personally, I started in investment banking and then moved into management consulting, where I've always worked with CFOs or for CFOs. So I've been very close to finance throughout my whole professional career.
It's been interesting to see how the CFO role has evolved in recent years. I think it's become a lot more strategic. And if you look at some of the big corporations out there, you can see a lot of CEOs actually having worked as CFOs prior to their current role. Finance teams have mastered the fundamental financial processes including reporting and accounting, so now it's all about being a business partner and making sure that you actually provide sound financial information for decision-making processes.
Finance teams have mastered the fundamental financial processes including reporting and accounting, so now it's all about being a business partner and making sure that you actually provide sound financial information for decision-making processes.
What fascinates you about the startup world that made you leave the corporate path?
I left the consulting business after a few good years during which I learned a lot and met many smart, driven and motivated people. But by definition, if you are a consultant, you finish a project and then you move on. You provide the solution to a problem and it’s the company that puts it into practice. So I felt at some point that the real action is somewhere else, and I wanted to be a part of it.
What I love about the tech industry is that it's a fast-paced environment. I'm still surrounded by very smart people, but they have a slightly different work ethos – in the startup world everyone is more connected to the mission and the problem to be solved, which feels great.
How have you seen the German startup scene evolve since the beginning of your journey with Soundcloud?
When I left university, all the business graduates did what I did: they headed into investment banking and management consulting. Today, that’s not the case anymore. Graduates deliberately chose to go into smaller environments, and they have a more vision-driven approach to what they want to do professionally.
We’ve seen tremendous growth with a few sizable exits in Germany, and there is a lot more expertise and capital available, and also more ideas and people to talk to about them. Also, it’s not only Berlin anymore, we have other hubs like Munich and Hamburg.
You have been part of SoundCloud’s mission for almost five years now — which in tech years is quite a long time. How has your role developed during this time?
I initially joined Soundcloud to build the FP&A function, one of the teams within the finance department. Since then, the finance function has become a lot bigger: We’re investing more in this part of the business now, have more people and faster processes thanks to our learnings from the early days.
We've become quite tech-savvy, using various tools, especially on the financial planning side. We’ve stepped away from using Excel and Google Sheets, and instead use dedicated cloud-based financial tools to decentralize our processes.
What’s specific about the finance role in the music streaming industry compared to other sectors?
I would say that certain elements of our work are the same across all sectors – however, I see two main specifics to the finance role in this industry.
First, we have some very complex maths behind the compensation for artists and rights holders, which require a lot of calculation. And we need a very sound and diligent accounting, because we have to make sure that the right people are compensated with the right amount.
The second thing that's different is the fact that there's less contribution margin available to cover your fixed costs, given the gross profit dynamics in the music streaming industry. The finance team therefore plays an important advisory role to help the business make good decisions based on financial information. So the finance team’s role as business partner is maybe more relevant here then in other industries.
How has the music streaming industry and its image changed since you joined Soundcloud?
The whole industry has grown substantially and the offer has clearly been embraced by the customers. Even the more traditional players in the industry came around after a first little shock in the early days of music streaming. They’ve got accustomed to working with the streaming industry, making sure that there's a sound business model behind it.
Another thing that has changed is the variety of artists across different platforms. A few years ago, this was very concentrated around a relatively small group of artists generating a lot of the attention. Now we see a wider range of artists participating. And with that there is strong growth of independent self-publishing artists, which is one of the reasons why SoundCloud is successful, because we provide independent artists with the opportunity to reach quite a substantial audience. So I think the whole music industry is actually more diverse now.
What are the main challenges you still have in your industry? Where is Soundcloud positioned with other big players like Spotify or Apple?
First of all, the commercial dynamics are still evolving to some extent and artists could benefit more from the growth in this industry.
More generally, at some point there will be a level of saturation with subscriber numbers. Companies like Spotify have seen tremendous growth in the Western world, and clearly there's still an opportunity in some of the developing countries – but at some point you will reach boundaries once everyone has a smartphone and a music streaming app. So that's something that we all need to be mindful of because that's when the cake isn't growing anymore, but instead you start fighting about the slices of the cake.
I think SoundCloud has a special place in the industry, as we’re very different from the others. Discovery of hidden talents happens on our platform, and artists get the opportunity to develop traction. That's something that we're very proud of and continue to push for, even if big players like Apple or Spotify are known to have a larger number of subscribers. We are very unique with this platform that we have built to serve both sides of an exciting ecosystem.
Do you see any Covid-related impact on the streaming industry?
You can obviously see that Netflix has grown through the roof, and streaming offers are clearly in high demand throughout this whole COVID crisis. But it’s also interesting to see how consumption patterns have changed, with people changing their routines without daily commutes or the way to the gym. So seasonal trends, that we base our financial planning on to some extent, are very different this year and will continue to be different.
When it comes to the commercial and financial implications, we had a little bit of a mixed bag, especially at the beginning. We saw a high demand for subscription products, but we also saw quite a substantial decline in advertising-related activity in the early days of the pandemic. And then we saw a big rebound, so if we look at the year-to-date performance, we actually see good growth across the platform.
The creative industry is one of the most affected by the pandemic. How can you support artists during this time?
The whole entertainment industry has been hit very hard, and the situation for artists will continue to be difficult unfortunately. We try to provide musicians with a couple of offers. For instance, artists are now able to collect donations through the platform, which was quite well-received. And we actually invest in the industry as well by paying artists up-front.
Are you using Soundcloud yourself? What kind of music do you listen to?
Yeah, absolutely! I think it's a great product. I listen to a very diverse mix of content, I have to say. I like electronic music for instance, and we have a lot of interesting DJs on the platform with more loungey beach music that helps me focus during work. We also have a lot of interesting local artists from Berlin.
Do you actually feel a stronger connection to the creative scene, working in a music business in Berlin?
Definitely. This dates back to the founding of the company: Amongst other reasons, Eric and Alex have also set up SoundCloud in Berlin because of the prominent role of the music sector in this city. So you do feel more connected as there is so much music being produced and consumed here, including lots of independent artists that get attracted by Berlin’s openness to all kinds of culture.
How musically talented is the team at SoundCloud?
One of the first questions in the interview process, back in 2015, was whether I played an instrument. I don’t, but I was still allowed to join. We have lots of people though who are very talented. We have a little studio in the office, and some of the finance team members use it a lot actually.
Which are your favorite tools in the finance team?
We use Adaptive Insights on the planning side, which I think is a great product because it removes various bottlenecks that you would have with Excel. And we're testing Spendesk at the moment for credit cards and approval processes. It’s slick and simplified, but still very sound, documenting everything that needs to be documented. I personally also use Evernote to have everything in a central place and be able to access it on various devices wherever I go.
Do you have any book recommendations?
I’m currently reading a classic called High Output Management by Andrew Grove. It's interesting as it's a 30-year-old book and technology and products have changed – but a lot of the stuff about meetings and how you manage a team are still very much the same.
Could you imagine doing anything else other than finance?
Not really. I see finance as quite a horizontal remit. I love doing it because it's the beginning and the end of everything a business does, and it connects you to all parts of this business. When I was a child, I was always dreaming of doing something in professional sports, not necessarily being an athlete myself, but maybe running a sports club. But then again, I would probably approach this from the financial side first.
I see finance as quite a horizontal remit. I love doing it because it's the beginning and the end of everything a business does, and it connects you to all parts of this business.
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