Lineage IPO Signals Shift in Tech Investment Landscape as Healthcare CFOs Rethink Profitability Strategies

Logistics giant Lineage staged the biggest IPO of 2024

Good morning. Let's take a break from Big Tech to look at three business models that are thriving right now with real-world products. On a steamy summer day in New York, a cold-storage company from Michigan racked up the biggest public offering of the year. Lineage raised $4.4 billion yesterday in its Nasdaq debut, selling nearly 57 million shares for $78 each. As befits a man who oversees about 3 billion cubic feet of refrigerated warehousing, CEO Greg Lehmkuhl was notably cool about the hot debut. "Do I want to do earnings calls every quarter? I don't," Lehmkuhl said. "This was about optimizing the cost of capital." Translation: It's cheaper to raise money through issuing shares or raising funds as an audited public company than as one that's private. It's also easier to spread wealth throughout the company. It's notable that Lineage's growth comes through making tactile products -- in this case, building an infrastructure around preserving food. Lehmkuhl is not that worried about a volatile political climate: "People are going to eat, no matter who's in power." People are also seeking ways to connect and make an impact, which bodes well for those who can turn their businesses into a village green. I recently spoke to Tom Nolan, CEO of Kendra Scott, for our Leadership Next podcast. He has helped founder Scott build a billion-dollar jewelry brand by combining affordable luxury and philanthropy. The retail chain hosted some 21,000 events in 134 stores this past year, most of which were rooted in philanthropy where a portion of sales supports a cause. "We feel like we're a part of the fabric of the community," Nolan said, "and it's because of the events, it's because of our reach out into the community, it's because of the charitable nature of our business. We become more than just selling goods to somebody, it's selling an experience, and it's selling something greater than that." (Listen to the podcast here.) One of the most visionary CEOs I met this week was Taylor Shupe. I know him as the founder of the wildly popular sock brand Stance. (Well, it's wildly popular in my house, at least.) A few years ago, Shupe left to start circular knitwear manufacturer FutureStitch. Along with trying to create new materials and processes to reduce waste, Shupe is creating a new manufacturing business model that's addressing a critical social need. He's turning a manufacturing facility in California into a campus where formerly incarcerated women can get housing, childcare, services and a job. The goal is to give them the kind of training and support network that most women lose when they go to jail. "It's like taking an individual who has been treated as if they were a waste product and creating a culture for them to thrive," said Shupe. More news below. Roelof Botha, head of Sequoia Capital, is trying to preserve the VC giant's stellar track record of backing winning companies like Nvidia, YouTube, and Instagram. "It's much easier to be the underdog," Botha says. The VC leader is now thinking about a new problem: how to manage AI's "unsustainable" computing costs. Fortune OpenAI takes aim at Google ChatGPT developer OpenAI launched SearchGPT, a new search engine, on Thursday. While still just a prototype available to 10,000 users, the product is a challenge to Google's long-time search dominance, as well as competing AI startups like Perplexity. Fortune Why aren't Americans having kids? It's the economy People under 50 without kids are three times as likely as older childless people to blame unaffordability for their decision, according to the Pew Research Center. Even as today's young people are able to win higher salaries than their parents, they face higher costs for housing, childcare, and health care. Fortune Tesla's latest earnings expose chronically weak profitability and an inflated share price by Shawn Tully Jack Dorsey is about to overhaul Block in a reorg he warns may feel 'big and disruptive or uncomfortable' -- internal memo by Kali Hays Startup with 'radical' concept for AI chips emerges from stealth with $15 million to try to challenge Nvidia by Jeremy Kahn Is overtourism inevitable? One expert explains why the phenomenon is a wake-up call and how European cities are getting it wrong by Prarthana Prakash A post about Kamala Harris pushed a long-simmering feud between tech execs into the open by Paolo Confino Sundar Pichai wants real-world results for his AI bots -- so Google gave bonuses and golden bomber jackets to staff who came up with winning prompts by Eleanor Pringle This edition of CEO Daily was curated by Nicholas Gordon.

Health care CFOs look beyond cutting costs to juice profitability

Deloitte Center for Health Solutions has surveyed CFOs annually since 2020. In prior years, cost reduction was consistently named one of the top three organizational priorities. However, cost-cutting ranked last among the top priorities and concerns of finance leaders in 2024, according to the latest survey. (The top three are the economy, cybersecurity, and the impact of the upcoming U.S. presidential election.) The majority of finance chiefs surveyed are focusing on improving their organization's operating margin, Deloitte found. "I was pleasantly surprised to see CFOs setting ambitious financial improvement targets for the near term," Tina Wheeler, vice chair, health care sector leader at Deloitte LLP, told me. A third of CFOs surveyed are aiming to improve their operating margin by three or more percentage points over the next three years, she said. The health care industry has been experiencing a period of low profitability, with operating margins of 1% to 4%, on average, in the past five years, according to Deloitte. So CFOs meeting aggressive margin targets is, "a much-needed goal," Wheeler said. The firm recommends "operating margin transformation levers" that CFOs should consider using across four major categories -- strategic growth, revenue growth, cost reduction, and capital deployment. Wheeler also said there are four overlooked opportunities for margin improvement: -- Adding new products and services and discontinuing offerings that do not add financial value. -- Forming alliances. "Organizations risk slower growth and poorer performance if they operate alone," she said. Value-based partnerships, along with market-based alliances provide opportunities to co-develop products and services, expand customer reach, and increase revenue. -- Outsourcing and offshoring opportunities. For example, outsourcing administrative functions. -- "Doubling down" on digital and AI technologies. "While cost reduction is no longer the dominant focus for margin improvement initiatives, it is still an important part of the portfolio for both health system and health plan finance leaders," Wheeler said. The main lever for cost reduction is building an efficient workforce, she said. "This will continue to be important as many health care organizations are grappling with employee turnover and burnout coupled with increasing labor costs," she said. Emerging technologies, like generative AI, can be useful for workforce management strategies, "potentially leading to substantial cost savings," she added. The following sections of CFO Daily were curated by Greg McKenna Some notable moves this week: Richard Kraemer was named senior EVP and CFO at Fulton Financial Corporation (NASDAQ: FULT), effective Sept. 3. Kraemer replaces interim CFO Betsy Chivinski, who will retire from Fulton at the end of the year. Kraemer has more than 20 years in the financial services industry, most recently serving as chief banking officer overseeing commercial markets for another bank. Paul Lundstrom, CFO at Flex (NASDAQ: FLEX), will step down as CFO, effective July 31, to pursue an opportunity outside of the company. Jaime Martinez will assume the role of interim CFO. Martinez has over 20 years of experience with Flex and has held various finance leadership roles. Flex has initiated an executive search process to identify a permanent CFO. Akhil Shrivastava was promoted to EVP and CFO at The Estée Lauder Companies Inc. (NYSE: EL), effective Nov. 1. Shrivastava succeeds Tracey T. Travis, whose intention to retire was announced on July 11. Travis will remain at the company for a transition period until June 30, 2025. Since joining ELC in 2015, Akhil has held several senior finance roles within the company. He was recently named ELC's SVP and corporate controller. Before that, he was SVP and treasurer. Akhil will also serve as a member of several of ELC's senior management leadership groups. Helen Shan was promoted to CFO at FactSet (NYSE: FDS) (NASDAQ: FDS), a global financial digital platform, effective immediately. Shan succeeds Linda Huber, who is leaving the company. Huber's departure is not the result of any disagreement with the company and not the result of any financial or accounting matters, according to FactSet. Shan is rotating back into the CFO role, which she previously held from 2018 to 2021 before being appointed EVP and chief revenue officer. Jonathan Geehan was promoted to CFO at Techstars, a pre-seed investor. Geehan has been at Techstars for three years, having served in the finance department as SVP and senior controller. Geehan brings more than two decades of experience in finance, including over 16 years within venture capital and private equity. He joined Techstars from ClearSky where he was the investment firm's CFO. Previously, he was controller at Fairhaven Capital Partners. Mike Kaswan was named CFO at Precision Neuroscience Corporation. Kaswan brings over 30 years of financial leadership experience in health care to his role. Most recently, he served as the CFO at Orchestra BioMed Holdings (NASDAQ: OBIO), which he helped take public in 2023. He also cofounded Georgia Veterinary Specialists (now part of BluePearl Veterinary Partners); Lumenos (now part of Wellpoint); and Persante Health Care, a provider of sleep and balance diagnostics and treatments. Alonso Sotomayor was named CFO at DynaResource, Inc. (OTCQX:DYNR), a junior gold mining producer, effective immediately. Sotomayor has over 15 years of professional experience. He started his career in a mining-specific role with accounting firm McGovern Hurley LLP, followed by progressively senior roles in the Toronto Mining Groups at KPMG and Deloitte Canada. Since 2017, Mr. Sotomayor has held the position of Corporate Controller of Ascendant Resources Inc. and Corporate Controller of Cerrado Gold Inc. since 2020. Aaron Rosenberg was named CFO at BeiGene, Ltd. (Nasdaq: BGNE), a global oncology company, effective July 22. Rosenberg will succeed Julia Wang, who is departing to pursue external opportunities and will stay with the company through August. Rosenberg has more than 20 years of experience at Merck & Co., Inc., most recently serving as SVP and corporate treasurer. He also held roles such as SVP of corporate strategy and planning and VP and finance lead of Merck Animal Health. Logan Powell, global president and CFO at Puttshack, a provider of tech-infused mini-golf venues, was promoted to CEO, effective immediately. Powell succeeds Joe Vrankin, who oversaw the company's growth in the U.K. as CEO and subsequently brought the concept to the U.S. in 2021. Powell and Vrankin have collaborated on this transition, as Vrankin will be moving on from the company. Powell has served as CFO since 2019. Before joining Puttshack, he was a partner at Copper Beech Capital, LLC. Business leaders are already reporting a return on their organizations' investments in AI, but many have neglected the underlying infrastructure AI needs to thrive, according to new research from EY. The firm's first AI Pulse Survey polled 500 U.S. senior leaders across a wide range of industries from tech to government and the public sector. About three-quarters of those leaders said they are experiencing positive ROI on operational efficiencies (77%), employee productivity (74%) and customer satisfaction (72%). Leaders from organizations who have invested 5% or more of their total budgets in AI saw higher rates of return compared to those whose spending is under that threshold. "Business leaders are beginning to shape their future by raising strategic AI investments," Traci Gusher, data and automation leader at EY Americas, said in a statement. "But the survey uncovered significant risks on the path to enterprise-wide AI adoption, including data infrastructure, ethical frameworks, and talent acquisition." Only 36% of those surveyed said they're investing in data infrastructure fully and at scale. A similar number said the same for building an AI governance framework (34%), as well as training and upskilling employees (37%). Here are a few Fortune weekend reads: "Sequoia Capital invested early in Google, Nvidia, and Apple. Can Roelof Botha keep the legendary venture capital firm ahead in the AI future?" by Michal Lev-Ram "Tesla's latest earnings expose chronically weak profitability and an inflated share price" by Shawn Tully "The Fortune 50 Best Places to Live will serve multigenerational families for the long haul" by Alexa Mikhail "Kamala Harris's economic agenda: What experts say it might look like" by Alicia Adamczyk "I would characterize his economic approach as one that's fully consistent with [1980s Democratic candidates] Walter Mondale and Michael Dukakis -- a pro-worker party based around a lot of government intervention and managing the economy."