The CFO is Not Your Most Critical Finance Hire

I build finance departments for a living.

When it comes down to it, that really is the job of a CFO.

Just like a CEO’s job is to build a company – not be the company – and a VP of Sales’ job is to build a sales team – not be the sales team – the same is true for Chief Financial Officers.

CFOs build teams to carry out the business of the finance department.

More than a few times in my tenure as an on-demand corporate finance consultant, I have been brought in by a founder needing help to sort out the Finance department. Sometimes I replace an already-departing CFO, other times I work with an incumbent CFO. In some organizations, I am an interim CFO, and often I am just the plain-old CFO.

Regardless of the circumstances, I find that these companies all have one thing in common: no controller.

What does a controller do?

A controller is generally in charge of preparing accurate and timely financial statements.

They are typically a highly skilled accountant, and the best ones are smart, likeable, business-minded problem solvers, with a core competency in accounting.

Accountants memorize rules, apply them to business activities, and defend their decisions once a year during an audit. As a controller, days and hours matter. The end of the month is the end of the month, even if that day is New Year’s Eve or your mom’s birthday.

It’s not a super sexy job, but it’s totally priceless.

This is the most difficult position to fill when building finance department. It takes time and diligence to find a controller with the skill set and cultural fit needed to make this position successful. The worst controller hires I made, I made from a stack of resumes. The best, I found through my network.

As a CFO, a competent and reliable controller is priceless.

Why are controllers so valuable to a CFO? Because without a super solid controller, the CFO becomes the controller. In essence, the CFO becomes the finance department.

Depending on the preferences, and skill set, of the CFO, this may work out ok. In the end, however, a CFO must be expected to be a CFO.

Think of it this way – your VP of Engineering might code the back end of the entire product for a period of time, but once you are big enough as an organization, he won’t, because a back end developer is a different job than a VP of Engineering.

Why is this position so tough to get right?

There are a ton of accountants available in the world. But the risk to the CFO is enormous if this hire is not done right.

Financial accounting is the common language of financial markets, banks and investors. The greater the revenue, the higher the expectation for accurate financial reporting.

If the controller is not cranking out timely and accurate financial statements, as a CFO, I can’t just tell the bank investors they have to wait. Your VC firm doesn’t care that your Controller sucks, and your mother’s birthday is January 2nd – they’re not going to wait for preliminary results for the last fiscal year.

As a CFO, I am the one throat to choke for the entire finance department.

If I make a bad hire, I have to eat my own dog food. Fiscal year end waits for no one. If I screw up the controller hire, I can’t just pick up the bat phone and call another one (well, I could and I have, but for most privately held startup companies, these kickass Batmen of US GAAP are prohibitively expensive.)

In these situations, like a woman on a mission, I cobble together the accounting function from the skills I have on staff. I transform into the highly skilled accountant I went to graduate school to be – but not the CFO I was hired to be.

I’ve written before on when to hire and not to hire a CFO.

Founders, you can live without a CFO. Really, you can. Maybe even a long time.

But you cannot live a long time without a controller. If you want to understand your numbers and have confidence in your reporting, don’t hire a CFO, hire a controller. And not the first one, or the cheapest one – the best one.

 

Just the Facts, Please. No Happy Ears Allowed.

If you spend as much time as I do around sales teams, you are familiar with the term “Happy Ears.”

Happy Ears is what a sales person has when he reports back nothing but sunshine and lollipops related to his calls, demos, conversion rates, or bookings, until the quarter is over and he did not meet his quota.

The best Chief Revenue Officers I have worked with manage Happy Ears within their teams.

Generally, sales reps take great pride in their work. They want to keep their job, and are usually competitive. A sales rep doesn’t like knowing that the guy in the next cube will kill the quarter when he is not.

He wants to kill it.

And as such, he may wait until the very last minute to admit to himself (and you) that he did not accomplish what he set out to.

A great Chief Revenue Officer will know this, and correct for it in his forecasts. An excellent Chief Revenue Officer will see Happy Ears as an undesirable trait in his team, one that needs to be trained out.

As an on-demand CFO, I work with companies in transition. What they all have in common is change, and all change is hard. There is no secret sauce to making really tough decisions easy.

However, facts pretty much always help to make difficult decisions easier.

If my favorite Chief Revenue Officer had Happy Ears, I would find out the true sales or bookings numbers only four times per year, at the end of every quarter. Every other day I would be fed a steady diet of information where optimism was a reasonable proxy for data.

As a CFO, Happy Ears is dangerous.

You do not want your CFO to have Happy Ears any more than you want your Chief Revenue Officer to be wrong with his forecast only four times per year.

It is very tempting for a CFO to be overly optimistic about the state of business. CFOs are just as competitive as sales reps. Browse through the LinkedIn profiles of your garden-variety software CFO and you will see, proudly displayed, the number of IPOS, number of exits, and capital raised.

Unfortunately, as an on-demand CFO, I can tell you that none of my clients are going IPO and no client of mine has ever gone IPO.

I know, they all must suck.

I could have pretended that things were always awesome. That we had enough cash for everything. That every hard-working employee could get a raise. That Marketing could buy all the widgets they want, Sales could hire all the people they want, Development could buy as many café tables they wanted, that I could staff my department with 10 Controllers and 10 Ninjas, and a person whose only job was to format my board slides.

I would be a total team player and would #bleedwhatevercoloryouwantedmeto.

But then I’d get fired when we – me, really –  could not make payroll.

And we’d all loose.

As a consulting CFO, I don’t want your optimism, I want your facts.

It’s not our fault. Facts are not so popular among humans.

I can’t pay employees on optimism and I can’t borrow or raise capital on optimism. I don’t want to think we are killing it when we are not. I want to know we are killing it, and if we are not, I want to help define a path forward, wherever that leads the organization.

If you want to pay me to pimp your ride, share a few drinks, and cheer your team, I can do that, too. But, there will be a time where I have to get back to work and sort through the optimism to get to the facts. If anything, pimping your ride, sharing drinks, and cheering your team will build camaraderie for when the difficult conversations need to occur – which is necessary when building relationships based on trust, transparency, and shared vision.

However, much like optimism is not a proxy for facts, sharing a few drinks together is not enough to get to the bottom of a really thorny situation.

As stated before: Facts pretty much always help make difficult decisions easier.

If you prioritize optimism over facts, you should aim to build a company where you don’t have to.

 

When Nothing Changes

Those who cannot change their minds cannot change anything. -George Bernard Shaw

In my work as an on-demand CFO, I spend much time with entrepreneurs whose companies have come into transitional times. Sometimes they’ve run out of cash, or soon will. Some grew revenue 100% over last year and expect to do the same this year. Some need to restructure operations. Many of my clients are expanding into the US, Mexico and Canada and want to operate into in these markets unburdened by differences in rules and regulations.

Regardless of the source of the challenges, these executives share a common trait.

They have identified the need for an outsider (me) to work within their companies to recognize and remove the issues impeding their progress. They seek a change in the trajectory of their organizations.

These founders want for something different.

Change Requires… Change

The standard board slides for a CFO of a VC-backed company generally includes trend lines of one measure or another. Cash, revenue, expense, deferred revenue, bookings, etc.

About eight years ago, I had particular one board member who consistently asked me why the slope of the line changed on every single graph I presented.

No matter what the slide was, he always asked me this question.

What he really wanted to know was if I could explain to him what had changed in the business. He knew that the slope of the line changed because something caused it to change. Something different happened.

He (rightly) expected his CFO to be able to explain to the VC what had changed in the business that resulted in a change in the organization’s performance.

He demonstrated a fundamental understanding that change itself was caused only by change. He was looking to me, as the CFO to appreciate that I also understood that.

What You Are is What You Get

I am nearly always brought in by a Founder or a CXO who wants to work through difficult business challenges. Through the lens of an experienced CFO, I work with leadership to carve a path through uncertainty.

The differences between those entrepreneurs who manage well through the change, and those who stumble, lay in their expectation of what would bring them success.

The founders who thrive during this quite intense and stressful time appreciate that change starts with them. These entrepreneurs acknowledge that while I am the catalyst for change, I am not the change.

While that board member expected me to understand and explain the changes in the business, I expect the entrepreneurs I work with to be the change in the business.

Uniquely positioned, I see if any change occurs because I am responsible for explaining the change in the slope of the line.  Hiring me alone does not change the slope of the line. Real hard messy work does.

As the saying goes, if you always do what you’ve always done, you will always get what you’ve always got. On-demand CFOs not withstanding.

The Case for Simple

Recently, I was on a domestic flight in Mexico.

The video screen dropped down and narrated emergency procedures.

The plane has 6 exits. Only four are for use during a water landing because these are equipped with rafts. In the event of a water exit, take off your shoes. The vest is located under your seat. Take that before you go out the raft. Do not inflate the vest until you are outside. Remember to pull this thingy to inflate the vest. To brace yourself in an emergency, put your head between your knees and your hands over your neck. Put an oxygen mask on yourself first. They will drop from above. The bags under the mask need not to appear to inflate for oxygen to come out.

I remember this now, as I am 30,000 ft in the air on my way back to Boston, coffee in hand, shoes off, listening to music.

You know what I will remember when I actually am in an emergency landing?

Nothing. I won’t remember anything.

All I will be thinking about is how to get the hell out of the plane.

To me, the 30 microinstructions I received wrapped in a very palatable video was super when I was at ease and comfortable. But in a time of stress? What exactly are the top three things I need to remember?

I wish the airline had told me that.

In a time of stress, I really only need to remember the most important things.

This is why, as an on-demand CFO, I spend much time simplifying my thoughts, and asking others to do the same.

To make an impact and help my clients manage through the change, I have to carve a very simple path that sets a few simple goals that distills the essence of what is trying to be accomplished into its most basic form.

Part of what I do is work with companies to not only carve a path forward through the transition, but also help executives themselves manage through it. I work with executives to build resilience into the fabric of the business.

Building a culture of resilience is not often a corporate value or mission, but it should be.

Expecting all employees to be resilient during transitional times is key to managing through the transition. Building a company is stressful for the employees and the executives in equal measure.

In a start-up, there is no monopoly on tough times.

In sum, the work may be terribly difficult. But what we are trying to accomplish must not be.

We Are All Runners. A Startup Tale from the Mexico City Marathon.

Running a Marathon is not reserved only for “marathon runners.”

This past Sunday, I watched the running of the Mexico City Marathon. Accompanied by a lifelong runner, we watched thousands of athletes weave their way through the leaf-lined roads of Condesa.

Some athletes were running, others not. Many carried backpacks. Some held a phone before their face, video chatting while running. One runner galloped past with a plastic bottle of Coke. Another juggled a soccer ball. Grandmas and grandpas moved in tandem while young daughters and mothers ran by in supporting pairs. Many of these runners were clothed as if running this marathon had been an afterthought.

I was amazed.

This was a marathon run by everyday people, nearly 7,300 ft above sea level, during a quite smoggy day. I witnessed every possible age, body type, attire, and footwear pass me by. Everyday people running a marathon. I realized that this is what people do all over the world. They run. They don’t join a runners’ club or buy fancy gear to do what humans are meant to do: run. To them, people run. Period.

I realized I had brainwashed myself into believing that running a marathon was for “marathon runners.” My beloved Boston Marathon is filled with these “marathon runners!” They’re not just people who run marathons. To be a “marathon runner” you need to follow a certain path. In Boston, you need to raise a bunch of money for a “very good cause,” or be very fast. You need to join a running club to get motivated, train and get help preparing for the enormity of the task. You need fancy gear, expensive shoes, plus a few visits to physical therapy. Then, and only then, is when you become a “marathon runner.” (Or so I thought.)

Yet here I was in Mexico City watching people actually run a marathon. Because, humans run. They just do.

Part of the club.

The same can be said about the state of affairs in the startup community in Boston. In many instances, to “do a startup” you need to be taught perhaps in college, or in a class. Or you must be part of a cohort. You are fed the notion that you need to be in a community of entrepreneurs to bring out your best self. You need to free yourself from everyday concerns so you can reach your full potential to become the next Mark, Steve, Larry or Hubspot.

It’s almost as if having a successful startup requires focus that regular people do not understand. It’s as though being part of a start-up these days is like declaring you are part of the Society of Fancy Thinkers doing Great Things Aspiring to Change the World and Live the Values. No longer are you simply taking crazy financial risks and working crazy hours for short money. You are in a startup! And in cities like Boston, that means… something.

When did Bostonians have to learn how to work in start-up? Or get extra applause for working in high-risk startup jobs that, nowadays, often pay better than others. When did businesspeople have to be motivated by cold brew coffee and free beer to work hard and intelligently and make good decisions? When did they have to look a certain way in order to be successful? People have been working in high-stress, underfunded companies since the dawn of time. People have been building their own companies since the very earliest forms of commerce. At what point in time did people forget they were welcome to try and make it work? To give it a shot, and try to build a company. You know, the essential ideals of working hard, and playing hard and being joyful about it. When did we forget it is just a job? You get paid to do stuff, to create value.

We are all runners.

At the very heart of us all, we are entrepreneurs. We all have the ability to work hard. We all have the intrinsic resilience and motivation in us to start a company. We are all runners and idea factories. We are human. Humans run, and think, and take risks. These are not exclusive characteristics for those within the startup club. Some of us will be like Larry, Steve and Mark. Maybe we’ll run like Meb. But, most will not.

As we watched the last runners pass, followed swiftly by the army of municipal street sweepers, we reflected upon how special this moment was, to watch the end of this marathon. We watched the last athlete jog past, lapped by the medical bus full of his injured colleagues. If he were jogging now, he must have walked much of the prior 15 KM. Now, as he jogged behind the garbage trucks, we reflected that it was quite a special moment. We were witnessing the very best performance of the most common athlete of the day.

The Boston startup community could learn something by watching the very last runner of this year’s Mexico City Marathon. Not all who run the marathon need be “marathon runners.” The world is big enough for us all. There is no monopoly on talent or hutzpah or perseverance or excellence. That the Mebs of the world are equally as awesome as the woman running by with the bottle of Coke means that one size does not fit all.

You don’t need to be taught to run. You already know how.

Fotos: Israel Lorenzana/ Cuartoscuro

The Do’s and Don’ts of Hiring Your First CFO

You’ve made a big decision. It’s time to hire your SaaS or subscription-based company’s first CFO. Your organization is in a position to warrant a professional executive in this role, and you generally know what you’re looking for in a CFO.

But, how can you be sure that the CFO you’re hiring truly meets your needs? Subscription-based businesses require certain capabilities and expertise around process and structure to function properly.

As a corporate finance consultant and on-demand CFO with a particular focus on recurring revenue businesses, here are my do’s and don’t of hiring your first CFO.

Read full article on Subscription Insider.

Advice from a CFO on How to Hire a CFO

The role of a CFO has evolved from solely executing finance tasks to one that oversees highly strategic decisions meant to drive and manage growth.

If you think your business is ready to hire a CFO (read my post here to find out if you do or not,) the decision is a big one.

Do you leverage on-demand finance guidance or hire a full time individual?

Regardless, there are a few things to understand about the right fit for this kind of role. Here’s my advice:

1. Your CFO is not your friend.

Don’t hire one of your friends to be your CFO. Just don’t do it.

Your CFO needs to do what a CFO is supposed to do: help you build a great company that drives shareholder value in a way that is consistent with what the board expects.

Hiring a friend means that they may be too worried about how you’ll react if he is going to see you over the weekend when you carpool your kids to swimming lessons.

Give your CFO the freedom to make work-related decisions without having to take into consideration your feelings or emotions like a friend does. We all try to leave emotions out of the work place, but even when the chips are down, you want what is best for your friend. This may be counter to what is best for the business.

Besides, a great friend is irreplaceable. A CFO is 100% replaceable.

2. Your CFO is specialized.

No matter how bad the economy, a great dermatologist would never accept money to treat depression, replace a knee, or to diagnosis Chickenpox. A great CFO knows what he does well, and is ethical enough to only do what he does well.

If you run an early-stage SaaS company, hire an early stage SaaS CFO.

If you run a manufacturing firm, hire a CFO who is experienced in inventory accounting and cost allocations, or one who manages those functions well.

If you run a law firm, hire a CFO who specializes in professional service firms.

The truth is, there is no shortage of CFOs out there ready to take your money. Be thorough and find the one that meets your needs. Do not settle.

3. Your CFO is not a “solopreneur for finance.”

When you hire a CFO, you need to expect that this CFO will function on the same level as your other VPs or CXOs.

For example, if your VP of Engineering is one that both codes and builds a department, then the right CFO for you is one who should be able to do a mixture of some accounting while hiring and developing talent to backfill as you grow. If your CMO, for example, is working a trade show booth, your CFO should be responsible for getting you through an audit. If your VP of Sales has a quota all her own, your CFO should likely be responsible for calculating commission.

One final rule of thumb:

Generally speaking, be sure not to expect your new CFO hire to be the entire finance department. You should hire a great CFO with the intention of letting them build a great finance department.

Expect your new CFO to clearly design roles and jobs that people want, aligned with compensation or costs that are commensurate with the market. And note that developing a strong finance department does not always mean hiring full time employees.

It’s a big decision. If you think you’re ready to pull the add a professional CFO to your executive team, keep these considerations in mind.

Math-Phobic SaaS Founder? Don’t Panic.

Are you a software-as-a-service founder with an aversion to math? Don’t panic.

Many founders describe themselves as big-picture people. Visionaries. Innovators. Disruptors. There’s a kind of aversion in the exciting, early stage of a business to words like process, measurement, and optimization. Many founders see these as limitations to their innovation. I often work with founders who are admittedly math-phobic. The truth is, for a founder to successfully raise VC financing, they need to be as well versed in metrics as they are in product development, innovation, and all the rest that comes with entrepreneurship.

In my post on Subscription Insider, I detail 4 metrics every math-phobic SaaS founder can measure starting today.

The beauty about SaaS metrics is that the majority of investors look for the same key things. You don’t need to be a special snowflake. To help you get started, I’ve put together a free workbook for SaaS companies that will help to calculate these critical metrics for you. Download it today, it’s free and easy to use.

Why SaaS and Subscription-based Companies Thrive on Process & Structure

In my latest article for Subscription Insider, I explain that building a company follows a certain pattern and curve, especially among subscription-based organizations.

I work with many SaaS companies to tackle common issues in finance, growth, and operations. What I’ve seen repeatedly among early-stage SaaS founders is a kind of reluctance to process, structure, or metrics.

Often, founders reject these in the spirit of maintaining what they think is “flexibility.” In reality, it’s a competitive disadvantage to ignore the facets of your business that enable growth, and especially attract funding. Process actually allows for flexibility in this world of high-volume transactions, low-ticket items.

Many early-stage SaaS companies fail to recognize this. They ask me why I suggest they run their company like Target. Process is important to particular types of businesses. If you’re selling diamond rings for $30,000 a piece, then one person, one counter, and one video camera will suffice. But if you’d like to build an organization that sends out 10,000 invoices a month and seeks to collect $5 from each person, you need to ensure you have process in place. You can’t afford to hire enough people to manage individual transactions, customer support, tech support, customer retention, AR, or billing.

All of these functions are just structures. And these are the structures that a SaaS company has to be concerned with if they’re selling high-volume, low-ticket items.

Read more in my full article on Subscription Insider.

So You Think You Need a CFO? Think Again

The Rise of On-Demand Finance Expertise

Contrary to popular belief, you may not actually need a CFO. As a corporate finance consultant and on-demand CFO, I am in the business of solving problems and removing impediments to growth for privately held companies worldwide.

I’ve been called a Chief Problem Solver, as I work with companies confronted with difficult challenges on the spectrum between high finance (raising capital) to operational (designing HR processes). I’ve also played the role of full time CFO, both in my history as a FTE for high tech firms and today in an on-demand capacity.

From where I sit, taking companies through many stages of their lifecycle, it’s evident that not every company actually needs a CFO.

How to know if you need a CFO with one simple question:

Though I have worked alongside literal rocket scientists in my past, identifying the right time to hire a CFO is not rocket science. It can actually be quite simple to understand. When I assess an organization’s “CFO readiness,” I ask: Is the CEO building a product, or a company?

How do you know if you are building a company or a product? When I meet with prospects, here is how I generally assess “CFO readiness:”

  1. Are clients using the product right now?
  2. Have you seen an increase in clients and client usage every year?
  3. Are non-founders leading sales and/or marketing efforts?

I’ll admit it – building a product is way sexier than building a company, but even Zuckerberg outgrew his dorm room eventually.

If your business is at the stage of product building, then you do not need a CFO. Save your money. For the record, I promise that your website will be fine without a named CFO. 

6 things you really need instead of a CFO

If you are building a product, and not yet a company, how do you build and manage a minimum viable back office in lieu of investing in a CFO to do it for you? I recommend these six initiatives:

  1. A solid accountant to prepare your financial statements and pay your bills.
  2. A reliable local tax accountant to prepare your state, local and federal taxes (such as income, sales & use, etc.)
  3. Access to your bank accounts so you can see what you have in the bank every hour of the day.
  4. A very reliable data entry perfectionist to key in the actual financial results into your financial model (the one that a freelance FP&A resource spent three days building for you.)
  5. Either a Professional Employment Organization to help you hire, fire, and to procure and administer benefits, or a freelance HR consultant.
  6. Access to on-demand expertise to help with the heavy lifting.
When on-demand help makes sense:

Some of my favorite engagements have been with clients who really do not need a CFO. What they need is information and strategy for how to get where they want to be.

When I work with a client who does not really need a CFO, it is typically to solve a key problems or series of key problems that are impeding forward progress. Here are some of the more common ones:

  • Why don’t VCs want to hear from me again until I have $1,000,000 in annual revenue?
  • Why I am the only person who can sell this product?
  • I don’t know if I should charge for this product or give it away?
  • What do I need to do differently if I want to build a subscription revenue company? Do I charge per-seat, per-click, per-use or per-feature?
  • How do I structure my pitch in less than 36 slides?
  • How can I find out how much cash in the bank I will have 90/180/365 days from now?
  • How do I set up HR and Accounting processes and how do I know that the work is getting done efficiently and properly?

And if these questions are indeed on your mind, let’s talk.