Do You Have a Great CFO?

September 12, 2012 by

Before we talk about what makes a CFO great, let’s make sure you are convinced you need one. Early stage software CEOs (the inexperienced ones, that is) have a tendency to postpone hiring a CFO. Typically, the reason revolves around cost and the perception that there’s not enough work for a CFO to do at the early stages of a company. Those are good reasons. But at some point in the company’s evolution from the startup stage to the expansion stage, the cost/benefit of a CFO begins to shift.

So, when is the right time to hire a CFO?

  1. When the cost of not having one exceeds the cost of having one: More than once I’ve had a CEO disagree with my push to hire a CFO. In each case, the CEO regretted that push-back. The regret comes from the realization that the company has suffered an inordinate amount of cost or revenue-loss because the CEO gets blindsided by the unknown. For real life examples, read this post highlighting the heavy price companies can pay for not having the right CFO.
  2. When the complexity of managing the company operations goes beyond what the CEO can handle: This is a tough one. Tough because there aren’t many founding (aka inexperienced) CEOs who are willing to admit they can’t handle it all. Often, they believe admitting the need for a CFO is perceived as an admission of failure. My message to the CEO at that point is, “Get over it. Your role is not to do everything. Your role is to hire the team that can do everything for you.” Read this post for more on the imperative of building a cohesive senior team.
  3. Right before you raise an expansion-stage VC round: It’s so much easier to have your CFO in place going into the expansion stage. And it makes your fund raise that much easier when you have a CFO who has raised VC rounds before. Granted, it may seem like you can’t afford the CFO before the fund raise. My advice: Figure it out. Find a way to afford one.
The role of the CFO is to be the right-hand person to the CEO. If the CEO pilot the CFO is the co-pilot. He or she needs to be the CEO’s confidant and sounding board. The CFO is also the operational arm of the CEO, focused on orchestrating the implementation of processes and systems across the company and tracking the efficiencies of the operation. Read more on the role and value of the CFO here.

What makes a great CFO?

  1. Experience: A great CFO is one who has been through one or more company evolutions from one growth stage stage to another. He or she has been through VC fundings and lived the company life post-funding through exit. At the startup and expansion stages, IPO experience is not critical. Cross that bridge when you come to it. Hire the CFO with experience taking companies from your stage to the next. If your next stage is not an IPO, don’t hire an IPO CFO. Notice I don’t mention finance expertise. That is a basic requirement and a given — it doesn’t make a great CFO.
  2. Strategic Insight: Look for a CFO who doesn’t just report on the numbers, but instead derives insights from them and translates those insights into recommended strategic decisions. He should have the ability to look out 2-3 years and anticipate the potential issues/impediments to achieving the company vision and mission.
  3. Operational Acumen: Don’t just hire a finance CFO, hire an operational CFO. There’s a huge difference. An operational CFO is one who can run the business.  She is passionate about building processes and implementing systems. Her instinct is to build the operational dashboard to run the business before you ask her to.
  4. The Sales VP’s Nemesis: An ideal CFO is experienced enough to know that the only way to call the VP of Sales’ “BS” on the forecast is to get in his face and challenge his numbers, knowing full well that the natural response from the sales guy is fury, and that the fury is a test to see if the CFO blinks. If the CFO doesn’t blink, he will win the respect of the sales guy and will start getting much less BS and much more accurate forecasts.
  5. Customer Empathy: The best CFOs care about their companies’ customers and want to interact with them. They insist on regular interactions by the senior management team with customers face to face.
Some of these thoughts are echoed by Andrew Sawers in his post for CFO.com, “What Makes a CFO Great?“
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Discussion

  • http://twitter.com/WorrellBrothers David Worrell

    That’s a great list, Firas.

    I especially appreciate the operations, sales and customer-focus attributes. Too many people think that a CPA makes the best CFO. In my experience, it couldn’t be further from the truth. Understanding finance — and USING finance to grow the business in strategic, customer-focused, and efficient ways — has very little to do with being a great accountant. And, I’d go further to say that really good accountants make poor CFOs because their nature is to look backward.
    Thanks for including these crucial forward-looking roles into your definition of CFO.

    David Worrell
    http://www.RockSolidCFO.com

    • http://bit.ly/1Gu8Ha Firas Raouf

      David, I appreciate your comments. Good to see I wasn’t completely off.

  • Guest

    Preface: I am today a tech Marketer but a recovering Accountant.

  • John

    Great article, makes me want to be a CFO!

    John
    http://www.forex-central.net

  • http://www.ReadyFounder.com John Bradberry

    Thanks for this valuable perspective — as I read the early paragraphs of your piece, I was thinking about the operational value of the right CFO (then, of course, you emphasized that point later in the article). Another reason your argument resonates is the raft of evidence that shows most great expansion companies are led by dynamic leadership pairs — external/internal, strategic/operational, technical/people-oriented, even good-cop/bad-cop. Whatever the partnership looks like, it’s rare to see an expansion stage business get lots of lift without a pair of key leaders who complement and support each other. It’s time for the CEO to brush ego aside and propel growth.

    Thanks again, Firas, and look forward to your future pieces. JB