Do You Have a Great CFO?
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?
- 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.
- 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.
- 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.
What makes a great CFO?
- 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.
- 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.
- 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.
- 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.
- 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.