There’s nothing quite like getting in at the ground floor and building something from scratch. We should know!
But one of the challenges of being a new addition to the C-Suite, especially as a CFO, is the sudden shock you may encounter when stepping through the doors on day one.
You may be a veteran or newly minted CFO coming from a more corporate environment to join a hyper growth business. One thing you’ll quickly discover is the lack of systems and processes in place. There’s a lack of technology. There’s a lack of senior-level skills. And frankly there’s just a lack of horsepower. None of this is a surprise because this is why the company is hiring you.
The business you’re joining has been doing extremely well the past several years and now wants to take things to the next level. They may have just raised funding and need to show quick wins. Or they’re expanding internationally. Or they’re launching new streams of revenue. In all of these cases, the tools, people and processes that have brought the business this far isn’t working for them anymore. And those tools, people and processes are typically scrappy analysts tying together a bunch of spreadsheets.
It’s a tall order for the inbound CFO who has to show value in his or her first few years (or months!). To that end, here are five things CFOs can do to help get the ship righted for growth.
One of the biggest challenges you’ll face as the CFO of a midsized firm is the sheer number of demands on your time. Not only do you have to ensure the business is financially stable and liquid in order to meet its current demands, but is also set up for success for future growth. You’re also thinking about strategic vision, providing thought leadership, and finding ways to build a more efficient business than your competitor (ie. generate EBITDA margin above the industry average). And on top of all of that, you have a portfolio of IT, HR and Accounting rolling up into your purview.
This gets overwhelming really fast.
If you’re part of a small Finance team you’ll find yourself inundated with tasks and probably handling a lot of the day-to-day work yourself. And while this is OK to do in the short run (everyone has to roll up their sleeves at some point), this is really not something you should be doing for more than a few months.
So in order to keep your mind free of the day-to-day one of the most critical first hires you’ll want to think about making is a Controller. This addition to the firm will take a lot of the burden off your plate, allowing you to focus on larger, more strategic initiatives.
The goal of every CFO is to be a strategic leader. This necessarily means having the time and mind-space to attend meetings with internal stakeholders, your colleagues in the C-Suite, and external vendors who can help you move the ball forward. This is impossible to do if you’re always in the weeds worrying about the day-to-day.
Your key deliverable here: Hire a Controller.
Now that you’ve successfully taken measures to protect your time, you have to do the same for your people. And this means the entire company. One of the biggest detractors to peoples’ efficiency is doing manual back-office tasks. This is repetitive Point-Click-Type work. As the business starts to grow, this manual work has got to go. And the only way to do that is to invest in technology.
Technology isn’t about fancy AI or Machine Learning. It’s about laying down infrastructure that allows your people to actually move onto higher value things. It’s a lot like how you hired a Controller to free you up, only that you can’t do that for every person in the company. So technology infrastructure is a scalable way to do that for everyone in the business. And this infrastructures requires money. The question then becomes: How much?
It ultimately depends on the state of your business, but the general rule is somewhere between 4%-8% of top line revenue. For the actual numbers, ROI consultancy Alinean Inc. found the following from one of their detailed studies :
You might ask – why do larger companies spend less on technology? After all, as they get bigger, shouldn’t they be able to afford a larger proportion of top line go towards technology? Or are they just trying to cut costs?
The answer is neither. Investing in technology means investing in infrastructure. What you’re seeing is companies’ revenue generation outpacing the technology costs needed to generate that revenue. They’re more efficient because of their infrastructure investments. What this means is that they’re able to generate higher and higher returns (revenue) for every incremental (and relatively smaller) increase in technology spend.
Your key deliverable: Establish and justify a Technology Budget worth 4-8% of top line.
For up-and-coming businesses that have great brand recognition and a lot of cachet in the market, it can feel like whatever they put their logo on will sell like hot cakes. And to be honest, this is true. But it’s not true forever. And therein lies one of the first hurdles up-and-coming brands will face – what happens if something doesn’t perform as well as you’d thought? What if you have a loser in your portfolio and you’re not even aware of it?
This why we say a CFO is a lot like the portfolio manager of a company. He or she is managing a portfolio of assets (products, sales channels, marketing campaigns) under various asset classes (IT, Accounting, Finance, HR). As you make investments across a portfolio of asset classes, you’ll be monitoring how all these pieces work together to ultimately impact one number: EBITDA. And the only way to do this is through the use of data.
Asset Managers live in data – they use it to develop an unbiased view of the business and to drive some hard decisions. So even if the brand has put their logo on a favourite new product, or sales channel, or marketing campaign, if it’s not profitable it shouldn’t stay in the portfolio.
What this requires is having data that’s actionable on a daily basis. This will be a huge leap for a lot of companies as they’ll typically be reporting on only a weekly basis, and likely only on one subject area (ie. Sales).
It’s a tall order to move from weekly to daily reporting for all functional areas in the organization. So your key deliverable here should be to move from weekly to daily on just one subject area – Top Line Sales. It has the most visibility in the organization and forms the basis for everyone’s benchmarks. Start here and then slowly bring on other subject areas, like product mix, marketing campaign performance, operations and so on. We talk about how to expand the use of data in the next step. Getting this step right will make or break the next one, so if you’d like to work through your specific challenges and how to implement this correctly, please do connect with us.
By this point, you may be starting to see a pattern emerge in our advice. First start by making investments that will free up your time and better enable you to do your job. Then replicate that value for everyone else in the company. So this next step is the natural extension to thinking like a Portfolio Manager, where you bring data to everyone in the organization. The goal is to eventually have data permeate as many decisions as possible in the company.
As we mentioned above, it’s a tall order to transition every functional area’s reporting from manual, once-a-week to automated and daily. But choosing the right technology and external partner can make that easy.
The bigger issue is changing the culture of the business.
As the CFO this is an extremely important for you to champion because you will likely be the nexus of all data in the business. The last thing you want is for rogue analysts to walk into a meeting with you and bring a black-boxed spreadsheet of numbers that no one else agrees with. Even worse is having others come to the meeting and provide opinions that aren’t backed by anything but their gut. As the saying goes, “In God we Trust. All else, bring data.”
When starting out, you’ll find others in the organization who are power users of data. These people can be both champions and detractors, and the case varies from person to person. Some will welcome the centralization and permeation of data throughout the organization. Others will resist standardization as they see their ability to pull reports or generate numbers as central to their value. And then there are others who have no idea that the data even exists.
The strategy here should be to not only democratize the use of data throughout the organization, so that everyone can (and is encouraged to) self serve. But this equal access must be safe and governed so that users don’t accidentally make a misstep in their analysis.
Your key deliverable here is to take the technology you rolled out in the prior step, setting up daily reporting on sales, and begin on-boarding every functional area. This requires following a strong Change Management roadmap and effectively communicating the purpose and value of the change throughout the organization. Depending on how many functional areas you have in the business, this can take 6-12 months, or roughly 45 days per functional area.
Change management is a much bigger topic than we can cover here. We’re currently working on a Change Management Framework eBook to help you introduce data culture to the rest of the organization. If you’re interested in the eBook, let us know and we’ll send it to you once it’s ready!
Now that you’ve protected your time, established a technology budget to enable your people, and are building a data-drive n culture, you’re finally in a space to start thinking strategically.
Having spoken to a few CFOs about this, the term “going concern” has a bit of a negative connotation. Ultimately it just means that the company is able to keep its lights on. That is not “thinking strategically”, and I would argue that the modern CFO isn’t happy with just “keeping the lights on”. She wants to think about where the industry is going, what the major shifts in the market are going to be, and how to position her business to be at the forefront. This is thought leadership.
It’s also important to talk about what thought leadership isn’t. Thought leadership isn’t having pie-in-the-sky ideas about what the business could become. Anyone can do that. Thought leadership means becoming one of the trusted advisors of the CEO and providing the “calm waters” so that the rest of the business can follow through on that leader’s vision and mission.
In this step, your key deliverable will be to work with the CEO to understand his or her vision, and plan ahead, in a fiduciary capacity, to determine what the company will need to get there.
All of the pieces we touched on above were investments in infrastructure (people + technology) that enables thought leadership. They are what allow you to be the strategic leader and trusted business partner you are striving to be. With poor infrastructure, everything your people do, all the hours they spend and the hires they make, will go towards just “holding still”, trying not to drop one of the many balls that are being juggled.
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