After the excitement and freewheeling of the first creative stage of growth driven by entrepreneurial or technical zeal, all businesses face similar challenges and unfortunately the data would suggest 80% to 90% don’t make it successfully through. As a founder or CEO you need to do everything you can to improve your chances of transitioning to the next stage without losing the strengths of your business.
New problems in this growth stage scaling up are likely to include:
– Forward thinking and planning for a range of scenarios; just being quick to react is no longer viable
– Identifying potential bottlenecks and planning how to resolve them
– Creating the operational platform and organisational structure that supports future growth
– Professionalising and mitigating single points of failure (founders, key employees, partners, suppliers)
– Ensuring available funding moves in line with strategy
With new challenges you need new resources and here’s where there is a good fit between the growth stage requirements and your CFO recruitment. You may not think you need a CFO, or indeed you may have someone with the title who you think is good enough to lead the finance reporting function (and is therefore fulfilling a financial controller role) but I would advise you to think again.
The core differences between a good CFO and a financial controller are:
– Sees the big picture from market dynamics through to operational delivery
– Forward thinking not just keeping score
– Operational involved and driving change through influencing across departments
– Analytical and challenging at board level and with departmental heads
– Understands all stakeholders’ objectives (investors, bankers, founders, directors, management, employees) and what drives value creation
A good CFO will be decisive and transparent in decision making, commercial, robust, approachable and a good manager of their own staff and influential in interdepartmental relationships. They will also be experienced and comfortable with change management such as new systems, products and revenue streams, roles and people. They might not be inspirational or innovative but they get things done with minimum fuss.
Ultimately a good CFO is a widely applicable, high level resource that just happens to have a functional expertise in Finance but can bring analytical and organisational skills to bear across all areas of the business. They usually have a very complementary skill set and character to an entrepreneur and they eat up the tasks the CEO never gets around to, or gets bogged down in; freeing time to drive employee engagement, product development, client relationships, industry partnerships, marketing and the many other growth factors which are essential to your company’s chances of success.
In the two PE backed businesses where I have been CFO, the CEO was only too pleased to be able to fully relinquish decision making responsibility across a range of areas like IT, HR, Compliance, Administration, Quality Systems Management, Client Services and take a partnership approach to running the business knowing that I would be supportive of his ambitions but keep him honest and realistic; never letting him promise something externally that we didn’t have the resources to deliver.
Where’s the finance function value add?
By being at the heart of decision making, providing quality data and insight by broad knowledge of the business, robust challenge of assumptions being made and ensuring there is good debate before committing, the CFO can ensure that resource allocation decisions are optimised and that the Finance function evolves away from being expenditure police to be a centre of insight and a genuine value add proposition for the business. One of the key resources in a small business is of course the time of the founder/CEO and, as with my personal experience, the partnership between a good CEO and CFO can free up huge amounts of the CEO’s time and allow a greater focus on their areas of strength rather than, as is often the case, growth exposing and exacerbating weaknesses which is a major cause of the high failure rate.
What does the CEO get? – time to think
The best CEOs know their own strengths but justifiably feel that they just can’t afford all the functional heads ideally required. As a Founder or CEO you naturally take personal responsibility by putting yourself forward to solve the major departmental problems as they arise. This is clearly admirable but unsustainable through the growth stage and for your own sake, and that of the business, you need to create some headroom for yourself to improve the chances of a successful scale-up.
The best way to do this is by upgrading the only other role that can have impact across the whole business, the CFO.
About the author
Steven has over 15 years of private equity experience gained both within private equity firms and as a senior executive of private equity backed companies. He joined Frog as CFO and Partner in charge of Portfolio in 2015. He represents Frog on the boards of Mediatonic, Scoota and Edited.