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Chapter 23 CEO‐to‐CEO Advice About the Finance Role

Matt Blumberg

What comes before a full‐fledged CFO? Lots of startups have nothing more than an outsourced bookkeeper or one junior staff accountant. Sometimes a founder or a founder's spouse even steps in on this front. As startups scale, they are likely to hire a more senior accountant, maybe an AR/AP/Collections staff member, or even a Controller or VP Finance.

Signs It's Time to Hire Your First CFO

You know it's time to hire a CFO when:

 You wake up in the middle of the night concerned about cash—not just that you're running out of it, but that you aren't clear on how much you have and how fast you're spending it.

 You are spending too much of your own time managing fundraising, debt, investors, and cap table questions, and issues.

 Your Board asks you about some small‐to‐mid‐level analysis or metric like CAC, customer profitability, margins, or ROI, and you don't have a great answer and aren't sure how to get one.

When a Fractional CFO Might Be Enough

A fractional CFO may be the way to go if your business model is simple … some combination of a limited number of complex accounting issues, a limited number of customers/invoices/transactions, and an insignificant difference between the income statement and the cash flow statement. If what you need is someone to oversee a gradually growing team, a slow‐paced implementation of higher‐order systems, basic financial analysis or modeling, or the occasional fundraising event, a fractional CFO may get the job done, for several years.

What Does Great Look Like in a CFO?

Ideal startup CFOs do four things particularly well:

1 They spend time learning and steeping in the substance of the business—understanding the product and spending time in‐market with customers and partners. They do not believe their function is “corporate” or a service function. They insist that the people in their department do the same.

2 They are deliberate about regularly reviewing homemade systems, processes, and spreadsheets and looking for opportunities to streamline things, reinvent them, or move them into systems. Once most things are automated and in systems, they are constantly evaluating whether or not the systems are serving the business well enough and are looking to integrate systems across the company. They are not afraid to tear down and reinvent systems and processes that they themselves set up in the past.

3 They have the right balance of pessimism and optimism and are strong at communicating both. While they are proactive and timely about delivering bad news to you and the Board, their orientation isn't around “no” and bad news. Their orientation is around investment and return and always thinking about things going on around them in the company through the lens of realistic opportunity.

4 They can fly at multiple altitudes at the same time, noticing the smallest detail that's off while thinking about business models and strategy. While most executives need to be strategic and tactical at the same time, the CFO needs to be like that more than most—mostly because the details and tactics are frequently life‐or‐death for your startup.

Signs Your CFO Isn't Scaling

CFOs who aren't scaling well past the startup stage are the ones who typically:

 Play the role of the Late Night Hero over and over again. There's always a pending crunch time that requires their personal attention and a ton of manual work—the monthly close, the audit, the budget, commission planning, compensation cycles. CFOs who are mired in doing all of these things personally and manually haven't built the systems, teams, or processes required to scale the business.

 Allow accounting teams to swell in size. “Throwing bodies at the problem” and allowing people to pile up on a team instead of taking a process innovation perspective to Accounting is easy because it's the path of least resistance, but your CFO would never allow other teams to do that, so why should they permit it on their own teams? Accounting teams in particular tend to be the most traditional, paper‐based, teams and don't need to be.

 Get forecasts wrong, or don't even try to do them. Especially while your startup is in burn mode and constantly calculating its runway and months until the next required financing, regular and accurate/conservative forecasts are critical. Even without a ton of revenue visibility on forward‐looking sales, good CFOs should have enough of a grip on expenses, cash flow, and order‐to‐cash dynamics to produce good, rolling 12‐month cash forecasts.

How I Engage with the CFO

A few ways I've typically spent the most time or got the most value out of CFOs over the years are:

 Doing mental math together. My CFO and I are always attuned to key metrics and from time to time project them forward in our minds. We are constantly checking to see that our financial and operating results mesh with our mental math. When looking at our cash balance, we look back at the last financial statement's cash number and mentally work our way to the current statement: operating profits or losses, big swings in AR or AP, CapEx, and other “below the line” items. Do they add up? Can we explain it in plain English to other leaders or directors? The same thing applies to operating metrics—the size of our database, our headcount, our sales commission rate.

 Spotting the wrong number on the page. I'm sure this has driven CFOs crazy over my career, but I have some kind of weird knack for looking at a wall of numbers and finding the one that's wrong. It's some combination of instincts about the business, math skills, and looking at numbers with fresh eyes as opposed to being the one to produce the numbers in the first place. But it's part of the partnership I have with my CFO that improves the quality of our work and quantitative reasoning.

 Working hard to tell stories with numbers. The best CFOs are the ones who are also good communicators—but that only partly means they are good at public speaking. Being able to tell a story with numbers and visuals is an incredibly important skill that not all CFOs possess. Whether the communication piece is an email to leaders, a slide at an all‐hands meeting, or a Board call, partnering with a CFO on identifying the top three points to be made and coming up with the relevant set of data to back the numbers up—and then making sure the visual display of that information is also easy to read and intellectually honest can be the difference between helping others make good decisions or bad ones.