Every investor is looking for the “dream team” of executives to put money on. Often I find that experienced investors scan ahead to the management page of a business plan, even before they read the product description. That’s how important the people are. The Chief Financial Officer (CFO) role is usually considered second only to the CEO, because financials are critical.
In fact, about 25% of CFOs make it to the CEO position, although not necessarily in a single step, like Marcel Smits at Sarah Lee foods. The latest Crist Kolder report finds that the percentage of new CEOs who have prior experience as a CFO hit an all time high during the recent financial crises.
"It's not often, if ever, that we get a client saying, 'We've got to have a CEO who has been a CFO,'" says Kolder. "It's more the reality that CFOs are better prepared than ever for taking the role of CEO." Here are some key attributes of CFOs who fit the dream team definition, based on a definitive article by Mark Macleod:
“It’s all in the details” - A professional accounting designation (CA, CPA) is the foundation. A few years ago it was all the rage to have MBAs in the top finance role. These days, with Sarbanes-Oxley and all the new SEC regulations, an MBA does not begin to cover the accounting, process, and tax knowledge needed to steer a company’s finances.
“Let’s make a deal” - The dream team CFO not only runs the deal process for fundraising, but should also bring deal flow into the company. They should have a track record of originating and closing equity deals, and should have a long list of potential financing sources that are willing to take their call. Also you want someone who can stretch your funding by knowing which expenses to cut without harming your business.
“Time to get organized” - Your CFO should take a leading role in bringing operational excellence into your company. It means installing just the right amount of process, reporting and structure. Not so much that it slows you down, but enough so that you smoothly run and grow the engine.
“What happens in the company stays in the company” - Your CFO should be a trusted advisor to the CEO and other executives. Running a company can be lonely. Your CFO can be a key, objective source of advice and counsel as you make the big and the small decisions.
“Jack of all trades” – Able to perform other duties (e.g., human resources, technology, legal, and information technology) as needed. It will be a long time before you have in-house counsel, and you can’t afford an outside law firm for every NDA to sign. So, choose a CFO who is very comfortable with legal documents, as well as finance.
“Been there, done that” - Building a software company is much different than a manufacturing one, or services. The differences are just as apparent in the financials as they are in technology. You need someone who knows the ropes in your industry.
“I have a dream” - The startup road is guaranteed to be long and hard. Investors look for someone who loves the challenge, looks and sounds like he can weather the storm, will always see the bright side despite adversity, and never gives up.
The job of a startup CFO is very different from one at a “big” company. The latter is much more of a hands-off role focused on investor relations, deal making (financing, M & A), governance, reporting and other back office matters. In stark contrast, the startup CFO is much more hands-on and integrated into the day-to-day of the business.
As you probably noticed and Mark points out, only one of these CFO attributes actually deals with accounting. The reality is that companies are increasingly looking for leadership from their CFOs. If you are looking for funding, as well as a good career path to a CEO down the road, consider this one.