The Why, When and Who of hiring a (modern) CFO for your startup
Iconically (though wrongfully), a startup is seen as the land of the cool, the land of innovation, technology, developers, of tech-savvy CEOs who single-handedly create and sell their product, of young and laid-back but dynamic professionals, enjoying the thrill of their recently well-funded promising business.
Still iconically (and still wrongfully), a CFO is a middle-aged, grey-haired, grey-suited, grey-faced, senior executive enjoying the peacefulness of a comfortable straight-lined career.
So, when a VC asks: « Have you considered hiring a CFO? », eyes tend to roll.
The question has nevertheless spurred a long and hot debate. To some, a CFO is an overkill hire for a young startup; to others, a crucial support to the CEO from early on.
Adding my two cents, I imagined the following conversation.
(Disclaimer: if you don’t recognize yourself in the caricatured character of the CEO below, congratulations! You are a cunning, modern-thinking, data-driven entrepreneur, on the road to riches and success.)
CEO: I don’t need a CFO: we’re too small to focus on anything else than product & sales
VC: You are right. You SHOULD focus primarily on product and sales. Or rather: YOU (i.e. the CEO) should focus primarily on product and sales.
Running a startup means a million things to think about and get done, and you still have a 24h day like everybody else. Clearing your head so you don’t spend hours ploughing through your legal, HR, admin and accounting obligations is a definite advantage to your ability to focus on your business.
What is true, though, is that you may want to hire someone to fill that role while holding on to the “CFO” title. Hiring someone with such a C-level tag from the start (and therefore including him or her in the cap table, as may rightly be expected for a C-level) may be premature if your company is still finding product-market fit. Except if your company is a fintech (where the CFO is usually hands on on the product development), its organizational chart will be clearer and more realistic if your board of directors reflects the objectives of your early-stage startup : develop a product and see if it can be sold. Truth be told: “Co-founder and CFO” will make your potential VC wince. At this stage, a senior CFO role is close to a COO one: your options for the title of your finance major co-founder pal are wide open.
CEO: Ok, so I’ll hire a CFO when I spend too much time on support issues
VC: You may want to do it sooner than that, for two reasons.
First, when you realize you’re wasting time on admin, it’s too late: you’ve already wasted time on admin. Freeing yourself soon enough will allow you to spend your critical first months/years on developing and selling your product.
Second, and most importantly, a modern CFO today is required to be a much wider tool than “the one who handles my admin”. Your CFO is your business partner, who has the luxury of not being shoulders deep in operations, so he/she can have a precious perspective on your business; and yet who is close enough, and savvy-enough on the company data, so he/she can add lucid and relevant insights.
The CFO role has indeed changed. From reporting results, and closing the books every quarter, it has shifted to a more hands-on and core-business position. The CFO is more and more a key executive who works across the company to organize the business for future scaling up, helps develop a strategy, and is deeply involved in your company’s monetization plans.
Modern companies are now competing in an increasingly data-driven, real-time environment. Financial planning and analysis (FP&A) is no longer restricted to reports that no one reads; it is a key tool to give to operational managers and help them in their everyday decision-making process.
For this reason, if you ever choose to hire a part-time CFO (a solution often found among startups), it should be limited in time so that you don’t cut yourself from the full value added of a full-time CFO.
CEO: But he/she will hinder our growth by constantly challenging my expenses
VC: Indeed, and that is a great thing, expenses SHOULD be challenged. Spending your money on a whim to satisfy your vision, without knowing and analysing the data behind it, is a doomed strategy. The more data-driven your startup is, the more likely it is to foresee opportunities, anticipate pitfalls, and, ultimately, succeed. You can look at it this way: you are the visionary driver of your company; your CFO is your dashboard and GPS.
This dashboard is filled with crucial information on your startup’s journey: its customer acquisition cost, lifetime value and churn, its cash burn, cash conversion cycle and time to zero cash, its revenue, bookings, gross and net margin, its staff costs, cost to hire and churn, its MRR (and all derivatives: expansion/contraction/reactivation MRR…), its lead velocity rate, etc.
From early on, even if you start with someone without much experience and track record, your data-driven CFO will be able to guide you through this dashboard and in order to, for example:
📍 help you analyze and maximize the ROI of your marketing expenses so that by spending as much, you reach more customers;
📍 compare your company to the best practices out there;
📍 help you define a data analysis-based strategy for your go-to-market plans;
📍 optimize your structural expenses so you can spend more on product development or hire a tier 1 lead dev;
📍 help you monitor and forecast your cash position so your startup doesn’t burn your recent funding round before you’ve reached product-market fit / significant POCs / enough market traction / breakeven / etc., for your series A round / M&A roadshow / etc.;
📍 organize your processes so your procurement or operational risks are covered (late payment, misplaced or unaccounted for inventory, fraud or scam, misuse of corporate assets);
📍 and the list goes on.
CEO: Ok fine, I’ll draw out a job desc. I’ll hire an auditor from a big 4 right?
VC: It’s not that simple.
“CFO” is a widely used acronym for very different roles and perimeters across companies, and the skills you’ll look for in a CFO will vary accordingly (my hunch is that the hotness of the debate on when-should-a-startup-hire-a-CFO is due to a lack of a universal definition of what a CFO actually does).
Ideally, the perfect hire will be able to accompany you throughout the life of your startup, making use of his/her various set of skills across time. As a complete set of skills such as this is quite out of the ordinary, you may want to target a hire with your current needs, keeping an eye on where you want to be in a couple of years.
To my mind, a CFO’s role and necessary skills (and therefore, level of seniority and therefore salary) vary widely depending on the stage your startup is at.
💸 Seed/Series A:
o Cash management: at this point in the life of your startup, cash is king. Your CFO must be familiar with cash-tight situations and be savvy on cash monitoring and forecasting.
o Financial control: a first experience in financial control should be enough at this point. What you need is a data-driven individual, keen on analyzing everything in sight, and not afraid to challenge you.
o Alternative funding: you will run the main funding rounds with VCs and target acquirers, yourself. But if your CFO knows the ropes to alternative funding opportunities (public grants, factoring, crowdfunding and the like), you will secure precious months of cash runway and save time and energy.
o Processes & risk management: your CFO should have experience in internal control to help you organize the company’s processes so you are ready to scale at the push of a button when the time comes. Some experience in a legal department may come in handy, as you definitely don’t have a CLO (Chief Legal Officer).
If your startup is a Fintech, this part of the job desc is key: your CFO will probably be in charge of compliance. Past experience in internal control or as a compliance officer is a good place to start.
o Accounting: interestingly, not yet crucial. Your startup may still confidently rely on external accounting firms, and your CFO only needs to be able to speak the same language.
💸 Series B/C/D (at this point I am confident you can no longer live without your CFO, you’re welcome!):
o Cash management: cash is still king (and always will be), but now your CFO should be able to industrialize cash monitoring. He/she is now able to act as treasury project manager, implementing a CMS, orchestrating bankers and currency exchange trading desks. Experience in treasury departments ofblue-chip companies is a plus.
o Financial control: more than interesting insights, your CFO must now be able to manage a (small) team of controllers who deliver top quality dashboards from all the countries where you operate to produce actionable insights. Experience in managing such a team is appreciated.
o Funding: your CFO is now the key person with regards to bank relationships, all kinds of funding, including late-stage VC funding. You are still in charge of selling the company, but your CFO takes over the negotiations, maybe thanks to his/her past as an M&A banker for example.
o Processes & risk management: I believe no further experience than at the previous stage is really necessary. No less, though.
o Accounting: here is where further knowledge comes in handy. As you are reaching a certain size it is a good option, or even necessary, to bring in an accounting team and say farewell to your external firm.
At this point, your startup will be in search of a highly seasoned, highly experienced, ex-listed company CFO, who will not only manage large teams of finance professionals who will have all the previous skills, but will also be the public face of your company in front of investors, stock exchange, bankers, financial analysts, and regulators.
CEO: One last thing: how much should I pay for such a unicorn?
VC: Honestly, follow the market. Just bear in mind that good CFOs, or finance executives in general, are worth it pretty fast thanks to optimized spending, greater revenue due to key insights, better fundraise, greater profitability, optimized resource allocation. Hiring a CFO is an investment rather than a cost — and your CFO will be there to prove it to you.