Finance 2.0: A Conversation with CFOs on their Relationship to Tech (I/II)
Digitization in finance isn’t something new. Over the past decade, startups and legacy providers have conquered this market, leading to a myriad of scattered tools fighting for a place in the CFO and finance professionals’ tech stack. The market is crowded and competitive — yet new startups keep on coming for this space and similarly, investors’ money and attention haven’t faded away. So at Lightbird in the past couple of weeks, we decided to sit down and conduct several interviews with CFOs and finance professionals to better understand why the CFO tech stack remains an attractive space for innovation and where we see the biggest future opportunities.
TL;DR: The evolution of the CFO role has had a significant impact on the key challenges finance teams face every day. Consequently, opportunities to create value for finance professionals lie in technology that a) further automates basic finance tasks to reduce errors and increase efficiency, b) better connects the (data) dots, and/or c) enables better collaboration with business partners.
🤠 Beyond finance: The multiple hats of a CFO
Finance departments have long been seen as a back-office black box for the rest of the organization, dealing with number-crunching and reporting activities no one else understands or likes to do. While finance professionals still take care of the core transactional, record keeping and reporting activities of a company (see the bottom of the pyramid as illustrated below), their role and particularly the role of the CFO has drastically evolved over the past decade to become more strategic than ever. Today, CFOs and their teams are considered gatekeepers of essential data and insights, key to strategic decisions and the future of a company. Hence, they are asked to focus their time on more valuable activities such as financial planning, forecasting and risk management (see the top of the pyramid).
For finance professionals today, daily activities span across many core aspects of the company: from traditional and transactional finance activities, to strategic finance including even resource management / HR tasks in some smaller companies. Risk management and data governance are other important activities that oftentimes fall under the responsibility of CFOs. As Fabian, CFO at The Creative Club, told us: “Previously, the CFO was, in essence, the “Chief Accounting Officer”. But nowadays, bookkeeping is just one nuance of the job— my role is more focused on strategy and growth projects in close collaboration with my CEO”.
This evolution in the CFO’s remit impacts the kind of challenges finance teams face today and subsequently defines their needs and relationship with tech.
⚡ The key challenges and pain points of finance teams
While the activities and needs of finance professionals working for startups, SMBs or large companies can widely diverge, they still share key challenges and pain points, as revealed by our interviews:
- Tech black box and inefficient data reconciliation: Among the things that can make finance professionals stay up at night are data that do not reconcile, totals that do not add up and numbers that seem to “just pop up” out of nowhere. As Niklaus, Lead Business Controller at Swisscom, puts it: “It is crucial that the flow of data is continuous — otherwise it’s just “garbage in / garbage out!”. For many CFOs, the current tools in use remain “a black box they cannot trust”: how is the data processed by these tools? How is it consolidated? Why do I get this result and why doesn’t it make sense? And when mistakes arise in processes that should be well-oiled and error-free (e.g. reporting, invoicing, record keeping), finance teams have to spend too much time understanding where errors come from and find workarounds to manually fix them.
- Data, data, data everywhere: Data is at the core of what finance teams do. Every day, finance teams have to deal with a massive amount of data to be collected, cleaned, consolidated and eventually interpreted from a variety of internal as well as external sources. Yet, as mentioned above, a lot of time is still wasted on the data collection, cleaning and reconciliation part, rather than on the more challenging and essential analysis and interpretation. For many CFOs, a key challenge for their organization remains how to truly make sense of all the data they collect and to derive insightful conclusions.
- The complexity of being future-proof: budgeting and forecasting have always been part of the central tasks for a CFO. While planning future scenarios typically happens punctually at pre-defined periods of the year, the recent pandemic highlighted the importance of rolling forecasts and short-term planning. CFOs are therefore increasingly asked to keep a constant eye on how the business is evolving, using real-time data, and to provide business partners with more precise forecasts and relevant risk management measures. With that and the overall shift towards more strategic responsibilities, CFOs face the challenge of taking on tasks with a new level of complexity.
- Communication or the power of being understood: the inherent complexity of what finance teams do is often misunderstood. Like some of our interviewees mentioned, many stakeholders still have the wrong belief that finance is “simply” about number crunching and neat reporting. And so, for finance professionals, another often cited pain point is the ability to communicate and showcase the complexity of their work in a simple and easily digestible format to their stakeholders.
⭐ Where tech can support and bring the most value
Based on the challenges and pain points CFOs are facing, we identified three opportunity areas where tech can provide the most value to finance teams:
- Making basic finance tasks more automated, error-free and efficient: the majority of existing tools in the market today focus on automating basic activities in finance (e.g., transacting, record keeping, reporting, spend management) — yet there is still more to do! In this space, the future opportunity lies in offering tools that make basic finance tasks even more automated and efficient, as well as more transparent and error-free, so that finance professionals can truly trust the systems they work with and focus on more complex activities. LiveFlow (UK, 2021, $4M)* is an interesting example in this space as they aim to speed up financial reporting by automatically updating excel spreadsheets.
- Connecting the dots: when asked about their wish-list of tools, many of our interviewees mentioned something in the likes of “a tool that could bring more clarity in the interconnectivity of data” or a “super app that would collect, consolidate and make the connections between the available data” especially in complex activity areas such as FP&A, Treasury Management and Risk Management. In essence, CFOs wish for tools powered by AI / ML to i) more efficiently connect and consolidate data otherwise scattered or isolated across different sources, ii) to suggest predictions / scenarios of potential outcomes based on the interconnections found in the available data, and iii) to help make better sense from the data in real time to derive more insightful decisions. Startups such as Pigment (FR, 2019, $99M)* and Modern Treasury (USA, 2018, $133M)* are designed to help CFOs better connect the dots between different sources.
- Enabling cross-teams collaboration: Another opportunity consists in helping CFOs in communicating their insights to business partners. Tech tools can support finance teams in better visualizing and sharing easily digestible financial insights. In that sense, self-service dashboards or financial cockpits that are also adapted to non-financial audiences come in particularly handy. Solutions like Abacum (USA, 2020, $32M)* and Pectus Finance (GER, 2021, n.a.)* put collaboration with business partners at the core of their product.
*(Country, Founding year, Funds raised)
In the second part of this article, we dig deeper into CFOs’ relationship to tech, their willingness to adopt new tools, buying criteria and conclude with what we consider as success factors for potential winners in this space.
Are you a founder building something or just generally interested in this space? We’d love to have a chat with you, feel free to get in touch with us via Email. Also, sign up to our newsletter to stay updated on everything happening at Lightbird :)
