Growth CFO – scaling the peaks

Neon River’s Ed Mitchinson on how to find the right CFO for a growth-stage company

Hiring your first CFO

 The dilemma faced by many earlier-stage businesses is how to balance limited resource with the need to build a comprehensive management team to support the business through dynamic growth. It is easy to see the value that a Head of Sales brings to the business through increased sales, or a Head of Engineering brings through improved development processes and the release of new products. Yet whilst the Growth-CFO’s impact is not as immediately obvious as these hires, their impact can be broader and more pervasive than almost any other in the executive team and is key to a business fulfilling its potential. As a headhunter (our approach), finding a CFO for a growth business is one of the most frequent searches we are asked to undertake and we have outlined practical considerations and solutions below.Often the catalyst for the hire of a CFO will be a change of ownership, in which investors will demand the hire as part of their investment, to provide greater reassurance on business reporting and performance, and as such the CFO is often seen as a key hire by investors. What is often overlooked by the executive team is that the CFO can also contribute enormous strategic and commercial value and prepare the business to successfully scale and exit. Long gone are the days of the CFO as a keeper of historical facts operating with a narrow finance remit; today we regularly find CFOs operating as the right-hand man to the CEO, driving long-term strategic decision-making, and often ultimately transitioning into the CEO role.

In many instances, it will quickly become apparent that the hire of a proven CFO who fulfils all your requirements is prohibitively expensive and difficult to attract; as such you may need to focus on your strategic priorities to identify an affordable solution.

Finding the right fit

The key to making the right CFO hire is understanding the challenges that your business will face in the coming years, based on this insight then recognising where there are skill-set gaps in your existing team (Executive and Non-Executive) and then identifying an executive who can fill those shortcomings.

Most high-growth tech businesses share a similar plan at a high level (a period of high growth and exit), but what are the particular dynamics of your company? Recognising your company’s dynamics will enable you to find a CFO who has the skill-set that most effectively fulfils your needs and will highlight where you can afford to make a hire with potential shortcomings.

For example, in many private-equity backed businesses, the group will carry a complex debt structure, and so the CFO will need to be particularly adept in managing cash, covenants and banking relationships. In a buy and build the CFO is likely to need to be particularly astute at structuring and closing M&A transactions, as well as ideally being able to rapidly integrate acquired businesses.

Equally approaching candidates who have operated in companies with similar environments to your own is key to a successful hire:

• Individuals who have operated in high growth environments with demanding investors and a strong degree of ambiguity before are more easily able to adapt to like-minded companies.
• Equally CFOs who have experience of similar business models, for example B2B recurring-revenue software versus B2C Internet, will be able to bring value to your business more quickly.
• Finally, strong cultural fit is essential (as with every role) to ensure you are making the right long-term hire for the business and should ultimately even trump technical skill-set in your selection process.

Different Options

If a CFO candidate does not have all the required capabilities of the role, it should not necessarily rule them out, as you should review whether their position can be complemented by the team around them. The CFO should not operate in isolation and should be able to leverage the experience of the executive team, non-executives, investors and advisors to achieve the best outcomes for the business across their broad remit. For example, your investors may bring a particularly strong corporate finance skill set to the team and Non-Executives may be able to complement shortcomings in the CFO’s strategic capability.

Equally you should not be scared to look at alternative approaches to provide a more cost effective solution to your requirements:

• The up and comer: Investors typically look to mitigate risk and so the natural response is to invest in proven CFOs – for earlier stage businesses this isn’t always the best solution given the difficulty in attracting these candidates and their high cost. Bringing a high-calibre individual into the business, who has operated as no.2 to a CFO or held divisional or regional finance roles could be an option, as long as there is a recognition there are gaps that need to be supplemented through training, mentoring and the skills of others in the business. This approach often provides long-term dividends for the hiring company (and executive), but the risk is that the business outgrows the candidate.

• The Specialist: Subject to the business situation it might make sense to invest in a CFO who possesses a strong specialist skillset, for example an investment-banker for a buy and build situation, or a strategy consultant for businesses that requires strategic insight and complex modelling; however you need to recognise that these sorts of profiles tend to require support from a financial control perspective and may require a further hire in the business (e.g. an FC or Head of Finance).

• The part-time Finance Director: Many proven CFOs are now transitioning to portfolio careers, where they operate across a handful of businesses. These senior professionals are expensive, but with part-time involvement they become a more affordable option and are often able to bring a different level of strategic capability and experience into the business. However, they have limited time capacity, which can be problematic during transactions, and in a lot of instances they will not provide the right long-term solution for your business as they will look to maintain their portfolio approach.

As with so many hires, there is no one simple template to follow, but rather a range of possibilities that can be fit for purpose based on the nuances of your business. In a growth environment, where resources are constrained, there will be inevitable trade-offs, but you should see the appointment of the CFO as a key hire who can successfully position your business to scale the peaks.