Inexperienced CEOs Misunderstand the Role of the CFO
By John Sawinski
I learned something new last week: I always thought CEOs understood what a CFO's role was. Well, not all of them do. For example, a couple months ago I contacted the founder of a new company in my area. I have great personal interest in what the company does, and I thought it would be a chance to do something fun. The local newspaper wrote a feature article about them and they were really starting to generate national attention. My first meeting with the founder and sales manager went very well and they expressed interest in my taking on the role of CFO.
I signed an NDA, then received their business plan and other legal documents. The plan showed where they wanted end up, but did not explain how they would get there. What little financial information was provided was very elementary and lacked supporting detail and credibility. I thought their production time-line was unrealistic, considering where they were in the development process. They readily admitted their plan needed help, but being focused on the product development phase, they had set it aside.
I asked this new company some probing questions about their choice of technologies, the target market and plans to raise capital. I must have hit a nerve. Their answer was, "We don't need people that question our vision; we need people to execute our vision." Frankly, I was disappointed. Every CFO needs to challenge executive assumptions, the team's decisions and strategies, in order to effectively present them to potential investors. Certainly a knowledgeable investor would ask similar questions. While focusing on development is critical, it's not the only thing. Attracting investors is a major responsibility of the entire executive team, and in particular the CEO. To help CEO credibility, a CFO needs to be well-informed and to remain objective. CFOs are best equipped to present your case to investors on behalf of the executive team, just like lawyers are best equipped to present your case in a court of law.
The investment pie has shrunk and will no doubt shrink even more. Times are tough. Conservative investors play their cards close to their vest. To win the game, you cannot falter, not once. During the boom of the late 1990s, business plans were done in pencil on post-it notes. No more. . . Getting investors to take the bait - big investors who can get the job done, not mom and pop speculators - means having a bullet-proof business plan with the full credibility of an experienced CFO behind it.
I spoke at length recently with a private venture capital group who has all but abandoned funding start-ups, (odd for a VC) and has instead shifted to emerging technologies, small but with proven track records, and more importantly, credible executive staffs who can potentially get big. They have no interest in risk, no matter what the upside. In their view, if you aren't already making money, at least a little, they're not interested. A business on a solid footing, with real operations, financial controls, the foundations of enterprise, is what they look for. They're no longer interested in creating a company out of thin air, only adding to what is already there.
The current situation on Wall Street makes things more challenging. Many investors have pulled out of the market and are waiting for things to calm down. The mortgage crisis has been festering for a while and many were surprised that the government jumped in with a huge bail-out program. The rapid rise in the cost of energy means we can no longer delay the adoption of aggressive energy conservation policies or more efficient transportation systems. General Motors, Ford, and Chrysler were the cornerstones of the U.S. economy for many years, but they are in trouble. For them to survive, they need to quickly re-engineer themselves. This will affect many suppliers and related businesses in a matter of months, and makes it all the more critical to have well rounded, cost effective business processes. Everyone will be looking for capital. How will you differentiate yourself to investors?
Ultimately the shake out will leave only executive teams who can plan, execute and stay on track at all times - no surprise there. Good ideas are important, but coherent leadership under an executive team in sync with each other is great. Investors detect this. Companies like Thomas Financial Services, www.thomasfinancialsvcs.com apply insight and experience to get you back on the ladder to success. It's not enough to manage an opportunity. You need to manage the whole business through constant attention to financial systems, ERP, the supply chain, customer experience management, production, and all the nuts and bolts that give investors confidence.
Lots of great ideas die on the vine. Companies implode for the dumbest of reasons. The biggest and oldest banks and investment houses of our time are falling in on themselves over simple missteps that could have been easily avoided. It's not about oversight, it's about execution. CFOs and their credibility with investors make a huge difference. Chief executives who are at odds with their CFOs are a red-flag warning for any company. Run from them. Listen to your CFO. Stay on track. Execute to a realistic plan and you'll never lack for investment. Plenty of companies are liked, but few are admired. Be one of them.
I learned something new last week: I always thought CEOs understood what a CFO's role was. Well, not all of them do. For example, a couple months ago I contacted the founder of a new company in my area. I have great personal interest in what the company does, and I thought it would be a chance to do something fun. The local newspaper wrote a feature article about them and they were really starting to generate national attention. My first meeting with the founder and sales manager went very well and they expressed interest in my taking on the role of CFO.
I signed an NDA, then received their business plan and other legal documents. The plan showed where they wanted end up, but did not explain how they would get there. What little financial information was provided was very elementary and lacked supporting detail and credibility. I thought their production time-line was unrealistic, considering where they were in the development process. They readily admitted their plan needed help, but being focused on the product development phase, they had set it aside.
I asked this new company some probing questions about their choice of technologies, the target market and plans to raise capital. I must have hit a nerve. Their answer was, "We don't need people that question our vision; we need people to execute our vision." Frankly, I was disappointed. Every CFO needs to challenge executive assumptions, the team's decisions and strategies, in order to effectively present them to potential investors. Certainly a knowledgeable investor would ask similar questions. While focusing on development is critical, it's not the only thing. Attracting investors is a major responsibility of the entire executive team, and in particular the CEO. To help CEO credibility, a CFO needs to be well-informed and to remain objective. CFOs are best equipped to present your case to investors on behalf of the executive team, just like lawyers are best equipped to present your case in a court of law.
The investment pie has shrunk and will no doubt shrink even more. Times are tough. Conservative investors play their cards close to their vest. To win the game, you cannot falter, not once. During the boom of the late 1990s, business plans were done in pencil on post-it notes. No more. . . Getting investors to take the bait - big investors who can get the job done, not mom and pop speculators - means having a bullet-proof business plan with the full credibility of an experienced CFO behind it.
I spoke at length recently with a private venture capital group who has all but abandoned funding start-ups, (odd for a VC) and has instead shifted to emerging technologies, small but with proven track records, and more importantly, credible executive staffs who can potentially get big. They have no interest in risk, no matter what the upside. In their view, if you aren't already making money, at least a little, they're not interested. A business on a solid footing, with real operations, financial controls, the foundations of enterprise, is what they look for. They're no longer interested in creating a company out of thin air, only adding to what is already there.
The current situation on Wall Street makes things more challenging. Many investors have pulled out of the market and are waiting for things to calm down. The mortgage crisis has been festering for a while and many were surprised that the government jumped in with a huge bail-out program. The rapid rise in the cost of energy means we can no longer delay the adoption of aggressive energy conservation policies or more efficient transportation systems. General Motors, Ford, and Chrysler were the cornerstones of the U.S. economy for many years, but they are in trouble. For them to survive, they need to quickly re-engineer themselves. This will affect many suppliers and related businesses in a matter of months, and makes it all the more critical to have well rounded, cost effective business processes. Everyone will be looking for capital. How will you differentiate yourself to investors?
Ultimately the shake out will leave only executive teams who can plan, execute and stay on track at all times - no surprise there. Good ideas are important, but coherent leadership under an executive team in sync with each other is great. Investors detect this. Companies like Thomas Financial Services, www.thomasfinancialsvcs.com apply insight and experience to get you back on the ladder to success. It's not enough to manage an opportunity. You need to manage the whole business through constant attention to financial systems, ERP, the supply chain, customer experience management, production, and all the nuts and bolts that give investors confidence.
Lots of great ideas die on the vine. Companies implode for the dumbest of reasons. The biggest and oldest banks and investment houses of our time are falling in on themselves over simple missteps that could have been easily avoided. It's not about oversight, it's about execution. CFOs and their credibility with investors make a huge difference. Chief executives who are at odds with their CFOs are a red-flag warning for any company. Run from them. Listen to your CFO. Stay on track. Execute to a realistic plan and you'll never lack for investment. Plenty of companies are liked, but few are admired. Be one of them.
Related Articles:
