What Capabilities Should You Solve for When Hiring a Startup CFO?
As just explored, the decisions of whether and when to hire a startup CFO is a tricky, amorphous one, dependent on variables that only the startup’s founder and board can weigh and assess. Once the decision has been made, however, most first-time founders often find the process difficult to navigate. Specifically, without prior knowledge of the intricacies of a CFO’s role, responsibilities, and qualifications, most startup founders often find themselves feeling their way through the dark, for months on end.
My first point of advice here is to pick/appoint an advisory board member with deep experience in this arena. Specifically, an individual who is both close enough to you and your startup to accurately assess its stage and needs (both current and forward), and one with the experience to match those with the appropriate qualifications, temperament and skill/risk profile of a potential CFO. Navigating this process alone too often leads to costly mistakes—especially given that good CFOs don’t come cheap or worse, this can be destructive in an extreme downside case.
Beyond the direct guidance of an advisor, the following are a few requisite qualifications/capabilities derived from my personal experience that you should solve for when assessing your available pool of CFO candidates:
- Forecasting, Modeling and Analysis Capabilities: Beyond the usual certifications and experiences associated with the role, such as an MBA or CPA, your CFO must be well versed in budgeting, forecasting, financial modeling, and returns-profiling analyses. These skills are a minimum requirement for any effective/value-adding finance operation.
- Strategic Judgment and Vision: Your CFO must also at a minimum be forward-looking and be a driver of strategic thinking and growth alongside the founders and board. Where possible, they should have a demonstrable track record for value creating initiatives or experiences that they can point to, and should come to the interview with a clear view of what they believe the possibilities are for your business and associated execution strategies. Solving for these qualities will inadvertently weed out the risk-averse, innovation killing, “no-men/women” that are so often associated with the CFO title.
- Risk Assessment + Mitigation Skills: Startups, on their best day, are turbulent, unpredictable vehicles, constantly flying in the face of a sea of destabilizing forces. As such, a large part of your CFO’s job will be to assess and manage risks, a resource-scarce financial position, while keeping one foot on the gas.
- Balance, Judgment and A Strong Moral Compass: A great CFO must also come with a healthy growth orientation, a clear sense for the levers that will drive profitability, and must also be a compelling storyteller with numbers and his/her analysis. These qualities will be most critical during periods of fundraising and investor reporting.
- Ability to Build and Manage an Agile Infrastructure: A near-final capability of any startup CFO is to be able to build a lean financial organization from scratch, especially from within a dynamic, fast-evolving environment.
- Intellectual and Functional Dexterity: As a final point, and more of a “nice to have” than a must, is that your CFO should, depending on your startup’s stage, be a jack-of-all-trades or generalist athlete who can fill multiple roles within the company. This will help improve the ROI of the individual in question, especially if this is the specific point of deliberation for whether to hire or not at this juncture.
Five Questions to Ask When Building a Finance Function
Capabilities aside, below are a number other (key) considerations that I encourage every startup founder to ask in deciding how/when to staff his/her finance function:
- Will you be seeking outside investment? If so it is important to put the proper accounting process and policies in place as early as possible.
- Is your business rapidly changing? A historically focused transactional mindset will be limited in its ability to help identify opportunities and threats. Additionally, as the business changes, the accounting processes too may need to change.
- How much financial management skill do you have and how much time can you afford to spend on this? Even if you are proficient in accounting and finance, every hour you spend on the finances is at least an hour you can’t spend doing what you do best.
- How much financial buffer can you afford to keep ready in case of surprises? With less visibility and planning, surprises are more frequent and larger. You will need a larger cash reserve.
- How complex are your operations? Like machines and most everything else, the more complex your operations and finance the more skill and experience your business will need to adequately record, report, and plan.
The Right Startup CFO
Ultimately, the timing for any given startup as to whether it should hire its first full-time CFO is a decision that only the company’s founder and board can make. The appointment of one’s first CFO often represents a strategic, managerial, and operations tipping point for the company, indicating it is ready for a deeper, more sophisticated and specialized level of management, strategic planning, and execution.
As you embark on your process, remember that the right startup CFO will have the capacity to navigate between strategy and execution, bring strategic direction and passion to the company, and also add value beyond his/her specific function or role as the company scales.
