This article originally ran on CFO.com. To view it, click here.
Over the past 15 years, I have had the privilege of assisting in the selection and placement of a good number of Chief Financial Officers for a diverse set of clients. Throughout this experience, I’ve seen senior financial executives make successful transitions from industry to industry, from public to private companies and back, as well as adapt to wildly different cultures from company to company. By and large, top-notch CFOs are a smart, flexible and pragmatic group of professionals. However, in my experience, there is one divide that very few seem to successfully bridge – the transition from a large company to a small one.
By “small” I generally mean a growth-oriented company, usually backed by venture capital or private equity, which has designs to grow exponentially (i.e. not $25 million looking to grow to $50 million, but $25 million looking to grow to $500 million or more, usually followed by some type of exit via sale, IPO or some other transaction). These companies present a unique challenge to a large-company CFO: they require not only a high level of financial and business sophistication to handle the complexity of managing rapid growth but also a high degree of self sufficiency and a strong hands-on orientation. Regardless of how well these companies are funded, their resources are constrained relative to the level of support a big company CFO is accustomed to.
Therein lies the rub. Finding a financial executive who can operate on both those levels and, as importantly, is motivated to do so, is a three dimensional challenge for the company, the search firm and the candidate. As a result, the growth company landscape is littered with the bodies of CFO casualties who, despite their previous successes, fail to make this transition. What then differentiates the CFOs who do make the leap and are able to thrive in small growth companies? Common attributes that stand out based on my experience include:
- They enjoy being bottle washers. We all get the chief cook piece of the equation, but CFOs who successfully make the transition from large to small really don’t mind fixing the jam in the copy machine when they have to.
- They don’t mind doing work below their pay grade. I often hear new CFOs in growth companies say “I’m finding myself doing things I haven’t had to do in 20 years.” The ones who are going to make it say this with real enthusiasm.
- They have a strong operational orientation. The most successful growth company CFOs I know have more than a bit of COO in them. They can effectively lead departments outside of their core functional areas, such as IT, facilities and human resources.
- They lead with an absence of ego. In a venture-backed growth company, the CFO is often the most experienced member of the management team, particularly if the CEO is a pure founder or entrepreneur. The successful ones have a leadership style that allows them to transfer this knowledge to the rest of the management team without coming off as arrogant.
- They effectively manage relationships with their financial sponsors. The ultimate goal of a venture capital firm is to deliver the best possible return to its limited partners in a timely manner, an objective not always in sync with that of the management team. A successful CFO in this environment must be a strong relationship builder and communicator to effectively manage this tension.
To put it succinctly, the CFO most likely to make a successful transition from a large company to a small growth company possesses strong strategic and tactical skills and enjoys working at both of those levels. Why couldn’t I have told you that earlier? Well, that would have been a very short blog entry.
Unfortunately, it’s not a simple task to tease these qualities out of a resume or interview. In most interviews I conduct, I start by telling the candidate that I’ve thoroughly read his resume and have a good understanding of what he has accomplished during his career. My goal for the interview is to find out how he accomplished it; it’s important to obtain a step by step understanding of how a leader accomplishes goals and overcomes obstacles. It’s also important to ask for clarification and push for specificity in the candidate’s responses. At the end of the interview, a candidate should feel like they’ve been put through their paces, in a good way, of course.
This sort of due diligence is essential. I’ve seen too many venture partners and CEOs become enamored with a resume bursting with leadership roles in marquee companies only to find that their new CFO got to his or her results by making use of an infrastructure simply not available to them in a small growth company. So, what’s the best way to do your part in avoiding adding to the growth company CFO graveyard? Research the candidate with the blue chip resume to make sure his qualifications are specific to the goals and operating model of your company.
Your thoughts are right on point. The most sucessful CFO’s in smaller companies really enjoy waring multiple “hats” and bring the expertise to do so. It is the varaiety of tasks and expectations which make working in a growth company exciting and very rewwarding.
Thanks for the feedback.
John, again, you are dead on here. I agree that the CFO has a truly pivotal role in the venture-backed management team, but I think you could apply your points to all the executive roles in a PE-backed company. It is a tricky transition that I would say 50-60% make well or for long. Many people cannot fathom or have no experience with a very lean org structure.
I thoroughly enjoyed your Blog entry. Having been involved with multi-national multi-billion dollar companies and under-funded tech companies during my career, I have seen both ends of the spectrum. You have summarized it very well.
Not only does this apply to CFOs, it applies to roles throughout an orginization. It is rare that professionals at each end of the sprectrum can move easily from end to end. It takes an amazing amount of flexibility and desire to mesh in with the culture. The longer that one spends at either end of the spectrum during their formative years, the hard it becomes to break that mold.
I look forward to keeping up with your Blogs as best I can.