I met with a new client this week who is the CEO in a very exciting technology company that is initiating a CFO search. The company is on a path towards an IPO, so this was a large focus of our conversation.
My client is very experienced, having brought a couple of companies public and sold another. When we discussed priorities for the CFO role, my client specifically dismissed IPO experience as not being that important. Instead, he stated that he wants a person who had run a successful, growing, publicly-traded technology company as CFO, or as a number two finance person in a larger organization.
During our conversation my client received an urgent text about his daughter’s upcoming wedding. He broke off our meeting for a few minutes, then shared what was going on. A light bulb went on for both of us as we realized that a wedding is a lot like an IPO!
A wedding is a big event. The best ones are well planned and managed by a host of people with a really good coordinator in the middle of all the moving parts. Being married is a lot of work, largely around agreeing on expectations and then living up to them. An IPO is a big event. Being a publicly traded company is a lot of work. The big challenge of a company looking to succeed is around setting expectations for future results and performing to those goals.
When it comes to a CFO hire, I agree with my client that placing a lot of importance on “event” (i.e. IPO) experience is the wrong way to go. Actually, the skills that successful CFOs have acquired along the way can be transferred to running an IPO. Instead, emphasizing experience running a complex business over many quarters of meeting and beating expectations in a public company is a much better filter for future success. The qualities of successful public company CFOs have to do with their ability to accurately read the tea leaves of their businesses and communicate effectively to their shareholders as to what they can expect in the short, medium, and long term. In one word— predictability. Similarly, the most successful marriages are based on understanding the needs of your partner and good communication.
When I meet a CEO who is intent on hiring a CFO with IPO experience it is usually a CEO with less experience or no public company experience. As a search consultant my job is to find what they want, for sure. But is also to help educate them about the role the CFO plays in an IPO, which is in fact a lot like a wedding planner. It is critical for the event to go well. It is like running any other event, financing, or project. Like a wedding, the planning process involves a host of talented individuals: bankers, lawyers, accountants, and IR firms, and the CFO is the central coordinator.
Even in a private company fostering a culture and systems to support predictability are essential. The many elements that go into having a predictable business model could also be useful in a successful marriage. I think I’ll leave the further analysis of that to the marriage counselors though! That said, going on 30 years in my own marriage I think I know a thing or two…so while I am not in the marriage business I am in the business of “finding exceptional CFOs.” If you need help finding one, contact me, Dave Arnold, at moc.srentrapdlonra@evad or call 408-205-7373.
In the ever-expanding complexities of the modern world, some things in the field of corporate financial leadership don’t change.
A lot has been written about the changing role of the CFO in a technology company over the last few years. From my standpoint, the role has become more operational in nature, more integrated into the business. But what about the qualities of the person in the seat? Does the nature of what makes a great CFO—vs a so-so CFO—change with the demands of the job? I’d say in some ways, yes. An operationally-oriented CFO needs more tools at her disposal than a purely financial CFO. But some personal characteristics never go out of style or need.
Last week, while meeting with a new client for the first time about the CFO search we were about to embark on, we discussed his thoughts about what was needed in the new CFO. Many of the qualifications were predictably present. Then he surprised and delighted me with one word: “Grit.”
My client wanted his CFO hire to demonstrate the personal quality he defined as grit. Great word. But it caused me to pause and dig into it a bit. His was not a troubled company, and my mind immediately went to the 1969 movie “True Grit” with John Wayne and Glen Campbell. Did he want a gun swinging cowboy?
No, he calmly explained that to him grit meant perseverance. It meant sticking to the plan when everyone else was chasing the new shining object. It meant resolve and strength even if it meant going against the group think.
As I think about many of the CFOs I’ve met over the years, it seems that the ones I hold in the highest regard do possess this quality. They can cite examples of having to stand up to a CEO who wanted to take the company off course on their latest whim. Or having to fight for terms and conditions favorable to the company, not a vendor’s head of sales. Or taking a firm stand on an accounting treatment (ring any bells, CFO friends?).
The CFOs I respect the most have all had to persevere on multiple fronts over many years. It’s a hard job because in many instances the CFO is the one person in the C-suite who must keep the team on task and focused on the long-term strategy. The CFO is the one person who has the fiduciary duty to say “No” at times, without pissing everyone off. This not only takes a master’s degree in diplomacy, but I would also argue it takes grit.
Most of the CEOs I meet are visionary, brilliant, self-assured and at times very stubborn. They need to be. The role of the CEO can be very lonely one, and the antidote is having a great CFO at their side. The CFO is the CEO’s confident, and most likely the only person in the C-suite who can be trusted with every tidbit of information. This is why I liken the CEO–CFO relationship to that of a marriage. The trust needs to be deep and dependable. The two-some must persevere, working together through thick and thin to help ensure the company’s success. In a word, both parties must have grit.
It’s not totally exclusive to technology companies, but I do think grit is a musthave for a technology CFO. The landscape on most every front changes faster than in other industries. What funding is available today may disappear tomorrow. New competitors appear from thin air. Apple decides to get into the business you are in. The list goes on. So as my client so insightfully believes, among the many qualities of the successful CFO, grit has to be high on the list.
If you are seeking an exceptional CFO with true grit for your company, that’s the kind of hire we can bring to fruition. While we don’t take on impossible to fill mandates, we like a challenge. We’ve been creating tremendous value for our clients through attracting strategic CFOs since 1998. To learn more about what we can do for you, give me a call at 408-205-7373 or email moc.srentrapdlonra@evad.
I recently added a new question for my CEOs when we kick off a CFO search. It is simple, but is proving to be very helpful: What is it you do not like about executive recruiters you have worked with, or about the process? Mike Farley, the Founder of Tile, Inc. sat back and laughed a bit when I asked him. Then he thought for a second and told me he feels that most recruiters rely on their candidate databases too much and do not make enough of an effort to recruit fresh talent. This was surprising to me to hear and I took it to heart.
Mike’s frustration is not misplaced. What do recruiters do when we have a new mandate? Certainly, we quickly start going through our mental list of people we will call once we have agreed upon the specification. When I ran a large recruiting firm one of the things we prided ourselves on was a huge candidate database with a very sophisticated search algorithm to sort out different candidates’ technical attributes. Having a large database can create a false sense of security that everyone who is qualified for this role is already in the database (or one’s personal LinkedIn network). But because each search is unique, I believe each search deserves a fresh approach to identifying the right set of candidates for a specific client. The bottom line is that recruiters should actively recruit, not re-hash a database.
Of course, I preach that my network of CFOs is big and strong and nationwide. And it is. But certainly, I do not know every CFO in technology. It is a constantly changing universe and would be impossible for anyone to track accurately. I think understanding how a CFO likes to be approached about a new opportunity may be a more valuable asset than having tons of contacts in a database. After all, what good are names and contact info if you cannot deliver a winning presentation and deliver high quality candidates to the opportunity?
Strong database, a good starting point
Having a strong database is important no doubt, giving the recruiter a jumping-off point. It is a collective of industry sub-components, and specific individuals will lead to others of a similar ilk. But like Mike, I think it is critical to think about the present as well as where things are going in the future, especially in technology industry searches. It is critical to reach out to the up-and- coming generation and to re-invigorate the database with every new search by asking respected and trusted contacts for great referrals, and by reaching out to those folks that are 3 times removed as well.
When we presented the short list of candidates to Mike, I was proud to say that prior to initiating the search, I had never met any of the five people on the list. This is what recruiting is all about. It is what keeps it interesting for me personally and professionally. Reaching out and beyond the comfort of who I know today to the folks I want to know tomorrow.
Unearthing CEO concerns re CFO search
I will continue asking each CEO I meet with what bugs him/her about executive search consultants. I am sure it will be a different pet peeve with each one, who knows. Maybe a theme will emerge. The great thing about being an entrepreneur within the search industry is that with each new search, each new CEO, and each new specific mandate will be the challenge to find that rare, exceptional, standout person for my client. And the way I go about doing that is not formula driven. It is as unique as the role and each CEO. It is not data-base mining, it is truly recruiting!
What bugs you about executive search and the way it is conducted? I’d love to hear. Email me at moc.rentrapdlonra@evad.
Until I read the “Smarter Living” column in a recent New York Times, I did not know there was such a thing as “unconscious bias.” But after reading about it, I knew I had some learning to do. Not only for my own take-aways for “smarter living” in my personal life, but also to explore this issue relative to how I serve my clients and candidates alike when doing searches for top CFO talent.
Article author Tim Herrera explains, “Unconscious biases are shortcuts our brains take to reach certain conclusions.” They are both necessary for everyday living (because we cannot analyze every stimulus and sight we take in), and they are potentially dangerous (because if we get too cozy with our preconceptions they may come to haunt us).
Bias starts with the resume
This is a fascinating topic when it comes to the hiring process. Starting with reading a resume, what do we immediately deduce about someone we have never met? Many things! We start forming conclusions based on where someone went to school, the level of education they achieved, what companies they worked at, and what accomplishments they chose to convey. These are all reasonable things to consider when deciding whether we want to meet someone. But how many of our conclusions come from an unconscious bias? How many times do we pass on a meeting because someone’s resume does not seem to fit what we may consciously or unconsciously hold as important?
Beware the big talker
The article also points to a study published on the American Psychological Association website that showed that people who talked more in working environments were perceived to be “more influential” than those who talked less. In his article, Herrera concurs: “Your brain can instinctively trust people simply because they sound as if they know what they are talking about.” And of course, “influential” goes hand-in-hand with executive presence. People with executive presence are more influential than those who lack it. The study also points out that when people are using a lot of words, those listening may not scrutinize what is said, and the listeners can be lulled into a false sense of thinking that the speaker must know what they are talking about! This issue brought to mind how many times we are sold something we really did not need. That could be a case of “unconscious bias” as well.
Power of first impression
When we meet someone for the first time, particularly in an interview situation, the potential for bias of all kinds is very high. In fact, the whole purpose of an interview from both parties’ standpoint is to determine fit. We determine fit by making judgments about one another—some of those judgments will be conscious and others unconscious. It is critical in my opinion to be keenly aware of the conclusions we make about a person, and how some of those conclusions will be influenced by unconscious bias. We can put an extreme amount of confidence in our ability to trust based on things like confidence and extroversion rather than digging into the real, factual details of a candidate’s abilities and accomplishments.
Trust but verify
Herrera further points out that in order not to fall prey to the downside of unconscious bias, he says we should always verify the truth. In the case of hiring, we rely heavily on references. Recently, I was working on a search with a candidate and asked her for references as we were getting close to the offer stage. I was a bit worried because she already had a couple of offers and I thought her references might be a little burnt out. Truth is, she told me no one involved in the other searches has asked her for references. That is crazy. References serve a lot of purposes and we need to verify our impressions. “Trust but verify” is not a bad motto. Equally important: We should verify or un-verify any biases we have developed about the candidate.
Some people do really well in an interview. They may be a trained salesperson or full of gravitas. But do not let unconscious bias lead to hiring a stuffed shirt. Verify your opinions through thorough reference checking—both on list and off list.
I have been meeting CFOs for a long time and feel I have an ability to identify the winners, but I will always check references whether my clients ask it of me or not. Getting lulled into overconfidence from experience is just not part of the Arnold Partners way of doing business.
Would love to get your thoughts about bias and how you deal with it. Contact me at moc.srentrapdlonra@evaD.
The Shortage of Seasoned CFOs, Silicon Valley and Beyond
I had the pleasure of meeting with Rob Krolik, the former CFO of Yelp! a couple of weeks ago. As one of the few CFOs to take a company from less than $100MM in revenue to nearly $1B, with a successful IPO along the way, his phone rings “just about every other day with a new company seeking a CFO hire.” He is not in the CFO market. The truth is, there are more and more former CFOs who are not in the market for another CFO gig. It is putting pressure on the entire ecosystem. Here are some facts, then I will get to some ideas on what to do about it, including the novel things Rob is doing about it himself and the “CFO Academy” run by FEISV (Financial Executives International Silicon Valley).
Unprecedented Demographic Shift
The truth of the matter is we are undergoing a major demographic shift as the Baby Boomers are now reaching retirement age in droves. Every day 10,000 people turn 65 in the US and this will continue for the next 19 years (Source: Pew Research). One of the unique things in the Valley is that some of the most successful C-suite executives tend to opt out of regular, full- time employment much earlier than age 65 if they have had a big hit. So many companies want to hire the “been-there-done-that-with-success executive” like Rob, but the executives may not be inclined to want to work in the trenches like they had before. It is a perfect storm for a CFO shortage.
As cited in the 2018 Silicon Valley Index published by Joint Venture Silicon Valley: “Silicon Valley’s population is aging rapidly. There has been a 31% increase in residents ages 65+ over a ten-year period, and a declining share of children partially due to declining birth rates, which were lower in 2017 than in any year since the mid 1980’s. Overall population growth has slowed over the past two years.”
On the larger, national demographic picture, you can see on the chart below that the second smallest group of the labor force is the age group 45 to 54 — prime CFO age range for sure (Source: US Bureau of Labor Statistics).
Rob says there are at least 60 CFO openings in the greater Bay Area right now in the Technology sector, and I am personally aware of at least another 15 in the Life Science sector. These are the openings that are mostly out to search. Rob said within a few years that number could easily double, as new companies are constantly being funded, and the number of seasoned CFOs will have further declined when these companies are ready for one.
So, What Is To Be Done? Two Innovative Programs
FEI Silicon Valley is keenly aware of this problem and in 2015 started the CFO Academy. It offers a four-session course to help up-and-coming CFOs (Controllers, Treasurers, FP&A execs, and the like) understand where they have gaps in their hard and soft skills and to provide a real-world training opportunity to help close those gaps.
Candice Graves, who heads the program points out, “Our attendees are a step or two away from becoming a CFO and many have gaps in Investor Relations and or fund raising. We specifically address these gaps with presentations from investment bankers, venture investors, and sitting public and private company CFOs. We talk about preparing for a fundraising and what is done inside the company and what happens after that information is turned over to the investment community.” She said that they have “about 20 students each year” and the biggest challenge to recruiting people into the program is the time commitment. “These are all working professionals and we seek a mix of small companies to large, and a mix of gender and ethnicity, so pulling each group together is a big effort.”
Mark Muenchow, the current President of FEISV adds: “The program is an ongoing effort with the current students as well as the graduates. We have an annual event to bring all the previous speakers, students, and organizers together once a year. In addition, each class holds quarterly follow-up meetings, so it is not “here is your certificate, good bye,” but rather an on-going effort to continue the group knowledge.”
The program expanded to the SF Bay Area chapter last year and is getting national attention from other chapters of FEI.
Rob Krolik is doing his own sort of CFO academy called, “How to be a great CFO.” Thus far he has put on two one-day seminars for both Andreessen and Menlo Ventures. He is now gearing up to partner with the Wharton School Executive MBA program to expand the reach. His course is based on his experience and is focused on practical items managing the various disciplines under the CFO umbrella, such as Board Meetings, Facilities, Taxes, Treasury, etc. The primary goal he says is “to give the up and coming CFOs confidence.” He says by giving the attendees the skills they need to do the whole job, it builds confidence to accomplish the second goal: “Helping the CFO guide the Board and CEO in decision making.” He also provides an ongoing forum for those that take the course to interact and ask questions of each other in a “safe” environment that build their knowledge base and network. “This isn’t rocket science. 99% of what you have questions about can be answered by someone in the forum,” Rob says.
The Bottom Line
At the end of the day, CEOs and Boards will have to face the music that there are not enough seasoned CFOs to go around. They will be forced to take the up-and-coming CFO candidate. However, though the efforts of FEI and Rob, perhaps making that hire will have been significantly de-risked. Both programs truly provide the forum to build skills that will lead to good decision making. And at the end of the day that is the job of the CFO. Personally, I applaud their efforts and highly recommend anyone aspiring to be a CFO to take advantage of these programs. As Mark Muenchow points out: “The finance world is mostly a group of self- selected, left-brained, analytical people. But the role of the CFO is equally right-brained and CFOs need to solve a variety of problems that are not always quantifiable. We try to equip our members with these types of skills through real-world examples from sitting CFOs.” I say Bravo!
What’s your experience with recruiting and hiring CFOs? If you would like to learn more about Arnold Partners’ successful CFO search process and our strategy for dealing with the challenges of CFO search, email me at moc.srentrapdlonra@evad.
Rob says there are at least 60 CFO openings in the greater Bay Area right now in the Technology sector, and I am personally aware of at least another 15 in the Life Science sector. These are the openings that are mostly out to search. Rob said within a few years that number could easily double, as new companies are constantly being funded, and the number of seasoned CFOs will have further declined when these companies are ready for one.