Archive | CFO Compensation

When to Hire a CFO? At Each Stage of Growth.

Recently my friendly competitor and colleague  Cliff Scheffel published a white paper titled, “When is the right time for a tech startup to hire a CFO?” What I really liked about his report, which was co-written by Jeff Epstein of Bessemer Ventures, is that it gives analytical support to what all three of us have experienced as search executives and as investors. It provides a CEO, board, or founder with specific metrics that signal it’s time to hire a CFO. The key markers cited are 100 employees, $25MM in revenue, and/or revenue growth of 100+%.

The report was well done. Let me know if I can send you a copy.

I got thinking about a related question: what factors or changes call for changing the CFO? I believe that in some cases, the first CFO, perhaps at the stage of company that Cliff and Jeff outlined above, can grow his/her skills along with the growth of the company. In other cases, a change in CFO is needed as the company changes.

IPO Stage

It’s common for companies to contemplate a change in CFO when they start to seriously look at an IPO. In a VC-backed company, the investors are always looking for ways to minimize risks in their portfolio. If the CEO doesn’t have previous public company experience, the investors will almost certainly want an experienced hand in the CFO. If the incumbent CFO can demonstrate the ability to communicate the story to investors, they may be considered a candidate, but this situation will frequently prompt a CFO change.

Pre-Revenue to Commercial Stage

What about a company that goes from pre-revenue to commercial stage? This too can prompt a CFO change. We see this in the Life Science sector of our technology practice at Arnold Partners. If a bio or pharma company is successful in getting a drug approved, they have a major decision to make about bringing that drug to market. If they plan to build out a commercial organization, the role of the CFO changes materially. I actually had a CFO tell me a few weeks ago, just as his organization with going through this change, that he wanted no part of being in charge of a revenue-producing company!

Beyond IPO and Commercialization

Beyond IPO and commercialization, other change in a company can prompt a CFO change as well. For many tech companies, international expansion is happening earlier and faster than ever before as tech goes to the cloud. In the med-tech side of things, sometimes getting a CE mark of approval is a better strategy to prove product acceptance than trying to fund a US-based study for FDA approval. These considerations affect the role and requirements for the CFO big time.

In an earlier blog, I wrote about how most CFOs get their first chance in the seat through a battlefield promotion. This can be a big break for a Controller or VP Finance that significantly changes the trajectory of their career. However, CEOs need to be careful in making a choice out of convenience over careful consideration of a slate of curated candidates while also considering the company’s stage of growth. Running a search process in parallel to a temporary promotion of a number two can pay dividends for all the parties: the CEO, the board, and the person in the seat. It can provide an objective test of the market to make sure the right person is running the show and that careful consideration is taken for all parties.

In only a few occasions have I seen a CFO go from pre-public company CFO to passing $1B in sales. It’s rare. CEOs need to be diligent to make sure they have the right CFO partner as their companies evolve in complexity and size. If you would like a consultative review, please contact me at dave@arnoldpartners.com or call 408-205-7373. As a corollary to this subject, my next blog will be about the importance of agreeing upon a good position specification when starting a search, “The Spec!” Stay tuned.

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CFO Recruiters: Creating Value on Both Sides of the Search Process

Interesting conversation yesterday with a top-tier public company CFO. He was musing about the search process and about how UN-informed so many CFO recruiters are when they call with supposed opportunities. Recently he was called about a supposed “confidential” search for a public company. The CFO from this “confidential company” had already announced their departure and the company had already made the necessary public filings. After asking some questions about the opportunity, this CFO quickly figured out who the company was and wondered why the recruiter was being so coy?

Certainly there are times when we CFO recruiters conduct confidential searches and the company name needs to be held in check. However, the recruiter reaching out to this CFO was not helping his cause, or his client’s.Our conversation led to his revelation about the value that different CFO recruiters bring to the search process.

 All things Not Being Equal

The CFO told me what differentiates me from other CFO recruiters when I’ve called him for CFO opportunities in the past is how thoroughly I understand and explain the client’s situation: from details about the CEO and the organization’s capital structure, to market opportunity and the challenges they face. He said few CFO recruitment calls are as informative as the ones he receives from me.

Creating Value on Both Sides of the Equation

It’s executive recruiters’ job to present to a CFO a detailed description of the opportunity in a convincing and truthful manner. If we can’t entice the CFO to the table to meet the CEO, we have failed in our duty; however, it’s not our job to oversell the situation. It’s equally imperative that CFO recruiters present the backgrounds of our CFO candidates to our clients in a similarly thoughtful, thorough manner. This is what I mean by creating value on both sides of the search process.

The importance of this balance to a successful CFO placement is why Arnold Partners doesn’t rely on outside research or junior staff for any part of our search process. We are boutique in our very nature—personally attending to every detail of the search process until it’s complete. The call to a CFO about a client opportunity is probably the most important one; I can’t imagine outsourcing that process. CFOs by their nature are skeptical and analytic and don’t want to be sold. In order to get their attention, we have to present a deep understanding as to why THIS particular client opportunity is tailor-made for them.

The Art of CFO Recruitment

What is not too surprising, we receive many “not interested” responses from CFOs even after this thoughtful process. Generally speaking, most sitting CFOs are not looking for new opportunities. However, birds of a feather stick together, and many CFOs who were not initially interested either come back a few days later for a “tell me a little more phone call.” Or more frequently, they are quick to make a referral. This is the art of recruiting that can’t be carried out by an outsourced or junior person. This intimate knowledge of the client, presented on point to a specifically targeted audience, is how Arnold Partners continue to create value for both our clients and our CFOs.

When you’re ready to hire your next CFO, please contact me at Dave@arnoldpartners.com or call 408-205-7373.

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