Archive | CFO Executive Search Process

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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How to Find the Right CFO, the Right Way, Right Away

My CEO clients are always asking me, “How long will this search take, Dave?”

By industry standards, an executive-level search takes between four and five months to complete, on average. This is backed by search industry statistics, as well as data from our project management software provider, Clockwork Recruiting, as noted in a memo they sent their customers last week.

Clockwork Findings

The Clockwork memo stated: “Over the last two years, Clockwork has been growing fast. We’ve signed up a lot of new executive search firms and we’ve migrated over 7,000 search projects from other systems like Bullhorn, Encore, Invenias, and Filefinder. Over that same two-year period, you—our Clockwork users—ran over 7,000 search projects inside Clockwork. This gave us two large, similarly-sized datasets to look at. We looked at “Days to Close,” a top Key Performance Indicator (KPI) in our industry measuring how long it takes to run a search project from start to placement. Thanks to you guys and your great work, the data show that projects run on Clockwork close 48% faster than the other guys.”

Arnold Partners Beats the Clock

We discovered that Arnold Partners is running 30% faster in “Days to Close” than the average Clockwork user. So that puts us at the top of the industry for a key measure that almost every CEO asks me about. So “days to close” is important. By the time most of my clients call me, they are feeling like they should have hired a CFO months, or sometimes years, before. They generally have a strong sense of urgency and want to know that the project will be thorough AND timely.

One major reason we can move more quickly than our competition comes down to focus. We meet CFOs every day. When we are called on to find that needle in the hay stack, we probably know where it is, or only need to move a few straws to find it. It’s never a new search in the sense of having to build an entirely new database of connections every time—it’s really an organic outreach to people we already know, warm calls to people with whom we have influence, who gladly take our call. Even if the role is not for them, they are quick to make referrals. This is why we never outsource candidate calls to associates or third parties. The CFO community wants to hear from Dave. Period.

More Important than Speed: Accuracy

However, I want to emphasize: more important than speed is accuracy. In fact, I don’t really want to be known for being fast or the fastest if people associate that with recklessness, sloppiness or lack of lasting results. What I want to be known for is accuracy. The truth is, over the last 20 years of recruiting experience, we have placed only one CFO that did not work out—far less than 1% of all our placements. And honestly, the reason had nothing to do with our process.

The Bottom Line: Value Creation

Our placed CFOs are extremely well tenured post-placement, creating massive value creation for their companies and stakeholders. Over the last 10 years our placed CFOs have created over $11B in value and counting. (Did you see our client Roblox just raised $92MM?)

So if you want to find the right CFO—the right way—right away, email me at Dave@arnoldpartners.com or call 408-205-7373. I look forward to helping you with a successful, long lasting CFO hire.

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A Great CFO Search Consultant: A Head Above “Headhunter”

When you think of the word “headhunter,” what comes to mind? I generally have a distaste for the cannibalistic title as it engenders a scene of a crowded, bullpen-type work environment with individuals working furiously to fill open job orders—like the penny stock operation in Wolf of Wall Street. “Headhunter” falls short of the complexity of what a real search consultant brings to their clients.

I have always seen myself first as a management consultant, establishing a relationship of mutual trust with Boards and CEOs where valuable advice is shared, strategy is discussed, and technology is understood. I also see myself as a career counselor with multi-decade relationships with the CFOs I work with, helping them make great decisions while in the chair or choosing the next one.

One of the key differences between a transactional “headhunter” and a true search partner is the depth of understanding about the client situation, the nuances of what is needed, and the particular characteristics of each candidate and how they would contribute value, both short and long term. Creating lasting value is what it’s all about—creating value for our clients through the actions of the placed CFO or Board Member, and creating value for the placed individuals as well.

Having that deep understanding of the client situation enables us to do what might seem like shooting for the moon: reaching out to potential candidates whom the client may think are out of their league. As Dan Steele, president of influential.co recently attested: “We interviewed 10 search firms before deciding to work with Arnold Partners. Dave Arnold was the only search consultant that felt he could source and deliver a candidate out of our league, or at least go after those candidates. The other firms all thought we would just be wasting their time and ours in looking for a superstar. In the end, we got a CFO that hit on all of our must-haves, and all of our like-to-haves.”

As I pointed out in my last blog about my relationships with our CFO and Board candidates, our ability to fully prepare a candidate for the client meeting is crucial to our mutual success. By truly understanding both the client situation and the psychology of our CFO candidates, we will be on target with the match, and bring the search to a faster completion. We have a track record of doing so; an independent service provider reported that our time to close is running much shorter than the competition. While we never feel rushed or pushed by a “bullpen” environment, our clients benefit from our diligent and persistent laser focus on CFO search and Board search, delivering expedient results that create long-lasting value.

By truly being a thought partner in the search, together we can persevere though the challenges all search assignments face. Sometimes it takes perseverance, sometimes charm, most times just plain old hard work, and even Lady Luck may play a role. No matter the challenge, when you’re ready to have a real partner—not a headhunter helping with your CFO hiring needs and select Board appointments, please contact me at Dave@arnoldpartners.com or call 408-205-7373.

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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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On Measuring Value Created by Placed CFOs

My good friend and colleague Nilofer Merchant (www.nilofermerchant.com) is a strategy consultant, prominent speaker and Ted Talk presenter. She coined the idea of a “walk and talk meeting” which we had last week. During our walk and talk she asked me an intriguing question: how much value has been created in the companies where I placed CFOs? I was a bit taken aback as I had no idea. So back to my office I went and with a little research, I figured that the value created is a staggering $10–$12 Billion in the last eight years. Now that seems like an accomplishment to hang my hat on!

The companies that have gone public have a combined market cap of over $8B.There have been a bunch of M&A transactions that resulted in at least another $2–$4B. Of course, the CFO cannot take full credit for all of this value creation, but certainly it speaks to having placed capable CFOs into winning companies. This is just one angle to consider, but I think it will be a useful metric to track as we move forward.

Another measure of success: creating enterprise value

Many CFOs I speak with talk about creating enterprise value through a number of methods, and revenue growth cures a lot of ills. This is timely because more and more of the CFOs I speak with are out in the field selling their companies goods and services. Just last week I met with a CFO who was headed to Wall Street to meet with a number of CIOs and CFOs of leading investment banks about using their SaaS platform—really a peer to peer sale. This is a good example of the CFO on the front lines of selling.

In another case, one of my placed CFOs said she spends a great deal of her time on negotiating customer contracts. These contracts are multi-level, multi-year service agreements with large corporate and government agencies. She says after the initial sales process is done, it is actually her job to negotiate the final pricing, terms and conditions of the agreements. Certainly this is another example of the CFO driving direct enterprise value.

Other measures of CFO success

What other ways could we measure the success of a CFO? I think the longevity of employment is important. Another positive stat for my work is that at least six CFOs I have placed survived CEO transitions; this serves as a good testament as well.

While we are proud of creating real dollar increased value, we are equally proud of our long-term relationships with all of our investor, CEO and CFO partners that we have been building from day one. The core value we offer our partners is the ability to tap into an ever-growing pool of talent and resources, and find winning CFOs to help build enterprise value.

If you are interested in exploring the issue of value creation further, or if you are ready to find your next CFO and build value for your organization, email me at Dave@arnoldpartners.com.

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How to Become a Successful CFO

I’m asked by a lot of young financial professionals what it takes to become a successful CFO. There is certainly no one right answer or one path to the top rung of the financial ladder. However, early on in your career there are distinct avenues you can follow to enhance your chances for getting to the top. Here are the two most common career paths:

Path #1: Start in Public Accounting with and earn your CPA

After you earn a CPA license, a technical accounting position such as SEC reporting is a good introduction to the corporate accounting field. From there you have two really big choices: go back to school and earn an MBA, or follow the corporate route to Controller. Once in the Controller seat, your best move is to take a job in a business function as an FP&A Leader, Business Unit Controller, or if you can get it, Investor Relations. To move forward in the tech industry, your work experience would ideally be a blend of larger public company and emerging growth company. This kind of background will position you well to become a CFO. But you would still need a break. We’ll get to that below.

Path #2: Get an MBA and Work in Investment Banking

The investment banking path is difficult because the work is really challenging for the first several years. (As are the first few years in Public Accounting!) And you will need an MBA to go this route, but that is nearly impossible to do while working in banking, so work that into your plans.

IF you can stick it out and succeed, many options will open up for you. With an MBA, you could go into consulting or back to banking. Most people who leave banking and go right into a CFO role will at least be a strong Vice President at the bank, or more likely a Director or Managing Director. Be aware that once a bank Director or above, the money is hard to walk away from. One good thing about this path is that you learn to sell. This skill is not commonly gained working one’s way up in corporate accounting. More on this too, below.

Both of these paths can lead to CFO, but to different kinds. And of course, neither path will equip you with the full set of skills an experienced CFO will have. There is only one way to get that: by working in the role! The fun in what we do at Arnold Partners is working with our clients to flush out what type of CFO they need and why.

Behind Door #1

So let’s say you choose path number one. The challenge you will face is that a CEO and Board will still need to take a chance on you. They will need to believe that your background is really solid, and that you will make the right calls. Many times this break comes from a “battlefield” promotion: the CFO leaves the company, chaos ensues, the CEO looks around and picks the highest qualified finance person in the company and runs with it. Right place right time, but you made your own luck too! Sometimes this break comes when a CFO, who is at a new company, wants a succession plan and plucks you for that. Rarely does this break come through executive search.

Behind Door #2

Let’s say you select path number two and get to the VP level. Most likely you are going to get hired as CFO by a client who has seen you in action. Or perhaps you leave banking for an interim finance role to sharpen the skills that are missing from the typical CFO profile. If you are really well known in the particular industry you serve, companies within that industry will seek you out. Rarely does this break come through executive search either.

The Secret Sauce

The skills that separate the great CFOs from the also rans has less to do with either of these paths however. The sought-after CFOs have other qualities that separate them from the pack: executive presence, excellent verbal communication skills, the ability to influence outcomes with nuance and finesse, and ultimately the ability to sell. All of these abilities can be learned, primarily by being mentored by the right people. So as you progress in your career no matter your path, the most important thing you can do is to find a very successful person to help mentor you in the soft skills that will help you develop from a financial professional to a business professional. If you are coming up the ladder of a finance career and need advice on your next move, please feel free to contact me at Dave@arnoldpartners.com.

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