It’s no secret that the computer software industry (or simply hi-tech) is the most explosively growing field in the workforce across the globe. It is also becoming clearer that a CFO will be under a significant portion of the corporate spotlight, much like the CEO, CTO, and other members of the C-Suite. CFOs are important, powerful and perhaps a breed apart from their C-Suite counterparts. Their role has synonymously become more complex with the proliferation of corporate technologies, as well as that of other positions in a finance team. In short, the finance leader has become a uniquely important position in a hi-tech organization. However, there are more reasons for their particular importance in the tech industry.
For venture-backed companies, they’re the glue that binds the businesses. When CFOs aren’t sparring with and grounding the CEO, they’re helping others understand their gross margins. As well as helping avoid bad deals. On top of this, when they’re not doing that, they’re managing your cash flow and capital, parlaying with HR & Legal, and impressing the board with relevant metrics and grounded, tactical projections.
Considering their versatility and significance in laying the groundwork for quality business decisions, every hi-tech company must have a CFO… right?
Here’s the issue: over the past few years, only 64% of startups with valuations of between $500 million and $1 billion had a finance chief. Additionally, out of 180 U.S. unicorn companies, 71% had CFOs.
The root cause of these figures may initially be counterintuitive, but one must consider this: increasing versatility in the finance chief role (particularly, in technological competencies) also means increased difficulty, and hence a greater scarcity of competent candidates for the finance chief position.
Given this difficult state of affairs for the prospect of CFOs in the tech industry, tech organizations should approach this issue with an understanding of the following:
Why CFOs have unique importance in hi-tech
What competencies CFOs need to succeed in the industry
How finance technologies can be leveraged
Understanding the Scarcity of CFOs in High-Tech
By now you understand that it’s no piece of cake to hire a good CFO. What makes recruitment so difficult is that the most experienced candidates, who have previously launched a startup past the $1 billion valuation threshold to unicorn status aren’t motivated to do it again. Such competent candidates understandably don’t desire to return to square one. The problem is particularly acute among enterprises on the cusp of unicorn status. Most unicorns have filled the role, leaving the swelling ranks of up-and-comers to battle for a smaller pool of candidates. As the higher-value, higher-profile companies snag CFOs, the swelling ranks of up-and-comers are left to battle for the slim pickings left of elite candidates.
Many of these companies don’t advertise the position, often due to fear of tipping their hand to competitors. But corporate headhunters estimate that dozens of promising startups are competing to fill vacant finance chief positions. The competition is expected to increase as they mature and as more cash flows their way.
Competition for highly skilled candidates is increasing the upward pressure on compensation at a time when salaries of finance executives are rising across the board. Pay packages at late-stage startups, that typically include stock options, are contributing to a frothiness that is causing even established companies to loosen the purse strings to recruit, or simply retain, finance executives.
Core Tech CFO Competencies
1. Agile Framework Integration
CFOs should tweak their organization’s approach to processes and tools. Instead of operating on the traditional model companies could instead follow a more Agile operation. This empowers finance staff and CFOs alike to pivot and switch to pressing issues by priority.
By shifting concentration on ad hoc analysis to primarily stakeholders, the finance operation will respond much more efficiently, particularly to the rapidly changing external factors in today’s corporate landscape. Enable this with a suite of financial tools, which have the power to automate and sync data between your purchasing and requisition processes and provide you with real time updates in a centralized location.
Forescouts’ integration of the FP&A software DataRails is a fantastic example of how powerful the impact of agile frameworks can be for a tech company. As a network security company, ForeScout Technologies was seeking a solution to manage time more efficiently. Their finance team reviewed numerous revenue statements in the form of Excel files on a monthly basis. But the constant reviewing, checking and comparing of data became evidently a greater and greater time black hole, and something had to be done about it. Will Federer, their Senior finance manager, took the initiative to integrate DataRails software into his department, and ultimately increased their teams productivity, efficiency and ability to drive value.
With regard to maximizing processes, assembling the finance function in focused project based teams is an indispensable tenet of a modern finance chief’s work. Professionals with cross functional skills will thrive as they take on a single project at a time and well defined accountabilities. Conduct non-transactional tasks in sprints, just like agile development programs. This eases organizations’ ability to iterate on and adjust budgets to quickly developing conditions.
2. Strategic Leadership & Purposeful Spending
Other crucial skills include creative strategy and general management. Positive outcomes in our contemporary high-tech economy are heavily influenced by strategic and visionary leadership. Successful finance leaders today can best understand integrating innovative technology and agile organizational frameworks.
The definition of a great CFO is no longer simply measured by tracking performance and efficiency. The position has become so multi-faceted and increasingly strategic. The expectation has evolved into counseling businesses on innovative approaches for creating value.
The increasing strategy in the role requires more emphasis on the “why” when it comes to expenses. It should be decentralized from just one senior finance position in particular. Many businesses are used to assessing the why in its relation to brand identity and as a marketing differentiator, but it’s imperative in justifying the resources, services and tools you’re spending money on as well.
Simon Sinek’s classic “Start With Why” eloquently illustrates its significance: “Why” is the reason to buy and the “Whats” merely signify the tangible products as a proof of that belief. In an organization’s spend, this is another primary focus for the CFO and other members of the finance and operations teams. It’s not just understanding where to throw your money at, but being able to understand why, qualifying every spending event as an investment that will eventually result in improved growth and ROI.
3. Embrace Direct Listing
Another advent has been CFOs who are leading their companies to direct listing. Spotify’s chief financial officer Barry McCarthy pioneered the direct listing in high-tech, and even went as far to regard the IPO models of Apple or Microsoft as “moronic”.
Slack’s CFO Allen Shim consulted with Barry and subsequently followed in Spotify’s footsteps. Slack followed suit with their own DPO. Although fundraising mechanics for businesses have undergone groundbreaking evolutions in the last 20 years, IPOs haven’t changed much at all. They are increasingly less suitable for businesses who want a simplified, less costly, and more fruitful route ahead. While direct listings aren’t new, for the high growth tech companies in question, they empower organizations with even more determination over the process to the company and its founders.
The verdict is still out on whether or not DPOs are the way of the future or some contemporary experiment that will go sideways. Currently, all signs point to this being a success for both Spotify and Slack. While these two unicorns continue to soak in the spotlight, the risks that led them to this stage were undoubtedly at the hands of the rare, endangered, technical and dynamic CFOs.
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