By Heather Johnson, Managing Director, Focus Search Partners
This article, the third in Focus Search Partner’s ongoing CFO Insights series, resumes with advice for matching your specific business environment to the CFO profile that best meets your needs to ensure a successful executive hire.
Once private equity, venture capital, or any other backers invest in a business, their first hire is often the CFO because typically no other executive, apart from the CEO, has more impact on the company’s ability to achieve its initial expected returns. Likewise, when ready to take their investment to subsequent evolutionary levels, everyone from company founders to CEOs, boards, and investors rely heavily on the CFO to drive the business to that next desired state for maximum ROI.
This creates tremendous pressure at the CFO hiring juncture to select the CFO profile that best suits the business situation at hand. The ideal fit between a company and its CFO involves trade-offs that reflect the firm’s strategy and the skills and abilities of its top management and finance function, as well as the candidate’s ability to drive change. The CFO role is constantly evolving, and prompt conversations when hiring a new financial leader can shape the CFO role at your company.
Why Assess Your Business Environment Before Hiring a CFO?
Finding the ideal CFO should be a well-planned and thought-out process. Some businesses resort to a generic CFO job description to fill this position, whereas others hastily create an overly exhaustive list of specific CFO requirements. However, a more strategic and effective CFO hiring process involves assessing your business environment before determining what type of CFO you need because one-size-fits-all and unicorn approaches seldom lead to successful hires.
Your business assessment should include honest appraisals of these factors for the following reasons:
- Evolutionary state of the business: A start-up business has very different finance needs than a growing private company whose needs will change once the founder starts looking for an exit and sells or makes plans to take the company public and enters the market. Additionally, a company with larger annual revenue requires a different type of CFO than a smaller one.
- Ownership structure: The financial nuances of a private founder-led company are distinct from those of either a start-up backed by an angel investor or an established PE-backed entity whose situation varies depending on its latest funding series and subsequent valuation.
- Management team: The selection of the CFO cannot be made in isolation. Companies must consider the strengths of the leadership team, paying attention to blinds spots and missing capabilities as they assess the composition of the C-suite and the temperament of the CEO. A CFO vacancy is an ideal time to identify gaps that can be filled through this hire.
- Investment thesis: The CFO skills needed may depend on the investors’ role, the investment lifecycle phase, and the value creation plan. For example, when the sponsor’s role is limited to operational advice, the executive team needs a CFO who can play a more significant role in critical decision-making. Depending on the situation, plans for organic growth often require one set of CFO qualities, while plans for acquisitive growth or de novo growth need another.
- Corporate strategy and goals: The business’ current structure, performance, strategy, and industry all need to be considered when hiring a CFO. For instance, a PE-backed healthcare platform operates much differently than a manufacturing firm, each calling for a CFO with nuanced industry experience. Furthermore, different CFO skill sets are required for specific growth strategies, whether that’s diversification, product development, market penetration, or M&A activity. Inorganic growth strategies require a high degree of market insight and strategic orientation. Organic growth strategies require a high competency in people and organizational leadership. Ambitious M&A strategies require a CFO with significant transaction experience and industry insight.
- Organizational and reporting structure of the company: The company’s reporting structure and the breadth of the formal CFO responsibilities must be considered. For example, a matrix structure environment will require a CFO to exert a considerable amount of personal influence to be successful. By clearly defining areas of responsibilities that lie beyond the traditional finance function, such as IT, procurement, and transformation, you know how much to prioritize hands-on management and people skills.
- Finance and accounting team: A stronger finance and accounting team needs a very different type of leader than a weaker one, which is why you need to assess the skills of the staff the new CFO will inherit.
Completing a thorough assessment can take time, and in some cases, financial leadership is needed immediately. In those instances, engaging an interim CFO buys valuable time with someone at the finance helm so you can carefully consider your company’s business environment before you hire this all-important C-suite executive.
How to Choose the Right CFO Profile for Your Business?
There are three prominent CFO leadership profiles in PE-backed environments that provide solid frameworks for focusing your CFO search on the right type of candidates for your situation:
- Strategist: Acting as the financial and strategic conscious of the company, this type of CFO provides the leadership needed to align financial and business strategies, such as M&A, investments, and capitalization, while still driving company performance. They are a partner to the CEO and board while exhibiting strong communication skills with a focus on transparency, objectivity, and honesty.
- Disciplined Operator: When more hands-on engagement with business operations is required, companies typically need a CFO who has spent time outside the finance organization in areas like operations, strategy, marketing, or general management. They tend to engage heavily in business operations and strategic planning and bring strong industry and competitive insights. The operator balances capabilities, talent, cost, and service levels to fulfill their responsibilities.
- The Finance Expert: This CFO has years of experience rotating through multiple roles within the finance function – controller, treasury, audit, financial planning and analysis, or business unit finance. They provide the CEO and board with the financial information they need to make sound business decisions, and they tend to have a working knowledge of the company and are experts in relevant finance and accounting issues. This type of CFO is well suited for early-stage business scaling up and professionalizing the finance and accounting function.
At Focus Search Partners, our CFO practice has extensive experience helping businesses accurately assess their particular environment to expertly match it to the most appropriate CFO profile, even if that’s combining some aspects of multiple profiles to create a hybrid one just right for you.
Download your copy of CFO Profiles in PE-Backed Environments.