After achieving product-market fit, early stage companies hire a finance leader who is tactically strong and capable of wearing multiple hats. Then, as the business scales and complexity mushrooms, startups often graduate to recruiting a head of finance. But at what stage of a company is a proper CFO needed? In our current era, there’s no predictable timeline for an IPO. Companies remain private longer for any number of reasons that make good business sense.
You should already have an effective leader who is capable of building your financial systems and controls. They should excel in areas such as controllership, FP&A, investor relations, risk, and treasury. Do they need to have the latest FASB Technical Bulletins memorized or be a specialist in international tax intricacies? Not necessarily. But they should have the technical depth to engage subject matter experts meaningfully and hold their own in any of these domains.
As the former CFO of Splunk, Lyft, and OpenSea, I’m frequently asked by founders about the next step—when to hire a CFO. You and your board should start your decision-making process with a candid evaluation of your organization’s finance needs and continue this assessment on a semi-annual basis, at the very least.
Your assessment
Companies must navigate spiraling global complexity, growing headcount and capital investments, significant fundraising, large-scale M&A opportunities, and intricate competitive and regulatory dynamics. Eventually, you may come to a conclusion that your head of finance does not meet your company’s finance requirements. As you review that person’s skills, performance, and potential, you should ask yourself some high-level questions:
- Have the needs of the company surpassed the abilities of your current finance leader?
- What’s at stake and what are the risks of executing without a finance leader, who can take your company forward strategically and also has the chops to take it public?
In addition to having extraordinary finance expertise, a truly experienced and gifted CFO excels in five specific dimensions of business: they are true leaders, play the long game, demonstrate an always-on mindset, are master distillers and storytellers, and function as a true peer. If your current finance leader excels in only some of these areas, which most finance leaders do, it may be time to assess if you need a CFO.
Compare your current finance leader to these dimensions, and also compare them to what the assessment revealed about what your company’s finance needs will be in the next six to twelve months. If your head of finance comes up short, that gap may only widen as your company continues to grow and succeed. Also, don’t underestimate the time required to identify and hire the ideal CFO for your company. So, plan ahead with your recruiting process.
The five dimensions
Leadership
A great CFO is purpose-driven and has the presence and empathy to inspire employees, customers, partners, and investors. This makes them a magnet for great talent. Their existing teams are more likely to jump to wherever their leader lands next. Great CFOs are also more than just the finance leaders of yesterday. They believe it’s their purpose to help lead the company to achieve its mission. They can effortlessly step into a CEO’s role during an all-hands meeting and rally employees through the good, uncertain and difficult times, such as layoffs. They can’t be a mercenary—always tempted to chase a shinier opportunity or answer a headhunter’s call during turbulent times. Understanding why a CFO wants to join your company is critical. Hire a missionary, not a mercenary.
Plays the Long Game
A CFO should instinctively know when and how to balance strategic growth investments and short-term margin improvement opportunities. They can expound evidenced-based reasoning upon curious investors, critical journalists and anxious employees, making them at ease. They have significant game film from prior experiences that inform rich strategic and financial insights. Yet, they can ignore their pattern-matching instincts and remain approachable and objective to everyone with fresh data and perspectives.
A great CFO majors in strategy and constantly optimizes capital allocation to achieve the company’s mission and P&L of the future. In Ben Horowitz’s article, he details the elements of the CEO-CFO partnership. CEOs understand the terrain, while CFOs own the map to win the long game. To develop the map, CFOs balance the interests of investors, employees, and customers with long-term value creation in mind. They skillfully guide the company’s capital raising, operations, investments, and M&A to drive sustainable long-term growth, deepen and widen competitive moats, and increase efficiency and expense leverage.
Always-on Mindset
A great CFO acts with the same sense of urgency, care, and inspection as a founder would. There is never peace. They are a wartime CFO with a relentless drive to grow the business and improve operating efficiency. They own the P&L. They own the strategic roadmap. There isn’t a team in your company they won’t scrutinize or partner with to achieve greatness. A great CFO’s tenacity, attention to detail, and ability to operate at all altitudes should elevate the game of everyone around them. They strive for continuous improvement and learning. They push every team to achieve their fullest potential and enable team leaders to help get them there. They quicken your company’s pace with faster decision-making through shared context and goal alignment. But ultimately, they set the tone by digging deep, owning outcomes and having the same boundless commitment as your founder and CEO.
Master Distiller and Storyteller
A great CFO ingests massive amounts of information as a human LLM to reveal invisible patterns that are extraordinarily valuable. They have an innate ability to anticipate and distill the most complex situations into simplified frameworks for quick and powerful decision-making. This increases urgency, elevates intensity, and avoids death by powerpoint. They complement their ability to distill with their well-honed skill of storytelling, which is also a superpower for fundraising.
A True Peer
A founder or CEO should have a CFO with the same horsepower and raw intellect that they possess. A CFO is the CEO’s thought partner and confidant. They are connected at the hip, so chemistry is crucial. A great CFO is someone the CEO wants to consult with countless times a day to wrestle complex issues, quickly. They will challenge a CEO to drive the best decisions and are unafraid to inform a CEO when they are wrong. However, if a CEO still wants to pursue an alternate course, they will disagree, but commit and do their part to ensure success. Ultimately, a great CFO is dedicated to advancing your company’s mission and ensuring its success as the CEO’s most trusted partner.
Change requires courage
Ben Horowitz once said: “The toughest decisions I made in business never tested my intelligence, but tested my courage.” A CEO needs fortitude to drive the right talent decisions across their executive team, and finance is an especially hard area because it’s the function a CEO may know the least about. There are also complicating factors. You may have an outstanding VP of Finance, who if not promoted to CFO, might leave. Separately, hiring a CFO before the business is ready for one can also have adverse effects.
Despite these challenges, it’s essential that you conduct a semiannual assessment of your financial leadership and the finance needs of your company. Can your business afford to have a leader who does not excel in every dimension of the CFO role? Do they come up short against your most recent assessment of what the company needs? As you weigh these questions, consider these critical factors: How close is your current finance leader to meeting the ideal profile? Can they close that gap? What is their growth trajectory? Do you fully understand the potential business risks if they remain in their role?
Your board and CEO must carefully assess whether the current and projected levels of business complexity justify a strategic investment in changing senior finance leadership. While delaying this decision may seem safe, it’s crucial to consider the hidden cost of missed opportunities.
(For a checklist of required CFO skills, I recommend an article from my colleague Jeff Jordan. For a list of CFO archetypes and backgrounds, as well as hiring parameters that include a mission-outcomes-competencies (MOC) plan, read an article Jeff authored with another colleague, Matt Oberhardt.)
