What a Strategic CFO Looks Like (& What Mistakes to Avoid)
I’m sure there are many opposing answers when people are asked: “What does a CFO do?”
And if I’m being frank, rightly so. The responsibilities of a CFO can and should vary depending on the company, its age and stage, the shareholder structure (public, private, single shareholder, VC, PE), the other executive leaders and their skill sets, organizational culture, and more. The list goes on but I’m sure you get my point.
In reality, there is no “right answer”.
This article will give you some ideas on where the CFO role is going, what it could include, and what you should expect when you’re looking to join a company as CFO or already in a company and want to grow your role.
For context, I’m writing this from the lens of a B2B SaaS company in the Seed to late Series A stage. While much of what is written here will apply more broadly, there will be content that isn’t relevant or just wrong for a later stage or industry.
These are the 5 main areas that I see a CFO needing to be a leader in today are:
- Yin to the Organizational Yang
- Leaning into the Matrix
- GTM Team Partner
- Getting Out of the Books
- Planning, Not Budgeting
Balancing Optimism with Realism: Becoming Yin to the Organizational Yang
One of the most crucial aspects of being a highly effective CFO in a growing company is recognizing the delicate role you need to play. I call this balancing act the Yin to the Yang, and at its core lies the key message of finding an equilibrium between optimism and realism.
As a CFO, you’re an integral part of the founding team's journey. Founders are known for their unwavering optimism and their ability to inspire the team to achieve greatness against all odds. They believe in the impossible, pushing boundaries and defying conventional wisdom.
After all, finance leaders bring a different perspective to the table. It’s your responsibility to see beyond the immediate horizon, to consider the potential risks and challenges that the founders may overlook.
But remember: it’s a sober second look, not a Negative Nancy.
You’re the head of the finance department and likely have a finance team under you, who are absorbing your enthusiasm or disdain. I've seen many CFOs make a fundamental mistake by taking their role as the "voice of reason" too far and becoming pessimistic. While it's essential to bring a dose of realism to the discussions, constantly adopting a negative outlook and downplaying possibilities can have detrimental effects on the team's morale and the business's overall growth.
To be an effective CFO, you need to strike a delicate balance between optimism and realism. It's about earning the trust and respect of the team, not by being a constant naysayer but by being a grounded realist who genuinely believes in the business while maintaining a realistic outlook. This requires a gut check—a fundamental belief in the potential success of the business. If you lack faith in the business's ultimate success, it becomes impossible to strike the right balance as a balanced realist… and you should probably leave the company, as you aren’t doing any favors by staying.
Act like you’re providing consulting services; if you were hired by the company and only told them what they can’t do, you’d be cut in a heartbeat!
Imagine a hypothetical scenario where you, as a CFO, constantly adopt a negative outlook, highlighting potential risks and downplaying the possibilities. In such cases, the founding team will find themselves at odds with you and they will likely start ignoring your input or even hiding critical information, resulting in genuine issues being overlooked due to the perception of constant pessimism. You’ve become the Boy Who Cried Wolf or, better yet, Chicken Little.
When you strike the right balance between realism and optimism, you can effectively contribute as a strategic partner and leader within the organization. By maintaining an unwavering belief in the vision while being a grounded realist who identifies and communicates potential risks, you create an environment where the team can trust and rely on your guidance. This helps the organization navigate challenges and seize opportunities with a realistic yet optimistic mindset.
I believe this balance between optimism and realism is more of an art than a science. It requires a conscious effort to recognize the role you play as a realist rather than a pessimist. By choosing your actions and words carefully, you can achieve that balance. Sometimes, a hard meeting is necessary to challenge unrealistic expectations but, at other times, it's about asking probing questions, exploring possibilities, and working with your team to build a plan while considering the risks.
You aren’t there to let irrational assumptions slide but there should be no question that you believe in the vision.
By striking this balance, you become an invaluable asset to the team, fostering an environment of trust and collaboration.
Lean into the Matrix: Seeing Businesses as a Complex Network
In order to be a highly effective CFO, you need to see businesses as intricate systems, much like the Matrix. It's about understanding how all the numbers interrelate and impact the overall health of the business.
By grasping this interconnectedness, you can tweak the strings of numbers and create new simulations that optimize outcomes.
When analyzing the financial performance of a company, great CFOs go beyond focusing solely on revenue and expenses. They take a holistic approach, considering key metrics such as customer acquisition cost (CAC), customer lifetime value (CLTV), churn rate, and gross margin.
You need to understand that these numbers are not isolated figures but interconnected variables that influence one another. You don’t stop at simple metrics like CAC but drive into segmentation, realizing that averages lie.
Over my career, I’ve seen this so many times that I’m earnestly asking for you to pause. Think about how, as a CFO, you can avoid falling into the trap of looking too high level and instead, dive into the details to pick out the key factors helping or hurting a result.
You want to find out if something is really really good, or really really bad. Then, stop the bad and do more of the good.
Teasing out the drivers in the “Matrix” can help you find the metrics and actions that are really good or bad and give you permission to generally ignore the rest. Early in a company's life cycle, you’re looking for things that have outsized impacts of success or scaling, not small optimizations. Getting into the details exposes those drivers, where averages only give you surface-level results.
You need to see the Matrix in order to see which threads to pull.
A CFO can run simulations to understand the impact of changing pricing strategies, adjusting capital allocation, or exploring different revenue models. By tweaking these variables, they gain insights into potential outcomes across the entire business and can make informed decisions to optimize financial performance.
CFOs who embrace the Matrix mindset navigate the complexities of the business landscape more effectively. They move beyond traditional financial analysis and delve into the interconnectedness of various factors. This allows them to make data-driven decisions, identify growth opportunities, and steer the organization toward long-term success.
Interacting with GTM Teams: Collaborating for Revenue Growth
While the Chief Revenue Officer (CRO) primarily holds responsibility for revenue generation, as a CFO, you will be looked to by your founders, CEO, and Board of Directors to predict those results. Failing to develop a deep understanding of the go-to-market (GTM) strategy and the factors driving it pretty much guarantees you won’t be able to reliably predict a thing!
There is no real distinction between the sales and finance business units. You play a vital role in optimizing valuation for the next funding round and revenue is one of the main inputs for an improved valuation!
Obviously, delivering closed sales is a GTM team responsibility but measuring how they’re achieved, what the metrics are, how they are improving (aka traction), and where you stand vs competitors and industry benchmarks is 100% in your camp.
Collaborating with the CRO and the GTM team becomes imperative as you both share the same goal—a big exit and a rewarding outcome.
Sure, there might be some tension between you and the GTM team. Sales is traditionally focused on short-term cash flow, while your longer-term exit outlook may require a different perspective. Ultimately, that doesn’t matter; by working collaboratively, aligning on the metrics that matter, and developing a shared understanding, you can navigate this tension and work towards common objectives.
Remember: you both want the same thing – more revenue.
Break out your Yin/Yang skills; a great CFO works to develop common ground so there isn’t undue tension between the CFO and CRO camps! You need on-the-ground sales information and they need CFO insights.
Imagine a scenario where the GTM team proposes ambitious targets, such as acquiring 100K users within six months. Instead of immediately dismissing the idea or expressing skepticism, take a collaborative approach. Buy into the goal (even if it's more of a “thought experiment” type of buy-in). Then collaborate with the GTM team to frame up a plan and assess the associated risks. As the old saying goes, you'll catch more bees with honey than vinegar.
It's a topic worthy of an article all by itself but let's briefly address commissions.
You, as Chief Financial Officer, can significantly contribute to the likelihood of your company hitting its goals by truly being on a team with your CRO. After all, the commission plan is akin to the recipe for a gourmet meal. It's the precision and balance in the combination of ingredients - the base salary, commission rates, and targets - that create a perfect dish (motivated, high-performing sales team). Add too much or too little of something, and you risk ruining the meal.
So in short, your interaction with GTM teams goes beyond financial analysis. It involves understanding the drivers of revenue, collaborating closely with the CRO, and actively participating in the development and execution of the GTM strategy. By leveraging your financial perspective and creating and aligning incentives, you can drive revenue growth, enhance valuation, and contribute to the overall success of the company.
Oversees Accounting, but isn't Accounting: Transitioning from Controller to Strategic CFO
So often, founders make the mistake of simply hiring controllers and promoting them to CFO positions. Yes, you’ll want to know the ins and outs of your balance sheet, but you can’t create value if you spend all your time there.
While accounting and compliance are undoubtedly important aspects of financial management, they don’t encompass the full breadth of the CFO role; remember, this is a chief executive, not a high-powered computer. Without the necessary support and training, accountants can struggle to become strategic CFOs and execute effective FP&A or decision-making.
I've witnessed this challenge firsthand. Many financial business leaders that come from an accounting background find themselves falling back into their comfort zone, focusing primarily on transactional and operational aspects. The demands of financial reporting, reconciliations, and compliance deadlines can consume a significant portion of their time and attention, leaving little room for strategic thinking and value creation.
To overcome the trap of being solely an accountant, you need to consciously expand your skill set and broaden your perspective. It requires a mindset shift—from focusing on the historical numbers to actively engaging in the present; contributing to strategic discussions, aligning financial planning with the organization's overall strategy, and driving initiatives that go beyond the realm of traditional accounting.
The key takeaway is to realize that often, accountants who become CFO still “seek permission” to shift to a strategic role. The big four accounting firm path that many CPAs follow unintentionally reinforces this with its significant focus on auditing and, sadly, even the non-large-firm path is focused specifically on technical knowledge. There’s a limited curriculum focused on becoming a CFO; what’s out there is designed to help Certified Public Accountants become, well, accountants.
Seeking formal or informal mentorship or guidance from experienced CFOs (as well as CEOs and CROs that have worked with great CFOs) can be invaluable. Be curious, ask questions, be open, and work to apply those lessons to your own journey.
It's not painting by numbers. You’ll need to use those “art skills” again and adapt what you learn to your situation. Rarely, if ever, do things match perfectly. Obviously, professional development programs, executive education courses, and networking opportunities focused on strategic finance and leadership skills can provide you with the tools, frameworks, and knowledge to excel in the strategic CFO role.
Baking is a science but cooking is an art. As a CFO, you’re cooking: there is no exact recipe to follow.
Planning, Not Budgeting: Unleashing the Power of Dynamic Planning
When it comes to financial management, there's a massive difference between planning and budgeting. Many people mistakenly treat them as synonymous but in reality, they’re distinct processes with different objectives. Understanding this distinction and embracing dynamic planning can unlock tremendous value for your organization.
Budgeting is often seen as a static spreadsheet exercise focused on reconciling numbers on a monthly or quarterly basis. It tends to emphasize control and compliance, assuming that the future will unfold exactly as planned. However, in today's business environment, this approach can hinder agility and responsiveness to unexpected events.
On the other hand, planning is a dynamic and iterative process that looks at future growth. It involves developing a numerical representation of a living planning document—a roadmap that guides the organization toward its strategic objectives. While budgets only represent one dimension of successful execution, a plan encompasses a broader view, considering multiple factors, risks, and potential scenarios (think back to the Matrix example above).
As a strategic CFO, your role is to be a planner, not just a budgeter. You need to embrace dynamic planning and recognize that the future is uncertain and subject to change. This mindset shift enables you to navigate unforeseen events, adapt strategies, and lead decision-making processes that drive the organization toward its goals.
Imagine a scenario where your company faces an unexpected market disruption or a significant shift in customer behavior. A budgeting mindset could lead to rigid adherence to the budget, failing to respond effectively to the changing landscape. However, by driving from a dynamic planning seat, you can quickly reassess the situation, gather insights, engage with cross-functional teams, then adjust financial targets and resource allocation accordingly. A budget’s static; a plan is a living, breathing organism that adapts as the real world changes. Remember this and you won’t be caught in stasis.
To effectively implement dynamic planning, leverage emerging technologies and analytical tools that provide real-time data and insights, like CPM software or forecasting tools. This empowers you to monitor key performance indicators, build effective automation, track industry trends, and identify potential risks and opportunities. By leveraging these capabilities, you can proactively make data-driven decisions, course-correct when necessary, and stay ahead of the competition.
Workday published an interesting study in 2019 in this area that's worth a read.
The Strategic CFO’s Playbook
Above all, the strategic CFO understands the limitations of their own knowledge, supplementing it with the insights of others. You can get insights, tips, and trends from industry leaders and other peers by subscribing to The CFO Club’s weekly newsletter, so why wait?
