Why Your Startup Needs a Strategic CFO and What to Look for in One

When does a startup need a CFO, and what makes up a good one anyway?

In general, the needs for financial leadership in a company evolve as the company goes from the concept stage (e.g., bootstrap/angel) to launch (Seed) to growth (Series A-E) and beyond to potentially operating as a “mature” public company. The company’s financial and operational needs often become more complicated, the stakes get higher (not just financially), usually, the firm’s resources increase substantially, and often growth priorities will start to include external growth activities, such as M&A. While perfect timing is improbable, we do believe that most startup founders wait too long to get themselves a powerful secret weapon: A Strategic CFO (we will get to the definition later).

Why do so many startups make this mistake? I suspect startup CEOs might delay hiring a CFO because some may think CFOs are too expensive or only appropriate for a company of a large enough size or ambition. Some CEOs also waited for the hire because they believe their company is too small right now, even though meaningful growth or change may be just around the corner — a time that is the sweet spot for bringing on board your first CFO (think Pre-Seed financing).

So too, a somewhat old-fashioned view of the CFO function often persists. As more and more young companies raise institutional venture capital to fuel their growth, the role of the CFO has shifted significantly from a person who primarily operates within the siloed world of finance/accounting to that of the more modern “Strategic CFO.” The Strategic CFO, in contrast, is (or should be) much more dynamic and value-add to an early-stage company’s top-to-bottom operation, strategy, and growth trajectory.

So, what is a Strategic CFO? A Strategic CFO is a financial executive who seeks to understand and optimize the entire company's operation through scientific methods, innovative systems, and leadership skills to make a company more productive, valuable, and durable over the long term. The Strategic CFO’s firmwide perspective, cross-disciplinary abilities, and preference for optimizing performance help company leaders gain essential insights from various data, leading to specific recommendations that advance the company’s mission and value.

Much like Maslow’s famous hierarchy of needs, a startup’s need for this Strategic CFO tends to become more pronounced once the base levels of a company’s “needs” are met. In Maslow’s hierarchy, the highest point of the pyramid is referred to as self-actualization, which is the ultimate attainment for an individual. This characterization alludes to something close to the full potential of a person. Thus, Maslow’s archetype might be a valuable tool for us to consider when bucketing the most distinguishing characteristics of the “actualized” Strategic CFO and the startup he or she serves. See below for my attempt to illustrate this point.

The Strategic CFO

Level 1. Finance & Accounting Ops

Core focus: financial reporting, oversees accounting functions (e.g., A/R, A/P, etc.), tax, cap table, audit, control systems, compliance, insurance, HR, legal, etc.

Level 2. Business Intelligence & Strategy

Added core focus: corporate finance, financial strategy, planning & budgeting, liquidity management, cash flow, risk, capital structure, capital allocation, asset utilization, performance measurement tools, and systems, and supports front office.

Traits: highly analytical, data-driven, technically savvy, objective financial expert.

Level 3. Building the Machine / Organizational Development

Added core focus: continuous process improvement, IT strategy, funding strategy and execution, risk management, championing of innovation, and professional development.

Traits: systems builder, innovator, interdisciplinary, collaborator, teacher, recruiter, negotiator, troubleshooter.

Level 4. Managing the Machine

Traits: strategic thinker, highly effective, standard setter, synthesizer, collaborative, open-minded, decisive, delegator, thoughtful, credible.

Added core focus: enterprise value-driven, M&A, managing managers, conflict resolution, governance, business development, higher risk decisions, resource allocation.

Level 5. Strategic CFO / Leader

Traits: principled / highly ethical, standard setter, high EQ, entrepreneurial, big picture thinker, confident communicator, creative, capable, resilient, optimistic, inspirational.

Added core focus: accountable to all stakeholders, helps set and achieve overall direction of the company; team and culture builder, the balance of inward/outward relationships.

While the old-school CFO finds himself primarily focused on the “finance” function (primarily in levels #1–2), the modern-day CFO that most startups grow to need is much broader-minded and cross-disciplinary. She thinks of herself as an evolving entrepreneur, manager, and high-impact technician across multiple functions of the startup operation rather than as a more limited specialist; as such, her method and impact evolve considerably just as the company grows.

Naturally, as one might expect, all finance executives must have strong technical skills (level 1) and have an aptitude for higher-level general management (levels 2–3). The Strategic CFO, however, must go further and be a strategic, innovative, and forward-thinking individual who serves the company’s many stakeholders with authentic, principled leadership abilities (levels 4–5).

The Strategic CFO has a mission that goes beyond the “finance” silo because it must deliver the ultimate value for both the firm and oneself. The Strategic CFO’s goal is more significant than the numbers: it is to build a durable, profitable, healthy company (including culture) that can provide sustainable value to its customers, employees, and its shareholders for the long haul. I think this is fundamentally the core responsibility, both personally and professionally, of great CFOs. Everything else seems to fall neatly enough under that mission. In a follow-up post, I’ll attempt to break down each bucket of activities so one can get a better sense of the actual activities and nuances of this vital role and how they fit into a startup’s trajectory.