The CFO - What Does the CEO Want vs. What Do Investors Expect
I learned something new last week: I always thought CEOs understood what a CFO’s role was. Well, not all of them do. For example, a couple months ago I contacted the founder of a new company in my area. I have great personal interest in what the company does, and I thought it would be a chance to do something fun. The local newspaper wrote a feature article about them and they were really starting to generate national attention. My first meeting with the founder and sales manager went very well and they expressed interest in my taking on the role of CFO.
I signed an NDA, then received their business plan and other legal documents. The plan showed where they wanted end up, but did not explain how they would get there. What little financial information was provided was very elementary and lacked supporting detail and credibility. I thought their production time-line was unrealistic, considering where they were in the development process. They readily admitted their plan needed help, but being focused on the product development phase, they had set it aside.
I asked this new company some probing questions about their choice of technologies, the target market and plans to raise capital. I must have hit a nerve. Their answer was, “We don’t need people that question our vision; we need people to execute our vision.” Frankly, I was disappointed. Every CFO needs to challenge executive assumptions, the team’s decisions and strategies, in order to effectively present them to potential investors. Certainly a knowledgeable investor would ask similar questions. While focusing on development is critical, it’s not the only thing. Attracting investors is a major responsibility of the entire executive team, and in particular the CEO. To help CEO credibility, a CFO needs to be well-informed and to remain objective. CFOs are best equipped to present your case to investors on behalf of the executive team, just like lawyers are best equipped to present your case in a court of law.
The investment pie has shrunk and will no doubt shrink even more. Times are tough. Conservative investors play their cards close to their vest. To win the game, you cannot falter, not once. During the boom of the late 1990s, business plans were done in pencil on post-it notes. No more. . . Getting investors to take the bait - big investors who can get the job done, not mom and pop speculators - means having a bullet-proof business plan with the full credibility of an experienced CFO behind it.
I recently met with a private investment firm who explained they had stopped investing in start-ups and early phase companies. In their eyes, start-ups were too risky and took too long to mature. These days they look to invest in companies that are more maturealready up and runningand running well. They also examine the whole enterprise in greater detail, and it really does not matter what industry, but a company must have established itself and be up and running to attract their attention. It does not have to be high tech, biotech or anything “sexy”. They want to invest in good companies, help them to grow and become better, thus increasing in value. So a company that demonstrates good performing internal processes is much more attractive than one that is a mess and requires a lot of attention to fix - even if the potential downstream opportunity is better.
Stock declines are a sign of the times. Equity markets have been chewed to ribbons by broken lending models, huge deficits, dead credit and sky-high energy prices. Taxpayers are saddled with a clean-up none can afford and the economy, while not totally stopped, is grinding to a screeching halt. The country, every sector of the economy, must reinvent itself. Detroit must re-tool, airlines conserve even more, companies drive toward novel ways of limiting transportation and energy costs. They all need money to do it. In the middle of this situation, how are you going to move your own ball forward? Do you have what it takes? What makes you stand out? Everyone is looking for investment. You will have to scramble for each and every penny. Why makes you so deserving?
It’s obvious: Executives must consistently look to the future in order to successfully grow and reach the next level. This is nothing new. Experts at Thomas Financial Services (www.thomasfinancialsvcs.com) know what to do. Building core infrastructure in basics like financial systems, business planning, forecasting and accounting will make all the difference. You’ll become strong and efficient when your plan works the way you want it to. Customers will see the difference, investors too.
Little companies can succeed. Big companies fail every day. Failure to anticipate and plan kills your future. Recent blowups like Lehman and AIG drive home the point that when even the big boys take their eye off the ball, they strike out too. Chief Financial Officers turn organizational discipline into credibility with investors. Make sure your executive team is truly a team. Stay on top of your game. Plan your work, work your plan.