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The CFO In Hyper-Growth Companies

How do you control finances at a small company worth billions?

12Jan

The speed at which tech companies are growing in today’s Venture Capital driven market is astounding, with some taking just a couple of years to reach unicorn status. Slack, Groupon, Akamai Technologies, and Xiaomi all gained their $1 billion valuation within two years, according to research firm Pitchbook, and many others are doing so in little longer.

For CFOs, this presents an entirely new challenge. They require a different set of skills to their counterparts at companies with less aggressive growth, combining financial acumen with a broader business knowledge and strong entrepreneurial mindset in such a way that is capable of balancing growth and profitability in an extremely fluid business environment, often riddled with uncertainty and prone to rapid change.

Traditionally, the CFO’s primary responsibility is to manage risk. In a hyper-growth company, this is no longer the case. While they are still expected to give risk due consideration and be the boardroom realist, so to speak, they also need to be more of an optimist than they would otherwise be in order to get behind the kind of innovative, even unproven, endeavors that need to be taken in order to achieve hyper growth, and offer strategic guidance around how to approach these. They need to look for opportunities to scale and identify when resources are needed quickly before the company outgrows its capacity.

It is not just the CFO themselves who is required to offer strategic guidance, they need to ensure their team is made of people who embody the same qualities and can also contribute to the company’s overall strategy. The whole team needs customer-first tack should be taken, emphasising what the right thing to do is with customers to align finance with the rest of the business team in the first place, before explaining the financial imperatives. This kind of mindset can be instilled, or hired, by recruiting finance professionals with diverse employment backgrounds, or it can be achieved by rotating employees around a variety of roles, and perhaps even different departments.

One of the main pressures on CFOs in hyper-growth companies is providing strong numbers in the short term. They need the strength of character not to bow to such pressure and instead make decisions that ensure they are investing in the long term potential of their organization. They need to be capable of persuading shareholders that the long option is the better choice, even if it means revenue may be damaged in the short term.

While finance teams need to be an integral part of the business, it is also a good idea to take up an autonomous position, acting as a business influencer rather than a centralized function. In a hyper growth company, agility is key, and you are often not sharing financial information with FP&A analysts but product owners, most of whom are not from financial backgrounds. This means education is paramount, empowering product owners to conduct FP&A for themselves. We recently spoke to Skyscanner, one of the fastest growing companies of the last decade, who place a great deal of emphasis on ensuring their product owners have a good idea of how what they’re doing is impacting the business model. For example, when making a change to the product, they need to know whether it is driving more exits, if it’s driving more revenue, and so forth. They aim to provide a product owner with sufficient level of commercial awareness to do this. Their FP&A team then starts to shift ownership out to them entirely, leaving them alone to monitor their information and performance. Once this is achieved and each ‘squad’, as they call their product teams, has the necessary knowledge and ownership, they can conduct 1000s of tests around everything they do, enhancing their agility and speed of processes. It also gives the FP&A team the ability to approach everything from a macro view. This drives the product, growth and performance, generates insight, and gives them visibility of what each squad could be doing to learn from one another and ensuring that they are doing it.

Not all CFOs are cut out for financial leadership at a hyper-growth organization, and it is exceptionally challenging job. It is also highly varied and often rewarded, with huge potential for career growth.

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