When Does A CFO Know It’s Time to Leave?

As a former Wall St. analyst who regularly ripped apart financial statements of public companies, and as a former CFO of a startup technology company, who had to scramble to make payroll every two weeks, there is a limit.  To quote Kenny Rogers, “you’ve got to know when to hold them and when to fold them.”  Every company wants to be a “high growth” company.  When the product is selling, or you have cash in the bank from a capital raise, it’s easy to hire the staff you need to fulfill customer demand.  Obviously, you don’t hire everyone at once, but you can certainly accelerate your hiring plans based on the organic growth from new customers.  However, if you don’t have the money in the bank and the company’s product is reasonably new and still gaining traction with customers, then you can’t hire all the staff you want, you must scale back your expansion plans to better fit the financial reality.

When the CEO walks into your office and says, “We need to “step on the gas” and hire more engineers, so we need to raise money”, is that the time to stiffen your spine and say, “No.”  If we’ve just signed two new contracts, then it’s not the time.  You find the old presentation, open it up, and begin the process to freshen it up with information about the progress since the last raise.  Hopefully, you’ve been maintaining a dialogue with investors and letting them know about your continual progress.  In any event, when you start speaking to angels and venture capital companies, you will need to show that your market has been validated, and it’s the time to raise capital to prove out the business model.

When the CEO likes to spend money on the staff to promote the “espirit de corps” or the company culture, and the pace of new hires begins to threaten profitability, is that the time to leave?  Can’t the CFO simply say, “Let’s reduce the rate of hiring, and let’s cut some spending”?  Of course he can – unless the CEO says, “No, we must do this.”  The CEO makes the final decision, and saying “No” can certainly be classified as insubordination.  Does the CFO leave?

What if the CEO wants to purchase the latest iPhone as a gift to all the engineers to show appreciation for their tireless contributions to the Company, and then decides to purchase that iPhone for everyone in the Company to promote the team culture?  Does the CFO say, “No”?  Of course he does.  What if the CEO says that the purchase will happen anyway, buys the products on his credit card, and then submits an expense report a month later?  Does the CFO leave?

What if the company was considering an IPO, but the spending on new staff, and gifts was threatening profitability.  Wasn’t an Internet company all about being unprofitable as long as you are building a large and loyal customer base?  Won’t you figure out how to monetize those customers later?  If the growth threatens continued profitability, does the CFO leave?

What does the CEO do, if the CFO has had enough of the spending, and comes into the CEO’s office to discuss his ascension from CFO to CEO in order to close out the IPO process, making the CEO a multi-millionaire in the process?  Does the CEO step aside?

Now, there’s a dilemma.

About Richard Piotrowski, CFA

Richard Piotrowski, CFA, is a formerly a #1 ranked securities analyst, who has 20 years of experience building, dissecting, and fine tuning presentations, business models and valuation models of all kinds. The experience has been gained working in the investment community on both sides of "Wall Street", on "Bay Street" (Canada), as well as on "Main St." as Chief Financial Officer, Chief Operating Officer, as well as Evangelist and Marketing Director, where he focused on building messaging for solution sales opportunities based on value positioning, high ROI and fast payback. Richard joined Canada’s investment banking community in the early 1990s as an analyst following technology companies. He was recognized within two years by the Street, and was ranked "First" for Quality of Research in the survey of institutional investors conducted by an independent advisory firm – Brendon Woods. Richard was also the founding member of the internet technology research practice at two boutique investment banks.
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