In our Spotlight On series, experts from around the globe share recommendations and resources for start-up teams. This feature was contributed by Alex Estevez, Venture Partner at Accel and former CFO of Atlassian (Nasdaq: TEAM) and BigFix, where he supported their acquisition by IBM (NYSE: IBM).
From the start, most founders care about two things: product and sales. If they score on both, the lift to the organization can be exhilarating. But this lift eventually brings new challenges, akin to flying a plane. At a certain “attitude”, founders suddenly find themselves in a place where they can no longer “fly by sight” or where “clouds” might obscure once otherwise clear skies. So, like pilots with their aviation telemetry, the metrics and model of the business suddenly become a lot more important for successful navigation of the business.
At around this stage, there are two important hires who will help founders navigate the next segment of the journey: A VP of Finance and eventually the Chief Financial Officer (CFO). The following offers some insight on what those roles entail, and how to hire well:
The Impact of a Great VP of Finance
Let’s start with the VP of Finance. There is a lot of work to be done before a CFO can be most effective. That’s why hiring a VP of Finance will often happen before hiring a CFO. If you Google “VP Finance”, you’ll find a list of job descriptions longer than what might seem possible. But, in the end, these are the three most significant ways a great VP of Finance will impact the organization:
1). Less Management Team Debate: A great VP of Finance clarifies what happened, what should happen, and who owns it, all from a quantitative perspective. Even simple concepts like churn, customer count, or net dollar retention (NDR) can have valid nuance in the details, and this role helps put these debates to rest with clearly defined terms, timely results, and accountability. When the numbers are accurately presented thoughtfully, management team decision-making improves and scale starts to accelerate.
2). “The Model” is a Greater Part of the Management Team Language: A great VP of Finance owns the financial model and, more importantly, helps the management team own the model and more advanced business metrics around it (e.g. CAC, CLV, magic ratio, etc.). As a result, the team better understands how their decisions impact the model, which model drivers they own, and how their performance impacts model results. An important byproduct is that a new language forms. The management team increasingly uses this new model terminology in casual conversations, and this common language helps improve communication, alignment, and decision making.
3). Model-driven Decision Making Increases: As the collaboration between the CEO and VP of Finance strengthens, “what / if” scenario planning increases naturally, with questions like “what happens to the model if we put 20 people in Asia versus 10”? Or “what happens financially if we accelerate the addition of 5 heads to start to build out the channel”? Or “which approach improves the model more”? Additionally, the broader management team increasingly weighs how their decisions impact the model, and they incorporate more quantitatively oriented “what if” scenarios into their decision-making as well.
At this point, the VP of Finance has helped to implement a new system of “high altitude navigation” and, in doing so, become a powerful ally to the CEO and management team.
The Impact of a Great Chief Financial Officer (CFO)
Great CFOs are hard to find, so it makes sense to prioritize the VP of Finance first. In fact, great CFOs are actually more attracted to scenarios with a tenure of VP Finance leadership, as it allows them to be more impactful on strategy, corporate execution, and value creation. Not surprisingly, most CFO hires only start to make sense once the company has passed $100M in ARR and the path to IPO becomes more credible. At this point, here are three things to expect following the addition of a great CFO:
1). The Management Team is More Aligned on Strategy, Operational Goals, and Financial Results: Great companies have clarity on mission (“why we exist”), vision (“what world we will create”), and values (“what behavior will govern our decision making overtime”). And they are also clear on what strategies we will execute to make this vision a reality. But there’s a ton of operational work to be done to make this happen, and a great CFO will help orchestrate this dance between strategy, operational accountability, and the numbers to make it all work (the “three legs of the stool” for a CFO). The biggest result of this work is that everyone on the team understands how their goals impact strategy and vision, and they execute on their objectives directly linked to the model.
2). Teams Will Deliver on Objectives They Own, and They Adapt Quickly as the Business Model Evolves: It’s one thing to have operational goals that align with the financial model and strategy of the business, but it’s much more important that individual leaders own results. A good CFO ensures a thoughtful and clear system of accountability to ensure results. That said, the one constant of business is change, so a great CFO adapts systems and processes accordingly. This is a challenge, as it's naturally frustrating for a finance team to get all the systems and processes in place just to change it all over again. But a great CFO embraces BOTH the control environment that drives results and the need to constantly evolve this environment given their role as a strategic partner and business enabler.
3). The CFO Becomes the “Yin” to the CEO’s “Yang”: A key to hiring a great CFO starts with CEO self-awareness, as the CFO is often the most direct counterpart to a CEO’s strengths. If the CEO is more product-focused, the CFO provides that counterweight on operational and GTM accountability and execution. If the CEO is more introverted, the CFO becomes more of a voice to investors and employees. If the CEO is more collaborative or conflict-avoidant, the CFO becomes a hammer and negotiator. But the key insight is that the CFO is that one partner to the CEO to help fill those gaps that are less interesting or natural to the CEO. The common thread, regardless of complementary skill sets, is the most underrated quality of great communication skills in a CFO.
Hiring a VP of Finance: Key Questions to Ask
Now that we’ve described these two potential additions to a company, let’s get into how to hire them. The following interview questions can help provide insights needed to find the right VP of Finance for a business.
“Walk me through your model.”The question is intentionally vague, designed to expose 1). The ability to prioritize model drivers and 2). The ability to communicate succinctly and thoughtfully. Look for a focus on model inputs over outputs (i.e. revenues, profit margins, etc.). Model inputs are typically productivity assumptions that are actually managed (e.g. gross retention rates, new ARR per quota carrier, MQL conversion rates, etc.) Consider giving the candidate freedom to actually “whiteboard” the model for you or even open up a past model for them to explain in plain English. Again, the subtlety here is how well they communicate: if you get lost in the model or it seems confusing to you, then it’s probably the wrong hire.
“Describe a time when there was a management team debate, and how you resolved it”: It is easy to underestimate how much the VP of Finance works behind the scenes with your management team. In this typical role, a VP of Finance is educating, negotiating, listening and sometimes resolving conflict. Look for signs of how they combined listening skills and data analysis to resolve misunderstandings or disagreements. Be sure their answers are detailed and specific, addressing what this candidate specifically did to arrive at a solution.
“Describe a time when your model was off and what you did to improve it”: Any model of the future is constantly improving and evolving, so the first thing you’re looking for is a tone that acknowledges this truth. Second, the model aims to be predictive but when it’s inevitably off, you want an honest broker, someone quick to acknowledge the miss, who assesses it almost scientifically, then action-oriented to determine a more accurate approach to forecasting new outcomes. Finally, the candidate to hire is the one who clearly describes their work with the management team to improve results. If the answer here demonstrates curiosity, humility, collaboration and a bias to action, then you’ve probably found a winner.
“Describe how your accounting and FP&A teams work together?” A good finance leader knows that collaboration with accounting is a known secret to improving model predictiveness because a good accounting team already knows much of what’s going to hit the P&L before it happens, at least in the short term. And a good accounting team knows that it’s smart to collaborate with finance to ensure they are aware of everything finance predicted would hit. The bigger point of this question is to expose qualities around collaboration and teamwork, one of the most underappreciated qualities of great VP of Finance leaders.
Hiring a CFO: Key Questions to Ask
Let’s start with expectations: a CFO search is going to take nine months on average, but it can take years, literally, given the challenge of finding the right combination of experience, fit, and acumen in this competitive environment. Once you’ve begun your search, here are a few questions to ask to help expose a great CFO candidate:
“Talk about your strategy-setting process.” A great CFO is a strategic thinker, but the answer here should be less focused on “strategic principles” and more on the corporate coordination of strategy, operational goal setting, and the financial model. Most importantly, a great CFO cares deeply about accountability, with specific, measurable, and time-based goals for the broader management team that align with values, strategies, and the model.
“Talk about how you managed missed expectations with investors and/or the board.” If a finance professional has never missed expectations, it might be akin to a military expert who’s never been to war. Of course, the golden rule for public CFOs is to consistently meet and exceed expectations, but life’s never perfect and competitive environments can change rapidly. So, the best answers to this question demonstrate both a spirit of openness and education, as well as a “marketer’s instinct” around positioning and clarity for action. Investors don’t fear missed expectations as much as they fear missed expectations they don’t understand. Take seriously a CFO candidate who shines on this front.
“Describe in detail how you’ve led your organization through a decision involving difficult trade-offs.” A great CFO is a key driver of “trade-off” decisions and manages them in a non-emotional, logical, and even-handed way. Of note, business decisions made in isolation are always easier than in the context of trade-offs, and a great CFO incorporates this theme of “trade-offs” as new ideas, requests or initiatives naturally surface with growth (e.g. “Great idea, so which of our other corporate priorities will we NOT do with this new priority?”). It’s important that answers to this question are detailed, incorporating motivations of various characters in the organization in weighing trade-offs, and demonstrating dexterity in navigating and negotiating internal motivations in order to arrive at win/win outcomes. Expect themes of focus, excellence, and prioritization from high-quality candidates.
“Let’s walk through our pipeline funnel and what the next level might look like.” This is a conversation best led by a highly competent CMO, but it might also be good to have the CEO and CRO participate as well to test for collaboration. The CFO is not the CMO, but they are often looked to by investors and the board for model predictiveness; as such, ability and comfort in this pipeline funnel discussion should be quickly evident. Expect to see sharpness around funnel mechanics and metrics, and challenging observations around funnel model drivers such as marketing attribution or stage conversions. Done well, this should be a very helpful “sneak peek” into what it will actually be like working with the CFO on a day-to-day basis and you should walk around from this meeting with some ideas about how to immediately improve your pipeline process. Don’t be afraid to get in the weeds on this subject but also remember that you’re interviewing for a CFO, not a CMO; the key attributes to seek here are those around collaboration, curiosity, and continuous improvement.
“Describe how you’ve grown over the years in building great teams?” A good VP of Finance can sometimes struggle to get to the next level in how they build and grow their own teams. Great CFOs are made great by the quality of the team around them, and their teams are often motivated by the direction, encouragement, and selflessness of their CFO leader. Explore this theme and look for signs of passion, ownership, and pride in the successes of their teams. Look for signs of service-oriented leadership and selflessness for the benefit of their team’s growth. When you get the impulse that you might even want to work for them, then you might have found your next CFO.
“Describe your approach to working with your auditors? How would they describe you?” This line of questioning is underrated and sometimes neglected. But you could suffer from major accounting-related distractions down the road if experience here is lacking. A CFO need not be a CPA; in fact, it could even be a liability. But, at a minimum, this question might clarify if you need to add a Chief Accounting Officer to the team to complement any potential skill gap with the candidate. The best answers here focus on openness and proactiveness, with an emphasis on messaging “tone at the top” values to the audit team, supported by real-world examples, and preferably with Big 4 audit teams. Detailed examples around management of revenue recognition, for example, can be helpful and revealing. This is also an area where “auditor collaboration” should not be emphasized, as auditors are necessary and appropriate oversight bodies, versus collaboration peers or fellow team members.
“How do you think about corporate values in the context of the CFO role?” It’s easy to underestimate how impactful a good CFO can be at making your corporate values “real”. But as the eventual owner of corporate controls, policies, and approvals, the CFO can have a huge impact on “operationalizing” company values. A great CFO should have plenty of anecdotes of how they’ve used their values to help execute their responsibilities as a CFO. In the end, a great value-driven company makes thousands of small decisions daily that should all point back to company values; in fact, corporate values are almost worthless if they do not drive this daily decision-making. More importantly, values-driven businesses attract great employees, and great employees ultimately create better experiences for customers, which creates superior businesses in the end. Behind the scenes, a great CFO can have a major influence in how the employees make these values-driven decisions daily to create long-term corporate success.
Finance teams must be able to fly the plane in any scenario: in clear skies or storms, in familiar territories or in new environments. A strong finance team enables this kind of successful navigation, both at higher altitudes and over greater distances. My hope is this guide provides insights on what you should *actually* experience when you hire both a world-class VP of Finance and a world-class CFO. And, hopefully, this framework of interview questions helps you land the right talent to successfully navigate this incredible journey that lies ahead.