At some point on every young company’s path, the board and management team have to hire a CFO. It is a critical juncture in a growth company’s journey—usually around the time that venture capitalists and other institutional investors are considering more significant funding.
For a CFO of a new start-up company, this is a time of tremendous opportunity. Roles and responsibilities are being formalized, processes and controls are being implemented, and cultures and capabilities are being transformed.
Developing a relationship with the CEO will be key to the CFO’s success, but shaping interactions with directors and the board is similarly critical for growing the company, according to our recent interviews with more than a dozen experienced start-up CFOs.
For boards, success will hinge on trusting that the CFO and CEO can work in parallel and in tandem, and that the CEO trusts the CFO to independently communicate with the board.
Partnering with the CEO. The board needs to be able to quickly assess if an incoming CFO can “pull” the company in the same direction as the CEO and understand the long-term plan for the business as well as any near-term funding needs and corporate control issues that may arise. Additionally, the new CFO will have to be comfortable with the uncertainties of a young company.
“Venture capital-backed companies often have many different financial plans floating around,” said one CFO interviewed for KPMG’s new publication, The Startup CFO’s Road Map to Success. In addition, an incoming CFO will “need to know which one is best.”
A CFO has to communicate the organization’s needs and objectives in addition to influencing the CEO’s decision making. “CEOs and founders have spent so long selling the story and focusing on revenue growth that they often lose track of the other financials—key fundamentals like unit economics, leverage, and cash position,” said one CFO. “That’s where a good CFO steps in.”
“Start-up CEOs will need to navigate relationships with their board and investors. And that means they will require a CFO who can be a sounding board, advisor, and mentor she or he can trust and listen to,” said one CFO.
Talking to the board. It is essential that the CFO frequently communicates with the board—and the CEO must trust the CFO to directly interact with board members. “It is usually the CFO’s job to build the board decks and decide how best to present the key metrics and context,” said one CFO.
And boards need to be clear with the CFO on what key performance indicators matter and what the monthly or quarterly dashboards should look like. The CFO should understand how the board measures success and where it wants to focus.
A new CFO will need to work quickly to address the needs of both the board and management. According to our interviewees, achieving such alignment may require frequent meetings with the board.
“Venture capital investors expect to see the numbers more often than at the board meetings,” said one CFO. “That’s how you avoid surprises, provide context, and ensure that board meetings are as productive as possible.”
Improving communication. CFO interaction with the board should settle into a regular and reliable cadence. Several interviewees noted that the number of face-to-face meetings with the board often declined as reporting tools and processes improved. “We came up with clear financial and nonfinancial metrics that the board and investors could focus on, and that told a very clear story about the strength of the business,” said one CFO.
But even if the pace and volume of communication with the board eventually diminishes, it remains a two-way street: “It’s really about deciphering what the board wants to know and communicating what you need back to the board,” advised one experienced CFO.