The 10 commandments for a newbie CFO

1.      Thou shalt help the Board in setting (& execution of) of corporate strategy.

All newbie CFOs must help Boards in understanding where the company must play, assess whether the company has the resources to create sustainable competitive advantage in the area, and where required help build the resources needed to succeed. More often than not, it is equally important for the CFO to help the Board in understanding where not to play.

A good strategy without an execution plan is a dream. And sooner or later you wake up from the dream. CFOs must play an important role in helping management in execution of the strategy by building feedback loops of strategic reviews. Very often this requires CFOs to ask the hard questions and dealing with strong(er) personalities. Do not forget commandment 10 😊.

2.      Thou shalt remember the customer all the time

A company exists to serve an unmet customer need. Knowing what the customer wants allows a company to have a strong focus on product and pricing strategy. It also helps manage resources and prevents the trap many firms fall into – trying to do too many things not knowing what the customer will ultimately pay for. This may work in the short term (when the company has money to spend), but ultimately fails in the long term. Why? Because firms overspent trying to guess client needs and not all firms are able to recover from failure to meet an unmet customer need. See commandment 7 😊

3.      Thou shalt help the CEO build strong culture in the company

Strategy helps define the formal logic for what a company wants to do, but without a strong culture, which according to HBR expresses goals through values, beliefs and guides activity through shared assumptions and group norms, the best laid strategies fail. As to what kind of culture is needed for a company to succeed very often is liked to what stage of its lifecycle a company is in, and what industry it plays – but needless to say the alignment of culture and strategy must be a top priority for the CFO. Strategy is the road, culture is the compass

4.      Thou shalt be the champion of change in the company

As a new CFO very often one gets told that things should be done in a certain way, because they have always been done like that. Often, while doing the doing, individuals fall into the trap of becoming more and more output focussed rather than becoming outcome focussed. Output focus allows a company tread on the same path with blinders on. Outcome focus helps in getting rid of those blinders and tap the world to become more efficient (or effective) in the doing of the doing. Change is hard – requires taking brave, but often heart-breaking decisions. But they must be taken.

5.      Thou shalt dedicate time to coaching and helping develop high performing talent

Someone once told me that a CFO’s role (and for that matter any role in the C-Suite) is a ‘powerful’ role. With power comes responsibility as people often do or say things to please you. It is important to acknowledge this blind spot and make a conscious effort to help develop talent/future leaders in the company. As a rule extroverts tend to do a better job in selling themselves (often at the cost of others) by saying the right things to the right people at the right time. Not all of these people, however are able to put money where their mouth is (though some do). A CFO must develop the knack for identifying people who talk the talk, walk the talk and talk + walk the talk. People who talk + walk the talk are the ones who end up being high performers and the leadership bench of the firm.

6.      Thou shalt build your understanding of cloud & crypto

Cloud and crypto are changing the world we live in. Cloud is already disrupting product lifecycle (XYZaaS- Banking as a service, software as a service, Talent as a Service and so on) and may soon make some of the very tradition business models obsolete. Crypto is still quite early in its hype cycle and may have use cases that we cannot currently imagine. They say that snow melts from the edges and all newbie CFOs must develop the ability to see around the edges of cloud and crypto. They might disrupt processes in their company, or the entire industry itself.

7.      Thou shalt always remember cash is king

Depending upon where in the industry life-cycle a firm is, one way to assess the value of the firm is a multiple of some accounting measure – revenue, ebitda, ebit, and sometimes even earnings before everything else (whatever that might be!). This may work for some time, but ultimately, if a company doesn’t generate cash for its investors, it goes out of business. As they say, revenue is vanity, profits are sanity, but cash is reality. Everything else is madness.  

8.      Thou shalt understand your costs well as it makes your unit economics work

If a business cannot ever sell its product more than the full cost of producing it, it can never make money. All new CFOs must take time to understand the costs structure of the company to understand how unit economics work currently and how they might work when the company is at cruising state altitude. It is okay for unit economics to not work for a given period of time as long as capital providers are informed how the company will make it work. This is important, as it helps choose capital providers as well as influence product and pricing strategy.

9.      Thou shalt help the company maximise return on capital employed

Very often a firm makes choices to maximise a wrong metric – unit sold, market share, revenue etc. as a measure of success. This leads firms into executing strategies, where the returns on capital employed are not at the level they should be. In other words, capital providers could have earnt higher returns by not investing in the company, and instead investing elsewhere. The CFO must lead in assessing whether actions of the firm maximise return on capital employed.

10.  Thou shalt lead with both charisma & character

Charisma based leadership is often defined as the compelling attractiveness or charm that can inspire devotion in others. Character based leadership is defined from who you are, not your position of power. True character when bundled with good idea and great execution creates true influence. Character based leaders generally don’t need charisma, but we live in a world where image does matter, and hence its important to lead with both character and charisma whilst making conscious effort that charisma doesn’t mask the true character. Every CFO must work on improving their true character by regular introspection and finding a leadership mentor.

All views expressed are my own and do not represent the views of the firm I work(ed) with present or past