How to drive growth as a first time CFO 

Why is 2023 the year of the first-time CFO? 

Between 2010 and 2021, global VC investment volumes increased ten-fold and tech valuation multiples climbed steadily. Fast-forward to 2023 and the outlook is not so optimistic. Funding for private tech start-ups in Europe declined by 22% between 2021 and 2022 and is forecast to decline another 39% this year (Atomico). The global funding climate is similar: in the first quarter of this year, venture funds invested less than half the capital they did in the same period a year ago. In fact, without the $10 billion Microsoft investment into OpenAI, the first quarter of 2023 would have been the worst for venture investment in more than five years. 

With companies facing the very real possibilities of plummeting valuations, down rounds, and high-interest debt, the CFO role has undergone huge transformation. Many CFOs have spent much of the last decade honing their skillset and mindset for hyper-growth. With this, scale-up tech businesses have started to take a more creative approach to searching for candidates, hoping to tap into a wider talent pool beyond their existing ecosystem.

There is still immense value in experienced CFOs who can pivot, taking a rich experience steering growth in different business contexts and funding climates. However, the shift in the current market has undoubtedly opened up exciting new opportunities for first-time CFOs who can often draw on a more varied set of experiences to fulfil a more wide-ranging role.

“First-time CFOs were not uncommon during the funding rush, but there’s been a significant uptick in the number of start-ups choosing them over more experienced hires,”

says John Watkins, founder of Altima, who has partnered with the likes of Bolt, Remote, Wise, and Multiverse.

“In the last year, one-third of the CFOs we’ve placed have never been CFOs before – and we’ve seen these candidates being incredibly successful at not just driving growth, but, critically, the right kind of growth.” 

Why driving not only growth, but the right kind of growth is critical 

In the era of abundance we’ve been living in, numerous businesses have made decisions that emphasized marginal dollar spending with little consideration for decreasing marginal growth – for instance, additional sales and marketing expenditure for new Annual Recurring Revenue (ARR). The reality however is that the world has changed, and what would work yesterday may not work tomorrow.   

To future-proof their businesses, CFOs must focus on driving sustained growth. Historically, successful companies have defined and achieved this by their ability to generate free cash flows (FCF). Now, while this may seem counterintuitive given the market we are coming out of, let’s remember that a business’s core objective is to deliver enduring returns on invested capital.  

Today, many venture backed companies may not be producing a free cash flow, and many are likely very far away from that. However, for CFOs to be successful in the future, they need to be focused on having a clear strategy to deliver against that.   

This begins with having a deep understanding of the current metrics of your business, and creating the incentives that will encourage the right decision-making across every level of your organization. Why? Every decision your business makes today, needs to accurately reflect the constraints of the current market reality and your company’s long-term ambitions.  

This strategic shift implies prioritizing:  

• Solving problems with data, skills, and efficiencies as opposed to with incremental spend or fundraising  
• Focusing on delivering continuous value to customers and growing ARR from that existing customer base  

By focusing on the correct business inputs that you control today, you will be able to drive the right kind of growth that will eventually produce the underlying financials of a great business.   

Here’s a guiding framework that CFOs can use to reflect on if they are driving the right kind of business growth, and where they could invest to achieve it:  

1. How strong is the product/market fit of your business? What metrics clearly reflect this?  
2. Who are your ideal customers? Are their businesses in a sound financial position? Will you continue being a line item in their budget?  
3. What benchmarks from companies like yours that survived the financial crisis can you look at today and how do they compare to you now?  

Lastly, it’s crucial to understand that driving the right kind of growth is not just significant for your organization, but also for your customers – who rely on their vendors – and your employees, who are invested in the company’s equity.  

Regardless of market uncertainty, building a resilient business and driving sustainable growth is always a winning strategy.  

The sustainable growth mindset

To drive sustainable growth in this climate, CFOs need to adopt a mindset that’s comfortable with failure, problem-solving, and proactive. 

There’s an assumption that CFOs can be risk-averse, but the best CFOs are now embracing the fact that the path toward sustainable growth necessitates mitigated but often unpredictable risks. These CFOs play a crucial role in developing this comfort with risk throughout the company. They equip founders with the tools they need to make strategic capital allocation decisions confidently, in an environment where access to capital is restricted. By establishing these scalable, data-driven decision-making processes, CFOs can enable their companies to swiftly adapt to new data, fail fast, and ultimately achieve stability. 

With this drive for sustainable profitability, CFOs often take on the role of problem-solver as well. Scale-ups can’t afford to limit their CFOs to strategy or fundraising. Instead, both new and existing CFOs are being tasked with a lot of hands-on fixing, with the goal of realizing operational efficiencies and reaching profitability. Therefore, CFOs should be prepared for an increasingly diverse and varied role, challenging them to plunge into chaotic environments, draw on their business model-specific skills to solve unique problems, and then shift contexts quickly. 

Against this backdrop of fast decision-making and rapid transformation, CFOs need to be proactive in understanding and communicating how all these business changes – coupled with the changes in the market – will affect the long-term outlook of the company. It’s vital for CFOs to take an agile approach to re-forecasting, accepting that uncertainty is inevitable, and that iteration is essential in an ever-shifting environment.

Many CFOs have even shifted to monthly forecasting, harnessing the power of digital tools to expedite and improve the accuracy of FP&A. This allows them to divert more time into translating that analysis into insights that fuel sustainable growth.

Tools required to drive efficient growth 

The CFOs of tomorrow need a different set of tools to be both effective and successful. With the focus companies have on driving the right growth, sustaining cash, and preserving runway – finance leaders are not only focused on their operating levers such as balancing burn with growth, or their financial levers, such as accessing their revolving lines of credit.

The new generation of CFOs need tools that enable them to:

1. Leverage their business data in increasingly complex ways
2. Develop a highly strategic contribution to the business
3. Transform the finance function from a cost center to a growth driver  

This means finance leaders need to have both the insights and an understanding of all the underlying financial and operational metrics of their business to be able to answer the “so-what” questions from their stakeholders. It’s no surprise we are seeing finance teams multiply their impact with an FP&A solution that can in real-time connect to their ERP, CRM, HR, and data warehouse.   

Solutions like Abacum are empowering CFOs to drive efficient growth with revenue forecasts, headcount planning, OPEX budgeting, and reporting templates. More importantly, Abacum is playing a key role in helping FP&A teams shift from quarterly to monthly rolling forecasts, making sure every CFO always has a “what-if” plan in place.   

The CFO: a game-changing role 

Investors and tech start-ups/scale-ups are recognizing the game-changing role of the CFO as a sustainable growth enabler. Companies are bringing senior finance leaders on earlier and demanding more from both new and existing CFOs. 

CFOs need to combine deep business model-specific skills with the right mindset and toolkit to keep up with these ever-evolving demands. They are now scrum masters of their companies, doing more than just reporting numbers and keeping score of the budget. CFOs are the heroes of stability, leveraging the finance engine to steer their companies towards long-term victory.