Of all of the CFOs out there, people (and I’m guilty of this, too) love to write about the high-tech CFO the most. And, I think I know why: no other CFO/vertical combo sees so much change and so many challenges in such a short amount of time. It’s not enough that they have to do all of the things every other CFO does, but they also have to upgrade people, technology, reports, processes and more at the same time they’re completing an IPO, raising capital, doing an acquisition, etc. Forbes tells us:
“The CFO of a startup typically covers more ground than the finance executive of a larger enterprise. Often the CFO is also the Chief Operating Officer (COO), in practice if not name.”
A Different Animal
Tech startups often grow through several revenue thresholds – fast! Getting that first million-dollar revenue year can take a while yet the move to $10 million in revenues may come much quicker. And, so it goes as the firm passes through the $100 million and other thresholds.
Tech CFOs will see their firm spend different amounts of time going through each phase. And, as these transitions occur, the company will likely change financial accounting technologies, processes and even people several times as the need to possess ever greater efficiencies and insights grows. For many firms, the evolution in financial accounting solutions might resemble this:
|n/a||Spreadsheet, Paper, QuickBooks|
|<$1 million||PC-based financials package or entry-level cloud accounting solution|
|$1 – 50 million||Cloud-based financial suite with some third party specialty solutions (e.g., state / local tax processing, payroll, bill payment)|
|>$50 million||Full mid-market accounting solution, Revenue Recognition software, CRM, etc.|
The Growth Challenge
“For high-tech firms, technological transformation is a constant. In a sector that evolves incredibly fast, competitive advantage – if not the very survival of the business – depends on systems that deliver speed to market, agility and scalability, as well as superior research and development.”
That comment about technological transformation being a constant is quite true for this sector and it can really impact a CFO’s priorities and time commitments. To illustrate, a savvy CFO might want to think about how many times they must materially change/upgrade their firm’s financial systems. If the company overbuys a bit in the capabilities of the functionality it needs at a given point in time, it might forestall another upgrade/replacement. For example, a high-tech startup CFO might want to skip the cheap but underpowered starter system altogether and get an initial solution that has runway all the way to a $50 million revenue level. In doing so, he/she can avoid replacing one or more systems and the disruptions these can cause.
Why is this important? Because the tech CFO has little to no discretionary time available to themselves for these systems activities. What consumes their attention are items like:
The day-to-day CFO job
Process transactions efficiently, fast and accurately
Manage corporate costs
Assist/lead in strategic items (i.e., M&A, IPO, etc.)
Acquire talent especially talent with skills in advanced technologies
Educate employees about advanced technologies and new processes
And, should they get 5 minutes to themselves, these CFOs would also like to spend their time and energy on activities like:
Advising the CEO, board of directors and executive team
Bringing more digitalized processes into Finance and the Firm
Identifying, surfacing and communicating insights into the business
Staying one step ahead of growth
Being a strategic contributor
It’s these time constraints that make CFOs look to advanced technologies and services to help.
Enter Advanced Technologies & Services
Critical accounting and capital decisions will always be a focus of a CFO. That’s not going to change. Yet, as a high-tech firm begins to experience logarithmic growth, a CFO and their accounting team, will not have time to examine every routine transaction. This is why fraud risk can quickly grow in a high-tech/high-growth firm. In fact, a few CEOs have quietly admitted to me that their firms were fraud victims during their big growth spurts as malcontents figured no one would be watching things too closely at that time. Worse, fraud by insiders seemed to be the biggest problem at these companies.
To offset this risk and to help the company scale efficiently and cost-effectively, CFOs will explore the use of advanced technologies (e.g., robotic process automation or machine learning) and specialist services (e.g., payment processing, accounts payable automation or payroll). These solutions can bring a top-flight level of controls, subject matter expertise, processing efficiency and security to key processes while focusing in-house accounting talent on anomalous transactions.
The adoption of these technologies and services in high-tech is impressive. Again, Accenture notes:
“Nowhere is this truer than in high-tech, where almost nine in ten CFOs are dedicating time to assessing how disruptive technologies or ‘big bets’ might benefit the wider enterprise.”
“In fact, high-tech companies are at the forefront of implementing automation. Almost three-quarters of CFOs in the sector have adopted RPA while nearly as many say their machine learning capabilities are now approaching maturity.”
These new technologies and solutions can supplement the current Finance environment but, more importantly, they can deliver a better service to employees, suppliers and customers. Planning tools vendor Planful noted these observations for high-growth CFOs:
“Companies should seek to leverage technology as much as possible to enable formal processes – for example, mobile approvals.”
“Company processes should limit the number of approval levels. This ensures people aren’t over-burdened with too much “red tape.” Reducing cycle time on approvals makes life better for employees and the company. The more user-friendly the process is, the better it is for employees.”
“A number of the panelists leverage cloud-based applications for their high-growth companies. This includes cloud-based CRM, T&E management, procurement, accounting, and planning and reporting.”
There’s another angle to these advanced technologies and services. As a high-tech firm experiences non-linear growth, it will also experience non-linear growth in:
Supplier payment inquiries
Employee T&E transactions
Bank statement line items to reconcile
Sales/Use tax issues
If vendor inquiries are already a problem for your payables team, imagine what they’ll be like once the hyper-growth kicks in. This is why high growth companies look for solutions like AP automation because they scale much easier than the AP team can.
The savvy CFO gets in-front of this as it will place a crushing demand on the time and attention of the financial accounting staff. Old systems and processes might have some room to scale technically but people are not so scalable. So, if growth will stress the financial accounting staff and capital remains tight, hiring might not be the scalability solution here. Instead, the way to scale will be via advanced technology and third-party services and solutions.
Monster growth is hard for people to imagine or comprehend with many massively underestimating the magnitude of change it will bring to their firm, their processes and to their colleagues. The high-tech CFO will likely face this challenge daily.
These executives will likely benefit from:
Specialized solutions that leverage the CFO and his/her team
Advanced technologies that process ever greater numbers of routine events and help team members focus on non-standard events
Buying/subscribing to solutions that are functionally ahead of where the firm’s needs are currently as they will likely grow into them in short order
Constantly upgrading the talent within Finance with new people and skillsets. Technologies like machine learning may not be in the current team’s skillsets but will be in new solutions the CFO will acquire.
Bottom line: The best high-tech CFO is one that sees and prepares for the financial accounting challenges to come, not just the challenges in front of them today.
For more information, see my companion impact report, Pivot Points for High-Tech CFOs, or watch our webinar presentation about the top strategies for CFOs on demand, Strategies for High Tech | High Growth CFOs.