A founder’s guide to hiring their first CFO: 4 top tips for running a successful search.

In the early-stage hustle of a startup, strategic finance is usually not a pressing issue. There are a plethora of interim options today for a founder to ensure that employees are paid, invoices are chased and the books are balanced, so hiring senior finance talent into a startup isn’t usually a top priority during those early days. But between gaining traction, finding product market fit and catapulting into the next growth stage and often investment round,  a business’ needs become more complex. At this inflexion point, knowledge gaps start to appear. The demands on a founder build. New strategic skills are needed to scale the business. It’s at this stage when founders and investors start to ask the question of whether now is the time to hire their first CFO. 

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The answer to this query isn’t straightforward. It’s deeply contextual, unique to specific business models and hugely impacted by the blend of experience and skills in the existing leadership team. For first-time founders, it’s uncharted territory and even with the support of seasoned investors, finding the right CFO can be complex. 

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In this article, we’ll share our thinking around some key considerations for founders and their teams as they begin the search for their first CFO, including advice and guidance from our Search Partners, Rabia Elahi and Mike Powell. 

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Start preparing early.  

The most obvious catalyst for hiring the first CFO or senior finance person into your startup is after a significant funding round. With this capital comes a range of strategic questions about how to best allocate the funds to scale effectively. Questions on go-to-market strategy, geographic expansion, product development and resourcing planning must now be answered, and founders will begin to analyse the blend of skills and experiences they have in their existing leadership team to make this happen. To answer these questions, founders will likely want to see data and financial modelling to help them make more effective decisions and more accurately predict the company’s trajectory.

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The financial requirements of a business have begun to stretch beyond basic accounting and into important areas like cost management or scenario planning for scale, as working capital management is now much more imperative to the continued success of the business. The need for this specific skill is apparent, but there can be a lack of understanding of what type of CFO can help solve these challenges.

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Our advice to early-stage founders is that thinking about the kind of CFO their scaleup needs before an investment round closes can be extremely beneficial. Kickstarting these conversations with experienced investors or specialists in this field will mean when the funding hits their bank account, some of the deeper thinking about the financial skills required for this next phase of growth, will already have been done. 

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The above advice can be universally applied to a multitude of different business models. However, in the SaaS game, the requirement for strategic financial experience might present itself even earlier in the startup’s lifecycle. Mike Powell, our SaaS specialist Search Partner comments:

‍The enterprise SaaS model can be more complex than other traditional models, and what we often see is that even at Seed or Series-A stage, founders are thinking about their international go-to-market strategy and need support scoping out which global markets they target with effective deal pricing to meet the needs of larger customers; recognising revenue from what can sometimes be multi-million dollar deals while managing the cashflow implications of longer-sales cycles. This can all be critical to the long-term success of an organisation, and it’s important to get it right from the outset. This means we see a lot of SaaS companies explore hiring a VP of Finance earlier than other business models to support the founder and leadership team build out these foundations as well as establishing the right financial infrastructure to support a fast-scaling international business.

Nail the basics. 

Once a founder has decided that now is the right time to start the search for their first CFO there are four key fundamentals we advise them to establish before taking the search to market. 

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1. Equity and compensation: This might seem like the obvious place to start but Rabia warns:

‍We regularly see founders and investors saying that they can be flexible on compensation and equity, but when it comes down to it, there isn’t much room for negotiation and that can negatively impact the conversations with CFO candidates who are quite far into the hiring process. It’s best to agree on a realistic bracket for both elements of the package and be as transparent as possible about this from the beginning.

As well as ensuring you can be slightly flexible on package, it’s also critical to consider the market at the time of search, and how that will influence the candidates within the process. There are a limited number of highly skilled tech CFOs available at any given time and some companies are willing to pay big money to bring them on board. Accepting that the candidate will likely be interviewing with multiple organisations can help founders ensure they are putting their best foot forward during negotiations. It’s also important to remember that CFOs will be all over the numbers, asking challenging questions about the future trajectory of the company and their specific skill set means they are well-equipped to intensely negotiate their compensation package too.

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2. Veto powers within the hiring team: Hiring at the C-Suite is a complex process, with many stakeholders. Aligning early on the hiring criteria and who has a veto right can be advantageous to the search process especially when there are candidates in play. Our advice is to be clear from the outset who the key decision makers are and fundamentally, who gets the final say on the candidate. This may mean having difficult conversations with members of the board or investors ahead of time, so the team and search partner are crystal clear on how crucial decisions are going to be made during the search.

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3. The candidate pitch (specifically for CFOs): To be a successful scaleup founder, you are going to be able to pitch. However, pitching to a C-Suite candidate, particularly to CFOs, can be more challenging than anticipated. When thinking about the pitch to potential CFOs, Rabia notes:

‍It’s important to be prepared to sell not only the company to the CFO but why they should join the business now. CFOs want to know what impact they can have and what they can bring to a specific business. They also want to know that joining a specific company at this exact moment is the right fit for their career trajectory, so founders and their hiring teams must come prepared with these answers.

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4. Location considerations: For scale-ups which are expanding rapidly into new markets, the location of the CFO and supporting team is a very important detail that can sometimes be overlooked when starting the hiring process. Founders must consider options such as; hiring their CFO in the same location as their GTM team, proximity to the rest of the C-suite, or whether positioning the CFO within the emerging markets makes more sense for a business. In the SaaS world, Mike notes:‍

For most European SaaS businesses, selling and expanding into the US represents a significant milestone, but it is important for founders to fully consider what the operational implications are of having your CFO (and possibly their team) in a different timezone from the European HQ. This may mean that a smaller localised finance team is required in Europe, but deciding which skills are needed in which markets and the overall running of their hybrid team can be a challenge. It is best to iron out these details as early in the process as possible.

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Understand the skills gaps. 

When we partner with a founder and their hiring team, our first port-of-call is to help them ascertain the skills and experience of their existing team and advisors to highlight any potential gaps that could be filled by the right CFO. The profile of the founder is important here too, and will have a direct impact on how soon an organisation might need their CFO and impact the profile of CFO they need. 

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For example, if the founder is from a purely technical background, with limited financial experience, hiring a strategic financial leader could be more pressing when compared to a founder who comes from a consulting background. Context is important here, especially when working with limited budgets in today’s funding climate.

Hiring a CFO isn’t always the answer, and founders should also consider if they have enough financial muscle within their board or investor group, to get them through the next phase of growth. Establishing the blend of skills within the team around the founders is critical for making a decision on when to hire a CFO. Timing is important here too. Rabia explains:

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A marketplace business will almost certainly need senior marketing and G2M hires before the organisation becomes complex enough to warrant hiring a CFO. This type of business needs to build its brand, acquire a lot of customers and find true product-market fit before its financial models become too complicated. On the other hand, a FinTech lending business which takes risk and debt onto its balance sheet has much more complex working capital considerations and needs the right financing instruments and structures in order to succeed. That experience is needed far earlier in the business’ lifecycle to set up the foundations of the model on which to build.

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‍There might be a number of skill gaps a founder needs to fill within their top team, but the order in which they do this is heavily dependent on the model and market in which they operate. This means that hiring for specific roles, including the CFO, might need to be reprioritised.

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Dig into personality types. 

It’s widely accepted that to start your own tech business, a founder must be comfortable with a (pretty high) degree of risk. A founder’s personality type, risk profile, and general management style are hugely important factors when building a C-suite around them. When a founder hires a CFO, they are effectively hiring a number two, devolving decision-making powers, influence and leadership to them in the process. Many founders begin their CFO search by assuming that finding a CFO who matches their personality type and character will be the most effective profile for their organisation. But what if this becomes too much of a good thing?

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Balance is super important in terms of personality and leadership style in the CFO role”, Mike notes. “Rather than mirroring big personalities already in place within a C-Suite team, you’re looking for an individual who can complement them. Hiring a CFO with a high-risk threshold alongside a founder who has this in abundance, could lead to seriously damaging decisions being made. Conversely, hiring a CFO who becomes a constant blocker to innovation can also be detrimental. Instead, a founder should focus on finding a CFO who can constructively challenge the thinking of the leadership team in place, to help them make better decisions.

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As well as understanding how effectively a new CFO work alongside a founder or CEO, it’s also important to identify the crucial departmental partnerships within a business too. For example, within a enterprise SaaS organisation, the CFO will work closely with the CRO, building the models and frameworks to enable the CRO to steer the G2M and sales team in the right direction. Within e-commerce, the CFO will likely work closely with the CMO and performance marketing team, to unlock budget to enable sustainable growth. When hiring for a CFO, a founder needs to consider how these individuals will collaborate and whether their working styles and skills will complement each other well. 

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For founders looking to hire their first CFO, our advice is simple. Start having conversations with investors, advisors or specialists as early as possible, especially if there is little financial experience within your existing team. Find specialists and advisors with deep experience in this area, who can ask the right questions to help frame your thinking. It’s a complicated and sensitive hire, but we know that the right CFO within the right business can be a huge growth driver. It just takes time and focus to decode exactly what you need to find the right fit. 
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To find out more about what we do at Altima, head over to www.wearealtima.com