Wednesday, June 30, 2010

Why the Accidental CFO?

Why the Accidental CFO?

People ask me why I jokingly refer to myself as the accidental CFO.

If you look at most CFO job descriptions, they say “CPA required” or at least “CPA desired”. The textbook CFO career path is:

  • graduate with a bachelor’s degree in accounting
  • go work for the big 6 (or is it 4 now, I cannot keep track)
  • work in audit
  • take (and of course pass) the CPA exam
  • continue to work in an accounting firm for years and years
  • get an MBA in finance at night from a top school
  • leave the accounting firm for a private company as a controller
  • get promoted to CFO as part of normal succession planning

Does anybody know anyone whose career path was this smooth and predictable? Not anymore. But companies and recruiters persistently look for this holy grail.

Do you get the feeling that I don’t fit the mold?

  • I have an engineering bachelor’s degree.
  • I tried taking an introductory accounting class in college. I got an A+ but was bored out of my gourd. I guess that accounting class in high school helped. That is when I switched to engineering.
  • I have never worked as an accountant and I don’t have a CPA
  • I have an MBA from a top school – but it is a general management degree

So…how did I become a CFO?

In 2005, after 6 years in the Venture Capital/Private Equity industry, I found myself in career transition. A friend of mine was the CEO of a company that had almost won a $7M contract. He needed help. I had been on the board of directors of his company for several years. So…I agreed to help. We won the contract. It ended up being a >$10M project. But now I needed a title. We decided on CFO…the rest is history.

The Accidental CFO.

Tuesday, June 29, 2010

The world rewards confidence, not competence.

The world rewards confidence, not competence.

Friends and colleagues know this is a “Roy-ism”. I say it all the time. Last week I got reminded of it big time.

My daughter was scheduled to sing in church. She practiced all week. Nobody in her class knew those songs and dances better than her. Yet…when it was time to go forward, she balked. She wouldn’t go up there! Despite being incredibly competent, she just didn’t have the confidence (this time) to sing in front of a crowd.

I hope we can teach my daughter this lesson early because this “Roy-ism” doesn’t just apply to church choirs, it really applies to school, to business, and to life in general.

Of course, it is best to be confident and competent. But that almost goes without saying.

Thursday, June 24, 2010

Is there a role for local HR firms with a PEO?

Is there a role for local HR firms with a PEO?

I am sure my last post has successfully pissed-off all my HR consultant friends. But…I stand by it…for VC-backed startups.

However, there are some things to remember. First of all…most small businesses are not VC-backed startups. Second, most small businesses have less than 10 employees. By-the-way…this obviously includes startups at the very beginning.

In general, PEOs will not work with companies with less than 7-10 employees. This leaves a significant portion of small businesses un-served. However, the owners of these smaller businesses need HR advice and services also. This is where HR consultants have their advantage. Once they are in, if they do a good job, they can grow with the company.

However, if a company (especially a startup) does choose to work with a PEO, there does remain a role for HR consultants. PEOs are great in providing payroll, medical benefits, forms, advice, etc. But…by their very nature, they operate through centralization and scale. They are unlikely to be hyper-local like an HR consultant. They cannot be on site very often. But employees need someone to talk to. Often…an 800 number is not good enough.

When a company works with a PEO, they need to assign an on-site coordinator -- somebody to be the liaison between the company and the PEO. Usually this is the person employees approach first with HR issues. Often it is the CFO. But…even this diminished HR role is not a good use of the CFO’s time. This is where an outsourced HR consultant can still help when a PEO is involved. Being the employee contact, working on projects with the PEO (like an employee manual), and helping manage the PEO-company relationship.

Now I have probably succeeded in upsetting my PEO friends as well. OK…so if everybody is upset with me, I have probably been fair and balanced.

Wednesday, June 23, 2010

Why all VC backed companies should use PEO’s.

Why all VC backed companies should use PEO’s.

Recently, I became absolutely convinced that VC backed companies should use PEO’s (Professional Employee Organizations). The failure of a prominent, well funded, local VC backed company proved my point. But I will talk about that later.

When a VC backs a company, they back an entrepreneur, a team, a business model, and possibly some technology. The VC wants this team to be laser-like focused on the business model and the technology. Not bogged down by HR.

But, while venture backed companies, by their very nature, are designed to become big companies, at the start, they are small companies. The have all the HR issues that a new small business entrepreneur has – no systems, no policies and procedures, no payroll processor, no benefit packages, etc. A PEO solves all of these issues.

Most small businesses make lots of rookie HR mistakes. Startups want to avoid them. A PEO can help (but not guarantee) that startups will avoid them.

Startups are growing fast. They hire people quickly…and there is often a lot of employee churn. This brings a significant amount of HR burden. Even with good systems, processes, and procedures this is challenging. Without them, I guarantee it will be a mess.

Usually it will be the CFO or COO that bears this burden. They are rarely HR experts. They won’t like doing it and probably won’t do a great job. Also it distracts them from the business and what they were hired for – managing the company’s financials, raising money, and partnering with the rest of the executive team to drive success.

But, back to my story. The clincher is Cobra. I ran into an ex-employee of the failed company I mentioned. This company was well funded, they had term sheets to fund the next round, and nobody expected it to shut its doors. But it did. Certainly the employees didn’t expect this. Anyway I ran into an ex-employee of that company. Tha employee lamented that because the company failed, she did not have Cobra.

VC’s expect a significant percentage of their companies to fail. But, when a company fails, there isn’t Cobra. Nobody thinks about this when starting or joining a company. Many startup employees would not join startups if they knew this. A gap in insurance coverage can be disastrous for an employee and their family.

Startup CEO’s won’t necessarily care about this issue. All CEO’s are absolutely convinced that their company will be successful – failure won’t happen to their company so Cobra is not an issue. But…every CFO should care. And any HR manager WILL care. And finally, VC’s should care. VC’s want to build good relationships with the employees of startups…even for their companies that fail. Those employees might move on to the next great company. Leaving an employee without medical coverage is not a good way to foster and maintain those relationships. So VC’s should care. Every VC backed company should use a PEO.