???????? Hi friends!

October is a heavy month on the emotions (and the wallet) for me ???? As I mentioned last week, we celebrated my wife’s birthday in Italy and this weekend we celebrated mine. In a week or so we’ll be celebrating our anniversary too.

Milestones like this are a great way to reminisce and, as you’ll soon see, I certainly took the opportunity to do just that.

In this weeks Off Balance, I’ll be chatting about:

⌛️ Office hours with Aarish and 45 lessons learned over 45 years
???? The importance of the modern day CFO in tech
☯️ Getting away from black and white thinking

Check out this weeks Primer where I get to know Julio Martinez and his journey into building Abacum the FP&A platform for mid cap businesses ????

Also if you have any feedback or if there’s something you’re desperate to see me include, just reply to this mail or ping me online – I’m very open to conversations.

Give me a follow on LinkedIn, Twitter (do I really have to start calling it ‘X’ soon?), Instagram and drop me a note 🙂

(If you are trying to connect with me on LinkedIn, maybe read this post I wrote and make sure to start your request with “Off Balance” and, more importantly, tell me why you’d like to connect ????????)

Don’t forget to like, rate and subscribe to Nothing Ventured on Apple, Spotify or YouTube, it really helps more people see what we’re doing!

Now let’s get into it.

How can did I add value?

Maybe it’s the fact that I just turned 45.

Or maybe I just started formalising the things I have always done.

But over the last few weeks, I’ve been approached by a bunch of people asking for my advice on everything from personal growth, through to raising investment, to advice on taking the next steps in their career so they can move from finance ops into more strategic CFO roles.

And so, in order to really try and open my door to as many people who might want to get my help as possible, I’ve opened up Office Hours so folk can book a time directly in and chat about whatever is on their mind (for free!). If you’re someone that wants to explore an idea, get some help on your startup or your career, just Pick My Brain via this link ???? 

In the meantime, as I crossed the threshold into my 46th year on the planet, I reflected on some of the lessons I’ve learned over the years.

Here they are for posterity:

1. Play long term games with long term people.

2. Balance is where you find it, don’t let others dictate your path to fulfilment.

3. Define your own success.

4. If you’re not learning, you’re not growing.

5. Your issues as an adult reflect your pain as a child.

6. Forgive yourself first.

7. Back yourself, always.

8. Don’t wait for permission.

9. Know when to bend the rules, think before you break them.

10. Don’t remove obstacles from your children’s path, it teaches them life isn’t tough.

11. You can only fail if you don’t get back up.

12. Love yourself first, if you wish to love others.

13. You can’t force serendipity, but you can create an environment for serendipity to flourish.

14. Listen. Then talk.

15. Read widely, learn deeply.

16. Purpose doesn’t pay the bills, do what you are good at and you’ll find purpose emerges.

17. An eye for an eye and the whole world turns blind.

18. Cherish this moment, right now.

19. Your future is unwritten, it is up to you to write it.

20. Marriage takes work, every day, having someone to share your life is a blessing.

21. If you learn how your parents grew up, you’ll understand how you were raised.

22. Sorrow comes from attachment, detach yourself from attachment, find joy.

23. If you cannot manage your health, you cannot manage anything else.

24. Move daily. Lift heavy things. Stretch and strengthen.

25. Cold showers won’t manifest your success, but they will set up your day the right way.

26. Learn to breathe. To still yourself.

27. Create periods of boredom, creativity happens when the mind is not busy.

28. Your legacy is not what you’ve done, it’s what endures in people’s memories.

29. Learn to say no, it will free you in ways you cannot imagine.

30. Surround yourself with people smarter than you.

31. Formal learning is not for everyone, some people need to find their own path.

32. If you have an addictive personality, channel those addictions into positive habits.

33. Learn to sell, whatever else you learn.

34. Understand how businesses work, how money circulates, what leverage can do.

35. Celebrate when your children succeed, support them when they don’t.

36. Money is never the object, time is the object. Money is the means by which you get it.

37. Find leverage in your life. Make it a force multiplier to achieve amazing things.

38. Compounding is not just something that grows your money.

39. If you haven’t found yourself, start with where you are right now.

40. Get a therapist. Thank me later.

41. Don’t let your ego get in the way.

42. Give to others freely, with no expectations.

43. Family always comes first.

44. Write often. When you write you learn.

45. I likely have ~1,825 weeks left on this planet, I want to leave not having regretted one moment.

Off Balance

I recently held the first of what I hope to be a regular co-working day for the CFOs that work with me at EmergeOne.

I believe strongly that hybrid and remote work are here to stay – especially for those involved in the clumsily named ‘knowledge economy.’ But I also know nothing beats a bit of face time to get the creative juices flowing.

And as I was sat there chatting with these CFOs who only over the last month have taken our clients through large rounds or are getting the prepped for the next one, it struck me that the importance of the CFO in tech ventures has really become much better understood over the last couple of years.

So here’s my take on why.

The (Ever) Increasing Importance of the CFO in Tech

We all know that the tech ecosystem is growing at an incredible pace. Moore’s Law first saw the cost and speed of computing drop exponentially, and now with the platform shift we’re seeing as a result of AI tools, it’s an exciting time.

But even as technology shifts, finance has too. Over the last couple of years especially we’ve seen a reversion to ‘sensible’ valuations and a focus on efficiency tied to strong growth in the venture ecosystem.

This means that runways are having to be extended, costs need to be managed and equity rounds are based on proven traction rather than vibes.

Enter the CFO.

In the past, the office of the CFO has been little understood. With many early stage founders hiring in at best a controller and at worst some accountant that has never operated and called them a CFO.

This over inflation of titles is dangerous as I have seen on numerous occasions.

When you do not have the experience of navigating the complexities of a fast growth business, you are likely to make (a lot of) mistakes – normally at the cost of traction, cash flow or, at potentially even survival.

Instead, a truly great CFO (or even just a half way decent one), can help navigate this evolving landscape. Bringing a mix of business acumen and street smarts that come from years of operating to the table, they are often well placed to support founders as they battle with the changing complexities that startups face.

We are seeing this all the time with our team of CFOs being called in by VCs looking to validate business models, understand true revenue / revenue growth, get under the skin of the metrics, extend runway or plan towards the next fundraise.

This is an incredible validation of the trust they, and their portfolio companies put in our expertise, and an intense priviledge that we take very seriously.

So let’s dive into the role of the CFO and how, as an advisor to Google’s DeepMind once told me, they become an indispensable part of the strategic growth of startups as they embark on scaling.

The Evolving Role of the CFO

Traditionally, CFOs were seen as gatekeepers, beancounters and the folk behind the scenes that managed a company’s finances. But they were never known to drive growth.

We were the people that took care of compliance, taxes and making sure that the periodic functions a finance team had were taken care of on time, every time.

I would argue that this representation of the CFO has always been flawed, however it is a matter of perception. The better way to look at finance today is to split it into two, interlinked, activities.

Finance Operations and Strategic Finance.

Finance Operations comprises all the activities I’ve noted above, whilst Strategic Finance deals with the true value of the CFO.

So what are they?

Well, today, certainly in fast growth companies, the CFO tends to wear multiple hats. They still remain an integral part of Finance Operations, ensuring that those teams deliver requirements both internally and externally, but they are not the ones doing these activities.

Instead, they are involved in a host of strategic initiatives (hence Strategic Finance):

Capital management

Understanding the capital stack

Using leverage where necessary to seek out non-dilutive growth capital as well as more typical equity investment

Driving the data operations of the organisation to ensure that it is being driven by leading rather than lagging metrics

Helping the senior leadership of the business to map out the strategic and financial plan that marries the strategic goals of the organisation with the operational delivery of the same.

The way I always describe this difference is as follows:

Finance Operations is involved with those activities that look inside the business and look backwards; processes, controls, tax, stats, management reporting and financial accounting – all the things that keep the wheels turning.

It’s what one might call BAU: business as usual.

Strategic Finance is involved with those activities that look outside the business and look forwards; revenue activities, competitive landscape, fundraising, metrics and ultimately growth.

Strategic Planning and Vision

Firstly, CFOs are front and centre when it comes to defining a company’s growth trajectory (though these days that growth may not always follow the ubiquitous hockey stick).

This means truly understanding how all the functions of a business marry together:

How marketing drives leads

How sales converts leads

How contracts are written to ensure revenue is recognised correctly

How customer success teams minimise churn

How operations support the revenue generative activities

How the above activities are funded and how capital is managed throughout the organisation

As the business becomes more repeatable and predictable (i.e. scalable), CFOs start getting involved in pushing growth through inorganic means. For example, driving Corporate Development, searching out M&A activities (buying companies) and leveraging the company’s inherent strengths in one market to expand into others.

Ultimately, CFO’s are responsible for ensuring that every investment a company makes – whether in a product, a hire, a business or a market – is aligned with its long term vision.

And this comes down to one of the least understood but most crucial activities of the CFO: Risk Management.

Many people equate this to that old vision of the beancounter CFO… someone who always says ‘no’ whenever something is brought to the table.

Instead, I always tell founders that my job as CFO is to get to ‘yes’ whilst ensuring that we manage all the potential risks associated with doing any given project.

It’s about looking forward to what might happens driven by experience, research and scenario planning and utilising all those factors to provide a path forward, rather than putting obstacles in the path.

Today’s CFO understands that there are two ways of driving efficiency into a business’ P&L – cutting costs or, more importantly, driving revenue.

Great CFOs opt for the latter whilst managing the former.

Which leads us to a broader remit of the CFO – Driving Operational Efficiency.

Driving Operational Efficiency

This can be paraphrased as doing more with less, but doesn’t always mean cutting costs. It may instead mean investing wisely so that over the long term you can achieve more with the same level of resource.

It is hard, as a CFO operating in a tech company, not to see the value of technology in this area.

Tools like Xero, Pleo, open banking, Spendesk, Payfit and others have brought the cost and efficiency of the transactional layer of finance (mainly involved in operational finance) right down. Not only in terms of dollar investment but also in terms of the operational complexity required to manage them. They do a lot of the heavy lifting so you can get away with less qualified staff (to a point) to manage these systems.

But it’s not just tools that can be brought to bear. Rather, it is understanding processes and using data to optimise those processes further.

For example, if you know demand follows a cadence, you can plan customer service shifts in a way that you are able to match resource to demand.

But the trick is having the data in place to understand those patters in the first place.

Over time, optimisation leads to cost efficiency which ultimately drives bottom line.

But it is not just in costs that the CFO should turn to data.

Understanding customer profiles for revenue is immensely important.

I once worked with a business and advised them to deprecate a number of contracts when I figured out the cost of servicing them outweighed the revenue generated from them.

CFOs are always looking for that edge – how to increase lifetime value, how to improve margins, how to bring efficiency and lower costs.

There is always a lever to pull.

CFOing is essentially about resource allocation.

It’s about how and where to invest capital – both financial and human – to maximise returns to the business.

That is why finance should be heavily involved in the hiring process. Old school beancounter type CFOs (or just controllers) may look at hiring as purely a cost excercise, but a forward looking CFO will understand that hiring is an investment in future revenue.

Yes they will push back on unfettered hiring (or should do, though sadly over the years of capital on demand this discipline was lost on newbie founders and finance folk), but that does not mean they are adverse to hiring in general.

One of the shorthand metrics I use to measure this is revenue per headcount or people costs as a percentage of revenue.

You want to see the former scaling and the latter reducing over time – this shows your business is scaling without adding marginal cost, which for a software business, should be the reality.

Managing – and Raising – Capital

This is the area where a truly great CFO comes into their own.

Fundamentally this means getting to understand a company’s burn rate and runway intimately (the net amount of cash being expended periodically by the company and the length of time available before the company runs out of cash).

The difference between a tech or venture CFO versus a CFO in a more established company is that we (tech / venture CFOs) do not have the luxury of calling up head office when it looks like there is going to be a shortfall in cash.

I remember once interviewing someone (the wrong someone) for a role in one of the ventures I was working in. I asked them how large a balance sheet they managed in a spin out of a larger company – it was in the order of $100m+ – and asked them what would they do if they were running up to month end and making payroll was looking dicey. After looking at me blankly for a minute, they said they’d request a transfer to make sure it was covered.

Sadly, tech and venture CFOs don’t have a batphone. This means intimately understanding these timeframes and proactively finding solutions in advance to deal with them. This may include pushing sales to close contracts, even at a discount, looking for working capital funding, delaying payments to creditors or, if caught well in advance, going out to the market to source some bridge financing.

And this leads to the other area that, in my opinion at least, distinguishes a ‘true’ CFO from a tourist.

The ability to source capital from a variety of sources, including VCs or debt providers, to ensure that the company is appropriately funded to the right levels, and importantly at the right price.

This means taking in debt at terms that are affordable to the business (though typically in scaleups this will be via venture debt which is a different risk profile to more traditional debt products) and equity at valuations. Both are an indication of where the business currently is with hopefully a premium, but not so high a premium that the company risks a painful downround in the future through over valuation.

Championing Innovation and Technology

CFOs operating in the tech and venture ecosystem know how important it is to continuously invest in research and development (R&D).

This is not only because R&D can be leveraged for growth or factor into investment decisions by making the business more attractive to future investors (R&D is often an asset that can have an attributable value above and beyond the core financial performance of the business) but, also because R&D is often treated favourably from a tax perspective.

There are a number of jurisdictions where R&D can be claimed back to reduce tax payable or even have a percentage granted back as a cash refund to the business. For the smart(er) CFO, they also know that this can be used as security against which they can secure a loan which can assist with working capital.

But they are also investing in tech themselves as previously discussed. Beyond the transactional, this is often in areas that allow them to forecast and scenario plan better.

This not only requires an understanding of data and ETL (extract, transform, load) processes to prepare and clean data, but also how to interogate that data. Which means knowing in advance the sort of patterns you should be looking for:

‘What happens when prices go up?’ ‘Which cohorts tend to stick to the product longer?’ ‘What types of customers buy from us, and where can we find more of them?’

Using a series of tools to process and query this – often non-financial – data pulls the CFO outside the realm of being the numbers guy (or gal) to being the data chap (or chapess).

It again moves them from looking inwards and backwards to looking outwards and forwards.

Building Investor and Stakeholder Confidence

This leads us to one of the most crucial aspects of being a tech CFO.

The CFO as a story teller.

Now, let’s not get confused with telling stories that can – and have – landed folk in jail.

I’m rather talking about turning numbers into narrative and data into information.

CFOs use this skill to report internally (to management and the board) and externally (to current and potential investors).

This is a critical function that should not be underestimated. The nature of the work that CFOs do is highly skilled and carries with it a great deal of trust.

CFOs need to develop this skill in abundance as not only will they be doing this on a routine basis (monthly, quarterly or annual updates), but also on an ad hoc basis.

When they prepare numbers or a report, or hold a call with stakeholders, it is taken as a given that when they speak, they are speaking from a position of knowledge and authority.

This is why it is incredibly dangerous to have a ‘CFO in name only’ running your finance. (Whilst I would agree that most founders should be all over their numbers and also be able to communicate them, at a certain size of business, this is not a job they should be doing unless it’s part of their DNA).

But it is not enough for CFOs to be talking to investors just when they need to raise capital. They should be out in the market understanding the players and priming future investors to participate in future financings as the business continues to scale.

Ultimately, your CFO is more than just your finance guy, they span roles across the organisation and are an integral part of the strategic leadership team.

Ask yourself this – are you willing to risk not having one batting your corner, especially in this market?

And there you have it, my take on why it’s imperative to have a CFO by your side if you’re a scaling venture backed business – though I can see why some might say I’m biased ???? 

So let’s hear your thoughts on bringing a CFO along for the journey. Where have you found one to be invaluable or, indeed, not right for where you’re at right now?

(also, if your CFO looks like this guy… you’re going to jail ???? ).

On the death of nuance

As someone that spends a lot – probably too much – of his time online, I’ve noticed more than ever how much people struggle to think through issues that have more shades than simple black and white.

So much of modern life is wrapped in all sorts of nuance, but the perpetuation of platforms like Facebook, Twitter and even LinkedIn these days has meant that people not only get wrapped up in the immediate emotional response to (often purposefully) clickbaity headlines or comments, but they then lack the ability to think critically about the response and counter response.

The reality is that life is rarely, if ever, black and white. We are constantly faced with decisions that require a balanced understanding of a variety of sides.

CFOs, like me, spend much of their time working in these probability spaces looking across multiple scenarios to present a path forward based on the balance of those probabilities.

It feels like the world would be a much more sensible place if people spent more time trying to understand the multiple sides to a debate rather than anchoring themselves on one side and prognosticating on that matter alone.

For example, we can all agree that over the last few years we saw a lot of hubris in the venture capital market. That doesn’t mean that venture capital is bad or that it doesn’t have a place in the market. If anything it forces us to look at the negative externalities that may arise when capital is unfettered (as it was over the last several years). It also encourages us to think through the situations when venture capital adds immense value – for example in the creation of drug vaccines or new deeptech products that transform the way we live or work.

There are numerous other areas where this nuance should have been applied but where we collectively fell short, all too willing to take words on the side of the metaphorical bus for a given rather than thinking through both the motivations behind having written them or the veracity of the words themselves.

I long for a world where we can have discussions that bring our understanding of each other and the issues we are passionate about to a higher level. Where debate doesn’t lead to further distancing, but to greater proximity to each other and, though I may be both naive and idealistic here, finding common ground rather than further entrenchment.

/end rant

I hope you found OffBalance #15 useful. As always, I’d love to get your feedback and understand the sort of topics you would love to hear about.

Just hit reply to this mail or drop me a line at [email protected] and let me know ????

????And that’s a wrap for this edition of Off Balance – I’d appreciate your feedback so just reply to this email if you’ve got something you’d like to say.

???? And if you think someone else might love this, please forward it on to them,

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That’s it from me so until next time…

Stay liquid 🙂

Aarish