Frenemies

A few years ago, an old pal from my Big 4 days applied for a job on my team.

Let’s call him Rob.

Well, I say ‘pal’. We were rivals, more than friends.

We were the two people at the top of our year Group. One quarter he’d be the top-rated, the next quarter me.

We were both hard-charging young professionals from a modest background with a point to prove.

We were similar in character with similar levels of talent. At the time, I thought I was better. And he thought the same about himself.

The truth is there was no real difference between us.

We’d both left the Big 4 at the same time, going our separate ways (despite taking similar business finance roles).

And now, here we were, in a room together for the first time in fifteen years.

But this time something was different: despite having similar skills, and identical early years experience, we'd ended up in quite different places.

I had been a CFO of a large company for, by now, several years, and he had been a Head of FP&A in a smaller, simpler business for the same amount of time. He was now applying for a VP of Finance role in my team.

This is not to disparage his path. He’d had a great career and was still on an upward trajectory.

The interview was a bit strange to begin with, as you’d expect. But we were both more mature and enjoyed reminiscing over our early working years together.

He reminded me of the time our in-work rivalry spilled into the office badminton tournament. We fought out a semi-final, he beat me, and I hadn’t taken it well. And in front of the office managing partner…

Nearly two decades after the incident, I was still embarrassed.

Following the interview, it was clear Rob was the best candidate for the role. And by a mile. I offered him the post.

He turned it down. He had a better offer elsewhere. I couldn't match the money.

We agreed it was great to have bumped into each other and to grab a beer one night.

When we did so, Rob addressed the elephant in the room. How had one of us progressed so much faster and further than the other, given that we had started with the same raw material on the same trajectory?

We'd both worked equally hard, we'd both taken the same approach to our career decisions, and agreed we'd had similar levels of luck at the right time.

But he was adamant, he knew what the difference was.

He said I'd been much more effective at leveraging other people than he had.

Specifically, I'd leaned into building teams, earlier and harder in my career. As a result, I had been entrusted with larger teams, and larger agendas sooner than he had. The compound effect of that on our effectiveness, output, and career had been substantial over 15 years.

I found it a fascinating observation. And he was right.

It wasn't quite the perfect controlled experiment. But it was as close as you could get in the wild.

In that one moment, it dawned on me how important my skill in building teams had been. It had been part of my personal ‘Skill stack’. Not consciously, it just always seemed obvious to me, it was smart to leverage the talent of others.

The moment proved a revelation for both Rob and I.

Since then, we’ve each leaned even harder into our team-building skills.

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This is the beginning of a 3 part series on building a finance team.

Killer Finance Teams Do These 7 Things

It's a new month, and that means a new season of CFO Secrets.

For the next three weeks, we will dive into how to build a great finance team.

As I shared in the opening anecdote, building great teams has been the most important skill I developed on the path to CFO.

Here's a secret. As a kid, I spent a lot of time playing sports management and strategy simulator video games. And I mean A LOT of time. I loved the challenge of tinkering with the team and the resources until I had it just right. I would obsess over it.

I took the same precision to building my own real life teams in business, and then locked it into my skill stack early on.

In this series, I will share the playbook I use to build great finance teams.

But first up, first principles:

What is a team?

A 'team' is a group of individuals who come together to achieve a common vision.

Let’s break that down. There are three variables:

• ‘group of individuals’ - the talent itself

• ‘come together to achieve’ - how they are organized and managed

• ‘common goal’ - the vision they are working towards

That gives us a frame for this series.

There is so much brilliant generalist material on building great teams. “Start with Why”, “Leaders Eat Last”, “The Culture Code”, “The Five Dysfunctions of a Team”, and so many more.

We won’t be trying to rival those with this series. Instead we will focus specifically on how we build great FINANCE teams. At the intersection of vision, management, and talent:

This week we will start with setting the vision.

But before we get into that, we need to define what a world class finance team looks like.

Here are seven features that I have commonly seen in great finance teams:

1. Challenge and support the business

A finance team that doesn't influence business behavior is a waste of time. A great finance team will be relentless in its challenge of the business.

A continuous enemy of complacency.

Whether that is through the way targets are set, performance is reported, or business reviews are conducted.

But it's also about support. Doing what is needed to support the business to deliver the right answer.

It's easy to be relentlessly dissatisfied. Always looking for more. It's also easy to be unwaveringly helpful.

Doing both at once, in the right balance, is hard. But good finance teams find a way.

2. Remember they are an overhead

I will say this until I'm blue in the face: finance teams do not make or sell anything. They will always be an overhead/support function. 

That does not mean they can't 'add value.' In fact, they have to. If something isn't adding value, it shouldn't exist in a business. But the value is added through other functions.

And that makes it a support function.

It's common for finance teams to let their ego run away.

Jeff Bezos said 'focus on what makes the beer tastes better.' Helping the people that make the beer taste better is not the same as being the person making the beer taste better.

Great finance teams respect sales and operations teams.

3. Sports teams, not families

I once inherited a finance team who proudly told me they were 'like a family.' It sounded nice, conveying a message of unity and trust.

The problem is that it was a complacent unit of B & C players. Who were producing poor quality, inaccurate information. Plus, they were not supporting the business properly.

A family is a horrible analogy for a great team in business. Families are underpinned by unconditional love, business teams are not.

Families tolerate or even embrace deep flaws because of a deeper connection.

Business teams exist for performance. Like sports teams.

Businesses make decisions a family would not. In a tough year, a family doesn't shed its 10% lowest performers (although it’s tempting). But a team does.

That means being aggressive about standards, holding each accountable. Everyone playing in the correct position.

4. Rejects petty infighting & politics

We've all been there. One cost center fighting with another about where a cost should sit. Both protecting their own metrics and bonuses.

After a while, deadlock sets in, and it gets escalated.

It's impossible to know how much time is wasted in global corporations on meaningless 'wooden dollar' debates. But it will be in the hundreds of millions of hours each year at least. I’m sure.

That is a criminally ineffective use of business resources. It leaves everyone feeling sh*tty and turns the focus to fighting with each other. It should be on fighting the competition.

This culture gets set by finance. And through how finance communicate.

A great finance team has bigger and better things to do than fight amongst itself.

5. Separates fact from opinion

Finance teams should be seen as the guardians of fact in a business.

But they also have valuable opinions and analysis to share.

A common mistake I see in poor finance teams is that they get these two roles confused. Sharing opinion as fact, and vice versa.

A good finance team has institutionalized the skill of separating fact from opinion. This comes down to precision.

Take an example:

‘We will miss our sales forecast in Q3’ - weak, non-specific. Unclear whether fact or conjecture.

‘We have missed our sales forecast in P7 & P8, and need to improve our run rate by 20% in P9 to hit our Q3 number overall’ - stronger.

6. Work with pace and accuracy

The general bias of accounting and finance professionals is to ponder more than they should in pursuit of accuracy.

Great finance teams know how to trade off time with precision.

For example, in 10K preparation, 100% precision is vital (although that isn't an excuse to work slowly).

But in decision support or FP&A, speed of decision-making is often at least as important as accuracy.

Most FP&A analysis could run forever if you let it. There is always another view of the data you could interrogate. Bezos’ 2-way door vs 1-way door principle is a great frame for this:

The best finance teams do just enough analysis to reach the right conclusion. And it’s not a process point, it’s cultural. Dependent on the leader to set the tone.

And that's an art, not a science.

7. Balance of stars and role players

For an A+ finance team, you need a lot of A+ players on the court.

But it's not realistic to have hard charging A players in every role.

You need a mix of stars and role players.

It's great to have a few people in your AP team who dream of climbing the ladder and going all the way. But it's also great to have some people who are happy doing a great job at processing and paying invoices.

It gives you stability where you need stability, and stretch where you need stretch.

As a Brooklyn Nets fan, I remember the excitement when Kevin Durant, Kyrie Irving and James Harden came together on one team.

They were going to win it all. In practice, 3 franchise players under one roof didn't work. It was a mess.

In my early career, I worked in a notoriously high performing finance team. It was great, I learned from the best. Many of the stories I share are from that time.

But they had a talent stockpile. In the end, it ate itself. Suddenly the talent were no longer competing to get the best role inside the business. They started competing for the best roles outside the business.

All the best people left in a 12-18 month stretch. Too much ambition under one roof.

To recap, these are the seven things I see consistently in great finance teams:

1. Challenge and support the business

2. Remember they are overhead

3. A sports team, not a family

4. Rejects infighting

5. Separates fact from opinion

6. Work with pace and accuracy

7. Balance of star and role players

As CFO, you need to set the vision for what you want your finance team to be. The vision for a finance function must sit directly underneath the vision for the business (remembering point 2 above). It must be in service of the overall business objective.

And it needs to be tested, socialized with the CEO, Board, C-Suite, your team. Really test if it fits.

A finance function vision statement might look something like this:

Purpose: To drive the business to better long term maintainable free cash flow performance

Vision: A high energy, best in industry finance function working lock and key with the business to improve performance.

Values:

• Candor

• Accuracy

• Speed

This cannot be a paper exercise, though. You need to live it. And you need to hold others accountable.

You will need to be comfortable with the words, make sure they are written in your voice. You will repeat them again and again. You will be surprised how often people need to hear things for it to become second nature.

If you want people to live it, it must be at the heart of what you do.

Next week, we will cover how to structure a team to deliver that vision.

Andrew H. from Czech Republic asked:

What is your approach to small business ownership/ acquisition of a restaurant? The typical small business restaurant can generate $1m-$2m annual revenue with 10% net income margins. Would you consider or not touch it with a ten-foot pole given the current market around labor constraints, inflation, etc?

Often I get questions that require nuanced or balanced answers. This one does not.

A ten-foot pole is not long enough.

Restaurants are horrible businesses to own:

• Margins are tight

• Labor turns fast

• Perishable inventory

• Volatile material costs

• Location sensitive

• Handling cash

• A few bad Yelp reviews from extinction

And that’s if it goes well….

Even if you own the equity of a restaurant, you don’t really own it. Restaurants are owned by the chef. Chefs hold the business in the palm of their hands.

A good one will build a unique proposition, customer loyalty, improve margins, grow sales. All while threatening to walk out each and every day.

A bad one will get the costings wrong, leave you with a mountain of food waste, collect health code violations, and p*ss off your customers and staff. And leave you to pick up the pieces.

The real problem is that most restaurant concepts aren’t physically large enough to create enough net income (in $ terms) to give the room to invest in the management that will allow you to sleep at night.

Restaurants need to be owner-operated.

This is why the franchise model is so popular in food service. It solves many of these problems.

Andrew, friends don’t let friends buy restaurants, so I will make you a deal. I will stop you from buying a restaurant. And if you ever see me trying to buy a restaurant, you will do the same for me.

Go watch the TV series ‘The Bear’ on Disney+ and if you still want to own a restaurant, give me a call, and I will call the medics for you.

Restaurants are for eating in, not for owning.

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And Finally

Next week, we will cover how to structure a team to deliver on your vision.

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Stay crispy,

The Secret CFO

Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director, or friend. Well, maybe I’m your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need.