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Rookie Mistake

"Mom, I got it!"

I’d decided to call her before my wife. A decision I would later regret.

I'd just heard the news from the Group CEO: "We've concluded the process, we'd like to offer you the position of CFO of our largest division. Congratulations."

I felt I could do a great job, but I was still surprised.

I'd been the dark horse. My 30th birthday had only been a few months earlier. There had been other internal candidates and a full external search. All were 10+ years older.

It wasn’t that I didn’t believe in myself, I just hadn’t expected to convince the panel given the experience gap.

It was a big promotion. This was an autonomous CFO role for a business with $1.1bn in revenue.

I asked the CEO why me. He explained: “The role would have to drive a lot of change. You had the most energy and the most credible plan for doing that. You were the best person for the job.”

Those words were important to me. It helped me puff my chest out. I was about to sit around the table with a peer group of a different level. Some of them were several years older than my parents.

I knew I was going to have to battle to find my voice in a room of old industry veterans.

I told the CEO I was delighted, thanked him, and hung up.

When I spoke with my mom, I reflected on my journey to this point. I could see that hard work, talent, and good career decision-making had all been crucial ingredients.

But so had luck. I'd been in the right place at the right time for the right opportunity.

A different Group CFO might not have been prepared to take the same risk. 3 months earlier I'd have been too busy with a live project to have put my case forward in the best way.

I was listing all of these irrelevant parallel realities when my mom cut me off:

“And how much are they going to pay you for this? Sounds like a lot of work.”

“Sh*t. I don’t know, I forgot to ask.”

Talk about a rookie error.

I called the Group CEO back “you realize I’m not the cheap option for this job, right?”

He laughed “I’m glad you called me back … I was beginning to think we’d picked the wrong guy. Don’t worry, I’ll have the comp detail over to you tomorrow. I think you’ll be happy.”

It was the first and last time I showed my hand taking a job before locking down the compensation.

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This is a special edition about the many paths to becoming a CFO.

The Long and Winding Road (to CFO)

Which path to CFO is better - accounting or finance? CPA or MBA?

I get asked this question a lot.

Well today, I am not going to answer this question. It’s a 1-dimensional question with a 3-dimensional answer. There are not two distinct paths.

There are a huge (and growing) number of paths to CFO, with many points of overlap.

Also, do you really want to just ‘become a CFO?’

If that’s your goal, you can do it today. Start a company, and give yourself the title of CFO. Congratulations, you made it.

No, you don’t just want to be a CFO. It’s just a title. Any idiot can fail their way up the ladder in the ‘right’ environment.

You want to be a great CFO. And that means landing in the right CFO role at the right time. And with the skills and experience you need to help your business become a cashflow volcano.

There are four unique stages of building your career to that point. And they are agnostic of a specific qualification, or title. It’s about the specific skills and experiences you accumulate on the path.

But before we get into it, let’s look at some data:

In a survey of 1,000 of the largest public companies in the USA, Korn Ferry found that the number of CFOs with a CPA had fallen from 46% to 36% between 2014 and 2019. Sounds like a trend…

It’s certainly true that the role of the CFO has changed a bit. Automation of accounting and improvements in data quality have made it easier to add value in finance. All without a pure accounting background.

But in a more recent survey, the Journal of Accountancy reported that the number of F500 CFOs with a CPA increased from 34.5% to 38.5% between 2022 and 2023.

This suggests the shift between 2014 & 2019 was more cyclical. Perhaps a robust accounting background was less important when money was cheap. But the priorities of boards are different now that the economic winds have shifted.

It’s unclear whether the data includes CFOs whose CPA has lapsed. There will also be many CFOs working in the US who qualified outside the US under a designation equally as reputable as the CPA. So it’s likely the percentage of CFOs who had an early career in public accounting is much higher than the data suggests.

Interestingly, the proportion of F500 CFOs that had neither a CPA nor an MBA fell from 30.2% in 2017 to 21.5% in 2023. Just over 10% have both.

Here's what you can learn:

1. You do not need a CPA to be a CFO

2. But it does help, especially in tighter parts of the cycle

3. Having a professional designation is important. The old cliche of 'nobody ever got fired for buying IBM’ comes to mind. The same goes for boards hiring a CFO with a CPA or MBA.

4. Most importantly, there are more routes and paths to CFO than ever

The best CFOs I've worked with have been awesome across accounting and finance. They've been CPAs, MBAs, and CMAs. CPAs who later get their MBA.

But the truth is this. You want to be a monster across accounting and finance. An All-weather CFO.

Getting the job is not the thing. Winning in the job is the thing. And getting a CFO job once you are a proven CFO is easy. Getting in the club is hard.

So, in my experience, here are the 4 stages of the path to becoming an All-weather CFO:

1. Disciple of Detail

2. Manager of Finances

3. Leader of People

4. Driver of Value

Each is a stage, think of them like stamps you have to accumulate. They are not job titles. 

It's about the work, not the label. Focus on the competencies you build. Substance over style every time.

Let's take each in turn.

1. Disciple of Detail

It’s the start of your career. There is one quality that will serve you more than any other. From day one of your career, until the day you hang up your abacus.

Attention to detail.

CFO jobs are about detail. Even in billion-dollar businesses.

The CFO job is no place for someone who is 'more of a strategy guy.' People who say this just mean they are rubbish at detail.

All great CFOs I've come across are brilliant at strategy and even better in the detail.

And where do you hone your attention to detail? With your nose in the weeds in the first 2-3 years of your career.

Fixing spreadsheets. Checking facts. Tying client decks back to source documents. Ticking and tying 10Ks. Building models. 

It doesn't matter where you get this experience. As long as you have exposure to finance and you are right in the details. Setting and meeting very high standards at a fast pace.

People dunk on audit. It’s certainly not how I would choose to build a long-term career. But 2-3 years in audit at the start of your career is an awesome way to earn your stripes.

Reviewing dozens of accounts, auditing cash balances, ticking and tying 10Ks. I spent my first three years doing this in the Big 4 and I'm forever grateful. I left public accounting able to smell an issue in a balance sheet from 100 miles away, and a great understanding of how financial statements are put together.

This is not the only way to develop this sixth sense for detail, though.

You can do it in investment banking too. Same if you start your career inside a business. It’s the same work in a different context. It doesn't matter where it is.

All that matters is that within two or three years you have three things:

• A deeply ingrained attention to detail with exposure to financial statements

• Excel skills to die for (and AI too in the future)

• A designation to prove to employers you aren't an idiot

If your goal is an all-weather CFO job, it doesn't matter where you get the experience from; Big 4, IB, or inside a business. Nor does it matter which you get: a CPA, MBA, or CMA. It just matters you get it.

Note: there are lots of other pros/cons to IB v Big 4 v Business v Consulting. I'm not interested in those. I'm specifically looking through the lens of ultimately becoming a great CFO.

You don’t need more than 3 years at this stage, especially if the experience is rich.

2. Manager of Finances

So you’ve got some exposure to the financial statements. And you are well drilled on the importance of detail.

Now you need to build the skills of applying that to manage the finances of a business. That means across the income statement, balance sheet, and cash flow. I call this 3 Statement Intelligence. I’ve seen so many CFOs who are great in 1 or 2 financial statements, but useless at the others.

This means hands-on repetitions on the FP&A cycle:

• Owning the long-range plan

• Drafting a budget

• Discovering a gap between your budget and year 1 of the long-range plan

• Managing upward and outward to resolve that gap

• Report monthly income statements against that budget

• Explaining to a VP of Ops why she has missed her budget

• Help her build a plan to fix it

• Explain it to the CFO

• Have a big issue to deal with

• Explain it to the CEO

• Find a way through it

• Help the business execute the fix

• Redesign metrics to fit the new plan

• Measure progress

• Close the year

• Update the board

• Build developments into the next long-range plan

• Rinse and repeat

The great thing about these roles is that because it is a cycle you see the impact on financials first hand. Warts and all. Not just how they present externally.

And how that interfaces with the business.

This is a vital skill for a CFO. Learn it now, rather than on the job later.

The best place to learn it is inside a business. Hands on. It’s the only way to really see the cycle cradle to grave. And to live with the consequences.

Look for an FP&A manager role or equivalent. Broadly defined reporting manager roles work too.

There are other less direct ways to get this experience by proxy. Working in M&A advisory, for example. Whether that’s in Investment Banking or Financial Due Diligence in the Big 4. But there is no substitute for owning it and being on the inside. It will show you have earned your stripes.

One way you will not get this experience is in audit. Audit is a great training ground for a future CFO for the first 3 years. After that, it is useless for becoming a CFO. 

You have completed this stage when you:

• Get real first-hand experience of the stages of an FP&A cycle over multiple years

• Build feedback loops into the organization to influence performance

• Are able to connect what you see in the numbers with what you see in the business

I see many ambitious people whose careers stall because they try to skip through this stage.

I had a super-talented young finance manager on my team a few years back. She started the role halfway through the year. And by the middle of the following year, she wanted more ‘high-level exposure.’ I explained to her, that she wasn’t ready for that, and the value was in seeing 2 or 3 cycles. Living and delivering a plan.

She didn’t agree and left my team to work in a different business for another $5,000. She is still a junior finance manager and has moved companies two or three times since.

3. Leader of people

You're all over the details and proven you know how to run the financial cycle of a business.

Now you need to prove you can leverage. Specifically, you can leverage other people.

You are no longer judged on your own output, or that of a small team. You are now running a large function. You are learning how to use your leadership as a force multiplier in the business.

You also need to learn to influence upward. And resolve organizational politics. These skills will be a huge part of your role when you become CFO.

Financial Controller or Director of Finance roles are perfect for this.

Unlike the last stage, though, these are skills you can also learn equally well (or maybe better) in environments outside a business. IB, Consulting, and Advisory firms all offer the chance for this in the right roles.

You have completed this stage when you:

• Have successfully ideated, implemented, and delivered a vision for a part of a business

• Developed leaders and managers who have gone on to be successful

• Can bend the business to your will

4. Creator of value

Now you have the toolkit. The technical skills and the leadership skills.

The final test is to prove you can use them. And use them to create value for shareholders.

The best way is through 3 statement responsibility for a business unit in a divisional CFO role. Being accountable for a profit and cashflow targets for a business

But there other ways delivering M&A transactions, or financing for example. Or big business partnering roles.

Anything that moves the needle on shareholder value.

Many senior finance pros get stuck at VP of Finance for a long time. Maybe 20 years. They have everything on paper, but there is something missing. 9 times out of 10 the missing thing is demonstrating that they are a driver of value.

This is not easy to show from the finance seat.

A good way to find this is to run into the burning building. Is there a problem in the business that is huge, but so ugly and hard that no one will touch it? Too much work, and too much stink.

Those problems are career rocket fuel. It’s how I built my career. I volunteered to fix the biggest, hairiest finance problem in the business at any point in time.

Summary

No one path is necessarily better than another. Look at the early careers of CFOs of some of the largest companies in the world:

• John Murphy - Coca-Cola. Did 4 years in the Big 4, before moving to Coca-Cola and never looking back.

• Susan Li - Meta. Spent 3 years in investment banking (her disciple of detail phase). Moved to Meta in 2008, and grew with the business.

• Hugh Johnston - Disney. Worked his whole career inside businesses. And came through the renowned Pepsico graduate scheme.

• Vaibhav Tanjea - Tesla. Did 17 years with PwC in audit (getting to senior manager). But his career exploded after moving into industry.

• Ruth Porat - Alphabet. Built her career in Investment Banking to a senior level with Morgan Stanley, before moving laterally into a business.

Very different paths. One thing in common. They all committed hard and gobbled up new skills and experiences like a hungry Pacman.

In the next series, we will get deeper into those skills and how you build them.

QUESTION

Omahafriendly from Omaha, Nebraska asked:

If your business is below industry gross margin and above industry overhead (we are a growing service business), where would you focus your energy, assuming overhead is fairly fixed?

ANSWER

Pardon my bluntness, but if something looks like sh*t and smells like sh*t… very rarely is it Nutella.

Start from a point that any business with below industry gross margins and above industry overheads has an existential crisis.

This goes back to the core of the business model. Can you change these dynamics? What is the thesis? Is this a volume play (you said you were growing fast), where a low gross margin is ok, as long as you have an even lower overhead as a % of sales? If so, can you grow volumes fast enough to dilute out the overhead? How long will it take? Do you have the runway? Is it worth it?

You said you were growing quickly. Ask yourself whether it’s right to grow quickly. Does growth solve your problem? If not, then I think there are bigger priorities for you than growth right now.

It sounds like you need a deeper understanding of your unit economics vs the competition. You can’t burn the candle at both ends, so examine why your margins are lower and your overheads are higher. Is it in the design of your business model? Or in the execution?

Best of luck with it, and thanks for the question.

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Next week we start our March season diving into skill stack for the modern CFO.

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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.