The CEO growth zone tends to fall between the private equity zone and entrepreneur zone in terms of sophistication. And where the private equity investor is typically focused on an exit strategy, the CEO of a privately held company may have different objectives.
The experienced CEO is often more sophisticated than the novice entrepreneur. But too often, while the CEO is focused on company growth, they get lost in the concept of profitable growth. While the business is growing, it can often be at the expense of profits! I believe that the view that you can’t grow and watch costs at the same time is flawed. I worked with a company that grew revenue over 20% while cutting costs 17% at the same time. The result was a $3M improvement in year over year profits!
CEOs need to become better consumers of financial statements and need CFO leadership on their team to make that happen. While they might have a controller, accountant, bookkeeper, or financial manager, those players often lack the depth of experience to know how to deliver a top notch product and how to speak at a strategic level with the CEO and outside constituents (board members, bankers, potential investors, etc.).
Not only do I challenge finance and accounting teams to perform at a higher level, I give them the tools to do so. It’s very similar to training for an athletic event. Telling someone to run faster doesn’t really help; but teaching them how to train specific muscle groups and improve their cardiovascular fitness will produce the desired results. Tools are critical.
I have also found that the discipline I bring to a monthly financial review meeting makes a dramatic difference. In some cases, just holding the monthly meeting is an enormous first step. Numerous CEOs have told me that the quality of the financial statements produced after a handful of monthly meetings is markedly different than prior to the start. That’s to be expected. But the real value is in the level of dialogue among the executive team!
I bring a new appreciation for the importance of the financial function as evidenced by attention from the executive suite and the mentoring I provide the finance and accounting team. Progress is on-going as we continually raise the bar and work toward new goals.
CEOs need to have a long-term plan for the business. I question where they want the business to be in three to five years? For some, it is about providing a business to hand off to future generations, for others it is about exiting and selling the business, and some haven’t even thought about it.
Whatever the goal, we talk about the path necessary to get there and about the trade-offs that come with various decision points along the way. One of the most frequent and unrecognized trade-offs is the tension between minimizing taxes and building a company that has a strong balance sheet and income statement that is attractive to a potential buyer. While a company with higher profits will pay more in taxes, it is also likely to achieve substantially higher exit value. That’s an example of a strategic consideration that comes with advance planning.