One of the most important drivers of a successful management team is the relationship between the CEO and the CFO. The CEO is often times the headstrong, overly optimistic driver of the business; and the CFO is often the more mild-mannered, ultra-conservative controller of the company’s purse strings. Too much of one, and the business will race off a cliff, and too much of the other, and the business will suffocate. This post will teach you how to create that perfect harmony in the relationship between your CEO and CFO.
What Businesses Need
I think most of us would agree, most businesses are looking to grow their revenues at a pace that won’t result in the company running out of cash. Typically, your CEO is focused on the first half of that mandate (growing revenues), and your CFO is focused on the second half of that mandate (not running out of cash). If “growth at all costs” CEOs surrounds themselves with people just like they are, there is nobody on the team to “keep them in check.” And, vice versa, if “cash pinching” CFOs surround themselves with people just like they are, there is nobody to help them “see the forest, through the trees,” propelling the business to new heights through some smart bets. The right blend of business need, is somewhere right in between.
Your Typical CEO
Having been a CEO of multiple businesses, I can pretty much describe myself. I am the perpetual optimistic—the glass is always “half full.” I make most of my strategic business decisions on what will maximize revenues and profits five years from now, not what will maximize profits today. I prefer to lead, than to be lead, and don’t like it when someone tells me why we can’t do something I want to do. I have an A-type personality, and like to be around similar extroverts with bubbly personalities.
Your Typical CFO
Having worked with many CFOs of multiple businesses, they can pretty stereotypically be described as follows. They are chronic worriers—the glass is always “half empty.” They make most of their day-to-day decisions based on what will spend the least amount of cash today. They too like to lead, and have their voices heard, which can often be in diametrically opposite directions to where a CEO may be headed. And many have B-type personalities, often as introverted executives that function best from “behind the scenes.”
The Friction Created
Do you see the problem here, as described above? CEOs and CFOs are often very different types of people, both in their demeanor and in terms of the ways they think and measure success. The CEO-CFO relationship can often be a tug-of-war, and if not managed well, can lead to lots of internal friction and arguments between the two.
But that doesn’t need to be a bad thing. On the contrary, it could be a very good thing, as both of them are working with the company’s best interests in mind—the CEO for the long term and the CFO for the short term. The CEO and CFO should just acknowledge their differences upfront, know they are never going to get their way 100% of the time, and create reasonable boundaries for each other to “flex their muscles.” depending on the topic.
How to Create Harmony
To me, the right CEO-CFO relationship begins with recruiting the right people to start. Speaking as a CEO, just know going in that you need to recruit a CFO that is going to protect the business first, and not “follow you off the cliff” on every one of your growth desires. It is more important you find someone that has a good balance of short-term and long-term in the way they think, and will support your growth decisions if they are: (1) data-driven and logical; (2) will not create unnecessary strain on the company’s cash flow in the immediate term; and (3) can easily be funded by investors, if any startup investments are required to fund any expected deficits. And, on the flipside, the CEO should support the CFO’s cost cutting decisions if they are: (1) data-driven and logical (sound familiar); (2) will not materially impede the company’s long term growth goals; and (3) if not following that decision, will potentially put the company out of business. It is all about getting that right balance between the Yin (CEO) and the Yang (CFO).
Having Mutual Respect
In all cases, the CEO and CFO must respect the roles they each play in the business. Don’t get upset if your desired actions are getting overturned by the other, but at the same time, don’t expect your desired actions to get overturned every time. The right CEO-CFO balance is when they are both 50% happy, 100% of the time. If either one is happy 100% of the time, you either aren’t pushing the business hard enough, or you are about to implode, one way or the other.
So, as you can see, the CEO and CFO both play very critical roles in shaping the future direction of the company, and creating the right balance between the two, is often the right recipe for success. You may not build as large of a company as you could have, but at the same time, you can rest assured you will never go out of business and will always be able to “live to fight another day,” in both good times and in bad. Now, if you are a CEO or CFO, get up from your chairs, walk to the desk of your fellow executive, hug and make up, and pat them on the back for a job well done (despite what you may have thought about them before reading this article).
George Deeb is a Partner at Red Rocket Ventures and author of 101 Startup Lessons-An Entrepreneur’s Handbook. For future posts from George, please follow him here or on Twitter at @georgedeeb or @redrocketvc.