Well what do you know — it looks like I’ve joined the line of VCs giving founders advice on how to face the looming downturn. A lot of investors have focused their advice on conserving cash and extending runway, but they forget that doing all those key things requires strong leadership from one key role: the chief financial officer (CFO).
So here are four ways that putting your CFO in the spotlight can help startups and scaleups — especially B2B companies — through this downturn.
1. Shift power to the CFO
To state the obvious, the only way to prepare for and outlive a recession is to introduce a more frugal culture — stricter budget control, careful hiring policy and in most cases, a radical reduction of costs through personnel cuts.
One of the most effective ways to do this is to temporarily transfer some more authority to your CFO. Having your CFO sit next to the CEO, voicing their opinions on all spending decisions and actively creating a plan to reach cash flow neutrality is the only way that the company can create a self-sustainable business model (i.e. one that works without additional external capital). I know that this can feel intimidating for a CEO — and especially a founder-CEO — but in the midst of a downturn, it’s more important to focus on the bottom line than a top-level outlook.
2. Sell to the CFO, not the CEO
From startups to large multinationals, most companies have already received a strong message from their board and investors this spring that it’s time for strict budget control — and this likely applies to your customers, too. So if your value proposition used to be centred around growth and customer acquisition, it’s time to change that narrative to a more CFO-friendly one: the one about how your product can help your customers operate more efficiently and save money.
Make sure this becomes the new common thread for marketing, communications and sales alike. If you can showcase how your solution can bring your clients savings within that same budgeting period, even better. This makes it easier for your contact to get internal buy-in in cases where you’re not selling directly to C-level.
👉 Read: Three reasons startups are hiring fractional CFOs
3. Say goodbye to vanity metrics
We’re all used to tracking a wide range of KPIs (key performance indicators). Depending on your business function, your key metric might be brand recognition, the number of new market entries or industry segments. But during a downturn the usual metrics can most likely be discarded. It all comes down to profitability, which means valuing financial KPIs above all else. It’s time to put your focus on the sales funnel and on the metric loved by all CFOs: your EBITDA (earnings before interest, taxes, depreciation and amortisation), a key metric for a company’s profitability from operations.
Take this as your company-wide north star and make sure that each business function focuses on optimising for that, and only that. Looking past the downturn, this is a good exercise to be done regularly to stress test your KPIs, get rid of vanity metrics and make sure that you’re focusing on the most business-critical criteria, especially if you’re an early-stage startup with limited resources.
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4. Be realistic about cash flow
During times like these cash is king and accurate cash flow forecasts are a crucial tool for CFOs and CEOs alike. This means you and your CFO need to understand where your customers’ bottom line is. When I was building a startup when the dotcom bubble burst, most of our customers were not doing well. And that’s putting it lightly.
In reality, most of the small European telecom companies we served went bankrupt soon after the burst. This forced us to shift focus to mid- and large-sized companies, which ended up altering our whole business plan. So for your cash flow forecast to be accurate — or even in the ballpark — you need to realistically evaluate whether you can keep your existing customers and whether they’re going to make it or not.