Speaking at a Financial Executives Institute (FEI) conference last fall, just as the recession was starting to bite, I noted the opportunity to do the unexpected during the downturn and “pull a Colonel Chamberlain.” Chamberlain, the leader of the 20th Maine Infantry Regiment during the Battle of Gettysburg, found his weary Union troops out of ammunition and almost surrounded by Confederate forces. Instead of surrendering, he ordered his men to fix bayonets and charge. They did, surprising the hell out of the enemy and defeating them, thus turning the course of that battle and, probably, of American history.
Chamberlain’s modern-day, counterintuitive equivalents are entrepreneurs like Jeremy Behar of Toronto-based Cirrus Consulting Group, one of the companies I work with. In the middle of this recession, he’s aggressively hiring new employees. Does he have spots for them all? “No, but great people are available — the kind you can build a business around,” says Jeremy. “I want them on my team.”
Indeed, recession bears countless growth opportunities that are ripe for the picking by CEOs who continue to dream in a down economy. But to optimize their chances of success, these dreamers need a down-to-earth sidekick: a practical CFO who, rather than dousing their entrepreneurial fire, helps them pick the better opportunities and move relentlessly toward them. With the right CFO on your team, you can do wonders.
Ty Shattuck is the COO of Trivaris, a Hamilton-based investment and advisory firm that helps companies commercialize their innovations. Also speaking at the FEI conference, Ty shared the story of his first day at a previous employer, where the CFO had to approve spending on all new innovations. The CFO welcomed Ty and cut straight to the chase: “Ty, I am glad to hear the CEO likes your new idea, but I need to make something very clear.” He walked over to the window and pointed out. “When our CEO looks out the window, he sees a field of dreams. When I look out the window, I see a field filled with cow patties, and each one is filled with risk. Your job is to dream; my job is to keep us out of the crap.”
What made that CEO-CFO team so successful, Ty explained, was that each of them knew he needed what the other brought to the table. But, as Ty emphasized, this CFO practiced risk management (charting a path through the patties) rather than risk avoidance (fencing off the whole field).
It sounds great in theory, but how do you make it work? I met recently with Ty and we agreed on a couple of characteristics of CEO-CFO teams that manage risk well.
The Try-It Mentality: A good CFO believes, as the CEO should, that a company always has to be trying something. In fact, the CFO should insist that there be a line in the annual budget for “the cards we will turn over this year” (some would call it R&D), thus ensuring that risks can be taken without damaging the budgeted bottom line. She does this because she knows that the biggest risk of all is taking no risks.
The try-it mentality must be present at the board level as well; when the CEO, CFO and board share this mindset, you have sufficient checks and balances to ensure managed risk-taking without sliding into inaction.
Incrementalism: A good CFO believes in taking small steps rather than giant leaps or no steps at all. For instance, if you are working on an innovation for which no market has been established, you can’t have any idea how big that market will be. Don’t try to fake it by guessing at a number. Just be honest: say you think the market might be big and then test it by doing something that will give you more information. You know you have a good CFO if she asks not what you will earn by turning over a card, but what you will learn. This approach helps eliminate the cow patties one by one. Don’t think about crossing the whole field at once.
Good CEO-CFO teams also recognize that there are two kinds of risk: doing something we shouldn’t have done, and not doing something we should have done.
Lehman Brothers represents the former. The collapsed Wall Street giant got into too much subprime securitization. There was no one at the table looking at the true risk in those cow patties. Lehman probably needed a practical CFO who had the ear of the CEO.
General Motors is a good example of the latter risk. It stuck with its designs, selling enough vehicles for a while through discounting, low-cost financing and other gimmicks. What it didn’t do early enough was innovate in its product line and selling methods. The competition did, and ate GM’s lunch. GM needed a visionary CEO who had a trusted CFO.
Who will seize the opportunities in this recession? You can, if you’re willing to cross the field of dreams — accompanied, preferably, by a CFO who can keep you out of the crap.