In recent years, there have been significant changes in the finance industry due to economic shifts. As a consequence, finance leaders must now ensure that their businesses are profitable while also preparing for new emerging challenges that lie ahead. These market shifts have forced many traditional roles to evolve into new ones, pushing many finance leaders to adopt more strategic and agile processes.
Joyce Mackenzie, Founder and CFO at Pegafund, joined Julie Jin, Abacum's Head of BizOps, to share her experience of becoming a modern CFO. They discussed the core areas all CFOs should be focusing on which include using valuable data insights to ensure capital efficiency, balancing tradeoffs from cutting costs, and reacting to changes in the current volatile market conditions.
Julie: How did you make your way into becoming a fractional CFO and moving from the US to Europe?
Joyce: I think the reality of any career is you first need to figure out what works, what doesn't work, and then doubling and tripling down on the niches where you do find success.
My journey over the last 15 years has been a mixture of testing out different experiments, surrounding myself with the right people who had the right attitude and skill set, and going after the biggest and fastest growing market.
I believe that due to my early education where I focused on economic statistics and history, I now look at every market as a suppliant and manned dynamic. I tend to think of how potential market inefficiencies can be solved through a different approach to meet the needs on both sides of the equation.
Also, when it comes to European technology, I think that despite all the events that have unfolded throughout the year, there is still a large supply of finance capital from a wide range of investors, lenders, and alternative sources of funding, which was not the case eight years ago when I started working in this ecosystem.
However, even though Covid, SaaS, and Cloud have accelerated the pace of business execution and the need for organizational skills, we can notice a short supply and a clear skill set gap of traditional finance and operations folks.
In short, there are four core areas today with skill set gaps, and the first one is about revenue-first efficiency principles.
Julie: What are revenue-first efficiency principles?
Joyce: If you look at any sort of traditional financial systems used by corporate enterprises and SMBs, most of them are designed with cost in mind first.
However, all fast-growing businesses of the last five years are driven by a revenue-first mindset. Thus, although traditional finance professionals tend to think of costs first, there is a growing need to flip that approach to start considering the impact of business strategy in terms of revenue margin.
The industry is shifting and finance leaders are closer than ever to go-to-market decisions.
Julie: How many recent trends in revenue operations or go-to-market strategies are there to address that skill gap? Do you believe that different profiles are required, or can finance fill that gap?
Joyce: This is one question we continuously have a debate over within our team and with the companies we work with. I believe that the concept of revenue operations, which has become a very popular term and role in the last few years, exists in early-stage companies as a way to fulfill the skill gaps within Sales and Finance.
There are many modern-day tools and solutions that allow you to look at data to help you make decisions around your go-to-market strategy.
The RevOps role shows the evolution from helping implement Salesforce or CRM systems to being a valued business partner alongside Finance and Go-to-Market teams.
I think that rather than focusing on job titles, it should all come down to who has the right skills to play this business partner role within an organization and at what cadence, regardless of whether it is a RevOps, FP&A, or a VP of Finance.
In a perfect world, Finance would be the producer of the reports and the cadence behind the data, which would be provided by RevOps or Go-to-Market teams.
Julie: You mentioned four core areas, and one of them was the revenue focus. What would the other three be?
Joyce: The second is around structured data. At the end of the day, there are many different databases to store data within Finance and Operations. However, they are all designed with a different business user and, therefore, a different workflow in mind.
When investing in the Finance and Operations tech stack, leading companies focus on putting the information together into data warehouses to make sure the structured data is automated and speaks the same language as each other.
Automated structured data is what transforms a finance function. It is a matter of being able to understand the why, the context behind the data, and how it all connects to being a valued business partner.
Julie: Once the automation is solved, what is the best practice you are seeing in the market to get to the “why” behind the data?
Joyce: If you think of a company as a human being, the heart of everything is planning and analysis. Which I think for early-stage companies is a bit of an abstract concept.
If you haven't gone through a traditional annual budgeting, monthly forecasting, or quarterly planning cycle, there is almost a cultural change management exercise that you need to go through to make sure the planning and analysis process becomes collaborative across individuals, teams, and the overall business.
It is much about looking top down to what the market opportunity is, and also bottom up to understand the capacity within your organization.
At the end of the day, I think the process of finding the “why” is a combination of experience and best practice, but also seeing what works through experiments and analysis.
Julie: We covered gaps one and two. What are the others?
Joyce: The third one, which is also related to the first two, is around modern technology, tools, and systems.
The workforce today is fundamentally different. We are all working in either a remote or hybrid world, which means we combine different skills and processes and, therefore, we need better technology solutions.
As an example, FP&A as a category has received a lot of attention and funding in recent years. I believe this is because, as a function, FP&A has become more collaborative, as it needs to have modern solutions to address the pace of execution required to make decisions faster.
Julie: Startups excel on the basis of speed, agility, and responsiveness. You coined the term “Financial Sprints” as a framework to drive financial and operational execution. What is it, and why should finance teams and businesses start leveraging it?
Joyce: Financial Sprint is a concept that we started utilizing at Pegafund two years ago. It was inspired by some of the product Sprints around how to ultimately create alignment and plan a business.
This is a five-day exercise done in the last quarter of the year where the leadership team comes together to align budget and headcount plans to company strategy.
It also allows different people with different perspectives around the table to come together to lift all the operational activities.
Thus, we go through all the same exercises that you would do in a product sprint:
- Day 1 is around identifying accelerators and decelerators for growth.
- Day 2 is to brainstorm solutions around some of those accelerators and how to extend them further so we can double or triple the things that work well.
- Day 3 is for creating a growth roadmap in terms of the core activities a company wants to do.
- Day 4 is for identifying the skills that ultimately will determine a hiring plan.
- Day 5 is to start socializing all of the above among your teams to finally create the hiring plan in the budget for the coming year.
To this day, it seems to have worked quite well. By taking people out of their traditional comfort zone and day-to-day mode of operation, we are able to help them think collaboratively on a much more strategic level.
Julie: When would you say is the right time for a business to do a complete budgeting and planning cycle? Would it be an annual exercise? What would be the cadence?
Joyce: You can do it annually, or quarterly, and you can even create sprints. Sprints in themselves are a great way to brainstorm and challenge your operations to create alignment across different stakeholders.
The goal is to go through different exercises to help rewire your brain and ensure that people are on the same page when it comes to what the top priorities are going forward.
Despite all the changes that have happened throughout the year, the financial capital markets continue to evolve. Traditional lenders like banks are no longer as competitive as alternative financing sources.
However, it is still much of a black box for operators who haven't gone through the experience of raising multiple funding rounds, doing M&A, or having exited a company. I think part of this is because many core concepts in terms of foundations and how markets work look scarier and less relatable than they should be. It is important to make that language simpler and more collaborative for people to understand how funding impacts their day-to-day roles and how they can make better, faster decisions for a company overall.
Julie: Do you still see all these operational responsibilities sitting within the CFO office?
Joyce: I do, as I believe the relationship between the CFO and CEO is probably one of the most vital in any company at any stage, particularly once a business is post-product market fit, as it is when you need a balanced perspective between leaders.
The role of the CFO ultimately revolves around business performance and all the things that affect every part of the organization. This is both an analytical and a qualitative role, as it ranges from evaluating people's compensation and deciding who to hire, to identifying how company culture is impacting our time to hire an employer.
However, the ultimate design varies from company to company because it is determined by how the business has grown over time, what skills they have, and what the objective going forward is.
Julie: How do you see founders and operators reacting to changes in market conditions? Anything that surprised you?
Joyce: There are two main categories from what I have observed.
In the first one, we can see people who have experienced one or more recessions before, and in the second category, we have the ones that haven't.
The ones that have experienced a recession before usually are more agile in doing proactive planning around different possible scenarios. Whereas the second group of people tends to act differently depending on who they are surrounded by.
What I would say though is that a common pattern between companies that thrive through a recession is the fact of doing proactive planning to gain confidence when making bold decisions.
Also, something I believe is particularly important in times of uncertainty is the communication flow and the frequency at which people share valuable insights within teams. Thus, having discipline around cadence and communication is something that makes the difference between the companies that survive versus the ones that thrive.
Julie: How should finance teams approach the cultural and human impact of reducing headcount or continuing to invest in growth when that would potentially shorten runway?
Joyce: One of the first things I would look at is our foundations and our strengths in relation to our competitors. If you are a business with a lot of money and funding, and you have supportive investors, then you can afford to take bolder, bigger decisions.
It also forces the business to analyze its product and service offerings, and identify what value customers see in you compared to others.
Additionally, when going through a recession, your finance team and your business must begin to rationalize what is nice to have versus what you need to have. Which I think is key, because it forces you to focus on why you stand out.
For example, some of the best-performing companies in Europe were born through the recession of 2007. This is because they were forced to cut back on things, which at the same time happened to be an opportunity for them to focus on their foundations and deliver great value.
Julie: What do you think about spreadsheets? What makes it no longer compelling?
Joyce: First of all, how many people are currently working on PCs versus Macs? And how many use Excel versus Google Sheets or another solution?
I think spreadsheets are designed with a finance Excel user in mind. However, most people outside of finance aren't daily users of spreadsheets, which goes back to the fact that the workforce has changed, as has the way we work and the tools and systems we have nowadays.
Secondly, do you believe that core strategic decisions should only be made by finance? Or should it be made by those it impacts?
If you believe in collaboration and in the fact that a business does need to be agile and responsive, which I think is one of the differentiators in uncertain times, then you need to have a workflow solution that can facilitate this. Otherwise, it is going to be people running around trying to align numbers that may have different definitions.
A lot of it is also about controlling that collaboration as much as possible through a centralized tool, especially in a fully remote world, to be able to see how every change impacts all departments at the same time.
Julie: What is the most important book you have ever read?
Joyce: I read several books at the same time, and pick different chapters as I go. This is because, particularly with business books, I find that you don’t need to read them in a sequence but pick out the main messages from each one.
I think these books are probably more relevant for founders going on the journey of transitioning from founder to CEO.
There is a book called “The Happiness Hypothesis” by Jonathan Haidt that I like because it talks about how Eastern philosophy meets Western psychology, and it combines it with neuroscience, psychology, and different schools of thought.
A book, at the end of the day, is to challenge someone to take a step back and figure out what parts of their day-to-day lives they enjoy and what they need to delegate to people they trust, which is something I see founder CEOs struggle with.
One of my biggest learnings over the past years is that working with people from Finance or outside of Finance is very different. The first ones tend to seek control and do things in a certain way. Whereas people outside of finance will require you to change the way you communicate and work so that everyone can do what they are best at.
Julie: One closing question, outside of finance, what are the most fun people to work with?
Joyce: For me, it is a tie between the Product and Sales team.
I do feel that Product is at the center of everything. So if your product is not good, there is not much Marketing, Sales, or Finance can really do. I don't think companies with mediocre products are the ones that last.
Also, the reason why I said Sales is because I still believe execution matters, and salespeople generally go after market opportunity.
Wrapping up
The modern CFO has become critical to every company, regardless of its size. In today’s global business environment, it takes a strategic finance leader to face the challenges associated with navigating uncertain markets and overseeing operations across the organization.
Nowadays, all finance leaders need to deliver value to the business by understanding the market, the risks, and knowing how to provide insight into the overall performance. One method for doing so is by setting up an efficient tech stack to allow collaboration between different teams.
If you are looking for a strategic finance solution to handle all your finance needs at once, Abacum can help. Request a demo today and discover how to enable growth through valuable business insights.
