Ben Horowitz’s famous 2011 essay, “Peacetime CEO, Wartime CEO” highlighted the different behaviors and habits leaders need in tough times:
In wartime, a company is fending off an imminent existential threat. Such a threat can come from various sources, including competition, dramatic macroeconomic change, market change, supply chain change, and so forth.
My greatest management discovery through that transition was that peacetime and wartime require radically different management styles.
Peacetime CEO focuses on the big picture and empowers her people to make detailed decisions. Wartime CEO cares about a speck of dust on a gnat’s ass if it interferes with the prime directive.
In today’s tough economic environment, Finance leaders, like CEOs, must also shift their mindset. Every company faces an existential threat, whether it’s excessive cash burn, liquidity crises, or raging competition. Finance needs to take control of capital allocation, scrutinize areas of revenue leakage, and identify pockets of profitability.
Here’s how CFOs and their exec teams can think differently, to survive and thrive in a downturn:
– Peacetime CFO is focused on supporting the business’s need for growth capital. Wartime CFO is focused on business performance to minimize the need for scarce and expensive capital.
– Peacetime CFO lets product and engineering teams take the lead and keeps score after the fact. Wartime CFO is in the game, approving every hire, examining every system purchase, and looking for savings ruthlessly.
– Peacetime CFO is always playing catch up to figure out how to account for new business models, offerings, geographies. Wartime CFO knows the impact of business changes in advance, to focus the business on the right ones.
– Peacetime CFO reconciles a million spreadsheets and reports from operational systems — billing, order management, CRM, HR, payment processors — to close the books and report. In peacetime, the extra time this takes isn’t that expensive, and you can always hire extra staff. Wartime CFO knows there’s no time to waste, so they tie operational systems to a Finance Data Platform to reconcile continuously and know exactly where the business stands every single day and can course correct before the battle is lost.
– Peacetime CFO is focused on keeping score. Wartime CFO is playing the game — fiercely.
– Peacetime CFO’s strategy focuses on broad strokes: preparing for IPO, raising the next round. Wartime CFO‘s strategy is focused on driving free cash flow – by studying the business in minute detail to find pockets of profitability in every segment, every customer cohort, every product line, every business model. If there’s upside-down gross margin anywhere, the Wartime CFO will find it and shut it down.
– Peacetime CFO gets into debates with product, marketing, sales, and other teams about who has the right data to measure business performance. Peacetime CFO’s data is usually aggregated and comes after the monthly close, so they usually lose these debates. Wartime CFO has no time for debates. They control the data of the business because they can’t afford to be wrong.
Each function within Finance must do its part to help the business win in tough times with minimal casualties, PR disasters, or missteps. Getting there requires careful coordination among the CFO, FP&A, Controllers, and the Finance Systems team.
CFOs must shift their mindset from capital raising to controlled capital allocation, which requires Finance to operate more strategically. When cheap money is no longer an option, businesses must identify new ways to improve profitability and increase cash on hand. Doing so requires taking control of the operational data, understanding its relationship to profitability and cash in great detail, and using that knowledge to drive cross-functional discipline around increasing profits.
As the right hand to the CFO, FP&A execs need to leverage data to uncover the highest and lowest margin parts of the business — products, customer segments, cohorts— to prioritize the right areas for investment that shorten the cash conversion cycle, boost cash flow, and accelerate profitability.
To support strategic finance work, Controllers should implement preventative controls to increase confidence in the reported financial data and accelerate their visibility into critical financial metrics until they are continuously up to date. These controls help ensure accurate accounting and provide FP&A with accurate data to analyze profitability scenarios and cash flows.
Pursuing accurate and timely profitability analyses and financial reports depends on having the right data available in detail and in real time. That’s a systems challenge that Finance Systems teams can solve. By engineering finance platforms that turn operational data reporting into continuously reconciled financial records, Finance Systems teams power every other function.
Without easy access to defensible, timely transaction data, Finance teams are left to make predictions and decisions based on old data or aggregates, averages, and assumptions. And that’s the route to irrelevance in a volatile environment.
The time is now to realign your team and restructure your Finance priorities because, in times like these, only the most nimble and strategically inclined survive.