Investors don’t provide capital to organizations just “to put in the bank and save,” says Charles Marentette, CFO of Gravie, a health benefits company based in Minneapolis. Rather, investors prefer that the C-Suite “spends money, just wisely” to grow the organization responsibly.
Marentette spokes with StrategicCFO360 about why finance chiefs need data to grow, when they need to be “evangelists” and when a little discomfort is a good thing.
What are some measures CFOs can take to help manage growth responsibly—especially fast growth or with large infusions of capital?
There are a few key things any CFO can and should do to manage growth responsibly. In rapid growth mode the company is focused on product design, go-to-market strategies and building an amazing customer experience. Do you have a product that is winning in the marketplace? Without that, nothing else matters. As that takes hold, and you move into scaling, it’s time to add optimizing the business model to that list of priorities. All the other priorities remain critical for continued success, but they now can be viewed in the framework of a path to profitability.
Plant a flag X number of years down the road that outlines what you want the economics of your business model to look like, then work backwards to identify the investments you need to make across the company to drive toward that medium-term goal. You may need to focus on technology, automation, organization structure—probably all of them, candidly—there can be many different solutions to get you where you want to be. Take stock of where you are at after the first year and as you head to year two determine the next set of goals to keep on track.
You must rely on the data and metrics. Go from running a company on your gut reaction to building business practices that get you to that next level. Let’s use a go-to-market spend as an example, as setting the budget shouldn’t be a dartboard exercise. If we are targeting to sell X, that should guide how much you are willing to spend to get that business—the return you expect on that investment, if you will. That metric of return on spend becomes the milestone for that part of the business model for the coming year. And, while it won’t be exact, assess how the year played out and how you set the targets differently in Y2.
Define the right metrics that you can continually measure and gauge your performance. What are the KPIs for each part of the business? Look at all facets of the company. Ask the question, do we have enough resources to get us where we need to be? The last thing you want is to have a bottleneck in the system that turns off the growth valve because you did not plan and measure your success and failure properly.
It can be a delicate balance. My goal is to set targets collaboratively with the business partner, but with a healthy bit of tension too. We want the targets to stretch people to have to think differently, but not make them unattainable. The perfect target is one where people are a little uncomfortable with it but have the confidence they can get there if they have the right tools and resources to do it.
How can CFOs help educate their executive team and company at large as the company scales its unit economics?
When you are growing fast, particularly with large infusions of capital, it can require going from a centralized decision-making process to empowering and trusting company leaders to make decisions. This can be one of the hardest parts of a rapidly growing business and can be hard for some executive leaders to release control. Keeping decision making at the founder/CEO level is not sustainable at the size and scale you want to grow to. At the end of the day, you need to have more leaders helping to reach the company goals for the company to continue a path of growth.
As the CFO, you need to be an evangelist of the business model for all levels of the company. Spend time with your company executives and leaders and educate them on how the business works from an economic viewpoint. When they understand how the finances work, it will help them understand the goals and set targets within their departments to help meet those overall company goals. As you delegate leadership, providing guiding lights about your company’s values, goals and growth will empower critical decision-making.
Economic anchoring is another important education opportunity. This relates to how each person on a team fits into the big picture puzzle and how they can help with the success of the company. You can engage everyone across the business. You may look at a customer’s lifecycle and identify every point of their engagement to help teams from product to marketing to finance understand their impact in the customer experience and how that affects the economics of the overall business. Just like you are empowering the company leaders, the company leaders need to understand the goals and targets to empower each of their departments to meet their goals as well.
What are the best ways to coach those setting and managing budgets, and helping connect those budgeting strategies to understanding of the business?
A budget absent of a goal is a moot point. Rather, I encourage companies to set goals and rely on the data and metrics to tell your story and to show the progress that is happening and align budgets accordingly. Be clear with expectation setting, helping each department understand where they need to go by the end of the year.
As CFOs, our job is not to help people spend less. In fact, sometimes our job is to encourage people to spend more, because we are leaving opportunities on the table. Focus on productivity and define what that is and measure your progress. In some cases, progress could mean costs stay flat, but customer experience is X percent increased and that helps the company get to the next level of where you want to be.
I say it quite often to the teams that I’ve worked with—investors haven’t given us capital to put in the bank and save. They can do that on their own. They have given us capital because they know we are capable of spending that money wisely to create value. Our job is to spend money, just wisely!