In the high-stakes world of corporate finance, the decision to elevate a promising VP of Finance, or other finance professional, to the role of CFO is a significant one. Every seasoned CFO once took that pivotal first step, but timing is everything. So when is it the right moment for a company to embrace a “Step-Up CFO” — a choice that presents opportunity and risk? Let’s explore when and how to make the leap, balancing the fresh perspective and potential cost savings of an “up-and-comer” against the risks of untested leadership in this crucial role.
Weighing the Advantages and Risks
Step-Up CFOs often come with lower compensation demands compared to seasoned executives, allowing companies to allocate resources elsewhere. Their ambition to prove themselves can translate into high motivation and dedication to the role. Moreover, these individuals often bring a fresh perspective, unencumbered by “this is how it’s always been done” thinking. Their recent hands-on experience in various finance roles can also mean they’re more attuned to the day-to-day realities of the department they’ll be leading.
However, the risks are not insignificant. The most obvious is the lack of experience in the full scope of CFO responsibilities. Strategic financial leadership, board interactions, and high-level decision-making are skills typically honed through years in the C-suite. A Step-Up CFO may face a steep learning curve in these areas. There’s also the question of credibility – both internally with the team they’ll be leading, and externally with stakeholders such as investors and financial institutions.
The challenge lies in balancing these factors against your company’s specific needs and circumstances. A rapidly growing privately held company might benefit greatly from a Step-Up CFO who can grow with the company and bring innovative thinking to the role. Conversely, a large corporation navigating complex financial challenges might require the steady hand of a more experienced CFO.
Ultimately, the decision to hire a Step-Up CFO should be made with a clear-eyed assessment of your organization’s current financial leadership needs, its tolerance for potential growing pains, and its capacity to support and develop an emerging leader in this critical role.
Key Factors in Making the Decision
When contemplating a Step-Up CFO, several crucial factors come into play. These considerations can help guide your decision-making process and ensure you’re making the right choice for your organization’s unique circumstances.
Industry Complexity and Regulatory Environment: Some industries, such as healthcare or financial services, have complex regulatory requirements that demand a deep understanding of compliance issues. If your industry falls into this category, carefully assess whether a Step-Up CFO has the necessary knowledge or the ability to quickly acquire it.
Current Financial Challenges and Goals: Consider your immediate and long-term financial objectives. Are you preparing for an IPO, considering M&A activities, or restructuring debt? The nature and urgency of these goals will influence whether a Step-Up CFO is the right fit.
Strength of the Existing Finance Team: A robust finance department can provide crucial support to a Step-Up CFO, potentially offsetting some of the risks associated with their lack of C-Suite experience. Evaluate whether your current team can fill any knowledge gaps and provide the necessary support.
Board and Investor Expectations: Evaluate the appetite of your board and investors for a Step-Up CFO. Some may prioritize proven experience, while others might value the potential for long-term growth and fresh perspectives.
Candidate Assessment: When evaluating potential Step-Up CFOs, look beyond technical skills. Assess their leadership potential, adaptability, and cultural fit. Can they inspire confidence in stakeholders? Do they demonstrate the ability to think strategically and grow into the role?
While assessing candidates, be alert to potential red flags. These might include a lack of strategic thinking, difficulty articulating complex financial concepts to non-finance executives, or an inability to provide examples of how they’ve influenced business decisions in their current role. Additionally, be wary of candidates who show little interest in understanding the broader business beyond finance, as the CFO role requires a comprehensive view of the organization.
By carefully weighing these factors, a business can make a more informed decision about whether a Step-Up CFO is the right choice for its current and future needs.
Setting Up for Success
The journey of a Step-Up CFO begins well before their first day. Based on our experience working with clients who have successfully integrated a first-time CFO into their organization, we’ve observed that the transition requires commitment from the entire leadership team and a comprehensive strategy.
Provide your new CFO a 360-degree view of the entire organization, including deep dives into financial history, current challenges, and strategic goals. Facilitate meetings with key stakeholders across all departments to build a holistic understanding of the business.
Invest in professional development through executive education, leadership coaching, or industry-specific training. Encourage participation in professional networks and conferences to build expertise and industry connections.
You may also consider a phased approach to introducing CFO duties, starting with core financial operations before expanding to more strategic roles. It’s also critical to maintain open channels of communication throughout the C-Suite in order to foster an environment where your new CFO feels comfortable seeking guidance and voicing concerns early.
With the right support framework, a Step-Up CFO can build the confidence and skill-set necessary to thrive in their new role.
Making the Final Call: How an Executive Recruiter Can Help
While setting up a Step-Up CFO for success is crucial, the decision to hire one in the first place requires careful consideration. This is where the expertise of an executive recruiter can prove invaluable in navigating this complex decision.
A skilled recruiter brings an objective perspective to your unique situation, and can help assess whether a Step-Up CFO would be a good fit . Recruiters have access to a wide pool of candidates and can identify individuals who might not be actively job-seeking. They can evaluate not just a candidate’s technical skills, but also their potential for growth, cultural fit, and alignment with your company’s long-term vision. Moreover, recruiters can help structure the role and compensation package to attract the right talent.
By leveraging an executive recruiter’s expertise, a business can navigate this crucial decision with confidence. At Townsend Search Group, we’ve helped many clients find the right talent to step up into the CFO role.
Conclusion
Remember, every CFO was once in that pivotal first role. By carefully weighing the pros and cons, and with the right support systems in place, a Step-Up CFO can bring energy, fresh ideas, and long-term value to your organization.
Ultimately, the right choice depends on your specific circumstances. Whether you opt for the potential of a rising star or the proven track record of an experienced CFO, the goal remains the same: finding the right financial leader who can drive your company towards its strategic objectives and future success.
