Rescue after Sudden Loss of CFO
June 26, 2010
by Rose Fisher
Client Situation:
An international not-for-profit professional society found that it’s Chief Financial Officer was leaving for a new position after 20 years with the organization. With very little notice and nobody on the bench, the Executive Director was in a bit of a spot. Nobody was familiar with the antiquated systems or processes in the Finance Department. Year end and the annual audit were fast approaching. They needed an experienced person who could “hit the ground running” with very little training. The two fold problem was not only to close out the year, produce year end financials and work with the outside audit firm to complete the required audit, but to also search, help select and train the new permanent CFO.
What We Did:
Within two days of meeting the Executive Director we placed a senior financial executive at the client site for two weeks with the outgoing CFO. After just two weeks of basic process training we took over the financial function for the multi-million dollar international society. During this time period we learned and understood the marketing, sales, internal systems and financial functions. We successfully closed out the fiscal year, prepared year end financials and worked with the outside audit firm to complete the required annual audit. During our tenure we discovered many areas for improvement in the systems and processes, since the incumbent had been employed for such an extended period of time many systems were never upgraded. Within five months of taking over the Finance function, we completed a successful search for the right CFO candidate, who met all the specifications for the position. Our senior staff than trained and mentored the incoming permanent CFO over the next few months. During this time frame we also worked on several projects to update and improve the reporting functions with new software and re-trained the existing staff.
Results:
Within one year of becoming the Interim CFO we successfully completed several projects for this client. First, we managed the Finance function on an interim basis, oversaw the transition, and found and trained the replacement CFO. Second, we updated the client’s accounting software, integrated the new software with the front end agency management software, and trained the existing staff on the new systems. Third, we streamlined the audit process and engaged a new audit firm. There were also several smaller ad-hoc projects completed along the way. The software update and streamlining produced a 20% improvement in the time required to complete the annual reporting. It also streamlined the associated processes so the CFO could handle additional duties and work more closely with the Executive Director on several management issues that arose during our tenure. The society and its Board were extremely grateful for the speed and efficiency in which we were able to grasp their systems and processes and improve them as we handled the immediate need for an Interim CFO.
Five Mistakes to Avoid When Raising Capital
June 20, 2010
by Peter Tilles
Human and financial capital is the fuel that allows businesses to aggressively pursue their objectives. However, without financial capital, all too often, businesses can find themselves treading water or sinking altogether due to an inability to invest in critical value creating activities.
Being forced to bootstrap for a while can be a good thing because it forces entrepreneurs to be creative and to focus on what is truly important to move the business forward. That said, there comes a point in almost any business’ lifecycle where the business cannot be propelled forward on human capital alone.
Whenever I have had the opportunity to work with early stage entrepreneurs there has been one universal constant – the need to raise financial capital. Having participated in both successful and unsuccessful capital raises, as well as having observed others who have been on both sides of the fence, here are some key mistakes to avoid when seeking to raise capital.
- Underestimating the amount of time and effort it will take to raise capital:
Depending on whether you are looking to raise capital from friends and family, angel investors or venture capital, the time to successfully navigate a capital raise will vary. At a minimum, assume that it will take six months and more likely it will take a year of nearly full time effort to network, write a business plan, get introductions to potential investors, pitch, address follow-ups, secure term sheets, support due diligence, negotiate and close a deal. Too often, entrepreneurs wait until they really need the money to commence the capital raising process resulting in a loss of negotiating leverage. The best time to look for money is when it is not desperately needed.
Additionally, it is not unreasonable to assume that you could need to contact well over 100 potential investors to end up with one who will ultimately invest. As a result, it is never too early to reach out to potential investors (see “When do I…?” by Lou Wagman).
- Not being able to communicate your business’ value proposition in 30 seconds or less, in a manner that even a third-grader can understand:
No one knows the businesses better than the entrepreneur. Every entrepreneur wants others, particularly investors, to see what they see and to understand why they believe their start-up venture is so valuable. At the same time, many of them have difficulty boiling down the core of their business value proposition to one or two phrases. When you live with your business everyday it is easy to lose the ability to see the forest through the trees.
Investors, especially in the current market environment, receive so many business plans that they cannot possibly review them all at a level of detail necessary to make informed judgments. As a result, they don’t even try. When you get the attention of an investor, at most, you will have it for a few minutes and more likely it will be only a few seconds. As such, it is critical to be able to communicate what your business does and its value proposition in 30 seconds or less. If you are successful in doing this, you will significantly increase your chances of attracting legitimate interest in your business from potential sources of financing.
- Telling an investor that you know the answer to a question you really don’t:
One of the bigger mistakes I have seen entrepreneurs make is to answer every possible question that is asked of them whether they know the answer or not. The problem with answering a question you don’t know the answer to is that if and when it does become apparent to the investor that you’re “spinning” it is nearly impossible to regain the lost credibility that results. There is absolutely nothing wrong with saying “I don’t know, but I will find out and get back to you on that”. I believe that investors look for realism and some measure of humility in their management teams. For them, it’s a red flag when that’s missing. - Failing to identify and pursue “strategic” investors:
When you raise capital from “strategic” investors, i.e., those who not only understand your business but who are also deeply ingrained and connected to your industry and target market, you get a lot more than just money. Strategic investors can be immensely valuable and function as a catalyst to help your business get traction and grow in your target market. Conversely, “non-strategic” investors who do not have the depth of contacts or understanding of your business expect to take on a role in your business that is at best focused on oversight and at worst passive. They can often become an impediment to long-term success since they don’t fully understand the implications of decisions you might make and tend to react to circumstances, particularly negative ones, through a filter that can be best described as “protecting their investment”. That can lead to sub-optimal outcomes for your business. - Failing to raise enough capital to sustain the business for at least 18 months, if not longer:
Ideally, entrepreneurs would like to lead their businesses to success without the injection of outside capital. When a capital infusion becomes necessary, entrepreneurs often think they will need to raise capital only once to get to a point where the business becomes self-sustaining. Unfortunately, that rarely happens. It is difficult to anticipate a whole host of external and internal factors, e.g., where the next revenue generating opportunity will come from, that will change the capital needs of the business over time. It is rare that the initial “go to market” strategy of a start-up survives for very long.
Most businesses have to adjust and adapt to changing market dynamics and conditions as they mature thus requiring maximum flexibility. As I mentioned earlier (#1 above), it can take up to a year to complete a successful capital raise. The entrepreneur, responsible for raising capital, ends up dedicating so much time to the task that their ability to focus on the job of running the business takes a back seat. That slows down overall progress towards critical milestones. It is very important that each time you make the necessary effort to raise capital, you raise enough to give yourself ample time before the next capital raise to be able to focus on growing your business.
Raising capital can be a daunting task. However, being able to succinctly communicate your business’ value proposition, engaging potential investors with a degree of humility, targeting appropriate “strategic” investors while anticipating both the amount of capital you will need and the amount of time it is likely to take will significantly enhance your chances of completing a successful capital raise.
What Does Poor Quality Data Cost Your Organization?
June 14, 2010
by James Rouse
Most organizations today do not realize the impact and cost of poor data quality on the bottom line. Poor quality data impacts an organization’s ability to operate effectively and efficiently. The inability to get timely data or correct data impacts the decisions being made and negatively impacts business opportunities.
How do you know if you have a problem with data and information quality? There are a number of simple indicators to look for:
- First, how much time does the organization spend correcting inaccurate data, scrambling to compile information across multiple databases? Are you struggling to integrate disparate data or looking for missing data?
- Second, count how many different versions of the same information reside in multiple databases or locations. These can be in corporate databases, individual PC databases or MS documents like Excel and Word.
- Third, how often do you fail to find a given piece of information or find multiple versions of the same piece of data?
If your organization has experienced any of these conditions, you certainly have data quality problems.
Why do senior executives not know about the high cost of poor quality information within their organization? They are generally isolated from the business processes that utilize the poor data. When they ask someone to get information for them, senior executives do not personally see how much effort goes into acquiring and verifying the information before it winds up on their desk.
One major pharmaceutical organization did not realize how poor their customer database was until after several warning signs were ignored. A senior marketing leader commented about the difficulty they were having in making an impact on targeted prescribers. He reported that 25% of all their expensive, glossy marketing brochures were being returned by the postal service due to incorrect mailing addresses. Unfortunately, the 25% represents only what was being returned back to the company. There was an estimated 5% to 10% more that were simply being thrown away and not being given back to the postal service for return to sender. They had no idea how many were reaching their intended target. There was also a direct impact on the sales force following territory realignments. Frequently sales reps in new territories would take up to six months to identify and locate all of their new prescribers. Inaccurate customer data had a major impact on this organization and its bottom line.
There are well documented cases of companies with multiple customer data files. One national bank had over 250 different customer databases. A telecommunications company had over 800 customer databases. How much time and effort would it take to analyze a simple question like who is our best customer?
Most organizations today don’t monitor or analyze the quality of their data and information. Most do not have any formal processes to address quality issues with their data and information. In fact, most organizations cannot even identify who is responsible or accountable for the accuracy of the information utilized by their given business units.
Experts estimate that poor quality information cost organization’s between 20% to 35% of their operating revenue due to process failures and information scrape and rework. This number could increase up to 40% for organizations which are information intensive, such as banks, insurance and pharmaceutical companies.
Poor quality data has a significant impact on business processes, productivity and ultimately the bottom line. It is a threat to the enterprise. However, by creating a process to continuously improve data and ensure its accuracy the business will have established a competitive advantage.
- Hiring beyond founders
- Launch, market and
sell product or service
to initial customers - Hire or “rent” critical talent?
- Pay – individualized /market
based / at risk / equity?
- Values – which ones
are critical to your success? - Continue to market,
sell and service
existing customers;
grow customer base;
build volume
- Grow revenue,
keep costs low
- Develop workforce plan
for next 1 -2 years
- What talent do you
need for the long-term
vs. short-term? What skills?
How do you find them?
- Pay – begin to rationalize
& standardize.
- Supervision – create
some structure.
- Culture – what type of culture
do you want to create? - Continue to serve
existing customers;
add new customers;
maybe expand
offerings; juggle many
concurrent projects
- Grow revenue
- Manage cost/expense
issues – balance
with growth
- Develop and
implement talent and
performance
management strategy.
- Rationalize pay,
bonus structure.
- Introduce some benefits.
- Supervision—select & develop
the RIGHT people.
- Behaviors – what does
it look like to live the
culture, values and
achieve results here?
- Handle employee
relations, retention issues. - More work with
repeat customers;
more new customers;
more products
and/or services;
more customer
problems;
more competition
- Cost/expense
issues arising - Measure effectiveness
of existing programs &
processes, identify
opportunities, and adjust.
- Align talent & performance
management processes,
pay, benefits, engagement
programs—everything!
- Develop policies and
more formal processes.
- Implement more formal
communication processes –
for everything, not just HR stuff.
- Communicate, communicate,
communicate! - Incorporate HR as a key facet of your regular strategic and operational planning process. Manage “human” capital the same way you manage tangible capital. Plan to maximize utilization of human capital with a projected target ROI.
- In the early stages, use an experienced senior consultant to help develop the people strategy and plan. This can be reviewed and revised as your business grows. The consultant can also coach and mentor your HR manager – so you don’t “outgrow” this individual.
- Over hire an HR manager when you hit a size of 20 to 30 employees - someone who has the desire and potential to function as a REAL strategic HR business partner. Not someone who will just fill out forms, process paperwork and follow orders. You need someone who can grow with your business as well as anticipate and help manage people challenges as they get more complex.
- YOU own this – you the CEO, the COO, the CFO, the managing partner, the manager, the HR professional. You own this responsibility together.
Help! I Need More HR
June 6, 2010
by Iona Harding
I am often contacted by CEOs of small or mid-sized businesses with a plea that sounds something like this: “Help, I need more HR.” In every case, they had two things in common, regardless of their industry. First, their company had hit an inflection point. These are points where people problems arise as a natural by-product of company growth and development, resulting in loss of engagement, turnover, frustration, employee relations issues (usually because of poor supervision), pay and benefits costs and complexity. Second, they had NO HR professional on staff or, had an administrator with the title HR Manager, who basically processed paperwork.
In all my years as an HR executive and consultant, I have rarely seen a start-up “start” with an HR strategy or an HR professional on the founding team. I’m not suggesting that they always should. However, I am suggesting that they can anticipate and think strategically about a people and talent strategy and bring on HR expertise earlier rather than later. Companies that do this will have a true strategic advantage in the marketplace.
The table below outlines some inflection points for small businesses and a few of the HR opportunities and challenges that business leaders can anticipate and plan for.
Inflection Point | | Number of Employees | | Some HR Management Opportunities and Challenges |
| Conception to Inception | | 10 – 12 | | |
| Inception to Initial Growth | | 12 - 20 | | |
| Early Growth | | 20 - 30 | | |
| Ongoing Growth | | 30 - 50 | |
So, HOW is this done and WHO does it?