Startup Smart: Do I Hire A Chief Financial or Chief Operating Officer First?
A decision of whether to prioritize the hiring of a Chief Financial or a Chief Operating Officer often emerges immediately following a startup’s initial successes in raising capital. As the company shows compelling growth, the executive team must demonstrate steady and stable execution. In an ideal world, the company would recruit and onboard both but often find themselves with resources limited to only one hire.
The Chief Financial Officer (CFO) is a senior executive responsible for managing the company’s financial operations. The CFO’s scope of responsibilities may include managing financial reporting and cash flow. The Chief Operating Officer (COO) oversees various administrative functions to ensure the company’s smooth operations. The title of COO may be used interchangeably with Chief of Staff to the CEO or Chief Administrative Officer (CAO).
The CFO skill set is highly specialized, and their experience in fundraising or accounting is not readily replicable with COO, CAO, or Chief of Staff hires. Thus, the founders should seek to recruit a finance executive with strong organizational and leadership skills willing to take on responsibilities of both the finance and administrative lead positions.
The key is not in the title but in the job description and selection of the candidates — it is possible to find talent capable and eager to operate in a cross-functional role. While serving as CFO for several organizations, I routinely took on the CAO job functions to support the CEO and BOD to ensure the company’s progress. In short, I served as a growth startup’s Chief Administrative and Financial Officer (CAFO).
Below are select areas of responsibility a great CAFO delivers.
Budgeting and Financial Management
As CAFO, I oversaw the organization’s budgeting process and financial management. In fact, in a startup with limited resources and high growth, the delicate control of capital is arguably the most crucial function of the leadership team. At my last life sciences organization, which I helped grow from five employees to its peak-employment roster of approximately 65 people, I worked closely with teams from discovery, clinical development, regulatory, supply chain, and manufacturing to project and monitor expenses, project runways, and optimize spend. This effort was critical in ensuring the company had adequate resources to achieve the next value inflection point, raise capital, and provide a margin of safety around each milestone.
Strategic Planning
A CAFO must play a central leadership role in strategic planning. She should collaborate with other executives and department heads to align administrative functions with the overall goals and objectives of the organization. For example, in an international medical device maker, I formulated and was vocal during the management committee meetings about which products the company was to launch, which geographic markets it should pursue, and how much capital should be allocated to these initiatives at the expense of delaying others. Having a view on the strategy, sharing that view within the executive team, and aligning all other executives and board members in ensuring that internal policies and procedures provide adequate capital resources are critical to hitting the most important milestones.
Human Resources Management
As CAFO, I took on the oversight of the human resources function. I insisted that the HR department reports to the finance vertical at several high-growth organizations. It enabled me to work closely with HR Business Partners to develop and implement policies and procedures related to recruitment, hiring, training, performance management, employee relations, compensation, and benefits. I wanted to oversee the crafting of talent acquisition strategies and succession planning to ensure our recruitment efforts were consistent and candidate assessment was systemic throughout the organization. While functional leads drove their vertical’s personnel recruitment (e.g., the Chief Medical Officer recruits the director of clinical operations in biotech), the final hiring decision’s sign-off came from me, the finance lead. I used the last interview in the recruitment process to set the recruit’s expectations about policies and procedures.
Legal and Contracts
While I don’t have formal legal training and prefer to backstop compliance with laws and regulations by external legal counsel, I view contract negotiation and documentation management as a critical element of an operating CFO role. With the support of legal counsel, I tend to get closely involved in reviewing and negotiating contracts, such as non-disclosure agreements, lease agreements, vendor contracts, employment contracts, partnerships, financing, or M&A agreements. I analyze contractual terms and conditions, identify potential risks, and negotiate favorable terms that protect the organization’s interests. I view it as my mission to ensure the contracts align with the company’s goals not just in the next few months or quarters but in the long term.
Technology and Information Systems
Technology plays an increasingly critical role in business operations. As CAFO, I took on the oversight of the organization’s technology infrastructure and information systems. The finance team I led collaborated with the dedicated internal IT department or external IT service provider to ensure the smooth functioning of technology systems, data security, and implementing technology initiatives that support organizational goals. Although not intuitive, implementing the ERP (enterprise resource planning) system affects the finance vertical the most: The ERP enforces financial controls, ensures transparency into resources, guarantees the accuracy of historical reporting, and safeguards the risk management framework. Finance cyber security is one of the most sensitive issues I dealt with in my previous CFO roles. Threats involving intruders impersonating company executives to divert payments or purchasing and administering cyber insurance are part of today’s business. And a CAFO is uniquely positioned to manage it successfully.
I do not frequently come across the Chief Financial and Administrative Officer or CAFO title. I often witness organizations working to optimize the costs of financial hires by working to select a high-impact fractional CFO. However, a CFO with excellent administrative and organizational capabilities can be a great win for startup founders, CEOs, and Boards. Strong CAFOs can drive strategic alignment within an organization, provide operational oversight, and drive administrative leadership while enabling the balance of the C-suite the time to focus on strategic leadership and goals.
Aleksey Krylov is a seasoned Chief Financial Officer. He works with life sciences and medical technology companies on fundraising, business development, and M&A.
