A recent spat on Twitter and an incredibly annoying PowerPoint presentation have once again thrown the role of a quality financial director or team “money manager” into the spotlight at start-up firms. Once again it’s the numbers guys wrongly being given the cold shoulder.
First the PowerPoint presentation from a tech start-up event. Presented by a self-described entrepreneur at a venture capital pitch, he delivered 20 slides – which I am near-certain had 27 different business plans on them – and lots of talk about how he was the strategic vision for a business and he hated being constrained by numbers people who are “constantly focused on things like profit”.
The second was an interaction on Twitter between South African born entrepreneur Vinny Lingham (who recently sold his company Gyft to a major US player), media entrepreneur Matthew Buckland, entrepreneur Richard Mulholland and venture capitalist Andrea Boehmert.
Mulholland jumped into the debate when Lingham was quoted in a media interview with Ventureburn as saying South Africa didn’t have a lot of entrepreneurial success stories.
Boehmert took issue with Lingham saying: “Bankers and finance houses are managing the money: the pencil pushers and spreadsheet guys don’t understand the entrepreneurial process and how to build businesses. So when they look at these businesses, they don’t understand and don’t ask they right questions or get the right conclusions. They don’t have the balls to put the money in and take the risk.”
In both cases, it has been presented that “pencil pushers” are the ones holding the entrepreneur process back and I believe that is incorrect.
As Keet Van Zyl, who works with Boehmert, commented on Twitter:
I just love the smell of pencil pushing in the morn while making zero IRR on 4yr exits & hacking business building! ☺ http://t.co/ZYwGB8WdCr
— Keet van Zyl (@KeetvZ) August 19, 2014
The problem with many businesses – particularly technology start-up businesses – is that they never develop a real internal rate of return (IRR) target and then the entrepreneurs behind the process get obsessed with “building stuff” and don’t focus on building an asset of value. An asset of value is something that you can transfer, most specifically something that generates cash and profits.
In both cases above, it is intimated that “pencil pushers” are not the ones who are going to generate either cash or profits for the business and I think this is unfortunate because I’d argue they are in many cases the most likely to do so.
Instead of viewing your chief financial officer (CFO) or financial director (FD) as a “pencil pusher”, you should be viewing them as one of your most important assets. A good CFO will find you affordable capital, optimise your cash-flow, tell you how to price your service and ultimately show you how to deliver an IRR that makes your hard work, as an entrepreneur, pay off. But we need to treat them as such.
One of my favourite people to follow on Twitter is Paul Maughan who contributes to the University of Cape Town (UCT) accounting faculty and having spoken to a number of the people who have done his courses, they report back that one of his strengths is that he doesn’t allow his students to be classified as pencil-pushers – they are there to create value.
It is probably an unpopular comment but a big part of the astronomical valuations being assigned to global technology businesses at the moment is that there is a lot of easy money floating around in the global marketplace and there are billions of dollars of venture capital money floating around. Unfortunately that party is coming to a close now and the good CFO is telling you how to present your business where you will qualify for the best valuation. A CFO primarily has three levers to create “value” – cash-flow, profits or to a lesser degree intellectual property.
My conclusion for SA venture capital players and entrepreneurs who are hitting up the VCs for money: Stop knocking the CFO profession – you are going to need the best of them in the next few years.