A friend of our firm, Jeff Horine, wrote a very interesting article that we would like to share and add our commentary to. Jeff is an experienced CFO and turnaround expert. The article he wrote reflects lessons learned and common threads of turnaround situations he worked on. To read Jeff’s article (a 5-minute read), please click here.
Having been involved in a few turnaround situations ourselves, and with dozens of client engagements across various industries, we have seen some of the same predictors of failure or success, and a couple of others worth mentioning:
1) The lack of a strong number 2 on the team.
To Jeff’s point, the lack of a strong number 2 person on the team (or the Conscience of the CEO, as he calls it) makes it very difficult for a company to succeed and realize its true potential in the long run. Diversity of thoughts and the open debate of ideas invariably bring out the best solutions and strategies, which are key to maintaining sustainable, profitable growth. Having this sounding board, both internal (CFO, COO) or external (board of directors or advisors, CEO peer group), will invariably make the CEO better at his/her craft; improve decision making; and lead to superior financial and operating results. So, if the competition has a strong number 2 in place and your firm doesn’t, they will likely outperform yours.
2) GroupThink / Yes Culture.
When everyone is drinking the kool-aid, the blinders are on. While having a strong company culture and being proud of one’s accomplishments are a good thing, the danger is that it leads to GroupThink and corporate myopia. Unfortunately, we have come into a number of situations where it was obvious for any experienced outsider that the company had the wrong strategy or product, or that what worked in the past would no longer work in the future, and yet no one inside would see it or admit to it. To avoid this, build a strong culture that is keen on innovation, fresh and new perspectives. It is important to embrace the notion of “Fail Fast / Fail Forward”. Recognize when things are not working, learn the lessons, fix the problem and build a better solution.
3) A weak Marketing or Finance Function.
- SMEs often have little sophistication or strategic thinking in the key functional areas of Finance and Marketing.
- SMEs often underinvest in Marketing, and therefore don’t get to fully monetize the potential of their products or services. Marketing is equal parts art and science, and the trial and error involved in refining one’s strategy can be frustrating, and expensive. Effective Marketing typically (i) utilizes more than one channel (e.g., digital, TV, print, etc.); (ii) takes time to produce results and (iii) can be hard to determine the ROI (except for digital). However, if you have the ambition of growing your business significantly, you simply can’t rely only on word of mouth, referrals and personal connections. These methods typically don’t scale. And that’s where Marketing shines.
- SMEs also are lacking in the Finance function, which can be very costly and dangerous as they look to scale-up. A weak Finance function typically results in: poor resource allocation; bad investment decisions; no financial discipline on pricing decisions; cash flow problems; bad deals on debt and equity financing; and ultimately a lower valuation at exit.
In our experience, a fractional CFO or COO can effectively play the role of the strong number 2, perhaps even more so than a full-time executive. The reasons include:
- The fractional executive’s livelihood does not depend on any single client, which would naturally make them more inclined to challenge the thinking of the CEO and give the CEO their unvarnished opinion;
- Fractional executives are both insiders and outsiders. As such, they are a lot less likely to suffer from GroupThink or tunnel vision;
- Fractional executives are often very experienced, having worked across a number of industries and companies or having held other C-suite positions. This helps expand their creativity and problem solving capability.
To learn more about how Venture Growth Partners can help you turbocharge your business through our fractional CFO and COO services and our capital raise and M&A advisory services, please schedule a free consultation by filling out the form below.
