Hiring a Head of Finance at an Early-Stage Company

Siem Reap Province, Cambodia; photo by the author

I met recently with the founder of an early-stage SaaS company that’s looking to hire its first head of finance. The founder asked me for advice on what to look for when evaluating candidates for the position. What are the most important attributes for candidates to have, the founder wondered, and how can you test for these attributes? Here’s how I responded.

Hire Someone Who Understands Your Business

Too many CEOs think of the head of finance position in narrow terms: keep the books, make sure we get paid on time, and respond to information requests in a timely manner. So long as you can do these things, it isn’t important for you to know the market all that well.

This way of thinking is flawed. A head of finance should be a strategic partner to the founders and executive team. A person can’t lead financial planning effectively without a deep understanding of what influences the business. And as a founder or executive at an early-stage company, your tolerance for a colleague who doesn’t “get it” will be limited, to put it mildly.

Candidates for the head of finance position should be held to the same standard to which you’d hold candidates for other functional leadership roles (product, sales, marketing, etc.), namely:

• The person is passionate about the market, company, and product.
• The person is capable of articulating the value that the company and product brings to customers.
• You’ll be comfortable putting the person alone in a room with a prospect or customer executive sponsor.

If any of the above doesn’t hold true for a candidate, he or she isn’t the right person for the job.

Hire Someone Familiar with SaaS

It’s easy to forget that we’re still in the early days of SaaS. As a result, many of the candidates you’re likely to see for the head of finance position come straight out of business school, or are working for one of the big four accounting firms. I haven’t seen either of these cohorts make for good early-stage head of finance hires. There are two reasons for this:

• The metrics for subscription businesses are different than those for non-subscription businesses. You want your head of finance to be an expert on the metrics that matter most to your business and can’t afford to wait for him or her to learn them on the job. Most people become expert in subscription metrics by being on the inside for a number of years.
• Salesforce CRM probably is the lifeblood of your business. You want your head of finance to know how to use it well. Similarly, your financial plan is probably in a Google Sheet. You aren’t ready for expensive and complicated financial planning software, and you don’t want to use Microsoft Excel, either. The learning curve to be proficient with Salesforce CRM and Google Sheets, which are decidedly less common outside of SaaS, is steeper than you might imagine.

My preferred method of testing for command of subscription metrics is to ask candidates to walk me through how they’d calculate the company’s customer acquisition cost (CAC) ratio. This metric is deceptively complex and you can learn a lot about candidates from the questions they ask, what they include in their explanations and, importantly, what they omit.

I usually gauge Salesforce CRM and Google Sheets proficiency by doing a show and tell and watching the candidate’s reaction. Although hardly scientific, I’ve found this to be an effective smoke test.

Hire Someone Who Can Educate the Team

Many founders and executives don’t have a strong grasp of corporate finance; when given an income statement or balance sheet they don’t know where to start. In my opinion, this is a make-or-break skill for executives. That’s why I always ask head of finance candidates how they’ve educated their colleagues successfully in the past. You can’t expect every functional head to be an expert modeler, but you can expect your head of finance to be an expert modeler and to be an expert guide for the rest of the team.

My favorite way to increase everyone’s level of corporate finance knowledge is for the head of finance to issue a monthly written financial report providing management discussion and analysis of each key metric, including actual performance versus plan and month-over-month and year-over-year change. This report can serve as the basis for the first executive team meeting of the month, which the head of finance can lead.

I have tremendous respect for capable heads of finance and have seen firsthand the difference they can make. Hopefully this post has given you some ideas for how to hire the right head of finance for your business, and how to get the most value out of his or her work.