Inspiration

I am Co-Chair of San Francisco Court Appointed Special Advocates (www.sfcasa.org) and recently had the honor of presenting Dr. Milton A. Gordon with the "Award for Outstanding Service to Children and the Community" for his diligence and determination in supporting the Guardian Scholars program. The comprehensive program offers aid to former foster children striving to continue their education in college.

Dr. Gordon is the President of California State University, Fullerton, where he has been successful building a broad variety of important academic programs. Most pertinent to SF CASA, Dr. Gordon began a program called The Guardian Scholars in 1998 with a total of 3 students. Today, the program has expanded to 20 colleges in California, Washington, Colorado, Indiana, and Massachusetts and has served hundreds of former foster care youth in quest for higher education and a better future.

The Guardian Scholars is a comprehensive program that supports former foster youth in their efforts to gain a college education. As wards of the court, foster youth emancipate at age 18 and are forced to make difficult transitions to adulthood--often without traditional family support. By awarding full scholarships, the Guardian Scholars program provides the opportunity to change individual lives and make dreams come true.

Meeting Dr. Gordon and spending time with him was a wonderful reminder of how much difference one person with passion can make even in the most intractable situations. As a long time board member of SF CASA (and Dallas CASA before that) I know how tough it is to marshal resources for children in foster care.

Oh, and if you are inspired, you can donate to SF CASA at https://npo.networkforgood.org/Donate/Donate.aspx?npoSubscriptionId=1000211

Alas, poor Yorick! I knew him, Horatio...CFO turnover...

A recent conversation with Ken Sargent of the local Tatum office (a high end financial services firm) got me thinking about executive turnover and more specifically CFO turnover. My personal experience is that the rate of turnover has increased over the past decade.

My world is typically companies of <$100M in revenues and data for this group is hard to come by. Heidrick and Struggles reports that almost 25% of Fortune 1000 CFO slot’s were open at some point in 2007. Tatum predicts continuing acceleration in CFO turnover as well.

Why is this, and what does it say about what's happening in corporate America?

My sense is that the increase in turnover is driven by two fundamental forces: (1) an increase, and change in the nature, of the demands on the CFO, and(2) a general loss of patience by boards and investors (which will drive turnover amongst all classes of executives).

Perhaps uniquely, the CFO's role reflects the increasing complexity of the business world. One of the best things about the CFO's gig is having insight and responsibility into all aspects of the business--this upside may now be becoming a liability.

Traditionally, CFO's have been responsible for accounting and finance and frequently for HR and legal. As the overseers of corporate assets today's CFO's often have at least some responsibility for:

1. International activities--which were rare in smaller companies a decade ago and increasingly common today.
2. IP and IP strategy.
3. IT and technology spend.
4. Serving as the CEO's business partner on a broad range of strategic and operational issues.
   

Traditional CFO responsibilities have simultaneously become more complex: Accounting has come to include activities as SOX, IFRS, 409A Valuations, and Fair Value Accounting. Risk management and legal cover increasingly difficult issues in HR, business development and contracts, and regulatory compliance. Board level and audit committee interactions are more formal. Auditor relationships are much more difficult. And budgeting and reporting have become more complex (though not always better) as a result of the availability of more sophisticated tools.

These increasing demands have arisen during a time in which companies are under constant pressure to enhance returns and manage costs. And most CFO responsibilities represent overhead costs without obvious positive ROI.

In this environment, it isn't surprising that CFO turnover is up. The job is harder, the expectations higher, and the resources available have not kept up. My guess would be that this is especially true in smaller companies where "best practices" goals trickle down from larger public companies.

The costs for both employees and companies is obviously high. Executive turnover is always a major corporate event and if the turnover was proceeded by a period of executive ineffectiveness (often implied by turnover) the costs are magnified.

Is there a solution? Probably not. But there are some areas that can be addressed.

If corporations believe that "people are our most important asset" then allocating sufficient resources to prevent burnout would be a good step. Concretely, companies might consider hiring appropriate specialists such as General Counsels and FP&A professionals earlier.

Reasonable expectations would also help. As an example, 20% of the job descriptions I see for early stage companies call for CFO's to create "SOX compliance" even though the likelihood of an IPO if very low for most companies.CFO's should be clearer about the cost/risk trade-offs they face daily. Educating stakeholders on the tasks they face and the costs of those tasks can mitigate demands for doing more with less.

Ken Sargent suggests looking at the CFO's function as the "Office of the CFO". The implication being that corporations and boards shouldn't expect a CFO to have all the tools to manage an overgrowing work load and that outsourcing specific skills can be effective.

All this said, for the right person the CFO's seat remains a great place to be. The requirement to be conversant in all aspects of the business, the board visibility, the diversity of tasks, and the opportunity to make a difference, are all great draws.

Still Betting on Tech

There has been significant (and accelerating) controversy regarding potential growth rates for the technology sector. Tech spending has grown faster than the economy as a whole for the past several decades--the key driver for significant wealth and employment creation.

An amazingly frustrating experience got me thinking about these issues: Last month my website and email went down due to still unexplained problems at my web hosting company. I was traveling for business, couldn't get or receive emails, and was forced to spend hours on the phone with tech support. As a small business user my web hosting needs are modest (no transactions and relatively light traffic) and the support available at $9.95 per month is minimal. The problems continued for a full five days despite multiple daily 60-90 minute calls.

Homicidal, I used Google to identify the hosting company's board of directors via state filings. I then called each of the directors, explained the issue, and told them that I would continue to call daily until the problem was resolved.

Late on a Friday afternoon, I received a call from the company's counsel with the head of tech support on the line. The problems were quickly resolved.

Other than Google's ability to help me identify the board, this sounds like the kind of headache that would cause any sane person to avoid technology at all costs.

But there is another and more provocative perspective: Much of the growth in the US economy comes from small to mid size businesses and these entities need access to technology that works. At infoUSA.com we served the SMB market and I discovered how expensive it is to reach and service these companies. The only cost effective way to do so is to provide intuitive and close to zero defect products and services. For vendors serving the SMB market, the smaller size of the transactions (my $9.95 monthly fees) means that customer service, warranty, and other post-sale costs kill profits.

How does one achieve low/no zero defect products? Technology. Engineer things to be great from the start, make the upfront investment in things that work, and minimize the likelihood that human intervention will be required.

If my former web hosting company had gotten the technology right the issues would never had arisen. And if something had come up and their customer service reps had had better access to information and tools (which would have to be driven by technology) the fix might have taken minutes rather than days. Though if I'd stayed with them I'd have become a highly unprofitable customer.

The poster child for making cost-effective technology work has been Toyota. Herein lies a key caveat: Toyota has been able to produce zero defect products at lower prices due in part to scale. Scale is advantageous in justifying the upfront investment in great technology. Conversely, Toyota's superior technology has been a key driver in their obtaining scale.

Yahoo! and Microsoft. Yahoo! as losers?

Much of the press around the MSFT offer for Yahoo! has a dirge like quality reflecting a sense that one of the Internet's most important and creative companies has become road kill. The size of the initial offer, $31 per share and $44.6 billion, got me thinking about how big the losers at Yahoo! really are.

Since Yahoo!'s IPO in April 1996 its stock is up approximately 1,500%. Over the same period the S&P 500 is up about 15% and MSFT about the same. That said, during the height of the bubble, Yahoo!'s stock was up approximately 9,000%. Nonetheless, an impressive performance.


Even understanding the emotion around Yahoo!'s potential sale, and how it reflects Google's dominance in search, it's a bit hard to see this as a poor performance.

On the question of whether a Yahoo! MSFT merger will work my vote is no. The cultures are extraordinarily different and MSFT has historically been a 2nd tier Internet player--the area for which they need Yahoo!. Putting together the two struggling entities and expecting a positive result when Yahoo!'s management confronts the bulldozer Gates/Ballmer team sounds like a loser to me.

Corporate Culture. It's Always Management

I recently had an enjoyable dinner with Tim Enwall, Founder and COO at Tendril Networks in Boulder, CO. Tim asked what I thought the requirements were for a successful corporate culture in an earlier stage company.

My first thoughts centered around a piece of advice I got from a great VP Sales when discussing why our company was struggling: "It's always management." With that as a basis, here is my list:

1. Ambition. Since it's not a job, it's an adventure. (Sometimes a stomach-churning 2:00 AM adventure).
   
2. Flexibility. What worked yesterday won't necessarily work tomorrow.
3. Self confidence. Not because confidence fuels ambition but because it facilitates listening.
4. Self awareness. An HBR article on authentic leadership clarified some thoughts I'd had on this topic. Self aware leaders, and cultures, are able to consciously shore up their weaker areas and thereby create the foundation for longer term growth.
   
5. Common sense. Well yeah, common sense is a an obvious requirement. But history, organizational issues, and personalities get in the way (see #'s 1-4 above).
   

For me, these can be distilled into the key to creating a successful culture in any rapidly changing company: One must foster the difficult balance of simultaneously holding two opposing ideas in mind. The team has to really believe that the future is going to be great and maintain a realistic view of the challenges facing the business.

Every early stage company has some drama and theater. Even successful companies encounter near-death experiences. Finding a balance between paranoia and complacency goes a long way toward getting past those times.

Novels and Meetings / Novel Meetings?

I recently discovered novelist Eliot Pattison and a series of mystery novels he authored which take place in Tibet. The books are both excellent page turners and thought provoking. (And currently infuriating, as a reminder of the Chinese invasion of Tibet). That aside, I was drawn to Pattison's description of Buddhist monks dealing with challenges and their focus on living in the present.

Originally, I found myself contemplating the importance of being present for my children, who are 5 and 7. Anyone with kids knows that it can be tough to stay focused in the midst of overburdened schedules and too many priorities.

The more I thought about it the more it seemed to me that the same principles should apply to work relationships. Great businesses are built by great teams--which require great communication and mutual respect. Picture a meeting with participants half focused, doodling, and sending email via BlackBerry's. If business is all about people than being present seems a good place to start.

Why I hate Excel

A fundamental question: What is Excel? Seems silly, no? Isn't Excel a technology-based tool for helping to answer financially focused business questions? For running scenarios and what-ifs?

Excel does all of these things and over time has become increasingly powerful. Some decent data management and reporting tools, easy synchronization to QuickBooks, and all the statistics a business user could want.

So why do I hate Excel? It's not the tool itself but the impact it can have on decision making. There is an addictive quality to creating spreadsheets--almost like gaming. Spreadsheets have gotten increasingly complex and with every additional tab, link, and pivot table, potentially further from the reality of how business operates.

Energy gets burned on discussions of whether the assumption of gross margin or number of inventory turns is "right" ten quarters in the future. Decisions about how to advance the business take a back seat to the next Excel iteration. Late nights before board meetings are spent getting the model tweaked to perfection.

Obviously financial analysis is key to good decision making. But Occam had it right. For most businesses there are a handful of activities that drive success or failure and attention to those drivers always trumps time spent with spreadsheets.

Financial analysts of the world unite and throw off your chains! Take a customer to lunch!