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Few jobs offer CFOs more opportunities for putting their skills to the test than working at a PE-backed company. At the same time, few jobs offer more perils.
The skills and knowledge that make a CFO successful in more typical operating environments become table stakes in the PE world, where borrowed capital means the risks are larger, the time to show results is shorter, and the scrutiny from investors is more intense. We sat down virtually with a middle-market PE-backed CFO (who runs the Twitter account MM PE Backed CFO) to discuss their outlook on 2023, navigating relationships with their PE sponsors, and the overall career path into this potentially lucrative yet taxing role.
AlixPartners: To kick us off, we'd be amiss not asking you about the ongoing regional banking turbulence, including the recent implosion of Silicon Valley Bank and the takeover of First Republic. You’re in the tech industry. Was your company directly or indirectly impacted by the recent news? Any immediate learnings or actions you are taking as CFO?
We didn't get caught directly in the SVB issues. But we did learn that a few of our services that bolt onto our enterprise resource planning and provide services like virtual cards, etc. did use SVB. So, we had to look into those dependencies to make sure our providers would be ok, something we will have to do more often as more and more fintech-type apps make their way into the workplace. We did decide to get a presence with a national caliber bank—we used a very large regional bank prior to this. But other than diversifying with more than one bank, no major changes so far.
AlixPartners: Can you give a high-level breakdown of your background? How did you come to be a middle-market PE-backed CFO?
I followed a conventionally non-traditional path to CFO, but my path is similar to a pattern I am seeing more often today. I started in financial planning and analysis (FP&A) at Fortune 500 companies and then jumped to be the first hire (after two seasoned industry executive founders) at a PE-backed management team. We started with significant committed funds ($200M) and no assets, which gave me an opening as an FP&A professional to jump in and do the modeling and due diligence on potential acquisitions. We closed a carve-out and had absolutely zero infrastructure and ~150 employees on day one. The next six months were a crash course in everything corporate finance related. A background in modeling and analytics is increasingly important to being a PE-backed CFO. They want the accounting done correctly but they desire the analytical chops for helping to add value prior to exit. I am currently in my fourth PE-backed company and have worked with funds from middle market to mega-cap and industry-specific growth funds.
Courtesy of MM PE Backed CFO
AlixPartners: More and more, we at AlixPartners are seeing PE-backed CFOs with highly varied backgrounds prior to becoming a CFO – do you need to be a Big 4 CPA -> Controller -> Chief Accounting Officer to be a CFO?
Every PE-backed company that I have led has had a controller position along with the CFO position. Having accounting as the CFO’s core strength on top of a strong controller does not provide a diversity of thought and skill set, in my opinion. Understanding working with data, creating KPIs, and evaluating decisions using financial analysis add more value to an exit than doubling up on technical accounting expertise. I am also slightly surprised how few GAAP accounting questions I receive from boards of PE-backed companies.
AlixPartners: From your experience, what are the key differences working for a PE-backed business versus a more standard family-owned organization?
Pace, pace, pace. In PE, the clock is ticking on the hold period for both the fund and management (in typical hurdle-based incentive structures). This, in turn, increases the speed with which the deal team expects execution within the business. Many of these companies are growing quickly and I often use the analogy that we are changing the tires on the car while driving at 60 miles per hour. There are other differences, too. A big one is the close involvement of the deal team in things like strategy and hiring discussions. It is often a culture shock for a founder or patriarch to suddenly be receiving oversight and feedback on a direct report hire when they were free to make those decisions previously.
Courtesy of MM PE Backed CFO
AlixPartners: To ask it bluntly, how do you survive and thrive as a PE-backed CFO?
There is one key to surviving as a PE-backed CFO. You must have a core of very strong direct reports (1-2) you can rely on. Period. Stop. If you don’t have this, keeping up with the pace and the depth of the requests into the financials will be exponentially harder. A strong team is the prerequisite for everything else: producing reports quickly each month, producing rolling forecasts on a semi-automated basis, making sure you have insight into the numbers, etc. Communication skills are also paramount. The ability to put together 5-6 slides that inform the deal team on what is really impacting the business is a skill not to be overlooked. I see many CFOs that rely on standard board packs and they don’t lead the board to where they need to be looking.
Courtesy of MM PE Backed CFO
AlixPartners: How do you see your peers fail as PE-backed CFOs?
Failure comes in a few themes at the CFO level for PE-backed roles. First and foremost, you must develop a relationship and trust with your deal team. This requires proactively reaching out to them outside of the traditional weekly or monthly calls. I have seen multiple CFOs fail due to lack of a relationship with the deal team. Also, if you cannot deliver fact-based, sober takes on the business you will not be long for this role. If you are too influenced by what the CEO wants you to report and the board gets a surprise related to financials, it’s a bad day for the CFO.
AlixPartners: Approaching the middle of 2023 – how are you positioning your team for recessionary headwinds?
We are evaluating all expenses. Zero-based budget mentality. Nothing is sacred at this point. The challenge of course is to balance that with the ability to grow again once the macro environment eases. Whether the economy goes up or down, being slow to react in this environment is very risky.
AlixPartners: What keeps you up at night as MM PE-backed CFO? (real or imagined)? Why?
At a superficial level? I wish my team would stop formatting whole numbers as thousands and divide by 10^3 instead, I wish they would stop using gridlines and Calibri. 😊 But I digress…. The real thing that keeps me up at night is always needing to drive for insights and finding the time to work on needle movers. Too often, we spend our time producing the results and not enough time digging into the results. It’s a common problem with the pace of PE and working with a lean team, something that I’m sure you as AlixPartners help support to drive real transformative value-creation efforts.
AlixPartners: How do you unplug and step away from the work?
Honestly, this is a challenge. I try to keep one or two hobbies that I can rely on to provide me with an hour or two a day of respite from the emails and the numbers (I play guitar and spend time with my kids). What works best for me is to take and really honor my days out of the office. I do much better not working on a planned vacation than I do at night or on the weekends.
AlixPartners: What’s a potential end goal after MM PE-backed CFO? MM PE-backed CEO? Operating Partner?
Definitely not MM CEO—that’s not the right fit for me. I have experience working directly with deal teams on due diligence projects and I really enjoy that work. After another exit (maybe two), I would really like to pivot to an operating partner role. I enjoy mentoring and providing advice to younger up-and-comers in finance (something I do quite a bit with my Twitter account).
AlixPartners: Well thanks very much for the time and insightful commentary, we enjoyed this mode of interviewing (via Twitter DM), here’s to the rest of 2023!
Thanks very much for the opportunity to connect and share some thoughts, looking forward to what the rest of the year will bring for sure. Take care!
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This interview was conducted virtually via Twitter DM and email over the course of a week, MM PE Backed CFO remains anonymous but can be found here on Twitter: MM PE Backed CFO.