The Bottom Line: Hiring a CFO in 2024

At a time when “profitability” seems to be the name of the game for every company, the CFO role has become one of the most important roles to get right. In this conversation, the Principals of Aequitas - Stephanie Sutsko, Suzanne Chiaramonte, and Kelly McEldrew - discuss the ins and outs of the CFO market, what to look for in a candidate, and their favorite questions to ask.

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Polina: We’re in Q1 2024 and across Aequitas Partners searches we are now seeing more and more Chief Financial Officer (CFO) searches, which means that you’re speaking with dozens of CFOs on a weekly basis. Why do we think that CFOs are all the rage these days? Is this a trend or is this a fad? 

Stephanie: I would say that this is going to be a trend throughout 2024. As investors start to dip their toes back into this market, they’re going to be looking for more financial discipline in the organizations that they’re putting money into. I think that there is a lot of whiplash, particularly given the market conditions last year. We saw this in 2020 with Chief People Officers – I think that year I did eight searches for that particular role – and this feels very much akin to that, where people have to pay attention to the finance function. 

Suzanne: There is just so much more scrutiny now. Investors and boards are inserting themselves more into their portfolio companies’ businesses. And while we see that ripple effect in other disciplines, it is definitely more pronounced in the financial track of an organization. 

Kelly: There is a cautious optimism, but there is also a lot of stress from what 2022 and 2023 gave to companies. Interest rates went up and people had to start thinking about sustainable growth and using cash on hand to help those growth efforts. That takes a very specific skill set of someone who can manage growth, while managing the cost structure. I think more than ever, CFOs are needed to help balance both of those efforts. 

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Polina: CFOs are not a brand new role, but it feels that there has been a shift. What makes hiring a CFO different in 2024 versus other years? Are there any special considerations with which companies are approaching this role today, versus 12 months ago? 

Suzanne: It’s almost as if the CFO of 2024 needs to be an armchair CRO [Chief Revenue Officer]. They need to have had their hands in growth, and not just from a books-balancing perspective, but actually helping the company unlock areas for incremental revenue growth. I hadn’t necessarily seen that in the past, maybe bits and flavors of it, but it seems to be stronger now. I think in the startup world we joke a lot about needing to wear multiple hats, but this particular hat duo is coming up more and more. 

Stephanie: I’ve been having a lot of conversations with CEOs and we talk a lot about market dynamics. In 2020, coming out of the pandemic, there was a ton of investment and during that time there was a rush on deals and there was a real inflation of valuation. But no matter how you slice it, care delivery is a low margin model. Software is high margin, but you need buying power, and during that time a real wave hit health systems and they were unable to purchase. So we ended up with a lot of overvalued companies and their ability to make money went away. And in service delivery, people were focusing on per-incident versus larger subscription models, so mathematically it didn’t add up with all the money that was put in. You had investors who were funding companies saying “holy crap, we didn’t really understand the unit economics here or the growth economics.” At the same time, VCs are telling CEOs to go spend money on growth and the burn rates shot up. 

With last year’s downturn, these companies really need a disciplined CFO to come in and pay attention to all of it – pay attention to burn, while paying attention to growth. So it is looking at all parts of the business to see “how are we going to do this at scale in a way that is responsible and achievable at this point?” It’s really, I think, a reaction to the way the market went. 

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Polina: It seems that there is a lot of burden that’s now being placed on the CFO - basically the survival of the company! We’ve heard a lot of CFOs say that they have burnout. Can you comment on that aspect?

Kelly: Back in 2021 everyone was excited to jump on these wild rides. There was money flowing everywhere. It’s a CFOs dream to be able to come in and have a lot of leeway to help grow a company. Then they got there, and almost immediately that growth came to a halt and their roles were somewhat of a bait and switch. They had to switch to complete cost cutting and, not even maintenance mode, but rather trying to keep the company afloat. Because of that, I am now seeing more and more that CFOs are skeptical of venture-backed companies, specifically those in Series A or Series B. 

What makes it different in terms of hiring CFOs in 2024, is that no one has the upper hand here – the CEO doesn’t and the CFO doesn’t. We saw, a year or two ago, where product and commercial was a very popular function and oftentimes they had the upper hand and companies had to really impress and woo to get the top leaders in. That’s not the case with the CFO, on both sides. I think there needs to be a really clear and cohesive understanding of what the balance sheets look like, where that money is going to be allocated, so that CFOs trust getting back into these earlier stage companies. Because nowadays many are looking for a PE-backed role that is going to be a little bit more of a steady state, not going to be as under the timeline of a certain amount of years to an exit, and with more traction in the market. 

So the burnout is real. I've also seen CFOs just want to take a year off, and come back and let the market play out and see what 2024 or even 2025 would bring in. To Stephanie's point earlier, it is absolutely akin to what a CHRO [Chief Human Resources Officer] was dealing with in 2020. We're seeing the same exact thing here. 

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Polina: To that end, while some may be taking that backseat and just letting the market play out, others are in multiple processes at once. Outside of being a stable organization (and what venture-backed company is?), what company attributes are breaking through the noise to get attention?

Suzanne: I think candidates are hedging their bets and really doing their own due diligence on the opportunity and on the CEO. To your question, specifically, they are looking at that CEO's trajectory - what is their professional background, if the company is still founder-led - and keep in mind different things appeal to different people. Some CFOs really want to be that second-in-command. And some want to just take a step back - still be a functioning CFO, but in a more mature organization where there's a little bit more of a defined lane. I think it's on a per-candidate basis and their level of risk tolerance.

Stephanie: Yeah, I would agree with that. I do think that there is a little bit more focus on the product from CFOs than I've seen in the past. Whereas in the past it was kind of “okay, good investors…I like the CEO..they're figuring it out…” Now, they really want to understand if this company can be successful. Can this product be successful? So that is something that I think is highlighted more this time around. In addition, some are more attracted to having a bit more runway, a little bit more time before they have to go and fundraise. Some people really like that aspect, but if they know that's what you want them for they are going to come at a premium. So, it's balancing what the company is looking for with what the candidate is willing to do, and then what that company is willing to pay for it. 

Kelly: Just to add to both of what Suzanne and Stephanie said, I've heard more and more CFOs this year leaving their company, and the response being, “because I didn't do my due diligence. I should have looked into this more, I should have questioned certain things that I just took at face value.” And these are smart individuals. These are often multi-time CFOs who have been a part of great growth stories, led companies to successful exits, but who happened to join companies in 2021 or 2022. 

So when having these conversations with CFOs this year, they want to talk to board members, people who know board members, people who have worked with the CEO. One of the biggest things that I have heard about doing diligence on a CEO is, especially in software companies, “how does the CEO think about revenue?” Perhaps CFOs were a little bit too trusting on taking the projections at face value and now they are a little bit gun shy to jump into companies without really digging into it first.

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Polina: Suzanne, you brought up a notion of CFOs being “armchair CROs.” We also hear other archetypes “strategic CFO” or “operational CFO.” And sometimes the archetypes are all mixed together. How do you differentiate between the archetypes themselves and how do you guide CEOs on what they should be looking for? 

Suzanne: I think it starts by taking a step back and understanding more about the rest of the leadership team and the CEO's background –  if there's a COO, what the previous CFO brought to the table. Yes, they need a CFO in title, but functionally what role is that person playing within the rest of the organization? You might have a first time founder who came up with a great idea and raised money, but does not themselves have a strong background in operations or how to grow an organization. They are just the ones that have the idea. And if they're the ones that are still running the company, then you do need that really strong operational or strategic CFO to set the tone for the rest of the organization in concert with other leaders on the team. Any search firm that's leading a CFO search or any role at the C level needs to adequately communicate to the candidates, “here's the title, but here's the role you're actually going to be playing.” 

Stephanie: The consistent theme across all of our searches has been experience. The CFO searches that we run are not open to step-up candidates. They want people who have been in the seat before who can do it, who have seen different scenarios in their career, and who can pitch in for the rest of the team as the rest of the company levels up. So whether it's a strategic CFO or an operational CFO, I think most of the time they're a bit combined, which is why we do a scorecard exercise to hone in on what resonates for this particular company. 

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Polina: So what are companies valuing most? Is it domain experience, fundraising, exits? Are we getting really specific within the healthcare domain to differentiate between operating and revenue models, too? Or is it all company-dependent?  

Stephanie: My personal opinion, it's company-dependent.

Kelly: Company dependent. And it depends on what the rest of the leadership team looks like. I think that when working in healthcare, it’s helpful to be in-the-know of what pricing will look like. But I think that what I'm seeing more and more is the requirement for knowing creative capital structures. And they are going to need CFOs who know the right people and have done this before. 

And just going back to the archetypes, Polina, it's the athlete. It's not the strategic or the operational, it's the athlete who can do both. I'm sure Suzanne and Stephanie would say the same thing, but we're not recruiting for a finance leader who's “just running finance.” They are probably going to do a bit of HR, maybe legal, maybe risk, and then working with other departments to help build out KPIs and metrics that can keep them accountable for growth, but also under budget.

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Polina: And to clarify, sometimes these requirements can sound like they're for really early stage companies, but these are for Series C / D organizations. This isn't a company that was formed 18 months ago, right? 

Kelly: Yeah. 

Suzanne: One thing that I see popping up, especially as we lean so much more heavily into value-based care, is the attractiveness of candidates who came up the actuarial track. Maybe they didn't even start their careers in finance per se, but have some mathematical or statistical background and wound up in finance by accident. And I think for many companies now, that could be a very attractive profile.

Kelly: It's also inevitably one of the highest paid positions in a company. Oftentimes they're paid more than a CEO. And with that, there has to be value beyond just finance to justify that price point. I've often seen if they can do the job that's on paper, that can justify a certain price point. But if there is some opportunity to bring in a “CFO-plus,” so to speak, if they have had other domain experience or other upbringing outside of just finance, that’s another price. 

Suzanne: That should be the title of the novel, “The Accidental CFO.” 

Stephanie: The one thing that I'm wondering is when healthcare will start to open up in this function to look beyond healthcare to other industries a bit more. I spent six years recruiting in high-tech and telecom and all other industries, and it took a while to get to that point. But when they did, it opened up a lot of opportunities with new candidates, new ways of thinking. Particularly because at some point, you’re going to deal with non-competes and this industry is still pretty young. I think we're starting to see it a little bit where as long as somebody has touched healthcare at some point, that's okay. And I am wondering when that's going to open up because this is a function where it could. 

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Polina: It seems like the domain side of the house has just become so imperative that I wonder whether we're over-rotating or it’s just a bias because companies want us to find the “perfect candidate.” 

Stephanie: It is both. I think as an industry there’s a bias. But there are people who have phenomenal experiences who could pick up the industry quickly. These are really brilliant people whose experiences hold enough weight that any investor or potential acquirer would look at that pedigree and say “this person knows what they're talking about. They know how to run a company.” It doesn't matter if it's healthcare or not. Healthcare's a hard industry, but it's not the only hard industry. 

Suzanne: You won't get any arguments from me. I am a big believer in cross-industry learning. I'm always citing this case study from the 80s when Apple hired John Sculley from Pepsi, which made no sense because he didn't know computers, but he knew consumer behavior. And look at where Apple is today. 

Kelly: It's like a Catch-22. Companies want seasoned CFOs. Digital health is not that old of an industry. So we hear all the time, “we want CFOs that have taken a company to exit multiple times… and they need to have digital health experience.” There's maybe ten CFOs out there who have done that. And that creates a very limited universe. So I think whether they're open to it or not, there's going to have to be some flexibility around experience, industry, or level. And I think that companies will flex more on industry than they will the experience. 

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Polina: When you interview a CFO, outside of the top level metrics like revenue and margins, what are the top things that you listen for? 

Stephanie: They should know their numbers at the tip of their tongue. One of the things that I like asking is, “What would you have done differently?” And to see how self-reflective someone is and see how humble they are. I follow up with, “Who did you collaborate with to solve the challenge?” 

Suzanne: I will deliberately ask, “What was something new you learned in that job? It might have been your second time as a CFO, but no doubt you picked up a new couple of tools. What were they?” I'm just trying to understand whether this is somebody who does their job by rote, or do they absorb things around them. That lifelong learner archetype. I don't think, especially in the early stage universe, you'd find a CEO who would shy away from somebody like that. So if you can highlight that and have the evidence to support this is somebody who relishes learning new things and is happy to show them off, that winds up being an ace. 

Kelly: For me, it's digging in a bit more into the CEO and CFO dynamic. I like to ask, “Tell me a time where you and the CEO disagreed and how did that result?” You can often get a really good understanding if a CEO and CFO had a united front, or if there was a CFO who ultimately was not as collaborative as they may have seen. Obviously, a CFO is in a very unique situation where they have a fiduciary obligation to the investors and to the company. But I think with hiring CEOs want to make sure, especially if this is a first time CFO for the organization, that they're going to feel supported going into a Board meeting. They're going to feel like they're on the same page with their number two or their partner. And if there's any sort of contention there, I think that can create a really inherent dynamic, especially for founder CEOs. 

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Polina: Thank you for all your insights!