2 kinds of people, analyst edition

In an earlier post, I suggested that there are 2 kinds of people in business, those who have the money and those who need the money. I stand by this oversimplification. To it, I added another about accounting people vs. finance people.  I stand by this one too.

Let me add another: analysts and operators.

Generally, operators make things happen in the present, and analysts look at the past in an effort to predict the future.  Analysts often say they are really “operators at heart”, which might be true, but they almost never are operators in practice.  Operators know how to get sales comp plans published, manage a hiring funnel, place ads on the MBTA, use LTV/CAC to make marketing decisions today, implement a travel policy, blow out a pipeline to make a quarter when it’s desperately needed, perfect a cash conversion cycle, time product introductions, make a hire when no one else can recruit… you name it.

Analysts can’t do many of these things.  What they can do is look at a dizzying array of data on the business and figure out what is really going on, and what that suggests about what might happen in the future.  Most importantly, they how to tell the story, and because they are not in the weeds about, say, comp plans, they can stay big picture and compare the right broad metrics across companies, or industries.  The part they play is not more important – but as a company gets bigger, it becomes at least as important.  It is challenging to be a very effective operator and a good analyst at the same time.

Over a drink many years ago, a colleague I respect suggested that I had to choose between being an analyst (which I think I was then) and an operator (which I think I am now).  I like to work with build stage companies where making things happen is valued over broad-based analytics, so this suits me well.  In raising money, you need just enough analyst so that you can point to broad metrics, but much of attracting and closing captial is about managing a process and a pipeline.  I still have some of this DNA as well even if I don’t work these muscles as often as I could.

In a few of the companies I work with, I collaborate with Board members or advisors.  In almost all cases, they like to say that they are entrepreneurs or operators at heart.  (Note: maybe they are, but if you’re a venture capitalist and not a founder of your firm, almost by definition you are not an operator.  Self-awareness is important).  The best ones collaborate by providing a view across similar businesses or industries using data that the management team already has.

Put another way: effective (and self-aware) analysts paired with effective (and self-aware) operators make a great combination.

Feature It

Generally speaking, as a CFO you have 2 types of bad news to deliver.  The first type is where there’s a blip that you should report, but you and the CEO are pretty convinced that it’s not worth a long navel-gazing session with your investors.  A simple example that falls into this category is higher than expected G&A spending because your law firm forgot to invoice you for 3 months and you didn’t remember to accrue for this.  So, yes, it makes the numbers look worse than they really are, but if you can present the numbers in a way that doesn’t highlight this in bold underlines, that’s probably all for the best.
The other type of bad news is something that is impossible to hide.  Many CFOs are tempted to do this.  An example: new SaaS bookings are way behind even though the revenue curve for the current month or quarter is fine.  Quota deployed against bookings goals is way behind.  Hiring got away from you and you suddenly added 10 people when the budget called for 3.  You had projected cash lasting 18 months but now it sure looks more like 12.
If this happens, don’t hide it – feature it.
Meaning, present the financials as you normally do, but highlight the miss and make it front-page, bold-type, and unmissable.  Make the discussion about the bad news.  If you have conscientious investors who want to help you find solutions, they will.  In the closed-door executive session, they might have less-than-generous things to say about the company’s or management’s performance.  That’s fair.  Let them have that discussion instead of the one about why they had to uncover issues through forensic analysis because you tried to gloss over or hide it.
The same general rule of thumb goes for sharing numbers with your CEO.  Some bad news should be featured, early and often.