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.

What CFOs do

Often I am asked what a CFO does. Usually this happens with a smaller (build stage) company that doesn’t have one, or has hired a part-time CFO who mostly focuses on being an excellent controller. There is nothing wrong with this – but it’s different from what a CFO does.

In build stage companies, CFOs first and foremost help predict and manage cash. This means some level of forecasting of the future (finance) which controllers can but don’t often do.

Side note; CFOs are not credentialed, unlike (say) licensed service providers like plumbers or electricians, so it’s not surprising that many controllers hang a shingle and call themselves CFOs. Some are excellent. Some manage that transition less well.

CFOs also help drive understanding and optimization of unit economics. In retail, this is almost always on a square foot basis. In staffing, it’s on a per hour basis. Getting to this point requires some insight and continual honing. CFOs should be good at constant, incremental improvement and knowing how to fine-tune what comes out of the accounting function. The result is that they should be helpful on the top line, in addition to managing costs.

Finally, a CFO needs to be able to build a team. I use the term ‘team’ expansively as this includes not only employees and contractors, but also insurance brokers, lenders, auditors and outside accountants, systems gurus, benefits experts…. on and on. Litmus rest: If you are taking to one of the top growth company lenders in town, a CFO probably will have them on speed dial already. This is part of what you are paying for.