Payroll

I had a TechCXO partner meeting last week.  I always learn a lot at these and this session was no exception.

One of my colleagues who is a long-time CFO told us about a rule he had in his companies about people who see payroll data.  Which is: you cannot get another job here that doesn’t involve payroll.  Once you see how much everyone makes, you either stay in that role, or you have to leave the company.

This seemed extreme when I first heard it.  But the more I consider it, the more sense it makes.

In truth, many build stage companies trust this extremely confidential information in the hands of office managers who double as the people who “do” HR, which includes running payroll.  Few of these people have bad intentions.  Many are inexperienced.  And not many things blow up culture faster than exposing this information in the wrong way.   Once that toothpaste is out, you cannot put it back in the tube, and it is very difficult to clean up.

So, today I plan to have a reminder conversation with everyone who works with me and handles payroll data.  Not because I don’t trust them – mostly because once you’ve seen this information a thousand times, you can lose sight of how sensitive it really is and how important it is to keep it confidential.

On a related note – another build-stage company payroll risk I frequently see is the “single press of a button” problem.  Meaning, one person can both enter payroll and submit it without an approval step.  I understand why this is tempting in the early stages, and yet: it is a really terrible idea.  (The same goes for bill pay and especially wires, by the way).

Systems like TriNet and ADP actually make it hard to do an approval step in their PEO implementations, which I don’t really understand.  That said – always put in a second pair of eyes on this.  That pair of eyes too is probably bound by the same rule that my partner puts in place: once you see payroll, you can never go back.

Radical Acceptance

There is a concept in Buddhism called ‘radical acceptance’, where you accept something as it really is without struggling against it. For example: you realize that you are running late for a meeting and further that you can’t do anything about it. The next thing that usually happens is stress, which is a useful input but not particularly helpful. Better to accept that you are going to be late, not worry about something you can’t change, and then act appropriately.

I bring this up in a blog about build stage companies because recently I have seen a lot of struggle against things that would be better accepted. As a CFO, I get a fair amount of ‘can we make the numbers say X?’ I resist this every time because sometimes, accepting that the forecast isn’t that good is the first step in making change. The corollary to this, which I have also seen, is the investor who doesn’t quite believe the numbers and wants to triple-check them because they show less cash, sales or progress than expected. Sometimes the results say that performance isn’t good. Accept it, and then help the team figure out what to do about it.

Often I help manage the HR function. Another example of where startups rarely exhibit radical acceptance is in how they deal with underperforming employees or those who can’t keep up with the role they need to play as the company evolves. Procter and Gamble can survive this. Your build stage startup cannot. It hurts to realize that a member of your team is not working out. This is painful – but pain is a helpful stimulus. What is unhelpful is suffering, which is self-inflicted. Keeping an underperforming member of the team in a critical role – and in build stage companies, every role is critical – causes suffering for everyone.

My apologies to the true Buddhists out there as I’m sure I’ve butchered this teaching somewhat. I accept that.

Accounting and finance people

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, let me add another one about accounting people vs. finance people.

As someone who became a CFO having never been either, this took me some time to figure out.

Accounting is about portraying the past as accurately as possible. Debits and credits. Extreme attention to detail. Process. Tying out pennies. Having the equity roll work exactly a certain way. On average, this attracts a certain personality type: precise, introverted and someone who operates well at ground level. This kind of person is absolutely essential and vital to have in any business and especially one that is growing quickly. They provide the data for the early warning systems. They strive to eliminate ambiguity.

Where I’ve had to adapt is in describing how the output should look and what it all means. I can look at a balance sheet and quickly tell if something doesn’t make sense. Deep in the weeds accountants, even really good ones, most often cannot. Frequently this has frustrated me; when I get a statement that can’t possibly reflect reality, it makes me doubt the accounting that was behind it.

Although sometimes this is right, I’ve had to unlearn this reflex. That’s because this is finance. Finance is about making sense of the results, communicating them, and trying to predict the future. It’s about a lot more than that but this is it at its heart.

Finance people, of which I am one, often lack the patience for accounting. It’s a little more right brain than left. Yes, you need the skills to build a pivot table or a model. First though, you need to know what you are looking for. Ambiguity is your friend. This is the part that CFOs are good at, or should be. That mindset is very different than being particularly OCD about the accounting for stock-based comp.

Over time I have learned to appreciate both and tried to adapt in particular to working with skilled accountants. I respect what they do, and know that I couldn’t do it. I hope that they can appreciate what I do as well.

Time kills deals

I’ve been in the middle of a lot of transactions: fundraisings, M&A, partnerships, and deals within and across divisions of the same business. They all have one thing in common, which is that they are not done until they are done. More and more, hiring is becoming a high-stakes transaction, and it too is a perishable one. Put another way: time kills deals.

It kills me when people celebrate prematurely on deals. So much can go wrong between “almost there” and crossing the finish line. People leave companies. New management or investors can have new priorities. The market can shift. Fashion changes. Employees or other franchisees can do stupid things. Cash becomes more scarce, or if you are the one looking to invest it, the your target company may rethink if they need it. Geopolitics have killed more deals than I can count.

This is why I give transactions very high priority in juggling different clients. If I have one raising money, those phone calls get priority. I sometimes have to juggle a lot of things around for this (it’s one reason I hired an assistant). The others know that when it’s their turn, they’ll get the same treatment. I suggest that when you’re in deal mode, you do the same and insist that your advisors do as well.

Company holidays

Tomorrow is Thanksgiving, which it seems is one of the few days of the year that anyone not affiliated with public service, the NFL, or the Macy’s parade is not working.   Maybe I should include retail in there because of the unfortunate trend of stores open on this holiday.

A few notes on holidays in the build-stage company world.  This is especially relevant now as many of my clients are setting up their 2019 Holiday Calendars.

First, which ones?  Although I’m a CFO, I am in favor of giving employees off for the day after Thanksgiving.  This is a holiday about being together with family, which for many of us, means travel (or that people have traveled to spend time with us).  Because I’m in the Boston area, where you can count the number of nice-weather months on one hand, I also believe in either the day before or after July 4th, depending on how the calendar falls.  This is not a day when a lot of productive work gets done, and it’s early both in the month and the quarter.

The same goes for January 2nd, although not necessarily for December 31st, which often is the mad dash to close the quarter and year.  It can be a stressful and fun day to have everyone together driving to a common goal.  Better still if you’ve hit your numbers for the year and can give this day off as a bonus.

Then there are the holidays which are commonly considered optional: MLK Day, President’s Day and Veteran’s Day.  I’ve seen companies decide different things about them.  The markets are closed, as are schools, but I think many companies tend to be open and functioning fully on these days.  Good Friday is another example of this.

Again, I am in favor of having these as days off.  I think it’s important to recognize MLK, our democracy, and our men and women in uniform.  Easter is an important day for many people, and a time for family.

A related question relates to the Jewish holidays in the fall, or Passover.  When I was young, I always found it a little unfair that my holidays (especially Yom Kippur, which I dreaded for the fasting part anyway) required me to take vacation days, but Christians had off for Good Friday and Christmas.  I got over that though.  This is what float days are for, and besides, when I was young I didn’t need to take days off to take care of sick relatives or children.  Now I appreciate more how important that was.

Another reason I favor more holidays is that many people work on their days off, and/or don’t take all of their vacation.  Time off is very important.  I know that is not a common utterance from many CFOs.  But it’s true – if you don’t a recharge a battery, it not only runs down, it loses the ability to be recharged.

So, even highly motivated build-stage startup employees have to take time off.  And sometimes, you have to force it.  The holiday calendar is one way to do this – and by the way, set yourself apart from other startups competing for the same talent you are.

Have a Happy Thanksgiving.