Veteran CFO Criss Harms guided ForeScout, a 20-year-old company, for nearly eight years to and through its IPO from 2013-2020, where he helped scale the business with people, systems, and processes. Having traveled the entire start-up journey, Criss has key insight and experience concerning CFO leadership and strategy.
This week, Criss joined The|Circle to share his CFO ‘scar tissue’ with his peers in another installment of our “Ask Me Anything” Circle|Calls series. Answering questions from an intimate group of his fellow CFO|Circle members, Criss discussed some CFO best practices, from the CFO’s role in the IPO process to general operations strategies.
Here are the key takeaways from our conversation:
General CFO Perspective & Best Practices
To begin the conversation, Criss shared a parable to illustrate the core ideas behind his advice for CFOs and the mindset he recommends his fellow CFO’s set will trying to navigate the journey ahead of them. In his parable, Criss describes a young boy who stops to tie his shoe in a farmer’s watermelon patch while taking a shortcut home at the end of the day. When the boy arrives home, the farmer is waiting with the boy’s parents, and he now must struggle to explain that he was only tying his shoe and not messing with the farmer’s watermelons (i.e., the farmer’s revenue) as it appeared. It could be interpreted that the boy could have made different choices – a choice to take the longer route and go around the watermelon patch or check that his shoes were tied before starting his walk. The moral here, one that persists through much of Criss’ CFO advice, is not to make decisions that put oneself, or one’s company, in an adverse situation where tough questions need to be answered. Indeed, CFO’s, as financial leaders, always have to think about the choices they make that shape perceptions about themselves and their companies; the choices they make mustn’t set themselves or their companies up for problems.
“I think a lot of that is about just managing perceptions and making choices that don’t put you into an adverse situation where you’re having to defend yourself, where you’re having to explain things that you don’t want to have to explain because you shouldn’t put yourself or you shouldn’t have put the company in that kind of position to have to explain it.”
Criss himself has been caught ‘tying his shoe in the watermelon patch,’ and he described a particularly pivotal moment in his career when he did so with ‘all the farmers’ watching him. Mistakenly believing that management and the board’s purpose was to make the company as effective and attractive to investors as possible with all parties involved in the same level of detail on operational issues. Instead of working individually with board members to manage the issues, Criss engaged in a public debate with the CEO and other board members during a board meeting. “I treated a board meeting as a working session.” While Criss thought that he was acting in the company’s best interests, his behavior in the board meeting demonstrated to board members that he did not have the temperament or decision-making skills to navigate the strategic conversations that a CFO must-have. As he said on the call, “I was shaping all of the wrong perceptions [perceptions that he was not ready to be a CFO of a public company], and I was giving evidence to the fact that those perceptions were credible.”
Pivoting to answer a question about the most important attributes that make a great CFO, Criss passed on the advice he received when he asked a mentor the same question in the past. Ultimately, every investor, board member, and member of the management team views it as the CFO’s purpose to maximize their investment value. Especially in a post-IPO company, “your job, in their eyes, is to get the company liquid in a public company environment, and over the course of those next six months to a year, maximize the value of the company.” From Criss’ perspective, the most important thing a CFO can do to be successful is to recognize that reality and communicate to these other actors that their interests are being honored. Instead of merely reporting operational information to management and the board, a CFO needs to convey conviction and enthusiasm about the company’s future direction and demonstrate the measured temperament necessary for dealing with sell-side analysts and potential investors. Indeed, while Criss noted that his operational role within the company itself did not change much, he described how his communication with the board and the management team evolved as he internalized these points.
“Every day between your first day at a company and the day the company actually does go public, those all add up to a giant probation period.”
CFO Ops Best Practices
Moving on to more operations-based questions, yet building off his points about communication with investors and the board, Criss emphasized the importance of a CFO hiring the correct team of people to support their role within the company. Criss described hiring ‘right-hands’ to run the controllership and the FP&A side. Two roles at the core of a company’s financial operations, as the most critical decisions a CFO will make, and characterized this team as the ‘internal CFO’ of the company. While the CFO is still responsible for everything that happens internally, hiring the “right” people to oversee the details can free up the CFO to more adequately communicate with the management team and the board about the broader direction and goals a company might have. The heads of controllership and FP&A make the day to day operations decisions while the CFO makes sure that those decisions are consistent with the path they have laid out for the company.
In terms of the specific attributes that make for a successful relationship between the CFO and his ‘right hands,’ Chris relayed it’s essential that a CFO’s support team feel comfortable offering their perspectives, even when they challenge the CFO’s. Another Circle|Member provided his advice on good qualities to look for in a head of FP&A and the Controllership specifically. For the controller, this fellow CFO recommends setting a tone early on that there should be no ‘gray area’ in the metrics, and instead that the controller should present every metric in black and white. For the head of FP&A, he recommends finding someone incredibly detail-oriented and adept at the minutiae of financial spreadsheets and systems.
Regarding the different systems a company might put in place as it scales in size, Criss acknowledged their importance but asserted that implementing these systems should fall to a CFO’s ‘right hands’ on the controllership and FP&A sides of the company. Organizationally, Criss recommended a top-down approach to implementing systems, describing how a CFO should present the company’s broader goal to his or her team and then have the team figure out which systems will best allow the company to achieve that goal.
When asked to describe the lessons he learned from the IPO process, and the subsequent years, Criss described how while the process itself wasn’t complicated, the challenges came in managing the different egos and people involved in the process and adjusting to being a public company CFO. Managing the many different agendas at play when selecting which bankers to use and getting a syndicate structure in order can be complicated, but after all of the logistics are in order the challenge becomes keeping everything aligned and in place with the company’s goals. Further, adjusting to being a public company CFO and adopting a measured communication strategy with the board presents another main challenge in the IPO process.
“The IPO itself, it is not complicated, but it’s a black box of knowledge that you don’t always know what to ask. Selecting the bankers, setting your syndicate structure together. It’s the personalities that come into play in managing egos and agendas is probably the most complicated part.”
After a question about people scaling in preparation for the IPO process, Criss once again stressed the importance of hiring exceptional talent for the heads of controllership and FP&A. Once these two critical positions were filled at the top, Criss empowered these managers to build their teams and implement systems as they saw fit with little micromanagement. The managers fully vouch for any new hire and remedy any mistakes that might occur. To gain support for investing in new people and new systems from the CEO and board, Criss recommended benchmarking, asking fellow CFO’s running similar size and scale of companies. Criss would then present this benchmark as the norm for similar scale companies and what is needed to be a public company. Further, a fellow Circle|Member added that availing the board’s audit chair can help free up resources from the CEO that can then be put to scaling up hiring.
While earnings calls in preparation for the IPO can seem scary and stressful, Criss revealed his unabashed enjoyment of these calls, noting that because the metrics tracked with what he had been communicating to the investors and the board, the calls themselves were fairly straightforward. Indeed, the most challenging part of his experience was preparing, with his CEO, to answer any question that he could be asked during the call. Another Circle|Member recommended maintaining an ‘even keel’ tenor regardless of how the company did in that particular quarter; thus, whether the company did well or not, the CFO should remain calm and collected when communicating results to the board.
Further, while activist investors can be the thorn in the executive team’s side, Criss described how the activists he worked with had a similar worldview to him. Thus he had a positive experience dealing with activist investors. Having similar views to the activist investors allowed Criss could better help the CEO and board understand the logic behind his prior companies acquisition(s).
Having had significant experience with leading a company through an acquisition, Criss discussed his strategy for dealing with the M&A market. Regarding acquisitions, Criss stressed that a CFO needs to do the due diligence on the deal and consider its effects on the company. While M&A deals can be exciting opportunities to grow the business in meaningful ways, these deals can also place a considerable burden on the revenue team. So a CFO must take careful consideration of the trade-offs.
Finally, Criss closed the conversation with a discussion of how to balance cash flow and the top line, particularly with a public company. Indeed, finding the right balance is more of an art than a science, and Criss acknowledged that the markets themselves drive many of those calculations. Again, Criss recommended a company find a way to measure itself against others in its peer group to find the right balance.