If you are an investor or executive leader at a company, particularly in the middle market, chances are you spend time sourcing candidates for the C-suite on a regular basis—as growth often demands leaders with specific skill sets along the trajectory. Of these candidates, and based on what we’ve been seeing from our wide array of PE fund clients, the interim CFO is one of the hottest roles in town. Why? Well, for starters, they can quickly add value to the company through nuanced expertise. Next, their initial short-term status and deep knowledge base offers limited risk up front with a potentially high return on investment.
But before you dive in and onboard a CFO or an interim CFO, there are a few things to consider. During nearly 20 years in private equity, I’ve learned a few things, mostly the hard way. When I’ve followed my own advice in these areas, I had greater probabilities of success; but when I veered too far toward things like the “likeability scale” and less on the “expertise scale”—I may have enjoyed meeting the person, but I never quite got what I was looking for in terms of the desired results. To be fair, there is never one thing (the elusive silver bullet) to predict a positive engagement. Typically, it’s a mosaic of things; and when these things align in working order, you may just have yourself the right-fit CFO.
#1 – Build the scorecard
In advance of your search, build a scorecard of the top things that matter the most to this particular role. Perhaps you need someone with Enterprise Resource Planning (ERP) implementation experience. Maybe they need to have expertise in expanding to international markets, or dealing with the “clean up” of a sales tax situation. Whatever the scorecard consists of, you can ask them during the interview: 1) have you done it; 2) how did you do it; 3) what was the outcome, and 4) will your references corroborate the results. With a scorecard in place, you’ll have a clear picture of what’s most important in your candidate; or perhaps just as important, what’s not.
#2 – Conduct a basic screening to de-risk the engagement
At BluWave, we deeply pre-vet all candidates before making them potentially available to work with any of our private equity industry clients. If you’re flying solo, prior to the actual interview, do a quick pre-screening call or email exchange to find out several things relevant to the engagement. The first you need to know is if they have experience with similarly-sized companies with a similar cap structure. I’ve seen so many mistakes in this area over the course of my career in private equity. For example, an upmarket CFO is hired into a middle market company, the thought being their experience is transferable. Generally speaking, it isn’t. You also want to ask if they have similar industry experience; and if your company is PE-backed you likely need a candidate who understands and is familiar with these nuances as well. Last, but certainly not least, you need to make sure they are available during the time frame you need them. Interim CFOs go in and out of projects regularly, so the timelines need to align.
#3 – Ask interview questions that matter most
Once your scorecard is created and they pass the pre-screening, it’s time to ask the tough questions. I like to think of it more as a discussion-based exchange, where you are simply setting the stage for the candidate to showcase their experience and successes. Instead of diving into a robotic Q&A, I start with this simple question: “Walk me through your roles in the last five years.” During this process, I’m looking for a track record of success and an ability to work through challenging situations. Key indicators include where a company started in terms of revenue and profitability, and where they ended during the candidate’s tenure. I want to know the key accomplishments during each engagement and what the reasons were for each various transition to a new role/company. Essentially, I’m using the scorecard to set the baseline then I’m attempting to elicit more specificity about each previous engagement. Be wary of numerous short stints and/or candidates not taking ownership of things that didn’t go so well.
#4 – Trust but verify with references
Throughout interviews, I like to ask candidates what their references will say about key elements of their track record. This reinforces the expectation for candidates to be forthcoming, and you will gain insight into how open and self-aware they are. Let the candidate know that no one is perfect—everyone needs support—and set the expectation that everyone always has room to improve. In other words, before they hand over their references for the final step, you want them to know you aren’t trying to catch them in acts of omission, but rather you are trying to understand past missteps to avoid them in the future and, if there is alignment for the role, how to equip them to be successful. When it comes to references, you should select them rather than passively accepting those offered. By the time you get to references, most of the work is done. Frame your conversation with references in an open way geared toward understanding what is needed for the candidate to be successful versus digging for dirt on weaknesses. The best CFOs will appreciate this approach; and if you end up hiring them, you will already be off to a good start.