FINANCE

CFOs: It’s time to own the business model

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By Tyler Sloat, CFO at Zuora

CFOs must own the business model. No two ways about it. I’m not talking about the budget. I’m not talking about closing the books. I’m talking about the strategic business model: the go-forward plan, the strategic initiative, and the investments that a company is betting on.

If you look at the CFOs role even five years ago, it was essentially dominated by governance and compliance. The CFO was viewed as the “numbers person”, the one who made sure the books and finance were all inline. Although these requirements are still first priority, the expectations have changed and the role of the modern CFO is now broader.

Today, the CFO is the CEO’s right hand person. In a world of rapid market changes, a challenging regulatory environment and global competition, the modern CFO is responsible for more than just finance. He or she’s expected to have a much bigger stake in business ownership and is directly responsible for critical business decisions. There are two primary reasons for this shift: new business models, and the availability of technology and data.

One of the most important changes of recent times is that the traditional business model built around the product economy is obsolete. The mainstream adoption of recurring revenue models is relatively new. The pace of companies shifting to subscription based service models over the past decade is staggering. Consumers (both individuals and companies) are forcing this change as they demand flexibility in their consumption methods. Inversely, the pace of technological innovation is allowing companies to release new offerings and compete at levels never seen before. However, although companies know when subscription models are executed properly they are inherently more profitable, the metrics and benchmarks required to run these models are not in the public domain as they are not required to be disclosed financially.

The lack of public disclosure means that defining the benchmarks and positioning for success has to come from within the organization. It involves ongoing learning and instilling the whole business model across the company including the executive team and board, and then living the new business model every single day. There is really only one function that has financial and operational visibility into all other functions – the office of the CFO.

Secondly, the modern CFO’s office has all the information and data to be proactively forward looking and steer the business. The CFO needs to have a very clear understanding of what influences change, what the key business drivers are and of course the business metrics. The evolution of the traditional Financial Planning and Analysis (FP&A) group within the CFO’s function into more of a FD&A, where D stands for Data, further enables the CFO to help steer other functions based on financial benchmarks deeper within each function. The availability of data and the capability to analyze that data with accuracy and speed allows for much more granular action items. The CFO has to be able to digest those take-aways and then educate the executive staff to help them make the right decisions to move your business forward. Not an easy task, I agree.

Fortunately, we have new business data and tools to help us – we have deep insights into our customer behavior, our spending behavior, our buying behavior and a lot of tools to analyze that data.

Let me illustrate with my own job – I approach it everyday through the lens of our business model. We run an operating model internally that we call PADRE – Pipeline, Acquire, Deploy, Run, Expand. Then we add PPM to the model which is Product, People and Money. This is essentially the framework for our weekly report to a cross-functional team with representatives from each of those elements. We run a subscription business, meaning that every function essentially touches the customer and can have upstream and downstream impacts. We want to be able to analyze and report on any meaningful metric within each pillar of PADRE-PPM that would help us serve our customer base better, and in turn, ultimately provide a better financial result for the company.

My team has full visibility into this framework, and we work closely with every single function on their metrics and their benchmarks. We collaborate on how they influence change within their departments not only to optimize for how their team is doing, but also for the upstream and downstream implications. We tie it all together and stay focused on the larger picture. It’s the CFO’s job to provide that view and to then provide all the layers of data to guide the functional leads so that they can make educated decisions.

The best CFOs are the ones who set forth on this road only after they’ve set in place a compliance and governance structure that allows the books to close, and for appropriate internal controls and reporting. Those are table stakes today, but must always remain the CFO’s top priority. But once that’s in place, you can widen your horizon and act as a true business advisor and strategist to help optimize and run the business model for the company.

Begin with the assumption that everything you think you know about staying competitive is no longer relevant. So, instead of merely reporting on the health of the company, start asking why? Then, if you don’t like the results, try to change things.

Owning the business model is the only way you’ll be able to empower your teams, solidify your company’s relationships with your customers, and be the prime catalyst for major growth in your business.

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