Consumer Product Companies Get It!

Last week I attended the Consumer Healthcare Products Association’s annual Market Exchange. Although it was the third time I have attended this event, I am always struck by the extent to which consumer product companies have embraced outsourcing and virtual business models. These companies, particularly those at an early- or emerging-growth stage, outsource product manufacturing; order fulfillment, invoicing and logistics; payroll; information technology; accounting and finance; public relations; and even some aspects of sales and marketing. Each year, the ecosystem of outsourced service providers at the event seems to expand.

Management guru Tom Peters said, “Do what you do best, and outsource the rest.” So what is it that consumer products companies do best? Develop, grow and manage their brands. Once a brand strategy is defined, outsourcing plays a prominent role in tactical execution within key functional areas. With a relatively small internal team, revenue-per-employee hits previously unheard-of levels.

Consumer products certainly isn’t the only industry that exemplifies the virtual business model. Technology and life sciences companies clearly “get it,” and businesses in every industry use outsourcing to some degree. But the power of virtual business becomes very clear as you hold in your hand a physical product that was neither manufactured nor shipped by the company whose name the product bears. Yet the brand occupies a place in the consumer’s mind, as a brand by definition must.

Virtual Number Two

I recently read an interesting article by Jack Welch in Fortune magazine, in which Mr. Welch used Mitt Romney’s selection of a running mate as a springboard to discuss the essential criteria for a vice president. The piece was written before Governor Romney selected Paul Ryan, but the article remains relevant in its identification of the attributes of a solid “number two,” whether in politics or business.

As they say, it’s lonely at the top, and Mr. Welch notes that some CEOs feel isolated in their decision-making. This is particularly true for entrepreneurs in early-stage companies that may lack an experienced management team. The concept of a “number two” often implies a clear second-in-command and successor to the CEO. But aside from the succession planning that good corporate governance requires, not every CEO is ready, willing or able to explicitly identify his or her “number two” to the rest of the company or the outside world. Still, the CEO should be able to draw the necessary support from each member of his or her executive team.

Two of the criteria Mr. Welch identifies for a “number two” are having “guts” and being a “partner” to the president or CEO, and I believe every one of the CEO’s direct reports should have these attributes. “Guts” means having the courage and confidence to carry out the difficult responsibility of sharing with the CEO bad news, negative messages percolating among management or employees, or even constructive criticism. In short, it means not being a “yes-man,” and being willing to express disagreement. On the flip side, though, being a “partner” means expressing that disagreement only in private, while always standing as one with the CEO in public. As Mr. Welch notes, it also means that none of the CEO’s direct reports should allow their offices to become places to “slip initiatives through.”

The CFO may or may not be the explicit or implicit “number two” that is ready and able to step in as CEO if needed. Regardless, the CFO – like all members of the executive team – must have “guts” and be a “partner” to the CEO. It falls to the CFO to communicate the hard financial realities of decisions, particularly in a high-growth (and high burn rate!) environment.

Can a Virtual CFO fill this role? Yes! In fact, a Virtual CFO is uniquely positioned to deliver hard messages to the CEO. While a member of the executive team, a Virtual CFO also brings the outside perspective of a consultant and is free from the concerns of internal political dynamics. In early-stage, emerging growth and lower middle market companies, engaging a Virtual CFO enables access to a level of talent and experience that generally is not affordable or necessary on a full-time basis. With this level of knowledge and experience, a Virtual CFO can be an all-around counselor and coach to the entrepreneur/CEO.

Of course, both Virtual CFOs and full-time hire candidates must be evaluated for the necessary attributes. CEOs should encourage their existing CFOs to be candid, and should foster an environment where the CFO feels comfortable sharing conflicting points of view and expressing disagreement in private.

CEOs and CFOs, please share insights about your relationships, and your perspective on the balance between “guts” and “partnership”.