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”.

Don’t Allow the Credibility of Your Financial Information to be Questioned

Arleen Thomas yesterday posted “CPAs: The Startup Community Needs You” on the AICPA Insights blog. The post discusses the value a CPA can bring to startup companies. To illustrate her point, Ms. Thomas points to the accounting troubles encountered by Groupon when it tried to file for its IPO, noting that it wasn’t until recently that Groupon finally added accounting and finance expertise to the audit committee of its board of directors. If accounting issues could escape unnoticed at Groupon with, presumably, significant financial expertise both inside the company and among its advisors, as well as some corporate heavy-hitters on its board, then how much more at risk is the start-up or early-stage company that has NO accounting or finance resources whatsoever?

A start-up’s financial information – both historical and projected – is, by default, viewed with skepticism by the venture capitalists or angel investors that are being asked to fund the start-up. Having a CPA firm involved is invaluable in countering this perception and establishing credibility. This does not mean that the historical or prospective financial statements have to be audited, or even reviewed; it is a significant advantage just having a CPA firm involved in preparing the information and providing financial decision support to management. It also makes a good impression on potential lenders and investors to see that the start-up’s founders and management team have surrounded themselves with solid advisors, including accounting and financial professionals. A CPA firm with a financial management outsourcing practice – bringing CFO-type operational and transactional skills – is of even more value to a start-up than traditional CPA firms that are entirely audit and tax focused.

Ms. Thomas writes:

“Andrew Mason, CEO of Groupon, could have saved a lot of time and money though if he brought a CPA into his circle of advisers a lot earlier. The truth is that startups are focused on developing and launching their service or product, and rightly so. It’s not until someone, whether an investor or bank or stock exchange, requires a CPA to be involved that most startups pay attention to their financials. But that doesn’t have to be the case.”

I couldn’t agree more! Many startups fail to see the value of accounting and finance, and resist putting scarce resources toward the necessary expertise. Like going to a doctor only when sick, they wait until the pain of NOT having solid financial statements or projections becomes unbearable, typically due to some external impetus. By then, it may be too late to take advantage of an opportunity to raise capital, or to avoid a liquidity crisis. The ultimate cost – not only in real dollars to fix the accounting problems, but also in lost opportunities and lost credibility – is likely to be far greater than the earlier savings on accounting and financial expertise.

Why Blog? Why Now?

“Start a blog” has been on my to-do list for quite some time, but the desire to blog has finally overwhelmed the intertia of procrastination.

Why blog? The first reason – listed first not because it is necessarily the biggest driver but because it is a prerequisite – is that I like writing. I find great satisfaction in communicating by the written word. I take pride in the simplest email composition, and enjoy the clarity of thought and understanding that results. Instead of only writing about pre-determined topics for client deliverables, email recipients, or the occasional journal article, why not write about any topics of interest for an audience that is defined by niche yet theoretically global?

Most importantly, though, I feel compelled to contribute to the universe of knowledge in a way that helps others. I am by no means unique in this regard; the reason the web is so rich is that people have a universal desire to make such contributions. The proliferation of reviews on Apple’s iTunes or are but two examples of this phenomenon, which has given these companies a huge, free workforce of prolific writers. Like everyone, I have searched the web countless times for some obscure piece of information or answer to a question, or for inspiration, and to my surprise found exactly what I was looking for – and usually much more. Sometimes the information obtained is not really “new,” but it is framed in a particularly useful way, given timely new context, or simply provides needed confirmation that at least one other person on the planet agrees with me. These benefits exist only because others took the time to share their knowledge, ideas, thoughts or feelings. Do we not all at some point have an obligation to also contribute, as opposed to just being net consumers of information and knowledge produced by others?

I have always enjoyed reading and listening to intellectual, insightful analysis by thought leaders on various topics, both within and outside of my field. But it is far more satisfying to actually play the game on the field than to be in the stands. As noted above, writing clarifies thought; it promotes a new and deeper understanding of the subject matter. Passing new information along in a blog post requires first that the information be fully processed and understood before insights can be distilled and written about. As a proponent of lifelong learning, what better vehicle than a blog to express my passion for new knowledge, ideas or information, and my equal enthusiasm for the process by which they are created?

One challenge to overcome between the earliest desire to blog and today’s first post was to define my audience and what I would blog about. My work as a partner in a CPA firm serves numerous types of clients, in various industries and stages of life, and I am passionate about all of them. But I am also interested in the issues of the accounting and consulting business itself, and the changes and innovations occurring in our industry. It took awhile to synthesize my various interests and passions into a cohesive theme with a defined audience, which I hope I have achieved. Please see my “About” page to learn about the intent behind the Virtual Lucidity blog.

One question I am sure to get is, why not include this blog on your firm’s website? There are several reasons, including the convenience of using and accessing my own blogging platform, but I have always noticed that many (though not all) accountants and attorneys similarly set up blogs separate from their firm’s websites. For an attorney’s perspective, here is an interesting blog post on the topic by Sam Glover at

I hope you will follow and enjoy this new blog!