How Finance Scales

One of the most popular requests I get by my small-company CFO/VP/Director friends of this newsletter is:

“How do I scale my finance team to keep up with the work?”

I love helping with this problem because it means they are doing great work, but hitting the same roadblock we all hit when we have more work than hours in the day.

And this problem has been solved 10,000 times by all kinds of finance leaders.

But there’s a problem with solving this problem if you’ve never encountered it…

You have to choose between technology and people to scale.

And it takes a certain line of thinking to help you decide which is right.

Let’s jump in!

Question 1: Where is your bottleneck?

The worst way to scale a finance organization is to simply throw people or technology at the problem without first identifying the constraint.

Which is why so many people get frustrated that they “can’t scale”.

If you misdiagnose your constraint, you’ll apply the wrong solution. It sounds simple on this side of the fence, but can be daunting when you’re the one calling the shots.

Here’s what I mean:

• A small 1-person finance team that supports a startup reaches capacity

• The solo-VP of finance hires an analyst to do manual work

• But the company is changing so fast that there is no ‘standard process’

• Meaning every month the reporting, analysis, and forecasting is just a little out-of-date and behind the business

• This analyst hire actually creates more work for the VP in the short and long-term as they spend time figuring out the problem, then teaching the analyst what the problem is and how to fix it

What the VP really needed (in this example) was a finance manager who has agency to make tough decisions and see around corners.

It’s a very different hire for the problem.

Could you imagine if they tried to implement a new technology that was rigid and required implementation support? That would have been a nightmare.

Which leads us to the next question…

Question 2: People or Technology?

By now, it should be clear that a non-standard process that is ever-evolving will require a higher level person to solve it.

But what about a process that’s fairly standardized?

Do you hire a person or implement a technology?

It depends!

If your goal is to keep the team lean, small, and very nimble - then implementing a new technology is likely your best bet.

Tech is awesome because it doesn’t ask for promotions, it never calls in sick, and rarely miscommunicates. It is an amazing way for a single person to better leverage their current units of effort into more units of output.

Think of technology as a multiplier for the people that are already on the team.

⚠️ Just be absolutely positive that the technology you are implementing is actually solving the direct bottleneck and that it doesn’t irrationally create a bigger bottleneck somewhere else (there will always be a bottleneck, but our goal is to make the smaller over time).

However, if your goal is to create continuity of talent or even have a backup of someone who can run processes while you are working on bigger problems - then hiring a person is a great option.

Hiring a person to execute work is a great solution when the process isn’t perfectly standard and may require flexibility in the future. People are coachable and can adapt to variable circumstances a lot faster than technology can. People also tend to scale nicely with a business where you can easily outgrow a technology solution.

Back to our earlier point though, just make sure you are hiring the right level of person for the right level of work.

A real life example: reporting automation

Early in my career, a senior leader of mine was on a mission to automate every possible report with Tableau.

And this work all started because “the team was spending dozens of hours every month compiling report and not analyzing them”. Which sounds like a great reason for automation.

But it was a case of right mission, wrong application.

The first 80% of reports that were automated during this effort made a ton of sense - they were standard KPIs and reports that hadn’t changed in decades.

But the last 20% (one 50-page report in particular) was more fluid in nature and required nuanced judgement on which form of the KPI would be leveraged in any given month.

18 months later, the reporting automation team was still going back and forth with the financial analysis team define KPIs that they wanted to see each month.

What seemed easy on the surface ended up being a total waste of time.

The effort was abandoned and the financial analysis team re-absorbed the work to update the 50-page report every month.

Ouch.

In summary:

Be sure to do your homework before you jump to solve a scaling problem with the wrong mechanism.

And if you are in a situation now where you need some guidance on which direction to go, hit reply to this email and let me know - I can give you a couple quick thoughts!

Say hi 👋 on LinkedIn