When the coronavirus pandemic hit India, and the nation went into lockdown, every startup scrambled to prepare for the worst, have money to outlast the pandemic, cutting costs and some firing thousands of employees.
In late March, the founder of a consumer internet startup created a special team to plan and deal with the pandemic. This team’s aim was to figure out where to cut costs, by how much, when business returns, whether more funding is needed, how to assuage employees and figure out a strategy for the next six months at the very least. But the team’s progress was slow, a consensus was hard to build, and they did not anticipate the real damage. Three months on, the founder realised, what this special team was trying to do, was the role that Chief Financial Officers (CFOs) play at most companies.
Startups, so far largely driven by founders, investors and slick products, are now hunting for CFOs left, right and centre, paying top dollar, offer favourable stock options, and even a board seat in some cases.
What’s more, the few startups which did have experienced CFOs at the helm when the pandemic hit, have shown clarity in dealing with the situation missing in many other firms.
Consumer startups in particular in India have been founder-led, with a product manager often the founder’s immediate port of call, based on a legacy of product obsession from the days of Steve Jobs at Apple. Even the startups which did have finance heads, these are often people whose jobs is to balance the books, deal with the auditor, and similar smaller roles, nowhere at par with founders or product leaders, in terms of experience, authority or pay.
Software-as-a-service startups, on the other hand, have realised the role of a CFO far earlier, given that these companies often generate revenue from Day 1, and are run a little more like traditional companies.
Take MoEngage, for example- a mobile marketing platform which gives tech companies analytics on how they can do better and what is giving them traction. MoEnagge’s CFO Narasimha Reddy worked with founder Raviteja Dodda, even before the pandemic hit India, to figure out which sectors will be affected the worst, which countries will recover at what rate, and formulate a strategy. Some of these questions have no right answers, nevertheless, asking them at that point helped figure out a quick company-wide response.
“The pandemic has definitely made the CFO role in startups even more important,” Reddy says.
Rohit Agarwal, Senior Vice President of Finance and Business Development at Zenoti, another SaaS startup, agrees. “The CFO role has been under-appreciated in Indian startups so far. It has not been central to hiring/scaling, as it should be. Early on in a startup's lifecycle, it is valued even less,” he says.
Zenoti provides software for salons and spa chains in over 40 countries.
This realisation has led startups to go on a CFO-poaching overdrive. Moneycontrol has learned from sources of at least six startups that are hiring CFOs currently, including online mattress retailer Wakefit, mobile marketing startup CleverTap and gold loans startup Rupeek.
The CFO title is also a misnomer. Rather than someone who just looks at the finances, the modern CFO’s role has also evolved to be a growth leader and general-purpose Man Friday to the CEO.
“Beyond just someone who manages the books of accounts, today’s CFO needs to be a partner to CEO, proactively think of value creation, be a strategic leader and enabler of high-growth scaling, and lead activities such as fundraising and long-term planning,” says Agarwal of Zenoti.
For example, Narasimha is on the board of directors at MoEnagae, giving him a direct role in company leadership, along with CEO Dodda and its investors such as Matrix Partners and Eight Roads Ventures. This is unusual in India, where boards of startups have the co-founders and investors- sometimes only the CEO and investors.
"Some of the public companies in the US have a board seat for the CFO. I think we will have to move in a similar direction in India, where the finance function becomes critical to every startup,” Narasimha says.
Startups giving CFOs a more important role is also similar to large conglomerates, where this trend was already afoot. For example, Rajesh Gopinathan, currently CEO of Tata Consultancy Services- India’s largest IT services firm- was its CFO from 2013-17. Similarly, Sasidhar Jagdishan, who will be CEO of HDFC Bank next month onwards, has been the bank’s CFO since 2008.
The role of a CFO also ties in with the DNA of Indian startups, which have generally looked to create a good product first, raise funds, expand aggressively, and figure out economics later.
"Having a CFO is also important to have a conservative view on the business. The CEO may have a natural and almost unrealized bias towards bullish projections, but you need the CFO to show what the worst-case scenario could be, even provide a reality check,” Narasimha says.
This part of the role has also become crucial during the pandemic, where conservative projections have aided recovery better than the expectation of a quick bounce-back, only to find yourself deeper in the trenches.
Office commute startup Shuttl has seen the worst of the pandemic, as have all startups in the travel and hospitality space. Not only did people start working from home for months on end during the lockdown, even once things normalise, the work from home is expected to continue for a few days a week for most employees.
“In March, at a time when everyone thought this pandemic will last 2-3 months at most, we took a conservative view that at least 4 months will be a washout. And even though we have started operations now, recovery is slower than what the industry expected back then,” says Suhas Khullar, CFO and strategy head of Shuttl.
Khullar also notices that more startups than ever before are realising the importance of a CFO.
So what’s different now?
Across stages, across sectors, finance functions in startups have become more important. Not only in having a person to lead finance, but also a well-heeled executive, and not a placeholder or someone with not enough experience in a certain sector, function, or size of the company.Startups are also moving closer to their listed and more traditional counterparts, for whom finance is a core function from day one, and not adjacent to, or less important than the product, sales, or engineering functions.