Putting the story first: A critical mindset shift for FP&A success.
I’m going to tell you a true story, in two different ways.
1: My wife recently asked me to go to the grocery store to buy some bananas. The store is about 30 minutes away from my house; I didn’t go to the store that is only five minutes away. I came home with a bunch of bananas, along with paper towels, milk, chips, cereal, bread, and dog food. The entire trip took me about 75 minutes, and ended up costing me $55.
2: Last month, I took my two-year-old son with me to my local grocery store, which is only five minutes away. While we were walking through the store, my son had what could only be described as an epiphany: “Why do I need a diaper to do a #2, when the cereal aisle will do just fine?” He proceeded to use the store floor as his personal toilet. After cleaning everything up with the help of the kind store employees, I realized I only had two options going forward: A) I would have to raise a substantial buyout fund to acquire this store, fire all the employees, and replace them with fresh faces that knew nothing about what had happened, or B) Find a new store and spare myself the embarrassment of going back. I wisely chose Option B. My new store is about 30 minutes away from my house, and any time I go, I make sure to pick up any key items that we will be needing in the near future – which turns a simple banana run into a $55 shopping spree.
I’ve told you this story in two different ways because context matters, and everyone loves a good child-induced horror story.
In the modern finance environment, we are juggling a lot of numbers. When we don’t provide enough context behind the data, we are leaving out the most critical component of our analysis – the why. The data helps stakeholders understand the output of an initiative. The why helps them better understand the inputs of that initiative.
C-suite perspective for FP&A.
I’ve had the opportunity to build out the finance function – accounting, treasury, tax, strategic finance, FP&A – as the first finance hire in three different early-stage companies from Series A to Series C. When you serve as CFO, you learn to rely on FP&A to ensure that the company can achieve its strategic objectives. This applies whether a company has a formal FP&A team or not – planning and analysis still need to get done and are critical components to a company’s longevity.
Joining the FP&A team at Postmates has allowed me to experience strategic finance on a more professional level in a later-stage company, where there is a greater need for deeper, more granular analysis. In smaller companies, analytics are fairly narrowly focused on a few key questions like “What’s my revenue?”, “Do we have enough cash?”, and, of course, “Does anyone have a credit card that is not maxed out so we can buy lunch?” As a company grows and matures, so do its needs.
Creating useful stories with numbers.
A CFO needs to understand the numbers – why these numbers are important, and how these numbers impact the short- and long-term course of the company. These numbers need to support the overall narrative of the company, whether it’s for the purpose of talking to investors, arranging debt, or reporting financial information to the CEO and the board. A good CFO can make a machine work better – they just need to understand how the machine is currently working. Understanding how one gear turns another gear is a key part of effective storytelling in strategic finance.
Some of us in FP&A come from an accounting background where the focus is on accurately capturing and reporting what has happened. The ability to pull good, clean numbers is a baseline requirement. Many with this skill set can be trained to make the leap to using spreadsheets to build models to analyze those numbers.
The more important and perhaps difficult thing, however, is to coach new FP&A resources to think about what they are analyzing and how that analysis fits into the overall company story, and how company executives can leverage both pieces to continue charting the course.
Forming a bridge between accounting and FP&A.
For me, this coaching takes the form of reviewing the analysis that my team members have presented and checking the numbers. But I spend far more time asking questions about what the analysis shows and why it’s important. These conversations can help develop and refine the critical thinking that is necessary to be effective.
That often means asking questions like, “What happened in this P&L line, and why would/should the company care? How should the company think about this for future periods?” For me, the major bridge between accounting and FP&A is asking: “What does this mean?” If a team member can bridge what happened with what it means for the company going forward, then the rest is just Excel work.
Knowing how to ask the right questions is essential. A CFO has the audacity and the right to ask simple but profound questions like, “Why?”, or “Why are we doing it this way?” When you’re in the trenches, doing the hard work of pulling together numbers and cranking out models, it can be harder to shift your thinking from analyzing what is there to questioning why it is there. A shift in mindset is needed to create the kinds of models that help a company rethink how it is managing itself.
Pushing boundaries by influencing others.
Understanding what key stakeholders are looking for gave me a good basis to understand other ways FP&A can add value. For example, good FP&A knows how to push the boundaries and find new ways for a company to optimize its resources. Finance teams serve all functional areas in a company and yet do not have direct control over any of them. This means that finance leaders must influence others. One of the best ways to do so is by using the data to illuminate possible paths to increasing revenue or decreasing costs (or both!).
For example, FP&A can add value for companies at all levels of maturity by developing a better understanding of the sales funnel, its various lead points, and what is influencing its shape. By offering insights that go beyond the page by leveraging what’s on it, FP&A can become not only a useful resource, but a trusted one that is crucial to the continued success of a company.
Influencing others means sharing observations, and asking, “What if we tried this?” Showing other teams in your organization scenario analyses and giving them the advantage of what you are seeing can help them course-correct directly.
Or sometimes, presenting your analysis allows you to strength-test your scenarios with teams – whether that is the dev team or the marketing team – and assemble enough information to take your ideas back up the management chain. As much as we are there to help other teams, we shouldn’t forget that our colleagues can help us too.
The finance team is often seen as the nay-sayer in a company, so at Postmates, we have taken the approach of being the friendliest team in the company. This has helped us to form better partnerships with other departments, especially when it comes to working on cost-management initiatives. Being friendly often means sharing our findings and observations with them. “Give and Take” only works when you do both.
It would not be helpful for an early-stage company to over-engineer an FP&A function. Creating levers for fine-tuning operations and optimizing resources is not always the goal for an early-stage company, where the primary focus is growth at all costs. However, it’s important to pick a few key metrics and fully understand them. For example, CAC is important for all companies regardless of its stage, but there are hidden costs like churn, and expensive customers, that the basic number fails to reveal. Applying FP&A discipline to certain metrics is essential for early-stage companies to grow fast and in the right direction. How do you know how much rigor you should apply at an early-stage startup? Just listen to the stories of your stakeholders.
Remaining open to changing stories.
Ultimately it’s about storytelling. Every company has its narrative, and for early-stage companies, storytelling is usually about confirming a founder’s vision. This can be both a powerful and a dangerous thing.
The founder’s story allows startup leaders to assemble teams of talent, raise money, and energize the initiation of a company. Having been part of one company where that vision failed to deliver the results and outcomes that were hoped for, I know that the biggest regret one can have is to not challenge the assumptions associated with a company’s founding story early and often. It is this process that can lead to successful pivots before it is too late.
In later-stage companies, the assumptions of the founding story have withstood the test of the market and are no longer as critical to its success, but instead continue to evolve as the data behind it does. However, the principles of challenging assumptions, and building models that allow for various scenarios that illuminate opportunities and highlight risks, are essential to continued success.
Storytelling is as old as time – whether we are actively aware of it or not, we gravitate towards a good story. Just because we put on fancy clothes and go to an office for eight hours a day, or at least dress from the waist up in these WFH times, that fact doesn’t (and shouldn’t) change. Stories help us make sense of information and guide the evolution of our frameworks. The market changes, the world changes, and compiling the data and generating the context to help the company better respond to those changes is what earns FP&A a seat at the table.
I hope the above helps you in your path to becoming a more well-rounded FP&A contributor. If you are ever in Irvine, CA, and happen to walk into the Ralphs in the Woodbury Shopping Center, I strongly suggest that you skip Aisle 6 and get your Corn Pops elsewhere.
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