- The video features two CFOs, Sarah and Jason, who have experience taking companies IPO.
- Sarah joined Square when it was 3 years old and had a team of 14 people. Her role has evolved to include finance, strategy, operations, and product development.
- Jason joined Groupon when it was experiencing rapid growth and had to handle core finance tasks and prepare for an IPO.
- The ideal time to hire a CFO is after product-market fit is mostly figured out, and the CEO-CFO partnership should be based on trust and complementary skill sets.

- The right time to hire a CFO is after achieving product-market fit
- CFOs and general counsels are responsible for anticipating potential problems
- In product-oriented companies, a CFO should be operational-focused
- CFOs should consider metrics that highlight the company's potential and align with internal goals
- Financial discipline is important for tracking and understanding the drivers of the business
- Amazon prioritized a truth-seeking culture to ensure accurate analysis and metrics
- The decision to fundraise depends on accurate forecasting and cash availability
- It is important to raise money when market conditions are favorable
- Dilution and perfection should not be overly prioritized in fundraising efforts

- The speaker discusses the importance of having a clear plan and direction when raising funds or going public as a company.
- They mention that companies are staying private longer and the decision to go public should be based on environmental factors and the readiness of the company.
- The speaker emphasizes the need for forecastability and the ability to weather storms before going public.
- They also mention the importance of transparency and being prepared for the challenges and volatility of being a public company.
- The speaker suggests looking at case studies of companies that have gone public to determine if the company is ready for it.
- They discuss the significance of accurate forecasting and suggest breaking it down into an algebraic equation to identify areas of inaccuracy and understand the inputs to the business.
- The speaker also mentions the importance of understanding the revenue and demand side of the business as well as the cost side, both fixed and variable.
- They highlight the need for operators who understand the sensitivities and key variables of the business to ensure accurate forecasting over time.

- The speaker emphasizes the importance of using the right tool or person for a job
- Many people rely on their accounting organization for forecasting, but they may not have the necessary skills or mindset for it
- The speaker prefers hiring individuals with engineering, investment banking, consulting, private equity, or venture capital backgrounds for forecasting
- These individuals are accustomed to open-ended thinking and problem-solving

- The video features two experienced CFOs, Sarah and Jason, who discuss their roles in taking companies public.
- They emphasize the importance of hiring a CFO after achieving product-market fit and building a strong CEO-CFO partnership based on trust and complementary skills.
- CFOs and general counsels are responsible for anticipating potential problems and should consider metrics that highlight the company's potential and align with internal goals.
- Financial discipline, accurate forecasting, and understanding the drivers of the business are crucial for fundraising and going public.
- Companies should have a clear plan and direction, be prepared for challenges and volatility, and consider case studies of other companies that have gone public.
- Accurate forecasting requires understanding the revenue and demand side of the business, as well as the cost side.
- Operators with engineering, investment banking, consulting, private equity, or venture capital backgrounds are preferred for forecasting due to their open-ended thinking and problem-solving skills.

Anu Hariharan, YC Partner on the Continuity Fund, sat down with Sarah Friar and Jason Child to dig into the job of a CFO at a scaling company.

Topics discussed: 
When should you hire a CFO?
How should a CEO and CFO work together?
When's the right time to IPO?

This panel was recorded at The Scaleup Offsite, an event for growth-stage CEOs hosted by Y Combinator Continuity and Greylock Partners.

So, we have 2 amazing CFOs here today who have partnered with their CEOs right from the growth stage and taken companies IPO.

So, we have Sarah, who is currently the CFO of Square, and prior to that was SVP of finance and strategy at Salesforce, and started her early part of her career at Goldman Sachs.

We have Jason, who is currently the CFO of Open Door.

Prior to this, he was the CFO of Groupon and actually took Groupon through the IPO.

He started his early part of his career at Amazon and in fact was the CFO of Amazon International.

I think I'll spend 20 minutes asking a few questions about the role of a CFO and really when should you think about hiring a CFO?

And then we'll open it up for Q&A towards the end of the session.

So first, I'd like to ask the 2 of you, when you joined Seraph at Square, how big was Square?

And how has your role sort of evolved today?

So Square, I joined when Square was about 3 years old, or coming up on 3 years.

We were about 200 people, to give you a sense of scale.

They had had a controller, VP of finance.

And when I joined, it was kind of odd to step in and go back to having a total team of 14 people.

I never understand why people want to manage big teams.

And really what Square wanted at that time was not just a pure finance CFO, we had someone who could handle the basics of all of our accounting and paying people and so forth, but looking for someone who could be more of a strategic partner with Jack, and actually Keith was there too as our COO at the time.

That's actually what really intrigued me to go and do that.

And so the role in the beginning was much more about what was Square going to be.

We were very much just a single threaded company, very simple.

In fact, we could take a payment for you.

And it was really how could we grow to be a much bigger impactful company over time that would move from taking a payment to helping you manage your whole business, to founding products like Square Capital, payroll and so on today.

And actually if you look at the arc of what I've done at Square over time, it's everything from the finance piece, managing chunks of the operations, often it's holding them tight until you can go hire someone much better than you to run it, that's always the key for every executive, frankly, to actually helping found a product.

So Square Capital was part of that founding team when we literally took our first bag with money, it felt like, to our first 30 customers to figure out was it a thing.

And in Q4, the last results that we reported publicly, we effectively are on a billion dollar run rate for that product.

We loaned about $240 million in Q4 alone.

I just recently went back into helping run a product, very small 1, Square Payroll, that we're kind of incubating and trying to see, is this a thing for us?

We believe there's massive demand and kind of pretty shitty products out there, frankly, for our target customer set.

And so I think being able to kind of balance both the financial elements of, you know, what historically people think of as a CFO, with strategy, with operations, has been, you know, a great way to kind of bring varied skill sets into a company.

Something to think about when you go out to hire that CFO.

You started off with a team of 14 people.

Gosh, my team is probably around 500 to 600, because I have, Beyond finance, all of customer support, success, product teams, actually a fairly big engineering team.

So all of our internal engineering, so any product that we make that internal squares use, or things like Squareshop or Commerce Platform and so on that has to integrate tightly to our broader financial systems, those all get built on my team as well.

And that's, you know, again, comes back to it's great when you can, I mean, we are at heart of financial institutions, so being a CFO in a financial institution, you are really part of a lot of the product creation too?

Jason, can you talk about, you know, how Groupon was like when you joined and how did your role sort of evolve?

So I joined in December 2010, about 5 days after Groupon may or may not have turned down a $5.7 billion offer to sell to Google.

And so then I joined, and they told me on my first day that the bankers were coming in 2 weeks for the bake-off, even though they kind of knew who they wanted to pick.

And I was in charge of selecting the bankers, kind of, and then hiring a team, a finance team, that could handle our recent growth.

We just went from 1 country to 48 in the previous 6 months with the help of some German brothers in the Sam wears it's a whole different thing and And so then and had to get an s1 filed so and had 2 months to do that.

So I hired the whole team and spent most of my time doing very core, non-strategic finance stuff, which was how do you actually write a couple hundred page S1 document And then also hopefully understand how the business actually works.

It was a relatively simple business At least 1 would think but yet it still seemed to have a fair amount of complexity We went from during the period when I joined we had just hit about 700 million run rate in in sales And then we filed actually about 5 months after I started, and by the time we went public, which was about 6 months later, my 11 month anniversary, we finished the year at about 4000000000.

So 700 million to 4000000000 was, well we can talk about whether or not that's a good time to go public.

Anyways, and so, yeah, basically started with a couple dozen people, ended the year with about 500 people, and then had all sorts of bumps and bruises along the way.

So the 2 of you have had really different experiences.

So for the founders here, How should they think about when to hire a CFO?

I don't know if there's an ideal time, and I don't know if you should think CFO.

I think you should just always be thinking about your leadership team.

What are the skill sets that you feel like you're missing and always hire ahead.

So don't just hire for what you need today.

Like, that's actually a huge learning for me on my team.

I remember hiring our treasurer who came from Amazon, and frankly, I was like, you don't have a lot to manage, but we'll think up things for you.

And so it's always been about, you know, today he's got a billion dollars on a balance sheet to manage, but he actually manages all of our real estate, our facilities.

I mean, it's just 1 example, but definitely when you're hiring people, you're selling them on where they're going to be in year 2 or year 3, and your mind should be there, too.

I would say the same is true of your CFO.

I think the CEO-CFO partnership is exactly that.

So, Eden, I think the question you were asking me earlier about how do you know, Break bread, go out, have dinner with people.

Can you actually stand to be around this person for long periods of time?

Because you're going to spend an awful lot of time together.

And if it feels weird and you can't just have like you're talking to a friend sort of conversation, don't hire them.

Because I think it gets that personal, because you're in the heat of things like an IPO or any sort of crisis that you're going to go to, you really have to have a trusting, like a real trusting relationship, right?

You all know this, because you've got great executives on your team, but no more so than your CFO in some ways.

And then I think the other thing that you should look for are people who are not like you.

For me, with Jack, We're definitely very different skill sets, very different opinions, which is great, because it means we don't always agree.

In fact, sometimes we can violently disagree, usually via really strong text messages, because Jack doesn't like in-person extroverted fighting, and I love it, so usually I'm trying to track him down to have the argument.

You want to make sure you feel really comfortable being able to do that.

Because it is a wild roller coaster that you're on and no business just scales perfectly with nothing ever going wrong.

So from my perspective, I think the best time to hire a CFO is definitely earlier than 2 weeks before the bankers show up.

Honestly, I would say probably, I've heard Many people that I've talked to in hindsight have said probably about a year at a minimum, just because, and I think that goes for any of the senior executive team, actually.

I think what, Groupon prided itself in kind of ignoring every conventional approach.

And if anyone's met Andrew Mason, you'd understand why and how.

But I would say that, you know, the thing that I often tell people, certainly founders and early stage companies, is the right time to hire a CFO, I think, is after you feel like you've got the product market fit mostly figured out because generally I think of CFOs, and I also think general counsels can fall in a similar bucket, our job is generally to look around corners and think about all the stuff that can go wrong.

And so as a result, if you're still working on trying to get the product fit right, we're probably just gonna help you figure out how scary everything you're considering is and how you probably shouldn't do it.

And so it's kind of the opposite of breaking glass.

And so, you know, it depends on the role.

That's if it's kind of more of a product-oriented company.

In an operational company where you have to look at contribution profit per unit or per unit economics, and you have to figure out how to scale, and you're a ways away from really seeing if the business really works because it's going to be a volume game, then it probably makes more sense to have a CFO earlier, and that CFO's probably gonna be more of an operational type as opposed to someone that's more of a accounting and kind of more of a back office expert.

Anyways, so that's my spurs and my thoughts.

And the, kind of, if you look at the square trajectory, so I came in in 2012 and we went public in 2015.

And it was great to have, because then you weren't just telling a story, you'd actually felt it and felt it and you kind of understood what the, 1 of the things I think a good CFO does, if ultimately your goal is to go public, is thinking about what are the right metrics that both in a good way really highlight why the company is doing really well and why it has a long runway and a ton of potential, But also make sure they're the right metrics for inside the company.

Because frankly, if they're not the same, you're going to be in a world of hurt and pain.

And I think if you come in after the fact, you get it's kind of becomes the banker, like our banker opinion of the metrics that we should show.

In reality, we show the metrics that internally we all run to, and so there's complete alignment, and that didn't always go down well during an S1 process, But it's an incredibly important thing to get right.

That's an important point that you brought up, which is about instilling the financial discipline.

So how, you know, when you joined Square in 2012, were they already tracking a lot of the metrics?

And if not, like, what processes did you set in place to sort of bring that financial discipline?

Yeah, so discipline is definitely 1 of the words we used a lot in those first, like, year or 2, like, what it was we were trying to do.

We are a very data-rich company, so we can show you metrics up the wazoo.

And so it was actually more about calling back metrics and figuring out the most important, in particular, you know, getting under the hood of you could look at a growth line that was up and to the right, but the key was to actually understand the cohort analysis underneath it and understand the characteristics of how to actually define those cohorts, for example.

Those are the things where I think a good finance organization, frankly, it's not just about 1 person, can really get down into understanding the drivers of your business.

And then being able to say, hey, when we cut it by this cohort, it looks like what we think is a core value proposition actually isn't resonating.

It's been masked by all these other things.

So then that's great feedback into your product organization about where your product is going to go from there.

So it goes back to, it's discipline and making sure the company is kind of holding itself accountable, but it's accountable to the right metrics, not vanity, but to the stuff that's actually going to grow your business over the long run.

And so we did a whole kind of relook at what were the metrics we wanted to follow.

We actually less is more, so we culled back a lot to just a couple of core things.

And then we got the company on a kind of a drumbeat that was, you know, we went to monthly cadence on goals so that you felt like the power of the drumbeat.

Like, it couldn't be daily or weekly, because there's so much noise.

But also if it was quarterly, sometimes it was too late.

You wanted to have tweaked the dials long before the end of a quarter, for example.

And Jason, from your Amazon experience, Do you have any pointers on sort of how?

What are some of the best practices in financial discipline or even like, you know budget prediction or capital allocation?

So what what we did at Amazon was I think a bit unique and that was Bezos Jeff Bezos had a very strong point of view that as the CEO, every 1 of his direct reports has a bias to want to please him.

And so, therefore, the analysis and the metrics they show are going to try to show that they're doing a great job.

And so Jeff is famous for a couple things.

1 of the things is he optimizes not for a cohesive culture, but a truth-seeking culture.

And 1 of the things he early on required was that every single business leader, actually Jason Kyler, I was his CFO way back in the early 2000s, and 1 of my jobs was I reported the CFO, but I went to every meeting with Jason, with Jeff, and he would get into business, and then we'd look at stuff, and then he'd see things, and if things looked really good or really bad, he'd turn to me and he'd say, is this number right and would you stake your career on it?

And his whole point was he wanted to make sure that the analytic, every analytic, I mean cohort analytics is a great example.

I've seen a lot, you can lie with numbers very easily.

You know, is it a subscriber, is it a customer, is it including reactivation, is it including, there's so many ways you can make it say what you want it to say.

And so I think the way we dealt with it at Amazon was always have a very strong partnership.

And basically, he had all competitive intelligence.

We had a lot of the data science type functions or at least on the kind of analytics and metrics functions Would actually roll up into finance with the idea that they were to true seeking group Their job is just to call it like it is they're not trying to Show a positive bias to show that marketing works awesome or that it doesn't or that ops is you know?

Really doing a great job in variable cost productivity, or not.

And so that was actually very, very critical.

I joined in 99, so in the early days when we were kind of building the first sets of kind of scalable metrics, to when I left 12 years later, it was very much pervasive throughout the entire organization.

And that's really, I think Jeff will say, it's 1 of the key reasons why in a low margin business, where per unit economics are measured in the fractions of a penny really, really make a difference and will determine whether or not you're going to be very successful.

You know, companies when they're staying private, you know, how much cash should they have in the bank before they decide to go fundraise?

And also, can it also touch upon the ecosystem of investors as they scale?

The answer is it depends to some degree, and it comes back to on the metrics side or what you just talked about, that discipline.

There's discipline in getting the metrics right and tracking them, but there's also discipline in the finance group for forecasting accurately.

And that takes some time to figure out what are the things that are going to tweak your business.

Once you can forecast somewhat accurately, then I think you're in the driver's seat of when do I need to fundraise.

And it's not a perfect, you know, it's two-sided.

But from the demand side, like, when do you need to, being able to look at what's your forward projection.

We used to talk about we had a, like, what would we not want to dip below in terms of cash available to us on our balance sheet?

Like when would we say, okay, now we're in danger zone?

And we kind of felt that was, you know, somewhere in the 6 to 9 months of if the wheels fell off the bus completely and we couldn't take anything, our costs weren't truly bearable, which they are, because ultimately in most tech companies, costs are people, so you can't always have fungibility on getting rid of people, but you don't want to get to that point.

Would we have enough money available to us?

But the key is you have to be able to forecast accurately, otherwise you're kidding yourself.

So that was 1 way we thought about kind of a minimum required amount, and then we would kind of look at the slope of the line as we would get close to that and then work backwards to say how long is it going to take us to fundraise.

On the other side, it's clearly, though, about the supply.

And so, like, the, you know, My chairman of the board always says rule number 1 in the CFO handbook is raise money when you can.

So you do have to be somewhat market sensitive.

We've been in an amazing bull market since the 08, 09 crisis, but I was joining Square kind of when that was still very front of mind.

So I was constantly a little afraid of what if the funding market's just dried up.

So in some ways, I would always think about that too.

I think over time what I learned was to not be so hypersensitive on dilution and points of dilution because ultimately if you're going to build a really big company, you're just, you know, you're worrying away about things that won't ultimately matter.

Better to do the fundraising quicker and be done.

I think the other thing was being much more front footed about what quote unquote perfection was.

We say, OK, on this thing that we want to do, like most recently as a public company, we just raised convertible debt.

What's the rate we want to raise that, who do we want the investors to be?

And so it gave everyone much more direction as well, instead of, when you're unsure, I think whether you mean to or not, you send that message clearly across the table to the people facing you, and so they become unsure, and so it's a big kind of game of we're both really unsure now, so no-one can make a decision, versus being very front-footed on perfection.

And of course, it's hard to make perfection happen, then you have to work out what your fallback is, but just being way more deliberate, even with something like a financing.

And 1 last question is, before I open it up for Q&A, you know, companies are staying private longer.

I would say it's, it completely is an environmentally driven, and that is if you have access to the markets like there has been for the last few years, then I mean, if you want to raise money and you want to have the least amount of administrative kind of work and support and just stuff to deal with, then private is just going to be easier.

That said, ultimately, expectations are at some point, there's always gonna be some form of liquidity at some point, and so at this point, it seems like there's no real need to go public purely from a capital perspective.

There's certainly the other aspects, and you can decide if you think they're real, is there a branding event, is there, does every great company eventually is a public company, so better to do it earlier than later.

There's a bunch of different things that you hear people say I think ultimately it really comes down to is the company ready, i.e., can they forecast, like Sarah said, do you know exactly what the next year's going to look like?

Because if you don't know what it's going to look like, the market hates volatility.

I can tell you from Groupon, hates volatility.

And in the early days of Amazon, everyone loves Amazon now.

The first, from 99 to about 2003 or 4, Jeff was the worst CEO in the world, according to Fortune, somewhat reputable.

And so all my friends at Microsoft across the lake were always kind of laughing if Amazon.org was still in business or whatnot.

And so I think it just it ultimately comes down to, you know, if you have that forecast ability, if you you know, the other thing that's funny is, you know, nowadays you only go public when you don't need the cash.

Market doesn't actually reward companies that need to go public generally.

And so, if you have the forecastability, if you have the ability to kind of weather storms before you go into it, it starts to, then you don't have to answer some of the questions about how risky the company is.

That said, I don't know, I would also say what I would do right now is, aside from all these theoretical stuff, I would kind of just say, go look at 2 case studies and say as a company you're ready to deal with it.

Pretend, you know, recent case studies would be pretend you're MuleSoft or Atlassian, and would you like to be public?

Everything looks like it's up and to the right, it looks nice, and there's been relatively low volatility.

Then go talk to the guys at Snap, or talk to, I guess now, Cloudera, or whatever, and ask them, would you have done it differently?

And I think that, at the end of the day, as long as you're prepared for not just the great case, but the downside case, and you're okay with knowing that what we dealt with at Groupon was every week there was a news cycle and every week, we had 48 countries, we had articles saying, hey, Groupon's going to go out of business or Groupon's making things up or whatnot.

The CEO then had to spend roughly 50% of his time dealing with employee questions and trying to convince them, no, no, no, we're not for sale.

I'm imagining this week Snaps had to answer questions about are we really for sale.

And now you're having to spend time dealing with the fact that once you're public, people can short your stock.

And that creates a lot of activity that you have to be ready to deal with.

It eventually goes away, but you will have to weather that for some period of time.

So I think all those things, you just kind of have to, once you think you have the thick enough skin and you're ready to deal with that stuff, then it'll be fine.

Because I do believe ultimately all great companies need to be public.

It's just a matter of are you ready to deal with some of those issues?

I always say stocks trade to fundamentals, ultimately, or that famous quote about in the beginning, it's a popularity machine or whatever, in the end, the market is a weighing machine, so when you talk to your employees, ultimately, it's about are you growing a big company and are you having an impact out there?

And so helping them focus on the long run and not get overly focused on the market or the short run is the most important thing you could do.

Because then you get away from all the noise.

The positive about being a public company is everything is in the public domain.

Your employees are all shareholders, or at least at Square, every Square's a shareholder.

So I talk to them all the time about we're all in this together.

You can now see, like way back when we went through a horrible news cycle about how Square was about to run out of money and go be dead.

And so employees had access to all the financials and could see what we had in our balance sheet, but there was always, like, I think a niggle in the back of their head, like, what if the Wall Street Journal is really right?

Versus today, like, we have SEC filings, you can't quibble with, like, the strength of your balance sheet, for example.

The key is to get people away from stock watching.

And I think how you do that is just actually being very honest from the get go that this is going to be a tough ride.

There's going to be things that happen that are nothing to do with Square.

People are worried about oil prices or China.

Clearly nothing to do with our stock, but ultimately the stock will trade to fundamentals.

So we've kind of had that path, so now there's a lot of credibility, but I think that allows people to get away from the noise and go back to the work, because that's ultimately the only thing we can impact.

How do you get really accurate forecasting?

So I think for me, certainly, part of it is, first of all, understanding the drivers of your business.

So I usually talk about the equation, what's the equation of this line?

Our revenue is F of number of subscribers times average, for us, average ticket size times number of transactions that they're going to do equals total transaction revenue.

And then taking each of those and saying, OK, well, what's the equation now of that?

I mean, I have an engineering degree, so I think I actually think about it almost like an engineering problem being built up, and then figuring out where are you accurate, always accurate, and then when are you not, and then trying to think through, okay, I'm not accurate here, why not?

Is it just insurmountable, Like it's incredibly, I can't predict snow storms on the east coast, but that has a huge impact on a commerce business.

So I don't want to be in the business of trying to predict the weather, so how do I allow then for what the plus or minus will be on either side of the accuracy of that?

And so I think a lot of people just don't ever break it down into an algebraic equation.

They just kind of head scratch and can't understand why they're 10% off.

So it's keeping asking the why, And then digging in on the places where you are least accurate and really getting your arms around that Might sound kind of like a trite answer, but I find it makes life bolts go off

Yeah, the only thing I would add is If you kind of zoom out high level, forecasting is largely broken down into 2 pieces.

You have the revenue and demand side of the business, which is tricky for all the reasons that Sarah just pointed out.

See all Y Combinator transcripts on Youtube

The Job of a CFO at a Scaling Company | Sarah Friar (CFO of Square) & Jason Child (CFO of Opendoor)