Some time ago I met with the executives of a $40-million automotive service company to discuss recruiting a CFO for their business. The owner-managers were the sons of the company’s founder, and the reason they wanted to conduct a CFO search was to replace someone who was essentially the Controller. The incumbent had been with the company for over 30 years and was planning on retiring. The owner-managers had plans to build on the success that the company had already enjoyed and were taking the incumbent’s retirement as an opportunity to recruit a qualified CFO to help them implement their growth strategy.
“We Know What We Need”
The executive team had grown up in the business and were very savvy operators. They understood that in order to properly realize their growth potential they needed to fill out their executive ranks with someone who would bring a higher level of financial sophistication and business acumen to the table.
We talked about the company’s history, its current growth trajectory and the plans the brothers had to expand their reach in their market. After we had done a deep dive into the state of their operations and plans for growth, we mapped out the functionality of what would essentially be a new position and talked at length about what the new CFO should look like. The owners were very detailed and specific about technical qualifications, industry experience, management style and potential to grow with the company.
Accounting Knowledge is Table Stakes in a CFO Search
After about two hours, we had thoroughly scoped out the position and agreed on a candidate profile that would meet the company’s current requirements and fit with their future plans. As this was a family owned and operated enterprise, we paid special attention to the personality profile of prospective candidates. In a search like this, technical and professional qualifications and experience are table stakes. What really determines the success of the hire is the personality fit, and not just with the owner-managers. In companies where the owners have grown up in the business, and the management and senior staff have worked together for many years, anyone joining the executive team needs to mesh well with everyone.
Tripping Over an Unemployed CPA
After the meeting I sent out a proposal and started thinking about how we would approach this assignment. I hadn’t heard back on my proposal for a couple of weeks and so I called the owners to ask what was up. They explained that they hadn’t pulled the trigger yet because someone they knew referred a CPA to them who was unemployed and they wanted to take a look at him before they started the search.
Needless to say, this turned out to be the person they hired to be their CFO.
Probably Not a Bad Hire But…
I’m pretty sure the company didn’t make a bad hire. The referral was a CPA, probably had experience as a VP Finance and, if the company owners had decided to hire them, they obviously got along. But, and this is a big “but,” I’m also pretty sure that they didn’t make the right hire. The owner-managers had a well-thought-out list of criteria that they felt were necessary for any prospective CFO to succeed in the position. The odds of finding those criteria in a random referral are very, very remote. However, the person they hired did have one very big thing going for them—they were convenient.
The Proverbial Fork in the Road
As often happens with owner-managers who need to a hire an executive, the brothers were faced with the proverbial fork in the road. On one side was the road marked “Full Blown Search,” a path they knew was both time consuming and expensive. On the other side was the road marked “Least Resistance,” a path that was both quick and cheap.
I’m sure the brothers knew that a full-blown search would produce better results than the quick-and-easy fix; but as is often the case, they didn’t think that the extra time and expense justified the incremental difference in outcomes. However, in many if not most cases, the incremental difference in outcomes to your business can range anywhere from significant to game changing.
The 20/60/20 Rule
Although there’s no data available on the outcomes resulting from this type of process, I suspect that the 20/60/20 rule comes into play: 20% of the hires will be failures, 60% will be average to pretty good fits and 20% will be top performers.
There are two major implications to the statement above. First, the odds are stacked against you hiring a top performer. Your most probable outcome is that you’ll hire someone who’s okay, but not a star (and of course you run a real risk of making a bad hire). And second, you’ll end up paying anyone you hire about the same as you would have paid a top performer. But even if many owner-managers don’t fully appreciate what a great executive hire brings to the table, they’ll all recognize what a bad hire takes off the table.