I took a call from an executive recruiter the other day.
I’ve talked to this recruiter a few times previously. He knows my background a bit (we talk about cycling – which I prefer to talk about vs. ASC 606). Which is more than I can say for quite a few recruiters who reach out to me.
The opportunity was not of interest – mostly due to geography. It was in the technology space. But located in Arkansas. Little Rock to be exact. Bentonville might have made me pause. But, Little Rock. Nope, sorry. But I digress.
During the conversation, the recruiter said something like “the company is looking for a CFO who will work with the Head of Sales. The last CFO saw things a little too black and white.”
That’s a statement that should never be made in public. Certainly not within earshot of an auditor. Even if the CFO was a total asshole. Reading between the lines. The company had a CFO. The CFO and Head of Sales had a disagreement. The CFO is gone.
Not music to my ears.
What might the CFO and Head of Sales have disagreed on?
Recurring revenue model software companies are being valued entirely on a multiple of recurring revenue. And not a small multiple. Very lofty multiples. Could even be double digits. Big double digits. Here’s some insight into my opinion on all that (the NOT talking my book edition).
So, obviously, managers of these businesses are highly incentivized to do everything they can to grow recurring revenue in the short term.
“Money makes people do strange things” – me
That was maybe my best answer to an interview question ever. I suck at interviewing. I offer no advice there.
Based on my own experience, the Head of Sales is highly incentivized to grow revenue. An almost singular goal. The compensation plan for the Head of Sales is likely entirely based on revenue. They probably have some options / MIUs too (see the valuation discussion above).
But, the last time I checked, my Head of Sales is not going to sign the audit attestation letter. So upside based solely on revenue. Very limited downside. What could go wrong?
The CFO wants to ensure the company is in compliance with accounting rules – among other things. Which could be an opposing goal to booking revenue – if you care about not manipulating revenue or committing fraud. As an aside, the CFO likely has a lot of options / MIUs too (ruh, roh).
If I was on the board of that company, I would be…uncomfortable. Yeah, that’s a nice way to put it.