Introduction: Served as CFO in private equity, biotech industry for fifteen years. Purpose here is to reflect and share a few stories, experiences, or anecdotes that stand out.
1. Payroll:
Worked at Epocal, in Ottawa Canada. The company nearly went bankrupt, twice. Often times, I would wake up at 2am, wondering how I would fund payroll. Payroll cost one-million dollars per month; I knew every employee by name. I even contemplated funding payroll from my personal account.
My colleague, Thomas, was responsible for international sales. On one occasion, he placed and shipped an order to Japan (with 30-day payment terms). As soon as the order shipped, I called Japan, and offered a 20% discount if the invoice was paid by wire transfer within 24-hours. The invoice was paid, and I funded payroll. When the monthly financial statements came out at the end of the month, the CEO asked why gross margin was lower than normal. I suggested that he not ask such a question.
Vendors were still shipping raw materials, but I hadn’t paid vendors in seven months. I was truthful, and explained that Epocal was in negotiations to be acquired. Epocal was later acquired by Alere for $250-million in a phased acquisition, with a $25-million up-front payment. I cleared the outstanding payables balance of two-million dollars. My supply chain manager, Jamie, hand-delivered the cheques to each of our key vendors.
2. Lawsuit:
At Epocal, I worked twelve hour days; I returned to the office Saturday morning, and worked until mid-day, without distraction. I lived close to the office, it was just a short drive.
We had a multi-function printer on the second floor, where the offices and cubicles were located. It could print, copy, and fax. One Saturday, I walked to the unit, and saw a two-inch stack of paper in the outbound tray, which was odd. I picked up the material, and skimmed through it. It was a lawsuit from Abbott Laboratories (NYSE: ABT), a large competitor in blood-gas testing; there were many claims in the lawsuit, including patent infringement.
I scanned a copy of the lawsuit, and emailed the CEO and general counsel. The CEO later informed the board of directors. Epocal anticipated the lawsuit as a competitive response. However, many hospitals delayed the decision to buy and use Epocal’s product until the lawsuit was dismissed.
The lawsuit was later rescinded by the judge for lack of merit, but not before several years of discovery, witness deposition, and trial preparation, and burning $30-million in legal fees; capital raised by investors to commercialize the company, not to fight a lawsuit.
In 2011, Epocal was acquired by Alere in a phased acquisition. In 2017, Epocal was sold by Alere to Siemens, so that Abbott Laboratories, the company that sued Epocal, would pass anti-trust review by the Department of Justice, and could acquire Alere.
3. Flood:
In February 2010, I visited one of Epocal’s testing labs on the first floor; there was some water puddling on the floor. The facilities manager, Jamie, called a contractor to inspect; an old pipe was leaking. The contractor took steps to replace and repair.
On Saturday morning, Jamie called my cell phone, and in a deadpan voice, shared that there was an issue, and that I should come in to the office
It’s a short drive to the office, just a few miles; I drove into the parking lot. It was covered in thick ice, like a skating rink; the car went into a skid, and I slid into a parking space.
The water in the parking lot had come from the building. At around midnight, that faulty water pipe burst, and flooded the first floor of the building, where Epocal housed its testing labs and manufacturing space. The building had a security system; the motion sensor alarms were triggered. There was several feet of water in the building, and the vertical deep freezers floated around the labs, and set off the motion alarms.
One director lived across the street; he was called by the security company. He walked over to the building, and was the first witness to the damage. He opened the front door to the office, and water rushed out into the parking lot. He opened the overhead door to the loading dock, and more water rushed out.
When I got to the building, I called the insurance company; Jamie called a service company to assist in the clean-up. Many of the vice presidents and staff came into the office, to start sorting through the damage. The CEO sent an email to the board of directors.
The company had almost no cash at the time; it was nearly bankrupt. I didn’t let the insurance adjuster leave without writing me a check. Employees worked all day Saturday and Sunday to clean the building. Everyone returned to the office on Monday. By the following Monday, we had resumed production.
Most of the sheetrock and insulation was removed from the first floor, at least three feet from the ground; large fans were brought in to dry out the space, before the surfaces were replaced and repaired, to ensure no mold growth.
One of the many challenges of working at a start-up.
4. You’re fired:
I’ve hired and fired people for twenty years. It’s challenging, but not impossible, to hire good people. My intention was to hire for attitude and train for skill. In a small company, every employee has to contribute; there is no place to hide.
Ineffective employees are a burden in a small company; ineffective employees create more work for the effective employees, who have to pick-up the slack. After training and coaching, if an employee isn’t contributing, or if an employee is toxic, I will ask the employee to step aside, and transition out; when that’s not possible, fire them, as nicely as possible.
When I built out the team at CRG, I needed not just skillful accountants with private equity experience, but also, good people. Everyone on my team would interview each of the final candidates. It was usually a series of interviews in the morning. It’s difficult for a candidate to “fake” their enthusiasm over a three or four hour interview. Often times, we would include a lunch meeting too, to evaluate social norms and politeness.
I have something that I call the “airplane test.” How would you feel about a person if you had to sit next to them, and engage in conversation for the five-hour flight from San Francisco to New York. Heaven or hell.
The other comment that I should share about serving as CFO, is that when you work your way up the “food chain” during one’s career, that it’s entirely possible to be fired. It doesn’t always reflect ability, sometimes it’s a personality clash. Getting fired goes with the territory; don’t let “fear of failure” prevent you from accepting a challenging opportunity.
5. Lessons learned:
I’ve learned a few things while serving as CFO. It’s not about accounting or finance; I’ve often said, “don’t let the tax tail wag the dog.” In fact, it’s often never about accounting or finance. Finance is just one point of view; there is also sales, technology, research and development, ego, and complex human emotions, including greed and anger.
I have learned to disagree without being disagreeable. I don’t have the intellectual capacity to yell and argue a position. I’ve witnessed some CEOs cultivate a certain amount of un-civil behavior in the name of challenging each other, and intellectual rigor. I remember sitting in a conference room, where people were yelling at each other. I wondered if I was on the set of the Jerry Springer show, and wondered if people would begin throwing chairs.
If I disagree with the CEO, I disagree in private, not in public. I’ve learned that it is best to provide a window for the CEO to “save face” and not corner the CEO, where the reaction could be as violent as a caged animal.
The CFO should be a trusted advisor; it’s not about pet projects; it cannot be about winning at all costs, which too often results in a pyrrhic victory.
Lastly, it’s not about the payout; a career is like a journey, a process; it’s not the destination. During my fifteen years as CFO, the payout never quite justified the process. The payout was hollow, perhaps because so many relationships were left damaged. If the payout was removed, the underlying experience and process would never be pursued. I’ve worked with some intelligent, driven people, but too few people, who pass the “airplane test.”
6. Nature of work:
I have a few thoughts about the nature of work, hopefully, rewarding over the long-term.
1. It helps to be skillful at your job; I argue that 80% of the role should be inside one’s comfort zone, and 20% outside one’s comfort zone, so that a person may be challenged, and continue to learn and grow over time.
2. Compensation (salary, bonus, equity) needs to work for you. I’ve managed payroll for most of my career, and learned that most people appreciate their level of compensation, until they see what other people make – what their peers make – and than they are no longer pleased, asking, why does s/he make more than me.
3. The best work is mission driven; would you still pursue the opportunity if there was never a payout. The payout is often underwhelming, and often never worth the “cost.”
4. We are social creatures; it’s beneficial to work with good people. Life is too short to work with people who lack decency, or a moral compass.
5. It helps to live and work in a location that you enjoy, rather than a place that is only tolerated, as one climbs the corporate ladder. In a post-pandemic world, white collar, educated professionals, likely have more flexibility.
6. I used to tell my team that four out of five work days (80%) should be joyful, enjoyable work. Things may go “wrong” from time to time – fire drills – but this should be the exception, not the norm. If your work week is inverted, where 80% of the time things are going badly, maybe this an indication that it’s time to move on.
7. What work would you do for free; what work is so intrinsically rewarding that you don’t need to be paid. I respect that most people have families, and need to work. For example, would a private equity professional still work in the industry without a seven-figure compensation package.
8. I no longer want to work 60 to 80 hours per week. I would much rather work flexible hours, or seasonal type work. I’ve often been jealous of actors who may accept a project, finish the project, and have some down time to reflect.
9. I no longer want to pursue opportunities that don’t scare me. Almost every professional opportunity that I pursued was safe. Safety does not exist in the world; the only place to learn and grow are those places that leave me in fear.
10. I’d like to focus on opportunities that develop different parts of my brain; not just business, but also, drawing, painting, poetry, and writing.
11. What do you do when no one is looking; what do you do when you are not being paid; what do you do when you don’t receive public praise. For me, it’s world travel.
12. What is the tone at the top; do you agree with the tone at the top; does it resonate with you. If it doesn’t, maybe it’s best to step aside, and find a new opportunity. I respect that many people don’t have this luxury. When I ended my CFO career, I didn’t agree with the tone at the top. I wasn’t going to change or influence the tone at the top. I didn’t have to disagree in a disagreeable manner. I had the luxury to step aside. I just quietly stepped aside, and moved on.
13. Deliver value before you extract value. I’ve paid many invoices as CFO, and I often struggled with expensive consultant invoices, questioning if the value delivered was consistent with the fee. We seem to live in a time when everyone is trying to monetize something. I completed a project for a friend several years ago, gratis, as a token of our friendship. Later, the friend insisted on paying me; I replied that s/he could choose the remuneration amount, consistent with the value delivered.
7. Financial statements:
When reviewing financial statements, I start with the statement of cash flows. Cash is king; cash doesn’t lie. I like to compare cash flow from operations to net income. They should be consistent, unless a company has aggressive accounting policies, which inflate income.
Second, I review the balance sheet, in particular, the nature and amount of a company’s liabilities and its shareholders equity, how are those liabilities being funded.
Third, I review the income statement; it has the least value, because it may be so easily manipulated, the income statement is too often a work of fiction. Back in the day, Enron only produced an income statement for its quarterly release, never a balance sheet or cash flow statement, despite insisting that it was a financial services company (not energy).
Malcolm Gladwell argued that Enron’s financial statement fraud wasn’t hidden, but rather, could be detected, the difference between a mystery and a puzzle. Following his release from prison, Andy Fastow, Enron’s former CFO, gives talks about financial statement fraud.
8. Not appreciated:
In my experience, no one hires a CFO because they wanted a CFO; the CFO was hired because a CFO was needed.
At Epocal and BioNano Genomics, there was often less than one year of cash in the bank. Both companies had negative cash flow from operations (expense exceeded revenue), and “burned” cash. The CFO is often tasked with raising capital, which is difficult, if not impossible, when the technology isn’t finished or doesn’t work, markets don’t want your product, costs are higher than planned, and timelines are taking longer than planned.
At one company, we produced 25 sets of unaudited financial statements every quarter, produced 25 sets of audited financials by March 31st, and produced 500 investor K-1 (IRS Form 1065) tax statements by April 2nd. Getting people to agree on the value of the illiquid, balance sheet (level 3) assets, was often a challenge. Professionals acting badly. One senior-level employee would often erupt in a temper tantrum; I would have to wait a day or two for people to calm down and behave like mature, rational adults.
I don’t remember anyone saying “nice job” or “thank you.” I’ve been told that this was my job, and I was being well paid. Fair enough. But, a kind word is appreciated, and it’s free.
9. Aviation vs. biotech:
I enjoyed working in the aerospace and airline industry. I wax excited about aircraft and jet engines. I could bore you (to death) without trying (ask me about a nacelle strake). I enjoyed the high-energy airport environment; I loved the smell of jet fuel in the morning.
I enjoyed working on the airport ramp; I had no problem waking up at 2:00am, or earlier, to go to work at the airport. One day, I was at the maintenance hanger at JFK airport. I was in the flight deck (cockpit), talking with one of the technicians. My colleagues thought that I was lost, until they saw me from the hangar floor, through the flight deck windscreen.
Working in the biotech industry was more profitable; I likely would not have reached the level of financial independence had I remained in the aerospace industry.
In biotech, I made every attempt to learn about the science and technology, but I could never “speak the language.” It was never for lack of effort. Maybe Warren Buffet is right, don’t invest in an industry that you don’t understand.
Some days, I regret stepping away from the aerospace industry, it was my passion. At this point in my career, it likely doesn’t make sense to return to aerospace. As I’ve shared previously, a person can’t pass through the same river twice.
10. Entrepreneur:
I sometimes wonder if being an employee is “lazy” versus being an entrepreneur. As I’ve grown older, I see more value in creating, more value in being an entrepreneur than being an employee. As an entrepreneur, a person may control their own destiny; doesn’t have to chase promotions, or play corporate politics.
My friend, Alex, has been building his own company for the past decade. I’m confident that one day, he’ll appear on the cover of Inc or Fast Company magazines, as an “overnight success.” Alex bootstrapped his company; it’s a preferred path than taking other people’s money. He hasn’t always had the opportunity to pay himself a “fat” CEO salary, but he has retained control of the enterprise, and sustained organic growth.
I have business experience, and my own capital, but I shoot down every business plan and idea that I generate. It’s much easier to try and fail at age 20 or age 30; it’s much more difficult at age 50.
Conclusion:
I was fortunate to serve as CFO. I’ve worked with some good people, enjoyable friendships. Financially, it worked out well. I had a recent opportunity to return to the private equity industry as CFO; I declined.
It’s been said that we only have time, wealth, and health. I sold my time, and compromised my health, for wealth. I want to be engaged, but I don’t want to serve again as a full-time CFO. It’s not possible to pass through the same river twice.
The Dalai Lama was asked what surprised him most about humanity, he replied: “Man. Because he sacrifices his health in order to make money. Then he sacrifices money to recuperate his health. And then he is so anxious about the future that he does not enjoy the present. The result being that he does not live in the present or the future; he lives as if he is never going to die, and then dies having never really lived.”
garthmonroe 