Finance Leadership

From CF-GO to CF-NO: The CFO Decision-Making Journey

The balanced and forward-looking CFO is regularly mapping out their company’s future and assessing when it's time to slow or accelerate growth.
Michael BayerMarch 24, 2023
From CF-GO to CF-NO: The CFO Decision-Making Journey
Photo: Getty Images

The chief financial officer position has changed dramatically over time, particularly in light of how technology has affected business.  

CFOs are simple folk and we simplify our focus down to two things: activities that will increase revenue and activities which will reduce costs. Sometimes an undertaking will do both — these are the rare unicorn projects that get fulsome support.

Our interest in and emphasis on these two waxes and wanes with the business cycles. In times of plenty, where excitement rules the day, it’s all about growth. In leaner, more austere times, cost reduction becomes the focus.

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This shows up in the person the CFO adopts in different parts of the cycle. There is the CF-GO, who is the well-spoken cheerleader for growth and expansion, full of metrics that track revenue increase by quarter and year and extrapolate into a future where the company takes over the world. Then there is the CF-NO — the Hyde to the CFO-GO Jekyll. This is the darker persona that focuses on cutting costs and reducing burn.

The CF-GO is in the House

The CF-GO assists the business in growing by offering financial advice and support for new investments and projects. The CFO is a tough business partner and an articulate storyteller who can weave the company pitch to show how investment dollars turn into revenue, revenue growth, and ultimately return to shareholders. 

Michael Bayer.jpg

Michael Bayer

It’s not that they don’t pay attention to expense management — far from it. They demand a return on what is spent, but the bias is to say “yes.” “Yes, let’s invest in that.” “Yes, let’s hire those new salespeople.” “Yes, let’s open up a new region.” “Yes, let’s roll out that new product.” The CF-GO’s models compound out into the future with “up and to the right” curves. You could mistake the CF-GO for a head of sales.

OK, maybe not a head of sales. But a much cheerier disposition for sure.

The CF-GO is in the same room with the head of sales, though, pitching new deal structures and investment schemes and shifting priorities to spur growth. “How can we build that?” “Can we partner?” “What if we did twice as many of those…would we grow faster?” The CF-GO is future-focused, constantly searching for new investment possibilities and ways to spur growth. They spend their time offering insightful information and suggestions that will aid them in making wise investment choices and tapping the markets to ensure that all good ideas get proper financing.

Gotta Pay The Rent

The CFO is always in touch with the capital markets, reading the tea leaves of whether the markets are in greed mode, searching for aggressive growth, or fear mode, looking for defensive investments that will protect their capital. Oftentimes, that signal comes in the form of the rent. Financial markets are simple in sum: there’s a bunch of capital out there to “rent” and its owners rent it to the enterprise(s) that will pay the highest rent. 

While the CF-GO is proactive and future-focused, the CF-NO is mired in analysis and questions.

That “rent” — the academics call it the “required return on capital” — tells the CFO what the markets want. When the rent is cheap…that means the “tenant,” the borrower or the company who raised the capital for equity, can invest in a lot of different things that will pay off in the future. That’s growth mode, also known as CF-GO mode. When the rent is high, the firm can’t afford to invest in everything. In fact, it can’t afford to invest much at all, and instead, the business has to focus only on the most important things. Cut spending to the bone, and reduce cash burn. Drive a return on investments fast, fast, fast. Gotta pay the rent.

The CF-NO Emerges

Markets are bound to turn dark. Just look at the equity markets today with a bumpy ride into bear territory, or the debt markets with interest rates creeping up and the yield curve inverting. 

And when that happens, CFOs put down their pen, stop reading emails, and do everything they can to put the brakes on. They move into their CF-NO job, playing a more cautious role in carefully choosing the very few investments that are worthy of that precious and expensive capital. And they start saying no to the majority of activities that do not correspond with their financial goals, responding to an uncertain business environment.

Oh, to be a project heading into battle with a CF-NO. They don’t stand a chance. 

The head of sales goes nuts. “What happened to my friend, my partner, the one who always said, ‘yes?’” The chief technology officer asks, “Why can’t I start all these new projects?” Even the CEO starts wondering, “What just happened? Everyone is complaining that things are slowing down?”

No, that’s not a dark cloud overhead; the CF-NO has entered the room.

While the CF-GO is proactive and future-focused, the CF-NO is mired in analysis and questions. The courteous ones ask, “why?” five times. Gruffer and tougher ones just say, “no.”

They take fewer risks. They slow things down. They don’t just stop supporting things; they kill them dead in their tracks by leaving them hanging in endless approval queues. Oh, to be a project heading into battle with a CF-NO. They don’t stand a chance. 

The CF-NO uses terms like fiscal responsibility, risk mitigation, and liability management. Half the time, you don’t even know what they are talking about. It’s like in Star Wars, “These are not the droids you are looking for.” A Jedi mind trick. The CF-NO rejects investment options that may look lucrative but don’t fit with the company’s long-term financial objectives. Remember that rent? The CF-NO is brilliant here, coming up with models that demonstrate how the business won’t cover its capital costs with whatever you’re proposing. 

Helping the business prioritize its investments is the CF-NO’s main duty. This entails carefully evaluating each investment opportunity to see if it is financially realistic and will aid the organization in achieving its objectives. To enable other employees of the company, particularly senior management, to make informed investment decisions, the CFO must also be able to convey this information to them.

You Don’t Have a Strategy Until You Say “No”

Brian Halligan, the legendary CEO of Hubspot, put it best in his 2018 Harvard Business Review article entitled “The Art of Strategy Is About Knowing When To Say No.” 

The CF-NO knows when to say, “no.” It’s a crucial responsibility to ensure the firm’s long-term stability. This means keeping tabs on the business’s financial performance, spotting any potential financial concerns, and proactively addressing risks. And it means stopping the patterns of overinvestment that can happen under a more proactive CF-GO. The CF-NO has to make sure the company has enough financial resources — cash, lines of credit, etc. — to weather any economic downturns or other financial difficulties. 

The CF-NO focuses on cost management. This means cutting costs, negotiating better terms with suppliers, delaying payments…slowing down. Sometimes it means eliminating headcount. Yes, that brutal word is here: layoffs. When layoffs happen, it’s a failure of fiscal responsibility. 

The balanced and forward-looking CFO is always looking down the road, months, even quarters, assessing which side to be on — go or no. It certainly doesn’t win friends, but it keeps people in jobs and companies in business.

Michael Bayer is CFO of Wasabi Technologies. He also teaches graduate-level corporate finance at Babson College.