I created this article series for companies running (or seriously contemplating running) EOS® Traction, Gino Wickman’s Entrepreneurial Operating System® for small-business owners. I run my company on it and found that, while EOS® is extremely effective for management and scaling, the core EOS® materials don’t provide the depth of guidance for the financial component so critical to small-business growth.
These posts are for entrepreneurs who want to polish and improve the implementation of EOS® in their companies by enhancing that financial lens. It can also help accounting and finance professionals be impactful leaders within their EOS® company.
Articles in this series can be found here.
A common challenge that I’ve heard numerous times in talking to EOS Implementers® is the difficulty of maintaining some of the basic components that keep EOS running: their clients’ scorecards (high-level numbers that we measure regularly), their Level 10® Meetings (the weekly accountability meetings) and their quarterly Rocks meetings (where quarterly goals are determined). And these implementers often point to weakness in the “Finance Owner” on the EOS Accountability Chart™.
While EOS® is very logical, it can be challenging for accounting/finance because it’s a new process, system and language to integrate into your traditional processes.
For these posts, I’m using the term CFO to refer to the “Finance Owner”. While the box on the Accountability Chart™ may be owned by a Controller, COO or company founder, the message remains the same.
In “Traction,” the author, Gino Wickman, identifies six key components of the EOS® model. These components are:
They are represented as a circle of equal, integrated parts in no particular order, but the CFO plays a critical role in each. “Traction,” however, makes little mention of the role of the CFO in people or in any component of EOS®.
The CFO’s Role in People
We all know that the team is the most valuable asset driving value for the company. It’s an essential piece for growth and scale, which is what EOS® is all about.
You can’t get traction without growth and scale. So how do you grow and scale your team, your People in Traction parlance? The CFO plays a critical people role in four key elements:
- Compensation and benefits
- Rewards and recognition
- Measurement and management
People often underestimate how challenging it is to figure out when to hire, who to hire, and then to communicate why/how the company can afford these hires.
From a financial perspective, we need to understand where growth is going to occur (which roles or departments) and where the capacity is going to break first. Then we need to decide if the organization can afford to put someone in that role.
This is the “Traction” concept of delegate and elevate: delegate to get another person on board and then elevate yourself to a higher position. It all sounds great, but it is a challenge for the entrepreneur. I’d love to be able to delegate my entire job, but the reality is that we’d go bankrupt. The key is triangulating capacity, cash and growth.
The CFO plays a critical role in the analysis of that talent pipeline and can ask the essential questions such as:
- What’s the trajectory of growth? How is it going to change?
- What is the capacity of people and how much cash do we have to support them?
- Do we insource or outsource?
The CFO manages that pipeline and ensures the organization is proactive and has the visibility to get ahead of the talent equation.
For example, a rapidly growing SaaS software business experienced tremendous success because the inside sales group was calling on enterprises and promoting their products. The CFO played a critical role in identifying that success and quickly prioritized hiring for that department.
Even in the interview process, the CFO can play a role. Think of it this way: Every new hire is also an equation. It’s important to model that out. If you hire a salesperson, you want to know how quickly they can become productive, how fast their sales can pay for their salary. The CFO can establish the assumptions and determine how much cash it is going to take to bring in that extra salesperson. All of this impacts the company’s ability to grow and scale!
In an early-stage company, there are going to be people who quickly reach capacity. They need to see the light at the end of the tunnel, or the company will lose them. We need to create a path for deciding which hire is the most critical and which will give us the most leverage. This is a discussion the CFO can lead.
Sequencing these hires is also an issue. There are situations where, for example, a tech company experiences a technical problem and needs a technical person brought in to fix the issue. But that’s a zero-or-one binary issue. In reality, it’s often more complicated. Do we need a salesperson next? Do we need a coder next? A marketing person? What is the next right hire and why? This should mean having a data-driven discussion. For many companies, that can be a challenge without a CFO who can clearly articulate what the company can do financially.
Compensation and Benefits
Compensation and benefits can be surprisingly complicated. The three issues typically encountered by early-stage companies are how to structure salaries, benefits and equity. Salary Understanding how to build a good salary structure is critical. The CFO can drive how the company creates room for that salary structure and establishes the right balance between salaries and rewards/recognition.
We may decide that we can’t afford a significantly robust benefits schedule today. But we can plan for a migration to a more robust benefit strategy as the company can afford it. The CFO can help answer the critical questions. Who comprises your team? Do you have a lot of 40-year-olds with children or a lot of 20-year-old singles who want to travel the world? Will the team always look like this?
The CFO can also help drive the company values and behaviors. Is your company cultivating a pay-for-performance culture? Or, do we have a low-bonus, “this is your job; do it and you get paid” sort of culture? A lot of this relates to the current and future trajectory of the company. How important is it to the owners that employees feel they are part owners?
Rewards and Recognition
For a CFO, rewards and recognition often start with the strategic planning and/or budgeting process. We decide what we want to accomplish in the coming year, and if we reach these objectives, we determine what we are going to share with the organization.
What if we achieve 90% of our goal? Does that translate into no bonus or a 90% bonus? And what if we meet 105% of our goal? Do we bonus everyone for achieving? Or just some of our people? It’s an interesting equation that should consider the culture you want to develop and the behaviors you want to drive in the organization.
Without the CFO, all of these processes can be very qualitative and subjective. You end up with less data-driven decision making, which often dilutes an organization’s ability to make the right decisions. With the activities, tracking and metrics set up, you can motivate, manage and celebrate your team and your people. You can ensure you have the right people in the right seats and drive the organization at the right pace.
Measure and Manage
“Traction” focuses heavily on the Measure and Manage piece through ensuring your company has the right people in the right seats. The GWC™ Tool, which stands for “Get it, Want It and Have the Capacity To Do It,” can help.
The CFO has a considerable role to play here because one of the subsidiary concepts of GWC is that everyone has a number. That number must be measured and managed to create transparency for the employee and in explaining shortfalls. This puts a quantitative aspect to the equation rather than relying on qualitative feedback. But setting up the systems to monitor this can be significantly challenging.
Another challenge is measuring capacity. Consider the example of a call center. Let’s say its average call is seven minutes. When you have several hundred calls a day, it’s relatively easy to set up an algorithm that defines staffing. When that team is at capacity and you want to grow our business to several more hundred calls, you need to increase your staff by a certain number.
CFOs also measure if people are taking calls or resolving requests because call centers are very metric heavy. This is not always easy in other roles, especially when there is less robust data.
Without the CFO, the processes critical to EOS and gaining traction for your company can be very qualitative and subjective. You end up with less data-driven decision making, which often dilutes an organization’s ability to make the right decisions.
With the CFO involved, you’ll have meaningful scorecards, L10s, and quarterly Rocks meetings and ensure your company’s continued growth and success.