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.
The CFO’s role in the Process component of EOS® — identifying and documenting your company’s core processes — ensures consistency and scalability in your organization. This is also true of the Issues component of EOS®, where your organization masters identifying, discussing and solving problems.
In a company’s ecosystem, the CFO supplies the discipline and accountability to help you put the right systems and processes in place. He or she ensures all significant issues are addressed with the right information and assumptions and confirms that they are permanently solved.
For the Traction component of EOS®, the CFO plays a unique role in maintaining the management cadence — the Level 10® Meetings (“L10”), the quarterly and annual meetings, budgeting and financial reviews. Driving the team as to when you are looking at past performance, or forecasting the future, or allocating dollars. The CFO supplies critical visibility and the linkages between financial performance and the go-forward plan. The CFO and the Traction component of EOS® is where you master the execution and make your vision a reality.
The CFO’s Role in Process
In EOS®, Process has to do with defining the processes that run the core components of your company. As a CFO myself, my lens has always been focused on three critical elements that the CFO contributes to Process:
- Consistency
- Scalability
- Cadence
Consistency
Consistency in Process implies utilizing systems, but organizations tend to be fluid. Their needs or wants change. They might say, “I want to look at this.” “Let’s change the way we look at that.”
Reporting, analytics and critical metrics can be (and often are) changed continuously. I’ve seen in many companies’ finance teams that allocate time in their calendars for “ad hoc reporting” because of the lack of consistency. The CFO’s role is to keep the company grounded with core purposes and processes while being thoughtful of important changes. The consistency also plays into process — how we run a contract process, an implementation process, onboard a new client, close-out an engagement or calculate commissions.
This grounding helps the organization operate, make decisions, and find information more quickly, thus creating organizational speed, velocity and reliability.
Scalability
Consider your company’s invoicing process. Would you follow the same process if you had 10x the number of customers? Will it still work when you have 1,000 customers? What breaks in the process?
The CFO prioritizes where an organization starts to prepare for scale. They identify potential breaks in processes and which to address first. They also determine which systems/processes need to be improved and automated well in advance of a break, identifying what processes are going to reach “capacity” or be susceptible to “errors”.
For example, a common question I hear from some of the early-stage e-commerce companies I work with is about fulfillment.
They might be currently shipping from their “basement” or having an office manager handle shipments. Will that still work when they have five times as many packages going out? Probably not.
The CFO ensures helps determine when that new process make sense financially and structurally for the organization.
Cadence
Cadence is a critical component of EOS®. It creates a rhythm and flow. The Scorecard, weekly L10, quarterly Rocks and annual meetings all contribute to that cadence.
The CFO drives the flywheel. The information and reporting delivered by the CFO is the first level of cadence. The Integrator might call a weekly meeting. But the real cadence is the information provided in the meeting, which drives decision making and performance and makes the meeting valuable.
Ultimately, this pulse is the Traction component below. The CFO is truly the enabler of this rhythm, velocity, pace and cadence for not just the management team’s meetings, but for many processes of the organization like closing the books, updating a “dashboard”, getting out invoices, collecting A/R, etc. To me, a high velocity, high cadence organization increases its opportunities to win.
The CFO’s Role in Issues
As you’ve read in “Traction,” you’re going to spend about 90 minutes each week in an L10 meeting. (That is if you’re only scheduled in only one L10 each week!) That’s 75 hours each year or about two full work-weeks. That is a lot of time. You want to make every one of those 90 minutes count. And the Issues component is huge chunk of that agenda. So, addressing issues with efficiently and effectively is critical, and the CFO’s command of the data/information pinpoints the “real” issue leading to better discussions and quicker “solves”.
The CFO brings the “presidential brief” to quarterly Rocks and L10s that allow your company to select, identify and discuss issues and then assess solutions.
Identify, Discuss, Solve (IDS™)
EOS® dedicates a substantial portion of your L10 is spent on identifying, discussing and solving issues (IDS) because EOS® sees IDS as a critical component of what propels your company forward. To maintain or increase velocity, you need to be able to push items through the issues funnel efficiently and quickly.
Traction lists three steps in the IDS process: identify, discuss and resolve. However, I believe that there is a fourth step which needs to happen early in the process that I have found is really important to the process: Select.
Select
I’ve worked with plenty of companies who have 30 to 40 issues on their list. Not uncommon. It’s challenging (and time-consuming) for them to even select which issues to focus on.
Strong CFOs can get in front of the issues list. They help guide the L10 team to select the issues that are most critical along with issues that have enough data attached to them to allow for a constructive discussion and resolution.
There are three types of issues a company will want to address.
- Elephant in the room discussion, the one that no one really wants to talk about
- Help issue, the kind of problem that we seek assistance with because we are unsure of how to proceed
- Decision-making analysis, which requires data and perspective (from the CFO!!!) to suggest a path forward
Some of these issues are beyond financial analysis (e.g. an employee out of alignment with values), but every decision will likely have some financial impact that the CFO needs to own.
Identify
The key to identifying in the IDS process is understanding what the actual issue is. For example, it might present as merely, “customer service is underperforming.” But there is usually a much deeper issue (or root cause).
The CFO can identify and quantify that core issue. How is the customer services issue affecting the organization? What is causing the problem? Is there a process, systems, capacity issue?
Again, strong CFOs can prepare and “get smart” on the issue prior to the L10.
Discuss
Discussion is where the CFO can have the most impact. Once the issue is selected and identified, the team can then discuss possible solutions. Do we go right, or do we go left?
The thing that I hate as a response during an L10 is, “That’s a great question, but we don’t have the data available right now. Let’s defer this issue to NEXT WEEK when we have the information. Then we can make a decision.”
When the discussion of an issue turns into an action item that includes a search for data to support a solution, the issue is put on the shelf and the company loses a week in resolving the issue, impacting the company’s organizational velocity!
To avoid a stall, the CFO works in advance of the L10 to provide actionable insights, data and key assumptions around possible discussions and decisions.
Solve
There are two ways the CFO can impact the resolution of an issue:
- Assessing the decision themselves
- Determining a decision’s systemic impacts within the organization
There is an aspect of manage, measure and report that requires us to answer whether or not a situation is actually resolved. The CFO conducts a post-mortem to assess whether or not the resolution effectively solved the issue and more importantly, whether or not it changed the outcomes the organization was hoping to change.
A business is an ecosystem in which one decision, which on the surface appears to affect a single department and maybe four or five people, actually creates cascading messages. The CFO systematically considers how a resolution will impact others. The CFO makes sure the organization is not putting Band-Aids all over the place, but making sure that long-term solutions are being made. And all of that information is then incorporated into forward-looking financial planning models.
The CFO’s Role in Traction
Traction is tying EOS’s six key components all together. In summary, it is consistency, cadence, accountability, alignment, shared purpose and velocity. In practice, it is putting the processes and system in place to achieve these things.
The CFO creates the links from the week (L10) to 90 days (quarterlies) and then to the one, three and 10 years vision. They judge and fortify whether the organization’s plans hold water. Because if the plan doesn’t hold water, if it’s not truly credible, and if it’s not fully connected, your team will know it. And if the team can’t see how you are going to get from five to five hundred customers in one year, you risk lack of buy-in.
Providing Linkage
The CFO provides that clear linkage for all stakeholders. They clearly illustrate how the organization is going to need to grow — what new processes, systems, human resources, investments, and capital is needed.
Keeping the Pace
As changes occur, the CFO continues to strengthen and improve processes to keep the pace of EOS. The CFO has a role in preparing for L10s but also in preparing for quarterly and annual meetings. They can do the powerful advance work before these meetings to ensure they are impactful and drive a robust meeting.
Visibility
CFOs can also provide visibility beyond EOS meetings to departmental projects that extend beyond the neat time frames supplied by L10s and quarterly meetings.
For example, a company that is scaling and growing may have an HR manager who claims to be capable of handling forty people. One immediate assumption is that once forty people are hired, you’ll need a new HR manager. But where did that number come from? Why does the HR manager only feel capable of handling forty people? Is it a system problem or a personnel issue? Could they do seventy-five? What would it take to get them there, and what impact would it have financially?
These are the questions that the CFO answers. The number of people the manager can handle is the issue; the approach the company takes to increase that number becomes a project. It’s very challenging.
And requires a very disciplined, consistent process.
The CFO acts as a beacon of discipline in an organization. They apply that discipline to EOS to ensure the company achieves and maintains traction.