This post is co-authored by Jonathan Goldberg of D/D Advisory and James Blom of Data Factory Labs.

In our previous post (and this one) we discussed the need for a growing company to enhance its Finance team as it matures, adding new capabilities to better support the rest of the company.

Here, we are going to explore a case study of how this can benefit a hypothetical company.

John Whorfin is the CEO of  Yoyodyne, Inc. a software as a service (SaaS) company. John founded the company, starting in his garage, he now employs a hundred engineers. They have raised venture funding, but those investors are now distant and provide little support. Yoyodyne has never had a full-time CFO. Instead, they have relied on outside, temporary CFOs. They have built the company’s accounting systems and helped John draw up models and other items for Board presentation. For his part, John is great at inspiring his people and working with customers, but is not really a numbers guy.

As the company grew, John has spent more and more of his time on ‘financy’ things. After reading this, he realizes that he needs to hire a full-time CFO. But where to look?  His first instinct is promote from within. Yoyodyne has a great controller, Joel. Joel has  maintained the accounting systems, made sure customers paid on time and paid suppliers at the right time. But Joel has a great life, he has no interest in ruining that by reaching far outside his comfort zone. More importantly, the Board wants Yoyodyne to have a really strong controller, and is reluctant to give up Joel.

So John hires his latest accounting consultant, Anthony to be VP of Finance. Anthony has been working as a part-time CFO for years, ever since he left the Big Four accounting firm where he started right out of college. Anthony has gotten tired of working for multiple companies at once, and wants to find a cushy full-time gig. Yoyodyne puts the best package in front of him, so he goes there. Anthony is not worried that he has never worked at an operating company before, nor is he concerned that he really does not understand what Yoyodyne does. He is a little worried that he does not know anyone else in the company that well. Until he starts, he has never met Jane, the VP of Sales.

Things do not go well. Anthony hires a small finance team out of the accounting firm where he started. They quickly master the company’s accounting systems and are soon producing a slew of reports pulled from the company’s Oracle database. But soon after starting, Jim approaches Anthony about his plan to spend $10 million to hire a new sales team so the company can go after the next tier of customers. That is a lot of money for Yoyodyne. Anthony is nervous about this. He does not understand the time horizon for the spending plan, and is concerned that it may take two to three years for these new, larger customers to begin contributing revenue. He has not read about the ways in which revenue growth can lead to much higher valuations for SaaS companies. Anthony has never directly participated in a venture fund raising round, let alone an IPO. He does not want to say No, but instead he insists on a smaller investment, only $5 million.

VP of Sales Jane then struggles to attract a sufficient number of top-quality salespeople. At first, she hires too few salespeople, but they quickly complain that they are overburdened with complex customer sales and under-supported by internal resources. Then she tries hiring more salespeople, but at lower salaries. This backfires as these people are not the right mix for putting in front of demanding, Fortune 500 buyers. After a year, Jane’s sales plan is woefully below quota. Key sales people, sensing the slowing momentum, start to freshen up their resumes.

Anthony is not a bad guy. He is just making decisions based on his own, limited experience. The true responsibility here rests with John, our CEO. Recognizing his mistake, John then hires Jack to be CFO. Jack is a grizzled veteran of the industry. He started out in investment banking, got an MBA, transitioned to corporate roles, and has taken two companies pubic as the CFO. Wall Street likes Jack, and immediately start paying attention to Yoyodyne because he is there, despite the fact that the company is still years away from going public.

Jack first became interested in Yoyodyne because a Board member recruited him, but what sold him on the company was when he met Jane, the VP of Sales. Jack recognized Jane’s abilities right away. An impression that he confirmed by talking to other top sales managers in his personal network.

One of the first thing Jack does is approach Jane about the best ways for the company to move up to a higher tier of customers. Jack recognizes that revenue growth is going to be the key to valuing this company, to get that kind of growth they are going to need to start closing larger deals.

Jack wants to revitalize Jane’s sales plan, but the company has already spent $5 million to little avail. To fully fund the sales team, Yoyodyne is going to need another round of venture investment. This is not popular with anyone – more dilution for everyone’s stock. Undeterred, Jack pushes ahead. He argues that while everyone’s share of the company will shrink, the value of the company will grow as their investment in the sales force eventually brings returns. It is better to own 20% of a $1 billion company than 50% of a $300 million company.

Jack is no push over, he gives Jane $9 million because he knows Jane has padded some things. Jack has seen it all before. However, he does provide another $5 million to the engineering team specifically for the purpose of better supporting the sales team. It will do the company no good if they sign mega-deals only to find that they cannot deliver on their promises to their new customers.

Of course, this is a fictional story, so we can assume a happy ending when the company goes public three years later on the back of Jane’s blow-out sales figures. John Whorfin ends up on the cover of Business Week, labeled a visionary. Anthony stays on as VP of Finance, learns a lot and goes on to a very successful CFO elsewhere. Joel gets to keep his comfortable life. And Jane and her sales team all cash fat commission checks, which no one complains about. And while it is fictional, I am certain that elements of the story resonate with anyone who has ever worked at a company.

The key part of this story is that Jack was able to communicate hard choices to the rest of the company. He had worked in many different environments. CFOs do not need to be old and grizzled, but they do need to see many working environments. They need to understand how best to support different functions of their companies. In this fable, the Finance team worked with the Sales team, but we could substitute any function of any company – Product, HR, Marketing, Engineering, Operations. The story would look the same. In fact, its safe to say the the CFO has to have similar dynamics with all the other parts of the company. The goal is for the CFO to be a partner, and in so doing grow the valuation pie for everyone.