Mika Kasumov is the founder of Abacus & Pencil, a strategic advisory firm focused on helping startups update their operating models as they scale. Previously he was VP of Finance at MasterClass, built the Financial Planning, Strategy, and Partner Sales functions at Pantheon.io, and led Strategic Planning at Upwork where he helped the company achieve profitability and accelerate growth ahead of its IPO.
Finance is often stereotyped as reactive cost-cutters, with the perception that, while necessary to the business, they’re gathering inputs and providing oversight rather than driving business growth forward. It doesn’t have to be that way. Modern CFOs can change perceptions and lead teams that are viewed as growth drivers, partnering with leaders across the business to optimize performance. Here’s how.
How the best CFOs stand out
The first thing I look for when I read a board deck to understand a new company is not how well it is doing against plan. I look for two other slides:
- Revenue Forecast
- Highlights/Lowlights
Every company has to set a plan. Most of them will sandbag it enough to beat it in most years. But very few companies can accurately predict when, how, and why they will beat (or miss) the targets. The ability to present an accurate + actionable revenue forecast and the execution-centered narrative presented in the highlights/lowlights section is a key signal of whether the company and by extension, the CFO, is in control of their future — or is merely benefiting from market tailwinds.
That’s why public companies obsess about earnings per share guidance, good CFOs ask operational teams for high/medium/low scenarios, and forecast calls are the centerpiece of how the best sales teams are led.
Why revenue forecasts remain hard to crack for CFOs
For most finance teams, dialing in (and understanding the variance) of the revenue forecast remains elusive. The proximate causes are myriad: the COO may demand forecast inputs that map perfectly to the evolving responsibilities of their sub-teams, the CMO may not want finance to see how the sausage is made, or the CRO may not be pushing reps for Salesforce discipline that’s necessary to get clean data.
Yet, the root cause is always the same: the word “forecast” as applied to revenue, in particular, is the most semantically ambiguous word in corporate language.
Here are just some of the possible interpretations:
📈 Account Executive: "This is my plan on how to hit my quota."
🧮 FP&A: "This is the arithmetical output of assumptions I got from others."
⚙️ SalesOps: "This is what we think will actually happen if key ratios hold steady from the last Q."
👔 Various VP: "This is my haircut on other people's assumptions and ability to execute."
🤑 CRO: "This is what I'm comfortable signing up for and asking for investment behind."
🧑💻 CEO: "This is what I want to rally people behind - to exceed."
If you take the Account Executive interpretation, you’ll almost certainly end up with a number that’s too high. When you miss, the only data-driven explanation will be, “John missed his number…we’re going to terminate John.” If you take the SalesOps interpretation, you will be able to explain every beat/miss and variable that changed, but you will be operating against stale assumptions – chasing the market instead of skating to where the puck is going. If you take the VP interpretation, you will end up with a reasonably accurate number but no ability to respond when the board asks, “what would it take to hit a 10% higher number”. Surely, you would not respond by saying “we would just remove the haircut and hope everyone executes perfectly.”
Move away from debating methodologies to making decisions
The truth of the matter is that no single methodology or interpretation of the word forecast will give you everything that you need to manage as a CFO. And, most of the time, there’s a good operational or people management reason why some teams interpret the intent of forecasts differently. Don’t break that by seeking to change the way others treat their forecast or holding it to a narrow financial purpose.
Instead, harness the unique skill set and position of finance in the organization to understand the why behind the forecast instead of just the number. If you haven’t done this already, try the following:
- Sit in on a sales forecast call in listen-only mode. Compare the raw inputs you hear voiced in the call to the final number the CRO shares later. Rinse and repeat anywhere else in the organization that forecasts are produced, until you understand the bias that’s being introduced at every stage.
- Build two completely different forecast models. One that is as accurate as possible even if it ends up being a black box (ask your analytics team for help). And one that only takes metrics that are tracked as part of OKRs as input. Comparing them will almost certainly tell you something new about the operating priorities and the health of the business.
- Don’t ask operating teams to give you their forecasts and low/medium/high scenarios so you can build the base/upside/downside cases for the board. Instead, build your own baseline forecast first, then present it to the teams and ask them to poke holes in it, inspire them to beat it, or help them focus on the risk drivers behind missing it.
Start leading a growth capability, not a cost center
Next time you hear the word forecast used in a sentence, resist the urge to immediately ask about the assumptions behind it. Instead, pause to clarify: "What is the DECISION you're trying to inform with this number?" Choose to be the driving instructor, not the traffic cop.
