In one of my past lives, I was CFO of a software business. It was a great success story – from nothing to a sale for around £200m. When I joined it was in deep trouble, and I remember struggling to justify a valuation of £30m. But within a couple of years from then, it was sold for £200m. The real point of the story, however, is that had I joined at the start, I would probably have managed to prevent anything happening. Killed the whole thing.
The thing was, this great success story was built on a product that should never have created. The company was a spin-out of a large group whose policy was that they bought, exploited and sold established products. They did not develop new ones. But, unbeknown to top management, the consultants whose ostensible job it was to implement new systems were taking time out to develop a new product. And this product was great. It was easy to use, and did exactly what was necessary (as you might expect from something developed by people in daily contact with users).
This is itself is a great story, and I have told it many times. But recently, telling it again in a seminar in New York, a very uncomfortable thought struck me. Why had I got the job as CFO? Because I had worked in other banking software companies. And how had I got my first job in a banking software company? Because I knew a lot about time recording systems, and my first banking software job was in a company which wanted to achieve better control over the time spent by, amongst others, the consultants whose job it was to implement new systems. This latest company’s time recording system was a joke – it wasn’t hard to see how people could have developed an entire new product completely below the radar. It needed an upgrade, and I implemented one.
But, I asked myself, suppose I had been in there at the start? I am sure I could have stopped those consultants stealing time from client projects to mess around with hobby projects. And so I could have ensured that a potential £200m business was murdered in its cradle.
There are some lessons here. We often tend to worry (at least us CFO types do) about control being too loose. But control being too tight can also be a problem. The point is not to control everything, but to control what is necessary and leave some space for unplanned activity (like the creation of £200m businesses). Or, if you prefer, to maintain the right balance between order and chaos. I wish I could offer a simple rule for finding this balance, but it depends completely on the stage of evolution of the company and requires judgment. In the early days, the new product was developed in a mature, stable organisation which probably needed some innovation. When I was there, control had passed from a large corporation to a private equity house and there was an aggressive product development plan which needed to be executed very fast. This meant that a high level of focus and control was completely appropriate – no room in these circumstances for hobby projects.
So I’ll leave you with a question; would your business benefit from more control, or less?