By now you have probably heard about Zirtual, the on-demand virtual assistant startup that closed up shop in the wee hours of August 10 and left 400 employees jobless overnight. A few days later, Zirtual founder and CEO Maren Kate revealed to Fortune that the company simply ran out of money. She said “the numbers were just completely f***ed.” In a blog post for Medium, she wrote, “‘burn’ is what happened to Zirtual.” What is even more telling is that she did not have a full-time CFO on staff and outsourced finances to a “Silicon Valley CFO firm.”
I often talk to first-time CEOs who have a very cavalier attitude about certain parts of their business. For instance, technologists think everything outside of product related stuff is easy. Or, those with a sales background will focus on sales and ignore everything else. The idea that you should outsource functions of your business that aren’t “core” is a thought you will hear from time to time.
I have never been a fan of this idea, but of course it depends upon how you define “core.” Before totally outsourcing a function, I would make sure that poor performance in that area couldn’t sink the ship. The number one reason startups fail is because they run out of money. Therefore, I would want someone on the team focused on predicting cash. That is a critical role, and outsourcing the entire finance function is a quick way for a CEO to lose touch with this key part of the business.
In the early stages, I would encourage the CEO to personally build the financial models so that they understand every lever related to cash. Almost every business should be predicting cash flow out as far as possible as part of their normal operations. It is not easy, but it is a lot better than sending a message on Monday morning that everyone is fired.
For those CEOs who think they can get away with focusing on just a few parts of the business, I’ll reiterate what I wrote in my book “The CEO Tightrope: How to Master the Balancing Act of a Successful CEO.” As CEO you are responsible for the whole enterprise: The buck stops with you. The challenge all CEOs face is to build and grow a world-class company. You must be strong in every area of the business – not experts, but well informed – and fulfill the responsibilities that only you can perform. The CEO is responsible for making sure that every group is delivering at the highest possible level. Each company is only as strong as its weakest link. Understanding how to balance performance across all departments requires a CEO with broad experience, big-picture vision, and an understanding of what the job requires.