Earlier this year I was a guest speaker at Sydney Technology Leaders, my favourite professional networking group. The subject was “Follow the Money” - a CTO’s view on how to think about budgeting, working with the CFO and finance team, and what you may need to do to build your confidence and comfort if you haven’t done this previously in your career.
The idea of managing money can be intimidating, and exactly as the meetup outline explained, it’s because the tech industry does not train people to be commercially aware. If you had been building your career in a lot of other functions, like strategy and marketing for instance, you would have been exposed to the numbers that make the business run to a much higher degree.
Unfortunately in tech, our exposure to numbers is much more skewed towards technical topics - uptime, performance, algorithms and the like. And again as hinted at in the blurb, by the time you get close to the roles where it matters, you start to understand that it’s something that you’re going to have to build your knowledge in.
So, I’d like to talk about how you do that. What’s the best way to prepare yourself?
There’s only so much that we can cover in a short timeframe, so my main goal tonight is pretty specific - it is to give you confidence that wherever you are in your career you are more than capable of understanding the money side of things to be an effective technology leader.
For some of you, you’ll already have this confidence, but I’m hoping that you can use these ideas to guide other emerging leaders in their career journey. So, hopefully something for everyone, but perhaps manifesting differently for each of you.
A MISTAKE - DON’T MANAGE A BUDGET
One of the things that I often hear is people asking to manage a budget. In fact, that’s something that I also asked a former boss many years ago… it feels like it’s the golden ticket to becoming competent with the money.
But… just having a budget to manage is not really the most effective path to competence.
When I first asked for a budget to manage I thought it would be a key part of my development – my boss at the time gave me some sage advice that was very true and that I’ve often quoted since. They said: “Dave, you’re overthinking it – when you’re in the position to have budgets to manage you will have plenty of help from finance experts and it’s not going to be nearly as difficult as you might think”. And that has proven to be very true.
What IS important though is having the knowledge and understanding to manage the budget. It’s not the management that is important, it’s the knowledge and context.
There are some things in life that you can’t learn effectively without doing it. I’m a basketball guy, and it’s well known that it just doesn’t matter how much you read about basketball, watch basketball or even practice basketball… you need to play in competitive basketball games to get match fit.
Luckily, dealing competently with money at work isn’t like that. Just like paper share trading, where you do everything but actually buy the shares, it’s possible to learn almost everything you need to know about managing the money without doing it.
A BETTER WAY - LEARN THE BUSINESS
So, what’s a better way to learn?
First, you need to find a way to get exposed to numbers that matter for the business, and frequently.
Very first thing is to start outside and work in – if you work at a listed company, read every market announcement and annual report you can get your hands on. Make notes, find someone in the company who can answer your questions. If you’re not in a public company, look at similar companies that have more public information and go through the same process with them.
Whether or not you have easily accessible public information, the next step is to find someone internally who can talk you through the main bits of how the finances work. Again, make notes, ask questions.
Now the first thing that you’ll learn in a company is that they’re going to have a bunch of jargon and acronyms around the money. Some or even most of that jargon will be standard for finance, which means you may already know it or you can learn it quickly. Some of it will be specific to the company and industry – again, it shouldn’t take too long to learn, but you’ll need a helping hand and you may not find it online. Ask for help. Someone in your finance team will be more than happy to sit down and spend an hour explaining how things work. Again, this will be much more valuable to prepare you for future budget management than just diving in and managing a budget.
And you really need to know how the company makes money. Too many technologists don’t really understand how their company makes money and what the critical levers are in the business. What are the margins that your business is built around? For instance in groceries margins are low, everyone knows it’s a volume game, but it’s also important know that margins have been shrinking over the last decade, and while in Australia a 7% margin in groceries used to be achievable (and lead the world) everything has been trending down and right now it’s well under half that.
In many other businesses, especially digital businesses, margins are much higher. This leads to an interesting thing that you will very likely come across at some point – the employee or colleague who says “we make X million/billion dollars a year and we can’t afford to spend a few dollars on Y, this is outrageous!” - it’s kind of self-evident that the number of dollars your investors or owners want to spend to make more dollars is not going to be equivalent, but I do find this one of the more amusing parts of being in charge of the money.
I did an MBA many years ago and spent a bunch of time learning about finance (am I bragging? No no no!), and the best education for me was not the MBA, nor was it managing the budget. It was the weekly trade meeting at WooliesX (digital arm of Woolworths), where I was amongst about a dozen leaders that would sit down and talk about how the business had run over the last 7 days, and all the things that worked and didn’t work, and what it meant against budget and forecast, and what we would do about it that week.
The ecommerce business was billion dollar business that was growing at 40% year on year, and during covid about 100% year on year, and there was a lot that needed to be done. Particularly early on, it was a great way to make theoretical topics very real for me. A masterclass in an expert organisation, 50 times a year. Repetition at examining the key mechanics of your business will make you more financially literate, and will be very important for you to have a seat at the table.
Okay, once you’ve released yourself from the idea that you need to manage the money directly, and you’ve educated yourself about the language of finance, the next best thing you can do is focus on building credibility. What do I mean by building credibility? I mean that you want to demonstrate that you can be trusted to make good decisions and spend company money wisely.
Just like a parent begins to trust a teenager as they demonstrate their good judgement, so will you be more trusted as you demonstrate that you’re up to it.
What does this mean in the context of managing money? Well, it’s not just enough to manage to budget. Even the most finely tuned operational organisations in the world are constantly looking at how they improve, it’s a capitalist imperative. To really win friends and influence people as a tech leader you need to be able to show that you’re improving, and to quote one of my favourite business authors Patty Azzarello, you need to show how you can do Better with Less.
Patty explains this idea in her terrific book Rise. It’s important to know that this doesn’t mean you have to do more with less – it’s about redefining the work to focus on more impactful outcomes. Why am I mentioning in the context of money? Well access to money for whatever you may want to do with it (like spending more on training, or retention activities, or anything else) will be in some way dictated by whether the purse string holders believe that they can get a good return on the money, and as you build credibility you will find it increasingly easy to unlock other things.
If you can’t demonstrate this level thinking, if you purely manage to budget and just think about how to spend what you’ve been allowed to spend, then you’re going to find it difficult to get engagement for things that you want to do, it will be a harder sell because it will just sound like an ask for more.
In contrast, someone with a track record of delivering better with less will be able to partner with people in finance to come up with plans to invest in a much more sophisticated way and will have built the trust to be allowed to move forward with those plans.
- Can you make an area or team more efficient? (and it doesn’t need to be one of your teams!) Perhaps there was something that you did manually as your startup began, but could now be automated or serviced via a SaaS product that you formerly couldn’t afford.
- Are there new revenue streams that you can unlock, if you had an investment? How would you prove that revenue stream ahead of a big investment?
- Are there risks to the business and what do you need to do to mitigate them?
These are all strategic level discussions that you should be having with finance. They can and will partner with you on these things, and they will help you with the models, the business cases, the frameworks to build a plan around them… you’re not on your own.
So the arc of what I’ve talked about this evening started with don’t worry about managing a budget, then progressed to becoming literate enough to partner well, and finished with strategic thinking about how you show that you can be impactful with the money that you’ve got. You don’t need to manage the money really - you can work with your finance partners on that… you can reframe your role to be to “lead” the money. And you can start doing that in any role.
Three simple takeaways:
- DON’T WORRY ABOUT BUDGETS
- DO LEARN BUSINESS LANGUAGE
- DO BUILD CREDIBILITY & DO THINK STRATEGICALLY