Ishaan Seth, a senior partner at McKinsey, spelled out a key function of the CFO role with a fairly simple question: What’s the growth story?
“We see the role of the CFO as being able to describe what it takes to double the value, double the market cap of the company, in five years,” said Seth, during a Fortune virtual conversation on Wednesday entitled “The Emerging CFO: Maintaining a Growth Mindset In Turbulent Economic Waters.”
What are the key steps that can help a company double its size in half a decade? What role does organic growth play in propelling revenue? How about M&A or divestitures? What about tech innovation and resource allocations? Seth said these questions are core to how a CFO can outline a clear value creation thesis, which must also have buy-in from the board and investors.
“This is an environment where all of us have been very focused on growth,” said Seth. “CFOs and CEOs have been incredibly focused on growth.”
Founded in 2004, e.l.f. Beauty has had no problems with growth. For 17 consecutive quarters, the company’s net sales have risen, doubling the beauty maker’s market share in the process.
Mandy Fields, CFO at e.l.f. Beauty, attributes the gains to a few factors. Over the past four years, marketing investments have risen from 7% of net sales to 22% in the latest fiscal year. And e.l.f. Beauty isn’t afraid of taking risks. It joined TikTok in 2019 before many brands were comfortable putting dollars into a platform that has seen soaring popularity, especially with younger users. After the pandemic, other brands jumped in, but e.l.f. Beauty had a first-mover advantage.
“Having that track record of not being afraid to take risks and seeing that outsized growth has been fantastic here at e.l.f.,” said Fields.
At Adobe, recent acquisitions including the nearly $1.3 billion deal for software maker Frame.io and $1.5 billion purchase of workflow startup Workfront are meant to complement the business. But organic growth remains the top driver for revenue.
“Innovation is at the core of who we are as a company,” said Adobe CFO Dan Durn. “It is in our DNA. We are consistently reinventing the company… Status quo is not a business strategy at Adobe.”
He said that Adobe’s team are big users of their own products, which helps the Photoshop maker’s innovation pipeline better serve customers. Durn said that internally, there is “a clarity around what we are going to innovate and grow organically, and then how we complement that in a smart fashion with inorganic growth.”
Seth said that typically, CFOs have an arsenal at their disposal to manage and measure expenses, but creating the right incentives for growth can be more difficult. Many companies don’t have a clear vocabulary for how they measure it. Adobe’s example—organic versus inorganic growth—is one way to think about growth. Others could include factoring the lifetime value of customers or the return on investment for tech spending.
“CFOs would be well served to say, ‘Look, how do we create that same level of capability and that muscle around the growth strategy,’” said Seth.
TD Bank CFO Xihao Hu said macro trends are favorable for banks as the Federal Reserve has steadily raised interest rates. Amid that warm climate, TD has moved to generate as much growth as possible, but Hu added cautiously that “you cannot rely upon the macro environment at all times.”
New products to lure in customers have included TD Clear, a subscription-based credit card, and TD FlexPay, which allows users to skip a payment once a year and automatically refunds the first late fee each year.
“We continue to innovate our products to bring new customers into TD, so we can continue to expand the base of our customers and even grow in an environment that isn’t as conducive from an interest-rate perspective,” said Hu.
For Hu, the growth story contains two tales. First, there is the organizational growth that comes from setting a strategy and then sharing it with managers to ensure the mindset of growth cascades to TD’s various teams. The second is professional growth, and Hu said TD has learning days for employees to teach them how to tell a story better, including using numbers to give that story more credibility.
Seth said CFOs’ growth mindset should center on three ideas: growing the core business a company is in, adding adjacent products or segments, and driving growth by igniting truly new breakout businesses. It is easy for companies to home in on just one, but a true growth mindset is to focus on all three.
He added that McKinsey has looked at around 2,000 public companies and looked at their performance relative to peers the last two decades, and five variables drive that growth. They are: resource allocation and how dynamic those investments are, M&A, productivity and efficiency, tech innovation, and margin expansion.
“It all starts with the team, and we have a motto here at e.l.f., ‘One team, one dream,’” said Fields. She explained that every single employee is given equity in the company each year. “We all want to see the company grow,” she added.
Each summer, Fields’ team goes offsite to ask where the company wants to be in three years and how they build a plan to reach those goals. They revisit those targets each year.
“It is an opportunity for inspiration, imagination, and possibility to converge,” said Fields. “Even though we’ve experienced this tremendous growth, there is still so much more ahead of us.”
A growth mindset, Durn said, is to be “constructively unreasonable”—the sweet spot of stretching teams to do more than they thought was possible.
“Great ideas come from anywhere, so our job as leaders is to surface these ideas and get them on the table and get them to be a part of the dialogue,” said Durn.
