How Smart Partnerships Overcome the Buy-Build-Partner Dynamic
Succeeding in the face of the unexpected often presupposes a holistic foundation of best-practice controls.
For organizations looking to chart a healthy path through today’s ongoing macro challenges, this operational reality has put the role of the CFO into the spotlight.
In light of last month’s mini banking crisis, overseeing a company’s financial strategy and decision making has never been more critical.
“In some ways, this is healthy because it forces businesses to think about what a balanced, sustainable approach to growth is,” said Igor Bazay, VP of finance at data intelligence platform Enigma, during a conversation for “PYMNTS CFO Series: What’s Different?”
A part of this, he said, is that credit standards and availability are tightening while the cost of capital across both equity and debt markets is rising — meaning that businesses will need to take a leaner approach to execute their operating plans.
“I think this is a recalibration, we had really rapid growth in 2021 but now businesses need to think about their impact and how to grow in a sustainable way,” Bazay said.
Two Firms Are Better Than One
It doesn’t necessarily need to be a slower approach to growth, Bazay said, just that growth needs to take a different tack.
“It’s a reevaluation of the question of build, versus buy, versus partner,” he said. “I think there is tremendous opportunity in this environment to strike new partnership deals and create ecosystem collaborations around product.”
Starting those conversations is actually easier now than when the capital was freely available, Bazay noted, adding that businesses today are less likely to view partner-driven strategies as a trade-off on growth, particularly as businesses increasingly seek to avoid single points of failure.
“Built-in redundancy is healthy,” he said.
Still, he underscored that given the ongoing challenges of the present environment, there are “certainly” things that the finance department is, and should, focus more on.
First among them, Bazay said, is cash management — making sure a business has a “very good point of view” on daily cash and optimizing working capital by negotiating good vendor deals and operating in such a way as to effectively activate healthy efficiencies.
He added that communication goes hand-in-hand with proactive growth and effective financial leadership and with building partnerships.
“I think the [current macro environment] will force folks in finance departments to really spend more time on communication to make people feel as though they are being brought into the broader [organizational] strategy around finance,” Bazay said.
A Revolving Door
He emphasized that it is more important now than ever for finance and broader operations to have conversations in a regular cadence with product and sales teams — particularly younger companies and startups.
“Product, in most startups, has a fairly tight roadmap — they know what they want to accomplish by when and with what sprints. Beyond just saying to product, ‘Here are the resources that are reasonable to use in this case,’ [the finance team] can say to product leaders, ‘Well, we work with certain vendors who might be good partners for you on this product, or this is a good channel for you,’” Bazay said.
“I think more of these conversations will happen, particularly in FinTech, where finance teams are exposed to a lot of the cutting-edge solutions because they integrate them into their ops stack,” he added.
Bazay said that some of Enigma’s best vendors had become clients, while some of his organization’s best clients later became vendors.
The benefits of that style of revolving door relationship, he noted, include real-time product feedback along with an openness to it and that everyone involved has skin in the game.
Still, “Partnerships aren’t always the answer. Building is often the answer, and buying is sometimes the answer,” Bazay said. “But what this environment shows is that partnerships should be a part of that conversation, to an extent that they were less so in the last couple of years.”
Returning to his earlier point on the importance of communication, Bazay said that if businesses are used to a particular type of historical spending or investing cadence, shifting it to a different mindset for 2023 can be difficult to manage.
“These changes need to be managed with grace and empathy, and that’s incumbent on the finance team as they socialize new strategies around cash runway preservation and efficiencies, and have hard conversations around trade-offs,” he said, adding that overcommunication “is a good thing right now, it’s a really good thing in difficult environments.”
And as a new generation of CFOs test their mettle in the challenges of today’s environment, Bazay said it’s critical to ask the hard questions around “How will you justify this? Tell me more how this growth plan works, where you see these numbers coming from? That kind of natural tension is super healthy for sustainable growth.”