- Hi, I am Sanjay Gaggar, one of the early starters in the outsourced CFO space in India.
- From 1993 to 2006 I saw the Indian economy shaping up and identified the potential in outsourced CFO services, catering to the growing SMEs and startups in India.
- Fast forward to 2010, in my 40s, I took the plunge and started ixCFO Services.
- Here are my 13 years of experience in providing Virtual CFO services, and navigating client acquisition and pricing challenges.
Outsourced CFO services caught my attention
In 1993, I proudly earned my Chartered Accountant title, a momentous year that coincided with the dawn of India’s economic transformation.
During those exhilarating times, the Information Technology (IT) sector was taking off.
So, for the following 15 years, I devoted myself to various corporate finance roles within the IT hardware and software services space.
In 2006, I joined a VC-backed edtech startup as its CFO. The Venture Capital (VC) firm was a big name.
Sadly, the startup’s growth didn’t unfold as expected. However, by now I developed a sense of thrill to work with VC-backed ventures.
In 2010, at the age of 40, I found myself at a crossroads, and then came the big question – What Next?
It was a bit of a midlife crisis!
I observed that around this time, a lot of startups were emerging, and big VC and Private Equity firms were establishing their presence in India.
Many of the startups struggled with managing their finances, and it was during this period that I became intrigued by the concept of CFO services.
I identified three potential target markets:
- Mid-market businesses that are taken over by the new generation. These businesses were on the lookout for CFOs to manage their finances, making a shift from the traditional ‘Muneem Ji’ (clerk) concept.
- Private Equity and VCs-backed portfolio companies. Many of these funds were in search of outsourced CFO services until their companies matured to the point where they required a full-time CFO or Controller.
- Existing CFOs seeking support to streamline their finance function, whether through M&A integration, ERP automation, assistance with joint ventures, or IPO planning.
In 2010, this niche and uncharted territory beckoned to me, and I took the plunge…I founded ixCFO Services to provide Outsourcing CFO /Financial Controller services.
Challenges of running an outsourced CFO practice
I was an early starter in this space and the journey was not easy.
Like most entrepreneurs, I gave up a fancy corporate salary and bootstrapped.
To be completely honest in the first year, we didn’t secure a single mandate.
People viewed us as a fly-by-night operator. They wondered if we could sustain our venture for the first year.
So nobody gave us any assignment but they just kept saying, “Yes we will connect with you! You have an interesting offering.”
Luckily from the second year onwards, we managed to acquire a substantial number of clients, establishing a strong foundation.
Over the years, we have had the privilege of working with clients with revenues ranging from INR 50 crores to INR 500 crores. Several of our clients went on to get listed.
Here are our biggest challenges and learnings:
Competing with bigger firms
- VCs and Private Equity firms understood the outsourced CFO role. However, being a newer player in the CFO services arena, we encountered challenges.
- Some clients preferred established firms like the Big 4, despite having skilled finance professionals on our team. Overcoming their preference for larger service providers was a hurdle in this segment.
- We chose to specialize exclusively in Controller and CFO services and did not venture into FP&A, Accounting, or Bookkeeping services. This posed a new challenge.
- Some of my friends in the outsourcing business, offering a broader range of finance and accounting services, found amazing success.
Economic and other disruptions
- Additionally, in 2016, India experienced the economic challenges posed by demonetization, which disrupted things for a while.
- Then, in 2018, we had to adapt to the GST’s introduction, which presented another set of challenges. This was followed by the IL&FS crisis in 2018, and then the arrival of the COVID-19 pandemic.
- From 2016 to 2020, we navigated through quite a turmoil, you could say.
Ignorance of SMEs
- Engaging with promoters in mid-market businesses can be quite challenging due to their limited understanding of the role of a CFO or Controller.
- It was and still is hard to convince them, as many still function on the ‘Muneem (Accounting Clerk)’ concept.
Coming up with a pricing structure was and continues to be a huge task as there is often a lack of understanding regarding the role of a CFO.
What is our pricing structure? Value-based pricing by clearly defining our deliverables. I cannot emphasize how important it is to define deliverables.
- When pricing, the first step is to understand the market.
- Next, it is essential to understand where a client stands in their journey. For instance: For small and medium enterprises (SMEs) with less than 50 crore in revenue, a full CFO services model may not be necessary. The engagement may involve a ramp-up period in the first six months, followed by a reduction in engagement, particularly to address legacy system issues. So we had a subscription-based model, occasionally utilizing virtual CFO services to address specific challenges in their accounting and finance functions. (I believe in the US, many of the CFO services firms use a subscription-based pricing model. A few Indian CFO services firms also follow this model but they are not very successful as far as I have seen.)
- Then you have to figure out whether they are poised for growth.
- Do they have the systems in place? Or you have to set it up.
- What will be the time frame to address the challenges? Will it be 100 days, 180 days, and beyond?
In this space in India, you have to roll up your sleeves and get your hands dirty. This isn’t a purely consultative model.
Thus there can be variations in pricing, but a threshold is necessary, considering the resources required to tackle finance function challenges.
You can start by charging INR 2 lakhs to INR 4 lakhs per month, depending on the size of the business’s revenue… Anything less than that does not make sense, both for the business and the finance professional.
Collaboration… only way to succeed as a CFO services firm
India has some popular names like Practus, myCFO, and the Big 4 firms with CFO services verticals.
Other than that there are not many pan-India players in the CFO services segment. So, there is significant potential for existing CFO services firms and CAs in practice to make their mark.
Many CPA firms in the US are in a transition or succession planning phase, offering opportunities to collaborate with CFO services firms.
So how can you take advantage of this opportunity and acquire clients?
Partner with CA firms: In the US, CPA firms and CFO services businesses often collaborate efficiently to serve the SME ecosystem.
Unfortunately, a synergy like that is lacking in India.
There is significant potential for collaboration with practicing CAs in Tier 2, and Tier 3 cities. They have many clients to whom we can provide value.
It is a win-win for everyone involved.
Tying up with Accounting software companies: Piggyback on the channel Partners to acquire the business. That’s very critical for this thing.
A collaboration with software service providers like Zoho or Tally is a more sensible approach for us.
You may not find high-priced clients in this scenario, but you can explore the possibility of developing an affordable subscription-based model.
Utilizing social media: Additionally, you can use organic social media platforms to showcase case studies, content, and successful engagement stories.
Furthermore, partnering with business consulting service providers is another path where collaboration can be beneficial.
Network: Networking and attending events is a very important client acquisition strategy.
You can check out various platforms that engage with SMEs, VCs, and startups, such as Venture Intelligence, VC Circle, Inc42, Bombay Chamber of Commerce & Industry, The Confederation of Indian Industry (CII), The Federation of Indian Chambers of Commerce & Industry (FICCI), and other pan-India level organizations and apex bodies with SME forums.
If we compare ourselves with the US, they first introduced the CFO services firms in 2000. It took them 10 years to get traction. So, India is on the way to achieving multifold growth in the next decade.
With the Sensex and Nifty at all-time highs, SMEs / startups aspire for growth.
The wave of digitization and automation in the finance function has created a higher demand for CFO services in SMEs and small businesses.
The opportunity is there however do not begin this journey as a solopreneur, have co-founders and a team. And collaborate.