The CFO Who Was “Ill Equipped” to Save Lehman Brothers

Summary

Run the Numbers: "The CFO Who Was 'Ill Equipped' to Save Lehman Brothers"

Host: CJ Gustafson
Date: July 6, 2026
Duration: ~46 min

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Episode Overview

In this episode, CJ Gustafson and his guests reflect on the unexpected and turbulent tenure of Erin Callan, who became the first female CFO, and a key executive, at Lehman Brothers shortly before its collapse. The discussion centers on what it truly takes to be an effective modern CFO, unpacking the misconception that technical pedigree or credentials alone are sufficient. With contributions from finance leaders Steve Isom, Jake Kornreich, Manu Do Akar, Dan Betts, and Alan Imberman, the episode explores operational insight, leadership, decision-making, the value of mistakes, and the importance of honest communication—covering the hidden truths of finance’s top seat.

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Key Discussion Points & Insights

1. The Rise and Challenge of Erin Callan at Lehman Brothers

• Background: Erin Callan, a highly accomplished tax lawyer, is tapped to be Lehman's CFO in 2007—lacking traditional CFO tracks like accounting or operations.
• Cultural Outsider: Admits to being "ill equipped"—called "Erin the Interrupter" for frequently seeking clarity on finance jargon.
  • Quote:
    "When she first moved to Lehman from law, she would constantly interrupt meetings to ask what basic financial terms meant." (Host, 01:51)
• Thrown Into Crisis:
  • When the financial crisis hit, Callan became the firm’s public face, often defending a balance sheet she might not have fully understood.
  • After less than two years, she was demoted; bankruptcy followed three months later.
  • Quote (CJ):
    "Yeah, that balance sheet was a ticking time bomb... when the tide goes out, you figure out who's swimming without a bathing suit on. And Lehman Brothers was swimming without a bathing suit on." (03:17)

2. What Makes a Modern CFO: Participation vs. Observation

"Broadcaster" vs. "Team Captain" (Steve Isom, 06:19)

• Core Idea:
  • Many CFOs fall into the trap of simply reporting on the business ("broadcasting") instead of driving outcomes ("team captain").
  • Quote (Steve Isom):
    "I'm telling the news, right? Or the analogy that I've started to use is…the football game's going on and I am the broadcaster... In an investor backed business especially, the expectation is you're playing the game, you're in the field." (06:37)
• CJ’s Insight:
  • Top CFOs shape numbers, not just read them. Apprenticeship and hands-on operational work are irreplaceable.
  • Quote:
    "The best ones are along for the ride and helping shape it." (07:46)
  • Must operate at multiple levels: deep in the weeds and at the strategic, high-level view ("eagle and mouse" analogy, 10:39).

3. Impact over Title: Leadership as a Mindset

(Jake Kornreich, 14:27+)

• Non-linear Careers:
  • Success in the CFO seat is rarely about a childhood ambition. The best operators use finance as a "language" to create impact and influence key decisions.
  • Quote (Jake Kornreich):
    "I wanted to be in the room where important decisions were being made and where I could play a really significant role in what was happening with the business. Finance became a language I could use to do that." (15:43)
• Leadership Team Dynamic:
  • Real leaders have a company-first perspective, not just their own function.
  • Quote:
    "We're a team of leaders who happen to be on the leadership team, not... a bunch of functional leaders that happen to be on the leadership team." (15:43)
• CJ’s Observations:
  • It's less about seeking the title; it's about stacking unique skills to add value and get into the room where things happen (17:10).

4. The Dangers of High Growth: Hidden Bad Habits

(Manu Do Akar, 18:33)

• Growth Covers Sins:
  • Rapid growth and high margins can mask operational weaknesses and undisciplined spending.
  • Quote (Manu Do Akar):
    "Growth and high margin business covers up a lot of sin. And that is, I think, in many ways why it's easier to be an early stage cfo." (18:33)
• Transition to Discipline:
  • As growth slows, lack of productivity metrics and unchecked headcount come back to bite.
  • CJ’s summary:
    "The first one is hiring people you think you'll need versus people you actually need... The other is just shitty projects get greenlit for the sake of, like, let's try it." (20:51, 21:11)
  • Importance of a disciplined capital allocation framework (21:13).

5. Communication Clarity: Avoiding Jargon and Over-Complication

(Dan Betts, 25:49)

• Financial Fluency for All:
  • As business complexity grows (cash flow vs. EBITDA), clarity becomes paramount.
  • Quote (Dan Betts):
    "If I'm sitting in the boardroom or talking to the investors, I need to be able to talk about how you bridge between those two numbers." (25:49)
• CJ’s Commentary:
  • "The higher up I go... the simpler I explain something which is so counterintuitive... You actually need to dumb it down to a level that shows that you grasp the concept." (27:00)
  • LLMs (AI tools) can't do the work for you: true understanding comes from doing the work.
  • Quote:
    "You could have a large language model translate something for you... but if you don't know Spanish, if you don't know the accounting... you're kind of screwed." (28:12)

The Many Faces of EBITDA (CJ, 29:15)

• Operational vs. Management vs. Credit EBITDA:
  • Misalignment often comes from different definitions and perspectives.
  • Quote:
    "You can be right, but actually wrong. I've been in so many conversations where we're both talking around something without actually understanding where the other person is coming from." (29:27)
  • Footnote everything—details keep you safe and clarify definitions for all (31:02).

6. Owning Mistakes & Credibility

(Jake Kornreich: $5M Budget Bust, 32:10)

• Let Bad News Travel Fast:
  • Culture of transparency: air mistakes quickly and propose solutions.
  • Quote (Jake Kornreich):
    "I walked right into his office, I said, look, here's what happened, here's how I think we can fix it." (32:11)
  • CJ reflects:
    "There's something to be said about the credibility you build by letting bad news travel fast." (32:43)
  • As a leader, respect people more for their candor and willingness to clean up problems (33:53).

(Alan Imberman: $100k Coffee Mistake, 35:14)

• Controlling Costs Without Killing Morale:
  • Discovered outsized spend on coffee at a small company—fixing it caused minor uproar but was necessary.
  • Quote (Alan Imberman):
    "I estimate from just the past few months that we're on pace to spend over a hundred thousand dollars on coffee annually. And we only had 120 employees at the time." (35:14)
  • CJ agrees: ROI matters—even perks must be justified (38:24).

7. Long-term Thinking vs. Public Markets Pressure

(Alan Imberman on IPO, 40:57)

• Mismatch of Horizons:
  • Companies and leaders thinking in years/decades often find their mindset clashes with investors judged quarter-to-quarter.
  • Quote (Alan Imberman):
    "For companies who do truly think long term, you're always going to have a fundamental mismatch with investors who... are going to have a much shorter term horizon than the company." (40:57)
• Durability Matters:
  • CJ: "You are what the numbers say you are in the long term. It's kind of like that Bill Parcells quote: you are what your record says you are." (42:33)

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Notable Quotes & Moments

| Timestamp | Speaker | Quote / Moment | |-----------|----------------|--------------------------------------------------------------------------| | 03:17 | CJ | "Yeah, that balance sheet was a ticking time bomb... swimming without a bathing suit." | | 05:14 | Host | "She later wrote, I confuse success with passion." | | 07:46 | CJ | "The best ones are along for the ride and helping shape it." | | 10:39 | CJ | "The best CFOs are able to change their altitude and and play at both levels." | | 15:43 | Jake Kornreich | "Finance became a language I could use... my mind gravitated towards thinking about value creation and trade offs..." | | 18:33 | Manu Do Akar | "Growth and high margin business covers up a lot of sin..." | | 27:00 | CJ | "The higher up I go... the simpler I explain something..." | | 32:11 | Jake Kornreich | "I walked right into his office, I said, look, here's what happened, here's how I think we can fix it." | | 32:43 | CJ | "There's something to be said about the credibility you build by letting bad news travel fast." | | 35:14 | Alan Imberman | "I estimate... spending over a hundred thousand dollars on coffee annually..." |

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The Takeaway: Lessons to Young (and Old) CFOs

• Operational Reps Are Irreplaceable:
  Finance talent must walk alongside the business—not just tally numbers after the fact.
• Leadership > Title:
  The best CFOs aspire to impact the business, not to occupy the seat.
• Transparency and Humility:
  Quick, honest reporting of errors builds credibility up and down the chain.
• Clarity in Communication:
  Simplicity during explanation wins, especially at the highest levels.
• Don't Let Growth Excuse Sloppiness:
  High times end, and only durable, disciplined companies stay standing.
• Long-Term Over Short-Term:
  Endure market noise by defining your company's own compounding story.

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Final Reflections

What would CJ tell his younger self (or Erin Callan)?

"There's no substitute for helping to run a company... You have to live quarter to quarter in order to fully understand what the size of the engine is and how fast it can go and when it'll redline." (43:42)
You must be inside the business, seeing both the good and the bad, to understand and prepare for real decision-making.

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This episode provides a frank, insider’s look at the myths and realities of the CFO role, illustrated by both infamous history and lessons from the trenches—all delivered with the wit, candor, and operator focus CJ Gustafson is known for.

Transcript

[Host]

February 2007. What were you doing around that time?

[CJ]

CJ February of 2007, I was playing basketball, I think. Freshman or sophomore year in high school, that's what I was doing. I was not worrying about the economy, I'll tell you that much.

[Host]

I want to take you back to that time. There was this woman, Erin Cowan, and she got a call from the president of Lehman Brothers. And he and the CEO of Lehman Brothers, Dick Fuld, wanted her to be the firm's new cfo. And she had become the first woman ever on Lehman's 13 person executive committee. So she's basically the most senior woman in all of Wall Street.

[Co-host]

That's crazy.

[CJ]

And I don't think she'd been a CFO before, right?

[Host]

No, she had never been a CFO before. Just to give you a little more color. She was 41 years old, Harvard undergrad, NYU law. She was a tax lawyer who spent 12 years climbing the ranks at Lehman, running the global hedge fund coverage group and taking companies like Blackstone and Fortress public.

[CJ]

She is not a dummy. She is like a 10 out of 10 on paper at least she has the requisite experience to be someone who's top of her craft on Wall Street. I'm curious though, how the CFO role now intersects.

[Host]

By any measure, this was a remarkable rise by her. There was just one big problem. So Callan lacked a background in accounting, treasury or operations. These are the three tracks that traditionally lead to the CFO office. CJ what was your background? Did you fit into one of those three?

[CJ]

I'm not a CPA by trade, so I always felt a little bit of an imposter, actually, that I didn't have an accounting degree. But I came up in the FP and a world which is operational in the sense that you're the person coming up with the budget, you're creating the operating plan, and you're also getting reps in behind a CFO at the time. So I didn't come to the CFO completely from like outside. I wasn't an external candidate or anything like that. I did very much come up the ranks internally, but no, I was not an accountant.

[Host]

She had her own word for herself when she got the job, or her own phrase, ill equipped. She later wrote that when she first moved to Lehman from law, she would constantly interrupt meetings to ask what basic financial terms meant. They used to call her Aaron the Interrupter. I don't think she adopted that name herself.

[CJ]

I feel like great leaders, though, do interrupt in, in like a friendly way though, in, in A way that actually shows that they care about what other people are working through. I often credit, like, my, my learning curve to just saying, can you walk me through that again? Can you, can you take me through that again? Can you just explain that to me one more time? And sometimes, even with my team, especially if it was something that was technical in nature, accounting, I would ask them to go through three times. I sounded like a broken record, but I looked at it like, hey, you know what? They gave me the position. I can ask the stupid questions now.

[Host]

No, for sure. And I don't mean to say any of this, that it, any of this disqualified her.

[CJ]

No, not at all. But I think it does show that she felt like a fish out of water. And she was interrupting a lot to clarify and, and try to quickly download I think what she did now.

[Host]

Absolutely. And I think we're probably seeing a lot of this after the fact because of just what came next. When Lehman started unraveling and the CEO fold retreated from public view, Callen became the face of the firm, the person that was on every earnings call defending the balance sheet on live television. It was a balance sheet that critics later said she may not have fully understood.

[CJ]

Yeah, that balance sheet was a ticking time bomb. The economic scenario certainly did not help. As Warren Buffett says, when the tide goes out, you figure out who's swimming without a bathing suit on. And Lehman Brothers was swimming without a bathing suit on.

[Co-host]

That kind of sucks for her, though,

[CJ]

that she was kind of left to hold the bag. Everyone else was like, I gotta go now. And she's just standing there like, I'll just vamp on the teleprompter here.

[Host]

Yeah, I'm. This is me speculating here. I have to imagine that perhaps maybe she was set up a little bit. Again, I'm not accusing anyone of anything, but, yeah, looking back, it kind of looks a little bit fishy.

[CJ]

Yeah. The fall guy or girl.

[Host]

So in June 2008, this was not that much into the job for Aaron. Callen was demoted. Lehman filed for bankruptcy just three months later. It was the largest corporate bankruptcy in American history. She said she was shocked, reluctant, and like I said before, ill equipped for the CFO job. Even if the financial markets hadn't stopped, started to melt down. The crisis didn't create her unreadiness, it just sort of exposed it.

[CJ]

Yeah, I. I think she had some misgivings about stepping into the role to begin with. And what's interesting about it is her, her intelligence is off the charts and her experience in other areas Is is clearly amazing. But it shows that if you don't have the reps at something, even if it's reps at something, that's probably simpler than what you've done before, like just how money enters and leaves the building, especially if it's like a levered company, then it's going to be hard for you.

[Host]

100%. Like, she was by no means incompetent. As I mentioned before, Harvard, NYU Law. These are no slouches of institutions to come from. And it was a decade of outperforming at one of the most demanding firms in the world. Technically, she was excellent in everything she'd been asked to do. But as I'm sure you know, and as I'm sure you'll illuminate for us, the CFO job is not primarily a technical job. And nobody told her that in time. She later wrote, I confuse success with passion.

[CJ]

That's a. That's a bar right there.

[Host]

Today we're going to hear from some CFOs who figured that out. Some of them the hard way. Cj, you spent years drawing these moments out of people. And I know you have your own experience as well. These are some surprising omissions, some humbling experiences. And these are the things that are buried in the middle of interviews that maybe never got their due.

[CJ]

Let's dig. Is this thing on?

[Host]

Yesterday's price is not today's price. So, cj, I want to play you some clips from past guests. Some of these are moments that I think got glossed over a little bit when the episode came out, or maybe we made some social clip off of them and they didn't really pop off as much as I wanted them to. And so I want you to hear them and tell me what you'd add or push back on now or maybe even just gimme a. Like, hell yeah, brother. That was. That was great. Okay, so our first clip is from Steve Isom. He is the CFO and COO of Bloomeran. Sort of the theme here is he's talking about the broadcaster versus the team captain.

[Steve Isom]

I learned a long time ago, like I don't compare myself to the people that I work with. I compare myself to a theoretical person that I believe exists. And I'm pushing so hard to be better than them. And, and a lot of times, you know, getting words like positive affirmation, you're

[CJ]

like, yeah, yeah, yeah, whatever.

[Steve Isom]

Unless it's comes from my CEO. Then I'm like, oh my gosh, thank you so much. Like, I can't wait. I Can't wait for this time next year. I do think that, and I think that one area where finance leaders really struggle with this, this point specifically, is I'm telling the news, right? Or the analogy that I've started to use is the football game's going on and I am the broadcaster. I'm telling you what the team is doing. The team struggled in the first half. Two things where you fall down doing that. One is you're just commentating on the business. In an investor backed business especially, the expectation is you're playing the game, you're in the field. So if anything, it's not the commentator, right? It's the team captain. That in, you know, in halftime, in the locker room, you're the one saying, we missed the plan in the first half. I talked to multiple finance leaders who are like, you know, I don't really get into the weeds. I kind of just talk about what happens at a high level and, you know, sales missed the number that's on them. And it's like, well, what did you do to help that? How are you leaning in? It's like, well, that's not my job.

[CJ]

So Steve brings up an excellent point around participating in the business rather than watching it and observing it. And, and that goes back to the operational experience that we hit on at the top of the podcast. So I think what he's saying, Ben, is that you need to be in rhythm with the business and not just reporting the numbers that come out of it, but helping to shape them ahead of time. You're also going to understand the numbers that come out of it. Like, think about an earnings call. You just don't want to show up at the end of the quarter and be like, all right, give me the numbers to read off here and I'll try to come up with some trends. You want to be helping to create those numbers all along so you understand the drivers behind each of them and that operational experience, you can't. It's funny, it's like, I think about sales in many ways as an apprenticeship. You learn how to sell by being in a bullpen, close to people who are also selling and picking up on, like when they shut up and let the client talk when, when they push for something, how they phrase stuff for a cfo, you can't replace being on a call with a CRO and actually walking through the pipeline like before that number is crystallized and becomes final. So I totally agree with Steve and I think a lot of people have this perception of the CFO as just someone like watching the business, but the best ones are along for the ride and helping shape it.

[Host]

I think it's interesting you hit it on point that like he's talking about the broadcaster versus the team captain, whereas I don't think he's necessarily saying you're watching as a spectator. It sounds like, you know, a broadcaster. There does come some gravitas if we just use the sports analogy. Yeah, it sounds like you can make a career as a broadcaster, as a CFO broadcaster, where like, to your point, you're passing off maybe your, your team's work as your own and you're, and you're sort of waxing poetic and lyrical about different things that are different trends that you're seeing. But I guess, let me throw that to you. Do you think that like there is a career for broadcaster CFOs?

[Co-host]

Yes.

[CJ]

But nobody loves working with them because it's like. No, nobody likes a critic.

[Co-host]

Right.

[CJ]

No one likes someone who, you know, is not. I hate to say this in the arena, trying stuff, as Chamath would say, no one likes the critic who's just going to poke you and tell you what wrong people take it a lot better if you've been there week after week, day after day, asking the right questions about their business. So I hear where you're coming from. If we're being like, honest, there are a lot of bad CFOs out there too who have made a career out of just being the broadcaster. It is so easy to sound smart and just say snarky things or, or observe things that are wrong. It is very difficult to get your hands dirty and help people solve it and make decisions rather than pointing out what's. What's incorrect.

[Host]

But I, I have to imagine there's like a balance too of like, you can't just be in the weeds the whole time. Like, you do have to kind of, as the team captain, direct maybe your, your fellow players where to go. Like while you are on the field as well. You, you do have to like pass off that work. Right.

[CJ]

You have to learn how to fly at different elevations. So you can think about it like the analogy of the eagle and the mouse. Sometimes you gotta play mouse and you gotta be on the ground and you gotta be as down to like the atomic unit or whatever you're studying as possible. So it could be like a single contract with the customer that's as deep as you go. But you also have to be able to come up and be the eagle and say, well, what's the ARR forecast in the bridge. It takes us from one month to the next year, so you have to be able to fly high and be able to go low. The best CFOs are able to change their altitude and and play at both levels. Hey, thanks for listening. We'll be right back after a word from our sponsors.

[Co-host]

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[CJ]

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[Co-host]

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[CJ]

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[Co-host]

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[CJ]

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[Host]

Cool. I want to move keep us moving along here, but I think that was definitely helpful for folks. I hope. Let us know if it sucked. So next up, we got a clip here where Jake Kornreich, the CFO of Colab Software, he's going to talk a little bit about the title versus the impact. Oh yeah, I know you definitely remember this Jake. He came up, he started as the chief of staff.

[CJ]

What a come up. We covered your, your come up from chief of staff to CFO to sitting here with me now. But you've told me that you're actually an operator and a leader more than a cfo and like that was something I really grasped on. It resonates with me. I never like thought about myself at first as like I aspire to become a cfo. It ended up being what I was doing. I loved it. But like I think there's a type of person who sees the CFO seat as a way to make change and it just happens to be the title. I want to make one comment just for listeners.

[Co-host]

So I took the FP and a

[CJ]

role originally not even knowing what FPA stood for. Financial Planning Analysis. I took it because they said you have a finance background, we're going to pay you like 10% more and you're going to get to manage people eventually, which means you'll get paid even more. I was like, that sounds great. So what I just said there's is totally true. I just wanted to give people some context of how I even got into this.

[Host]

Are you sure you weren't just like attracted to the fact that like FPA is like one of the few times that you get to use an ampersand?

[CJ]

Yeah, ampersand. It was definitely like a big selling point. I was like, well my name is CJ and that's already an acronym. If we could do another acronym. But within with an Ampersand, I could be cj, the king of FP and a let's sign me off.

[Host]

That rules. All right, I'm going to continue the clip.

[Jake Kornreich]

I didn't grow up saying one day I want to be a cfo. I wanted to be in the room where important decisions were being made and where I could play a really significant role in what was happening with the business. Finance became a language I could use to do that. I just found I naturally thought that way and my mind gravitated towards thinking about value creation and trade offs and capital allocation and risk and execution. But I never thought of myself as only a functional leader. And at own we used to say we were a team of leaders who happen to be on the leadership team, happen to represent a functional area, not we're a bunch of functional leaders that happen to be on the leadership team. And I think that's a really important distinction to make. And that's how I've always tried to operate. Once you're on the leadership team, your job's to help the company win however best you can. And sometimes that means going deep in your lane. Sometimes it means having a point of view on product or go to market, people, strategy, sometimes culture. You need enough humility to know what you know, but the confidence to be able to speak about any of that.

[Host]

I do have a follow up question on that for you. Unless there was something you wanted to

[CJ]

share there, hit me.

[Host]

You kind of shared yourself that like I don't know if you, you explicitly wanted to be a cfo, but I've heard this before about other things. Like I think in politics they talk about like the best politicians are the ones that don't want to be politicians.

[Manu Do Akar]

Right.

[Host]

And, and like do you think that aspiring of the title specifically is actually a red flag in CFO candidates? How do you like become a CFO without not wanting to be a CFO a little bit?

[CJ]

I think the best people are ones who stack their talents in a way that makes them uniquely qualified to add value. So if all you've done is just like management accounting your whole career, like maybe you can get to the role, but you're going to be kind of a one trick pony there. I think what Jake is hitting on, and he's an ambitious guy, like he's, I've had dinner with him, he's easy, he's a great hang. He probably saw like, oh, I can get to that. Like eventually that role lights up and it's, I can do that and I can get there credibly. Within the next, I don't know, six months, a year, two years. And he probably saw that and took the opportunity. And that was similar to me. It wasn't like I, it's CFO or bust since I was 12 years old. That was definitely not the case. It was, these are the things I'm good at and I think I can use these things to get into a room where decisions are made. To his point, I love how he said that because I've always thought about is how do I get into a room where people are deciding the big stuff, right, Whatever that big stuff is. And my skills were not in coding. I didn't know how to code, so I couldn't be the cto. My skills are not in design, so I couldn't be the cpo. And so it's like, okay, well the path there, unless I invent the company as a CEO, is going to be through the CFO seat. And so once I figured that out, I was like, okay, how do I credibly get into that role?

[Host]

I want to shift over and talk about Manu Do Akar, the CFO of Virta Health. He had an interesting thing to say, but let me play this clip where he talks about high growth covering up

[Manu Do Akar]

a lot of sin growth and high margin business covers up a lot of sin. And that is, I think, in many ways why it's easier to be an early stage cfo.

[Co-host]

What bad habits do you think get

[CJ]

baked in during high growth that that will come back to bite later? Because even if it is software, I do think you hit this point eventually where you're like, oh, wow, we, we can't do that anymore.

[Manu Do Akar]

Discipline is really hard to build. And so what ends up happening is getting very clear about productivity metrics. And then holding an organization accountable to productivity metrics is very, very hard to do. After you've had a run of awesome success, let's say you've continued scaling, you've continued financing, you know, off of crazy multiples, off of the scaling that you've done, sooner or later, all businesses revert to a present value or future cash flows. And when you hit that point, if you're not clear about how you're going to generate that cash flow and you can't get confidence behind it, it's a big change for the company because all of a sudden you've gone from people running around with crazy ideas who just want to make stuff work at any cost, to all of a sudden being thoughtful about it and saying like, okay, I can't unconstrained my budget. Like, how do I get the most out of it?

[Alan Imberman]

C.J.

[Manu Do Akar]

when you give stuff away below cost, it's always easy to make a business work. That's not hard. And I think when you can't and you have to turn a profit, I think that's when things get real.

[CJ]

A lot of this reminds me of the interview I did with Claire McDonough, the CFO of Rivian. And she was saying, whenever we go through planning, two things to point out. One, we don't use like the human, similar to like a sales rep as the atomic unit to plan around. We plan around the product roadmap. But second, we have to start with what can we afford here? What can we actually allocate resources to? What Manu is hitting on here is it's actually pretty easy. If I said, hey, do you want to use doordash and I'll deliver you a burrito and it's only going to be $5, you're like, oh, that's actually cheaper than if I went in. Yes, that's great. That's not a sustainable business. What he's hitting on is it's, it's a lot harder to have product market fit at something that's novel and new, that has execution risk and is priced to actually be gross margin accretive.

[Host]

You know, there's a lot of talk about hyper growth, and I'm sure, especially at Rivian, like, they've absolutely experienced great growth. But I'm wondering what are some of the specific, like, bad habits that can get baked in during hypergrowth that maybe come back to bite you when the, when the music stops?

[Co-host]

Well, the first one is hiring for

[CJ]

people you think you'll need versus people you actually need. And I've seen this happen before. Companies where you go out and opportunistically hire a bunch of people, but you don't have anything to immediately staff them on. And they end up just like working on skunk work projects and stepping on people's toes. And it's an expensive thing to have people hovering around.

[Co-host]

And by doing that, you're actually adding

[CJ]

another node to the network that needs to be communicated with, which slows everything down. So that's one thing that'll happen when you don't have the same guardrails around spend, and the other is just shitty projects get greenlit for the sake of, like, let's try it. And it's just looked at as another shot on goal, which it probably never should have been a resource. Bet. We were talking to the CFO of Navon Aurelian. No. And he was saying that you should take this capital allocation framework that is 70% on existing stuff, your core stuff that you know works and makes money today, 20% on the stuff you're incubating and you think is an adjacency that has a great chance of working, and 10% on moonshots. What a lot of companies do is they do 100, 100, 100. What Manu was saying there is it's a lot harder when you can't do that, when you have to say no, when you have to prioritize what you're going to invest in. Hey, thanks for listening. We'll be right back after a word from our sponsors. I got news for you.

[Co-host]

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[CJ]

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Heard of them.

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[CJ]

There's a problem because there are a dozen disconnected tools. You got one for revenue, one for ap, one for close.

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[CJ]

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[CJ]

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[Host]

on in the episode we talked about how Aaron Cowan was the the interrupter was trying to get clarity and you talked about how there's definitely merits to that. And I, I would agree. The next clip that I want to talk about and the next sort of section I want to talk about here is this communication gap that might come about. And we've got a clip here from Dan Betts, the CFO of SoundCloud, where he's talking about don't church it up to keep the sort of religion theme going a little bit here. So let's check it out.

[Dan Betts]

I want the people that work on my team and the people that work for me to have a very high fluency in how they talk about the business. Especially in today's environment where even growth companies aren't being valued as much on maybe for an AI company, but like here's a super high revenue multiple. There's a huge focus on cash flows and it's not uncommon for a company to have a pretty big difference between their cash flow and their net income or their ebitda, their adjusted ebitda or their adjusted EBITDA and so me as a cfo, if I'm sitting in the boardroom or talking to the investors, I need to be able to talk about how you bridge between those two numbers. Like, maybe they're close to each other, but maybe they're not. And if they're not, I need to be able to really tell that story and I need to know what I'm talking about, and I need the people that work for me to know it too. And there's really just no better way than to actually get in there. When you do that work, the kind of magic of double entry accounting is what's at play. You have to kind of think almost like T accounts.

[Host]

So I definitely interpreted something differently there. I think earlier on the episode when you introduced it, you talked about churching it up. So maybe you can actually give insight there of like, what did you mean by don't church it up?

[CJ]

It comes from Joe Dirt when he tells people in the movie that his name is dirty. He's trying to sound fancier than he actually is. And something that Dan says in the interview that really stuck with me is the higher up I go, meaning, like, if I'm talking to my CEO and then the board, the simpler I explain something which is so counterintuitive to what we've been taught to do when we present something, you think, oh, I'm talking to this intelligent class of people. I have to make it complicated. So I also come across as intelligent. He's like, no, you actually need to dumb it down to a level that shows that you grasp the concept. And I think there's an art in making very complicated things simple for people to understand and putting it on a platter for them.

[Host]

Well, and it seems like it's easier than ever. Like, you can use any LLM right now that you want to sort of make whatever you're. Whatever technical thing that you're going to say into something that's more plain English. Do you think you would have risen a little bit faster if you had had these or now that everyone has them, it's like, if everyone's super, no one is.

[CJ]

No, actually the opposite, because the large language models the way they write things for you. They are really good at sounding convincing. But if you go one level deeper, a lot of times it's empty and it's a bunch of hand wavy and like, you're like, wait, but what. That sounded really convincing, but what does that mean? I think if I had used LLMs to help me explain things, I wouldn't have had to do the homework to understand within a financial model why it was built that way. And that's actually what I think is going to be lost on this next generation. And if you never have to, you know, go down into the mud and rebuild something for something that ends up just being, like a phrase within a presentation, but it took you an hour to find, do you truly know it? It reminds me of, like, Matthew McConaughey describing this scene that he was in where he thought that, you know, I can just make up my lines on the fly. But then he came in the next day and he found out that his character is actually speaking Spanish. And he's like, you get. You gotta know your man. And my man that day knew Spanish. And so, like, you could have a large language model translate something for you. You could have it summarize something for you. But if you don't know Spanish, if you don't know the accounting, if you don't know the operating model of it all kind of screwed.

[Steve Isom]

And that.

[Host]

That segues well into this next clip that we've got here where you're talking about. I think you're actually presenting this to Dan. Same interview here as the previous one. You're talking about the multiple EBITDA definitions.

[CJ]

So the many faces of ebitda. I've been in a room, too, where I was walking somebody on my board through what our EBITDA was, and I'm like, I'm just making it up, you know, and that'll get us to 11, too. And he's like, I have you at 14.

[Co-host]

4.

[CJ]

And then I'm like, really? And so we were both talking about profitability, but different ways of looking at it, right? So I was talking about it from the operator's perspective. He was talking about it from the management perspective of what they were going to be able to pay dividends on. And then there could have been this third voice in the room, which would have been what the credit agreement would have said. It. It is. So all three can be true, but if you can't bridge between them, you may as well just stop talking at that point, because nobody's going to agree. And you can be right, but. But actually wrong. I've been in so many conversations where we're both talking around something without actually understanding where the other person is coming from. And many times I think the CFO's role is less getting the math right. Like, I think that's table stakes, but it's just, who is this person? What are their incentives and how are they Measuring success. And I think something that got me ahead as a younger CFO is really studying what helped my investor get ahead. I've worked with some young investors, I've worked with some more tenured investors. And it's like, well, what gets them to the next level and what are they measured on within their fund and then how are they tracing that back to the performance of my company? So a lot of CFO's job is whoever you're across the table from understanding what success means to them.

[Host]

So I guess clarify for me a little bit here of. I think you've maybe embellished this story a little bit, but it sounds like there was a real example of having different EBITDA numbers. Is that not like an alarming, like, why isn't that like a five alarm fire to hear, oh, we have different numbers here.

[CJ]

It could be a five alarm fire if they're calculated the wrong way. But in this, in this instant, they were just differing views of what was being added in based on a definition. And this is why it's so important to footnote everything. And I always joke like, my middle name is Footnotes. And some of that's like, cover your ass. Just make sure that you understand how you got to the numbers. If somebody asks you in the room, you're like, I can actually look at the footnote on my own slide here. This happens all the time where people are measuring things differently because of some underlying action that they're going to take based on the outcome or what it means to them. So in the case that I gave there, they were all based on the same financials, but they were based on differing perspectives and viewpoints of what success look like.

[Host]

And this is a great opportunity for me to plug the EBITDA episode we have of CFO explains to go make sure you're using the same definition. So now I want to transition a little bit. We've got another clip here from Jake Kornreich, and I want to talk about some of the more honest moments that you're going to have as a CFO in the finance world, particularly. He's talking about a $5 million budget bust.

[CJ]

Oh, yeah.

[Jake Kornreich]

Nobody likes airing their mistakes in public, but I actually find mistakes are how you learn. So when I was chief of staff, I sat right outside CEO's office. I had like a 5 million bust in a budget model. I think it might have been after the board meeting and the budget was approved. I'm like, oh no. But I didn't really hesitate or think twice about it. I walked right into his office, I said, look, here's what happened, here's how I think we can fix it. I think the way that I presented it in that context was, hey, okay, I trust you. I don't think there's any other way I could approach that problem.

[CJ]

There's something to be said about the credibility you build by letting bad news travel fast.

[Jake Kornreich]

You have to, at the end of the day, you have to own your mistakes. It's not about what you did, it's about how you respond.

[CJ]

This reminds me of one of the very first conversations I ever had on the podcast with Charlie Kevver, CFO of Carta. And I asked him, how do you deal with having to communicate bad news? And he said that bad news should travel faster than good news. And I've often had that pit in my stomach when I know I have to make a hard phone call. An example there would be, let's say somebody important is quitting the company and you have to tell the board or for a cfo, the moment you know you're not going to hit your plan. And I've actually had to pick up the phone twice, I can remember in my career and just tell the board, like, hey, I just wanted to get ahead of this and tell you now maybe we can come up with solutions together. But I didn't want to tell you in 45 days that we were going to miss the board meeting. It's not looking like we're going to hit the plan that we have right now.

[Host]

What is it like to be on the receiving end of that? Like Jake is talking about when he was the chief of staff, he was telling, I believe, CFO or telling someone above him. So in your position as a cfo, what's it like to hear that yourself?

[CJ]

It made me respect the person so much more. I remember my director of FP&A come to me, he's like, dude, I totally fat fingered this in the model. And I actually, I think it was a net dollar retention calculation and I like overstated it by 10 percentage points because the plus was a minus or whatever. And I'm like, thank you for bringing that to me. And it's my job to shield you from whatever falls out of this. But by telling me I can help you come up with a way to package this and convey this, that will land a lot softer with people. So I always applaud the people and I think the great CFOs will say to the person because they, you gotta understand, like, if it's somebody under you. And there's a power dynamic that's hard for them to do. You have to compliment them and, and thank them for doing that. Now if they're getting stuff wrong all the time, it's like, okay, maybe it's not working. They're not a great person to have on your team, but if it's someone that you respect and has done great work in the past, like, you got to give them a thumbs up for bringing it to you.

[Host]

You talked a little bit about how it's good to like own up to your mistakes and like, you know, bad news travels fast. So like, get out ahead of it. Let it, let it go. I want to, I want to transition here and talk a little bit about Alan Imberman, the CFO of Wealthfront. He had a story about a mistake that he discovered it wasn't one of his mistakes. But I think there's like a different angle to sort of look at this. So let's, let's review it.

[Alan Imberman]

So I started in October of 2015 and when I started the office I started at in Palo Alto, there was a bunch of lanyards on the back wall with reloadable cards to various coffee shops and snack shops around Palo Alto. And you could go get coffee with people. You know, it was meant to go get a group, go get coffee and then if it ran out, you would just load it and expense that it was not being tracked with any high level scrutiny. And right before your end weeks, installed expensify. And I started looking at the numbers and I wrote the CFO at the time an email and I said, I estimate from just the past few months that we're on pace to spend over a hundred thousand dollars on coffee annually. And we only had 120 employees at the time. I literally said we could hire a barista and pay for like really high quality ingredients in all the packaging and save money. She was also aware, and when we moved offices, we took the cards away, which did not make people a fan of, of me very early on. But we replaced it with debit cards that were strictly made for coffee shops and had a daily limit on them so we could control the cost. But I was absolutely amazed about the amount of money one could spend on coffee for such a small company. That's probably the craziest thing. And I remember very clearly, obviously it's

[Host]

good to like cut out the waste and make sure that the books are looking good. But do you think there's like a little bit of a risk here of maybe setting up, leaving A bad taste in people's mouth by like taking something like that away?

[Co-host]

Hell no, brother.

[CJ]

$1,000 a year on coffee per employee. That is absurd. It's most of them, like peak zurb times. Because that's, that's just nuts. I mean, I empathize with this guy because he definitely did not get a Christmas card from a lot of those employees.

[Host]

Have you done anything like that? Have you like, taken something away from people before?

[CJ]

Ooh, let me think about that.

[Host]

Yeah, I put you on the spot.

[CJ]

Oh yeah. There was a new hire start pack where people could expense stuff because we were remote at parts tech, I remember, but there was no limit around it. So some people were building out like the equivalent of like a recording studio. And other people were building out like they wouldn't even get a chair right. They're just like sitting on the ground. And so it wasn't like I took it away, but I'm like, okay, we gotta put some parameters around this. And we can't just accept every receipt that comes in. Also, you're a BDR. You do not need 17 monitors. Like you're running some like NASA Space Center.

[Host]

Yeah, I've definitely taken advantage. I'll say. I won't, I won't be explicit about things, but let's just say there's definitely things in my apartment that I benefited from some of those programs. Like that.

[CJ]

Not on my Brex card.

[Host]

Not on your Brex card.

[Co-host]

No.

[Host]

I'll, I'll be clear about that. I'm sure the like Amazons and the Googles and Maybe even the OpenAI's of the world have some probably like big programs like this. Like, I know we've, we've probably talked before about how Google has like a entire cafeteria, like encouraging like 9, 96 culture like that. what point does like some of this stuff not become as frivolous? And it's like, at what point, at what stage would you be comfortable spending a hundred thousand dollars on coffee annually?

[CJ]

Well, I think it goes back to what's the roi? So when I was at Providence Equity Partners, four days a week, I would eat dinner in the office and we would get takeout. By the way, I was like 20 pounds overweight at that point. Like not great for the cholesterol. But we ended up working till like 9 o' clock every night. And if you think about the per hour rate of the people who were hanging out because you fed them dinner, it actually made sense on paper. So I think there has to be a return associated with it. Like if you're just buying everybody coffee from a third party during the day, I guess you get like caffeinated employees and stuff. But they are expected to be there to a certain extent anyway. So I think it's what's above and beyond in helping to motivate people to do quality work. But then there's also the opposite side of it. Like if people are just going to grind their faces off, there definitely are diminishing returns. And look, I'm someone who like, I don't think you can accomplish anything great if you don't try really hard and put a lot of hours in by the way, just number of hours on the board. But like there is, there is a limit to how many hours you can get someone to do quality work.

[Host]

I remember early on at, in my profit world days we had Cheerios. Like, you know, we had like a basic kitchen sort of thing and we had Cheerios, but we didn't have like the only milk that we had was almond milk, vanilla flavored for coffee.

[CJ]

The coffees.

[Host]

Yeah. And so I remember I would have like lunches sometime. I'd be like, oh, they're not honey nut Cheerios, they're regular Cheerios. So it's just a fun little, little thing that's motivated, man. That and the cold brew.

[CJ]

I was dialed, Dialed in. Yeah. I remember like my wife telling me about the HubSpot days originally. They had, they had like candy machines in the office.

[Manu Do Akar]

Oh my God.

[CJ]

Stuff was, was nuts. So I mean it's all. Time is a pendulum, right? We, we swing from opulence to you know, you'll sit and coach and you'll like it. So it goes back and forth.

[Host]

So I want to, I want to wrap us up here a little bit and shift away from mistakes but, but, but still maintain the honesty theme here. And Alan actually had a separate section where he talked about some of the things that he wished he'd known before they IPO'd. Before he IPO'd at his company.

[CJ]

You were private for a really long time. Now you're public. Do you think having that long term philosophy on compounding is harder in the public markets? It sounds like internally you talk about, you talk about the company in years and decades and now you get to do quarterly earnings calls.

[Alan Imberman]

Yes, this is a very good point and maybe perhaps something that I should have known better. But if there are any other private CFOs or future CFOs listening. The biggest thing I learned throughout the process is for companies who do truly think long term, you're always going to have a fundamental mismatch with investors who, you know, either due to their performance, payouts or any kind of structure in which they invest, are going to have a much shorter term horizon than the company. And so, you know, we, there are ways you can control for that. We don't provide guidance. That was a specific decision we made. And, you know, we are very clear and authentic about. This is our mindset and this is something we're going to, you know, when we make decisions, we're going to think long term. Even in the face of, you know, whether or not the stock price is up or down. We're still going to continue with that mindset because again, our opportunity is measured in decades. We're growing with what's going to be the largest and wealthiest generation on record. We estimate they'll be worth $140 trillion in net worth by 2045. And that's without the generational wealth transfer. And so, you know, I think there's somewhere around $18 trillion today. So why would you sacrifice some short term decision, you know, when you can enjoy that benefit of compounding over time? But it is a difficult conversation and a difficult way to run the business when you're working with public minded investors who do think in quarters. And, you know, a year is a long time in some cases.

[Host]

I feel like maybe you, you zeroed in on maybe something similar.

[CJ]

To me, I think it goes back to how you define what a durable company is. That's what's at the core here. Because it's easy to create an illusion of success in the short term, but it's much harder to have a story that compounds like he's saying over decades. Right. And what's nice about that is it's so honest. Right. You are what the numbers say you are in the long term. It's kind of like that Bill Parcells quote that you are what your record says you are. And I think it's also a lot easier to rally a group of smart people around a vision that's long term too, because you can keep revisiting that. That becomes a scaffolding around how you prioritize everything else in business.

[Host]

I want to bring it back to the beginning here because I know a lot of the time you're asking in these interviews a very specific question, and I want to pose that question to you. You have an opportunity to talk to Erin Callan before she takes this role with Lehman Brothers. You've been a CFO yourself, CJ what is something that you wish you could tell your younger self, I would say

[CJ]

there's no substitute for helping to run a company. In many positions I was in prior to becoming an operator, I was essentially like a financial tourist. I did it in M and A consulting, I did it in private equity, where I would pop in and pop out. But you have to be one with, like, the rhythm of the business. Not to get too woo woo on you, but it's. It's kind of like you have to be along for the ride and live through the quarters in order to understand, like, what ties a business together, what, what durable revenue looks like. You can come in and you can try to put it in a box that an investment banker would understand. And I think that's a point in time solution. But you have to live quarter to quarter in order to fully understand what the size of the engine is and how fast it can go and when it'll redline. If you're not in the seat to do that, it's hard to replicate it anywhere else.

[Host]

Lehman calls you back. Then when Aaron gets the job.

[CJ]

I don't think their phones are working anymore.

[Host]

No, no, I'm saying We're back. It's February 2007 again.

[CJ]

Lehman is so back.

[Host]

Yeah, Lehman's back. Aaron passed on the job. Are you taking the job?

[CJ]

I'd take that job. Hell yeah. I mean, I might go out in a blaze of fury, but I'd at least get some good stories. Look, she. She has a much more impressive resume than I did, so I. First of all, I don't think Lehman would be calling me. That's very kind of you. I think getting reps at companies, not only that are great at what they do so you know what good looks like. But companies that, like, haven't done stuff right and been in the operator seat for that gives you a vantage point. So when it does occur, you understand, like, oh, I see what's happening right now. And I think from the outside, you only get the bullet points or the cliff notes of it. But living quarter to quarter, like as Vin Diesel says in Fast and Furious, I live life a quarter mile at a time. I think a lot of finance people, you live life a financial quarter at a time, and each of those quarters, it kind of wears on you like dog years, but it allows you to spot problems before they come up and not be so reactive to them. Run the Numbers is a mostly media production. Yelling and intro by Fat Joe.

[Co-host]

Artwork by Meg Delesandro.

[CJ]

Show is executive produced by Ben Hillman.

[Co-host]

Nothing said on this podcast is intended

[CJ]

to be business or investment advice. It's the sole opinion of me. A guy who feeds his dog way

[Co-host]

too much ice cream and has a history of net operating losses.

[CJ]

Lol.

[Co-host]

If you like this podcast, hit subscribe

[CJ]

and give us five stars.

[Co-host]

It will take like two seconds and

[CJ]

our algorithm overlords love it. Drink water, call your mom and have a great day.

[Manu Do Akar]

Peace.