From a podcast interview featuring Ellen Wood, Founder and CEO of VCFO
In the latest episode of CEO Growth Talks, host Pete Hayes is joined by Ellen Wood, the CEO, founder, and president of VCFO, who shares insights into her journey and the evolution of her company. Ellen, who pioneered the concept of virtual CFOs nearly 28 years ago, reflects on how VCFO has grown and adapted over the years - from the initial skepticism she faced with the fractional model and how her vision eventually became a widely accepted industry practice.
"More executives see opportunities to take their expertise into a fractional role, and they’re more comfortable doing that because of the technology support that they have and the adoption of fractional as an acceptable alternative to an in-house executive role." - Ellen Wood
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[Episode Transcript]
[00:00:05] Pete Hayes: Everyone, welcome to CEO Growth Talks. I'm your host, Pete Hayes, and I have been looking forward to this for several months. My friend Ellen Wood, the CEO, founder, and president of the VCFO, is our guest today. She’s been waiting for you to hear her story. She is also one of my favorite lunch partners.
[00:00:22] Pete Hayes: We have a blast if we get together. Welcome to the program, Ellen.
[00:00:27] Ellen Wood: Thank you, Pete. I'm delighted to be here, and I'm just pretending it's lunch.
[00:00:32] Pete Hayes: That's right. That's why if you see us eating sandwiches, we're just living into our true calling to hang out together. We will explore today and see your growth talks like we normally do.
[00:00:43] Pete Hayes: We want to learn about Ellen's business, where it comes from, how far it's gone, the things that she's accomplished, not only from a business standpoint and not only from her leadership skills, but I'm really interested for you to hear how she engages with the community and what she's in this whole game for.
[00:01:00] Pete Hayes: Let me just start right back at the beginning. The VCFO has been around for 28 years and is shorthand for virtual CFO. You basically invented the category, which we now call fractional CFOs today. But you've gone further than that, but that's really what was going on 28 years ago, right?
[00:01:18] Ellen Wood: I feel like we did.
[00:01:19] Ellen Wood: We actually have the trademark name Virtual CFO, which you would never know to look out on the web. There are so many people that have borrowed that. But yes, at the time, basically folks told me this would never work, the fractional model. But I think it's phenomenal, and I'm as excited about it today as I was 28 years ago.
[00:01:37] Pete Hayes: Wow. So, where did you get the idea? If I recall, there's an interesting history with you doing this and the history of Austin becoming a tech center.
[00:01:46] Ellen Wood: That's true. The story really started for me more like 29 years ago or 30 years ago when I was a young CFO going through a transaction to sell a business I looked around and began to realize all the things that I didn't know at that age. You think you know more than you know. I know I still don't know many things at my age.
[00:02:06] Ellen Wood: I was looking for someone who could come in and help me and give me advice on that. At that time, you had to turn to your network for advice. When we finished the transaction, I thought to myself, ‘That was fun,’ and I'd really like to do more of that for small and medium-sized businesses.
[00:02:24] Ellen Wood: Transactions are just a part of the game, right? There's a lot of daily blocking and tackling that's also very critical. But if you work for multiple companies, then you can catch the fun strategic planning and financial oversight process part for multiple companies simultaneously and build a pretty darn interesting job. That is where this idea came from.
[00:02:40] Pete Hayes: But that scaled.
[00:02:42] Ellen Wood: It did. As soon as we started doing that, my original partner, Tommy Davenport, a fabulous friend and a great entrepreneur, and I started this journey together for a year or so. But as soon as we started doing the CFO level work, the clients needed the controller level work; they needed basically everything.
[00:03:01] Ellen Wood: As you mentioned earlier, technology really took off about the same time. This was from 1998 to 96. Some of the first venture fundings said, ‘Hey, let's put money behind another entrepreneur and see if we can build another really cool opportunity.’ Nobody wanted to put money into a CFO coming into a company at that stage.
[00:03:19] Ellen Wood: It was a great opportunity for us to be a slice of the CFO that they really needed but at a fraction of the price. That's really how the technology boom and the VCFO Genesis intersected.
[00:03:32] Pete Hayes: I recall one of the first times I was in your office, and behind the welcome desk were logos of prominent startups in the Austin scene.
[00:03:42] Pete Hayes: I think many of them are probably backed by Austin Ventures, and they had some pretty good runs. Are there any particular companies that we might be familiar with or perhaps got acquired by other larger companies that you were part of in those days?
[00:03:54] Ellen Wood: We had some fantastic clients in those days. I was enjoying being a field CFO and running the business, working in and on the business simultaneously.
[00:04:03] Ellen Wood: An early client that people may remember is garden.com, and I remember thinking, ‘Oh my gosh, what an interesting problem.’ We're trying to figure out where we will buy roses six months from now when we need to be selling roses. That's just an example. I think they did a lot of wonderful things.
[00:04:22] Ellen Wood: Um, Motive was another early one for us, and Agere, which was later bought by Lucent.
[00:04:28] Pete Hayes: What a time it was. I think the founders of Garden became part of VRBO or HomeAway, which was then acquired. It's the same group of entrepreneurs.
[00:04:41] Pete Hayes: That's so funny because I think of something like garden.com. I can remember ordering orchids through an internet site, and I thought, ‘Orchids through an internet site?’ This was before commerce was common, right?
[00:04:48] Ellen Wood: They were trying to figure out how to get paid for those things. Interestingly, you mentioned VRBO and HomeAway because our Denver office represented VRBO in their sale to Austin Venture, which I believe was the first platform flight Austin Ventures did and they rebranded it as HomeAway.
[00:04:59] Ellen Wood: And then it just became the behemoth and success story that everyone has seen. Fortunately for us, once the platform got started, we were also able to help a few other international acquisitions.
[00:05:14] Pete Hayes: Wow. Now, how soon was it before you opened other Metro offices?
[00:05:18] Ellen Wood: That's a good question. We encountered the tech downturn and discovered that being as focused on tech as we were was maybe not the best idea. Of course, we realized that midsize companies need what we do just like technology companies do. We diversified to that, and our eyes turned North to Dallas.
[00:05:35] Ellen Wood: Dallas was the first market we opened. We tried to do it with someone from Boston, a great player for our team, but the Dallas office politely told us that we needed someone who lived in Dallas. So, we made many entrepreneurial mistakes in doing that. We turned our eye toward, where else shall we go?
[00:05:52] Ellen Wood: And we opened Denver and Seattle and then came back to Houston. That's where our footprint has been. We've since closed our office in Seattle, although we still work on the West Coast and manage it out of Denver.
[00:06:04] Pete Hayes: When you saw other companies pop up and some of them got fairly large, was that an affirmation of your business vision and how it changed things? Did it make things more competitive? Did it require you to offer different services?
[00:06:17] Ellen Wood: Well, probably yes to all of those things. It definitely was affirming. It goes that further. Not a week goes by that I don't get phone calls from someone in the private equity world who is looking at doing a platform of outsourced service providers and wants to talk with us.
[00:06:31] Ellen Wood: So I think that it's definitely a model that's been well adopted and very successful. Competitive? Sure. We're happy to compete. I think it's all about doing a great job. You've really got to know your stuff, and you've got to deliver.
For us, it's all about hiring the best people, doing a lot of internal training, and then having an ongoing quality program where our clients give us continuous feedback on what's going on.
[00:06:56] Ellen Wood: I think that is very difficult for many companies and organizations to deliver on. We spend an enormous amount of time, effort, and energy on that.
[00:07:05] Pete Hayes: I know your team is really proud of their work. I remember being invited into a planning session in your conference room. One of your regional leaders and I were trying to figure out how to really tell your story.
[00:07:17] Pete Hayes: I was saying, ‘Well, what do you guys really do?’ And she goes, ‘Well, we just make companies stronger.’
I go, ‘What? Do you know how powerful that is?’ And remember, we looked it up real quick, and I think you've been using that expression. It came out of that session.
[00:07:31] Ellen Wood: That's exactly why you were in that session. We had engaged you to come and help us with that because we needed some vision and leadership in that area, and that was a spectacular planning session.
[00:07:40] Pete Hayes: The most great and true statements about a business come from somebody's mouth, and it's usually not the person trying to get it. They usually don't. I didn't invent it, but I did hear one of the things that I said, ‘Can you imagine your competitors, when they hear this, they're going to go, Oh no!’ That’s what you really want.
[00:07:57] Pete Hayes: You want a positioning nugget that makes your competitors go, ‘Gosh, man. They own making companies stronger.’ That's what you do across that spectrum of services that you have.
[00:08:08] Ellen Wood: Well, we do. Then, about 15 years ago, we added HR services, so chief human resource officers. First, I would say that was a pull because our CFOs recognize how much money goes into the talent side of the business.
[00:08:22] Ellen Wood: And not just the money that you see on your income statement; there are the hidden costs of turnover, retention, and quiet quitting. All those things need to be attended to. They make a big difference in the bottom line. So, our finance executives and our HR executives work hand in hand to really make our company stronger.
[00:08:42] Pete Hayes: Yeah, they sure do. I'm going to pivot here just a little bit. You've been doing this for quite a while. I know you have tremendous loyalty, especially in your senior leadership team. You not only lead within your business, but you also lead outside of the business. You've served on significant and important boards in the chamber.
[00:08:59] Pete Hayes: What drives you? What's your leadership style to chase that vision and have so many people join you in it?
[00:09:05] Ellen Wood: Well, I'll start by talking a little bit about community involvement. I think that giving back is extremely important. With both time and financial resources, we have an internal program here called VCFO Gift, and as one of our rocks every year, we have gradually increased our contribution to that.
[00:09:24] Ellen Wood: We think that's just really important, and we're able to give the financial resources and time to several organizations that are very meaningful to us. I have been involved in the Chamber of Commerce and served on several of its committees, which have focused on developing international interest in Austin and education, which is another area I'm very passionate about.
[00:09:46] Ellen Wood: I chaired the chamber in 2018 or 17. That was a lot of fun as well. I served on their executive committee for several years. I'm now on the board of Opportunity Austin, which is, I think, a very undersold story in Central Texas of the 20-year plan that's been funded by various members of the business community to drive economic development.
[00:10:08] Ellen Wood: A lot of the success you see in Central Texas is the result of Opportunity Austin's strategic planning and execution. So, I would encourage anyone to take a look at that. The other area I'm passionate about is BookSpring, a fabulous program that our company has supported for 15 years. It works with underprivileged schools and delivers books. Sometimes it's the only books those children have in their home.
[00:10:28] Ellen Wood: My son is an Eagle Scout, and I was the treasurer on the Boy Scouts' board for several years. I really found that to be very meaningful. We are all involved in things throughout the company. We have people going through Leadership Austin.
[00:10:45] Ellen Wood: We have people who serve on different commissions. We just think it's important to give back.
[00:10:51] Pete Hayes: I think that's why people love to work with you and follow your vision. It's not like you're just trying to build a business and eventually cash out. You're trying to make a difference, not just in your clients but in the community.
[00:11:04] Pete Hayes: Congratulations on all that. It seems like it just keeps getting bigger and bigger regarding your community impact.
[00:11:12] Ellen Wood: It's still a lot of fun. I'm very fortunate, after all this time, to be able to get up every day and genuinely enjoy the people I work with, the clients we work with, and the problems we're solving.
[00:11:23] Ellen Wood: So not many people can say that. I feel very fortunate.
[00:11:27] Pete Hayes: So, how would you describe your leadership style? You lead well, and you lead a pretty sizable organization. What's your style of leadership?
[00:11:35] Ellen Wood: I like to think that I'm collaborative. I very much appreciate the talent around me. I'm happy that I am rarely, in fact, never the one with all the answers in the room.
[00:11:45] Ellen Wood: I think it's important to listen. I think empowering people is important, and I try to do that. I think we've had some fabulous leaders, some that are still here, some that were here for a while, and now I've gone on to do other things. I'm proud to have worked with all of them.
[00:12:01] Pete Hayes: I've talked to a lot of leaders and CEOs, and many of them will say that collaboration, the skill of listening, and the value in that are valuable, but it occurs to me that sometimes, they don't get it done.
[00:12:14] Pete Hayes: What else do you have to do to move your business forward, even though you're highly collaborative and you listen well?
[00:12:20] Ellen Wood: Well, we adopted something that I recommend to all our clients, and I've probably recommended it to you before, the Entrepreneurial Operating System, which we adopted back in 2018. That really helps us manage the business. It helps me manage the business.
[00:12:32] Ellen Wood: Everyone in the company knows where they belong on our accountability chart. We have regular structured meetings. Everyone participates in a meeting at one level or another. Issues progress from the field, in our case, up to our corporate for response. It supports communication if they can't be answered somewhere along the way.
[00:12:54] Ellen Wood: I give it 95% of the credit for positioning us so well to respond to COVID. We didn't miss a full week. We were up and running and didn't miss a beat, even though I was out of the country when they actually shut down Austin. So that structure that we've adopted. That enables me to manage from a viewpoint from the top using KPIs and empowering other leaders in the company to do what they do best, which is what works best for us.
[00:13:22] Pete Hayes: For everybody, that is EOS; Gina Wickman's book was Traction. Many of you run on EOS. Chief Outsiders is finally considering EOS right now, and it's interesting that after a long period of time—the first 20 years of business—you adopted the EOS platform, which was a big deal. So, in addition to an environment of collaboration and listening, there's a structure.
[00:13:46] Pete Hayes: That helps things work right now. The U.S. is famous for helping people be more accountable. Can you explain how it does that? Is that accountability of oversight and managing the deadlines, or do you see it differently than that?
[00:13:59] Ellen Wood: Well, deadlines are involved, but I think one of the most important things is to go through the exercise and see how different an accountability chart is from an org chart; it's not the same. So, a key position in our organization is our internal integrator. This person is on our org chart, but it's a different role.
[00:14:22] Ellen Wood: They're a partner to me. I would say I'm a visionary CEO, and our integrator is very much an ops person. That’s the integrator's role: to help make things better. So, the accountability chart is constantly being looked at. We actually do our evaluations against it. We look and we make sure that the person who's doing this job understands it.
[00:14:42] Ellen Wood: Do they have the capacity to do it? Do they want to do it? That's something that's regularly evaluated. I think that helps with accountability because if you're not going to say yes to all three of those questions, you're probably in the wrong box.
[00:14:55] Pete Hayes: So, everybody, for not looking at that. It's very simple to do, by the way. If you find an EOS implementer through the EOS website, they'll do a 90-minute preview meeting with you and your executive team to give you a flavor of what it looks like. This is not an EOS commercial, but perhaps it is now.
[00:15:15] Ellen Wood: I'm always talking about how meaningful it's been for us. The year after we put it in was our best year ever. Then, the year after that was the COVID year, and I give it a lot of credit for moving us through that and everything that had to be done.
[00:15:29] Pete Hayes: Fantastic. I'm going to shift a bit. Let's talk about the fractional industry.
[00:15:33] Pete Hayes: What do you see going on in fractional executive services? Are businesses in that space from a sales and marketing standpoint? You mentioned one thing: you said private equity seems to be shopping to roll it up. Is that a trend? Are they saying that now is the time to roll up and maybe have a master entity?
[00:15:52] Ellen Wood: Well, I think it's an opportunity to roll up for sure. Based on the calls I've gotten, that thesis is one that many of them are looking at, and it's not a unique idea to one particular group. I do think that we are going to see a lot of consolidation in the space as a result of that.
[00:16:08] Ellen Wood: Then there'll be groups like us where we don't really seek a roll-up exit. Seeing how that shakes out and who's doing what in four years will be interesting. But I think that more and more executives see opportunities to take their expertise into a fractional role, and they're more comfortable doing that because of their technology support and because of the adoption of fractional as an acceptable alternative to an in-house executive role.
[00:16:34] Ellen Wood: I think it's got room to run.
[00:16:35] Pete Hayes: Yeah, I think you're right. We're certainly seeing it as well. We seem to be in a little bit of a transition from the senior executive standpoint. I would say so. In many studies, most of our folks were boomers, right? And this is taking everything they've ever done.
[00:16:49] Pete Hayes: And now they want to have fun with it. They want to help more clients at once. They want to maybe work with 2 to 5 clients at once. Smaller clients wouldn't be able to hire them full-time. That's certainly what we've seen yet. The transition is definitely in place, right? We're not just quoting the 60-year-olds, but the 40s and the 50-year-olds are also pursuing fractional, even folks just maybe in their thirties and forties, and I don't want to try to define them by Gen X and so forth. Have you noticed that?
[00:17:17] Ellen Wood: Absolutely, we are definitely seeing adoption across all generations in our situation, though we're looking for depth of experience. So, there is no degree path or certification for a CFO like there is for a CPA or certain things like that. So, there’s a lot of flexibility around who calls themselves a CFO.
[00:17:40] Pete Hayes: You're calling it flexibility, but isn't it almost fraud? Some people are hanging a shingle to say they're a fractional CFO and have been a finance manager.
[00:17:48] Ellen Wood: I wouldn't call it fraud. They have a different view of it. However, in my book, a solid CFO is someone who has been in the industry, sitting in a chair, dealing with problems, and helping a company work through issues.
[00:17:59] Ellen Wood: They've got operational experience. We're not just looking for educational experience. It takes a certain number of years of experience to sit in that chair and bring the value we want to bring to our clients on day one. We're not training our CFOs to be CFOs. We're definitely expanding their experience set, and they love it.
[00:18:20] Ellen Wood: I will return to something you said earlier about giving back. I actually feel like the majority, if not every single one of our field consultants, has a strong element of that. They're very service-oriented. They want what's best for their clients, and they actively seek to make that happen for them. That's not the case for every person.
[00:18:39] Pete Hayes: I see that in VCFO. That’s very good. We're heading towards the end, and I want your take. You've been doing this successfully, and I've enjoyed knowing you. The first time we met was when our company was just getting started.
[00:18:53] Pete Hayes: Getting a meeting with anybody at VCFO was a really big deal, and I remember meeting you with Kurt Coburn then. I don't think we were very interesting because I don't know if we even had any clients or presence, but you've been doing this for a while, and I think people who are listening would like to know.
[00:19:10] Pete Hayes: What advice do you give them as a CEO of a growing business in terms of making their way forward? We heard part of your journey, but what advice would you give them right now to grow personally and professionally in this economic climate environment? Where should their focus be?
[00:19:26] Ellen Wood: Well, I think that on the business side, I will say that this is a great year to invest in yourself and your company.
[00:19:34] Ellen Wood: I think it's a building year; that's what we're telling our clients and that's what we're giving ourselves. We think 2025 and 2026 are looking very strong for opportunity. Is anybody who is on the fence, struggling, wondering if I will get through this and if the inflation is going to take them down or if they can afford to pay for people and all sorts of things, I believe that we are headed toward a better experience in 2025 and 2026.
[00:19:52] Ellen Wood: I would encourage them to stay the course and double down on personal growth. I would say the same if you're an entrepreneur, a business owner, or a business leader. You need to stay the course, believe in yourself, be humble, listen, and have confidence that your vision is going to come true.
[00:20:17] Pete Hayes: Wow, I love that. One last little tidbit—this might be fun—just to acknowledge, you joined Vistage a number of years back. Is that something you recommend to people? You've been in it for several years, so it must contribute to your personal growth as a CEO.
[00:20:37] Pete Hayes: Several folks who may be fairly new to running a business are listening to this. Is there some combination of the EOS and Vistage? Is there some magic in that?
[00:20:42] Ellen Wood: Well, I definitely think there's magic in Vistage. I have been a member for 10 years. I am also a member of Bill Rice's group 3722. You get a lot of credit programs that bring the opportunity. It's been a day and a month actually working on your business, not in your business, and shoulder to shoulder with other CEOs of similar businesses, noncompetitive, but similar issues.
[00:21:07] Ellen Wood: It's been invaluable. They serve as a working board for me when I have a problem or something exciting to share. So, I think Vistage is something that I highly recommend. Everyone take a look at if you are a key executive; there's a program for you that is also excellent. If you are a CEO, I think it's invaluable to build that camaraderie and benefit from all of the programming they bring to you as well.
[00:21:34] Pete Hayes: Well, I love Vistage's impact on companies. I'm a member of C12, which is in a similar vein. When I talk to people about considering this, they say, ‘I couldn't possibly spend that day in a month and a session.’ I said, ‘Well, that means you really need to go.’ You don't want to spend 5% of your time on the most strategic aspect of your business?
[00:21:53] Ellen Wood: That's what I said for two years until I joined, and I wish I had joined two years earlier.
[00:21:58] Pete Hayes: Yeah. Well, that's great. Ellen, this has been so much fun. It's felt just about like lunch, except we haven't taken bites to get caught up on things. I really appreciate spending the time, and thanks for being part of the CEO growth talks this week.
[00:22:10] Ellen Wood: I appreciate it.