Accounting, AI, and Automation: Adam Tzagournis on the Changing Landscape of the Finance Industry

Back in October, the airCFO team had the opportunity to sit down and talk with Adam Tzagournis, CPA, and founder of FlowCog. In this conversation, Adam provides valuable insights into the evolution of accounting and finance roles, the challenges behind financial modeling, and the role of automation and AI in conducting analyses and presenting key results to support actionable recommendations.

Q: Can you share a bit about your background and how you started your career?

Absolutely. I began my career as a certified public accountant (CPA) at PricewaterhouseCoopers, working on the audit team. It was a pretty demanding environment with long hours, but it was there that I delved into programming. In those early days at PwC, it was especially important to find any type of efficiency to help save my team time. Even small improvements to a process could have an outsized impact. If you could automate a single task that a lot of folks were doing, you could save the whole a bunch of time. That's where my love of programming came from originally and I maintained that passion throughout my career.

Q: How did you transition from public accounting to the startup world?

After my time in public accounting, I ventured into the startup world, working at various startups before joining Stack Overflow. There, I grew into the role of Director of Finance. In the past few years, I started my own software company, called FlowCog, focusing on financial projections tools. It's about tying it all together and packaging it into a product relevant to founders and finance professionals.

The evolving roles of accounting and finance in today’s startup environment

Q: Could you discuss the changing roles of accounting and finance in the business world? What challenges are associated with this shift?

The traditional view of accounting and finance has evolved. The historical divide suggests accountants look at yesterday's numbers, while finance focuses on the future. However, in the next few years, we're likely to see more hybrid roles that blur the lines between accounting and finance. Accountants have the potential to expand their skill set to offer more services and insights traditionally associated with finance roles.

The concept of Finance Business Partnering is also crucial. It involves finance professionals interacting with other departments to understand their needs, provide insights, and serve clients effectively.

One significant challenge in this shift is breaking free from the mentality of repeating established processes. In auditing, you often update prior year work papers, but in the real world of finance, especially in smaller companies, you need to invent processes from scratch. The ability to adapt, use your judgment, and not be overly stuck in past routines is crucial. The focus should be on thinking creatively, expanding territories, and embracing a mindset of continuous growth.

Q: How do you view the transition from a checklist mentality to a more judgment-driven role in finance?

Transitioning from a checklist mentality to a more judgment-driven mentality involves thinking beyond established processes. In roles that involve inventing processes from scratch, adaptability and the ability to interpret results become crucial. Whether it comes to identifying new expenses or questioning variances, the shift is towards thinking like the CEO of your own product, aiming for efficiency, and adding value to the end user could not be more important. In a startup environment, this level of judgment and creativity is especially important.

Q: How do you emphasize the importance of storytelling in finance, especially when dealing with stakeholders like the general manager or CEO?

Applying numbers to a cohesive story is so important when communicating with stakeholders. The ability to pick out essential information and exercise judgment is what adds value to your services. Clicking a button to run a report is easy, but offering an extra layer of insight, such as noticing changes and asking questions, is where the real value lies. The goal is not just to run analyses but also to tie everything together into a coherent story. CFOs and CEOs need a narrative that supports the recommendations. By showcasing the sensitivity of metrics and how certain inputs can impact the business, financial professionals can provide valuable guidance.

Q: Are there specific resources or individuals you recommend for those looking to transition from accounting to finance or enhance their startup finance knowledge?

LinkedIn has been a valuable platform for me in the last few years, and a few names come to mind from there. I really like the content that Adam Schilton puts out on generative AI, accounting, and finance. Mark Howard and Paul Barnhurst are other good ones. The FP&A Guy, Soufyan Hamid, puts out a lot of good content on enhancing storytelling skills with numbers.

Financial modeling

Q: Moving on to financial modeling, what components are often overlooked by startups in their early stages?

One significant oversight is the connection between revenue growth and headcount. In the SaaS industry, where margins are high, understanding the personnel needed to achieve projected revenue growth is crucial. This involves quantifying the need for various roles, from software engineers to sales representatives, and ensuring a clear connection between revenue forecasts and staffing requirements.

Q: When building a financial model, how crucial is it to connect revenue growth projections with specific operational elements?

Oh, it's very important. A model should not just project growth percentages but provide a detailed story. For example, if you plan to grow by 50%, you must explain the logic: hiring new sales reps, historical lead conversion rates, and the impact on acquiring new customers. In SaaS, recurring revenue complicates things, bringing retention and churn into focus. Being able to capture those dynamics can be challenging, but that's a crucial component of financial models and a few percentage points difference in churn rate can significantly affect a company's valuation.

Q: What role does financial modeling play for founders?

Financial modeling acts as a valuable journey and an exercise for founders, beyond just presenting results. Building a financial model is insightful for founders; it allows them to think through and identify key levers for their company. However, the tools they use matter. While spreadsheets are versatile, they lack guardrails and can lead to common errors. That's where tools like FlowCog come in, providing a more structured approach, especially for data-driven companies.

Q: Spreadsheets vs. Apps - What roles do they play in financial modeling, and when is each preferable?

Spreadsheets excel in versatile ad hoc analyses, especially for complex scenarios like a two-sided marketplace. However, for straightforward models, apps like FlowCog offer a structured approach. Spreadsheets have their place, but for founders lacking financial backgrounds, the risk of errors increases.

FlowCog was designed for SaaS companies, it automates logic and dependencies, making it ideal for data-driven businesses. However, for companies not yet data-driven or with less than five million in ARR, that may be challenging. I also created a more intuitive, drag-and-drop tool for founders who want simplicity and control, letting them layer in complexity as needed.

It's essential for founders to choose based on the business model's intricacy and the user's expertise.

Automation, Remote work, & AI

Q: On tech enablement and automation, what opportunities do you see, and how should businesses approach automation strategically?

Automation, even without AI, presents substantial value. You should think strategically about whether a task is worth automating by considering the time invested versus the time saved. Low-code solutions like Zapier and Parabola can streamline tasks. More importantly, businesses should consider whether the process to be automated is downstream of a larger, fundamental problem. Holistic thinking is crucial for effective automation.

Q: How can businesses identify areas for automation that yield significant time savings?

A practical approach is assessing the number of clicks or the time taken for a task. If a task involves excessive clicking or consumes a substantial amount of time, it may be a good candidate for automation. Scalability is also a key consideration; even saving a few minutes per client can accumulate substantial time savings, making automation a worthwhile investment.

Q: How does automation impact remote work, and what strategies did you employ to run an effective finance function remotely?

Remote work, even before the COVID era, was a focus for me. Leveraging global talent requires effective coordination. Implementing tools like Zapier for communication flows and eliminating manual steps were pivotal. The challenge is in syncing up and ensuring everyone is on the same page.

Q: You’ve mentioned the Two Pizza Rule concept before. Can you elaborate on how team size impacts performance, and what's the connection to network nodes?

Absolutely. The Two Pizza Rule suggests that smaller teams outperform larger ones. The idea is rooted in network theory; as the number of nodes (team members) increases, the connections between them grow exponentially. Large teams lead to complex coordination problems. Breaking teams into smaller units eases this burden, creating more manageable direct connections and fostering better collaboration.

At Stack Overflow, we found success in breaking down large meetings and promoting asynchronous communication. Prioritizing thoughtful communication over constant availability, utilizing tools wisely, and managing client expectations were crucial aspects of our remote work strategy.

Q: With remote work becoming prominent, what advice do you have for managing communication roadblocks and bottlenecks in processes, especially in finance advisory scenarios?

Effective communication is critical. Planning ahead and setting expectations on information needs can avoid last-minute chaos. Identifying bottlenecks and tackling them proactively is key. Establishing a proper cadence for syncing up, structuring meetings to be purposeful, and creating communication avenues beyond large meetings can enhance remote work efficiency.

Q: In the realm of remote work, you emphasized the importance of effective communication channels. How does AI, specifically ChatGPT, fit into this landscape, and what challenges should users be aware of?

AI, like ChatGPT, can play a role in optimizing remote work communication. However, users must be cautious of hallucinations or the program conjuring up irrelevant data. The key is to break down complex problems, avoiding downstream errors. AI can excel in providing insights on projections, evaluating scenarios, and offering strategic advice. The challenge lies in translating user questions into precise inputs for the AI, ensuring the output is relevant and actionable.

Q: When incorporating AI in financial advisory, how can tools like FlowCog leverage AI to provide nuanced insights and recommendations for scenarios like cash runway extension?

The goal is to move beyond generic responses. Users should structure their queries to get specific, actionable insights. For instance, asking how to extend the cash runway could prompt AI to suggest optimizing hiring plans, cutting expenses, or increasing revenue. The AI should not only present numbers but also provide a story, context, and actionable steps, turning data into strategic advice.