June 8, 2023

Where CFOs are deploying budget this year

It's been a challenging and volatile 12 months for CFOs. The tech sector is in a downturn, cost-cutting and headcount pressure is everywhere, and the multiple banking crises of the past few months have intensified the stress. We surveyed industry experts and CFOs1 from mid to large companies to understand what is top of mind for them in 2023. 

We found these key trends:

  1. Increasing software spend on procurement.
  2. Increasing use of AI and technology to improve efficiency.
  3. Managing vendor complexity, including supply chain, sourcing, resilience, and vendor risk. 

Given the potential efficiencies software can produce for back offices, we were curious to find out how CFOs were allocating their software budgets during this period of financial restraint. 

Below are the takeaways we think will be most helpful for founders building products for CFOs and finance teams.

1. “All budgets are under review”

A big area of focus for CFOs was procurement software. In 2023, of the CFOs we surveyed, 49% plan to increase procurement software spending. Their top finance software investment priorities for 2023 were: 1) Procurement, 2) Billing/Invoicing, and 3) AP Automation.

Because CFOs are the center of all spending decisions, the purchase of supplies, and the software used to coordinate those purchases, are coming under greater scrutiny given the macroeconomic environment. As one CFO said, “All budgets are under review… each request for purchase is analyzed more closely, and there’s a lot of pressure on the procurement team to make additional savings.” 

2. The well-designed, streamlined, and AI-enhanced back office

Most CFOs we spoke to longed for a simple and intuitive procurement workflow management platform—an “Airtable-like” UX enabling collaboration. Also, the ability to connect workstreams from payments to accounts payable and encourage collaboration across teams is meaningful to CFOs. Automation within an individual workstream is helpful, but multi-workstream integration is hugely valuable. 

A few CFOs specifically requested automated approval workflows outside of the system, like in email or Slack. While having automated approvals seems like something companies would seek to avoid in this era of belt-tightening, with CFOs and their teams being asked to do more with less, this enhancement to procurement makes sense.

AI will have a tremendous impact on software used by the office of the CFO, including in procurement. AI will drive step function improvement in pricing transparency, contract management, vendor negotiations, and managing supplier risk. AI can help optimize pricing across your vendors (E.G., are you actually getting the discount in the contract?), leverage renewal timing, and eliminate duplicative spending. AI can drive the critical visibility needed to better manage vendor costs. Whether you can use NLP to automate analysis, reduce workflows, or use entirely new design paradigms, the important thing is that AI must offer to make life easier. Software is magical because it automates knowledge labor; any startup using AI should ignore novelty and instead focus on value. One CFO described their 2023 strategy in a way that suggests their function would be very open to how AI can help, “This year, we have to work smarter, not harder. We’re reviewing all processes looking for efficiencies.”

Interestingly, procurement as a function has been slower to adopt technology and leverage AI than other areas of the CFO stack, like fraud and identity management. Key reasons include a legacy of manual processes to approve and onboard vendors, many users and approvers across the entire enterprise, and the need to integrate into the multiple core systems used by every company. Given the number of manual processes and the need to verify and monitor an ever-increasing number of vendors, procurement as a sector will benefit significantly from adopting AI—creating ample opportunity for founders eager to help CFOs.

3. Vendor complexity

Companies are focusing on building resiliency across their vendors to minimize the supply chain disruption that came into focus during COVID. This need is driving a tighter link between the supply chain and procurement function. Companies are also focused on risk mitigation to screen, vet, and continuously monitor their vendors for compliance. 

One thing we consistently heard from CFOs was the desire to prevent outsourcing procurement management. Companies of all sizes want to keep or bring procurement back in-house. Finance teams also want better data visibility on how much their peers spend and benchmarks to compare themselves against. Creating systems that help finance teams vet, verify, and comply with KYC laws is non-trivial, so making software that stands out requires considering these time-intensive processes and how they can be made more efficient. Companies that cater to CFOs can become quite sticky if they become embedded in workflows across different departments. That’s why procurement is such a salient entry point. The tool that can coordinate or consolidate vendor sprawl across many departments will likely survive any budget cuts.

How to get the attention of CFOs

Many areas within fintech are due for reinvention. Beyond procurement, there’s also payroll, tax, accounting, spreadsheets, and more—many of these have seen new entrants over the last several years. Startups in these areas stand a chance to grow, especially if their pricing and efficiencies align with the cost-cutting most CFOs are looking to do. If that alignment (and don’t forget integrations!) is there, to win deals, challenger software products in these fields tend to have commonalities like a premium UX, automation, and collaboration.

An impressive technical demonstration isn’t enough. Finance tools can leverage new AI-powered workflows to get CFOs' attention, but integrations will make or break adoption. If you sell into Fortune 1000, you aren’t going to replace Netsuite or Coupa anytime soon—understand where you are in the workflow and how you will integrate into the existing technical stack.

Undoubtedly, 2023 presents a challenging landscape for CFOs, accentuated by economic downturns, layoffs, and banking turmoil. Startups that can automate workflows, deliver a modern and collaborative UX, and leverage AI will have the opportunity to capture the increasing budgets and help CFOs breathe a sigh of relief. 

If you’re building a company that stands to deliver value to CFOs, please reach out.

1 Survey was conducted online and over the phone with 36 CFOs or VPs of Finance across 15 states and the UK. Organizations ranged in size from 100 to 5000+, with 100-500 being the most common. Finance teams were the size of an average of 89, a median of 17, and a range of 3 to 1000.

Thanks to Dan Bartus and Mischa Vaughn for contributing to this piece.