Language of Business

Everyone speaks finance

A CTO friend of mine recently wrote to me, "I started my career writing code, and ending my career writing messages to executives (a new type of code!!)." This reminded me of something that I say to a lot of younger technologists – I’ve never seen a CTO get fired for not being technical enough but I’ve seen a lot get fired because they can’t speak to the business. This is usually directed at an engineer but product managers should take note as well. The lingua franca of business is finance. Each discipline speaks its native language, be that engineering, marketing, product, etc. but when they get together the common language that everyone should understand is finance. 

I started my career in industry as a software engineer at GE. One of the vivid memories I have of that time is walking with my boss, Kathy, to a project status meeting with the VP of Manufacturing. This guy was a 30+ year veteran of working in manufacturing plants and still had his email printed for him to read. Very gruff, to say the least. He had absolutely no patience for “mumbo jumbo” tech talk. Kathy would remind me, “do not say anything technical.” Given that the project we were giving an update on was a software development project, refraining from any technical talk for me was challenging. It was made even more so because I lacked the language for almost anything else. 

So, what do I mean by the language of business is finance? Whether you are talking about a marketing campaign or a product feature, being able to put it in terms of ROI, impact to “bottom line”, or similar financial metric, suddenly everyone in the room understands the importance of the project. In two minutes anyone can understand ROI in the simplest of terms – how much profit will it generate divided by how much it will cost. However, to be really effective you need to understand other financial concepts such as capitalization, depreciation, useful life, cost of goods sold, and much more. This doesn’t mean you need to be a financial whiz or an accountant but the more you know the more you can converse with people outside of your department. 

The other reason the language of business is finance is that you can’t possibly understand the health of the business without being able to read the three basic financial statements - income statement, balance sheet, and statement of cash flows. Each of these financial statements offers a different perspective: the income statement measures a company's profitability over a specific period, the balance sheet provides a snapshot of its financial position at a particular moment in time, and the statement of cash flows shows how cash is generated and used during a period. Understanding these reports is crucial for making informed decisions, whether it's about investing in new projects, managing debts, or evaluating operational efficiency. Ultimately, the ability to interpret these financial statements enables business leaders to strategize effectively, identify opportunities for growth, and navigate challenges, ensuring the long-term success of the organization.

Some businesses carefully manage cash flow while others need to focus more on their income statements or balance sheets to ensure financial stability. Take, for instance, a small boutique clothing store, emblematic of retail businesses that must meticulously manage cash flow to navigate the cyclical nature of sales and maintain inventory, ensuring they have the liquidity to meet immediate needs and adapt to seasonal demands. Contrast this with a manufacturer of consumer electronics, where the emphasis shifts towards the income statement. Here, the critical examination of profitability, revenue, and expenses is paramount, given the substantial costs of production, labor, and materials, guiding decisions on pricing and investment in production capabilities.

Meanwhile, Real Estate Investment Trusts (REITs), which own and operate income-generating real estate, exemplify entities that prioritize their balance sheets. For them, assessing financial stability, asset value, and equity health is crucial for managing debt and sustaining investment activities. This focus is markedly different from that of tech startups, such as those in the Software-as-a-Service (SaaS) sector, where there's a dual emphasis: initially, on cash flow to support operational costs and growth; and gradually, as they seek further investment or move towards an IPO, on the income statement to showcase profitability potential to investors. As with this last example, not only does the type of business and industry matter but the stage of growth can have ramifications for which financial metrics are most important for business leaders.

Ultimately, my desire to speak in this common language drove me back to pursue an MBA. This might be the more extreme path, although according to the Association to Advance Collegiate Schools of Business (AACSB), one of the accrediting bodies for MBA programs, about 120,000 people graduate each year with their MBA degree. There are lots of ways to gain some basic understanding of business finance from books to short online courses. Pursuing an MBA can be a transformative experience. Often people pursue this degree in order to help pivot their careers. Most programs provide a comprehensive education in business management, covering essential topics such as finance, marketing, operations, and strategy. This broad knowledge base can open up new career opportunities, often in leadership roles. Additionally, MBA programs offer valuable networking opportunities with peers, alumni, and faculty, which can be instrumental in career advancement. Twenty plus years after I graduated from my program, I still reach out to people in my study group. 

On the other hand, pursuing an MBA comes with its set of challenges and considerations. The cost of MBA programs can be prohibitive, with tuition fees and other expenses posing a significant financial burden. This investment of time and money requires careful consideration, especially since the return on investment can vary based on factors like the prestige of the institution and the career path post-graduation. Moreover, the commitment to an MBA program, often spanning one to two years for full-time students, can be a substantial sacrifice, particularly for those who have to juggle professional responsibilities and personal commitments simultaneously. While an MBA can certainly enhance one's understanding of business principles, especially finance, it is not the only path to gaining such knowledge. Practical experience, self-study, and alternative educational programs can also provide valuable insights into the world of business finance and management.

The core message I want to convey is that understanding the language of finance is not just about adding another skill to your repertoire, although that is worthwhile; it's about bridging the gap between technical expertise and business acumen. It's about translating the complex, technical projects we work on into narratives that resonate with stakeholders across the board, narratives that clearly articulate value, risk, and return. This skill set enables technologists, engineers, and product managers to not only defend their projects and ideas but also to align them more closely with the strategic goals of the business.

The transition from a technical role to one that involves communicating with non-technical stakeholders can be daunting. However, it is also an opportunity for personal and professional growth. As my CTO friend discovered, moving from writing code to "writing messages to executives" is not a departure from one's technical roots but an expansion of one's influence within the company. It's about leveraging technical knowledge in a way that contributes to strategic discussions and decisions.

For those in the tech industry, embracing the language of finance doesn't mean you have to become a financial expert overnight. It's about starting with the basics, understanding the key financial statements, and gradually building your knowledge to include more complex financial concepts. This foundational knowledge will not only enhance your ability to communicate across departments but also deepen your understanding of how your work contributes to the larger financial goals of the organization.

However you decide to pursue this knowledge, you should do so. Very few, non-technical individuals are going to be interested in learning technical jargon just so they can discuss your projects and initiatives. Just like you’re likely not studying marketing at night just so you can participate in discussions regarding performance marketing campaigns. Meet in the middle and translate your projects into financial metrics and then you can take advantage of everyone’s insights. It will ultimately make you a better technologist and leader.