Moving from the ‘chief number-cruncher’ role at a large German multinational to the CEO role in a small, relatively new start-up is a career leap that not many CFOs undertake. But in January this year, Frank Lutz took up the reins at working capital management platform provider CRX Markets, having previously been chief financial officer at a large subsidiary of Bayer AG.
Munich-based CRX Markets started up in 2013 and was founded by Moritz von der Linden and Carlo Kölzer, the co-founders of the 360T treasury trading platform. In 2015, Lufthansa became CRX’s launch customer – an implementation that won the 2016 Supply Chain Finance Award in the transport category. That same year, CRX Markets picked up Nestlé as a client, earning a Highly-Commended citation at the 2017 Supply Chain Finance Awards.
But while new player CRX Markets has picked up prestigious and conservative clients such as Lufthansa and Nestlé, Lutz’s leap from an organisation with more than 17,000 employees to one with just 35 would seem like an unbridgeable culture gap.
“If you look at my CV, you might be surprised,” he told SCFBriefing when he was just three weeks into the new job. “If you look at what I did as a CFO in the various companies I worked for, it was always relatively entrepreneurial, always quite a lot of change going on in those companies.”
Lutz’s background includes finance roles at MAN AG and Aldi Süd, as well as a ten year career spanning Goldman Sachs and Deutsche Bank. The most entrepreneurial role he had was to demerge Covestro, a €14.1bn materials sciences spin-off from Bayer and then take it public in 2015. “When I left Covestro, I said I wanted to do something now that really strengthens this entrepreneurial aspect again. When CRX got in contact with me I thought that was a great opportunity.”
Working capital in the corporate agenda
One reason why Lutz joined CRX Markets was simply because, in his view, working capital has not been as high on the corporate agenda as it ought to be. “I always felt that it was an area of the balance sheet that is still relatively under-managed. Companies predominantly look at the capital structure from a long-term debt and equity perspective – but the short-term debt perspective and therefore the working capital management perspective is neglected a little bit,” he believes.
“Very often, outside of the finance department, there is a lack of understanding about how much cash is tied up working capital. I noticed that multiple times with my colleagues in the board room [in my previous roles]. They understand that inventories can be cash-intensive, but when we’re talking about payables or receivables, then there is very often a lack of understanding among people who do not do finance on a day-to-day basis.”
The nub of the problem, then, is a combination of that lack of understanding outside of finance, combined with the fact that working capital is not something that can be fixed by finance or treasury alone: it requires cross-functional support, which may not always be easily forthcoming. “If the finance department requests an extension of the payment terms with the suppliers, then the procurement department is going to go berserk because they obviously know that this will most likely have an impact on pricing. So, you need to find a balance between the interests of the finance department and the procurement department,” he says. “This is one of the reasons why working capital, at least in the past, has not been at the forefront of optimisation measures that were taken within a company. Most people are rather focusing on the lower-hanging fruit.”
The CFO experience
As a former CFO, perhaps one of the most important things that Lutz brings to CRX is an understanding of the corporate working capital agenda and how best the organisation should be developing its product offering and speaking to potential clients.
“I’m looking at our product from an outsider’s perspective. I’m asking myself, if I were still the CFO of a large company, what would I expect from the CRX product? So I’m giving this feedback to our product development people and our IT people.”
Predictive analytics will become an important part of the CRX Markets offering. “There is such a lot of data available within companies’ ERP systems about the behaviour of customers when it comes down to payment – but the information that lies in the data has not been extracted yet. So, going forward, I see the potential that we have to improve that element of our product. That’s also great information for the investors on our platform: if we can tell them that Customer A usually pays three days late, this is great information for pricing.”
He is also explaining to his sales team, he says, “how I would have reacted if somebody from CRX had called me up one or two years ago, and what would have been important to me. It’s clearly helpful to be able to understand how corporations think, and what’s important to them.”
And Lutz is helping convey the message that CRX Markets’ offering “is a strategic product, it’s not a finance product”. It isn’t, he maintains, something where only the treasurer should be involved in making the decision whether or not to buy into it. “It’s really a discussion that needs to be had one or two levels higher than treasury because everyone needs to be on board. It needs to be positioned as a strategic product and not just a liquidity improvement tool.”
Lutz’s contacts book of finance professionals is also proving helpful, he says. “I’m approaching people and telling them, ‘I’ve joined CRX, now. We’re in the working capital optimisation business. Can we meet, and I can show to you what, if I were in your shoes, would be important to me.’
“That’s how I see my role: improve the product internally, improve our access to customers and potential customers, but also approach them myself,” Lutz says.
Straddling the balance sheet
As Lutz explains it, the CRX Markets proposition is to cover both sides of the balance sheet: “[We have] a couple of very good competitors with very attractive products – but they usually only cover the receivables or the payables side. Our proposition is that we want to offer to our customers a working capital management product rather than a payables or a receivables management product.” That means, he says, that a company has different options to manage the balance sheet: they can choose to derisk and sell some of their receivables, or take risk out of the supply chain by inviting their suppliers to be on the platform and sell their payables. Or the company could use its own cash through dynamic discounting to generate some discount from suppliers, improving profitability.
“Companies go through different stages: sometimes you have excess cash, then there might be situations where you’ve just made a big acquisition and therefore you’re short on cash,” Lutz says. “Then suddenly the needs of the organisation completely change. Our approach is that we want to offer to our customers a one-stop-shop solution that the companies can use according to their needs.”
The culture switch
The switch from a mega corp to a 35-person start-up certainly means you have to “roll up your sleeves” more – “I book my own flights,” Lutz says, adding that he also has to look for new premises for the rapidly-growing business.
But it also means that some of the big corporate burdens are removed as well: the compliance meetings, the risk committees, and so on – “All the administrative things that are important as the CFO of a large publicly-listed company but not necessarily productive.”
More importantly, Lutz says there is a greater connection with the business and much faster decision-making than being in a large corporate. “When we need to make a decision, we just shout across the room,” he says.
“In the past I was doing internal communication explaining how the numbers came together. Now, it also about giving people the idea of what we want to achieve, what’s our long-term mission and vision? The tonality changes.”