Things I Learned as a Startup CFO

Your first finance hire and moving from corporate to a startup

I spent the first part of my career in finance roles for large corporates. I worked mostly for casinos in Las Vegas so it wasn’t exactly the endless rows of cubicles and ubiquitous stacks of papers. However it certainly had a similar organizational structure that comes along with a big company.

When I joined my first startup I learned quickly there were wildly different expectations of the finance “team”. I thought it might be helpful to share some of the things I learned in making the transition. Hopefully this can help startups considering their first finance hire, as well as finance professionals looking to move to a smaller company.

You Are the Company Hat Rack

Anyone who’s worked in a startup will tell you, you will need to wear many hats. Part of the reason when hiring we look for people with startup experience is because of the adaptability required. This is no where more true than in a C-suite position. CEOs make sales calls, CTOs write code and CFOs will be doing anything that has numbers involved.

In a large company you typically rely a lot on other teams or individuals. If you’re in a management role you may even have a whole team dedicated to supporting you. When you’re in a startup prepare to be on an island. To be an effective CFO you need to be proactive in getting things done and be adaptable to responsibilities outside your past experience.

Focus On the Funnels

Sales cures all. Know how your company will make money and how you will make sales.

Mark Cuban said, “Sales cures all.” Whether that’s true or not (it’s true by the way) sales don’t just come from marketing spend. Marketing gets a lead in the door or to the top of the funnel. It’s then about fine tuning every other touch point in the funnel.

In analytics there’s this thing called ‘vanity metrics’. When you focus on a metric that sounds good but isn’t actually growing your business. Like website visitors or how many people are reading this blog post.

The opposite of a vanity metric are things like the percentage of users who completed registration from a specific sales campaign. Or the increased likelihood of on-boarding a customer by mentioning a certain product feature. These are the pieces of information that move the needle.

CFOs are all about improving return on investments. When you’re at a startup, sales processes and product design are in their infancy. It’s important to know how much you’re spending to acquire customers vs what they’re paying you. Knowing each step in how you got to that ratio adds even more value in driving growth. If you’re unfamiliar with funnel analysis I recommend reading up on Pirate Metrics.

Sometimes You Can’t Afford Your Own Success

Cash is King. No where is this more true than with a startup. If you’ve worked at big corporates you’re entire career you’ve probably never had to give bonuses because employees were paid a week late. Or make a decision to sell part of the company to fill a purchase order.

One of the first startups I worked with was growing revenues at 50% month over month. Expenses were only growing at a 30% rate. Every bootstrapped startups dream: Profitability!

Only problem was payroll was due at the end of the month and revenues weren’t collected until the following month. So we didn’t have enough cash to pay our employees until several weeks later.

It was important we were growing revenues. It was even more important that we collected revenue quickly. The rate you collect payments from customers is incredibly important. This is even more the case if your company has any hardware components or other high cost of goods.

With limited credit available to new businesses you need to have an effective process for getting paid as soon as possible. A few tools to consider: Stripe is great for adhoc credit card payments. They also offer a lot of support for development teams. GoCardless is what we use for direct debits, which is a much cheaper option, as far as transaction fees.

Think in Days Not Years

My first internship was in business valuation. Which means I learned a lot about determining the value of a company based on several years of financial performance. Main difference with a startup is you may not have a whole year of history. You may not even have a whole year of future…

A CFO needs to understand the risks and opportunities of its company. When you’re at a startup, those risks and opportunities come fast and often. Tracking performance on a monthly, weekly and even daily basis is mandatory. I look at being a CFO as being the company’s information center. If there are questions around performance or strategy you’re the go-to-person.

Having proper reporting tools in place is the best way to stay informed. Most companies will use spreadsheets and other free tools in the early days. The Google Suite is great for this period. Google Data Studio is a currently free dashboard tool. Google Big Query has a great free plan for data warehousing. Google Sheets for everything else.

You can get some other cheap dashboard tools like Geckoboard or Chartio before you graduate to full stack BI tools. Once you have the resources financially (and in humans), NetSuite and Looker are two of the best tools for real business intelligence.

Marketing Spend Can be an Expensive Mistake

Half the money I spend on advertising is wasted; the trouble is I don’t know which half.

That quote is credited to John Wanamaker from roughly 100 years ago. Since the rise of digital marketing it’s easier than ever to track how effective your acquisition channels are. However this is an area that many young companies just don’t have in place early on.

Let’s be clear, if you don’t have proper analytics in place you CAN’T scale your marketing. When you’re spending $1,000 a month on marketing and bringing in 1,000 leads , your cost per lead is $1.00. So this means if you spend $100,000 a month you’ll get 100,000 leads, right?…

The answer is almost certainly, no.

This is an issue I’ve come across several times. Money is coming in from growing revenues or a big fundraise and now it’s time to pump cash in to marketing. While you should certainly invest in sales & marketing, a CFOs responsible for ensuring the spend is effective. The $100,000 you put in today will almost always be less effective than the first $1,000. At least in the beginning.

It requires a lot of testing and proper attribution tracking to ensure you’re getting out what you’re putting in.

There are plenty of tools for attribution tracking. Determining the right tool really depends on what channels you’re using and your type of business. So it will require a bit of research or someone who has the expertise. Using UTM codes is a good place to start if you’re new to the process of tracking acquisitions.

The Budget You Made 3 Months Ago is Worthless Now

A large responsibility for a CFO is planning and budgeting. Super exciting stuff, I know. However not putting together a plan is like sailing in the dark. You don’t really know where you’re going and have even less idea of how to get there.

When creating a budget for a growing business you have to make a lot more assumptions then you do with a consistent and proven company. Depending on the stage of the company you may still be figuring out things like pricing or a sustainable acquisition strategy. You have a lot of trial and error, pivots and changes in company direction.

Typically when I’m creating budgets for a company we’ll re-budget at the end of the year and mid-way through the year. Any more than that and you run the risk of never checking how you’re doing compared to your plan. Any less than that, your budget becomes too irrelevant.

The Most Important Report is Statement of Cashflows

The difference between a P&L (Profit & Loss Statement) and a Statement of Cashflows is this:

P&L reports when the service or goods were delivered. Cashflows report when they were paid for.

Both statements serve their own purpose. The P&L tells you if your company is profitable and cashflow tells how good you are at managing cash.

As mentioned previously, cash is the most important asset for a young company. It’s great to know from a sustainability perspective if your company is profitable. However your profitability is irrelevant if you don’t have cash to keep the lights on.

The biggest reason we made Gordon (here comes the plug!) was because of the issues we’ve seen for startup finances. Good cash management, forecasting and performance analysis requires time, money and expertise. It can be costly to bring in someone with this expertise at an early stage. So it often gets neglected.

At Gordon we’re building a tool that democratizes the expertise needed for strong financial management. At the same time we’re enabling CFOs and Finance Directors to more efficiently support their organizations. We believe through technology we can empower all organizations with financial intelligence.

Gordon is an intelligent cash management tool that integrates with Slack and Xero. We’re currently in Beta testing to become a partner app with Xero. If you’d like to sign up for the Beta test, you can do so at our website.

Originally published at www.gordonhq.com on March 23, 2018.