Build to Prove

I call myself a build-stage CFO, meaning that I tend to work with companies that have found product-market fit.  They’ve passed the “prove” stage.  My goal is to get them to the “scale” stage, where the foundation of the house is sturdy and they can start to build more stories onto the building.  I’ve succeeded at this a few times and yielded to a full-time CFO after a significant fundraising round.

Startups being what they are, sometimes this goes the other way.  That is, a company hits build stage and either the world changes, or the niche they thought they’d found isn’t so attractive after all.  Then they have to pivot, and sometimes, that means moving back to prove mode.

Moving back to prove mode is hard.  You have people on payroll who no longer match the direction you are going.  You’ve built processes and reporting that may not be relevant anymore.  The cap table likely has people who invested in one vision who need to be brought along to the new one.  The sooner you do this though, the better.

For a CFO, it means a few things.  Likely you need to skinny down the infrastructure you built.  Almost certainly you will have a re-forecasting exercise that will involve a new way of showing KPIs and financials to the Board and other stakeholders.  Probably you will be part of letting people go and opening up hiring in a different part of the business.  It is also possible that one of the people you will need to let go is yourself.  Because I am “on demand”, I can scale myself and my team down (another reason to hire a fractional person).

The bottom line is that startups that hit the build stage have not hit escape velocity.  Far from it.  Sometimes they start to fall back to earth and as a CFO, I’ve had to develop tools in my toolkit for when this happens.

Less is more: simple spreadsheets

Recently I created 2 very simple spreadsheets to show and solicit feedback on monthly business results from 2 of the management teams I work with.  My accounting team (which for these 2 companies includes the same remote, part-time controller) puts together great, detailed, multi-tab workbooks that are sophisticated closing packages that are perfect for me to dive deep into every detailed account.  Since I manage cash tightly, this is crucial as I examine, for example, many of the balance sheet items.

For my audience in build-stage companies, this proved less useful.  Typically what you want there is to balance transparency and accountability with a digestible level of information that helps manage more effectively.  Until recently in both situations, I think the balance was off.

It turns out that creating a simple spreadsheet is a lot more work than a complicated one.  You have to make conscious decisions about what information is truly relevant, how to format it for easy consumption, and how you want the management team to use it to make operational decisions in fluid environments.  This is an important part of what a build-stage CFO does and I think I’m improving at this.