Bcc:

As a CFO, I’m often included on cc:lists. Because I started my career in larger companies, I get why people cc: a lot of people on messages even though I try to limit this myself. And CFO’s often need to know when something is happening: a major contract negotiation, a sales discussion about an important customer, HR matters, you name it. It’s a core part of the job to be the second pair of eyes on something.

One thing I never do, however, is use bcc:

In my experience, it rarely does any good, and almost always causes issues. Example: someone who is bcc’d does a reflexive ‘reply all’ with a salty response instead of just to the person who bcc’d him. I once had a CEO who was bcc’d commit this sin and it was, to put it mildly, a problem.

This is why someone bcc’s me, I immediately ask them not to do it again. If they really want me to see something without having their recipient know it, then just forward it to me after the fact. This happens sometimes in sensitive situations where someone is on a performance plan and whoever put them there wants me to know. Even more reason not to do it via bcc:.

I mention this in a blog post about build stage companies because these tend to be populated by dreamers, which by extension means people who are young and inexperienced. You need some element of youth and inexperience to believe you can change the world. It’s not required but it helps.

So to those of you lucky enough to have these traits going for you, I’ll just say that this is an experiment I can save you the trouble from running. Just say no to bcc:.

2 kinds of people

Someone smart once told me that in business, there are 2 kinds of people in the world: those who have the money, and those who need the money.  I have a lot of “2 kinds of people” sayings in my life, but this one pops up for me all the time.

I don’t mean this in an Ayn Rand kind of way.   It’s more of a practical saying to think about what’s going on in a transaction, a term I use loosely.

Example: you’ve just raised financing and “have the money”.  Now is when the non-formula lenders of the world will offer you options for having more.  When you “need the money”, and they have it, you often can’t get it.

The corollary is that you shouldn’t try to raise financing when you have your back all the way to the wall.  This is something that seemingly every startup knows, and yet the number of close calls I’ve seen suggests that it’s an axiom often unheeded.

Example 2: you have sold to a customer but haven’t collected on your invoice yet.  They ask for changes to your product, or a little more help installing it.   They have the money.  You need it.  It’s difficult to extricate yourself from this, especially if it’s an enterprise B2B sale.  If you are in a B2B world selling with real COGS and lead times, always try to get 50% up front.  Extend credit reluctantly.  It seems tempting and almost always comes back to bite build-stage startups.  To use a phrase – you don’t “have the money”.

Example 3: you have a consultant who is performing poorly in all areas except sending invoices.  We’ve all had consultants like this.  I’m not suggesting that you don’t pay someone for services rendered under a contract you’ve both signed.  I am suggesting that because you have the money, and they need the money, you have the ability to force timing on a much-needed conversation.  At some point, even if they have been very difficult to get in touch with, which happens, they will contact you.

Example 4 (last one): you are running a company that is shutting down.  I have personal experience with this unpleasant experience.  However, once you have fulfilled your legal obligations to your employees and the taxation authorities, you actually are in the unique position of having the money while your vendors need the money.  The axiom holds true even if “the money” you have isn’t sufficient to meet your obligations.

Which is why — while it’s natural to be in a position to need the money (that’s business after all), ideally your CFO can keep you in a position where you don’t need all of it.

What CFOs do

Often I am asked what a CFO does. Usually this happens with a smaller (build stage) company that doesn’t have one, or has hired a part-time CFO who mostly focuses on being an excellent controller. There is nothing wrong with this – but it’s different from what a CFO does.

In build stage companies, CFOs first and foremost help predict and manage cash. This means some level of forecasting of the future (finance) which controllers can but don’t often do.

Side note; CFOs are not credentialed, unlike (say) licensed service providers like plumbers or electricians, so it’s not surprising that many controllers hang a shingle and call themselves CFOs. Some are excellent. Some manage that transition less well.

CFOs also help drive understanding and optimization of unit economics. In retail, this is almost always on a square foot basis. In staffing, it’s on a per hour basis. Getting to this point requires some insight and continual honing. CFOs should be good at constant, incremental improvement and knowing how to fine-tune what comes out of the accounting function. The result is that they should be helpful on the top line, in addition to managing costs.

Finally, a CFO needs to be able to build a team. I use the term ‘team’ expansively as this includes not only employees and contractors, but also insurance brokers, lenders, auditors and outside accountants, systems gurus, benefits experts…. on and on. Litmus rest: If you are taking to one of the top growth company lenders in town, a CFO probably will have them on speed dial already. This is part of what you are paying for.

What is a build stage company?

“Build stage” companies are the adolescents of the growth company world: not cute infants whose mistakes are still sources of joy and amusement, and not quite fully grown adults in full command of their faculties and their identities.  They’re somewhere in between, like teenagers.  It’s a phase that is exciting and a little dangerous.

These companies, by and large, have found product-market fit, meaning that they have made sales and have some idea of who their early customers are.  Their product exists, it works, and they’ve sold it for money.  In the world of high growth startups, they likely have some institutional backing: seed financing, or a modest Series A of about $5M or less.  And they are starting to professionalize; there is a great Medium post on this phenomenon from earlier this year.  One sure sign is that in “prove” mode, there are no swim lanes.  Everyone does everything because that is the nature of things at that stage.  In “build” mode, you want to start to establish swim lanes, while making sure that the entrepreneurial mindset of the prior phase is accessible.

I tend to focus on the G&A stack for these types of businesses.  Usually when a CFO arrives on the scene in a company just maturing into build phase, he or she finds some combination of the below:

  • Bookkeeping is done by a relative of one of the founders, or a local accounting firm
  • Benefits are scarce – until now it hasn’t affected the ability to attract talent, but in the back of everyone’s mind, they know it will soon
  • The financial forecast is either (a) numbingly complicated or (b) comically simple, and almost always lacks a cash flow forecast so that everyone can carefully track when the money might run out
  • “Sales ops” capabilities are limited – spreadsheets, not Salesforce
  • There is minimal understanding of the company’s “unit economics”, and how to really track this effectively
  • The economics of acquiring customers is not yet well-understood (see above on sales ops).
  • Very expensive lawyers from the company’s top-tier law firm are doing everything for the company
  • There might be some insurance, or there might not
  • HR hygiene (signed handbooks, travel policies, etc.) are minimal.
  • Board meetings, if they happen, likely lack cohesion.  Decks are distributed less than 10 minutes before the session begins
  • The cap table is kept in Excel, and/or by the aforementioned very expensive lawyers
  • The company uses Google Drive (great), but there is no structure to it (not great)

This is a natural phase of a company’s evolution.  This blog is about how that evolution progresses, how CFOs in these companies can add value and thrive, and some of the particulars of the industries in which I’ve seen companies in this phase.  Put another way: adolescence is exciting, but no one wants to stay there long.