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.