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.

Your Home is a Coworking Hub – now what?

Here is a copy of a post I wrote for Workbar, which is one of my companies.   When all of this is over, companies will discover that they don’t need to have massive offices, and individuals will find that working from home looks great on paper until you try it all the time for real.  Workbar is right in the middle of these 2 trends.

Here’s the link to the blog post on their site (which looks a lot nicer than mine, I admit)…

And here is the text…

……

I have a friend who hates his commute and sometimes will idly say something like “I wish I could work from home all the time!”  I’ve told him that this might sound great, but trust me: it’s not what you really want. He’s always ignored that advice because there are some things you have to experience to understand.

After the last 5 days experiencing working out of his busy home with small children running around, I think he is starting to understand. 

My home too is now a coworking center.  My wife works from home, my teenage daughters are doing school online, we have an extra guest here all week, and our dog continues to expect to be walked, fed and entertained.  He is greedy that way. We are on top of each other all day, and still have to get stuff done.  

Luckily I work at Workbar (I’m the CFO) so I’ve learned a few things along the way about to get set up for success.  We’ve implemented some of these best practices in my house, and maybe they’ll help in yours too.

    • Write it down – we developed a “coworking constitution” (see pic) that we all agreed to and signed.  It’s important to have rules and buy-in, especially if you have teenagers who tend not to be interested in either of those things.  Workbar has an operating manual, so we decided we need one too. What are the operating hours? Who can come and go? How do you register guests?  
    • Have “neighborhoods” – one of the things that makes Workbar go is that our spaces are separated into quiet areas, collaboration areas, call-centric areas, and common spaces.  We did the same in our house. This required some imagination; for example, our dining room (which we don’t use at the moment because no one is coming over anyway) is now the quiet area.  My wife’s office is next to the main TV room, so we had to compromise and make that TV room a collaboration area instead of a loud space. Etc. Make this specific and try to stick to it.  
    • Set limits – We implemented a rule around lighting candles (again, see pic).  This one is for me. Basically it means “no scented candles when dad is downstairs because they smell like a store in a mall and it makes him crazy.”  Set “must haves” in your rules.
    • Take reservations – just as you can reserve conference rooms at Workbar, we set up a Google calendar for different rooms in the house to block them off if needed.
    • Decide on roles – At work, I usually hide that I once used to be an IT person, because once people know this, you will be tech support forever (BTW – don’t tell my Workbar co-workers).  I can’t pretend at home though, so I am the technical support person of the family. My daughter Lily is (more or less) the Community Manager. We all load the dishwasher with dirty glasses by the way; some jobs are too much fun for only one person.
    • Get tech enabledWorkbar invests a lot of time and money in our systems.  If you can afford it and haven’t done so yet, invest in a good printer/scanner and in a webcam if you don’t have one on your laptop already.  Get good headphones for long days on calls that used to be meetings. We can help with recommendations if you need us to. Another form of technology that you haven’t thought of is your chair.  We buy chairs for Workbar that you won’t notice after 8 hours in them; that’s on purpose. We want people to be comfortable and productive. A dining room or folding chair, believe me, is not going to work for long.  If you can, invest in something with decent support.
    • Be socialWhat makes Workbar more than a place to work is the community and other people around you. It’s harder to enjoy that these days, but that doesn’t mean you can’t check in with each other occasionally.  If you have young children and can swap off who is watching them for specific periods of time, I recommend that too.  

 

 

 

 

 

If you are working from home in these uncertain times, consider yourself lucky.  I know I do. Hopefully, these tips will help make the best of that situation and keep you productive and sane.

 

2 kinds of people, analyst edition

In an earlier post, I suggested that there are 2 kinds of people in business, those who have the money and those who need the money. I stand by this oversimplification. To it, I added another about accounting people vs. finance people.  I stand by this one too.

Let me add another: analysts and operators.

Generally, operators make things happen in the present, and analysts look at the past in an effort to predict the future.  Analysts often say they are really “operators at heart”, which might be true, but they almost never are operators in practice.  Operators know how to get sales comp plans published, manage a hiring funnel, place ads on the MBTA, use LTV/CAC to make marketing decisions today, implement a travel policy, blow out a pipeline to make a quarter when it’s desperately needed, perfect a cash conversion cycle, time product introductions, make a hire when no one else can recruit… you name it.

Analysts can’t do many of these things.  What they can do is look at a dizzying array of data on the business and figure out what is really going on, and what that suggests about what might happen in the future.  Most importantly, they how to tell the story, and because they are not in the weeds about, say, comp plans, they can stay big picture and compare the right broad metrics across companies, or industries.  The part they play is not more important – but as a company gets bigger, it becomes at least as important.  It is challenging to be a very effective operator and a good analyst at the same time.

Over a drink many years ago, a colleague I respect suggested that I had to choose between being an analyst (which I think I was then) and an operator (which I think I am now).  I like to work with build stage companies where making things happen is valued over broad-based analytics, so this suits me well.  In raising money, you need just enough analyst so that you can point to broad metrics, but much of attracting and closing captial is about managing a process and a pipeline.  I still have some of this DNA as well even if I don’t work these muscles as often as I could.

In a few of the companies I work with, I collaborate with Board members or advisors.  In almost all cases, they like to say that they are entrepreneurs or operators at heart.  (Note: maybe they are, but if you’re a venture capitalist and not a founder of your firm, almost by definition you are not an operator.  Self-awareness is important).  The best ones collaborate by providing a view across similar businesses or industries using data that the management team already has.

Put another way: effective (and self-aware) analysts paired with effective (and self-aware) operators make a great combination.

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.