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Renting a CFO can help you have a strategic partner to realize your vision (photo courtesy of Silicon Valley entrepreneur and photographer Christopher Michel).

Startups are hard.  Most fail.  Even ones with great ideas.  So, how do you maximize your odds of success?  Hire the best team you can afford.  Including a Strategic Chief Financial Officer with the skills, experience and vision to be your business partner and trusted advisor.  Muhammad Ali had Angelo Dundee.  King Henry VIII had Thomas Cromwell.  Luke Skywalker had Obi-Wan Kenobe.  Who’s got your back?  It could be your part-time CFO.

Can’t you get away with just an accountant?  In a word, “no”.  Accountants are important and help you figure out what’s happened in the past and report the same to your internal and external stakeholders.  But you are an early-stage company.  You need to drive the bus by looking ahead through the windshield, not behind in the rear-view mirror.  Smarter finance is forward looking – it helps you chart the best course.

Shouldn’t you be doing this yourself as the CEO?  Again, “no”.  Best case, you are actually capable of filling this role.  But this isn’t the best use of your precious time. You need to drive the company’s product and sales, build the team and be the company’s face to the outside world. Time spent in finance is time spent away from your highest and best purpose.  Worst case, you screw it up.

But can you afford and attract a top-quality CFO?  Yes!  Because you don’t need this resource full-time and can pay only for what you need.  We live in an on-demand world.  Don’t buy servers – rent time from AWS.  Don’t buy a car – book an Uber.  Don’t buy a vacation home – go on Airbnb.  And don’t hire a full-time CFO (yet) – rent one from a reputable On-demand CFO firm.  You probably only need 0.5-2.0 days per week, can find A-list talent with expertise in your field and be up and running in days.  And when you’re ready to make a change, it’s simple to move on or upgrade to a full-time resource.

Here are 5 key things you get from a part-time Strategic CFO:

  1. Build and maintain your business and financial model. How will you monetize your idea?  How should you price and deliver the product or service?  How much cash is required to hit your next milestone?  When do you need to raise your next round?  What resources can you afford and when should you deploy them?  How do you know if it’s working and when/how to pivot when the market gives you feedback?  Your CFO helps you answer all these questions.
  1. Leverage your management team so you can punch above your weight. The CFO is a core member of your team even if they are not sitting in your office 50 hours per week.  They bring expertise, contacts and credibility to your company and can help you manage all the internal/administrative functions so your time can remain focused on building and growing the top line.  A proven CFO also gives board members, investors and other outside stakeholders confidence in you and the company.
  1. Be your strategic partner and key sounding board. CEO is a lonely job, even in the biggest companies.  The best CEOs have trusted strategic advisors that they can rely on to help them execute their plan and give them honest feedback.  This is hard in an early-stage company where you can’t really afford to build a large team of experienced talent.  And more times than not, the rest of your senior team is drinking from the same Kool-Aid jug that you are – that’s why they’re there.  Your investors and advisors can help play an important role here, but they have lots of other demands on their time and priorities.  Your CFO is dedicated to your success and can bring critical outside perspective.  Most likely, he or she has seen many of the issues you’re facing before – and can access the knowledge of the rest of their firm on your behalf.
  1. Increase your access to the capital you need. Cash is the lifeblood of your company.  Most likely you will want to tap external sources now or in the future.  This could be from equity, debt, strategic partnering, public offerings, M&A or some other source.  Your CFO can help guide you on how to approach these capital sources, how to craft the right story, answer their questions and due diligence requests, negotiate and close the right deal and maintain good relationships with these new partners post-closing.  He or she will also make sure you’re always ready to raise the next round – preferably before you need it.
  1. Immediate return on investment. Because you only pay for what you use, a part-time CFO can be surprisingly affordable.  And if they deliver on even a subset of what they have to offer, they should pay for themselves many times over in terms of both your bottom line and your probability of success.

Rent the CFO cover you need. No-brainer.

We’ve been closely following the emerging trends in the SaaS business model. Several of our customers businesses revolve around it and, as most other tech models, it is going through a transformative change. One of the most insightful articles we’ve read lately about this transformation  comes from Techcrunch. On November 13, our good friend and business school classmate, Sequoia partner Aaref Hilaly wrote a story smartly titled “Why the next great SaaS company will look nothing like Salesforce.” In it, Aaref points out that the newest crop of SaaS models turns the notion that to be sticky, a SaaS model has to become the “System of Record” (SoR) which used to be “the single source of truth, for customers’ most valuable information, such as customer records or employee data” like Salesforce. He adds that the emerging opportunity for SaaS is to become “Systems of Engagement” (SoE), meaning apps that employees actually use to get their work done” like Slack,  one of the most “sticky” business applications, now the most valuable private cloud company according to Forbes.

Check it out here. Aaref’s article is quite interesting and goes deep regarding how this new business model for SaaS not only makes sense, it solves the real problem of “creating systems of engagement that get users and revenue, by leveraging data in the systems of record.”

This Thanksgiving week, Series A startups can be thankful for your funding, but realize that the B Round is now the tougher round and the time to start preparing is now.  This presentation by Jed Katz (https://www.linkedin.com/in/jedkatz), who is the managing director at Javelin Venture Partners (https://javelinvp.com) explains how to do that. Jed posits that your next round of financing is much closer than you think, which catches some Founders by surprise. To prepare, he gives tips on setting 12-month goals, making cash last, managing & leveraging your Board, creating separate roadmaps for Sales & Engineering, and using the right metrics. Note how creating a brand serves recruits and investors in addition to customers. We especially like his final “words of wisdom,” that, unlike the perfunctory summary in some presentations, are useful and action-oriented.

These are valuable tips from a VC pro who’s seen everything. Check them out.

This curated selection of quotes from Marc Andreessen provides insight into how Venture Capital works.  Insights include:
– Almost all of a VC’s return comes from one or two disproportionate successes.
– The breakout successes are from areas that were against the grain of consensus.
– Success begets success as it attracts more capital, talent & word-of-mouth.  Also failure begets failure.
– VCs must go to meetings to learn rather than teach.
– Startup teams trump ideas because teams can adapt.
– Declining to invest in winners is a bigger VC mistake than investing in losers. Most VCs turned down most big successes.
– VCs spend most of their time trying to fix their losers and not on helping their winners [Should they change that? -Ed]
– The shift to software will accelerate innovation because it’s so easy to make & change.
And from the commentary:
– The benefit of disruptive technology is often in breakout value or dramatic cost decreases.  This is missed from measures like GDP (which may actually decline with cost reduction) because those measures only capture transaction value, not consumer value (consumer surplus).
Successful Founders of several marquee startups offered their historic pitch decks along with commentary.  Notice they span different stages & rounds.  Also, see how pitches have evolved reaching back to 2005.

Burkland Associates Principal Keith White conducted a series of two webinars on the basics of business funding & fundraising.  The webinars were produced & sponsored by Xero accounting software and the recordings can be found on their web site through the links below.

Peter Reinhardt, CEO and Co-Founder of Segment, recently wrote a blog post with some insightful tips for startup founders, including his selection of Jeff Burkland as part-time CFO.  Subjects covered:
– Customer Prepayment and its effect on cashflow
– Venture Debt uses
– How a “Shadow Budget” can aid planning without creating bureacracy

This report provides a variety of performance information about SaaS companies for us to compare to.  Caveats:
– There’s a lot of data so try to pare it down to the most relevant to you.
– This blends sectors so be aware that your space may have unique factors (like stage of maturity) that make apples-to-apples comparisons difficult.
Still, there’s a degree of “pattern recognition” among VCs, so it might give insight into the patterns they’re seeing.

This repository of startup post-mortems includes brief summaries of flameouts, allowing us to quickly and painlessly identify the traps to avoid.

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