Timing is everything when it comes to finance talent.
Nowadays, when startups raise money from VCs, especially in the early stages, line items in their financial projections do matter. For instance, in an era when all marketing tools give you freemiums or super low entry price points, and social media rules over mass media, your marketing budget can’t be what it was for startups a few years ago. Some VCs will go as far as saying you don’t need money to do good marketing until you grow the business on a dime. The same is true for finance. Why would you need a CFO when you can rent one? After financing is complete, what would a CFO do all day anyway?
Last week I was invited to do a talk at the inaugural Veterans Conference in San Francisco. When thinking how to make my talk useful and memorable to veteran founders and CEOs of early stage companies, I came up with the 2×2 matrix below (I’m an HBS graduate – we’re required to do a 2×2 matrix at least once a week for life!). Anyways, the chart provides a framework to help CEOs and founders distinguish between various finance and accounting roles, and to understand when and how to engage the right resource along their journey.
Framework for Finance Talent
The first thing to note are the axes. The progression to a full time CFO is natural as the level of help you need depends on the age of your startup. In an era when you can rent and not buy everything, finance talent is no exception. You need to strike a balance between looking at the past to ensure everything is in order (bookkeeping) and looking at the future to ensure you grow in the right direction (strategic finance).
The good news is that you can have your cake and eat it too!
Timing is everything
Here’s how it can play out. At the beginning, pre-seed and pre-revenue, you only need a bookkeeper. I recommend you to hire yourself as this guy – it will help you get a good handle on the levers that drive your business, and it will not take more than a couple of hours of your time every week. Then you start growing, the dogs eat the dog food so you raise a seed. At this point, your attention needs to focus on revenue and you need a professional bookkeeper. It is at this point that you also need to rent a CFO who can help you, giving you just a few hours per week, to lay the foundations of your business model so you can think about the future from a finance perspective (remember, bookkeepers are trained to look at the past).
Then comes the point when you will need more CFO cover. From Series A through D you will need to cover all bases. You need your bookkeeper. You also need more time from your on-demand CFO, who can help you with historical and pro forma financial statements, unit economics, raising capital and business modeling. Eventually you need to complete this team with a controller to build and improve processes and systems and ensure GAAP accounting), and maybe FP&A Analysts to support detailed and compressive operational metrics and dashboards and with corporate performance management tools.
Ideally, there comes a point in this journey, usually close to an IPO or an exit, when you stop renting your CFO and buy one. You should feel good – you’ve graduated to the next level and you need not only the full time of a CFO, but her undivided attention and a deep knowledge of what makes your company tick.
There’s a time for everything. Like in all graduations, you’ll have mixed feelings. You’re not a startup anymore.