Mastering Your Startup's Financials with Real-Time Accounting

00:01
Welcome to startup success, the podcast for startup founders and investors. Here you’ll find stories of success from others in the trenches as they work to scale some of the fastest growing startups in the world; stories that will help you in your own journey. Startup success starts now.

Kate 00:17
Welcome to startup success. Today, we have Sasha Orloff, co-founder and CEO of Puzzle in studio today, and Sasha was also the CEO and co-founder of LendUp, and co-founder of Mission Lane. Welcome, Sasha.

Sasha 00:34
Hi, Kate, good to see you.

Kate 00:36
Thank you for being here. I’m excited to talk to you. I want to get into Puzzle because I’ve, you know, there’s so much going on there. But before we do, you’ve been a part of several successful startups, I think it would be interesting for the listeners to hear, kind of a summary of your journey, a little about those startup experiences and how they brought you to Puzzle today.

Sasha 01:00
Sure. One of my favorite parts about the startup ecosystem, or founding companies is the ability to solve problems. I derive a lot of joy out of somebody who is frustrated, and there is a solution that we can build to make things better. And it’s all kind of geared around me personally loving the motivation of enabling people to do their best work or to be their best selves. And so when I first started it, I mean, it probably derived back from feeling like I had micromanagers, or I was never able to, like do my best work in the many jobs I had from government to nonprofit to startups to multinationals. And I always felt like I was being held back. And when I discovered entrepreneurship, I realized that we could create things, especially with software, it made it easy, we create things to solve people’s problems and enable them to live a better life or do a better job and be their best selves. And so that’s always what really motivated me.

Kate 01:57
I love that framework, I just have to say, because of all the successful entrepreneurs and founders I interview, they all get back to that, solving a problem. That’s what motivated them. And that’s how they found success because they’re actually really solving a problem. So walk us through your journey with that.

Sasha 02:15
With, just with the whole journey or just, focus on Puzzle?

Kate 02:19
Yeah, start with your first few startups. And then we’ll get into Puzzle because I really want to do a deep dive on Puzzle. I now everyone listening is going to be very interested. I mean, this is

Sasha 02:29
This is the build up to the grand finale

Kate 02:31
Yes exactly. I know, I know. I know, accounting software, who knew we’d all be so excited about accounting software. But yet here we are excited about it. I love it. Yeah, I do, too.

Sasha 02:40
I love it. I love it. All right. So the buildup with the grand finale and the accounting software debut, I had an opportunity in back in some of the sort of the second wave of technology in the 2008-2010 timeframe. And there were three major shifts happening at the same time, mobile phones, smartphones, were just coming out. It’s hard to imagine saying that out loud. But like that was a big shift that was happening, we got I mean, we had cloud processing, again, really silly to like think about that being such a big innovation, but you can now process stuff in the cloud. And what the implication for that meant was, you could now do machine learning, you could do like advanced analytics, for the first time, just bespoke on AWS, which was an open source software. So if we think about the confluence of these sort of technology shifts in the market, around 2008, there was the subprime mortgage crisis. And what that effectively meant for people deep into the financial space was about half of our country by law was going to be effectively shut out of the banking system. So first of all, like it’s hard to do your best work, if you can’t access the financial system, it’s hard to be your best. It’s hard to build wealth, it’s hard to get. And so I thought, Alright, well, the precursor for being able to get ahead is getting credit. If we walk backwards from how do you get credit, so you can buy a mortgage or get a small business loan, or all of the things just even get a credit card for daily cash flow. The foundation is the credit score, and if half of the country and a credit score is you have to like have credit in order to get a credit score, and you can’t get a credit score to have credit. How do you bring people into the ecosystem into the financial ecosystem? And so we started a company focused on the highest risk individuals, which were people that were sort of quote, subprime, which the government was going to say, banks, we don’t want you working with subprime people that happen to be 55% of our country. It’s just a number associated with people and it’s half the country. The same time we had mobile phones coming out, we all this data about people, we could do advanced underwriting. So we built the first mobile lending company for especially you could ever borrow money in the United States on a mobile phone. And everything was designed with education built into it about designed to help people understand improve their credit score, and then we built so much technology that it we then spun out a division that we incubated for a couple years called Mission Lane, the $200 million series A, focused on redesigning the credit card experience, with education built in, designed not to keep people in debt, but to encourage them to pay down their debt to make on time payments. And so we did a bunch of small things that really gave every user, the most optimum possible experience to set them on a path to improving their credit score, using one of the largest, most widely used forms of credit in the industry, which is credit cards. That’s called Mission Lane. And both of those grew to a pretty, pretty meaningful size, by the time I stepped down.

Kate 05:33
That’s fascinating, because for those of us that were around during that time, it was such a big deal what was happening, right in the banking system, shutting people out, and just what was going on in the credit card space as well, that must have been such a fun ride.

Sasha 05:49
It was the early days of what now we have a word for FinTech, but back then it was technology or vendor services, which was really hard to sell to banks to do it. And there was an inflection point in the venture capital where it said, why don’t we just build solutions directly for consumers directly for businesses, and so it really unlocked an opportunity. And I think one of the coolest things was there was a podcast with the Chief Data Scientist for AngelList. And he said a quote something like, you know, in my as I look back in my portfolio, there’s FinTech, there’s hard tech, and then there’s bad investments. And so it’s like a fun quote that sort of summarizes my fascination.

Kate 06:30
Definitely. So then let’s set the frame for Puzzle. Its autonomous accounting software, which, you know, as somebody who has worked at a lot of startups and watched the founders grapple with Financials, right from day one, because you’ve got investors and you got to tell your story, and financials are important part of it, walk us through how you know, you were thinking of Puzzle and how you led to that idea. And then I want to get into what Puzzle is doing.

Sasha 07:01
Yeah, so I’m gonna tell three stories to lead this up. Okay, I think one is back to the market shifts. So there’s three major market shifts that are happening right now, I think as well. One is there’s really great challengers in the office of the CFO space, that are building really great solutions for like sub-ledgers. So there’s new challengers to the incumbents, like, the Stripes, and the Ramps, and the Brex’s, and Mercury’s and the Gusto, and the Ripplings of the world that are coming in and saying, we’re gonna build this, and we have automation and data mined in there, they’re becoming pretty successful. So that’s one. The second major trend is over the pandemic, I think about 20% of accountants and tax professionals quit. And it turns out, it’s one of the fastest declining majors for the next generation of accountants. And then the third thing is, Chat GPT 4, was the first AI breakthrough that passed the CPA exam. And so when you look at all of those things happening at the same time, you know something is going to change in every industry, but accounting, specifically something was going to change and be different. And then the second kind of story is when you are first starting a company. So there’s three major pillars of kind of wealth creation in the United States, there’s homeownership, and that’s because we’ve created tax incentives that make that happen. There’s the stock market, but I think more and more is coming out that investing in the stock market is like, rigged by day traders and Robo traders. And so it’s, it’s hard to do that, although there’s great like index low-fee funds, like Vanguard, and then stock picking, obviously. And then the third one is entrepreneurship. And there’s something really nice about sort of helping and thinking about one of the main pillars of our economy being entrepreneurs, how do you help companies become more successful, and accounting and finance for all intents and purposes, like, it’s like learning a new language, it’s a very specific way of seeing and understanding. And it’s really hard to do, it takes six years to become a CPA, more or less, bookkeeping accounting, there’s a lot of nuanced rules. And it’s a really important thing. It’s the foundation of financial health. And so if you’re an entrepreneur, and you are coming in to start a company, because you’re, like you said before, Kate, you care about this problem, you have something that you want to solve, and you don’t understand the language of you’re solving it, there’s just no chance that you’re going to be as successful as you could be. And when you first start off, you’re first starting a company, it’s hard to just get started. And, and so we wanted to solution so that from day one, you could understand your financial health, and you could just do it easily. And so I think that’s kind of the main impetus is I have my MBA, I studied finance, I studied accounting. I studied, I majored in math, and I still couldn’t quite figure this out. It was, it was too opaque and complex, but it’s so important. And if you’re a small company, you can’t afford like a really incredible CFO or really incredible accounting firm or bookkeeper because it’s too expensive in the early days, and it doesn’t make sense for either party. And so we sort of built Puzzle and the most important financial decisions that you will ever make are usually with your accounting, your finance team, and the founder or the executive team. And how do we facilitate those conversations in a way that helps you solve the art part of your business by helping solve the science or the math part of your business. That’s kind of the driver behind this iteration of Puzzle.

Kate 10:34
I like how you set that stage. First of all, just talking about the market with the disruption going on, I mean, something that there’s been a lot of press lately about the decline in accounting, accountants and things like that. And then, you know, trying to put AI around some of these functions. But then also, so many founders know so much about the problem that they’re solving, right, they are so deep in their space in their product. And they get kind of spun up and distracted by the finance and accounting piece. And it’s so important. And it’s difficult to watch some of these great ideas stall or not go as far or things happen, because that one piece didn’t happen the right way. So walk us through how Puzzle helps because I read a blog post that I believe you wrote about the kind of set the stage for autonomous accounting, the different levels. And you know, you compared it to a self driving car. And I think it really summarizes this Puzzle and the power of what you’ve created really well.

Sasha 11:46
So if we take a step back from the future state, and work our way back to where we are today, after scaling two companies, and we were planning to go public on one of them at the time, from inception through IPO, I sort of see the most important financial decisions you will make, I always prefer to use data. And everybody in my executive team could open up their computer and talk about the state of their business, from HR to product engineering, but not the finance team. So when you realize that that’s not the fault of obviously your finance team, it’s the fault of the software they use. That is insight number one. The second is I want to use data driven decisions all the time when I can, data is not going to tell me the answer but it’s going to help me inform the right answer because building a company is part part sort of art part science. But in order to do that, you have to have real-time information. And then the next part is actually accounting isn’t designed to help you build your business. Accounting is mostly designed to help you understand the value of a company in a point in time and obviously pay your taxes, right, so you have to do it. But all the underlying data that you use to create your financial statements for tax and fundraising purposes, is the same financial data that you use to understand your cash flow and your ROI and your marketing spending, your budgets and your plan versus actuals and your variance. You can’t pay somebody with accrual accounting, you can pay somebody with cash. And so there’s two forms of accounting. And you really want both, you don’t want to choose one or the other. All right, so that was the next kind of insight. I want cash, but I need accruals for fundraising and for taxes. And I don’t really want to choose. And so how do I get real time data? How do I get insights about my business? And how do I talk those over with an expert. So in order to do that, you need two things. You need accounting to be faster. But the problem is, the baseline of accounting is binary, and you can’t sacrifice accuracy. So there isn’t this option of like, oh, I want it fast but I don’t want it to be accurate, that that doesn’t help anybody making decisions, it’s extra garbage in garbage out, you make decisions based on bad data, you’re gonna make bad decisions. And so we needed a system to be real-time. And we needed to be accurate. And that just really wasn’t possible with today’s software. And so we needed something. And we use the word autonomous just as like it’s little more buzzy. Like I live in San Francisco. There’s like cars drive self driving around all the time. And so we thought it was like a nice framework to point out how do you give somebody real-time systems. And in order to be real-time and accurate, it has to kind of be generative, it has to generate on its own. Now, what it doesn’t do is not it doesn’t replace a bookkeeper or a finance person. What it just does is the best practices, which nobody really wants to pay for, because it’s too time consuming, is you want one person to generate and you want one person to review. And then in a finance department, there’s a bookkeeper generating it, there’s a controller reviewing it and then as you get bigger, you have an auditor reviewing the review of the review of the review. But if we could have a generative draft version of these financial statements, and then you could have a bookkeeper or an accountant review it, you can spend more time understanding what your business health is in real-time. And so that’s kind of our thought you just like any rough draft thing, you type in something into GPT, it’s not your final blog post, it’s not your final marketing material, but it helps you kind of idea and draft a version of it, that then you refine, we sort of do Puzzle the same way, we do a real time draft of it, we tag what we have competence and what we don’t, you still want to have a professional review it, especially before you send it to the IRS or to your investors. But on a day to day basis, it facilitates a conversation much easier. And so we’ve actually reversed the month order, like with Burkland, who we use, and we’re a big fan of so we changed the order of what I wanted, which was I do a cash and a budget review on like the first second or third of the month with our teammate. Because that’s what I care about. I want to see Did I hit budget? Am I off budget, right? Did our marketing spend pay off are these things delivering? That’s what I care the most about is my runway, the same as it was before is that my expectation, and then we’ll go through and do all the final touches on those last mile of pennies and cents and dollars that we need for accrual. But I’m not using that to run the business. I want that for clean books and compliance and taxes. And so it’s better for both parties, I get what I want right away, and I can make changes and adapt in a volatile world. And then our accounting team, at Burkland, has a little bit more leeway to like close, and they don’t have to rush in that the financial close isn’t the gatekeeper to my analysis. It’s something you do. And it’s important to understand, because it’s a different view of the business. And so I find that incredibly valuable. And so do I think our, you know, 1000 plus founders as well.

Kate 16:30
Okay, interesting. So it sounds like this efficiency, right? Not only is making it faster, but it’s giving the founder more robust snapshots that they can use throughout the process, right, not just after a month and close.

Sasha 16:48
Right, you have a draft version every day. Now, it doesn’t mean it’s your like, totally polished, finalized, investor ready, tax ready, but you have a draft version every day. And you have a status of how accurate that is. Because we have a whole piece of software that just runs and monitors things for anomaly detection, or whether this looks the same as it did last month, or this is something brand new, like your Slack like software expense, it’s the same every month, like right, you don’t need to recategorize the same thing every month, like we know what that is. But maybe you did a new trip to like a conference in Tennessee, and there’s a bunch of hotels or conferences or conference centers that report like, this system might have never seen that before, you might not see that again. And you might not see that ever again. So we would have a lower confidence on something that’s brand new. And then obviously we need to consider with that, is that tax treatment, is that for marketing is that for spending with clients, whatever. But like that should hold you back from your budget conversations, or runway conversations. And so I think both parties do their best work. I get this stuff that I need in order to be the best leader for my company. And our finance team has less pressure to rush through, they can actually do their work the right way. And we can spend time on money decisions in the beginning of the month. And then there’s less pressure for like having to close your books so that I can use my data from two months ago to make decisions about next month. Like that’s, that’s not it’s not helpful in the startup world at least.

Kate 18:14
Right? Right. This is much more efficient. And with everything going on right now. I can see where it gives you a pulse on your runway, you know, much more effectively.

Sasha 18:27
And these things are like I think back to the the point before is, there are some things that are not related to accounting that are really important, like your burn and your runway. These are not in your financial statements, because like they’re really needed for the reason why we created the generally accepted accounting principles, mostly for Public Market comps of slow growing pension fund investment analysis. Like, I don’t need to know my net income to understand the value of my company, especially in the startup life. And so that all the underlying data, are these new customers?Are these existing customers? Are they halfway through their contract? What is the schedule look like? How much of like, are you depreciating or capitalizing R&D expenses are your assets, your hardware, it actually obscures your cash position the more that you get bigger and your business gets more complicated, and that’s okay. Because, you know, academically, it’s the true vision. It’s like the true health of your company. But it totally abstracts away your view of cash, which is how you understand your runway, like I can’t do a runway on my accruals. That doesn’t make sense. I need to understand the actual cash burn and if that changes, I wouldn’t know on the 1st. It’s October 19. Today, on September 1st, like I thought I had 24 months of runway. That means when September hits, I think I can have 23 months runway, if a runway turns out to be 19 months of runway. And that’s a surprise to me, it’s all hands on deck trying to figure it out what happened.

Kate 19:57
What happened, of course, so this is so interesting to me, I just want to take it one step further. Thinking back to when you were a co-founder at Mission Lane or Lend Up. If you had Puzzle then, can you give us like an example of how it could have helped you?

Sasha 20:16
Yeah. It’s been proven in public companies time and time again that the most important decisions you make are capital allocation, or resource allocation. Those are the things that increase your chances of success better than anything else. And so there’s two main resources in a company, there’s the people that work there, there’s their time, and there’s the money that is sitting in your bank account. And so you should be intentional about both of those things. So if I think back to how we make decisions without real time data, if you’re a slow growing company, that steady state, it’s like real-time doesn’t probably matter that much. And but if you’re not, then what ends up happening is, you sit in a board, two things happen, that I thought were really frustrating – you sit in your boardroom or with your executive team, and you make decisions over who has the loudest voice, or who’s the oldest, because they have quote, unquote, more experience, you’re having a political discussion and opinion discussion, you’re not having a decision discussion based upon the ground the facts of your company, and that this is not going to lead to the best outcome is not going to facilitate a good discussion. And it’s, you’re just taking an unnecessary risk. So when that happened, every board meeting every countless time.

Kate 21:38
Right, you’re almost guessing in a weird way.

Sasha 21:41
You could have a discussion about the realities of what’s happening. So I think that’s one. And the second is, as a founder, I think one of the things that we all have, probably everybody in almost every industry at some point, feels like they’re an imposter. And they feel like they’re uncomfortable answering questions or understanding and they’re supposed to know, or they think they’re supposed to know. And so if you’re a founder, and you come from an engineering background, or a marketing background, or just whatever background and you’re solving a problem for some you created some new device, or you’re starting a new landscaping business, or you’re creating a new technology, whatever it happens to be, if you don’t come from an accounting and finance background, you don’t speak the language. So like, if you are just getting air dropped into the middle of a foreign country, you don’t spend, you don’t speak the language, you’re just you’re not going to be as successful, doing whatever you like escaping back to your reality, as if you’ve got air dropped into a place where like, you know the language and you understand the currency. So you’re basically taking a journey, and you don’t speak the language. And so you’re trying to create a future not through code. It doesn’t mean it’s not possible. It happens all the time. But you’re taking an unnecessary risk.

Kate 22:53
I like how you said that. Because so many people I talked to they’re like, those are the scariest questions, because it’s not my language. So when they,right, so you’re giving them this information with Puzzle. I love it. This has been so fun.

Sasha 23:10
I remember in the early days of Puzzle, and we were, we were building it, and we were beta testing. And this is just a perfect example. And so we pull it, we auto generated their financial statements, and we went to the profit and loss statement or the income statement. And we looked and they we saw that their gross margin was 20%. It was an ecommerce company. And they were like, oh my god, 20% margin, like, Yes, this is incredible! I was looking at that same number, and I was like, 20% gross margin, you’re going bankrupt. And what was like, Oh, we just don’t speak the same language. Now at least you can understand because you could just click literally on everything right? What makes up gross margin? What makes up revenue is everything right? We were looking at the same data, and we had two very different reactions to it. So now you can one-click it into we’re working on a couple of ways to just help understand through sort of intelligence and benchmarking and we’ll be working on in the future so that you know where the parts are that you need to pay attention to or not.

Kate 24:14
That’s a great story because for me marketing background the questions that always make give me a little pause is when somebody throws out an acronym around finance that I’m like, what is that right? So yes, I get it and founders tell me the same story. You know, they’re constantly like “what?” so I could see where this gives you a lot of control power right?

Sasha 24:40
And you’re like wait, yes burner, net burner, operating income, how do all these things matter what now, there’s definitions. You can click everything. You can understand how they’re different and why it’s so empowering.

Kate 24:53
No, it sounds it. So that being said, you’ve shared so much, we always end the show with just some general advice for founders listening, you know, you’ve been down this road several times successfully

Sasha 25:09
General advice. All right. So I think as a founder stepping in one is just be intentional with your decisions, two is, I tell my team this all the time, we’re going to try 10 things, and eight are going to be terrible, nine is going to work like kind of okay, and 10 is going to be great. So let’s get those like nine out of the way as fast as possible and get to number 10, which means focus on very small, incremental things, to get the data to make that informed 10th decision. Not obviously, like info security, and like data infrastructure, but like just for general, like marketing and product decisions. And three is you have the ability to set the culture of your company. And whether you like it or not, people are going to mimic your behaviors. So be patient, be enabling, enable your teams to do their best work, even if it feels like it’s going a little slower, going faster into a brick wall is not a great decision. So measure speed over the success of the company, not these little micro decisions about shipping mediocre stuff faster. It’s actually so you have to redo it later.

Kate 26:15
Oh, well said it’s such a true point. So many people on the show go back to that again and again. So I’m listening. And I think everyone now is wild about Puzzle and wants to get more information. Where do I go? What are some resources out there to learn about Puzzle, your website, things like that?

Sasha 26:34
Yeah, puzzle.io is a great place to learn and explore, there’s a free trial. So you can get set up in about two minutes. Play around with it. If you don’t like it, there’s no weird tricks or traps, you can just click Delete, and wipe all my data directly on site, anybody can get set up, it’s a couple minutes, or talk to your bookkeeper like about how you can enable them to do the best work. And think about reversing your current process. Focus on your cash and your cash variance and your budget in the beginning of the month. And then give them the freedom to close the books and do your accruals with a less stressful way. And I think Puzzle is the best solution to facilitate that. Everybody wins. It’s a better solution for everybody.

Kate 27:14
I like it. And I will not I never do this. But I will tell everyone listening, that the bookkeepers at Burkland who have tried Puzzle are very impressed. They have seen such efficiency and time and they love all the reporting and everything.

Sasha 27:32
Thank you, tell us how we can get better. That’s what I ask. I love unfiltered feedback. We are here to build the best solution to help you increase the chance of success of your company and facilitate those better finance and founder discussions. And so if there’s something we can do to build, that’s better. We love feedback. Here’s what we get better. Here’s what would be cool if you also add to this we love. We love unfiltered feedback.

Kate 27:53
That’s very helpful. And I will say, Sasha, thank you for being here today. I think what you’re doing is really exciting. Looking forward to seeing more big moves from Puzzle. So thanks for your time today.

28:06
You’ve been listening to Startup Success. To make sure you don’t miss out on future episodes. Subscribe to the show on your favorite podcast player. Like what you hear. Tap the number of stars you think the show deserves and Apple podcasts. For more tools and resources for your own startup success. Check out burklandassociates.com Thank you so much for listening. Until next time…