Best practices for B2B software startups
The old CFO is dead, long live the Chief Navigation Officer!
Managing Partner, Patrick Polak
Not that long ago in startups, the ‘Finance department’ was probably the last function that got attention. Finance has never been sexy. We all want to look at cool products, work with great customers and be a part of success stories that revolutionize markets. This isn’t to say that the Finance department is unimportant. Proper bookkeeping should be treated like hygiene, i.e. essential, but hey – early stage startups only need a balance sheet once a quarter, the P&L, a cash flow forecast that is no more than 3 weeks old and someone who looks at the bank account daily. What is the need for a CFO?
However, when a company grows north of 20 people, the founder can no longer juggle the finances and run a company, so a (part-time) controller has to be hired. By 50 FTE it is time to have a CFO for 3 days a week. Now, after each month, you have your P&L, Balance sheet, and all your taxes are about to be paid. By mid-May, your annual accounts are ready, hooray! But things have changed these days, and they are continuously evolving.
With SaaS and cloud offerings, business is moving so much faster- business is global, and you face competition worldwide. We all want to become the leader and to do this, we need to move quickly and take the right directions continuously based upon accurate and complete information. The margin of error is getting smaller and smaller since the room for manoeuvre is also getting smaller. There is almost no time to learn; it must be right from the first moment, in the right place. Are we still on track? Are we even executing the right strategy? What is the right strategy? Nobody started a company because “laying down the best strategy” is the thing they wanted to do. Founders begin because they have a vision, a solution for a problem they see. If they have found that solution, they will be thinking about what markets to serve and what strategy is required.
The companion of the CEO on navigating the Spaceship through the Galaxy is the CFO. It is their goal to monitor whether the company is on the right course and to check if the company is executing its strategy correctly.
One of the toughest challenges is that the founder - often the visionary – needs to transform towards a real CEO. A CEO is responsible for many things, but foremost for the culture, the funding, and the strategy of the company. Vision is not a part of this. Vision is an opinion, while strategy leads to the right actions.
When CEO sets a targeted planet, the companion of the CEO on navigating the Spaceship through the Galaxy is the CFO. It is their goal to monitor whether the company is on the right course and to check if the company is executing its strategy correctly. They must look at all available data and turn it into valuable information and insights as well as overseeing the fuel that propels the company: the finances. This helps the CEO pinpoint those areas that need improvement. And believe me, that is an ongoing effort. So, we have passed the point that a CFO provided the balance sheet and the P&L, the role of the old bean counter.
We at Newion composed a long list of all SaaS KPI’s that will come in handy to measure if you are still on track. We hope that CEO’s and CFO’s take them as a source of inspiration to answer the questions, like “are we ready to accelerate to a new gear”, “are all signals green, or do we need to tweak a thing here and there before we launch into a new orbit”. Do we listen to our gut, or do we get information based upon real and relevant data? The CFO is the linking pin, the glue, between all departments, bringing all data in, analysing it and providing insights. The role changes towards a Chief Business Data and Finance Officer. Okay, a job title like that won’t fly (CBDaFO anybody?), but what about this: The Chief Navigation Officer?!
There are many challenges. What is fantastic today is the new normal in the next month, and not good enough the month after. The margin of error is small and getting smaller since we are travelling at warp speed. We need to look ahead, navigating based upon the learnings and insights we have found in real-time business data, which is beyond financial data. Even if your company is in the early stages, and the number of data points is minimal, it is still essential that you become entirely data-driven, collecting it, analysing it, and measuring it. Because at one point in time, it will give you great insights, and help you land at the right planet, at the right spot. If you want to become Market leader, if you aim for the stars, you need to steer your Spaceship with laser precision to that next Galaxy. Make sure you have a super smart dude to provide you with the insights so you can navigate well.