Top 5 Reasons Why Promising Startups Fail

 

In the world of startups, death is a recurrent theme. 9 out of 10 startups crash and, invariably, money surfaces in all these cases. Many startups go bust either due to their inability to scale up or their product does not perform well on the customer’s expectation scale.

I have tried to investigate why these promising startups have failed this year. The purpose is to learn the lessons, avoid repeating those errors and move on to build a new startup.

  1.   Start-Raise-Hype-Raise^5-Burn^10-ShutShop

In 2013, a used-car startup Beepi was founded in San Francisco. Beepi provided the used-car market with an online platform, which would change the face on online car selling. Within two years, they went from nothing to a valuation of $525 million. The customers were happy to respond and venture capital poured in. However, their ‘untested’ business model, inclination to spend recklessly on a fancy office (SoMa) and high salaries spelled their doom. Then, in the beginning of 2017, they were sold in parts to pay off the investors.

 

  1. Crowdfund – KickstarterProject – Raise^20-Hype-Still-Not-a-Company

Hello was a sleep-gadget startup. The business model was built around Sense, an orb-shaped, bed-side sleep tracker, last priced at $149. In a crowdfunding campaign worth remembering, Hello raised $2.4 million, which was followed by an investment of a total of $40 million in venture funds from a Singapore-based investment firm, Temasek, and high-profile angels in 2015 at a valuation of $250 – $300 million.

The media loved to shower James Proud, Founder, and CEO of Hello, with attention and for a few reasons: One, he was young and was from the inaugural batch of Thiel fellowship, where Peter Thiel pays a group of college students to drop out of college for pursuing a career in entrepreneurship. The crowdfunding campaign by Proud was, by far, extremely successful. He had ventured into a trendy category, known as the ‘sleep and had an early-mover advantage’.

Still, before its closure, the company desperately tried to sell itself to Fitbit. The deal didn’t come through and Proud had to bid goodbye to Hello in June 2017. The reason why Hello was put to sleep comes from Proud, “The secret to making a successful tech product is to create something that works so well it fits naturally into your everyday life.”

Obviously, Hello faltered whereas Google Home and Amazon Echo continue to improve and gain traction. And Apple itself introduced HomePod in the same month.

  1. Startup Fundraising Mistake-Shut Shop

There is a time to raise money. Too early and the equity goes for a toss, too late and you are out of business.

Nearly three years ago, a restaurant reservation startup Table8 Dining Club (aka Table Now) set out to democratize the dining experience. They partnered with top restaurants to offer premium tables at peak, sold-out times at a fee of $20 and the reservation could be made weeks or hours before the meal. The fee was split-up between the startup and the hotel.   

The erstwhile San Francisco-based startup was founded in 2013 and they raised $4.6 million in funding. However, their inability to secure more funds pushed them out of the business, reported the note on their website.

  1. Startup-Strategy Error – Shut Shop

Investing 101 says diversify, diversify, diversify! Mitigating risks is crucial for a startup; more so, if the risk is a big client who eats up all your time and energy and weighs you down with an unequal contract.

Rather than being a business, you end up being a contractor to the client and the moment you lose that deal, your entrepreneurial dreams meet an unnatural death, like Audience Science. Audience Science was an ad-tech company known for building software and tools that are designed to help major marketers buy digital ads programmatically using a combination of automation and data. They were dealing with P&G, who was their major client. However, when P&G let it go, the writing for them to exit was on the wall.

“AudienceScience dedicated most of their energy to servicing P&G, and they jettisoned their media business, which was funding staff and development, to focus on growing their DMP business,” Ramsey McGrory, CRO of Mediaocean and former head of the Right Media exchange, told AdExchanger. “Taken together, it was a high-risk/high-reward strategy that didn’t pan out.”

  1. Startup-Raise-Hype^10-Burn^20-ShutShop

Claes Loberg co-founded Guvera, Australia-based music streaming startup with co-founder Darren Herft. In the span of 8 years, Guvera raised 185 million from self-managed-superfund-membership (SMSF) investors, through Herft’s investment vehicle, AMMA Private Equity.

The nature of streaming music business is such that it comes with considerable costs, mainly in licensing deals and technology. Co-founder Darren Herft accepted in an email that $50 million went to music labels and a large chunk went towards product development. Moreover, the ‘House of Guvera concept in Los Angeles, big-bang music launches, hefty salaries of the founders and commissions to Herft’s private equity fund also burnt a lot of cash.

The only way out for the company was to go the IPO route to raise more money, but Australian Stock Exchange last year blocked its initial IPO offering of $100 million.

The ASX said it has “exercised its discretion” to refuse admission to Guvera, based on material contained in Guvera’s application for admission.

Founder, Claus Hoberg, walked out of Guvera and blamed Darren Herft and the AMMA Private Equity for the company’s demise. Breaking his silence for the first time after the firm’s spectacular fall from grace, he said,

“The most important (lesson) is to choose your capital partners wisely.”

Startups are unpredictable, but still, there is a method to the madness. The companies that choose good co-founders, focus on building better products for their consumers, raise money wisely, and spend it modestly, succeed.

The Beginning of an Inclusive Startup

 

Last week, I talked about how Silicon Valley and the tech industry, in general, is biased against women.

It was to battle this that myStartUpCFO was started. In August 2013, we began with the social objective of integrating women back into the workforce, without robbing them of family time. We actively work towards closing the stark gender gap, where a woman is not made to choose between a booming career and an equally demanding personal/family life.

Over the years, we’ve observed that women often quit work to raise their family. As they move out of the workforce, they tend to lose part of the skill-sets that they had earned with so much effort: negotiation, analysis, math, logic, and collaboration. As a result, the company loses a dedicated employee, mainly because of domestic difficulties. She also ends up unhappy because she had to give up a thriving career to bring up her family. Why choose when both are possible?

At myStartUpCFO, we believe that the idea of working along a timetable is an industrial era concept and doesn’t work in today’s digital world.

As a result, we provide a virtual and flexible office which helps women stay in the workforce, even when family or other externalities demand more of their time. Our workforce is predominantly women and they have complete flexibility to work from home. This also allows us to tap into talent outside of a 100-mile radius.

If you can’t trust your employees, why hire them in the first place?

This is where it all begins. We enable our employees to work within the framework of the company guidelines but with the ease of timings that suit them.

The benefits of such a setup are manifold:

One, it tells our people that we believe in them, and we trust them to do a competent job without a lot of handholding. This pushes them to deliver, to be resourceful, and figure out problems on their own without escalating everything to their supervisor.

While building higher capacities, it also maximizes productivity and minimizes attrition: two of the biggest challenges most companies face.

It also brings our overheads down, the ones pertaining to a physical office space, allowing us, in turn, to offer the cost advantage to our clients.

However, I’ll be the first to admit that this setup is not without its share of challenges.

With about a hundred people spread across the globe, it’s difficult to foster a close-knit culture and encourage open communication. People often don’t feel a connection to the entity and lack an informal channel to share.

We are actively focusing on initiatives that will encourage conversations: from a company newsletter bringing the latest on-dits from our different units across the world, as well as Google+ Communities to mentor, guide, and foster a deeper connection.

If any of you here are dealing with the challenges of a remote team, or has questions about how this would work in practice, I’d be happy to talk, and help avoid the pitfalls that nearly got us the first time we did this!

At myStartUpCFO, we are proud of the supermoms that work with us, and we happily tell our clients to expect crying kids and barking dogs in the background when on a call with our teams!

6 Mistakes Founders Make When Raising Funds

Raising money for your startup doesn’t have to be an impenetrable mystery, like whether your fridge light stays on when you shut the door. Every week, I meet people who still haven’t figured it out. In this article, I’ve shared some common mistakes I stop people from making.

The fridge light turns off. Next topic, fundraising.

  1. Too little, too late: In an earlier article, I mentioned that startups should raise more money than they need, or else risk becoming a #BurnRateZombie. We are part of a volatile ecosystem. It’s good to be prepared, especially when you’re starting out.

What most entrepreneurs also seem to forget is that raising funds takes time.

Even if you strike a deal, it could be months before the money is transferred into your account. Don’t ever stop raising funds. Continue to network and interact with the right people, even if you don’t need the money right away.

Most importantly, be mindful of your burn rate and runway. It’s easy to get so consumed in growing the business that you lose track of critical financial numbers. Watch your runway like a hawk so you can have your investor outreach strategy ready when you need it.

2. Too much, too soon: When it comes to fundraising, too often, people focus on the how, and not enough on the ‘how much’ and ‘when’.

We’ve heard horror stories of promising companies that get massive funding early in their life cycle only to die a quick and humiliating death. Color started off as a photo-sharing app that raised a whopping $41 million in 2011. This was before it had added a single user.

What happened?

It shut down months later in September 2012. The team was acqui-hired by Apple, but there was so much negative publicity around the app that Apple never even bothered with an announcement! Experts proclaimed that the product did not resonate with the customers. In other words, a bad product-market fit.

FYI, Instagram had raised a $500,000 seed round.

3. Selling yourself too low: Another drawback of raising too much too early in is the high probability of a low valuation. You’ve given away some equity as well, which would mean you no longer have complete control over your new business. You now have a lot of money, an iffy product, no real proof of concept, and someone you are answerable to. How would that work for you?

Remember this: A startup operates in two phases — the build stage and the growth stage. Funds fuel growth.

During the build stage, it’s important to stay lean, and not be controlled by VC money because it can often complicate things.

The problem is, when entrepreneurs raise millions, there’s pressure on them to spend it. VCs did not give them the money to accrue the savings interest. However, until the founders fully understand the market and how their solution fits into it, they can’t spend it in the right direction.

4. More money, more mistakes: When you have limited resources, you are forced to look deeper and make tough choices. It pushes you to negotiate harder on your office lease, or perhaps take a more frugal space. It teaches you how to stretch a dime to a dollar, and make each dollar work for you the right way. It will force you to keep salaries palatable in an inflated market, and will constantly push you to take decisions that bring you closer to your revenue model. These are hard decisions, and these hard decisions make for a solid foundation.

5. Don’t spray and pray: Don’t make the mistake of reaching out to every investor you’ve heard of. Do your homework. I’ve heard of startups at seed stage pitch to investors who don’t invest in companies that size or in that industry, only to be disappointed in the end. Save yourself the heartbreak and look for funding in the right places. Know your audience and speak their language. Are you trying to pitch a food delivery service to Mark Cuban? Chances are he will decline.

6. Consult an expert: Talk about being penny-wise and pound foolish. Some entrepreneurs decide not to get legal and financial help when signing term sheets to save a few thousands. How does that end? With a raw deal that could cost you a lot more than what you were trying to save.

Understanding the right valuation, pre- and post-money, in case of multiple funding rounds and what terms are actually good for your company requires specialized knowledge. Even before you speak to an investor, work with a good financial advisor to help understand what you need and deep dive into the numbers.

Got a question? Leave a comment.

Sava360 Interview with Sandeep Shroff, CEO and Co-Founder, myStartUpCFO

Who is Sandeep Shroff?

CEO and co-founder of myStartUpCFO Sandeep Shroff is making a name for himself and his startup… and, as you can see, it’s all in the name! myStartUpCFO essentially provides small businesses with on-demand full-stack CFO support. We all know that in the early stages of starting a business, there is so much focus on growth that sometimes the most critical pieces of business operations and financial controls get lost. That’s exactly why Shroff helped start myStartUpCFO – so small companies can get the much needed CFO office support without sacrificing already limited resources.

Added to its core operational mission is Shroff’s own socially conscious mission to have myStartUpCFO support and empower women and help close the gender gap in the workplace. In their 3+ years of existence, they have worked with hundreds of clients, from unfunded dreams operating out of a garage to companies that generate millions of dollars in monthly revenues. We’re especially happy to have Shroff offer his support for Sava360 and participate in our next exclusive ‘Day in the Life Of’ interview series.

[S360]: What’s your take on some of the biggest tech company PR fails in the news recently (i.e. Uber)? Is this, at least in part, a function of growing too big too fast without the necessary infrastructure in place?

[SS]: I wouldn’t call Uber a fail just yet! But yes, fast growth can kill. More than infrastructure and processes, failure is a result of founders’ / management’s mindsets and attitudes NOT changing. Do your kindergarten learning / functioning skills work in high school or college. Self-induced evolution is hard to do…but it is necessary for any successful entrepreneur.

[S360]: Take us a on quick 30 second high level journey through your career to this point, culminating in the launch of myStartupCFO.

[SS]: I have changed fields of work every ten years or so, but I’ve always included the previous experience to enrich the next. My first ten years were as a hands-on computer programing geek in Silicon Valley startups. The second ten years were analyzing tech companies on Wall Street (which I did not like much!) and working in finance roles in tech companies. The third ten years are a culmination of tech, finance, and previous 20 years of nonprofit work in the women and children’s literacy field in India. myStartUpCFO is a financial services startup providing services to other startups. All this while employing women who are working from home, which allows us to stay nimble as an organization, and also provide a stable, challenging career to women who want a healthier work-life balance.

Read more …

Image Source : http://bit.ly/2ny4Rgk

Are You Smarter Than A Fifth Grader?

After speaking with hundreds of CEOs, I realized that burn rate isn’t as Startup101 as I had thought. There are still a lot of things that founders understand incorrectly when it comes to being a #BurnRateZombie. But before we get into it…

Let’s take a pop quiz!

Once upon a time, there was a CEO running a very promising startup. The company was all set to join the ultra-exclusive Unicorn club. It was valued at $900M, and this is how their cash inflows and outflows looked:

(FYI, Singapore fifth-graders’ are expected to take one minute to answer that.)

Thinking $62M? Well, your math is as good as the fifth graders, but you should know better.

Jason realized after all this burn that he doesn’t have a business model. His company had become a #BurnRateZombie, so he sold all inventory, cut the staff, and finally offloaded the company for a special clearance price of $15M. Jason hems for a living now.

Burn Rate is very complicated. See if you understand this.

Burn rate = Money that comes in — Money that goes out

No, don’t mock. It’s tougher than it looks. In fact, I’ve had this talk with so many founders that I created this burn rate calculator to better illustrate my examples.

You can run your numbers at this link: BURN RATE CALCULATOR

Don’t know what numbers to fill in? You need to talk to us.


Jason wasn’t paying attention to the red flags. But here is what you should be doing:

  1. Sit regularly with your accountant and deep-dive into your numbers (I hope you have an accountant!). Beyond the bean counting (what’s coming in and what’s going out), you should have an overall sense of your financials. One thing about numbers — they don’t lie. Know your top five buckets of expenses and analyze them for patterns. Look out for unexplained numbers and unusual variations in expense lines. Grill your accountant on and make sure she/he knows the stuff.
  2. Ruthlessly track KPIs. Track your Key Performance Indicators and tweak your strategy based on what they are telling you. Do not forget that B2B and B2C businesses track different KPIs. For example, as a SaaS company, do you track your company’s magic number? A lot of disciplined operating KPI tracking goes into this number. But once you have the systems in place, the resulting insight for your business are priceless.
  3. Keep your eyes and ears open. Keep an eye out on the market indicators for funding. For example, if the market is down, raising funds might take longer than what you’d earlier accounted for. If you are not prepared for it, that could be fatal. Don’t die mid-keystroke. Die trying. But above all, avoid dying at all.

“If you can just avoid dying, you get rich. That sounds like a joke, but it’s actually a pretty good description of what happens in a typical startup.” — Paul Graham, Y Combinator

4. Know your burn, track your burn, control your burn. Question the expenses you’re committed to. Just because you have okayed something in the past, doesn’t mean you don’t track it’s ROI. The money you spend on networking events is a classic example of doubtful ROI. Constantly trim the fat.


Survival stories are boring. Who wants to hear about the company that didn’t die? Only our client founders, their investors, and us.

Avoid being a #BurnRateZombie by tracking your burn rate. Make your story boring again.

The best time to talk is now! Call us today.

 

6 Steps to the Perfect Pitch

6 Steps to the Perfect Pitch
Many entrepreneurs’ crash and burn when delivering their investor pitch—and ramble on and on. There’s nothing more frustrating than being told, “I only need 10 minutes of your time,” and then 20 minutes later you’re still on slide #5. Investors will want you to be able to back-up your claims. Have a well thought out business plan on-hand to share, so investors can read more if they’d like to. The intention, after all, is that you deliver a powerful pitch, and their hands are out asking for either your executive summary or your complete business plan.
These are the most important things to keep in mind when you prepare your pitch:
1. Less is always more
An elevator pitch is vital. Verbose presentations and lengthy explanations will not impress investors, and most likely will turn them off. Present your business in a manner that’s short, sweet and to the point. Investors need to be confident that your business will attract and retain customers. If they don’t grasp your concept in a short time span, they may presume that customers won’t understand it either.
2. Never hypothesize just Execute
Inspire confidence with facts, not fiction. Most investors seek out low-risk businesses with proven managers that are as close to guarantees as possible. A company with cash flow, a track record and real-world experience has a better chance of getting investors than a business plan forecasting large returns. Find ways to test your business’s viability on a shoestring budget, and turn your idea into a functional business before you seek investment.
3. Leave the hockey sticks on the ice
Excite investors about your big picture, but be reasonable and responsible. Avoid hockey stick projections. Respectable investors will not take you seriously if you present them with nonsensical financial graphs that claim your company’s revenues will grow from $100,000 to $50 million in three years. Show investors that you have a grasp on reality with three versions of financial projections: best case, moderate case and worst case. Base each of these models on facts, past and present performance data, industry and competitor analyses and a series of well-thought-out, defendable assumptions.
4. Learn to love discount stores
Being cheap is chic. In an age where spending is out of control, you’ll need to prove that you are a fiscally responsible manager who knows how to get the most out of a buck. Give yourself wiggle room in your operations and marketing budgets, but avoid being excessive. Never ask for a large salary or big-budget perks. Investors want you to be in a position where everything is on the line.
5. Rome wasn’t built in a day. Your business won’t be either
Investors are wary of funding over-eager businesses that seem destined to bite off more than they can chew. Before asking for millions of dollars to fund 50 divisions and hundreds of product lines, prove how well you can create, manage and fulfill demand for a single product. Demonstrate that your business can crawl before you say it can walk. Perfect your marketing tactics, sales strategies and operational procedures. Investors appreciate companies with sustainable step-and-repeat business models that are poised for exponential growth. Remember, even Google’s success is based on a single product.
6. Choose not to be the smartest person in the room
Know what you know, know what you don’t know and find the people who know what you don’t know. Build a team of credible experts. The smartest leaders in the world are those who surround themselves with smarter people. Investors are funding a management team as much as they are investing in a great business concept.

Microsoft Finance Director’s ‘Aha’ Leadership Moment

With the role of the CFO expanding to include more organizational strategy, it naturally follows that the finance department as a whole will be expected to make a similar shift from “number historian” to a strategic driver of growth. David Elrod, finance director at Microsoft, spoke with me to explain what makes a trusted leader and how we can develop leadership skills in accounting students and young professionals.

This interview has been edited and condensed

Jeff Thomson: You’ve talked about a skills gap in accounting and finance. How do you see the skills gap at work and how does it affect business?

David Elrod: There is a skills gap because a lot of recent college graduates have great technical skills but don’t always understand the importance of telling the story behind the numbers. Accounting staff members play an important role in painting the big picture for their business partners so organizations understand how to make the most effective decisions.

I think back to when I was in undergraduate and graduate school and how many of the issues we discussed were approached strictly from a finance perspective. When I graduated, I thought I would be successful at financial modeling, but I had a hard time communicating the story told by the models I created. Often we get hung up on the numbers, but what our business partners want to know is how it all fits together and what we can do to put the company in a great competitive position.

Thomson: You’ve argued there is a difference between “trusted advisors” and the term that you prefer, “trusted leaders.” What’s the difference?

Elrod: It can be boiled down to one word each; a trusted leader is someone who is proactive and a trusted advisor tends to be someone who is more reactive. Trusted leaders are broad business thinkers who are fluent in the competitive dynamics of their industry. I like to think trusted leaders can look around the corner and see what’s coming to lead their business to the right decision. On the other hand, trusted advisors tend to look at a situation and give their business partners options of how to react to an oncoming situation.

Thomson: Which skills are most needed to become a trusted leader?

Elrod: Having interpersonal skills and being able to communicate the bigger story behind the numbers is very important. Demonstrating a strong willingness and desire to be a partner will reinforce your drive to excel to superiors. Also, leadership skills are very important. There are a lot of soft skills required to be a trusted leader, and financial professionals should develop those skills if they want to advance in their careers.

Thomson: Classroom versus on the job: What can be learned in a classroom and what can be taught on the job? Perhaps it’s a hybrid model?

Elrod: I think it’s always going to be a hybrid model. On-the-job experience is very important for being a trusted leader, but I also don’t want to minimize the educational aspects of leadership. The reality is that many colleges just focus on teaching students to be technically good, but that is just table stakes for being a trusted leader. I think there are actions we can take in school to get students prepared for the workforce, whether it is focusing on leadership, interpersonal communication, or understanding the nuances of influence.

Thomson: A trusted leader sounds as if he has crossed the existing skills gap and gained all the competencies his colleagues may be missing. Was there a defining moment where you decided to become a trusted leader?

Elrod: I don’t think there was initially a specific point in time where I decided I want to be a trusted leader; it was more of an evolution. When I was in internal audit, I would work through the various steps and ensure high quality results with the “i”s dotted and “t”s crossed. From a technical perspective, I was doing an excellent job.

However, as I met with different people, I realized a lot of folks didn’t understand why they were doing a particular control or why they were important in the process. It would have been easy for me to say, “You’re either doing it or you’re not—here’s what you need to do.” But I started to realize it was much more important for me to engage with the people I was auditing to help them understand the importance of their role and how they fit into the bigger picture.

That was when I first started thinking about being more than just a technical auditor or finance person. The experience was a genesis for me in terms of understanding how you can be a great technical accountant, finance person and auditor, but if you don’t relate to the broader group of people in which you work, it’s very difficult to be effective. While I can’t say that was the point I felt I was going to be, or wanted to be, a trusted leader, I can say it was when I first started understanding this concept of trusted leadership.

The 6 Must-Have Skills For A Startup CEO

Chief Executive Officer? Chief Visionary? Chief Cheerleader? Chief Salesman? Chief Funding Officer? Chief Communications Officer? Chief Team TISI -1.07% Builder? Chief Lightbulb Changer? Chief Coffee Maker? Yup, all of these titles apply to the role of a startup CEO. It is perhaps one of the hardest jobs to do in the business world, given the wide range of skills required to excel. This is one of the reasons only 10% of startups actually succeed, as it takes a really special person that has the right combination of skills and startup DNA. In many ways, a much harder job than a CEO of a Fortune 500 company, minus the big salary.

When it comes down to the core skills required, a startup CEO needs: (1) a clear vision of where the ship is sailing; (2) a finger on the pulse of the industry and competitive trends, to navigate the ship over time; (3) solid team management skills to keep all employees sailing in the same direction; (4) impeccable sales and motivational skills, while maintaining credibility with clients, investors and employees; (5) to keep the business on plan and budget; and (6) keep the company liquid. I’ll tackle each of these points below.

1. Set the vision.

The first two points really go hand-in-hand. In order to create the clear vision, you need to have a good sense to what is going on in the industry and with competition. That is really the first step to building a winning business plan. It is not enough to say, “we are building a great travel website”, as there are tons of travel websites out there. You must shape the vision in a way it is more unique and competitive than current solutions in the market. My previous startup, iExplore, positioned itself as a niche killer for adventure travel (compared to the general online travel agencies like Expedia EXPE -2.04%). And, within the adventure travel sector, iExplore marketed “privately-guided, made to order” tours (compared to the traditional packaged group tours with set itineraries) at a price point 25% less than similar tours being offered (leveraging the cost efficiencies of the internet, compared to brick and mortar agents). This vision for the business created a unique product in the market place, which consumers ultimately flocked to with over 1MM unique visitors per month coming to the website.

2. Monitor key trends and pivot accordingly.

But, the CEO’s job is not done setting the initial vision. He or she must stay on top of key trends in their industry or competition to navigate the ship over time. For example, after the economic impact of 9/11/01, iExplore needed to evolve from a travel agent of other tour operators’ trips, into an iExplore branded tour operator of its own, in an effort to get more margin to the bottom line during a difficult economic climate. And, at the same time, iExplore opened up a whole new revenue stream from online advertising, to get the company to profitability while people were not traveling. It is the CEO’s job to constantly watch these kinds of economic, industry or competitive movements over time, and to respond accordingly to keep the ship afloat.

3. Keep the team focused on the same goal.

Another job of the CEO is to make sure all employees are clear on the vision, and that all staff are sailing in the same direction. In the iExplore example for adventure travel, you can’t have your tech guy building a cruise seller, your operating guy building a hotel seller and your finance guy building an airfare seller. Everyone is building an adventure travel seller, and the CEO’s job is to make sure all staff have contributed in building that vision, so all players are on the same page as to what they are building. Therefore, the CEO is not only the communicator of the vision, the CEO is the consensus builder for that vision. You will never be successful if your team does not buy into the vision, or if they feel their good ideas for improving the vision are not being listened to. Then once everyone is firmly on board, keep them clearly focused on the goal.

4. Evangelize and motivate.

Once the vision is set and being maintained over time, now comes execution. And, one of the key execution requirements for any startup CEO is to be its Chief Evangelist. This includes cheerleading the staff, from top to bottom, and getting prospective business clients and investors excited about getting involved with the company. Everyone has been around that infectious personality that lights up the room, and you can’t help but be excited by that person. That is who you need to be. But, and this is a big but, everyone has also been around that person who you feel is trying to sell you the Brooklyn Bridge. So, it is important that your sales and motivational skills, are tempered with equally important business judgment and intellect to come across as credible and backable to all parties involved.

5. Manage to key targets and budgets.

Keeping the business on plan, on budget and liquid is a no brainer requirement for any startup CEO. The CEO needs to set acheivable proof-of-concept points, and put key managers in place for hitting those goals. That means building a management dashboard of the key drivers for your business, that are going to dictate its success or failure. For iExplore, it was all about: (i) driving traffic to the website; (ii) getting those visitors to contact us; and (iii) getting those contacts to convert into a sale. So, all energy went into driving those three datapoints, with one key manager in charge of each datapoint (e.g., head of marketing drove traffic, head of web design drove contacts, head of call center closed transactions). Figure out your key drivers, and get the right team members to manage them accordingly. But, more importantly, you need to be able to quickly identify when things are not going to plan, so you can put new initiatives in place to make up for any shortfall. The longer you let cash-using problems go unfixed, the shorter your liquidity runway, and the higher odds you will run out of money and potentially go out of business. So, plan accordingly.

6. Keep the company liquid and in business.

The worst thing that can happen to any startup is running out of capital mid-launch or prior to full proof-of-concept, that would attract additional capital. So, it is the CEO’s job to make sure those proof-of-concept points are clear to the entire staff, a reasonable timeline has been created to achieve those points and the company has enough cash (including a cushion) to get to those goals. The best people to solicit proof-of-concept input are your prospective investors. Ask them, “what are you looking for before you would be willing to fund our business?”, and firmly focus on hitting those targets. And, when raising money, always raise more than you think you will need, to leave a material cushion for when things go wrong, as they always do with startups. And, if necessary, make the hard decision to cut payroll or overhead, to give the company a long enough runway to live another day.

There is no single right answer for “who makes for the best startup CEO?”, as everyone is different in terms of skills, style and personality, and every business is different in terms of economic, industry and competitive dynamics. But, the above is a good summary of the types of people that have the best odds for success in becoming a successful startup CEO.

Source: www.forbes.com

The 3 Jobs Your Startup Should Outsource

If you’re running an early-stage startup, chances are there are some knowledge gaps in your core team. You may be strong on the technical side or a product whiz, but what about financial strategy, administration, HR? Are you prepared to manage the day-to-day of your startup, from recruiting new talent to bookkeeping to financial planning?

If you have a knowledge gap within the ecosystem of your organization, you need to fill it. But your in-house startup team needs to focus on developing your products and service, creating partnerships, and earning revenue. Your internal resources should be focused on your core competencies, not on these side tasks.

So, what should you do? Outsource — to professional consultants or groups.

The best plan is to outsource whatever services you can so as to save on the highest business costs of all — staffing costs — while getting the support you need and the assurance that these functions are being taken care of by professionals.

Specifically, you can outsource the following 3 functions:

1. CFO: If your company has closed a seed round of funding or is earning more than $250K per year, you need a CFO to handle your financial strategy and run your accounting team. Even if you’re not yet funded or earning significant revenue, you may still be in need of CFO services. For example, if you’re in high-growth mode or have a lot of activity or expenses, you definitely need a financial professional to oversee your financials.

Depending on your needs, a consulting CFO may be able to help with financial projections, cash forecasts, operating budgets, financial plans, pricing, reporting, debt management, M&A, equity and debt negotiations and liquidations. Overall, CFOs help you with business planning, providing your business plan with essential rigor. Your business is creating a product or service; finance is not your business. Look for a professional CFO who has experience working with startups.

2. Accountant: If your financial status doesn’t warrant hiring a CFO, you still need financial support; at the very least, you’ll need help with your day-to-day accounting and regulatory compliance. Outsourcing your bookkeeping to the right firm will give you the support you need for cash management, AP/AR, financial close and taxes.

You can also hire a consulting group to provide accounting support on a project basis. So, whether you need help with audit preparation or generally accepted accounting principles (GAAP), your accounting partner can give your accounting issues the attention they need — so you can focus on other things.

3. Human Resources: Any entrepreneur can attest to the fact that HR can be a total time suck. From recruiting to managing personnel issues, from compensation to benefits, from payroll to employee policies and procedures, human resources management can take over your entire schedule. And HR costs include much more than wages — all HR functions, while non-revenue driving, have an associated cost. Outsourcing your HR functions is definitely a cost as well, but when you calculate it out per employee (and figure on the invaluable savings of staying in compliance) it becomes clear that this is a necessary business cost.

While your company is in its early stages, it’s essential to get support, but only as you need it. To outsource doesn’t mean you just hand over a function and forget about it. You’ll still want to be apprised of all aspects of your startup; hiring the right consulting groups will insure that you stay informed.

Remember, you don’t outsource to make a service disappear; you outsource to reduce your cost structure and keep your internal resources focused on your business. When you outsource necessary functions on an as-needed basis, you can concentrate your internal team efforts where they are most needed: growth. And the companies you hire will help you stay on track as your company grows to the next level.

Source: http://www.forbes.com

Signs a Small Business Needs a CFO

When should a small business owner hire a CFO? While there is no right answer, there are certain indicators. I spoke with Marc P. Palker, CMA, about this topic. Marc is Director of CFO Consulting Partners, LLC – a firm that provides interim and part-time CFO services to small and midsized public and private companies – and a member of the IMA (Institute of Management Accountants) Board of Directors.

This interview has been edited and condensed.

Jeff Thomson: What are some internal indicators that a small business owner should hire a CFO?

Marc Palker: An important internal tipping point is when information that helps the business make timely and important decisions is not being prepared. Business owners make decisions at the pace of the business and must be able to rely on the accurate and timely information provided by CFOs. It‘s never too late to make a change.

In many small- to medium-sized companies, the CFO is responsible for the interpretation of the results, cost control measures, capital acquisition, and forward-thinking due to economic, industry, tax, government regulation and social issues. In some cases, the CFO can also be the OFO, or Only Financial Officer, and must rely on bookkeepers for accurate processing of financial information. The CFO must also be critical of the banking relationship – there can be no slip-ups.

JT: Should a business owner hire a CFO when the company hits a certain revenue figure?

MP: It will largely depend on the business and/or industry. A company generating $10 million in revenue might be ready for a CFO while a company generating $20 million may not be. One client could sell its product for $1.5 million each but only sells five units in one year, while another client might need 28,571 transactions to reach $10 million with an average transaction of $350. The complexity of the transactions can also determine the need for a higher level of experience or knowledge.

JT: What external indicators should small business owners look for?

MP: The critical external point is when respect must be gained outside the company. That could be from customers, suppliers, banks, shareholders or government regulators.

Rapid growth is another important indicator. Growth requires an expansion of automated systems to handle the growth, and additional capital and/or financing to finance the growth. A CFO is best suited to handle rapidly increasing growth due to the complexity involved. He or she must be able to interpret the investment and technology, and the terms of acquiring capital.

One final indicator is when a business is preparing for a merger or acquisition. In this situation, the CFO must be able to choose the correct team to evaluate a target acquisition. In many cases, that will result in outsourcing to a firm to perform the financial and regulatory due diligence. The CFO is the best person to interpret the report issued by the due diligence team so the terms can be tailored to the findings. A very important skill required of CFOs is the ability to feed a potential investor or lender. Preparing the information and anticipating their questions will shorten the process and eliminate further digging.

JT: What specific responsibilities should the CFO of a small business have?

MP: A CFO in a growth-oriented small business must be hands-on. Being in the weeds is critical to controlling growth and communicating results to those with money at stake. That could be the owners or shareholders, banks, insurance companies and – let’s not forget – the employees. As growth occurs, the company and its key customers, suppliers and employees will face new risks. Managing risk involves not only having insurance, but the CFO must also protect the company from regulatory, environmental and human capital risks.

This column offers CFOs and their teams insights and ideas related to challenges of the position, in light of market demands and global economic conditions. Jeff Thomson, CMA, is president and CEO of IMA (Institute of Management Accountants), one of the largest and most respected associations focused exclusively on advancing the management accounting profession. Follow IMA on Twitter and visit IMA’s YouTube channel.

Source: http://www.forbes.com