Startup CFO as steward of company viability.
Sruthi Lanka — now CFO at investment social network Public.com — was an early member of our Off the Ledger Slack community for finance professionals. She generously hosted a breakout session for the group while she was still VP and Head of Strategic Finance at MoneyLion. Feedback from those who attended was exceedingly positive.
Her talk was about the difference between the finance function in small startup environments compared to mature companies. One of the key insights concerning the difference between the two environments is that startups are often seeking viability, which places an additional burden on finance (not just product teams) to navigate that path.
She described the two environments as being radically different. And, since I don’t often (or ever) hear the term radical applied to a finance function, I tracked her down to learn more about what it takes to chart and steer a company’s course to viability.
“Startups generally lack profit, precedent, and historical data they can rely on for decision-making. In addition, operational standards, policies, and procedures are constantly evolving in early-stage companies. Consequently, it’s up to the CFO or finance lead to determine how to evaluate progress, communicate goals to various stakeholders, and adjust levers to stay on course or pivot.”
Sruthi’s presentation contained four considerations for early-stage CFOs or finance leads.
- Define and direct a path to viability.
It’s sometimes said that early-stage companies are still fighting to establish their right to exist. Ultimately the measure of that right is profitability. However, a distinguishing characteristic of funded startups is that they burn more capital to fund initial go-to-market efforts than they take in as revenue. Thus, it’s up to a startup CFO to provide the data and analysis to determine that capital is efficiently deployed to support both short-term and long-term growth goals, even if the test of profitability is unavailable.
For Sruthi, that means developing an agreed-upon financial philosophy. The classic trade-off for startups is whether to burn cash to drive customer acquisition as fast as possible, or conserve capital and settle for lower growth rates. Clarity around this philosophy is vital to assess and chart the course to long-term viability. Sruthi explained, “Getting buy-in and agreement from all stakeholders, including management, the board, and even investors, is essential to success.”
- Drive transparency.
Driving toward viability is an ongoing activity and extends across all business units. Therefore, metrics must tie each business unit to the broader goals and objectives of the company. In this effort, transparency and adaptability are essential.
“These metrics are not black and white, and should be continually re-evaluated as the business changes, which can be frequent at early-stage companies,” she said. Therefore, remaining flexible around these changes, and clearly and constantly communicating how they impact each business unit’s metrics, is invaluable.
- Build an agile infrastructure.
At startups, the lead finance person or, if they have one, the CFO is typically responsible for establishing an infrastructure for the first time. “This takes a builder’s mindset, as you need to think creatively to find solutions,” Sruthi explained. Her educational background in computer engineering gives Sruthi a clear POV concerning setting up infrastructure. “As a former developer, I’m committed to ‘automating and then moving on’ whenever possible.”
The extensive demands on a finance team to support the aggressive growth strategies of an early-stage company require a level of efficiency that can only be achieved by using the right automation tools. In Sruthis’ experience, the best automation tools are lightweight, so that small teams are not overburdened, and also robust enough to scale with a company’s growth.
- Educate stakeholders and create a data warehouse.
It’s a CFO’s responsibility to enable data-driven decisions. This skill set intersects with more “traditional” CFO positions, but startup CFOs are more likely to communicate with a greater variety of stakeholders than they anticipate.
“It’s important to shape your message and your delivery to fit your audience, whether that is the IRS, regulators, employees, potential employees, investors, or even customers,” she said.
A CFO Is one of the few people with both the responsibility for the whole company’s results and the knowledge of how those results are tracked. Painting that picture for others can have a significant impact on how they direct their own efforts and the ultimate success of the company.
Building the right data warehouse that can provide for all of the company’s needs is important.
“Reliable metrics depend on data integrity, so constant scrutiny and validation of them are essential.”
It’s likely that a startup CFO would be more public-facing than a “traditional” CFO, both internally, to educate and inform stakeholders, and externally, to build relationships and solve issues with myriad companies, partners, organizations, and individuals.
“In my experience, curiosity and simplicity — whenever possible — are key to succeeding in a start-up environment. Keeping stories simple with clear, unambiguous goals makes it easier to see the path to viability. Building reliable, simple processes with as much automation as possible will reduce errors, increase access to real-time information, and produce clean audit trails.”
Sruthi stresses the value of a curious mindset that takes nothing for granted to address the breadth of the responsibilities a startup CFO faces. “Ask the important questions. Think creatively.”
And, as to my original point of intrigue, she recommends always focusing on the ultimate goal: to defend the long-term viability of your company.
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