???????? Hi friends!
Well would you look at that? Another year pretty much done and dusted, where the heck does that time go ???? .
I’m about to head off to Italy to spend a quiet couple of weeks with the in-laws, so for the rest of the month, I’ll be sending out a bare bones Off Balance and kicking things off in the new year with a new format based around the post I wrote this time last year covering the 100 lessons I’d learned from 2 decades operating.
I hope that whatever you’re doing over the holiday period, you get to spend it with people you love and 2023 ends as well as 2024 begins ????
Now let’s get down to business…
In this weeks Off Balance, I’ll be chatting about:
❓️ Planning a strategy as a first time solopreneur
❌ 10 things CFOs see founders doing that they REALLY shouldn’t be
Also, in this week’s Nothing Ventured, I spoke to Josh Bell, one of the founders of and General Partners at Dawn Capital which, over the summer raised a phenomenal $700m new fund.
As always, our Primer episode gives you a bit of background on how he got to where he is today ????
Also, if you have any feedback, or if there’s something you’re desperate to see me include, just reply to this mail or ping me online – I’m very open to conversations.
If you like what I’m putting out, do give me a follow on LinkedIn, Twitter and Instagram.
(If you are trying to connect with me on LinkedIn, maybe read this post I wrote and make sure to start your request with “Off Balance” and, more importantly, tell me why you’d like to connect ????????)
Don’t forget to like, rate and subscribe to Nothing Ventured on Apple, Spotify or YouTube, it really helps more people see what we’re doing – you can find links to these (and more including my Office Hours) right here!
Now let’s get into it.
This edition of Nothing Ventured is brought to you by EmergeOne.
EmergeOne provides fractional CFO support to venture backed tech startups from Seed to Series B and beyond.
Join companies backed by Hoxton, Stride, Octopus, Founders Factory, Outlier, a16z and more, who trust us to help them get the most out of their capital, streamline financials, and manage investor relations so they can focus on scaling.
If you’re a CFO working with venture backed startups and want to join a team of incredible fractional talent, drop us your details here.
If you’re a growing startup that knows it needs that strategic financial knowhow, drop your details here to see how we can support you as you scale ????
How can did I add value?
This week I spoke to an old friend who has (relatively) recently taken the plunge to move out of employment into a brave new world consulting.
For me, what was even more interesting was that he was moving out of a career in education as a leader to take the plunge into carving out his own path.
You may be wondering what value I could add to any problem he might have been having but, having worked in the edtech sector with a number of educators (including Eton College) as well as the fact that the problems you face as a solopreneur are agnostic to the industry you’re applying your skills to, there were a number of ways I could help him think through the most sensible approach.
Here are some of the issues we touched upon.
Purpose
I don’t mean purpose in the slightly nebulous way that thought leaders talk about when they tell you to ‘find your purpose’ – if anything I have for some time now subscribed to the fact that this (along with ‘passion’) are the wrong ways of approaching a problem. Instead, you should find what you’re great at doing and you’ll often find that purpose and passion arise.
With that out of the way, the purpose I was talking about was what purpose he felt his consultancy was going to ultimately fulfil.
Did he want to be a consultant because of the flexibility it gave him? Or was the ultimate goal to create a business with all the complexity that entails (hiring staff, building processes, moving out of delivering services to (mainly) finding customers to pitch those services to?
It’s not essential to know the answer immediately or have a plan to execute immediately because, as was the case for me, you may well develop the plan organically as you continue to deliver the services as a solo consultant.
This gives you the ability to test out assumptions and not only see what services customers are actually looking for, but which of those can be packaged up and delivered by a team, rather than you personally.
But having an idea of which way you are likely to go helps you make sure that you have those assumptions at the back of your mind as you build.
One Thing
It turned out, that on top of the consultancy, he had also built out a small but growing digital community off the back of content that he and others were creating.
The immediate question I had for him was whether that was a business in its own right, and hence should he be focussed on one or the other.
Let’s not beat about the bush, building a business is not simple, especially when you are doing it on your own, and, making the mistake on trying to do too many things often results in you not being able to truly succeed in any of them.
This is something I have struggled with throughout my career – whether running a couple of manufacturing operations in Papua New Guinea or, more recently, trying to build both EmergeOne (a service based consultancy) and Projected (a tech product).
Being that deep in a businesses, especially a young one, means you have to give it all your attention. Once you have grown to the extent that you have a team under you and the ability to step away from the day to day, that may be the time to try and build something new, but for most of us that is either going to be a long way in the future or not at all.
The other way to frame it is whether all the activities you’re doing are focussed on the same goals or objectives.
For example, I actively decided to continue with the podcast and launch this newsletter, not because I thought either would be revenue generative channels in their own right (through sponsorship or advertising), but because they both actively helped drive my core activity (EmergeOne) forward, whether through developing my and the business’ brand or as active lead generation for the business. I stopped thinking of them as separate activities, but as core to the business itself.
As it happens, he hadn’t thought too deeply about this, but knew that some of the work he had won had actively come from the community. From my perspective this is the ‘lead magnet’ to drive business to the consultancy. Therefore focussing on building it out from a content perspective should be his first objective, monetisation might be a secondary goal, but I suggested that trying to both monetise the community whilst building the consultancy would end up with neither achieving what he needed in the mid term.
Where’s the Money
Finally, I suggested that he mapped out who the ideal customers are for the business and to concentrate on building relationships with them, even if that doesn’t lead to immediate business, as you want to keep them warm for when a need arises.
This is imperative when you’re building a service business as you have to balance the need to deliver the services (and hence drive revenue) with the need to be in the market pitching for new business.
It’s the biggest challenge most consultants have given the irregular nature of business activity and, let’s face it, many people are not great at business development and sales preferring to concentrate on delivery but it’s imperative to be active on both sides to build out a sustainable business – whether that’s as a soloprenuer or in a more structured situation (where it’s likely that the focus shifts further towards the business development).
As always, these were just my perspectives, it’s hard to be definitive over a short call on a business where you only have a superficial understanding of the complexities involved. I’m pretty sure he found it useful though, if for no other reason than it raised questions for himself that he can take away and resolve in his own time!
As always, my office hours are open, if you’d like to chat about this or anything else, just grab some time ????.
Image generated by AI using DreamStudio
Off Balance
One of the things we come across as CFOs working with early stage businesses is the bat shit crazy things some founders ask us to do – or often have already done before we even touched the ground – here are ten of the sort of things we’ve come across over the years – and remember, doing any of these will get you in SERIOUS TROUBLE with the law so these are things that you should avoid at all costs ????
Founders – Don’t do these things
Conflate cash with revenue – Accounting is a bit of a dark art, we get it, but a lot of founders assume that they can report cash flow as revenue. Obviously this is a big no no because the whole point of accounting is to match revenues and costs in the period they arise. What this means is that if you win a 12 month contract with an upfront payment, it may look great to juice your numbers, but the reality is that from a revenue perspective, that contract has to be spread over the twelve months.
Include VAT in your revenue numbers – Similarly, including VAT in your sales numbers is completely flawed. VAT is a working capital element that goes on your balance sheet. The cash you receiving from charging VAT to your customers has to be repaid to HMRC so it goes in and out of the business and should never be included in sales reporting (unless explicitly stated).
Adjust your EBITDA – We’ve all by now heard of the famous WeWork ‘Community Adjusted EBITDA’ number. But whilst this was an egregious manipulation of the numbers, founders try to get away with doing this from time to time – I’ve seen requests to exclude a legal fee from the numbers because it’s not ‘in the normal course of business’, the problem is that really is in the normal course of business. The only exception to this is you have a one of restructuring cost (redundancies etc.) where there is a significant impact to the business that is not likely to ever occur.
Take your family to Disneyland on the company credit card – I’ve come across this in a previous life and it beggars belief. There is an assumption amongst many people that you can pretty much put whatever you want through the business, in this particular instance an employee had tried to claim this as a bonus related expense. Clearly not the case. It’s really important to understand what is legitimate and what isn’t.
Report future revenue in ‘current’ terms – It’s obviously good to keep investors and your board appraised as to what is in the pipeline, but some of my CFOs have seen founders try and report the net present value of future sales when sending out updates. Apart from just being transparently manipulative, it’s also just down right wrong!
Throw stuff on the Balance Sheet – Sometimes a cost is bigger than you would like it to be and the solution some founders think is sensible is to capitalise the cost (take it to the balance sheet) and amortise it over time. Now there are times when it is fairly legitimate to do this (a cost that relates to services or work to be provided over a period of time), but for the most part, costs are costs in the period they are incurred, they shouldn’t be taken to the balance sheet to make your P&L look smoother.
Expect your CFO to do your bookkeeping – OK this isn’t exactly in the same vein as this other stuff, but let’s face it, it’s something that comes up again and again. CFOs should be involved in the strategic stuff with oversight of the operational, rarely should they be doing the actual operational work. This comes back to a misunderstanding of what the various roles in finance are and how they break down.
Overstating inventory – Whilst all of the above could be seen as understandable due to a lack of understanding (though still not something anyone should do), this one is a different level of behaviour – intentional and fraudulent on many levels. I came across this when I was out in Papua New Guinea, a few years before my arrival, the management had colluded to do just this. Inflate the inventory to increase the profit of the business and hence try to hoodwink shareholders. It all came to a head when a) it was clear that the levels of inventory in the books didn’t match those on the warehouse floor and b) when despite seemingly great profitability, the business had no cash. As you can imagine, there was a lot of stuff that had to be unravelled to get to the bottom of what had happened.
Kite flying – This is another one I saw a customer of ours do in Papua New Guinea. To hide cash flow problems, a supermarket chain would write cheques from one store into another to pay for goods with none of the sotres actually having enough cash to cover the purchases. Because this was all done with physical cheques that required physical clearing at a bank, it would take a few days to catch up with itself and all the while they would be continuing to send cheques on a merry-go-round between their businesses. Again, as you can imagine, when this all came crashing down, there were a lot of businesses that were left picking up the pieces.
Cherry picking what goes into the KPIs – Because KPIs don’t always have a standardised definition, founders and management teams may try to massage them to make performance look better than it is. A really common one here is manipulating customer acquisition costs in order to look the unit economics look better than they are. Maybe they exclude some of the business development costs, or marketing spend or even shift attribution from one campaign to another (especially where it’s not incredibly clear what spend acquired the customer in the first place. Don’t do this, apart from being deceptive, it actually doesn’t help you out anyway as you need to make decisions based on those KPIs.
I get founders’ need to present the business in the best possible light. So much can depend on what the numbers show – whether that’s raising investment, getting a line of credit or convincing your team what the best strategy is.
But ultimately any form of manipulation not only takes a huge amount of energy that should be focussed on actually growing your business, but also hampers your ability to grow the business because you’re working off bad numbers.
There is ultimately however, no argument for engaging in an activity that even looks like it might be fraudulent – just as SBF and FTX how it worked out for them…
I hope you found Off Balance #23 useful. As always, I’d love to get your feedback and understand the sort of topics you would love to hear about.
Just hit reply to this mail or drop me a line at hello@emergeone.co.uk and let me know ????
????And that’s a wrap for this edition of Off Balance – I’d appreciate your feedback so just reply to this email if you’ve got something you’d like to say.
???? And if you think someone else might love this, please forward it on to them,
???? Finally, if you’re a fan of the Nothing Ventured podcast, please don’t forget to like, rate and subscribe wherever you get your pods – it really helps us spread the word.
That’s it from me so until next time…
Stay liquid 🙂
Aarish