OFF BALANCE - Things I learnt in 20 Years as a CFO & CEO in startups.: Recent Episodes
Aarish Shah
In December of 2022 I released a list of 100 lessons I'd learnt the hard way operating as a CEO & CFO across multiple ventures from startups to scale ups to SME's. I had more than a million impressions on that post, thousands of comments and re-shares and many messages asking me to expand on these points. I'll be releasing a new episode every day for 100 days touching a little further on the headlines. Only a minute or two a day, and at the end you'll know my full list!
People are great at zero to one, others at one to many. There are two types of people in business, people like founders, who are great at taking an idea and executing it, and then iterating on that till they find product market. They're great with that experimentation stage of a business where you are taking something that is pretty ephemeral, like an idea, and actually getting it out to customers and testing it out in the marketplace.
Having a thousand batshit crazy ideas means nothing if you can't execute. I'm someone who loves the creative process. I love ideating. In fact on this podcast, I'm often told my, by my producer, to stop winging it because the reality is that execution means everything. Ideation is only important at the very earliest stage.
Privilege exists. Recognize yours and check it. So without going into a huge amount of detail, I come from a massively privileged background. I went to the right schools, the right universities came from the right family and grew up in the right area. I have friends and family members who are well off, and I am very fortunate to have been able to travel the world and see things that many people haven't been able to.
Start a podcast or write a blog to learn and to share, not because of what it might get. So over the last couple of years I've been podcasting and I've recorded well over a hundred episodes across the podcast that I currently have. When I first started them, I did it because I wanted to learn. I wanted to learn from people with whom I have great relationships and great respect for, and who have been through things and challenges that I have not seen in my own life.
Just because Xero says that everyone can do their accounts doesn't mean that everybody should. So SaaS tools like Xero have democratized access to finance or certainly accounting. For many small businesses, it's meant that with very low effort, one can get their accounts up and running. But there is a reason why accountants trained for many years.
Assume your job will be replaced by AI within the next decade and act according. So we're going through a bit of a golden age of AI right now, but over the last several years we've seen AI grow at an immense pace. It went from being able to beat chess Masters to then being able to beat go masses to today where we have things like chat, GPT, and Dalle, able to provide conversational AI and even generate images for you.
Just because a VC is your friend doesn't mean that they'll invest in you. I have scar. It'll come as no surprise to you that I have a huge number of relationships and even really strong ones with people within the venture capital industry. And when I went out to raise for my business last year, whilst I was able to get in the door, I wasn't able to raise.
You may despise politics, but any organisation over a certain size is gonna. Now we've all seen the sitcoms and dramas that deal with off office politics and the reason that they are great fo, no wait, start again. 63. You may despise office poli no, 63. You may despise politics, but any organization over a certain size is gonna have it.
As a CFO, live and die by this rule. Sht in equals sht out. As a cfo, your role is to take information, synthesize it, put it into context, and help leaders make decisions. But if the data that's coming into your system is questionable, then the decisions that come out the other end are equally going to be questionable.
A players know how to lift others up. B players only know how to put them. We've all worked with B players in our careers. These are the guys that always step away from blame. They're the first to point fingers, deride and insult other employees and just sort of do their job whilst moaning as they do it.
Higher for attitude, not accolade. . I now don't even look at university as a key reason to hire someone. In fact, I often don't look at it at all. Some of the worst hires I've seen have come from supposedly great institutions with great outcomes, but they're just not able to do the work. And this is because attitude is far more.
Being great at your job does not make you a great. Okay, sorry. 58. Being great at your job does not make you a great manager. . So this typically happens in very technical roles. You may have an amazing engineer or someone who's great in finance. They can knock out a spreadsheet or write code in their sleep.
But then as you try and develop them and put them into a managerial role, they really struggle. And there's a lot of reasons for this. When you are really good at doing something, it's very hard to stop doing that. But the purpose of being a manager is to guide and direct and nurture other people to do the job that you were.
Too many people fail upwards. We've all seen. People who are mediocre at best, but always seem to be able to make their way up the ladder. They know how to play the game, they know how to deal with the politics, and they always seem to get ahead even though they didn't necessarily deserve it. This is the sad nature of life today.
Being a great manager doesn't mean you'll be a great leader and vice versa. Management is about what you do, leadership is about why you do it. A manager is there to manage a team, to develop them, to direct them, to tell them what they should be doing and when they should be doing it. whilst the leader is someone who sets the big vision for a business for an organization, something that is five years or 10 years down the track and transcendental, and then they hire in managers to help them execute on that vision.
Don't run a business. Run a set of process. ad hoc-ery can kill a business, and this can be really hard to understand, especially when you're a startup founder, because ultimately you are operating in a sea of uncertainty and often there is nothing that you can recognize as a replicable set of processes, but for your business to grow, what you need to do is identify, document, and then replicate a bunch of processes, whether that's sales, whether that's finance, whether that's operations, or whether that's marketing.
Penny wise and pound foolish. So I've been in lots of businesses where founders would scrutinise the minutia of every line item of spend. And whilst that can be a good thing, it doesn't help to scrimp on the basics. . The reality is that when you are leading a team, especially, they will pick up on these sort of things.
Too good to be true, always is. We've all heard the phrase, there's no such thing as a free lunch, and this is a reality in life and in business. You may have had a supplier that's come in way cheaper than their competitors. But if you take a step back and think through why this might have been the case, it may be that they're scrimping on quality or on the volume of product that they're selling you.
Find a coach, a mentor, or a therapist. Thank me Later. So I've been really fortunate in life that I've had a succession of mentors who can be either informal or formal, that have guided me through my thinking about what it is that I want to do with my life, how I should operate, and internally what it is that I should be doing.
Family business is cutthroat. So I've worked with a family business for many years of my. And whilst I loved it and felt part of something that was bigger than myself, it was also inherently really difficult. You see issues like sibling rivalry, you see problems like politics entering the system, and equally, when money is introduced, there are often complaints and disputes that arise when you get into a family business.
As a leader, never ever think that your team and your employees aren't watching every step. You. If you are someone that spends out of control, turns up for meetings late, or de rides employees for no reason, your team is gonna see this, and they're also gonna learn from this. Now, it took me a long time to internalize this because you know, we all have egos and we all want to act in a certain way, but when you're a leader, a leader in a business, you have to step up and take a higher road because employees and the way they act are defined by the culture of a business.
Measure twice. Cut once. So this is an adage that should be familiar to most people, and it comes from carpentry where you try and make sure that you measure your piece of wood twice and cut at the right place. Because could you imagine if you cut. The wrong length, too short or too long. It won't fit into whatever it is that you're building, but this goes for business as well.
Your plan should be to make yourself redundant within 12 months. So this may seem slightly counterintuitive to a lot of people. Most people get into work to climb the ladder and continue to grow themselves in their, in their existing roles. But the reality is that in order to be a leader and to be great at what you do, you should always be thinking about how to make yourself.
If you don't have systems in place, if you don't have processes, then you cannot scale your business, Because people need to understand the boundaries of what they can do in order to do their job well. If they don't have those systems or processes in place, you're effectively operating without any sort of guidelines, and that means that you'll have a chaotic business.
Physical stock takes monthly and make sure you walk the floor. So this one's kind of personal because as many of you will know, I spent a great deal of time working in manufacturing and trading businesses and in physical goods businesses. It is imperative that you know what's happening with your, I. To give you an example, when you are walking the floor, you may pick up on some slow moving or even dead stock, which you may decide to reduce in price or even write off.
Transparency. In an early stage, VE venture is essential. In a scaling one, it can be suicidal. So when I first wrote this, I got a lot of questions and a lot of pushback because people said, well, isn't it important to be transparent? At any stage of a business, and of course that is true, and it is important to be transparent with stakeholders as best as you can.
Benchmark what you can. I see a lot of founders that kind of operate without any thought. What numbers they're putting together and how they're putting them together. And this is really because they don't benchmark. Now, benchmarking could be done for salaries, it could be done for valuations, it could be done for any number of things.
Do it manually first, then Auto. So as a non-technical founder, I thought that the first thing you should do is write some code and build some software to do the things that you want to do. I couldn't have been more wrong. The best way to get started with a product is to build it manually first and then to automate it.
Because by doing it manually, you learn where the gaps are, where the problems are, and which bits you need to focus on to get it right. A great example of this is in one of my businesses, we're building a personalised newsfeed based on a business, right? So you give us your business, industry and sector alongside some keywords, and we generate a personalised news list.
Finances, narrative over numbers. So, as a finance guy, I'm obviously really interested in what the numbers have to. But actually I'm more interested in what you as a founder have to say to me about your numbers. Does your narrative, does your story match what the numbers are telling me now? A year or so ago, I looked at a pitch deck, which had a valuation of 10 million, and ultimately the founder was telling me that they would exit their business in five years for five times.
It's about understanding how numbers flow and what people want, and. Writing out contracts to achieve those goals. In fact, even accountancy is more art than science. As I'm fond of saying, accountants are the only people that can take one in seven and make negative 55. And why is that? Because accounting is a set of rules that depends upon various functions of deferred revenue streams or timing differences, which mean that your cash never matche.
Always be raising. Okay. A lot of people have disagreed with me on this one. In fact, a good friend of mine, GOSL, the CEO of Per Box, who's in the room with me at the moment, also massively, Dre, disagrees with me on this one, but there is a bit of nuance involved. The reality is when I'm talking about always be raising, I'm not necessarily talking about going out and talking to VCs and angels constantly about raising equity.
I'm talking about being very conscious about where sources of finance for your business might come from. These may be from investors who are providing you equity financing. But equally, it may be from finance institutions that are providing you some form of debt or revenue-based financing or a revolving facility against your inventory.
Investors don't want to talk to the CFO until they're in d. So I've worked with a number of startups, as you would imagine, and the worst thing that I've ever seen is when founders try and send their CFO O in to do the initial pitch with an investor thinking that. That's the way that they'll be able to convince the VC or the angel that they're on top of their numbers and know their game.
But the reality is that that actually acts against them. It's a disadvantage because investors want to hear from the founder, the CEO, about. Their vision for the business, their story, their narrative, how they came to build, what they're building and why they're building it, how they're gonna encourage employees to join them, what they're gonna do with the money, and how they're gonna spend it, how they're gonna grow, and ultimately how they're gonna return money back to the investors.
By sending your CFO in, you're effectively saying that. You don't know what's important, because the reality is the numbers come after the initial pitch. They're part of the due diligence that investors want to do once they've bought into the story that you've told them. So remember, never send your CFO in to do your initial pitching.
That's up to you as the founder of the ceo, your CFOs there as a back stock to guide you through the due diligence. Make sure that all of the numbers are covered and make sure all of the boxes are ticked to get that investment closed. But that first conversation, it better be coming from the ceo.
If you are the CEO and haven't made a sell, you're not the ceo. The CEO has one role and one role alone, and that is to sell. It may be that you're selling to employees. It may be that you're selling to investors or suppliers, but it may even be that you're selling to customers. Under no misconception, you are selling one way or the other. And if you haven't sold or made a sell, especially to a customer, then as far as I'm concerned, you can't be the CEO because you cannot have understood the pain points that your customer is facing. You won't have understood the nuances of your product and how to sell it in to your customer, and for anyone else to take that role on, they need to have a playbook to make sure that they can maximize the number of sales that they're. But ultimately a ceo, given that your one role is to sell, that's what you should be doing day in and day out, selling yourself, your business, and your product. So if you aren't making a sell, as far as I'm concerned, you're not a ceo.
Contracts are there for when things fail, so always have one in. It's really easy when you're in a startup to ignore the basics. You know what I'm talking about? It's fine. Let's get them started. We can sort out the paperwork later. They're fine. I've worked with them before. We don't need to do anything in writing.
I've been in situations chasing people to sign off contracts after I've already begun working with them and learned quickly never to make that same mistake. it is incredibly dangerous because whilst things may go right, even 99% of the time, you want to be co covered for the 1% of the times that they don't.
And a contract is there to detail what should happen and what happens in the event that things do go wrong. And heaven forbid, you get into a place where things do fall apart, but you want a contract in place to make sure that you know how to navigate them. Pray you'll never use them, but always have a contract in place.
You are not your business however much it may feel. There was a time when I slid into a huge depression over the performance of one of the businesses I was leading. We were struggling on all fronts, unable to bring talent in, pay bills, make payroll, and I took it all incredibly personally. I wrapped up the failings of the business in my own ego, and that led to a downward spiral.
The reality is that you are not your business. You can do everything right and still go through rough patches as every business does. Removing your ego from the equation will help you, help you make better decisions, and ultimately ensure that you don't damage your mental health. It's really important and only comes with time.
But you have to extricate your own personal emotional wellbeing from that of your business, cuz only in that way will you be able to make the right decisions for both yourself personally as well as your business.
My business can't be in good shape if my mind and body aren't. This is a pretty personal one but it reminds me of something a client said to me more than a decade ago. He was someone who had struggled with weight and needed to book two seats on a plane to accommodate himself. You'd never have known it to see him.
We're in the gym one day, and he said to me, there's no excuse for not taking the time to manage your body and to manage your health, because if you can't manage yourself, how can you be trusted to manage anything else, let alone a business? And this goes further. When you look after yourself physically, you have more energy and more drive.
You're more likely to be able to function at a higher level. If you take this a step further and look at the mental health side of things, it's really apparent that if you. Taking care of your mental health, there is a hu higher likelihood that you're gonna burn out over time and you're gonna make poor decisions as a result of your poor mental health.
So the best thing I ever did was start looking after myself as someone who has really battled with weight issues and with depression. Even at times, looking after both my physical health as well as my mental health has really helped me focus and drive my businesses forward in the way that I wanted to.
So, remember, Your business can only be in good shape if you and your mind are both in great shape as well.
The buck stops with me. Blaming others for failure is never a good look, but especially when you're in a leadership position. As a leader, you have to own the failures even more so than sharing the successes. Firstly, if you don't, then you're signaling a weakness in leadership because if something went wrong and you weren't at the helm, then the first question I'm gonna ask is, well, who was, and whether you're in a leadership role or not, there's nothing more empowering than owning your mistakes because learning starts where failure end. In fact, these a hundred lessons were really the result of many, many times that I have either failed or made mistakes and have had to learn from them. But the reality is, if I didn't take ownership of those mistakes, I would never learn, I'd always pass a buck to someone else and say it was their fault, and they would be the ones that either learnt or suffered as a result of my lack of ownership of my mistakes. The buck has to stop with me because I'm the one who's in charge of what I do. There we go. Hit me up in my dms on LinkedIn or Twitter if you've got any questions. Otherwise, let's get back to building.
Poor leaders say I. Strong ones say we. We've all seen this before. Really great leaders know that to achieve anything, they need their team behind them to deliver. But there are really awful leaders out there who hog the limelight and see every win as a personal achievement. Conversely, when things go wrong, they're the first to throw others under the bus.
But great leaders by building up their teams do a few things. They create an atmosphere of. They create filthy and loyalty, and this is really amazing when you need teams to deliver in hard times. . I've been in a number of situations where I've seen leaders, you know, take all of the accolades for positive movements in their numbers, whether that's their revenue or their user base or their profitability.
But the reality is that to deliver those numbers, there were likely a huge number of people underneath them. Working day and night to make those things happen. Whether that's the marketing team building a new campaign or a new designer that's designed an amazingwebsite, or even an engineering team that's created efficiency, that drives more usability.
Cash flow, balance sheet, profit and loss. In that order. now, a lot of people will be sitting there going, Arish, what are you smoking? Everyone asks me about my revenue. Everyone wants to know what's going on in my p and l, but the reality is that the p and l is a really blunt instrument, and it isn't the one that you should be using to manage your business internally.
Why is that? Well, as we learn early on in this podcast, cash trumps everything. That's why you need to focus on the cash flow First and foremost, you want to know where your money's coming. Where it's going out, how much you're spending, how much you have left, and what that means in terms of the decisions that you are making.
It is imperative to be on top of your cash flow, and that's why I put it first out of the three statements. The balance sheet comes next. Why? Because like the cash flow statement, it gives you a realistic picture of where you are financially. It tells you what you are owed, i e who owes you money and what you owe.
I e who do you owe money to? And if you know those two things, you can plan accordingly. If your focus on the other hand, on your profit and loss statement, you could get yourself caught in a twist because as I've said before, sales is van. Prophet is Sanity and Cassius King. A profit and loss statement is a function of an accountant's mind.
We work in this magical world of accruals and timing differences where we move money around to make sure that we are doing it in line with accounting I F R S standards. And that may mean that whilst your business looks rosy, It might not be. So let me give you an example of that. You may book a hundred thousand pounds worth of sales, but those cells may be sitting on your balance sheet sheet as an uncollected debtor.
And if they're an uncollected debtor, they haven't hit your cash flow. So you haven't got the cash to play a supplier or your employees, even though you've booked that revenue. This is why I always say focus on the cash flow and the balance sheet before the p and l. And remember, an accountant is someone who can take the numbers one and seven and make them negative 20.
Cash flow, balance sheet, profit and loss in that order.
Your accountant, and I cannot stress this enough, is not your cfo. I can't tell you the number of founders that I've spoken to that think that their accountants can do the job of their cfo. They assume that anyone with a qualification in accounts is going to be good enough to lead the executive function of their finance department.
And I'm here to tell you they are really, really mistaken. So what's the difference between an accountant and a cfo? Well, an accountant typically is someone that does your stats, your VAT returns, your bookkeeping. They make sure that you do all the things that need to be done to keep h m rrc and companies house in check, but they aren't operators.
They don't know your business in any kind of death, so they can't really give you direction on what you should be doing and the sort of decisions that you should be making. Your CFO on the other hand, should be intimately aware of what's going on in your business. They need to be advising and directing you on what to do next and how to manage your capital, where to spend that money, how to allocate it, when you should be hiring, when you should be doing a fundraise, how much you should be raising, where to raise it from, and all the other things that come with being a cfo.
The worst thing you can do is hire an accountant and assume that they will be able to do that job because the reality is they just won't have the experience. I've been brought into loads of businesses where ultimately they've hired someone very junior with an accounting qualification, call them a finance director or cfo, and assume that they'll be able to do the role.
And unfortunately, I'm here to tell you that you end up paying a lot more to pick up the pieces than to get the right person in in the first place. Do the right thing. Hire a great cfo, someone that's worked in your industry, in tech, in finance, with the experience at senior level. You will not regret it for one moment.
Insurance exists for a reason. Plan for the worst, even in the good. I am sure most of you already understand this, but insurance exists in case of the worst happening, not because it assumes, fuck, say 19. Insurance exists for a reason. Plan for the worst, even in the good times. I'm sure most of you understand this.
But it bears saying that insurance exists in case the worst happens. It doesn't assume that the worst will happen, and the reality is that for lots of founders, it can be really frustrating to be paying out that monthly premium even though you don't expect anything to go wrong. But I'm here to tell you that the worst can happen.
About a decade ago when I was out in Papua New Guinea, one of my businesses literally burnt to the ground. If we hadn't had insurance in place, we wouldn't have been able to recover that business, recover from that fire, and grow that business into the future. The reality is that you never expect the worst to happen, but that's the point.
It can happen at any time in any place. Make sure you have the insurance. Keep up with your premiums, and obviously shop around. Find the right thing that suits your business because not all insurance is created. Equally, build a relationship with your broker or with your insurance firm and make sure that you are covered just in case, because you don't want to be in a position where the worst happens and you've got nothing to fall.
If you're a leader, you need to learn enough about the elements of your business that are critical to you, but which you are not any good at, and then hire people that can do them way better than you. The reason you need to learn enough about those areas is because you want to be able to ask not just the intelligent questions, but the right questions. A great example of this is I'm a non-technical. But I've started learning Python because I want to be able to converse with my CTO at the right. I need to understand what it means to do an API call or how our infrastructure is set up, what language stack we're using. But I'm never going to be the person that actually builds a product from the ground up. That's her job. That's why I hired her, so that I can concentrate on the stuff that I'm good at. And that's stuff like marketing, sales, and finance. Learn enough so that you are able to delegate to others because you wanna be able to ask them the questions that challenge their assumptions and make sure that they are heading in the right direction and that you can concentrate on the stuff that you are great at.
Never burn a relationship. They. So in the last episode I talked about avoiding bad faith actors, but the flip side of that is maintaining great relationships with the people that you build them with. And why do I say that? Well, back in the day when I landed in New Guinea, we had a competitor with whom we had a really poor relationship.
And my predecessors never really built a good one with him. There was a lack of trust. He was an ex-employee of ours. And no one really wanted to, no 20. never burn a relationship. They matter. So in the last episode I talked about avoiding bad faith actors, but the reality is the flip side of that is that you need to maintain great relationships with the people that you build them with.
Why do I say that? Well, back in the day when I was in New Guinea, I had a competitor with whom we had a really fractious relationship. It was founded by an ex-employee of ours, and my predecessors had never really built a strong. Trustworthy, trusting relationship with them. I decided to rebuild that trust from the ground up.
I made a point of meeting the senior team and really getting to know them well enough that I could say that I had a decent relationship with them. And when it came to the crunch, when it really mattered, that paid off. Why? Because a couple of years later, one of my factories burnt to the ground. I had no materials and I had no product to supply my customers.
So I went to my competitor and I asked them whether they could see us through this spell where we were gonna need support from our suppliers and from the market in general to make sure we could get through this. And they obliged. Why? Because we built that relationship. They trusted us and I trusted them.
So never burn a relationship because you never know when you're gonna need it.
In December of 2022 I released a list of 100 lessons I'd learnt the hard way operating as a CEO & CFO across multiple ventures from startups to scale ups to SME's. I had more than a million impressions on that post, thousands of comments and re-shares and many messages asking me to expand on these points. I'll be releasing a new episode every day for 100 days touching a little further on the headlines. Only a minute or two a day, and at the end you'll know my full list!
If you aren't chasing your debts, you ain't gonna get. , let's face it. We've all been there. We've all been left carrying the can of a debt that never gets paid or, or certainly drags out into God knows when. And even as a C F O, I'm guilty of this as well, right? So I've been left holding the can on a couple of debts, which I wish I'd chased a bit harder and a bit faster.
because the reality is working with startups, you are always at risk of not getting paid by someone at some point in your career. Now, the reality is that startups often prioritize cash as best they can because they've got limited cash and limited availability to be able to pay everyone on time all the time.
You would hope that they would, but the reality is that most founders are gonna prioritize what's important to them, and that's gonna be always paying their employees first and then critical suppliers thereafter. So if you aren't in the line chasing your. The likelihood is that you may not get paid. The second thing is that even working with corporates or larger organizations, they often will delay paying any sort of debt because they get bogged down by the process, right?
So they'll have multiple sort of approval levels that they need to go through. You'll need to talk to the accounts department, the procurement department, make sure that, you know, a purchase order has been filled out and approved, and an invoice has been sent in the right format. Occasionally, even in paper to the office in, in order to make sure that they're gonna pay the pay the bill.
So if you don't pick up the phone and call up that debtor, the likelihood is you are gonna be back of the queue, cuz other people certainly will be. So, my best advice to anyone who's in any kind of business, which is taking payment on credit, pick up the phone, speak to your customers, and make sure you are getting.
In December of 2022 I released a list of 100 lessons I'd learnt the hard way operating as a CEO & CFO across multiple ventures from startups to scale ups to SME's. I had more than a million impressions on that post, thousands of comments and re-shares and many messages asking me to expand on these points. I'll be releasing a new episode every day for 100 days touching a little further on the headlines. Only a minute or two a day, and at the end you'll know my full list!
Pivoting is a feature and not a bug. So I'm sure you guys have heard this a lot of times before, right? So pivoting is a feature, not a bug. What do I mean by that? Well, anything that's a feature is something that is relevant to that business and is baked into the model, whereas a bug is obviously something you need to squash.
And remove effectively from whatever you're doing. The reason I think that pivoting is a feature and not a bug is at very early stages. You are constantly in search of a business model. So you should really, in theory, be constantly pivoting from one idea to the next. Now, a true pivot is where you keep one foot.
Firmly grounded in the sort of realm that you're in and you sort of just swivel into a new market or a new user base or a new geography or whatever it might be in order to make sure that you find the right model to fit your business. Now, back in the day I was working with a business that spent three or four years.
Trying to find a business model that worked within the restaurant industry, and it was really struggling to make any sort of money out of what they were doing. They, they had managed to kind of bring on lots of restaurants and, and had figured out how to get people to use their app and, and certainly they had a lot of volume going through, but they weren't really able to convert that into.
True revenue. They took the drastic decision back in 2017 to do a major pivot. And what I mean by that is they decided to move away from sort of the restaurant industry almost altogether whilst leaving it as part of their product. They. ended up really transforming the business into something quite different altogether, a concierge business.
And back in 2018, they were the fastest growing business in the uk, or certainly one of the fastest growing businesses in the uk. So the reality is that when you are pursuing any kind of business model, you've gotta think about whether it's working or whether it's not. And don't be afraid to pivot because pivoting is a sign that you are paying attention.
It is a feature, not a bug.
Over Dilution is not a good enough reason not to take money in a down. Okay, let's get real for a second. The last few years leading up to 2022 have been absolutely insane in the venture world. We've seen businesses trading at 20, 30, 40 times their revenue multiples, that's all come crashing back to earth. SAS businesses are trading at five, maybe maximum 10 times their revenue, and lots of other businesses aren't getting funded whatsoever. So as a founder, your one job is to ensure that there is enough cash to keep the business going, and that is gonna mean that you may have to take, uh, capital in at valuations that you would not have anticipated. You may have raised at high VA valuations back in 2021 and becoming back out to market today in 2023. Or you may be raising for the first time and thinking about how you're going to look at your cap table moving forward. The reality is that dilution can be fixed further down the track today. If you need to survive and you need capital, don't worry about the valuation. Figure out a way to get as much money in today so that you can survive into tomorrow.
You have three levers. Increase your revenue, improve your gross margin, or decrease your costs. Let's say your business is struggling at the. You have three levers that you can pull immediately to give you a better chance of survival. The first is increasing your revenues, and you can do this by selling more product to your existing customers, finding new customers, or maybe even raising your price. Now all of this will lead to an improvement in cash flow and to your bottom line. You may want to enter new geographies, launch new products, or enter new markets. Al. To improve your gross margin can be a little bit tougher. So your gross margin is a function of the cost of sales. And what I mean by this is, let's say you are someone that sells candles. You may sell your candles for 10 pounds, but you are buying them from your supplier for five pounds. This leaves you a gross property of five pounds and a gross margin of 50. What you may want to do is negotiate a better price from your supplier or maybe get them to reduce the quantity of wax they use in the candles, which hopefully also reduces the cost of that candle. It's not simple to improve your gross margins, but it's definitely something you should look at. Decreasing costs can be really emotive, especially where head. Is involved. Ultimately, there are ways of handling this in a way that is beneficial to both you as a business, but also thoughtful towards the employee. You may want to reduce the number of days, or you may want to reduce salary costs as opposed to simply letting go of people straight off the bat. But you should look at every line of your business, look at all the products that you're buying as a SaaS service. Do you need all of them? Are they being used on a daily base basis? I came across a business recently at Series B that was spending a quarter of a million pounds a year on monday.com. That's a lot of money to be spending on effectively a spreadsheet. So look at those levers, see where you can improve your cash flow and your bottom line. In December of 2022 I released a list of 100 lessons I'd learnt the hard way operating as a CEO & CFO across multiple ventures from startups to scale ups to SME's. I had more than a million impressions on that post, thousands of comments and re-shares and many messages asking me to expand on these points. I'll be releasing a new episode every day for 100 days touching a little further on the headlines. Only a minute or two a day, and at the end you'll know my full list!
Sometimes everything has to burn down in order to be built right back up again. So you could take this as a philosophical statement and absolutely, that's correct, right? Sometimes you need to sort of destroy what you've built in order to build it back better. And you've seen that in lots of businesses that have changed their business model or have moved from one particular sort of sector to another. And you know, a great example of that is something like Flicker, which started off as a video upload business for gamers, and turned out into a photo share sharing website. But I'm also talking from really hard experience here. So back in Papua New Guinea, about a decade ago one of the businesses I was running was a plastics manufacturer. And sadly, one day that business literally burnt to the ground. We had a massive fire as a result of an electrical issue caused by the poor power supply from the local provider. and what happened was we then struggled for the next three or four months trying to build that business right back up from the ground. But we took the really difficult decision to not go back into manufacturing and actually just change our entire business model over to trading. So we went from being a manufacturing business that relied on raw materials coming from overseas equipment that was constantly breaking down, and talent that was really hard to secure. To a trading business that allowed us to be much more capital efficient and grow I in in a way that allowed us to utilize our cash much, much better. So the reality is that whilst you wouldn't want it to happen, sometimes everything really does have to burn down to be built right back up again.
A few episodes ago I talked about debt being cheaper than equity and I had someone respond to me in LinkedIn and say that, well, it was a bit more nuanced than that and I was oversimplifying the whole situation and I can't really disagree with that cuz the reality is in a two minute podcast, you're not gonna be able to get across every single scenario in every single case. The reason debt is a two-edged sword is because lots of founders don't really think far enough into the future about how they're gonna be able to service both the principle i the original amount of the loan that they had taken out, as well as the interest cost, which is the price, if you like, of the debt and the interest may be fixed. In which case you kind of know how much you're paying on a regular basis, or it may be variable, so it, it could go up or down depending on where interest rates move. And the reality is for very early stage businesses, you don't have enough security or knowledge about how your cash is going to move over the course of the next 3, 6, 12 months to be able to take out debt with any confidence because your revenue could go up or. Your costs could go up or down. You simply don't have enough data to know exactly how your business is gonna perform over the coming 12, 24, 36 months, let's say. And the other problem is that as a founder, you may have to give up something in order to be able to take out that debt. And what do I mean by that? As most of you'll understand, banks or other lenders will try and take out some sort of security against anything that they loan you, and that may be in the form of a physical asset, like a building, or it may be in the form of a guarantee from the directors or the business owners. And what that means is you are person. on the hook for that loan should you not be able to pay it down the track. And that can be really, really difficult for a lot of people to understand when you're taking out that loan. In the first instance, it may seem like a really great idea, and it may well be, but really do think through both how long it's gonna take you to pay back that debt, whether or not you're going to be able to, and what are the consequences if you.
Hire slow, fire fast. Okay. I copped a huge amount of flack for this when I released it the first time, but there is a whole bunch of nuance here. I think a lot of people took what I meant to say as, no. Okay, one second. 16 higher, slow fire. Fast. I caught a huge amount of flack for this when I released it on my original list of a hundred lessons, but the reality is I think a lot of people took it to mean the wrong thing. What I'm not advocating for is sending out a text message, sacking 3000 people in one go. I think that is not a human thing to do. It lacks empathy and it lacks any sort of humanity. . What I do mean though is that when you are hiring, you need to take the time to make sure you are hiring the right person with the right skills, and more importantly, the right attitude for the role that you are looking to recruit for. And what do I mean by that? Well, most of you will have heard, I'm sure that when you're hiring, you tend. Hire people that mirror your own attitudes and your own experiences. And what that means is that you won't necessarily hire the right person. You'll just hire someone that looks or feels like you do. Having a good process in place that takes the time to vet an individual by sending them through several rounds of interviews with people within your organization. You know, potentially getting them to do some sort of a task. And I'm not advocating this for all levels, but certainly, you know, entry levels, getting them to do some sort of task that. Proves that they can do the job that you ask them to do is really important. And by having a great process, you'll hopefully find the right person that's gonna stick to your business for a long time. And why is that important? Well, there are surveys that have been done that suggest that the cost of hiring the wrong person. Can run into the hundreds of thousands of pounds and that's in lost time from training, recruitment fees and just, you know, the morale that is dropped by having the wrong sort of person in your business. And when I say fire fast, what I mean is once you've identified that someone in your business has to go act on that as quickly as possibly do it the right. right? So I'm not saying that you should just ring up this person and let them know that they don't have a job. Come tomorrow. Take them through your rationale. Figure out a way of doing it in a way that leaves them with their dignity and shows that you are a strong leader. Because when you fire someone, it will take something out of you as much as it takes out of. Getting it done quickly means going through the process the right way, getting it done so that you can move on and the business can keep on growing.
Valuation is negotiated. In the last episode I talked a little bit about why it makes sense to take cash, even if you have to dilute yourself a little bit more than you anticipated. But let's talk about valuation itself for a second. The reality is that loads of founders go out with a pitch deck saying they're raising.
I dunno, a million pounds at a 10 million pound valuation. But the reality is that that valuation is not something that you set. It's something that your investors will negotiate with you. And why is that? Well, at the end of the day, you are making a sale. You are selling some of your equity for a million pounds, and it is up to your investors to decide how much equity they think that million pounds is worth.
And that's why it's a negotiation. And not only is it a negotiation in terms of how much that equity is worth, so whether it's. 10 shares for a million pounds, or a hundred shares for a million pounds. It's also what sort of rights and what sort of controls does that investor potentially have as well. So never go out with a mindset that you have a fixed valuation in your head and you are gonna stick to it because ultimately great investors are always gonna negotiate that as well.
So remember, don't fix your valuation. Make sure you're prepared to negotiate it and get down to raising that cash the right.
There we go. Hit me up in my dms on LinkedIn or Twitter if you've got any questions. Otherwise, let's get back to building.
Investors are driven by two things, narrative and return. The first gets 'em through the. And the second dictates the size of the check. Okay. This is pretty broad brush. I get it. But just before I go into the detail of kind of private transactions, think about how the stock market works. When you are buying a stock, someone else is selling it. If everyone had the same information at the same time, there would be no alpha. There'd be no return because everyone would basically be trying to do the same thing at the same time. . But typically what happens is on either side of a trade, you have people with different opinions about what the future is going to hold. When I bring it back to private markets, when investors are investing in an early stage startup, they're thinking about the narrative more than anything. Why? It has to interest them enough for them to dip their hand into their pocket and write that check. Most of the time founders get really stuck into the technical detail of what's happening in their product. Or maybe they talk about the market in a way that you know is fairly flat or dry. What investors wanna see is a passion that you really believe in what you're building. They want the massive story of a huge outcome down the track, and they want to see that you are the person that's gonna be able to deliver that. And that's all down to narrative. Secondly, they wanna see that return. They wanna see that there is an outsize opportunity for them to 10 x their money in five or six years. And that's what dictates the size of the check. So the narrative is what gets 'em hooked, and the return is what tells 'em how much they're gonna invest. In December of 2022 I released a list of 100 lessons I'd learnt the hard way operating as a CEO & CFO across multiple ventures from startups to scale ups to SME's. I had more than a million impressions on that post, thousands of comments and re-shares and many messages asking me to expand on these points. I'll be releasing a new episode every day for 100 days touching a little further on the headlines. Only a minute or two a day, and at the end you'll know my full list!
In December of 2022 I released a list of 100 lessons I'd learnt the hard way operating as a CEO & CFO across multiple ventures from startups to scale ups to SME's. I had more than a million impressions on that post, thousands of comments and re-shares and many messages asking me to expand on these points. I'll be releasing a new episode every day for 100 days touching a little further on the headlines. Only a minute or two a day, and at the end you'll know my full list!
In December of 2022 I released a list of 100 lessons I'd learnt the hard way operating as a CEO & CFO across multiple ventures from startups to scale ups to SME's. I had more than a million impressions on that post, thousands of comments and re-shares and many messages asking me to expand on these points. I'll be releasing a new episode every day for 100 days touching a little further on the headlines. Only a minute or two a day, and at the end you'll know my full list!
In December of 2022 I released a list of 100 lessons I'd learnt the hard way operating as a CEO & CFO across multiple ventures from startups to scale ups to SME's. I had more than a million impressions on that post, thousands of comments and re-shares and many messages asking me to expand on these points. I'll be releasing a new episode every day for 100 days touching a little further on the headlines. Only a minute or two a day, and at the end you'll know my full list!
In December of 2022 I released a list of 100 lessons I'd learnt the hard way operating as a CEO & CFO across multiple ventures from startups to scale ups to SME's. I had more than a million impressions on that post, thousands of comments and re-shares and many messages asking me to expand on these points. I'll be releasing a new episode every day for 100 days touching a little further on the headlines. Only a minute or two a day, and at the end you'll know my full list!
In December of 2022 I released a list of 100 lessons I'd learnt the hard way operating as a CEO & CFO across multiple ventures from startups to scale ups to SME's. I had more than a million impressions on that post, thousands of comments and re-shares and many messages asking me to expand on these points. I'll be releasing a new episode every day for 100 days touching a little further on the headlines. Only a minute or two a day, and at the end you'll know my full list!
In December of 2022 I released a list of 100 lessons I'd learnt the hard way operating as a CEO & CFO across multiple ventures from startups to scale ups to SME's. I had more than a million impressions on that post, thousands of comments and re-shares and many messages asking me to expand on these points. I'll be releasing a new episode every day for 100 days touching a little further on the headlines. Only a minute or two a day, and at the end you'll know my full list!
In December of 2022 I released a list of 100 lessons I'd learnt the hard way operating as a CEO & CFO across multiple ventures from startups to scale ups to SME's. I had more than a million impressions on that post, thousands of comments and re-shares and many messages asking me to expand on these points. I'll be releasing a new episode every day for 100 days touching a little further on the headlines. Only a minute or two a day, and at the end you'll know my full list!
In December of 2022 I released a list of 100 lessons I'd learnt the hard way operating as a CEO & CFO across multiple ventures from startups to scale ups to SME's. I had more than a million impressions on that post, thousands of comments and re-shares and many messages asking me to expand on these points. I'll be releasing a new episode every day for 100 days touching a little further on the headlines. Only a minute or two a day, and at the end you'll know my full list!
In December of 2022 I released a list of 100 lessons I'd learnt the hard way operating as a CEO & CFO across multiple ventures from startups to scale ups to SME's. I had more than a million impressions on that post, thousands of comments and re-shares and many messages asking me to expand on these points. I'll be releasing a new episode every day for 100 days touching a little further on the headlines. Only a minute or two a day, and at the end you'll know my full list!