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The balancing act of a startup—mastering the first stage of the lifecycle

“Business, much like life, is not a movie and not everyone gets to have a storybook ending.” Those were the farewell words of Gigaom founder Om Malik after the San Francisco tech website shut down earlier this year, unable to pay its creditors.

Every startup is its own unique opportunity, but so many are cut short. Few of them make it through the first stage of the business lifecycle when they start their engines. Their runway comes to an abrupt halt. The future becomes bleak and they have to fold up shop.

It can be a struggle to avoid such a fate, for sure, but starting out can also be a very exciting time in the company’s lifecycle. There are so many directions the company can go in, so many dreams that can be dreamt (IPO!)—and so many nightmares that need to be avoided.

The first stop along the business lifecycle is the “start” stage
Having worked with more than 700 companies at all stages since 1993, we have picked up on a natural trajectory that occurs. The first stage of a company’s business lifecycle, the start stage, is a balancing act, as RoseRyan CEO Kathy Ryan noted in a blog post earlier this year. It “involves balancing the fight for survival with getting the small business up and running,” she wrote.

In fact, it is a critical time in a company’s lifecycle. A winning, sellable concept can take the company only so far, whether you’re building a business based on the potential of a life-saving medical device or creating a time-saving app for enterprises. Key to survival is the foundation it’s built on. It’s built in this earliest stage, when the future is unclear but decision-makers need to get their heads around their burn rate and the company’s viability.

An unwieldy finance function—or a nonexistent one—can lead to avoidable mishaps, including cash flow problems, misstatements, inefficiencies and distracted senior leaders. Senior leaders should be focusing their energies on attracting new customers and investors—not spending all their time trying to make sense of spreadsheets that appear to have contradictory findings about the company’s performance.

Figure out your financials and other business performance metrics
Managing the finances and business metrics are not always considered a top priority in startups, but they need to be or there’s a real risk the company will spin out of control. Many startup companies cannot afford dedicated resources to perform these tasks, so they may want to consider outsourcing their CFO advice, bookkeeping and accounting tasks. They may also want to tap outside expertise to help them plan for the long term. At a minimum they need to know and understand what the business is doing at any moment in time.

Many of our clients have found that interim finance is just what they need. RoseRyan worked with cleantech company HydroNovation, for example, from its early days to when it was acquired six years later. We got their accounting going, set them up with efficient workflow and produced informative reports to ease their decision making.

We are similarly working closely with development-stage company Nemus Bioscience. We set up their accounting infrastructure and handle the company’s transactional activities, including monthly financials, accounts payable and payroll. And we also have filled in their resources gap when they needed to take on a big transaction.

When to build up the finance team
For the finances at companies in the start stage, there’s a lot of building up and setting up for the next stage, which is the growth stage. Will the systems being put in place scale as the company grows? Can they accommodate huge changes? Does the company have the metrics needed to see how a change in the business model will pan out? When will they know it’s time to ramp up hiring? A strong financial backbone will give the senior leadership visibility into the true performance of their baby. They can see how the company is truly doing and decide where it needs to go.

The beginnings of a full-fledged finance team, whether it’s a mix of part-time and outsourced help or a full-time operation, is a recognition that there’s a shift in the business to the next stage. It starts to form when the entrepreneurs step out of their idea-generating garage and realize they can no longer do everything on their own. They begin to accept that they can’t stay mired in the nitty-gritty details. If your company gets to this stage, congratulations, as you have made it through the start stage and are entering the growth stage.

RoseRyan helps companies across the lifecycle, from when they are starting out, growing like gangbusters, expanding through M&A or IPO, and evolving as a public company. To find out more about the lifecycle stages, go here.

Stephen Ambler is a director at RoseRyan, where he manages the development of the firm’s “dream team” of consultants. His interim CFO stints at RoseRyan have included a social media company and the management of the financial integration process at a company acquired by Oracle. He previously held the CFO position for 13 years at Nasdaq-listed companies.

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