The Build #34: Timing

Gene Godick is the founder of G-Squared Partners, a service designed to help early-stage companies get CFO level support. Gene spent his early career years building experience across a variety of industries and recognized the need for every start-up company to have access to expert financial help. He has created an outsource finance team in a box that is available to any size company.

Today we’re taking a look at the importance of your company’s financial well-being. We talk about the right time to hire a financial advisor, scaling your business for success, and the main concerns investors have about start-up companies. Gene shares coaching advice he has offered CEOs, lessons he’s seen in the boardroom, and how to grow any business the smart way.

Key Takeaways

[1:13] Why every start-up company needs expert financial help from the beginning.
[5:55] A look at the critical role of CFO for a growing company.
[8:55] The main concern investors have about startup companies.
[10:57] Coaching CEOs beyond financials includes identifying priorities, allocating time and managing resources.
[14:49] The advantages of having access to a part-time financial team.
[18:00] Securing a high-capacity team means hiring out of college and training future leaders.
[21:00] Two points to consider when structuring any start-up company for success.
[25:40] Examining the advantages of bootstrapping founders versus traditional funding.
[27:26] Growing and scaling a business while preparing for the future.

Transcript

Announcer (00:01):
From 2820 Radio in Philadelphia, it's The Build -- conversations with entrepreneurs and innovators about their dreams, their triumphs, and their challenges.

Joe (00:15):
Timing. When you're an entrepreneur, it can seem like it's never the right time to hire someone to focus just on your company's financial well-being and yet, waiting too long to get the right guidance about money can derail your plans of scaling your business. Gene Godick spent his early career building experience across a variety of industries, even leading a company through an IPO. After that, he decided it was the right time to launch a service designed to help early stage companies get CFO level support without having to build an executive suite. It's the story of G Squared Partners coming up next on The Build.

Announcer (00:54):
The Build is made possible with support from 2820 Press, providing business consulting and content strategy services to customer obsessed companies nationwide. More information at 2820Press.com.

Joe (01:13):
It's The Build. I'm Joe Taylor Jr. joined in the studio this week by Gene Godick from G Squared Partners. Welcome to the show.

Gene (01:19):
Thank you.

Joe (01:20):
So I love the background on your business. You've actually worked in a couple of different industries and you've even had the experience of taking a company through an IPO. Now you're actually helping startups keep their financials straight as they head toward that path. So give us a little bit of background on what you do at G Squared Partners and how you serve those clients.

Gene (01:45):
Sure. So, started the business a little bit over four years ago with the idea that all startup emerging growth companies need expert financial help, but they don't need it necessarily full-time. And when I first started the business was basically a CFO for hire business. And what I learned in my first year was most of the work we were doing could be leveraged down to someone at a controller or VP finance level. So I hired someone with a controller VP finance level and not long after that people were asking us for bookkeeping. We started hiring kids out of school and became basically an entire outsource finance function, a finance team in a box if you will, and you basically pay you for what you use and when you need it.

Joe (02:32):
So, tell me a little bit about what the resistance is among early stage startups to have somebody focusing on financials at an early phase? Why would someone not even have a CFO in position at an early stage?

Gene (02:47):
A lot of times, some of the resistance is cost and I tell companies early on, particularly before you have funding, focus on sales and product then when you get funding, it's a lot easier to justify that investment, because your investors going to ask for it anyway. So early on you need to have a product. If you don't have a product, you don't need to worry about finances. If you don't have sales, you don't need to worry about finances. But once sales and financing comes along, you're going to need more expertise at the finance function.

Joe (03:22):
And so typically in a startup founding team, if somebody on that team doesn't have that background, it usually just falls to the wayside.

Gene (03:31):
Or to the CEO who does it best - he or she does it best they can and then they catch up later.

Joe (03:37):
And so when they get to that point of catching up, tell me a little bit about, you know, the on-boarding process, where at what point do you normally hear from a client, are they in crisis, are they on fire and they need help? Or is it more, okay, we think we're actually going to start building some revenue or moving towards an IPO? Tell me how folks find you?

Gene (04:00):
So our most likely referral source is an investor that just put money in the company. So we get a lot of referrals from venture phones, particularly in the Philadelphia/New York area, usually in an email, saying Gene, we just invested in XYZ company, we have a total of $5 million went into the company I want to introduce you, the CEO of XYZ company, I'll leave it to the two of you to connect. That's one of my favorite emails to get.

Joe (04:30):
So I think that brings up a good point. So the investors usually drive that a little bit, because they're at that point looking for that kind of accountability?

Gene (04:37):
Right, a lot of times my sense is they know that they have issues during the fundraising process, but they wait until after the process gets done and either the finance function they have is inadequate or it doesn't exist at all and that becomes the opportunity for us.

Joe (04:54):
So tell me a little bit more about how you came to found G Squared? You've served in this role inside companies. You've been a company co-founder before, but at what point did you say you really have passion for providing this service to other organizations?

Gene (05:11):
My whole life, my adult life anyway, I've spent working with early stage venture back companies. You know when I graduated from college, I went to work at one of the big accounting firms and I was in their small business practice working with early stage venture back companies since 1987. So I've always, since I graduated from college, I wanted to do this and I've done it my entire life either as running a company, being CFO of one of these companies, being an auditor of the companies. But I've been around this my entire adult life and it's a passion I have particularly in the Philadelphia market of trying to help companies succeed.

Joe (05:56):
So one of the things I think many founders that I talked to get a little stymied bias, that distinction in the roles. So walk us through to the distinction between someone that's doing bookkeeping, someone that's doing accounting and then what's really the role of a CFO for a growing company?

Gene (06:13):
So I think the number one role for the CFO is being a consigliere to the CEO and helping him or her understand the financial blind spots, how finance interacts with the operations of the business and the strategy. It's also keeping the board apprised where they are and helping driving the fundraising process if needed, helping them think through the fundraising process, what kind of capital is available, well, possibly what will it cost, who are potential investors, but also being a sounding board to the CEO. I mean, one of the roles we play is we're a non-threatening voice to the CEO. I mean, currently being a CEO and having been a CEO, it can be a lonely job. When there's problems, everyone comes to you with their problems. No one ever walks up to you and says, you did a great job today, And we can be a voice and we are many times the voice that you talk to before maybe you talk to your board and it can give you - sometimes I'm a shoulder that our clients cry on, sometimes we kicked their butts, say, hey, you're not doing a good job here. But one of the things that we pride ourselves on as a company is that we're usually the first person they call when something goes really right or really wrong. And I love that role, because it gives us a chance to provide real value to the company as oppose to just providing bookkeeping.

Joe (07:56):
It strikes me as an interesting opportunity or a void that you can fill, because that voice at the table is so important within a founding team. If someone who's a co-founder is in that role, sometimes some of that emotion comes into play. Folks are, for instance, dealing with matters about equity and who gets what. It sounds to me that you get to provide that impartial voice and you're really just looking at the data.

Gene (08:25):
It's a lot of times, I mean, we have a couple different advantages. We work with over 30 companies from D.C. to New York, so we see a range of business models. We see a range of compensation models for the senior team, the sales team, we know how many of the VCs think about some of these things, so we can give objective advice. We can also give a range of advice of this is how different companies are dealing with whatever issue you're thinking about.

Joe (08:56):
What kinds of things do you hear investors raise concerns about that might not have been on founder's radar?

Gene (09:04):
I think the biggest concern is, you know, one is you made a promise of x and you're falling short of x and what companies and CEOs don't always think about is they make a lot of promises, sometimes implicit, sometimes explicit during the fundraising process, and investors keep a list of those promises. And then invariably, sometimes we see right after, sometimes it's immediate, is right after the fundraisers, said, well, we're not really going to hit that anymore and we're really trying to do that and that, that can really get your relationship off to a tough spot. And there's a real art to fundraising of being able to A. be very attractive to an investor, but still trying to under promise and over deliver is really a hallmark of a good management team is when they're out with investors. I mean, when I was on the Vertical Net IPO Roadshow, I had an investment banker pull me aside, I was in my early thirties at the time, and he seemed old in his mid-forties and says, Gene, just remember one thing: under promise, over deliver. If you do that, you'll always be successful.

Joe (10:22):
It strikes me too, as I interview a lot of founders for this show, I'm in that mid-forties range right now and it just feels like all of the founders I'm talking to just keep getting younger and younger and younger.

Gene (10:36):
Wonder you're going the wrong way?

Joe (10:37):
I know, right? I got to figure out how to do this in reverse. One of the reasons that I hear a lot that folks get into the CEO chair at small and early stage companies is because either there's an idea or a passion that somebody wants to follow or feeling like they would not fit in as somebody else's employee. So, I wonder from your perspective when you're coming in looking at a CEO and helping them evaluate what their strengths are, how much of that stuff goes beyond just the financial? What kind of coaching or mentor-ship do you find yourself providing the CEO's beyond just the dollars and cents?

Gene (11:19):
We do a lot about it with helping them try to prioritize. I think where teams get in trouble is when they try to accomplish too much and instead of - I think it's only realistic, you're going to accomplish three, five big things in a quarter and if you've got a list of 20, 25 big things, you're going to get a quarter, you're probably gonna accomplish two. And one of the things that we do as a business is when we run our own firm, we've subscribed to a method of figuring out the three to five big things we're each going to accomplish during the quarter and we actually track them every week and we report them and we hold each other accountable. And I'm always skeptical when I see at a board meeting, and I go to a lot of board meetings, when he goes oh yeah, we just came from an offsite, we got 18 strategic things we're going to accomplish this year and you're like, there's no way it's going to happen. And then you're not surprised, three, four months later when they're like, well, we're not going to get any of them done.

Joe (12:27):
Because the lack of focus.

Gene (12:29):
You're just spread too thin, you know what I mean? If you got 17 things you think are really important, then nothing's important.

Joe (12:34):
Where do you think that comes from? Is that a lack of experience or is it just trying to say yes to everything that comes along?

Gene (12:40):
I mean, I think one of the CEO's most important jobs is to allocate resources and which means prioritize and I think people fail to really choose of what's really important and I think with experience you learn more. I think a lot of the younger CEOs have never had to really lead or make decisions and so if you haven't had to lead make decisions, it's not something you're accustomed to and yeah, everyone thinks they're superhuman and can accomplish everything and it's hard to get as many things done.

Joe (13:14):
So in your experience, some of this may feel like for an early stage leader who's accomplishing a lot in a short amount of time, who may have heard the advice, fail fast, break things, keep moving. How do you help folks overcome the resistance to slipping into that more traditional CEO role where it may feel like the velocity is slowing down, but the impact could be greater?

Gene (13:44):
We provide - I have a philosophy, I'll provide advice when welcomed. So we have clients that just want us to do the accounting or help them with a model, but they're not looking for advice and if they're not looking for it, I'm not going to provide it. We have some other companies that CEOs will call us everyday and say, I'm thinking about this, what do you think? And so when either I think it's welcomed or it's requested, we'll provide it, but I'm not going to necessarily give advice if I don't think it's welcomed.

Joe (14:21):
Sure. But I think for you, a competitive advantage would be access to you and the advice that you can provide compared to, I mean, again, coming back to what you're doing with G Squared, the typical CFO for an organization probably makes significantly more or would need to be offered significantly more than what you charge as a service for someone that's quote unquote part-time or on a retainer. So, tell a little bit about the benefits, the advantages that a company gets from that model compared to trying to find somebody that they can lock in?

Gene (14:59):
The big advantage that we provide is, because we have people at basically four different levels and so a lot of the work we do, we're able to leverage down to people that are relatively new and coming out of school, which we can charge significantly less time for. And so, a young company that's not in a fundraising mode where things are status quo and going well, they may only need four to six hours a month of senior finance people time. And so we're able to get a core finance function done includes like closing the books and doing all of the other things for well less than what you would pay a fulltime controller in Philadelphia and New York. And that's really the advantage is, we're able to provide things that are a fraction of the cost and having access to multiple levels of service while paying less than you would pay for a full-time people.

Joe (16:00):
And the competitive advantage you have versus a traditional accounting firm, you know, one of the big accounting firms, I would imagine it comes from your focus, your experience in the space. How does that give you a leg up compared to some of the big names that you see?

Gene (16:20):
So the big names aren't really in our business, the big names, if it's KPMG or Price Waterhouse has their focus on really auditing and tax work. It's not what we do. I mean they, the auditors, particularly some of the big firms audit our work, because of our clients need to be audited. What really compete against is there's a lot of firms out there that are one or two people, there's also one larger accounting firm that offers what we do. The big advantage that we have is 1. we've been able to figure out how to productize this in a way that a single, what I call a single shingle guy, has not been able to do. And ultimately, his ability to take on more work is limited by how many hours in a week there is, where we have a lot more capacity and can you know, can achieve servicing clients more effectively. The bigger firms, they don't have as much operating experience that we have. I mean, all of our senior people have all been either controllers or CFOs of either venture back companies, republic companies. So we're used to the board room, we're used to how investors think, we're used to how bankers think. So we're able to provide a lot more perspective than particularly the accounting profession, where the accountants are thinking about getting the numbers right, but the world kind of stops for them after that. And one time we were competing against an accounting firm and I said to the CEO and COO, I know the other firm. I said, I really have one question, who do you want in your board meetings, him or us? He goes, send me a proposal.

Joe (18:03):
So, thinking about as you grow and scale your business, where do you scout that talent? How do you get folks onto your team to be able to provide that level of service?

Gene (18:13):
So we're 19 people today. So we've made a conscientious effort with our young people of hiring people with strong grades out of schools you've heard of that have a passion for entrepreneurialism. And our goal is to grow them and to get them into being senior people and kind of the value proposition that we've established for our young people is we're training you to be a controller of a venture back company and you'll be ready for that role in five to six years. For our more senior team, we're looking for people that have like a strong varied background in accounting and finance and they've been a controller or a CFO. I like people have a good technical background, but I also like people who have been around venture back companies and like we'll see a lot of people that have come out that had been a division controller of a fortune 200 company, we tend to pass on those people, because they don't really have the right experience or can relate to what it takes to be a startup and so they just see these companies as being small and they don't realize, they don't really appreciate the entrepreneur for what it takes to be an entrepreneur.

Joe (19:25):
I think you bring up a great point. There's one thing to presenting something to your Regional VP who has a very sometimes predictable set of wants and needs. Boards can be quirky. Boards can have lots of different kinds of voices. How do you get both your people and your clients ready to accommodate all the different kinds of information requests or some of those left field things that can show up in the boardroom?

Gene (19:52):
So one of the things we try to do particularly with our young CEOs is right after they raise money, I always offer and say, okay, we've got a board meeting coming up in four weeks, let's sit down together and map out an agenda. And a lot of times they really welcome that and we'd say, okay, and you know, one of the things I try to do is say, all right, what are the three most important things that you want the board to remember when they leave? Because they're only going to remember three things. So what are those things? And we start building a board deck from there and we can help them plan that. A lot of times since we've been brought in by the board, the boards feel pretty comfortable and when we say brought into the board, we're recommended, the CEO makes the decision and many times we're part of the management team, but the investors feel comfortable reaching out to us directly and often do. And so we're able to provide them the information without necessarily bothering the CEO or needing the CEO to do work to get that done.

Joe (20:53):
And I think that also flows back to the idea of getting things off the CEO's plate so they can act more strategically. What are some of the things, thinking now about folks that are thinking of starting companies, we have lots of folks that listen to this show that are pre-launch stage, just sitting at the desk right now at their job, thinking about the company that they want to start. How can they structure that for success? What can they do to avoid some of the bigger problems in that transition, so that by the time they're ready to work with someone like you, they're really good to go?

Gene (21:29):
So some advice I always give, a lot of times we work with really early stage companies where they can't pay us and we sit there until, we give them advice and we help them along the way, hoping they're going to get funded and they get to the point where they can't really afford us. And I always tell people a couple of things, it's 1. it's a lot harder than it looks. It's going to take longer than you think and it's going to be way more expensive than you think and so, people need to be prepared for the long haul, because for every Apple iPhone, there's a million other things that just don't take off like an iPhone does and we see companies where the entrepreneur maybe has a year, year and a half of money set aside to live at a substandard level and then that's when it becomes challenging for them when they've kind of outlasted their savings or their spouse says, enough's enough you need to start making real money and that begins to put real stress, so people really need to plan that this is going to take three, five, seven years, it's a long haul, particularly if you're developing a complicated product, unless you're an engineer yourself, you're going to need engineers, there's a lot of things and so, I think people are really unprepared about how long it takes to really become a success and what you define as success. I think the other thing is that we see is that there's a lot of people that think I'm going to start this business, I'm going to sell it in a couple of years. I think you really need to be passionate about why you're doing this what you believe in. I'm always a little suspicious of someone saying, we're going to flip this. It's not like buying a house, putting paint on it and selling it. I mean, I think if you're gonna get into the business to start a business, be passionate, have a mission, have a cause of why you're doing it, and why you want to make that part of the world, whatever it is, a better place.

Joe (23:20):
It strikes me that I've heard that quite a bit from investors that I've spoken to, especially here in the Philadelphia region and on the east coast, folks are a little more conservative. Folks are not as willing to say on the west coast to just dive right in with an unproven leadership team. What are the advantages that you see for somebody that's starting something in and around Philadelphia or New York where they may have more of an uphill climb to get that capital?

Gene (23:51):
So, I think it's probably easier to raise money in New York than it is Philadelphia. I mean there's fewer angels in Philadelphia. There's just fewer venture funds, but I mean there's an abundance of talent. There's a lot of people, there's decent ecosystem here of people who want to help, whether it's accountants, lawyers, other people who want to help. It's a lot less expensive to build a business, particularly in Philadelphia compared to New York or the Valley. And so, I think there's a lot of competitive advantages, particularly around here where, you know, rent's cheaper, people are just less expensive, and people just need to figure out how to build what they need. But, it's definitely harder here than in the Valley where there is a very willing ecosystem of people who want to make investments in early stage companies and are willing to take a lot more risk.

Joe (24:42):
But it seems that the flip side of that equation is true too, because you may find it easier to raise funds in the Valley, but you have to get to execution much, much faster.

Gene (24:52):
There's a lot more pressure out there than there is here. I think the expectations are a little less, you know, one of the funds that we work closely with, you know, they're looking for their companies to double in revenue every year. We have other funds we work with either confirm the double every six months. And so it's around managing the expectations and making sure you know exactly what you're signing up for.

Joe (25:17):
Now, the other side of that coin, companies that prefer to bootstrap and actually build a business based on sales and revenue, the thing that I've heard again and again, investors don't necessarily want to see you making measurable revenue fairly early, because that can mess up your valuations. On the other hand, if you're a bootstrapping company, you really want to focus on sales, you want to focus on serving customers and getting that repeat business in the door. What are things that a bootstrapping founder might be able to take advantage of or might want to look out for compared to someone that's trying to raise funds?

Gene (25:54):
So, it's kind of interesting. I mean, we look at some of our most successful clients, overall they've raised the least amount of money. Our most, I would argue in some ways our most successful client is bootstrapped, in terms of revenue, growth, they're profitable and generating cash. And so one of the things that we see what investors and we like are exciting, there are companies that are really capital efficient. They're able to acquire customers effectively. Their margins are well managed. And so, you know, I think whether you're a bootstrapped company or you're a company or a venture-backed company, you should really be focusing on being efficient with your capital, being able to make sure, you know where every dollar is, knowing that I know where it's going, but making sure it's prioritized either on improving the product with features that people really want to buy and it's going to cause people to want to buy the next product or we knew from you or you're spending money very efficiently to acquire your next customer. And you know, we'll see companies that started around the same time and all you have to do is look at how much it cost them to acquire a customer. I mean, there's three things particularly. I mean there's a lot of businesses around here that are software as a service business and we really look at three things about how efficient those companies are, where are their gross margins, how efficiently are they acquiring customers, and the third thing is how well did they renew their customer base? And if you hit those three things, well, you're going to be a very successful business and you can apply that principle to almost any business.

Joe (27:30):
Sure. So thinking about applying that even to your own business, when you think about your customer base, how do you have targets in mind of how many companies you will kind of get to a graduation point where they will say, we've gotten so big we need to now take this function in house, or are you really looking at just kind of spreading out lots of bets on smaller companies? How do you see yourself growing your business?

Gene (27:55):
So when we first started out, we focused on companies really series a and what we've learned is as time has gone on, we're able to actually scale pretty well. So we have companies, we actually have three that came to us when they were doing about a million dollars in revenue or less, and all three of those companies will generate revenues of anywhere from $15 million dollars or more this year. And two of those three have some of the finance function in-house, but not all, about one of them has none of the finance function in-house and a lot of it I think isn't so much the size of the business as it is the CEO's preference. We had one company that's only doing $5 million dollars of revenue and they brought it in-house, because the CEO wanted someone to sit next to him everyday, which isn't part of our model. So a lot of it is the preference of this CEO and the CEO's management style as well as how strong their understanding of the finance function is. So, I mean, we have a company right now, we were hired right after they raised their series a, was doing about a million dollars of revenue, you know, doing about a million dollars of bookings. Last year they did about $12 millions dollars of bookings, will do over $20 million this year. Their out in the street raising $10 million now. And you know, it's our hope and anticipation that we'll be around for awhile.

Joe (29:19):
Great. Thinking about the next 10 years, how big do you think this business gets for you? How many people? How many companies do you think you serve?

Gene (29:27):
You know, we think about it, but we don't. I mean, I think what we think about it is watching our people grow, watching our clients grow, and ensuring we're providing great quality service to both our clients and their investors. I think if we do those things, then the company will grow, we're starting to think about, we exclusively served today in early stage venture back companies are starting to look at, maybe we can do lower end of private equity, and I think with the right characteristics, I think we could be really helpful to the lower end of private equity, those kinds of businesses where they're only generating a couple million dollars of EBITDA, maybe to 20, 25 million dollars in sales, I think we have an answer for those businesses that can be more efficient than what they're getting today.

Joe (30:19):
Great. Well, best of luck with G Squared ventures. Gene, thanks for stopping by the show today.

Gene (30:23):
Thank you. Thanks for having me.

Joe (30:24):
Thanks again for listening to this episode of The Build. Our Producer is Katie Cohen, Zahniser. Our Production Coordinator is Nicole Hubbard. Our Production Team for this episode included Amelia Lohmann, Jess Ryan, Faiza Samreen, Gianna Seeney, and April Smith. Podfly Productions manages our post-production and our theme music is performed by Arrows and Sound. I'm Joe Taylor Jr.

Announcer (30:48):
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