Harry Hurst is a serial entrepreneur and co-founder, co-CEO of Pipe, a recurring revenue financing platform. Views are the author's own.
As I’m sure you’ve noticed by now, conventional wisdom often gets it wrong. When it comes to financial oversight for startups and growing companies, I believe it's even further off the mark than usual. As a result, a huge number of young companies are operating without financial leadership and expertise while they try to gain traction and grow into profitable, sustainable businesses.
It's not uncommon to hear that you shouldn't hire a CFO until you hit $50 million in revenue. But waiting to bring in financial expertise is a little like waiting to save for retirement until you have more money, or until you're closer to retirement age. It's setting yourself up for failure. Working on my second startup, Pipe, my co-founders and I took a very different approach, and it’s one of the smartest decisions we’ve ever made.
Finance from the ground up
When we started building Pipe in 2019, we knew we had to get the finance piece right. My co-founder and co-CEO, Josh Mangel, and I had worked together previously, and as we started to grow Pipe, the second hire we made was our CFO (our VP of Finance at the time) Lukas Wagner.
We had big ambitions to create a new alternative asset class and revolutionize the way companies access growth capital. We didn't spend much time bootstrapping and knew we had a massive idea that needed the backing of the right strategic equity partners. Early fundraising necessitated a strong business plan and financial modeling to earn the confidence of major strategic investors, but it was much more than that. We also knew that it was crucial to our success that we get our unit economics right so we could build something that would last and have a major impact on the market.
In those early days of a startup, everyone pitches in to do what needs to be done. You have to be willing to clean the proverbial bathrooms. We were building remotely, and our head of finance was and still is located in Germany, so he was spared cleaning duty. But as a very small team, Lukas was running payroll and filing paperwork for us across several different states. He became intimately familiar with the inner workings of the company and ensured that our systems, models, and economics were all built on a solid financial foundation. Having him so close to the process from early on has been invaluable to the growth of the company.
Building to scale
My co-founders and I are all computer geeks and programmers. While we were developing Pipe — a recurring revenue trading platform — we wrestled with the technical aspects and talked with founders about their needs, but that alone couldn’t help us build a scalable product.
Whether you’re in retail, services, SaaS, or any other industry, your ability to scale and generate revenue and profit comes down to dollars (or pounds, etc.). Beyond the software and how it would work, our R&D process needed to be based firmly on risk modeling and unit economics. If you don’t build those economics into your offering from the start, you’ll have a huge gap to fill later on (when it’s not so easy to be agile) and a steeper hill to climb as you scale.
Hiring a CFO early on gives you the expertise to build sound financial models that will continue to apply as you scale your business. It also means you’ll have someone on your team who can continue to improve on those models and explain them to stakeholders and investors, which is something a consultant or fractional CFO often won’t be around for.
Protecting your runway
While some think you should wait to bring in a CFO until you’re well-established financially, a finance chief can be essential in helping you even reach that point. Before you cross the threshold of profitability, you’ll need a sound financial strategy to protect and extend your runway to help stretch your funding and make it easier to access more. And once you do hit profitability, those strategies will give you an advantage so you can continue scaling and outpace the competition.
The way companies manage their cash is always a top priority (or at least it should be) and in the current macroeconomic environment, it’s even more important. The guidance and oversight of a CFO can be the difference between a young company that comes out healthy on the other side of the current market and one that doesn’t.
The right kind of CFO
Ok, now it’s time to talk about the elephant in the room — risk. Startups are inherently risky because they’re doing something new and working their way through what can be a turbulent growth stage. Traditionally, many CFOs have been risk avoidant, causing startups to be CFO avoidant. They want the oversight of a CFO about as much as a teenager wants their parents to chaperone. But the right CFO makes all the difference in succeeding as a startup.
As I mentioned earlier, our CFO Lukas Wagner dove in and got his hands dirty right from the start. He had an entrepreneurial, startup mindset and was willing to do what needed to be done to get this company off the ground (and grow it to a $2B valuation in record time). He also knew that completely avoiding risk wasn’t the name of the game. In a startup, if you eliminate risk, you also eliminate the opportunity to create value for your market. Instead, he was committed to managing risk in a way that would allow us to make big moves and build something new while keeping our investors and customers as comfortable as possible.
Every CFO knows the difference between spending and investing. As a company, it’s crucial to see key hires like the CFO as an investment in the health of your company, not an expense to put off until you have extra cash. For us, having a deep understanding of the internal financial workings of the company was key not only to our success at getting started but also to building a product that helped others succeed financially.
As a CFO, why should you seek out a role in a startup, and how do you find a promising company? For many founders and the people who join their teams early on, creating something new and building your ideas into the DNA of a company is extremely rewarding. As a CFO, you have the opportunity to fundamentally shape the way a company operates. Look for startups that see the value in that. The fact that they’re seeking a CFO early on is a good sign that they do.