The Unsung Hero of Growth Stage Companies
At the growth stage of the funding lifecycle, companies are at an inflection point and are evaluating which strategic hires they need to make as they scale. Regardless of stage, industry, headcount, or funding, most growth companies need help building out their finance departments. Growth-stage companies in particular seek to recruit additional financial expertise (including capital formation experience and operations acumen), replace existing talent, or staff up the department for the first time.
So, why are these finance roles so important?
Growth investors qualify investment opportunities based on their strong teams, excellent product-market fit, opportunity to disrupt their respective industries, and importantly, their proven strong unit economics that demonstrate their ability to scale. Unit economics are a way of measuring the profitability of adding and supporting a customer. While many companies may be profitable on a per-customer basis, they often have other expenses not captured in unit economics analyses (e.g., product development expense and G&A) that make the business unprofitable on an aggregate basis. It is critical to be able to evaluate whether a company is growing by adding customers profitably or spending too aggressively on sales and marketing relative to their customer retention and average revenue per customer.
Companies at the growth stage rely on a strong finance function to know and explain their economics to management and investors.
Unit economics help investors get up to speed quickly and identify the strengths and opportunities for improvement of a business model. Reliable, accurate unit economics also enable investors, management, and employees to both monitor the health of the business on an ongoing basis and to make data-driven decisions across an organization towards OKRs and KPIs. Ultimately, this proper allocation and efficient use of resources allows the business to grow more quickly, ideally putting founders in a position of strength where they can choose how to fund the future growth of the business. Empowered by strong unit economics, founders can choose to either raise money to grow at a faster rate than could be achieved without an infusion of capital or avoid future fundraises altogether and instead elect to grow through reinvesting profits.
This is just one view into the power of owning unit economics, and as the finance team is inextricably linked to unlocking these insights, it’s integral that companies prioritize fully equipping and enabling their finance departments ahead of scaling.
The traditional solution would be to hire a stellar CFO and let her lead the department and ultimately the company to a type of unit economics-induced nirvana. Obviously, this isn’t always a fiscally possible, or responsible!, solution for many startups. Regardless of scale or budget, there are many ways that companies can scrappily build up this functionality, including a few ideas below:
Outsource the functionality
Spurred by the on-demand economy and today’s changing workforce, it’s become easier than ever for businesses to find strong freelance, part-time, or remote talent. Companies like Business Talent Group, Talmix and Paro allow startups to embrace this and find help for specific roles and specific periods of time
Augment with technology
No budget for a CFO? Can’t find the right finance department candidates? Companies like botkeeper, Bench and YayPay, can help enable what finance staff startups do have by allowing them to rely on software to automate certain tasks so that they can prioritize more strategic initiatives
Rely on your investors!
Don’t be afraid to ask for help, guidance, templates, benchmarking, etc. It takes a village. And hey, if prospective or current investors are asking for unit economics, chances are they have expertise that they can share. 🙂