Answering your biggest startup COO and CFO questions with Benjamin Friedman, founder of Build Scale Grow
I spoke with Benjamin Friedman, founder of Build Scale Grow, which supports startups through COO and CFO services. Prior, Benjamin was the COO and CFO of Story2, CFO of Parsely through their Series B, VP of finance and operations at TRAFFIQ, VP of finance and operations at Tenthwave Digital, and VP of finance and operations at Miller Advertising.
Benjamin shared tactical advice on team building, the COO and CFO roles, and scaling for startups.
How does the role of a CFO change from the seed to Series A to Series B?
It obviously varies between companies, but in general you are shifting from a careful focus on runway and appealing projections for (existing and potential) investors to replicating results, improving margins, establishing processes and controls, and installing metrics.
You want to keep the financial discipline from before and guard against the irrational exuberance that sometimes follows a strong round. Someone will often have the temptation to spend money because it’s sitting in the bank and the CFO has to be mindful that the future starts today and that money needs to last at least 18 months, possibly 24 months, as the company increases costs in people, resources, and likely unexpected costs in implementation.
What is the biggest mistake CFOs make in the fundraising process?
Transparency. If you use dating as an analogy (because what can be more fun than finance? Dating! /said sarcastically) you likely don’t bring your weaknesses into the first conversation, but if you want the relationship to be meaningful, then you must find a way to be open and honest early in the relationship. Back to fundraising, if you don’t mention areas which could obviously be troublesome for the investors then later they may feel deceived and that makes it tougher to effectively work past the issues. Companies (like people) are flawed and it’s best to admit those areas in order to keep focus on the opportunities to grow together.
What is the biggest financial operating challenge facing startups? How does this evolve over time?
The willingness to invest the right accounting system and to install financial controls. Often founders, especially in their first startup, loathe any costs and hesitate to have a process for fear of creating obstacles. Investing in accounting and finance does two things. One, you have the best information to make decisions. Two, when it comes time to fundraise, the process is smoother since you have the information needed for review and diligence and investors are less concerned a part of the company could go off the rails.
What led you to decide to combine the COO and CFO role? How do these entities typically work together? What synergies are there?
In a startup, everyone takes a more general role in the company. In my career, I was brought in to help startups reach the next level and beyond by building processes, scaling teams, and growing revenues. Finance allows you to create a plan for progress and the accounting ensures that plan is on track. Operations allows you to activate that plan, installing the systems, people, and software needed to reach the next level and beyond.
Candidly, I’ve seen beautiful, museum-worthy financial models (and what a fun museum that would be!) where once you dig into the numbers and assumptions, it falls apart. Eventually, you cannot trust that model to make smart decisions no matter how attractive. I’ve also seen companies grow tremendously without a finance and operations lead, and eventually they suffer huge inefficiency and dissatisfaction, and in some cases employees and clients quit or huge costs are involved to fix broken systems.
You need both a plan and an activator to make ideas turn into success, and I like straddling both roles connecting numbers and people as well as strategy and execution.
When should startups build their own internal COO and CFO teams? How should they think about building these teams?
I’m biased here, but I see a lot more fractional solutions across the board. For any specialization (finance, accounting, operations, technology, marketing, sales, etc.) you can find someone with solid experience and perspective who can help grow your business. I’ve worked with a lot of amazing people and firms to support the vision, get projects done, communicate proactively, and offer fresh perspectives which an employee may not offer.
I recommend founders start by understanding their own and their teams’ strengths and areas to augment and then bring in expertise to grow efficiently. Instead of hiring a fully loaded senior leader, you can start by finding the right fractional solution who can not only solve your immediate strategic and tactical needs but also give the rest of the leadership team a sense of how this new role fits in the company, even if the long-term solution is hiring someone else.
How do you maintain relationships with organizations after a consulting project?
Like people, companies go through cycles. You enjoy running, right? Imagine you are doing fine for a couple years, and then decide you want to run a marathon, or you’ve run some marathons and decide you really want to significantly increase your PB in the next one. Peak performance requires outside influence. Even Olympic level athletes have coaches. After an engagement, I may not hear from a company for a while and then they reach another inflection point of growth (or perhaps a major obstacle). Hopefully, at that point I can help them or maybe I refer them to someone else. In any case, we’re focused on solving the problem and if we are open and collaborative in the process, people will come back later with more questions.
What advice would you give young founders?
There are a ton of resources around building a company and countless people will offer you advice despite how well they know your situation and needs. I advise founders to spend time early defining your own vision and values and formalize them. For someone eager to change the word, introspection may seem counter-intuitive. We have to recognize that everything, both our success and our failures, will be grounded in your vision and values. When we later experience the distress of dilemmas or we have the eustress of external success, we could get incredibly distracted, and need to revisit our purpose and what makes life meaningful to succeed.
The other piece to accept early is that starting a company can be brutal. Recognize the fear, depression, and discomfort that can/will come from starting a company and seek help early and often. Many founders feel compelled to appear perfect. That superficial presentation hides our needs and leads to intractable, tough problems. Being “successful” is worthless if you’re miserable or unhealthy. One solution is to build two networks — one for unconditional support (the same love you should offer yourself) and the other to challenge you to learn from your mistakes through radical candor designed to make you better. Both networks are critical.
What led you to start Build Scale Grow and what are you most excited about moving forward?
The company is a natural progression in my career. For over 20 years, I’ve helped companies reach multiple successful exits. While the journey and the results are thrilling, along the way there were plateaus where my work was done, and we were just waiting for the next major event.
Through Build Scale Grow, we can engage clients exactly when they need value. When that’s no longer the case, we can step aside until we are useful again. I get to choose to work with others who share my values around collaboration, optimism, growth and learning, and that’s incredibly exciting and self-perpetuating where we are growing together.
Applying lessons from 20 years of bumpy startup rides leading to multiple successful exits, Benjamin Friedman started Build Scale Grow to support passionate founders activating their dreams. His company quickly and collaboratively installs long-term systems and shareable metrics with fast-learning loops by building teams and processes, scaling systems while mitigating risk, and growing new opportunities.