Periodically, I have other part-time CFOs ask if they should work with startups.
My typical response is a question, “Do you want to go broke?”
But Mark, I’ve been offered equity. My comeback is another question, “Have you ever heard of the endowment effect?”
Bottom line, working with startups is hard, really hard. Be careful when working with them.
Startups Don’t Have Money
That’s the biggest reason I don’t work with startups–they are typically broke. Or they are working from their life savings, credit card debt, or money from friends and family. I just don’t want to touch that money, even if they need me.
Instead, I’ll let them take me to lunch and pick my brain. I did that for 2 years with one local startup. We’re still friends and they still ping me periodically.
Startups Require a Unique Skillset
I value my gifts and abilities. But my greatest work is working with:
- Rapid ramp-up firms that know they need a CFO, or
- Companies that are stuck and can’t seem to get out of neutral–they are going nowhere fast
Startups are different. They need someone who can help them navigate a startup GPS tool that I’ve created. I’d rather a startup specialist help them to get to the promised land.
Inspired by Dr. Tom McKaskill, the GPS above has 13 critical success factors. Assuming there is a 90% success rate on each factor, the overall odds of the startup’s success are about 25%.
Creating a product for the hungry crowd on time and under budget requires skill, art, and luck. Finding that hungry crowd is hard too. Even having Steve Blank on the team is no guarantee of success.
Are you still sure you want to work with this crowd?
Exceptions to the Rule
I love to learn. I want to keep getting better and better. I also like being around people I like a lot.
When I encounter a startup situation that fascinates me, I occasionally give in.
As of this writing, I worked with a startup about one year ago with positive cash flow–barely. They needed help creating a financial model which they would then pitch to a Fortune 500 company.
While I was pretty busy at the time, I decided to jump in. But my mindset was solid (and my bank account too). I knew this was a short-duration project. The work was fun but challenging too. I worked with two great people, another necessity.
Normally, I would have billed about $25,000 for this project. Instead, I billed a fraction of that amount. I did it because I could afford it and for the reasons that I mentioned above.
Never Forget Who Your Ideal Client Is
I know who my ideal clients are. I’m picky. I also recognize that I might have an unfair advantage–plenty of work and a more-than-comfortable business bank account balance.
Many years ago, if a business owner could walk, talk, breathe and write a check, they were a client.
However, be extra careful when considering working with a startup, even if you desperately need the business. They are risky and may never be able to pay you.
If you price-discriminate, make sure your other client work doesn’t suffer. I can make this promise to you. You’ll be more mentally fatigued working a half day for a startup than a full day for one of the ramp-ups you serve. That’s just the way it is.
Appendix – Best Books for Startups
Don’t think I’m going to let you leave without doing some reading should you work with startups contrary to my advice. Here’s my short list:
- Steve Blank’s book entitled The Four Steps to the Epiphany may be the only startup book you’ll ever need. I have the physical book, but the Kindle version finally came out a few years ago. Get it. I also have The Startup Owner’s Manual, but I have not read it.
- And then came along Eric Ries who wrote the classic The Lean Startup. When I read his book, I kept thinking this stuff is really familiar. And then I got it. Ries admits he’s standing on the shoulders of Blank. But here’s the difference between the two. Steve Blank is like Peter Drucker. Eric Ries is more like Jim Collins. Accordingly, Eric’s writing is a bit more digestible.
- Finally, I’m a big fan of Tom McKaskill. His book on exit planning is by far my favorite in this genre, but it’s hard to find (I’m not loaning mine). While not books on startups, I still like Make Millions From Your Business and Entrepreneurs – The Rollercoaster Ride. Both are hard to find.