I took over the Finance department at a Series A startup for 3 months. This is what I learned.

Lesson #1: Stakeholder management is even MORE important at small startups

I like to think that I'm pretty good at stakeholder management. It was consistently rated as one of my strongest skills when I lead Corporate Strategy at Uber, a company with over 20k employees. I had a ton of stakeholders all over the company that I needed to cat-herd in order to get anything done.

That should be a piece of cake at a company with only 60 employees, right? Series A is a very special time in a startup's trajectory when they are often experimenting a lot to see what works before they scale. So they are big enough to be complex, but early enough that there are few well-established, documented processes and lots of manual, hacky solutions. Thus you are relying on a lot of information that only exists in key stakeholders heads, and processes that require manual action from stakeholders to complete.

Fortunately the joy of Series A startups is that everyone has their "let's figure this out together" hat on and stakeholder management feels more like building something and less like a chore.

Lesson #2: GAAP revenue is meaningless for Series A startups, but revenue is the most important thing for Series A startups.

One side effect of pivoting your business model several times in the first few years of your startup's life is that you probably have a number of legacy revenue streams from your past still following you around today. What's wrong with that you ask? It can make your revenue numbers pretty difficult to interpret.

Imagine that you started in 2020 by selling unicorns. Every time a customer buys a unicorn, you record that revenue immediately when the unicorn gets delivered. If the unicorn delivery gets delayed, then you don't recognize the revenue until the animal is delivered, even if the customer paid you in advance.

Now imagine that in 2022 you pivot to selling a unicorn maintenance service, where customers pay you today for you to provide 5 years of monthly unicorn maintenance. Not only will you be providing unicorn maintenance for the next 5 years even if you pivot your business again, you will be recognizing that revenue (which you collected today) every month for the next 5 years of your life.

Fast-forward to 2024. A very lost unicorn that you sold back in 2021 finally makes it to a customer. You have maintenance plans from the last few years that you are recognizing revenue for even though no cash is coming in the door. Meanwhile you have pivoted to selling an AI-chatbot for mermaids. You are no longer in the unicorn business, but that's hard to tell just be looking at the revenue you recognize every month,

Startups don't do this to be disingenuous - this is what GAAP (generally accepted accounting principles) require. But when your business model or revenue model changing so frequently, it can be hard to tell really interpret if the business is really growing. So what do you do?

There are plenty of other indicators that can help paint a full picture:

• Cash coming in each month

• New business billed each month

• New business sold (ARR) each month

While revenue is the most important indicator that a Series A startup has started to scale, it can be very misleading and probably doesn't tell you much in a vacuum.

Lesson #3: Finance is a cash generation center, not a cost center for a Series A startup

The obvious way that a finance department generates cash for the company is by helping the company bring in funding. I work with plenty of clients on their pitch decks and financial models and have seen this in action first-hand.

The more subtle way that a finance department is a cash generation center is by making sure that finance operations is actually working properly. By that I mean, that you are billing your customers the right amount for the right things in a timely manner, and you are ensuring that your clients ACTUALLY PAY YOU (ideally on time.). This does not sound like rocket science, but if for early stage companies, its common that you do not yet have a fully built out finance function which can execute this well.

In a mature company, you'll likely have a fully dedicated Accounts Payable person to manage payments to suppliers, a fully dedicated Accounts Receivable person to manage collections from customers, a controller to do all of your accounting and taxes, a financial analyst to manage reporting and forecasting, and a CFO to be your strategic partner in managing all of this and making strategic decisions based on the numbers. You'll also probably have implemented software products that manage your accounting, invoicing and payments for your business in a fully automated way.

At my most recent client, they had one (1) person doing all of the above. This person left the company, and I came in a week or so later and tried to pick up all the pieces. As you can imagine, this was not a well oiled machine doing all of these processes perfectly.

You don't need a full finance team in order to have a properly functioning finance function - but getting someone in ensure you have the right infrastructure in place is critical if you are generating revenue.