Red Rocket's Best Startups of 2023

Red Rocket gets introduced to hundreds of startups each year, in the normal course of doing business, or via our involvement with various startup groups or events.  We wanted to honor the best of these startups that we met in 2023, in Red Rocket's 12th Annual "Best Startups of the Year".  This list is not intended to be an all-encompassing best startups list, as there are many additional great startups that we are not personally exposed to each year.  And, this list is not intended to be only for businesses that launched in 2023, it is open to startups of any age, that they or their advisors had some personal interaction with us in the last 12 months.  The business simply needed to have a good idea, good team or good traction, that caught our attention.  Congrats to you all!!

THE BEST STARTUPS OF 2023 (in alphabetical order):

Atom Limbs (CEO, Tyler Hayes) - B2C next-generation artificial limbs

AvaWatz (CEO, Rajini Anachi) - B2B AI platform for robotic teams in military

Overplay (CEO, Caroline Strzalka) - B2C turn any video into a game

Power Hero (CEO, Esmond Goei) - B2B car charging stations for apartment buildings

Pure Blue Tech (CEO, Ryan Vogel) -B2B self-cleaning membranes for water reuse

Vehiko (CEO, Edward Agabs) - B2C reverse auction car buying (dealers bid for sale)

And, don't forget to check out the 2012 winners, 2013 winners, 2014 winners, 2015 winners, 2016 winners, 2017 winners, 2018 winners, 2019 winners, 2020 winners, 2021 winners and 2022 winners, many of whom continue to be doing great things.


Congratulations to you all!!  Keep up the good work.


For future posts, please follow us at: @RedRocketVC

Lesson #357: Prioritizing Investment Return Objectives

I was recently talking to an entrepreneur that passed on an investment because it would not need yield the company at least a 10x growth opportunity.  I told him those level of returns are reasonable when investing in small businesses under $5MM, but that he should consider lowering his ROI threshold when investing in larger companies.  My logic was twofold: (1) bigger companies are harder to grow as quickly as small businesses, so the growth percentages will be lower; and (2) you can make “oodles” more money in dollars on the bigger company investment, even if the ROI was only 3x-5x.  This post will help you know when to focus on percentage returns vs. dollar returns when assessing your investment opportunities.

Path One—Invest in a Small Company for a 10x Growth Opportunity

Let’s say you are looking to invest in a $2MM revenue business that you can grow to $20MM in revenues (10x opportunity).  That $2MM business was generating $200K in cash flow and you purchase it at a 3x EBITDA multiple for $600K.  And, when you sell it, the business is doing $2MM in EBITDA, and you can realistically achieve a 4x EBITDA multiple on the sale as a bigger business.  So, you sell it for $8MM, which results in a pretty 13x return on invested capital. You made $7.4MM in the process, over the five years you owned the company—that is a whopping 68% average annualized IRR.  Nice job!

Path Two—Invest in a Medium Company for a 5x Growth Opportunity

In this case, you are investing in a $20MM revenue business that you can grow to $100MM in revenues (5x opportunity).  That $20MM business was generating $2MM in cash flow and you purchase it at a 4x EBITDA multiple for $8MM.  And, when you sell it, the business is doing $10MM in cash flow, and you can realistically achieve an 8x EBITDA multiple on the sale as a materially bigger business, as private equity investors are willing to pay a premium for high cash flowing companies.  So, you sell it for $80MM, which results in a nice 10x return on invested capital.  You made $72MM in the process, over the five years you owned the company—that is an impressive 58% average annualized IRR.  Amazing!

Comparing Both Paths

If you were the entrepreneur that I mentioned earlier, you would have only pursued the first path, as that is the one that enabled the 10x growth opportunity.  And, you would have been happy at the end of the day with your 13x return on invested capital and 58% annual IRR.  But, should he have been happy?  If he can gone down path two instead, which was only a 5x growth opportunity, he would have returned $64.6MM more capital, albeit it a lower 10x return on invested capital and lower 58% annualized IRR.  He was so focused on hitting that one 10x growth metric, that he lost sight on the big picture of there being a ton of money left “off the table” by not investing in path two.

Key Things to Understand

One of the key things to digest in this comparison is what happened to the business valuation multiples as businesses get larger.  The business in path one started at 3x EBITDA multiple as a $200K EBITDA business, and expanded to a 4x EBITDA multiple as a $2MM EBITDA business.  That means 25% of the return had nothing to do with the growth of the business, it had everything to do with how investors value bigger businesses.

And then, if you continue this exercise for the sale of the bigger business in path two, the EBITDA multiple grew to 8x as a $10MM EBITDA business, after starting at a 4x valuation.  That means 50% of the return had nothing to do with the growth of the business, it had everything to do with how investors value even bigger businesses.  The point here, there are material economies of scale here when valuing companies, and bigger is typically better for driving a higher sale multiple.  Several roll-up stories are modeled on that exact hypothesis: buy 10 companies at 3x and sell them at 8x without having to do a single thing operationally.  You simply put the businesses together into one entity to create shareholder value.

Closing Thoughts

So, what does this all mean for you?   Don’t be so focused on hitting your one single metric (10x growth in this case study), that you lose sight of the forest of through the trees.  Would you rather be bragging about your 10x growth story that helped create $7.4MM, or your 5x growth story that helped create $72MM.  I don’t know about you, but the latter certainly sounds a lot more appealing to me.  Hopefully, you have a better grasp on when to focus on multiples or percentages of growth, and when to focus on the dollar growth instead.  Good luck resetting your growth and return objectives and you will be celebrating all the way to the bank.

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] The 5 Key Skills for Good Decision Making

I was recently interviewed by ASBN, an online "television network" serving the small business community, about the five key skills in good decision making.  As you will learn, being knowledgeable, intuitive, receptive, nimble and flexible are your keys to success here.  I thought this video turned out great, and I wanted to share it with all of you, to help you make better decisions in your business.  I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #356: Artificial Intellegence is Revolutionalizing Sales Coaching

I was recently introduced to James Critelli, a startup sales and marketing expert that is advising a company called Sybill, who is using artificial intelligence (AI) and automation to streamline the workflows of B2B sales reps. One of the applications of that technology is helping to revolutionize how sales coaching is done.  They had some great ideas and solutions on this topic, and agreed to collaborate with me on this Red Rocket lesson, to help jump start your sales coaching to next generational thinking.

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The world of sales coaching is changing rapidly, and as a sales leader, you need to be on top of the game. That's where generative AI, like ChatGPT, comes in. While generative AI has found a ton of use cases already in marketing and software development, its potential in sales, sales coaching, and training, and revenue operations is still in its infancy to be explored. In this post, we'll discuss how generative AI can elevate your sales coaching game, drive your team to hit quotas and propel your business forward.

The Role of AI in Modern Sales Coaching

AI has permeated almost every aspect of our lives, and sales coaching is no exception. Traditional sales coaching methods are increasingly being replaced by AI-driven tools and techniques that can help sales leaders and coaches analyze data, identify areas of improvement, and provide personalized training to their sales reps.

Why Generative AI Matters for Sales Leaders

Generative AI, such as ChatGPT, can generate human-like text based on a given input, making it an invaluable resource for sales leaders. All you need to do is figure out what to give ChatGPT as the context and the prompt, and it can play a variety of roles for you. In this post, we will discuss how you can use ChatGPT (or similar generative AI text systems) to roleplay a customer call, serve as a learning management tool for the product marketing material and other company-specific context for new reps, and help you identify weaknesses in reps’ handling of customers by analyzing call transcripts and emails and pointing out the issues.  

With the power of generative AI, sales leaders can automate various aspects of sales coaching, freeing up time for more strategic tasks and enabling them to focus on what matters most: driving revenue and leading their teams to success.

Identifying Coaching Opportunities With Generative AI

Analyzing Sales Rep Performance

Generative AI can analyze vast amounts of data, including sales rep performance metrics, to pinpoint areas that require attention. By identifying trends and patterns in how the rep has handled customer conversations on the phone, video calls, and emails, AI-driven tools can help you develop targeted coaching initiatives to address specific weaknesses.

For example, we fed the transcript of an old call to ChatGPT, and asked it to pinpoint the salesperson Nishit's areas of improvement from this call. 

These are helpful starting points, and should already get your wheels turning. What did we do next?

We asked it to give us specific examples from the conversation where the salesperson did poorly in “asking open-ended questions”, and a few sample ways in which the salesperson could have done better. 

Targeting Key Areas For Improvement

Once you've identified the areas where your sales reps need improvement, generative AI can provide insights into the best ways to tackle these issues. By generating personalized coaching plans, AI can empower you to provide tailored guidance that truly resonates with each member of your team.

AI-Powered Training and Development

Leveraging LLM-Generated LMS Systems

Generative AI can also play a crucial role in creating and maintaining Learning Management Systems (LMS). By generating customized LMS content tailored to your sales reps' specific needs, you can ensure they receive relevant training that helps them develop the skills they need to excel in their roles.

Customizing Quizzes and Assessments for Each Sales Rep

AI-driven tools can also create personalized quizzes and assessments that test your sales reps' understanding of the training material. This allows you to gauge the effectiveness of your training programs and make any necessary adjustments to help your team reach its full potential.

Roleplaying Sales Scenarios With Generative AI

Preparing for Important Calls

Roleplaying is a tried-and-true sales coaching technique, and generative AI can take it to the next level. By simulating various sales scenarios, AI-driven tools can help your sales reps practice their pitch, objection handling, and closing techniques before they ever step foot in a real sales call.

Enhancing Communication Skills Through AI-Driven Feedback

Generative AI can also provide real-time feedback on your sales reps' communication skills during roleplay sessions. This can help them fine-tune their approach, resulting in more effective sales calls and, ultimately, higher close rates.

AI-Assisted Call Scripts for Discovery and Demo Calls

Crafting Personalized Call Scripts

Generative AI can generate personalized call scripts for discovery and demo calls based on a sales rep's unique selling style and the prospect's specific needs. This can ensure that your sales reps are always equipped with the right talking points to guide their conversations with potential customers.

Gaining Insights from AI-Generated Script Analyses

By analyzing the AI-generated call scripts, sales leaders can gain valuable insights into what works and what doesn't in their team's sales conversations. This information can then be used to provide targeted coaching and feedback, helping your sales reps refine their approach and improve their overall performance.

Measuring the Impact of AI-Driven Sales Coaching

Tracking Progress and Growth

By incorporating generative AI into your sales coaching efforts, you can easily track the progress and growth of your sales reps over time. AI-driven tools can help you monitor key performance indicators (KPIs) and other metrics to measure the effectiveness of your coaching initiatives, allowing you to make data-driven decisions and continuously optimize your coaching strategies.

Celebrating Success and Motivating Your Team

As your sales reps begin to see the results of your AI-powered coaching efforts, their motivation and engagement will likely increase. Be sure to celebrate their successes and use their achievements as an opportunity to reinforce the value of AI-driven sales coaching, fostering a culture of continuous learning and improvement within your team.

Conclusion

Generative AI has the potential to revolutionize sales coaching, transforming the way sales leaders support their teams and drive performance. By embracing the power of AI-driven tools like ChatGPT, you can elevate your sales coaching game, boost your team's productivity, and ultimately grow your business to the next level.

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Thanks again to James and the Sybill team for helping me with this post.  If you have any further questions on this topic, feel free to reach out to Sybill at 650-289-8160 and follow them on LinkedIn for future learnings here, as I am sure there will be many new advancements with AI in the coming years.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #355: Artificial Intelligence is Taking Over Marketing

 

Artificial intelligence (AI) has been around for decades.  I won’t bore you with its long history, summarized well in this article.  It has even had a significant role in the marketing industry for many years (e.g., predictive analytics used in many advertising platforms).  But, what has recently caught storm is the use of generative AI in the creation of many marketing creatives.   Largely because the technologies are more accessible and easier to use than ever before.  I feel the industry is at the cusp of a major inflection point, and you better learn what is going on in this space, or you may be left behind.

Industry Research

There was a very good industry research study completed in March 2023 by Botco.ai, a generative AI cloud chat communications company. They surveyed 1,000 marketing professionals across over 16 different industries and company sizes from 1 to 5000+ employees. The results were fascinating—they learned that a whopping 73% of the respondents are already using generative AI to help create text, images, videos or other content.  That was the weighted average of B2B companies at a 78% usage rate and B2C companies at a 65% usage rate (I would have guessed the reverse of that).  With me being in the 17% that were not materially using AI today, I figured I needed to learn more here, and fast, to stay competitive with our industry peers.

Content Being Produced by Generative AI

The content getting created by generative AI is broad in scope.  The survey respondents said they were using it as follows:  email copy (44%), social media copy (42%), social media images (39%), chatbots for customers (37%), website images (36%), SEO content (35%), blog post copy (33%) and marketing/sales collateral (33%).  The rationale for using generative AI being: (i) you can improve your marketing performance (58%); (ii) you can improve your creative variations (50%); (iii) it is more cost effective than traditional ways of building creatives (50%); and (iv) it is materially faster creative cycles (47%).  I would add the additional benefits of better personalizing the content to the exact user, instead of applying a one-size-fits-all approach to your marketing creatives.  

And, to be clear, the content being produced by AI is across all forms of creatives:  text, images, videos, coding, etc.  It is revolutionizing pretty much everything a graphic designer or copywriter or website developer used to do for you.  As an example, check out this corporate video produced for my Restaurant Furniture Plus business by Synthesia’s AI technology.  It was produced in a couple minutes from a simple copy and paste of our About Us copy on our website, without any human involvement or professional actors involved.  That is pretty amazing (and scary if this life-like technology is not used in positive ways).

The Generative AI Tools Most Used

According to the survey respondents, these were the technologies most used by the marketers.  ChatGPT (55%) for human-like text.  Copy.ai (42%) for natural language processing.  Jasper.ai (35%) for copywriting.  Peppertype.ai (29%) for full article copy.  Lensa (28%) for image editing.  DALL-E (25%) for text-to-image generation.  MidJourney (24%) for text-to-image generation.  I am sure there are many others to experiment with, but these are the ones that the early adopters are using today.  I personally played with a few of these.  I would summarize my experience as the text based solutions were a lot more impressive in terms of producing high quality output than the image based solutions, understanding we are still early in the learning curve and technology advancements here.

How to Prepare… and What Happens if You Don't

First, it's time to embrace the simple fact that you need generative AI and that you can't ignore it. It isn't going away. So, slowly but steadily, immerse yourself in some (or all) of the tools above — how they work and what they can potentially offer. And, if you are working with a marketing agency, make sure that it, too, is well-versed in all the advancements (if yours is not currently using AI to improve campaigns, it may be time to look for a new one).

The ramifications for non-action will be swift: You either jump on board or prepare to eat the dust of the other AI first-movers — will essentially be going into a marketing battle with one arm tied behind your back. Performance will suffer (including lower engagement rates compared to competitors), as will profits.

What Does This All Mean?

Hopefully, you have a better understanding of all the advancements that are taking place in the marketing world today. Will generative AI end up replacing your human teams? Not entirely. I think it will make the humans materially more efficient, and you may need less humans than before, but humans will still be needed for strategic direction and quality control, to protect their brands. For example, if AI generated copy will upset Google and hurt your search rankings, someone will need to review that content and make sure it follows all of Google's rules. So, think of AI as an augmentation tool built for speed and efficiency, not as a full human replacement. You will still need to engage your marketing agencies or marketing teams, but they will be doing their work in material different, and presumably better, ways.

Every decade or so, the marketing industry appears to go through a rapid period of innovation and innovation. It feels like we are in the "early innings" of this most recent revolution, and I am excited to see how these AI technologies improve from here, and what additional AI advancements we will see in the coming years. It is time to pull up your boot straps and buckle in, as it is gonna be a helluva ride! Good luck as you experiment with these technologies on your own.

For future posts, please follow me on Twitter at: @georgedeeb.

When Investing, Chasing Growth May Cost You Millions

I was recently speaking with an entrepreneur who'd passed on an investment because it would not need yield the company at least a 10x growth opportunity. I told him those returns might be reasonable when investing in small businesses (under $5 million) but that he should consider lowering his ROI threshold when investing in larger ones. My logic was twofold: first, bigger companies are harder to grow as quickly as small ones, so the growth percentages will be lower; and second, there's the potential to make substantially more money on a bigger company investment, even if the ROI was only 3x to 5x. Here's how to know when it's better to focus on percentage returns vs. dollar returns when assessing your investment opportunities.

Read the rest of this post in Entrepreneur which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] When and How to Pivot your Business

I was recently interviewed by ASBN, an online "television network" serving the small business community, about understanding when and how to pivot as a small business owner.  As you will learn, sometimes a business may simply need to fix their marketing efforts to jump start their revenues, but when that does not work, a business model pivot is your next option to save your business.  I thought this video turned out great, and I wanted to share it with all of you, to help you assess if a pivot may be needed in your own business.  I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] Does Age Matter for Startup Success?

I was recently interviewed by ASBN, an online "television network" serving the small business community, about whether age matters for startup success.  As you will learn, it is less about age, and more about past experience that drives success, and that past experience often comes with age or mentorship.  I thought this video turned out great, and I wanted to share it with all of you, to see how age has impacted the several case studies discussed.  I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #354: Owned, Paid and Earned Media Channels

 

Effective marketers know the "trinity" of a good media strategy is effectively communicating your story across the intersection of three distinct media channels: owned media, paid media and earned media.  This post will demystify these channels for you, to ensure you are effectively marketing across all three.

Owned Media

Owned media is exactly what it sounds like, properties that you own and entirely control. That includes assets like your website, mobile apps and email database.  That includes ways of communicating to your customers through those assets, like website design, ad creatives, email marketing and SMS text based marketing.  And, lastly, it includes data analytics, reporting and conversion rate optimization tools that help you glean actionable insights from your owned media activities.

Paid Media

Paid media is buying your way into getting discovered.  For most startups, that includes things like paid search ads (e.g., Google, Microsoft), paid social ads (e.g., Facebook, Instagram, LinkedIn, TikTok, Pinterest, Twitter), paid shopping listings (e.g., Google, Amazon, Walmart) and display advertising across various sites or programmatic advertising networks across the Internet. This too requires disciplined tracking and reporting tools, and can assess campaign performance/conversions and properly attribute cross channel marketing touchpoints to a specific customer.

Earned Media

Earned media is taking actions, other than paid advertising, that result in getting your business promoted on third party websites.  This includes things like search engine optimization for organic traffic, press releases that get picked up by other publishers, content marketing on your blog that gets indexed by search engines, affiliate marketing and social media communications or influencer marketing that get shared virally through the social networks.  Again, supported by any required tracking and reporting tools for measurement and optimization.

An Integrated Holistic Approach Spans All Three Media Channels

If you are simply sending your messaging through one of the above three channels, you are leaving a lot of potential growth opportunities off the table. It is important for each campaign you are managing that you include a strategy and budget for all three of the above channels, as the real marketing magic happens when they are running concurrently across all three channels.  You want to make sure wherever your target users are engaging, that your message is showing up loud and clear.  That includes on your sites, marketplaces, news articles, search engines, social media or wherever else customers may be looking for inspiration prior to purchasing products.

How to Manage This

Larger companies typically have departments of people that do each of these stand alone tasks required. But in smaller businesses, they don't have that luxury.  So, they often have to rely on agencies that can assist them with each of the above needs.  Some companies engage specific agencies for each point solution (e.g., an SEO agency to assist with organic search traffic growth). Some companies engage one agency that can function across all channels, and do all of the above through one service.  

It is harder to find a good "Jack of all Trades" that can do each of these services well, in one agency.  But, they are out there.  So, if you can find them, that is the preferred path, as they can provide many advantages for you.  They can enable consistent goal setting and messaging across all channels.  They can also better help you with cross channel attribution measurement, by centrally managing all channels in one agency.

But, in all cases, it is critical you lay out your clear key performance indicators of success, and measure them religiously. That could be setting lower funnel goals like leads, conversions or sales.  Or it could be setting upper funnel goals like brand awareness, brand intent or customer database growth.  Figure out what KPI is most important for your business and goals, and make sure all people doing the work, internally or externally, are measuring each of the above campaigns, across all channels, against the agreed upon KPI metrics.

Closing Comments

Hopefully, to many of you, you are already doing a lot of this in your current marketing efforts.  But, for those of you that are not, effectively managing each of these three channels is pretty much "table stakes" today, for setting up a winning marketing campaign.  Good luck!!

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] What Matters Most? Product or Proof-of-Concept?

I was recently interviewed by ASBN, an online "television network" serving the small business community, about what is more important to investors, the product or the proof-of-concept you are getting around that product.  As you will learn, most investors are flexible on products, and it is more important that the "proof is in the pudding".  I thought this video turned out great, and I wanted to share it with all of you, to see if it can be helpful to you in crafting your investor pitches.  I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

Generative AI is Revolutionizing Marketing

Contrary to prevailing storytelling that it just arrived in the waning months of 2022, artificial intelligence has been around for decades. I won't bore you with the entire history (though it's summarized well in this article); suffice it to say that it has played a significant role in the marketing industry for decades, including in predictive analytics used in many advertising platforms. But what has recently caught fire is the use of generative AI in marketing creatives, largely because the technologies are more accessible and easier to use than ever before. Though this perhaps goes without saying at this point, the industry is at an inflection point, and businesses better learn what is going on in this space, or they will be left behind.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] Consider a 'Copycat' Strategy for Your Next Startup

I was recently interviewed by ASBN, an online "television network" serving the small business community, about how "copycatting" the successful business strategies of others may be a profitable way to grow your next startup.  As you will learn, piggybacking on the research and proven success of others, can help you materially preserve your precious startup capital and realize outsized returns with "proven winner" ideas.  I thought this video turned out great, and I wanted to share it with all of you, to see if it can be helpful to you in ideating your next startup.  I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #353: Staffing Your Finance Department as You Scale

I was recently introduced to Tim DeBone a finance and accounting expert with The Bagchi Group, a business consultancy group in Morrisville, NC.  He had some interesting suggestions about how best to staff your finance and accounting function within your company, and how that changes over time as the the company scales.  He was kind enough to assist me in writing this how-to lesson and sharing it with our Red Rocket Blog readers. 

Introduction

As tech companies grow and evolve, the company's finance/accounting requirements and challenges change along with the skills needed to successfully complete them.  Because of that, your first finance hire may not always have the right skillset for when the company is 10 times the size, as an example. And, you may need to augment that team with fractional strategic level help.  To address the variability in the work and the time required to complete, many high-growth companies use outsourced bookkeepers and fractional CFOs during their early years, until they can better afford full-time talent of their own.  In this article we discuss the appropriate resources a CEO can engage to ensure the finance suite is properly managed, along each stage of the company's growth, and whether that talent should be outsourced or internally staffed.

Role Descriptions

Before we dig in, here is a brief description of the roles discussed in this article below, so you can better understand what we are going to be talking about here:

• CFO – Senior Finance Person with normally 15+ years of finance/accounting experience
• Can come from a finance background with roles that are analysis heavy
• Their accounting background is normally deep in their industry of focus, but weaker outside that industry
• Can also come from an accounting background with roles that were focused on preparing financial statements
• Their analysis background is not as strong, but they may have taken roles in the past to improve this skillset
• Bookkeeper – transactionally focused employee that runs payroll, collects invoices, and pays bills
• Does not require any formal finance or tax background
• Accountant – a certified professional with an educational background in accounting, able to perform all the duties of the bookkeeper
• The accountant is senior to the bookkeeper with a better understanding of GAAP principles and why accounting entries need to happen
• Will partner with CPA firm on financial reviews and audits

• CPA Firm – Outside accounting experts that partner with businesses on tax issues and review of financial statements, including financial audits, if needed.
• They can also help identify small business and R&D tax credits to reduce tax liabilities

At Formation (Pre Revenue)

At the start, the CEO can manage the core finance functions. Software systems are now sophisticated enough that non-finance professionals can manage early-stage payroll, collections, and payments. Depending on the growth path or complexity of the business model, the CEO may want to engage a fractional CFO to help create the forecast and cash planning. But until the company has significant revenue or outside investors, the CEO can complete most activities. We would recommend that the company engage an outside accounting firm at formation to help with annual tax preparation. Even without the need for a financial review or audit, this resource prepares annual tax filings and significantly reduces tax risk for the company. 

Pre-Seed Stage (Generating Some Minimal Revenue) 

Once the company has revenue and non-founder employees, they should engage an outsourced bookkeeper to take over the back-end transactional work. This involves running payroll, collecting from customers, and paying vendors. While these are straightforward tasks, the CEO hesitates to outsource them and their time is better spent guiding development or aiding sales. At this stage, a fractional CFO can help on a project-to-project basis, but the company will not have enough work for the CFO to require a preset amount of help each week. The CFO can improve metric tracking, evaluate back-office processes to prepare for growth, and help prepare the business for a seed raise. The CFO helps the fundraise by preparing employee and customer documents for investor diligence, ensuring the management team understands their growth metrics and benchmarks, and creating forecasts showing how investor funds will grow the business.

Seed Stage ($250K-$1MM in Revenue)

After raising a seed round, the investors may strongly suggest that the company employ a fractional or full-time CFO to manage the finances and strategic planning. The CFO will introduce budget vs actual analysis, scenario planning, and project out the cap table. Dilution calculations become more complex as the company hires more employees and brings in outside resources, especially when those new funds are SAFEs or Convertible Notes. The company may also switch from cash accounting to accrual (or GAAP compliant) accounting at this stage. Accrual accounting may be outside the skillset of the original bookkeeper so upgrading that role to a part time accountant may be required. Depending on how fast the company scales, that part time accountant may become a full time hire before the Series A fundraise is completed. That accountant, along with the CFO, will partner with the CPA firm to prepare annual tax returns and any financial reviews or audits.

Series A Stage ($1MM-$5MM in Revenue)

Once the company has raised a Series A, the CFO will be spending 8-10 hours weekly on the business. In addition to the previous work around strategic planning, the CFO will be building and training the back-office team, introducing additional risk mitigation processes, partnering with the CEO on tracking company performance, and partnering with the CPA firm on tax issues. The company will be growing quickly with increasing complexity across all back-office functions, referred to as General and Administrative (G&A) on most financial statements. The CFO will be managing and training the HR, Recruiting, Finance, Accounting, and Facility planning teams to enable the company to support the company’s growth. At this stage, a full-time junior level hire is required, either heavier on accounting or finance depending on the business model and the CFO’s background. With the expansion of the employee base and revenue base from additional growth, the CFO will need to identify and mitigate potential risks before they happen. Those risks can involve employees, security, legal, tax, or financial issues. Key Performance Indicators (KPIs) become essential as current investors, and future investors, will need to understand how the company performs versus targets and industry benchmarks. The CFO should also be measuring forward-looking metrics to anticipate whether the plan is succeeding or failing compared to pre-set plans and budgets which have been prepared by the CFO. 

Late Series A or Series B Stage ($5MM-$10MM in Revenue)

If a company continues to grow and hit their metrics after the Series A fundraise, the workload will require a full-time CFO to join the team. The amount of effort required to help the next fundraise process, run the G&A team, and support the CEO will be too much for a fractional resource. Hiring this role before starting the Series B fundraising process allows time for the new CFO to learn the business and can assist with the fund raise. The fractional CFO should have the processes in place to enable a smooth transition, along with highlighting which areas need improvement to scale the business. Two full-time finance/accounting employees should be able to manage the business at the Series B start, but the company may want to expand the HR/Recruiting function at this time to include a full-time employee. 

Hopefully, you now have a better understanding of how best to staff your finance and accounting needs as your business scales.  Thanks again, Tim DeBone, for your help with this post.  If any of you need additional help around your finance team strategies, Tim is happy to help you answer any of your questions.  Feel free to reach out to Tim at (704) 907-5866 or tim@bagchigroup.com.

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] Calculating Addressable Market Size vs. Industry Size

I was recently interviewed by ASBN, an online "television network" serving the small business community, about how to calculating your total addressable market size, as opposed to your total industry size.  As you will learn, your total addressable market size, which investors care most about, is a lot smaller than the industry overall.  I thought this video turned out great, and I wanted to share it with all of you, to see if it can be helpful to you in sizing your market.  I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #352: Treat Your Team Members as People, Not as Employees

I have recently written about topics like  how to manage a virtual team, considering an unlimited vacation day policy and swapping “I” for “We” in all corporate communications.  Do you notice a consistent theme here?  These are all policies that are very “employee friendly”—let your staff work from home, give them unlimited vacation days and let them all know how important they are as a member of the team.  Why is this so important?  Because recruiting and retaining employees are harder than ever, and the more things you can do to nurture long term loyalty to your business, the better your business will thrive and your employees will prosper.  At the core of this message is learning to treat your staff as the “people” they are, and not the “employees” you may perceive them to be.   What is the difference?  Allow me to explain.

What is an Employee?

The Merriam-Webster dictionary would say an employee is “one employed by another usually for wages or salary and in a position below the executive level”.  To me, the key words being “employed” and “below”.  This feels like an employee works FOR the company, as one its “cogs in the wheel”, and not working WITH the company on more of an even footing with their work colleagues.  Especially, when this definition starts to speak to layers of management, with employees working “below” higher layers of management.  From the vantage point of an employee, that doesn’t sound very enticing?

What is a Person?

On the other hand, that same Merriam-Webster dictionary would say a person is “the personality of a human being”.  To me the key words being “personality” and “human”.  This suggests that all people are different, with different personalities, interests and personal drivers that make them tick.  What works for one, does not necessarily work for another.  So, the more you can cater to an individual’s “personal” needs, the better they will respond and the longer they will want to stay with your team.

What is Managing Employees?

Most all of us have been managed as employees at one point or another in our careers.  Employees have very specific job descriptions, they are required to work rigid hours (most likely from a centralized office location) and report into a “boss” (who most likely feels more empowered and higher level).  Everyone is treated exactly the same, with very little flexibility in what is allowed “on the job”.    This is entirely “top down” in its design, with policies getting set by the top management.

How is Developing People Different?

On the flipside, developing people is more “bottoms up” in its design.  The people can more freely set the policies of the company that they feel will best meet their personal needs.  And, notice I used the word “develop” here and not the word “manage”.  I am trying to emphasize that this is a two-way street where both parties need to be happy with the outcome.  This could include letting your team members decide which days a week they work, for which hours each day, from whichever location they want and for however many vacation days they want (as long as their performance is good), with a culture where their ideas will be heard and potentially acted upon.  Why?  Because people have different needs, and the best companies will help them solve those needs and learn how to lean into those personal drivers as individual motivators.  Which in turn, helps instill long term loyalty, especially when they can see their own ideas becoming acted upon.

Get Rid of the Word “Employee” in Your Business

As long as we are talking about words and definitions, we might as well throw out the idea of deleting the word “employee” from our company’s internal vocabulary.  I much prefer the words “team member” or “associate”, as it speaks more to the theme we are trying to pound home in this article. It puts everyone on a more “even footing” and lets people know they are all beating to the same drum in an environment where everyone has each other’s backs.  So get rid of any words in your company that could be interpreted as having hierarchies or rigidity.  Maybe get rid of words like “boss” and “manager”, while you are at it, opting for terms like “mentor” instead.  Of course, there will be clear reporting lines, but that doesn’t mean they are not equal “people”, with unique needs and ideas of their own who should be equally respected and nurtured.

The Expected Outcome

If you implement this correctly, your team will love your business and would never want to leave.  Why would they—you have solved all their needs.  Which means if you have very little staff turnover, you aren’t wasting a lot of time with repetitive recruiting needs.  And, better yet, you are building long term institutional knowledge from team members who have truly “mastered their craft” over the years, helping to propel your business to new heights and reaching its fullest potential.  And, your team will appreciate everything you have done for them, to help them better meet their “non-work” needs at home, and incorporate some of their good ideas into the company’s plans (which makes them feel valued and respected).  Pretty much a win-win for all involved.

Closing Thoughts

Hopefully, you now have a better appreciation for what makes “people” tick.  And, that most people never want to be treated as an “employee”.  The more you can customize the team member’s experience with your company, the better it will be for all involved.  You will have happy team members singing your company’s praises, and you will be thrilled with the improvement in your company’s culture, productivity and profits in the process.  

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] Don't Let Short-Term Thinking Hurt Long-Term Results

I was recently interviewed by ASBN, an online "television network" serving the small business community, about how to not let short-term thinking hurt your long-term results.  As you will learn, it is very easy to let your short-term cash needs "rule the day", but at the peril of maximizing your future growth efforts.  I thought this video turned out great, and I wanted to share it with all of you, to see if it can be helpful to you in knowing when to cut corners, and when not.  I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] How to Discover and Understand Your Competitors

I was recently interviewed by ASBN, an online "television network" serving the small business community, about how to best research your competitors and apply those learnings to your strategic plan.  As you will learn, it is vital to your success that you have a firm grip on what you are up against.  I thought this video turned out great, and I wanted to share it with all of you, to see if it can be helpful to you in "blocking and tackling" up against your competitors.  I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

Treat Your Team Members as People, Not as Employees

I frequently write about employee experience and recruiting topics like how to manage a virtual team, the possible benefits of an unlimited vacation day policy and swapping "I" for "we" in corporate communications. After a look at these posts, you might notice a consistent theme: all are employee-friendly policies intended to let staff members cultivate their own identities on the job. Why is this important? Because recruiting and retaining staff is harder than ever, and the more things you do to nurture long-term loyalty, the more your company will thrive and your employees prosper. At the core of this message is learning to treat staff as the people they are, not simply employees.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #351: Don't Let Your HR Department Steer the Ship

We love our human resources departments.  They do a lot of good inside a business.  They help with recruiting, training and onboarding.  They help with setting benefits plans.   They help with creating a strong company culture, and many other good things.  But, I have been involved with a lot of human resources managers that have crossed the line between supporting the business, and dictating the direction of the business.  You as the CEO need to make sure you know when it is happening, and do your best to ensure it doesn’t happen, which could capsize your business plan.  This post will help you do exactly that.

An HR Case Study—A Single Veto Vote Can Topple the Entire Apple Cart

I was once working with a client where we were setting a new organizational chart structure in the marketing department and recruiting a couple new employees to fill those holes.  In that particular instance, the company also had a little bit of a “power struggle” and culture clash going on between a few of the department heads, which needed fixing.  My role as the interim CMO was to fix that issue and put the company onto the proper course and growth trajectory, as dictated by the company’s business plan, as created by the team. 

When I finalized the organization chart for the marketing department structure that I thought was the ideal solution to hitting the company’s goals and growth objectives, it ruffled a few feathers of the current middle managers in the department, as it would have meant giving up some control over departments they were currently overseeing.  But, that was part of this company’s problem:  the middle managers were inexperienced and doing way too many tasks in one role.  The new structure would lighten their load and make the company more efficient and focused.   The current middle managers proceeded to defend their turf, and ran to the HR department for support.

At the same time, the new organizational structure, would result in a change of reporting assignments, with people potentially getting a new boss in the process.  And, those middle managers, didn’t want to change who they were being managed by.  Again, those staff members went running to the HR department for help.

And, lastly, as we were recruiting new team members, we were trying to recruit really smart team members that could help move the company’s culture in a direction that was more entrepreneurial and nimble, as opposed to some of the entrenched processes that were slowing down the current thinking and operations.  And, when those new candidates were interviewed within the organization, again those same middle managers in the department felt threatened by the new people, as making them look stupid, impeding their ease of promotion, or forcing them to change the way they did their work.   So, what did they do; they again went running to the HR department to help them.

Now comes the guts of this post.  When I presented this organizational and hiring plan to the company’s CEO, he was 100% in alignment and gave me the green light to proceed on implementing it.  But, when I went to the head of the HR department to help me implement the restructuring and hiring, I was met with a lot of pushback.  She had taken all the complaints of the middle managers, layered in her own opinions (as many of those middle managers were her personal friends), and proceeded to try to squash the agreed upon plan with the CEO.  The CEO was not one for conflict, and backed down from the original direction, and let the HR department change the plan.  The restructuring never happened, the new hires were not hired, and the culture of the department was never fixed.  This collectively ruffled the feathers of the strong employees that I did not want to leave the company. 

I just couldn’t believe what had happened:  a couple disgruntled middle managers not happy with the new plan, just toppled the plan with the support of the HR department head that basically was given a “veto vote” on the company’s high level plans and direction.  And, the CEO let it happen??!!

Well you can all guess what happened from there.  The half of the marketing team that I did not want to quit, all left for new jobs.  And, the company’s revenues dropped around 33% in the process, as the smartest talent in the company left and the newest ideas that would propel the company to new heights, intending to grow the revenues, were not implemented.  What a mess!

What this Means for Your Business?

To all you CEOs out there saying this sounds familiar, you have to remember a few important things.  First of all, the strategic plan is the strategic plan, and if you have a smart leadership team implementing that plan, you need to let the plan run its course—you don’t change direction on the whims and opinions of a single “veto voter” midstream.   And, secondly, the HR department needs to know that they are there to support the business in executing its plans agreed upon by senior management, they don’t get to dictate direction . . . ever!!   Yes, their opinions need to be heard, but if they get outvoted by the opinions of the collective management team, they need to back down.  And, if your HR department manager does not subscribe to that model, they need to be replaced by someone that is willing to march to the beat of the company drum, not their own beat.

This post is not intended to bash all human resources departments or managers, as most are very good.  But, this post was simply inspired by the one bad apple manager that was allowed to dictate her personal agenda, which ended up toppling the company’s efforts in fixing and growing their business.  If any of you think your bad apples are going to spoil your bushel (and worse yet impede your business plan), don’t let it happen.  Have conviction in your plan, and make sure all managers are beating to the same drum.

For future posts, please follow me on Twitter at: @georgedeeb.

 

[VIDEO] What's More Important--Strategy or Execution?

I was recently interviewed by ASBN, an online "television network" serving the small business community, about which is more important for your business--your strategy or your execution of that strategy.  As you will learn, you can't have one without the other.  I thought this video turned out great, and I wanted to share it with all of you, to see if it can be helpful to you in making sure you have the right team in place to hit your desired targets.  I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] Vertical vs. Horizontal Growth Options For Your Business

I was recently interviewed by ASBN, an online "television network" serving the small business community, about how the various vertical and horizontal growth options to grow your business.  I thought this video turned out great, and I wanted to share it with all of you, to see if it can be helpful to you in setting your own growth strategies.  As you will learn, there any many ways to expand your business, within your industries and markets, and beyond.  I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #350: Top 10 Marketing Strategies for Startups

 

I recently got connected to Alyssa Hitaka at TopTierStartups.com, a new content site rich with startup related news, tips and interviews with startup founders.  I was curious what her startup founders were seeing, in terms of the best marketing strategies they are successfully using today.  Alyssa was kind enough to interview ten of her founders, to get those learnings.  And, we are both pleased to share those learnings with all of you, to help you with your own marketing efforts.  Here is the list:

1. Katja Kaine at The Novel Company: Word of mouth and great customer service

Word of mouth is one of the most important ways a founder can get the word out about their products or services. Katja Kaine, founder of  The Novel Company, has focused on slow and organic growth of her innovative writing technology, gradually building up a strong reputation among customers. Katja also emphasizes the importance of engaging with customers personally—she responds to all emails herself, which indicates to users that the company truly listens and cares, further boosting loyalty.

2. Robert Brüll at FibreCoat: LinkedIn and startup awards

LinkedIn is a must for just about any modern-day professional, and Robert Brüll, founder of high-performance materials startup FibreCoat, encourages fellow entrepreneurs to make the most of the platform to market their brands. His company also regularly participates in startup award contests, and winning awards helps his business build its reputation, secure positive feedback, and gain traction among the target demographic. When paired with FibreCoat’s powerful LinkedIn presence, these awards stretch even further and help drive more traffic at live events, which further boost the company’s reputation among consumers.

3. Vita Valka at Camperguru: Connecting with consumers in real life

These days, a lot of brands rely on digital media to promote their products and services, and Vita Valka’s Camperguru has also leveraged the algorithms at Facebook and Pinterest to evoke interest and familiarity with the target demographic. What gives the innovative camping app its edge, however, is the connections its team of ambassadors make with campers on the ground. Camperguru’s team of passionate campers tour some of Europe’s best campgrounds and, in the perfect locations with highly concentrated groups of avid campers, spread the word about the app in person.

4. Wolfgang Rückerl at Entity: High-quality content and interactivity

Content marketing is a major growth driver for a lot of businesses today, and Wolfgang Rückerl affirms its powerful role in growing his blockchain startup Entity. Focusing on valuable information, crisp graphics, and thorough explanations of the company’s more technical aspects, Robert has built up a solid community of users for his app. An important addition to his marketing strategy is engagement and interactivity on social media, with Entity regularly designing contests, games, and events for users and prospective users to participate in. Robert credits this interactive marketing approach to strengthening trust with followers and driving growth of the platform.

5. Stefanie Palomino at ROOM: Maintaining a holistic approach

There’s a lot involved in promoting your new startup, with many ways to approach marketing and many factors to consider throughout your company’s continued interaction with consumers. Stefanie Palomino, founder of innovative telecommunications application ROOM, stresses the importance of adopting a holistic approach to marketing. She encourages entrepreneurs to consider the full user journey, from their first acquaintance with your brand to their continued use of your service or product. The data you collect from existing customers—both quantitative and qualitative—can help inform your precise marketing strategy, building lasting relationships and trust with loyal users.

6. Deanna Visperas at GoVirtuals: Influential staff as a marketing strategy

The staff of a company define its aura and atmosphere, and how a company feels can have a major impact on prospective customers. Deanna Visperas, who founded virtual assistant company GoVirtuals, firmly believes that her marketing success is rooted in the influential individuals who staff her team. According to Deanna, thought leadership and employee advocacy are key to building a brand’s reputation and cultivating trust among consumers, so fostering your employees’ talents and influence is a great way to grow your business. Happy employees can lead to happy customers.

7. Mark Brouwers at Nocto: Collaboration with similar brands

The startup world is big, and while similar companies are conventionally viewed as competitors, Mark Brouwers reveals why it’s often better to see them as partners. Mark has built up his unique hospitality connector platform, Nocto, through collaboration with similar businesses who share goals and target demographics with his company. Designing win-win strategies help both companies grow, and as an added bonus, collaboration generally means you save time, money, and effort. This marketing strategy will also allow you to forge meaningful relationships with other professionals in the industry, which can open all sorts of new doors for your brand.

8. Siebe van Mensfoort at Simbeyond: Leveraging industry events

Though online marketing makes up a huge portion of modern-day companies’ promotional efforts, offline marketing can be just as powerful, if not more. Siebe van Mensfoort, founder of Simbeyond—a startup that creates software tools for the development of high-tech devices—regularly partakes in industry events to boost his brand. This marketing strategy takes him all over the world, to conference presentations and exhibitions alike, and has allowed all sorts of interested prospective customers to discover Simbeyond. As a bonus, regular participation in industry events gives Siebe a solid grasp of the latest market innovations.

9. Sam Kynman-Cole at topVIEW: Google Ads and direct calls

Sometimes, the simplest marketing approaches are also the most effective. Sam Kynman-Cole from topVIEW, a digital startup that allows businesses to create virtual 3D tours of their indoor spaces, recommends Google Ads as an effective strategy for B2B companies. However, he highlights directly reaching out to potentially interested parties as his number-one marketing approach. Phone calls are the best, Sam advises, but a personalized email is also effective for less urgent situations. He also praises LinkedIn as a great way to make direct connections with specific people, much like personalized emails.

10. Joe Menninger at Startuprad.io: SEO and media exchanges

Search engine optimization (SEO) is a major buzzword in content marketing, and for good reason—it boosts your rank in search engines, helping prospective consumers find your brand. Joe Menninger, founder of Startuprad.io, an English-language podcast covering startup news in the German-speaking world, highlights how crucial it is to create transcripts of podcast episodes. For each episode, he generates a transcript and a detailed blog post, which allows him to deliver high-quality audio content to listeners while still tapping into search engine algorithms. Joe also collaborates with other podcasts, creating a win-win scenario that boosts the followers of both shows.

So, hopefully, there are some useful "nuggets" here for you all to use in your businesses.  Thanks again to Alyssa Hitaka at TopTierStartups.com for her research and helping me create this post.

For future posts, please follow me on Twitter at @georgedeeb.