What is a Fractional CFO? With Anthony Nitsos

Annaka: Hey, everyone. And welcome to Startup Savants. I'm Annaka

Ethan: And I'm Ethan.

Annaka: If you're a returning listener, welcome back. And if you're new, this podcast is about the stories behind startups, the founders who run them, and the problems they're solving. Today we’re joined by Anthony Nitsos, founder of SaaS Gurus and fractional CFO. 

Ethan: This episode is a little bit different from our normal episodes. Anthony is a founder of SaaS Gurus but he’s also a fractional CFO. He joined us to talk about what that means and how a fractional CFO might benefit your startup. 

Annaka: Yeah, he also walked us through the best time for startups to think about bringing on a fractional CFO versus when to think about hiring on full-time. This episode is a great resource for learning the ins and outs of financial management for startups. And, if you’re looking for more great startup content you can find it over at StartupSavant.com. Let’s get into it!

Hey, Anthony, welcome to the show. How is your day going?

Anthony Nitsos: So far, it's been very busy. It started at 4:00 AM and it hasn't really slowed down.

Annaka: Okay. Well, we will do our best to let you chill out and just have a good time and relax, but can you start us off and tell us what exactly a fractional CFO is?

Anthony Nitsos: Okay. Do you know what a CFO is?

Annaka: I do, but for people that may not know, just go ahead and give us a whole rundown.

Anthony Nitsos: Yeah. All right. So, the chief financial officer is generally the person who's put in charge of all matters pertaining to money within a corporation or a small company. It doesn't really matter. They're usually a very seasoned professional that fully understands both accounting and finance. And those are two very different things.

And they're pretty much tasked with protecting the assets and increasing the value of the company. So, a fractional CFO is somebody who does that on a part-time basis. And that's usually how companies can afford a CFO's skills without the price tag usually associated with somebody like that, because it can be quite expensive. And so, we provide fractional CFO services for a number of, basically, tech startups.

Annaka: Gotcha. So, I don't want to say part-time, but they work on a basis where they're brought in to help, and then it's like, okay, move on to the next problem area.

Anthony Nitsos: Yeah. There are usually two phases. There's a get things set up and cleaned up phase when we first come in. And then, there's usually an ongoing retainer phase where they're using us for X number of hours per month, could be on the finance side, could be on the accounting side. But for the CFO piece itself, that's usually done on a retainer on a monthly basis.

Annaka: Yeah. Very cool. And so, you started in medicine, and you're a Michigan medicine guy, which just makes me like you a lot. What was that transition like and how did you end up where you are now?

Anthony Nitsos: That transition was very emotional and rocky. So, what happened was I got into medical school, and then realized that this was a great big mistake, and that I really did not want to be a doctor as badly as was going to be required to do all of that studying, and all the other stuff that's required to do that. So, what do you do when you drop out of medical school?

Well, I was in Michigan, and I'm looking through the want ads, because I need to find a job. I need to make a living. And it's not like I had some grand plan of what I was going to do after I quit medical school. So, the first job that came available to me happened to be in manufacturing. I said, well, they both start with ‘M’. So, I guess they’re kind of related.

And so, I began work as a logistics and production engineer, if you will, in a manufacturing plant, and realized very quickly that manufacturing companies and human bodies are very similar in the way they operate, in the way that they integrate, in the way that things flow through them. So, I rapidly evolved into a process, reengineer, troubleshooter, fixer person. And that was basically my first career move was I became a productional logistics specialist, in a process reengineer from the get go.

Ethan: So, a reengineer, that means that you're not necessarily creating brand-new processes. You're going in and fixing other people's-

Anthony Nitsos: Exactly.

Ethan: ... broken stuff.

Anthony Nitsos: Yes, that's exactly what. So, something would break, there would be a symptom. They'd say, "Hey, we're stocking out of this or we have too much stock of this." So, it was a typical one. Why? So, let's give it to Anthony, he'll go figure it out. So, I would go back through the entire chain of events until I got to the root cause and said, here is the source of the problem. We fix this. All the downstream problems should go away. So, that's what we would do.

Ethan: This may sound like an odd question, but is there a difference in personality between someone who is a strong builder versus someone who is a strong fixer?

Anthony Nitsos: I don't know the answer to that question because I do both.

Ethan: All right.

Anthony Nitsos: And so, I have both of those hats on almost at all time. A lot of times now, I'm going in and creating things that didn't exist just as much as I'm going in and fixing things that already exist.

Ethan: All right. So, let's talk a little bit about companies then. What are some of the signs that a startup needs to bring on a CFO or get a contracted CFO?

Anthony Nitsos: The first sign is when you, as the founder or the CEO, are starting to lose sleep over the fact that you don't know that the numbers that are being produced by your finance system are correct, or that they're inappropriate to the industry that you're in. For example, I work almost exclusively with software-as-a-subscription, also known as SaaS companies.

There are certain metrics, measurements, key performance indicators, numbers, financial statements that investors and boards are going to expect. And if you don't have those set up correctly, you're going to be in a constant scramble mode to try and get them. And what's worse, when you put them together, unless you're a real expert at doing this, you may not have put them together correctly.

So, you as the CEO or the founder are standing there with a pile of numbers, not knowing whether they're correct. That's not a good position to be in. So, most of the time, people come to us when that pain becomes so excruciating that they're like, "Okay, I need somebody to come in here and make sure that my numbers are right." That's kind of a tactical thing.

The other thing is you are growing. You've now gotten stride. You've gotten traction, you've gotten market penetration. Things are moving. Where do we go for our next round of money? What do we do with that next round of investment money once we get it? So, that forward planning piece is the other side of it.

Ethan: So, are there any specific places or times in the startup life cycle that you generally come on board as the CFO? Is there an ideal time? You just mentioned that a lot of times, it's when the pain is too great to bear, but should these companies be looking for those services before it becomes that painful?

Anthony Nitsos: Sure. Just like you should be taking care of yourself and not overeating before you become diabetic or have high blood pressure, right?

Ethan: That's what my doc says.

Anthony Nitsos: Right. So, it's the same thing. The analogy I like to use is we all know about the aide that wiped out the dinosaurs. And so, now we have a lot of telescopes that are out there scanning the heavens for the asteroids that could potentially off us and take care of us. Would you rather find that asteroid when it's at the orbit of Pluto or the orbit of the moon?

So, the further away you can change something, the further upstream you can change it, the more downstream impact there is. And so, when you're a very fresh startup, it's a good idea to have your accounting system set up correctly from the get go so that somebody like me doesn't have to come in and completely redo it, which can be expensive.

So, it's the earlier you get something set up, if you're going to be a software company in particular, or a retail company, or a professional services company, it really doesn't matter. The last person you want setting up your accounting system is your tax CPA. And the reason for that is they're going to set it up in order to file your taxes.

They're not going to set it up so that you can run the business. And those are very different uses of your financial statements. And that's just one example. So, I just had a call today with a company that's pre-revenue, and they wanted me to take a look at their pitch deck, make sure that they've got their forecast ready, and in line to go in front of investors.

They wanted a professional view of the pitch deck to make sure that's addressing the right things that would make an investor want to be interested in investing. So, that's a very early-stage company, they’re pre-revenue, and they're going out and raising their first round of money. We can help somebody at that point. And we also can go all the way up to, "We just got our A round. Our books are a mess. All of our investors were screaming at us, and told us we need to fix it if they're going to give us the money, can you please come in and do that?" So, it really spans that pre-revenue pre-seed investment all the way up, probably to about the B round of investment. By that time, you're hiring a full-time CFO, not contracting with a fractional.

Ethan: So, that bringing on the full-time CFO as an actual part of the company, as an employee of the company, that generally how happens around the B round?

Anthony Nitsos: I've seen it happen even earlier. But that usually happens when there isn't a resource that can help them, and the board is just demanding that they bring in a full-time. But CFOs are expensive, okay. And not only are they expensive from a salary perspective, but in the startup world, you're also going to award them stock options.

And they usually expect a fairly nice piece of the company to do what they do. So, that's why usually, you see that full time CFO coming in at the B round or as part of the B round, because that's when A, you can afford it, and B, you really need that full-time capacity to help you. It can come earlier or later, it really circumstances dictate how that works. But most of our clients are post-seat, pre-B and there's a reason for that.

Ethan: So, is there someone that you should bring on to the team before the CFO to build out that finance team that may not be as senior as a CFO or as expensive as a true CFO?

Anthony Nitsos: No. I'd say go get yourself a fractional CFO who knows your space and have them set it up because you do need the gray hairs, the experience that goes along with that. I've been doing this for about 20 years. I've been working with SaaS companies for about 15. I know the space. I know how things should be set up. I've had to clean up a lot of messes.

And a lot of them are from other CFOs who put out that, "Hey, we know how to do this," but they didn't know SaaS, or they were primarily accountants, and not really finance people. Because a lot of fractional CFOs come from an accounting background. And I don't know if you've heard the old adage that the person who has a hammer, all of their problems begin to resemble nails.

Well, if you're an accountant, you approach finance with an accounting perspective, that's not the way to approach finance. Finance is forward looking. Finance is strategic in nature. It's anticipatory. Accounting is historical by nature. It's rearward looking. It's looking through the rearview mirror. It's something that has already happened.

You cannot use an historical perspective to plan for the future, except as a source of information and a data point that might give you useful information. So, that's why we take care of the accounting first, because we need that base information. But once it's taken care of, we leave it, and we move on to the fun stuff.

Ethan: Cool. So, once a startup or a founder decides, I think we could use the services of a CFO. We're not going to go out and hire one right now. Let's look for someone who is this term, contracted CFO or fractional CFO. First, how do they find you? And what do the conversations look like before they bring you on? And then, once those conversations are done, what does that relationship look like? Do you take a part of the company, or do you become an employee of the company? How does that look?

Anthony Nitsos: Okay. So, let's start with how they find us. Word of mouth is usually the best way to find somebody who knows the space. We're, of course, always out there marketing ourselves and promoting ourselves in addition to that. But a lot of the time, it's like, "Oh, we've worked with this company, this board member is familiar with what they do."

They say, "Hey, I'm on the board of this other company. Can you come in and help them?" Or we worked with a particular DC adventure capitalist who said, "Hey, I really like what they do. You guys should use these guys." Or they heard a podcast, and liked what they heard, and they looked us up. Usually, they become aware of us, like I said, when they're in that discomfort zone, where they know they need some help, but now they're looking; who is going to do that.

So, that's usually how people find us, is through word of mouth, through the network. If you are looking for a CFO, and you don't have that network to ask, you're going to be stuck doing a Google search. And the first thing that's going to pop up are the ones that are promoted the most, et cetera, et cetera. What I've noted about those particular organizations is that they're very good at telling you what to do, but not how.

Ethan: I see

Anthony Nitsos: There's also a lot of DIY out there. You want to do your own SaaS finances, here's our book, here's our program, et cetera. I look at that and say, what CEO in their right mind is going to want to do that? They're going to want to spend their time on development. They're going to want to spend their time on sales. They didn't found a company unless you're crazy like me.

They didn't found a company to do finance. They founded a company to do something else. We founded a company to do finance because that's the service that we provide. And so, we live it, we breathe it, we know it. You go out, and do a Google search, and SaaS CFOs pops up or whatever it happens to be. It's going to be a bunch of DIY stuff. Is that really what you want?

So, it's one of those things where now you found, say a CFO company. The questions you should be asking them are, do you know my industry? Can you tell me specific examples of clients that you've worked with without disclosing names, or confidentiality, and the kinds of problems that you solved? Can you help me with pricing my contracts? Can you help me with valuing my business? Can you give me specific examples? 

Those are finance-related questions. You can find all sorts of accounts out there who can do accounting, but can you find somebody who is financially savvy in your industry who can help you strategically? That's the real value of the CFO. A CFO, when they come into a company, their primary mission is to increase valuation.

That's what the F of finance stands for, right? It's finance. So, if they're not coming in and finding ways to either increase your ARR, increase the quality of that's annualized recurring revenue, increase the quality of the annualized recurring revenue, reduce the losses, find cash, find better ways to spend it, those are the kinds of things that a CFO really adds value to a company.

Ethan: Before you answer the next part of the question, can I cut in and ask you, when you say the quality of the ARR, what do you mean when you say the quality of the ARR?

Anthony Nitsos: Okay. So, the quality of the ARR can come down to things such as we have annual contracts, we invoice them monthly, and they have a 30-day out. Well, that's going to immediately take... they're immediately going to devalue your ARR, anybody who's looking at you for investment or acquisition. Why? Because it's not truly annualized recurring revenue.

Or we have a refund policy. You can pay up front, but if you decide to get out early, then we'll give you your money back. No, that's not how SaaS should be set up. We have software, and then we have all these really great services that we charge for. Well, I can tell you right now that the valuation of your ARR is going to be about 10 times the valuation of your services revenue.

So, why are you wasting time on services, revenue? Why don't you just bake that into the ARR? So, those are a real quick list of things that we take a look at. We take a look at the terms and conditions of the contracts to make sure that they are actually protecting the company. We're going to look at the agreements the same way an investor is going to look at the agreements to make sure that there isn't some hidden ‘gotcha.’

That there isn't some way that's going to make this value, the stream of income worth less in the future. Because when somebody's coming in to invest or buy your company, they're not looking at just the team that they're buying. They're looking at the quality of earnings. It's a big term, quality of earnings. Are those earnings that you put on your financial statement really there?

Is it real? Is it substantial? So, that's where that all comes from. And knowing the industry that you're in, and knowing how the agreements should be put together, and knowing what the investors are going to want to be looking for. That's what an experienced CFO brings.

Ethan: Thank you for indulging my interruption there.

Anthony Nitsos: No problem.

Ethan: So, let's go back. You were mentioning all the questions that these founders should be asking the fractional CFO as they're vetting them to see whether they want to use their services. So, did we cover all the important stuff there?

Anthony Nitsos: I think that's the highlight. Mostly, what you want to do is don't ever take anybody at face value. You should ask for references. You should ask for references that are relevant to your industry, and you should ask them very pointed questions. How have you increased the value of your clients? Because if they can't answer that and say, "Hey, we produce great financial statements." Okay. That's nice. How did that increase the value of the company?

Ethan: All right. So, the next part is, how does that relationship look? Are you flying out and hanging out in the office for a couple weeks, a couple months, not at all? Are you taking a part of that company? Are you getting paid a bunch of cash? What does that relationship look like?

Anthony Nitsos: So, from the nuts-and-bolts perspective, there's no flying anymore. Thank you, COVID. At least for that particular aspect. I've been doing virtual, call it virtual non-office-based CFO work for the better part of 15, 20 years. So, long before any COVID hit, we had already taken the model of we don't need an office. We don't need a physical structure. We don't need brick and mortar.

We can do everything either remotely, or at that time, we would drive out and sit with the client. Nowadays, I'm getting tomorrow morning at 5:00 AM, I'll be on the phone with my client in the UK. I don't need to fly there. Zoom works just fine. All of the platforms that we need to do accounting, once they moved off the desktop into the cloud, made that world so much easier for us to do.

So, I don't need to go anywhere. I do almost all of my work sitting. During the summer, sitting on my deck out under my gazebo, and in the winter, sitting in my office. And I do it all from home, as does my team. We're just wherever we happen to be. So, I have a global workforce. I have a global client base. There's no reason other than time differences for us not to do business with somebody who's not in the United States, for example.

So, from a practical day to day, it's all done on Zoom or whatever Zoom seems to be, or Google meets, whatever one you happen to like. Most of our clients have us on Slack so that they can instant message us. And we can instantly answer their questions because we'd rather them ask the question up front and not make a decision that later we'd have to fix.

Or if it's just like, "Hey, I have to have this answer right now." I'd rather give it to you right now than make you wait for it. As far as the engagements, typically, there's an upfront cleanup phase because inevitably, you're hiring us to come in and clean up your numbers. That means that we're going to have to do a lot of work in the accounting system, in your budgeting system, in your SaaS metric system as it exists, or if it doesn't.

So, we call that the financial core cleanup. While we're doing that, we're also looking at HR policies. We're looking at HR operations. We're also taking a look at sales operations to make sure that everything is flowing into the system correctly. We are looking at the tech pile that most companies create when they put themselves together and turning it into an integrated tech stack.

And that's something that really benefits the client in the end, because you have single point of data entry. You don't have a lot of replication. You have a lot of automation, et cetera. That cleanup phase takes weeks or less, depending on how much of a mess we have to clean up, and how available the client is to answer questions. We work very fast because we've been doing it a long time.

Once that's done, and when I say done, out of that, you'll have financial statements that will be specific to the industry. You will have a budgeting and forecasting tool that will produce a cash forecast. And that is the most important forecast of all. You cannot spend net income. You can only spend cash. So, I really don't care what gap, net income looks like.

I care very much what your cash balance looks like because you need to know as a startup, when you're going to run out of money. That's called the runway. That tells you when you need to go for your next round. You want to be able to anticipate that with plenty of time so that you're not out there going for a round when you're about to run out of cash.

And the tank is about to go dry, and the car is going to be stopped in the middle of the desert. So, we focus a lot of our efforts on the cash forecast, which means that we have to focus a lot of our effort on the sales forecast because that drives all the cash inbound into the organization. So, once we have that, and then all the metrics that we need, the KPIs, the dashboard, call it what you will.

At that point, we have that set. That's usually a pretty big lift. When I say pretty big, I can't give you a dollar amount because it really depends on the patient. I have to diagnose them and say, okay, what's wrong with you? And what do we need to fix?

Ethan: Sure.

Anthony Nitsos: But after that, there's the ongoing retainer with me or the other CFOs to say, okay, we're going to have you sit in our board meetings. We're going to have you sit in on our sales planning meetings. We need to stay active in the organization. Otherwise, we become blind, and we don't know what's going on. The more information the CFO has, the more effective they're going to be.

There is not a single decision in your organization that doesn't have a financial impact period, bar none. There's nothing you do in a company that doesn't eventually show up in the PnL or the balance sheet. So, that's why the more information the CFO has, the more effective they can be.

That retainer can go anywhere from a few hundred dollars to several thousand dollars a month, depending on the level of support that's needed. If you're in a fairly steady state, you're probably not going to need to talk to the CFO that often. If you're in the middle of a round and you're trying to raise money, you're going to be talking to that CFO a lot.

So, we dial it up and down depending on what the client is doing at that point. But this is where the fit of the CFO to the business really comes to play because an effective CFO doesn't need as much time as somebody who hasn't done it before, or is trying to figure it out.

Ethan: So, once you get into a company, is there something that you look for that you've just got to change every single time?

Anthony Nitsos: The chart of accounts.

Ethan: The chart of accounts. So, that's the switch that needs to be flipped that's always turned in the wrong direction.

Anthony Nitsos: Always.

Ethan: Tell us about this chart of accounts.

Anthony Nitsos: I have never come across one that was set up yet correctly. And the reason why I go after that, it's the same reason why you want to make sure your spinal column is healthy. You ever try and run your life with a bad back?

Ethan: I try not to.

Anthony Nitsos: You simply cannot get away from it. So, again, I go back to a lot of my medical training in the beginning, which is: that spinal column is your accounting system. And if you don't have that thing aligned properly and correctly, it doesn't matter what's hanging off of it. It's not going to be right. So, the chart of accounts, which is what spits out your financial statements and the financial statements are crucial.

There are correct financial statements for every industry. SaaS in particular as a set of financial statements. These are based on research companies that have been doing research in the space, specifically investment banks that have been doing research in the space and continue to do so today that say, here's how a software company's balance sheet and profit and loss should look so that we can compare you to others.

So, we can benchmark you. So that when we're doing an investment, we know we're looking at apples to apples, or oranges to oranges, or whatever it is. Inevitably, I come in. So, here's an example, what's your gross margin? That's a critical number that you should know as a software company. You should know that right off the top of your head, just like that. What is my gross margin?

None of the clients we come into the first case can tell us that. And the reason is some CPA, tax CPA set up their accounting system so that payroll is on one line item. Okay. So, I don't know what my spend on marketing is. I don't know what my wages for sales are. I don't know what my R&D wages are. I don't know what my customer support wages... I just have wages. Right below, it is payroll taxes.

And below that is benefits. Now, you need to have those broken up. Yet, our certain cost of sales departments, cost of revenue, cost of goods sold, they're all the same thing. Departments that you should have based on what the industry is expecting you to present to them. So, if you go Google right now, key bank, capital markets survey, those are the folks that bought Pacific Crest Bank.

Pacific Crest Bank was the original Silicon Valley bank back before anybody started calling it Silicon Valley. And they're the ones that for decades have been tracking all of this benchmarking information about software company. In addition, the SEC has basically given out pronouncements to the companies that are publicly traded on how they should put their financial statements together.

So, there's a great body of knowledge on how SaaS company financial statements should be set up. It seems that the CPAs who do tax never read that. Because when I come in and take a look at the financial statements, and I'm sorry, every tax CPA out there right now is probably hunting me down, trying to figure out-

Annaka: Seriously googling.

Anthony Nitsos: ... how they're going to swap me or do something like that. There is a great need for tax CPAs. They should not be setting up your financial statements.

Annaka: So, as far as putting that into practice for new founders, what can they do in the early stages or pre-launch to create effective and sustainable systems from the get go?

Anthony Nitsos: The easy answer is find somebody who's done it before and have them show you how to do it. Don't try and do this or do not do this at home yourself.

Annaka: Do not learn this from YouTube.

Anthony Nitsos: Because what YouTube or the DIY sites, like I said, what they're really good is telling you what to do, but not how to actually set up QuickBooks to do it, or how to set up Xero to do it, or how to set up so that your QuickBooks marries into your financial forecasting spreadsheet so that you're not having to translate between the two. There's a technology tech stack.

There is a way that those tech stacks should integrate with each other and talk with each other. And that's something that we bring. That's what we've developed over the years that we bring. I cannot find a source out there other than us who says, here's how you actually set up QuickBooks rules in order to classify things the way that you need them. So, I don't have an answer like, "Hey, you can go out and just find this on the web."

Annaka: Yeah, yeah.

Anthony Nitsos: This, again, comes down to the, if you're going to hire a fractional CFO, great. I think that's a great piece of advice, but make sure that that person has A, like I said, worked in your industry, primarily has worked in your industry. Because then they're going to know what the financial statements should look like.

They're going to know what the investors are expecting. They're going to know what your board of directors is going to want to see. Those are the things that the experience brings. We haven't gotten AI to the point yet where they can do that. I'm working on it.

Annaka: Yeah? All right. We'll keep an eye out for that. And then, when you do come on with a company, we've talked to a lot of CEOs, there's a personality type that comes with the CEO. Have you run into it where the CEO themselves is a roadblock to implementing your process?

Anthony Nitsos: Yes. Yes.

Annaka: How do you get around that?

Anthony Nitsos: Generally, we don't stay engaged.

Annaka: Really?

Anthony Nitsos: Mostly because in my long years of life, I've realized that leopards cannot change their spots. And if you have the type of CEO, or founder who doesn't value process, and doesn't value this information, or how it's obtained, or how it's set up, you're not going to change their mind.

Annaka: So, what happens to that CEO?

Anthony Nitsos: Usually, they fail.

Annaka: All right, you all heard it. You heard it here first.

Anthony Nitsos: Or they reach a certain point and they can't get beyond it.

Annaka: Yeah. Right. So, it's like rock, hard place. You got to figure something out.

Anthony Nitsos: I remember Kubler Ross's seven stages of death and dying. Everybody loves to talk about that. There are seven stages of CEO as well. And in the beginning, as a CEO, and I'm speaking from personal experience, and also observing, you do everything. You are the chief marketer. You are the chief salesperson. You're the chief accountant. You're the chief finance person.

You're the chief engineer. You're doing it all. The only way that you can grow your company is you have to start taking those parts of you outside of you. And so, marketing needs to go to an expert who knows how to do lead generation. Sales needs go to a salesperson who can professionally close deals. Development should be run by an engineer who understands it.

Finance should be run by the CFO. You as the CEO, your main job ultimately becomes brand, strategy, and brand. You are the face of the company. You're the face of the company. Good or ill. You're the one out there being the chief promoter, the chief cheerleader, the evangelical, whatever it is. You're also setting the strategic direction of the company.

You know your customer base better than anybody else. You need to be able to take that information and give it to the folks in your organization who can then execute on it at scale. There's no way a CEO can run every aspect of their company. Sooner or later, they have to trust people to run it for them. CEOs that can't do that won't scale.

Annaka: Right, right.

Anthony Nitsos: I have clients that are micromanager CEOs. We work with them, but I also know they're probably not going to go very far because they have to keep their hands on every little thing in the organization. So, they listen to us. It's not like they don't understand what they do or value us. So, we don't have a problem working with them, but I can look at that and say, you know what?

As long as you're continuing to authorize all accounts payable checks as you're the one who's doing all the payroll authorizations, you're the one who's checking, marketing, and making sure all that. You're basically going to not go very far. Or, you're going to die an early death because you're overworking yourself. And that's the other thing too, that I see too many CEOs doing.

And I fall into this trap myself if I'm not careful. We have to do everything right. Well, no, you don't. There are plenty of companies out there that succeed with CEOs that don't have to do everything. That's why you have experts that you hire to do it.

Annaka: So, the delegation is a big part of it. And, alright. So, if you could put anything on a to-do list for a founder today in dealing with finance, what would that be, to get a handle on their finances?

Anthony Nitsos: Well, I guess it depends on whether you're talking about finance or accounting.

Annaka: Finance. 

Anthony Nitsos: Okay. So, as a CEO, who's got a company that's growing, you need to make sure that your accounting system is set up for your industry. You need to make sure that you have a cash forecast that you can use. That's it. If you're a startup, there are two metrics above all else that you need to pay attention to, cash runway and sales growth. That's it. Everything after that’s detail.

Because without sales growth, you're not going to attract investors. And without a cash runway and knowing when you're going to run out of cash, it's like driving your car at night in the dark with no dashboard and no headlights. Okay. Well, if you're on a straight highway, that's great. What happens when the highway takes a turn, or there's a cow in the road, or whatever?

Something happens that you don't see coming. So, my advice to anybody who's starting off, number one is make sure that you have your cash runway and your sales growth understood. And that sales growth piece means that you have to really understand how to go to market. I can't tell you how many times I've come into a company, we're fixing all the finances, but hey, we didn't make our sales target.

Hey, we didn't make our sales target. Hey, we didn't make our sales target again. Well, if you're not hitting your sales targets, then you have a problem. Either there's not a market fit for your product, or your marketing team is ineffective at getting the messaging out there to attract the inbound traffic that you need, or your sales team are a bunch of idiots that don't know how to close a door, let alone close a sale.

You go down the list. What could be wrong? The biggest rock that I see most of these founders ditch their boats on is that one, the go to market. This is not the field of dreams. If you build it, they will come. That's not how this works. Okay. Maybe once in a great while, somebody develops something, and it just blows up, and they've got money coming out of their ears.

But that is by far, the exception. The vast majority of millions of companies that start up, they have to figure out a way to differentiate themselves from every other puppy in the puppy pound to make sure that somebody picks them. That's the go-to-market strategy. 

So, the first thing you should be doing as a CEO, even before frankly, you get the finance stuff, I'd say even before you're talking to somebody like me is, do you understand who your customer is? Where their watering holes are, what message they will respond to when you bring it to them, and how to get their money out of their pocket into yours? What's the value proposition? What's the return on investment? What's the with-them? What's in it for them for buying your product or your service? That's the kind of stuff where I usually look at the CEO and say, "You just didn't get that."

Annaka: Yeah. This is the very basis of the foundation of it.

Anthony Nitsos: To me, it goes back to that sales and cash. You need cash to run the business because if you don't have cash, you don't have a business. But you need sales growth, and sales growth does not happen accidentally. It's a very specific thought-out premeditated plan, and it should be treated that way, and not like, "Hey, we'll get to it."

Annaka: Right.

Ethan: So, I'm going to tie this show up with a new segment that we're going to call story time with Anthony. So, here's the first story we want to hear. Please leave us the true to life tale of the biggest success that your services have created.

Anthony Nitsos: Okay. So, this is one where I was actually an employee and was not the CFO, but I worked for the CFO. And I've done this particular story twice. It's called the logarithmic scale. You're going to take whatever sales, whatever volume you're at, number of employees right now, and add a zero to it. Okay. That's what a logarithmic scale is. Just keep adding zeros to things.

So, in this case, I came into a company that was running at about 10 to 15 million in ARR that was on a trajectory to easily double and triple that within the next year. And their CFO did not have the time to go in, and set up all of the systems, and everything that needed to be set up in the background to handle the scaling. So, he was very good. He'd had a lot of experience.

He'd set up everything in terms of financial statements, et cetera, et cetera. But there's a difference in terms of somebody who does the strategic versus the execution. Did you ever watch Thor Ragnarok?

Ethan: I have not.

Anthony Nitsos: Really?

Ethan: Not a big fan of that.

Anthony Nitsos: Because there's a great scene in there where Hela, who's the main character, decides to hire a chief executioner, which is well, the job of the chief executioner is to actually execute the King's will, but mostly to kill people. But it's like, so who is that executioner? Somebody has to go in and do it. So, the story here is that we had systems that were not integrated, that were not harmonized.

And we had to take this company from, at that time, was 10 to 15 million and three years later, was 150 million in ARR. So, this is one where we built a lot of systems on the inside, sales ops, finance ops, HR ops, it didn't really matter. All the operations, all the infrastructure stuff. And the biggest challenge was taking all of these systems that had been siloed and creating a harmonized system so that when there was a question of who are our customers, there's one list.

I can't tell you how many companies I've walked in to say, "Who's the customer?" Well, sales has a list. Success has a list. Accounting has a list. Support has a list. And they don't agree. Because I'll go back now to the Japanese who trained me on quality control. The person, you should have one person in charge of quality at the time when it's created, whatever part that is.

That's the person who owns the quality of the product. You need to give them every tool and process available to make sure that they do it right the first time. That applies just as much to data as it does to widgets. And it comes down to scaling is the place where that's tested hardest. Because you have to make sure of your system. So, the success story there was that company was ultimately exited for 2.35 billion.

Sweet. Okay. It was a tremendous exit for all of us who were involved in it. And that is a success story where we took chaos and turned it into order. And that's where just about every skill that I had was necessary because I had to deal with every department. I had to deal with every function. I had to deal with disparate systems that were not talking to each other.

Figure out a master plan to harmonize them and get them in a shape where the company could actually present financials in a way that were easy to produce. Because the larger you get, the faster you need to produce your financials. If you ever hear about stories on about the CFO who got fired because they didn't hit their numbers, that's because they're not going to fire the CEO first.

They're going to fire the numbers guy first if you don't hit your numbers. The other success I can share with you is one which was much more down to earth. This was a CEO who was doing all of the financial SaaS metrics on their own. So, I came in there and he said, our ARR is... I'll just throw a number, our ARR is a million. So, that's great. Where'd you get that from?

Well, here's my spreadsheet. And I looked at that, and the first thing that comes to my mind when somebody says they're doing their SaaS on a spreadsheet is how many errors? Not, are there errors? How many errors are there? In the end, I said, well, doing this on a spreadsheet, here's the issues that you have with that. I said, there's a software package out there that does that really well.

Let's bring that in, implement it, get it up and running. And that way, it ties back to accounting. It's a controlled system. We know everything is right. We go through the exercise and we find out that the ARR, instead of being a million, is about 600,000. That's a pretty big miss. Especially, if you've been going in front of investors and saying, "Hey, we're at a million in ARR. We've grown there, blah-blah-blah."

And so, this CEO's first reaction was, "Well, your numbers are wrong." My numbers are wrong. Like, "Oh, okay, well, let's take a comparison and take a look." And within about five minutes, he realized that no, his numbers were wrong. That's a really bad position to be in, not just as a CEO, but as the guy who's bringing him that news. Right?

Annaka: Yeah.

Anthony Nitsos: I don't want to come into a client and say, "Hey, oh, by the way, you've been missing the numbers you've been telling your board of directors by a third." You now have egg all over your face. You have a credibility issue with your board and with your investors. Because basically, they're going to look at that and say, "What other numbers did you get wrong?"

So, this is one where this is a very real story, and I've changed the numbers, and protected the innocent and all that. But this was a real situation where the CEO had been overstating the revenue by a lot. I don't tell what the exact percentage was, but it was a lot. It's not something you want to be in a position.

Ethan: So, we got that good story. We got the 2.3 billion exit. We got the scary story. That is exactly what we were looking for. That has been story time with Anthony. Thanks everyone for listening in with that. So, one last question, Anthony, and then we'll let you get out of here. How can our listeners connect with you online?

Anthony Nitsos: First of all, I have an extremely rare last name. N-I-T-S-O-S. There aren't very many Nitsos out there in the world. There's a whole story in Greek history about why that's the case. So, Anthony Nitsos, if you just look up my name on LinkedIn, if you Google, you will see me pop up as fractional CFO. That's the easiest way to find me.

You can also go to our website, which is www.saas-gurus, there's a little dash in between, .com. So, saas-gurus.com. There's a contact us page. There, you can reach out to me. You can email me at anthony@saas-gurus.com. I answer my own emails. I don't have an EA. And the reason for that is I want to take a personal interest in anybody who reaches out to me as a CEO and has a problem for me.

Ethan: All right. Well, we're going to put all of those things in the show notes, the email address, the LinkedIn, the website, and everything else you heard today. But that is going to be it for today's episode of the Startup Savants podcast. Thanks for joining us today for the pod. 

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