How to Keep Your Business on Track for Success — Budgeting, Tools, & Frameworks

Transcript

[Music] we are very excited to welcome M Wester hold here to give us a little bit of an education on how to build an operating plan M leads our strategic Finance team and has done a version of this talk for us internally who have not had her same excellent operating experience in the past and for a number of our other portfolio companies and it is always well received please join me and coming up all right well hi everyone it's really a pleasure to be here today as gu said I'm Emily westerhold most people call me m and today I'm going to talk to you about building operating plans and uh I actually saw all the you know all

the responses to the surveys that you guys submitted and I really want to thank you because it gave me a sense of the wide range of experience that you all have and I want to make sure today we're kind of setting a good foundation in talking about oper plans and then we can kind of go from there and we'll have time for Q&A and also I can be available you know in office hours and followup as well so with that in terms of why am I standing here talking to you about this today over my career the last few decades I've been very fortunate to see a lot of startups in different capacities so I've worked with really early stage companies help them scale I've also worked with more mature companies through the IPO process and you know into public company life so

I've seen it both both as an operator um also as an you know advisor board member consultant so I've kind of done a lot of this from both the doer and the sort of reviewer advisor side and in my role here at a16z crypto that's really what I help our portfolio companies do as well is um as it relates to finance accounting business operations I help think about best practices preferred vendors um advice on things like that as well as we have a finance community that we have on telegram as well as an email Alias where we sort of like share best practices and get together as a group I see a lot of this and so hopefully I can answer some questions for you when I talk about operating plans I actually

really always like this quote because there's a lot of things as a startup founder that you can't control and I think we all know that building companies is really hard and there is something you can control though and that's planning and like with many things in life I think it's helpful to focus on what you can control and it would be a missed opportunity not to take the action of planning seriously so what is an operating plan like what do I even mean by this I think from a business context it's pretty simple like you're going to hear me say this over and over but it's what are you doing what's everyone doing how much does it cost when are they doing it how are they being measured it's those really simple questions that you just do on repeat to know that you're acting on a plan and

just for a quick example I know that you all do this in your daily lives all the time so you know I have up here planning a trip moving to a new city training for a race like an example of this I ran a marathon years ago and I know there's a whole training plan right many months long you have to know when are you doing your long runs what is the route for your runs what is your plan for rest and Recovery um you have to have feedback loops in your plan because what if you have an injury what if you something goes wrong or you're getting sore like you have to be able to take in that information and iterate on your plan and so that is a very basic example but I just use it to emphasize that like you

all do this all the time in your lives and it's just kind of taking that and being you know one step more intentional about it when it comes to the business the other thing I will say is uh your race day might be like in my my analogy there like your race day might be like a token launch or like a really big product launch or something and so working backwards to what those that requires is just a really important thought process before we dig a Little Deeper one thing to distinguish so the Strategic plan is kind of that big picture Vision we're not really going to talk about that today because as Founders that's really your number one job and you've probably all nailed it pretty well because you're in CSX like

you've you've been able to convince investors to get behind your vision and and see the world through your lens and so now that next step is really how do you take that vision and put a very actionable plan behind it and get your team no matter how big it is to operate on that same plan so again I'm going to say it a bunch of times who's doing what by when how much does it cost how are you measuring it these are the things you're going to hear over and over so some key components of a good operating plan the thing here that I think it's worth mentioning is like you shouldn't be overly academic about an operating plan and don't overthink it um there are a lot of Frameworks out there that talk about all sorts of best practices for building a plan and we're going to

actually go through some templates today we're going to you actually have some that we handed out and we're going to go through a few different examples and ways you can think about it but it's actually like the act of putting something on paper and being able to clearly articulate again like people cost timing and ownership who's doing what as well as the trade-offs you're making and you should be making trade-offs in your plan you can't do it all so trade-offs are healthy they should be hard they should Foster good discussion and that should be an important part um but don't be overly concerned about how the plan manifests itself in terms of like a deliverable I've been in situations where you know

you bring in consultants and you have like a lot of meetings and you have a lot of different worksheets or programmatic approaches of it has to be this way and the end result is not necessarily more effective even if the output might be a bit more polished so so I wouldn't get overly concerned about that where do things go wrong the thing that I see most if I so I sort of bucketed this into three loose categories of mistakes but if I could only put one bullet point on the slide it would be the first one and what I mean by being overly optimistic is that information is changing all the time and what you may do is set out a plan and the plan has all these dependencies

right okay we want to Launch this product in order to launch this product we have to hire this these two engineers and then after we launch it we think revenue is going to go up and to the right and like we have to hire this marketing person to do this and it's got all these things that sort of layer it into a cohesive plan but if you're late in even hiring those engineers and then you don't shift the rest of the downstream plan you're going to miss deadlines and you're going to be somehow surprised by that so so I will tell you that everything takes longer than you think generally as a good rule of thumb and you should work that into your mentality of like if you miss a

first milestone in your plan don't assume that all the other Milestones you're going to hit because if there's dependencies you're going to have to push them all out or rework how you're thinking about something so you should be optimistic you're Founders and you have to be but also you have to be realistic and know when to incorporate those changes into your plan it's like being agile and being flexible I think that's really important and that's where things go wrong a lot second category here lack of focus um I think lack of focus and not sequencing are two sort of interrelated things many of you may have a lot of ideas of what you can do with the business and it's exciting and you've got a lot of things you want to work on and that's better than not having ideas I would take that any day

but the problem is you can't do it all at once and if you do you're going to really damage your cash burn and the focus of your team so what I would do is think about sort of that strategic sequencing of opportunities and instead of doing multiple things at once um the power of sequencing is maybe one thing unlocks the capability to do something else so if you can work on a technology or you can work on um a product launch that buys you new users or gets you Revenue that sort of unlocks the opportunity to go do something else that leverages those users or leverages that technology and so think about the order in which you're doing things so that you

are not doing all your bets at once and kind of spending both your money and your focus time that's another thing where things go wrong and I and I think a sign of this by the way is like if you are saying if I asked you like what's your number one priority in the business and you say your number one priority and then I say how's everyone spending their time and that number one priority is only getting I don't know like 30% of the time or something like that's a oh huh wait a minute are we actually acting in what we think we should be doing and you got to reconcile that the third one here is just you'd be surprised how often you can lay out a great plan if you're not measuring it or monitoring it

it doesn't matter it's just going to go in the garbage because you don't even know how you're doing on it or like how to really adjust sequencing one thing to remember there is if you are saying I'm going to do this later sequencing does not mean you're not going to do something and I've seen that be like scary for people of like oh I want to do all of these things but it doesn't mean no it just means not now and so think about like okay I can do this thing I feel good that I can do this thing but I'm going to wait six months to do it because I need to focus on something else first so budget this is a worth its own segment this is something I've spent a lot of time in the portfolio talking to Founders about talking to finance

teams about and a lot of time in my my own life on it so it's worth spending some time on tips here so first of all most companies spend most of their money on employees not always the case but a good general rule and what I often see underestimated is the fully burdened cost of bringing on employees and what I mean by that is there's not just payroll taxes and benefits but there's also other costs associated you know whether it's like Hardware software costs you know license seats for things or even like travel costs or things like that but you really want to just make sure you're being comprehensive because that can that can sometimes surprise people um and that's

the biggest part of your budget the other thing to note here is we could probably spend a whole session on Equity but just make sure you budget it like your cash and if you do get into a token comp situation like that's with even more rigor you'll want to think about that so um don't forget when you're you know planning out your budget from a cash perspective to also plan out your budget from an equity perspective separate fixed and variable cost so it's really good to know and have a really good pulse on like what are the dials in your budget so what is fixed what is variable and if someone said to you tomorrow or you decided tomorrow that you had to cut 30% of your cost for some reason do you have a pretty good idea of how you do

that like that should be pretty intuitive if you have a good sense of of your dials and your model and it's harder when you're early because you don't have as many cost but like as you grow and you're like bringing more cost into your budget like you want to know hey something's working I want to lay on the gas what how do you do that like how do you you know an easy one that may not apply to a lot of the group but it it could be like marketing right it could be some sort of like variable marketing spun that you're just like something's working I know how to lay on the gas there it can be other things as well but those variable costs being separate from your fix gives you a good sense of like how kind of you know uh flexible is my

budget and what are my dials in terms of contracts just best practice negotiate contracts don't put multi-year like long contracts in place if you can avoid it again like remain flexible agile as much as you can scenario planning I so the the two that I bolded are the two that I think are most important that's a hinge obviously bolded them for a reason so scenario planning so any budget that you build is going to be wrong I know it you know it everyone knows it it's going to be wrong by what factor I don't know that depends but it's going to be wrong so even mature companies it's going to be wrong by the way so the most important

thing here is like scenario planning is like giving you a range of confidence in the outcomes what are the possibilities like what are those levers in my financial model that could either make things go extremely well extremely poorly what things could surprise me if you have regulatory uncertainty for example like you know of in the case in our industry like what could our model look like in two states of the world where we have regulatory Clarity I don't know that may be worth a thought exercise um so scenario planning is just helping you get com able with a range of outcomes instead of getting fixated on one specific outcome and really thinking

about what are the different states of the world and how how comfortable am I sort of navigating between them one best practice there is putting confidence intervals on it too like that's something I've done in the past where it's just like this number I feel like really good about this is low likelihood but there is a possible world you know and kind of giving yourself Comfort over that range all right the other thing here most importantly is um not getting below 6 months of Runway hopefully you guys you've probably all heard this before but it's like managing your cash and it's just a different mode of operation you don't want to ever be surprised when it comes to your cash burn and it it happens all the time like something goes wrong your burn is worse

than you thought and you have to adjust like it happens to so many companies like it's it's not something to be like ashamed of right it's just you want to get ahead of that you want to get ahead because if you are in a less than six months cash situation you are going to be actively spending most of your mental energy on figuring out how to extend your Runway you're either going to be fundraising or you're going to be trying to cut cost or you're going to be that is going to be where your energy is because even if you were able to secure an investor then it does take time to to close the round negotiate docks you're you know you're probably racking up some

legal fees in the meantime and it just everything again takes longer than you think so you want to prevent that and the best way to do that is to have a budget that you are on top of don't Outsource this too much as Founders like make sure you're on top of it and it doesn't mean you have to do it right like if you have you know an accounting firm Outsource doing fractional work for you or something but you've got to be on top of like what did I think I was going to burn this month what did I actually burn that's sort of the monthly reforecast and did I is there a learning moment there if I was materially off from what I thought I was going to spend is there a learning moment there or is it just a oneoff or was I really

thinking about how I was going to spend something incorrectly just staying on top of it and knowing get ahead of it and then zerob based budgeting so this isn't something that you have to do but personally I love zerob based budgeting I think it's worth talking about and so for those of you that aren't familiar most people when they make budgets they make a budget the next year they look at what they actually spent and they just sort of edit it it's like we spent this last year so we're probably going to spend that plus or minus 10% this year and you just sort of edit you don't actually go through the critical thinking of starting from scratch and saying like what do I actually need this year so zerob based budgeting is sort of I I would say like a more uh critical eye at what do we need to spend each

year and giving it that thorough thought to make sure that you can justify like why you're spending everything and you're not just like rolling it forward from the prior year so I love that I think it's healthy you don't have to do it but thought it was worth mentioning Frameworks and tools so this is where you'll see some print outs really this is intended if you kind of go back to what I said earlier like not to be overly academic about this there's like so many ways to build an operating plan there's so many deliverables you can have and it's really comes down to the you know that sort of like who's doing what by when why how are you measuring it how much does it cost like those are the questions and so I thought I'd share a few different Frameworks first of all

though we should decide what mode you're in okay so that's why I did this little flowchart of like what operating mode are you in is important before you go into the budgeting step and the planning step and kind of going back to my Runway it's like will you ever raise money again well probably because most venture-backed early stage companies will raise money again but maybe there are some exceptions and you're profitable great but if not you know you're going to want to think about is your Runway greater or less than 12 months and the distinction there is like if your Runway is more than 12 months like you have it's not that you don't need to watch it it's just that you have a little more flexibility that that that fundraising or extending your Runway doesn't need to be like a top priority

in your planning for the year maybe it's like you know building your product or hiring a team or some other aspect but you can focus on other things um you know if it's less than 12 months I would say when you're thinking about your operating plan either fundraising or cutting cost or both need to be part of your planning and usually it's fundraising um and you know you may take a critical look at your spend it's not a black and white Line in the Sand you know this is a Playbook and I think that you know let's just kind of walk through and what these mean so what Milestones do you believe need to be achieved in order to convince investors to further fund your your next round okay that's like a very critical

question to start with when you're doing your plan and that's a good conversation to have with your investors it's a good conversation to have with one another but having alignment there is important and it's not necessarily like oh that's never going to change it's just like you may think if you launch this product you can go out and raise around and one of your investors may tell you you know I think you actually should show some product Market fit and then and then you'll be able to do it I don't know it depends on the business and what you're building and like what sort of round you want to raise I think the important thing is like what are you building to that's kind of the first step what's that next Milestone and then what resources do you need to achieve that if

you just had a blank slate of paper and you're like I want to Che I want to build this thing launch this thing whatever what do I need to hire what do I need to do how long do I think that's going to take what resources do I need put that on paper and if you cost that all out in a spreadsheet or a Google sheet or whatever you want to do if you kind of cost that out into a loose budget what does it tell you does your Cash cover you the cash you have in the bank do you have a deficit that's when you then revisit the plan if you need to so it's sort of like you know what variables do I need to tweak to make this equation work and if you are not thinking like what do I need to achieve

to raise more money what resources and hires do I need to get there if I cost that all out what's the Gap if there's a gap that's sort of like you rinse and repeat iterate through that until you land in a place that you feel good about that's where you might lean on the power of sequencing or you might um really think about rep prioritizing um you know some current goals in your plan if you do that then you need to make a plan to monitor it and how do you know it's working putting in place some sort of you know Cadence to that is important like this worksheet just gives you some boxes to start sketching out ideas there but um that's really what it's intended

for if you can answer those questions you're like well on your way so this is an operating goals template this is intended to be not a sophisticated document I personally like kind of starting with annual goals and thinking about like what might I want to acheve achieve on an annual basis and then if you work backwards like okay what does that mean for this quarter what does that mean for next quarter and how do I do that by team or um by function or by person even depending on the size of your company but it's just like it's the thought it's like getting this on paper and thinking through it is actually really half the battle cuz if it's in your head it's just you're going to miss things this is just an idea for measurement I always like this of like

red green yellow and how I've used this in the past just as an idea is like as a CFO I would bring this to like a weekly leadership meeting for the goals I was responsible for and it was just a really quick pulse check of like hey this is green it's on track not worried about meeting this goal hey this is red like we need to discuss this because we're going to have an issue or hey this is yellow there's a little hiccup but you know I feel in control about it let's touch base on it in another week or two you can use it how you see fit but it's like how do you do these things that I'm talking about in a way that isn't really cumbersome right like we don't need some big bureaucratic process to your planning and your measurement but like

what's a quick way for you to hold people accountable hold yourself accountable and like visualize how our goals doing what this is a good way I like it this is a plan and seven approach I've done this before where it's just a good thought exercise this is just a discussion guide it's very consistent to everything I've been talking about but it's just like can you answer these questions can you go through them to help you identify a plan and it's kind of simple cuz it's just plan in seven Gant charts I'm sure you've all used Gant charts I love Gant charts so I wanted to put one in but you know when everyone used to be in office I always Lov seeing you know Gant charts on the wall like feeling that visual

stimulation of like progress and how's everyone doing and obviously you can do it on websites today and like share it with everyone but I think just again visual like people learn differently see things differently how are things progressing and what's a quick gut check it's really easy to see like oh this is supposed to be done next month shoot we're behind or oh this is great right with the rest of our time this is really simple but I wanted to go through a case study for this madeup company called Cosmic cones which is a local ice cream shop and it's just going to take a minute but to show you how this actually plays out in practice so okay so they have a strategic goal become the top

rated ice cream shop in the City by next year they have identified four operational objectives and I would say three to five objectives is usually good like more than five is kind of too many then you get into that Focus problem but if you have four operational objectives and you can kind of see when you read each of these that there's quantifiable things in there and they have a hypothesis is on how each of those objectives is going to drive that strategic goal and you kind of want them to like ladder up to that strategic goal like how are they supporting that goal seasonal flavors they're going to keep the menu exciting that's going to keep people coming back you've got local visibility things you can measure like social media follows brand Partnerships

um maybe you do a brand survey um customer loyalty programs like they're thinking about what are the mechanisms to achieve this goal and so if we just click on one of these and see what that looks like if you're making a plan so say you did this and now we talked about objective two improve local visibility by increasing social media follows and establishing brand Partnerships so people timing cost and the metric if you can do this for each objective that's your plan like you're done you're good here they're going to hire head of marketing that's their people that's the only one they need based on that objective the timing they're going to frontload their key

higher they're going to think about you know prioritizing their brand Partnerships at the beginning of the year so they have it ahead of summer season this is all very relevant to everything you guys are doing right with the ice cream shop the cost they're going to look through like what is this cost and here's our budget and they're not going to exceed it and then they're metrics they have some things they're going to measure and they think those things are going to drive the result they're looking for and truly like and this is what one of the worksheets is it's just like objective with fill in people timing cost metric if you do that it truly is your plan going through that thought process and how that translates into a budget if you accompany that with a budget you're in really good shape hopefully that gives

you a good overview on operating plans and budgets here for the next 30 minutes or so to answer questions what are your tips for Designing good metrics and then having a good accountability system because it sometimes feels kind of easy to be like I'm going to have Engineers they're going to do X work and then at the end of the quarter you're like well the money left to the bank account the engineers are here where is the work and like I feel like the discrepancy between the budget and reality is something that I've had a couple problems with in the past and would love your tips on how to fight that I think that it's honestly more of an art than a science it's hard I think one of the things that people often think about that is important but

it can go too far is like what are the second order effects of a metric because what you incentivize usually drives Behavior so if you think about like what are the metrics I'm putting in place and you just kind of before you really solidify it like what are all the second order effects that could happen if I drive too hard into this particular metric sometimes that can protect protect you a bit from making like bad metrics choices so that's something to think about is is just what Behavior does this drive but I think ultimately your job is to make sure everyone is working on the right things and um that's going to vary so much like

busines to business so like it's it's it's hard to say like specifics right but I've definitely seen situations where you get metrics that are not driving actual outcomes and so like that's the one tip I would probably have there is like focusing on how the metric drives an outcome and not just activity because often times like let's just take you know your engineering example what if you you wouldn't do this but what if it was just like hours worked like you don't care about hours work that's like an activity right and so there may be something similar to that I mean I'm not an engineer but like the code you submit or something where it's just like is that the thing or is it actually the

result and that that's probably my biggest tip is just focusing on making sure you're finding a that is the actual outcome and not the activity hi recently there's a discussion about like a funder mode versus kind know like so for our startup is all like probably 10% and less right like in this very early mode I guess everyone is a probably more fundable as you cannot even afford a professional engineer managers so managers but uh slowly when you get to scale up a little bit and you want to offload the direct uh person management to 1% hope say they manage 3% engineering team uh like what is your approach to make sure you can offload

the basically kind of whing and make sure things go in the right progress to one of your direct reports rather than you basically try to keep track of everyone's progress especially say when you like as founder when you travel for two months your company is probably just doing nothing for two months if they look very busy and looking like they submit code and in reality it's like lot of times I experience this a lot it's so funny how much press the founder mode thing got but um if I can kind of distill your question you're sort of like as you grow and you bring more people on how do you sort of make sure that progress is continuing and you can hold people accountable but you're still like getting information is that sort of

um is that the essence of your question yeah and you're not like in the weeds I think part of it is just designing s systems for check like even that like red green yellow thing that I put up there like designing systems that help you identify put you know accountability on your direct reports to sort of U report to you like what's a pulse check on how things are going and then maybe another system might be like okay you're not going to do the Finance and Accounting and stuff anymore like you're not even that you're doing it now I don't know but like at a certain point you're not touching them that but even when I've been at larger companies there's a

monthly meeting where you're going through the finances with the CEO you know and it's setting up a system of like it's just not so in the weeds it's like what do you need to know what's material and that materiality level is going to change as you get bigger so like maybe now you want to see every everything that leaves your bank account because maybe you're clicking the button to pay those bills as you should but if you you know have raised $50 million or something maybe you don't need to see everything that leaves the bank account anymore but maybe you want your head of Finance to send you every month like any transaction over x amount and you want

to make sure that you're on top of that so it's sort of like systems and controls based on like what's material and what's your priority at the time there may be things that you intentionally say I'm just not going to worry about this because even if it's on fire it doesn't destroy the business and I'm going to focus on this and that's sort of like a Founder decision right like some people kind of want to have perview on everything some people want to focus on like the very two or three like critical things and everything else they're going to kind of delegate to a number two or something but that's something to think about too in just like how you allocate your time but um I would also say when it comes to hiring

your next layer hiring people that you really really trust and have like close working relationships with it's not going to come overnight right but like you can build that and building that in a way that is like a really strong Foundation that they don't feel worried about bringing anything to you you know like that's really important uh thanks a lot for the talk so we're building a new L1 and you know some of our advisers have said that you know to build a good L1 that is you know reputable you would have to at some point raise rounds bigger than 100 million and so on to kind of uh show the community that you're here to stay and is also building l1s are mostly expensive we think that

we have raised a good amount and we have a good Runway and we might do another round probably big but it's it's very unclear to me that why would you know you need such a big amount or if you have experience on like what are the major cost for l1's and you know how to think about it I mean I guess there's also regulatory costs and other things that might up but yeah I would like to know your thoughts on that yeah I mean I think like showing um stability to that point is is probably the most important and and I don't know that can probably look that can probably look different company to company like I don't know your specific like thesis or or what like use case I would honestly like iterate with iterate on like what do we want to look like in 5 years like what

do what do we what do we like manifest in the world as an L1 and down the road and like what are all the I don't know like tangental things that are happening because of that like what what do you want to be when you grow up essentially but it's like it may it may tell you that you want to focus on like a certain uh you know Partnerships or like Business Development angle or something like there may be something that kind of becomes clear to you going through that does that make sense but like it I it's like I don't see why I mean I I I don't think raising x amount of money would be kind of a goal that you would achieve but I guess if that shows stability in

the market if if it attracts partners and you know moves yeah it might be something that you'd have to keep in mind right I see yeah so one caveat Al so I I wouldn't necessarily raise for the sake of raising but I also don't want like I'm not making Investments decisions here so I don't want to like color anything right like I'm on the operating side so I don't know what you've been told and I don't want to like negate anything like that but I think as a general rule and you know as someone that's been has fundraised many times as a CFO like I always want to fund raise with a purpose and with a reason to invest that money like there's a very clear purpose of like I'm raising

this money to invest towards this growth or this initiative because we want to look like XY when we grow up right and this is what we're trying to achieve and usually it's like you know for example we want to raise this next round because we're really great in the US and we want to expand internationally we want to raise this round because we have launched the first version of our product and it's really working and we think there's an opportunity for like a next version of it whatever the case may be like um usually you do want a purpose and I wouldn't I would like push on that and under understanding really like what's behind that advice just to make sure you really understand it because um I do understand from like a community

stability perspective but also like is there something else there that is the reason for that kind of question that you've seen some l1s and how they budgeted but we can talk about it later yeah we can have a follow-up session on it because I can certainly like look at some of our companies in that space But like I don't know anything that I can like publicly speak to on that thank you yeah I thank so I have two questions the first is like uh when when we plan for fundraising how do you plan for the the Cycles because you know different cycle have different Market sentiment uh the second question is like uh when we plan for operation how how should we plan for the action item that has like a that has these uncertainties for like a for

example like R&D like that might work might not work or like we like identify Miss this key person want to hire this person but we might not end up find finding this person or or not so you know like from a strategic point of view we always learn something from the setbacks but but from operational point of view I wonder is there any like rigor we can put into this kind of you know uncertain outcome yeah I mean on your first point from a fundraising perspective I think unfortunately like you can't plan right you you can't plan the market the only thing you can do there is take advantage when it's good and um hunker down when it's bad and try to just execute so as far as that's concerned I I don't think

like just make sure that you're aware of the cycles and like aware of the market Dynamic so that you're not kind of caught flat footed there in terms of like the best practices for your other question I think part of it is identifying what like R&D for an example like if you're investing in something and then there's like an end result that you know you're building something whatever there's an end result whether it's like a launch or whatever identifying the success metrics before that launch is really important like before things get emotional is is kind of how I like to think about it it's like okay this is going to launch what do we expect if you're if you're telling me after you yes we launched this thing and I'm like so was it a good

launch how do you know you can't decide if it's good or not after you launched it like it's just not very effective you should decide before hey 30 days in if we see this that would be positive if we see this we've got some real concerns and and you're going to be wrong like to my point on budget you're going to be wrong but you need to kind of put something in place before it's like emotional because then you have something to kind of like okay do we need to have a conversation is this good or bad you have a pulse on it quickly you know and so that that's probably the best advice I have there is just like identifying what what is going

to be good what's going to surprise you what's not um and to the point on outcomes vers activity on like the first question there's a few layers of that right because an outcome is launching something and you may want to incentivize people to launch something or like finish something and that's that's great like that's actually a good thing it's like a binary outcome right but then the outcome after that it's it's actual performance and so you have to think about that in your metrics and what you're monitoring because it's sort of like if you go public the IPO is the event it's the launch but like that does not make a good company you have to like um monitor the process after I don't know if that

helped but like that's that's what I would be encouraging if I were like at your company okay like how are we going to put metrics in place before launch course thank you for for hiring is a similar right mhm yeah yeah yeah um in early State startup there's a lot of uncertainty M and A lot of times people maybe don't like planning I know yeah there some push back y because they feel like it's just an academic yep thing even if you do the very basic stuff you mentioned yeah um are there some more thoughts on that how yeah I definitely know that and it's also why I I did try to make the point like don't be too

academic like keep it really simple um I believe that the act of talking about it and putting it on paper and making like active tradeoffs in what you're working on is the important part but you have to do it because especially as you add people to the team you cannot really risk that people are working on things that are not driving the goal that you are trying to achieve and if there's just not clear like transparency around that or Comm unication around that even with the best intentions people might misinterpret what you want them to work

on or they might not understand the purpose of why what they're doing is important or you know like it really does not have to be a big exercise but I do think the act of discussing it putting it on paper and giving yourself some parameters is important you don't have to like make a big thing out of it yeah I think that something that has made it maybe worse sometimes is seeing after the fact how wildly off we were how things change yeah and then people are feeling to not want to do that again yeah I've been there I totally understand that so so one of the things is if you're doing something for the first time it's not like you're I don't

know like Microsoft forecasting Revenue you have no idea what is going to happen in your business so um anything you guess especially with like a new product or a timeline of line it's going to be wrong it's going to be wrong it's just you're swimming in the same direction there is not punitive either it's just again especially when it comes to cash burn if you're not like watching it because let's just say you don't make a plan you're just like okay hey team we're working towards this thing um we're going to launch this product we think it's going to launch next summer and we're all like working towards it you're all going towards it now if you raise so much Capital that

like you have you know sometimes these companies have like five plus years of Runway you can do that like honestly like it's not going to be you might burn more than you need you might not burn more than you need you can do that but it doesn't create a good like discipline around focus on what you're working on and it doesn't build that muscle so um let's say you're just like a normal company that maybe has like two years of Runway or something and you say that but you have no plan and everyone's working on it and then you get to next summer and you decide oh let's just kind of check on where we are you hired like five more people than you planned because there wasn't a plan so it's not that you hired five more people than you planned you just hired more people than

maybe you kind of thought Loosely and then you also are running you know 3 to six months behind on your product all of a sudden you wake up and it's like the end of next year and you're like oh my gosh I just looked at our we have 6 months of Runway I didn't even know like I thought we were only burning 200 k a month we've been burning 600k a month I didn't even know and so to me it's more about the visibility and it's like how do I know what's going on in my business and how do I have a pulse on how things are tracking how people are doing what our cash burn is and you've got to be on top of that should shouldn't be surprised so like there's going to be varying degrees of like there there's

companies that have excelled and done phenomenally well without putting a lot of thought into planning there are companies that have planned incredibly well and still fail right and so that's to my first slide on like if you can control it though like you can control the planning process and the thought process there that's like one of the few things you can control so you do it in the way that works for your company culturally and for you personally as a Founder like don't try to fit in anyone else's box there could you give us your opinions about the best way to ground salary and compensation negotiations like I know the right way is to you

start by budgeting for the higher how do you do that where do you get the like eyeballed rates for that and then the other thing which is kind of unrelated is if you're working with external accountants external tax accountants or fractional CFOs could you give some tips for finding the right people vetting them and running that relationship like how should the work be split and like generally what should our expectations be going into those relationships on the hiring front um we have a great people practices partner maid on and we also have our talent team um they have a lot of benchmarking on that so I think starting with benchmarking and and so I'll give like a very quick answer but if you want to dive deep like they're great for that um

I think it's understanding your compensation philosophy as as a business generally speaking is helpful right like are we a company that is going to pay 50% or 100% of Market rates right anything in between like kind of getting a sense of what your philosophy is and then um coming up with the benchmarks that we can provide tools like pave have them and in terms of budgeting you would just kind of take that range from from the benchmarking data when to deviate from it's kind of like a cultural question um some companies might be really firm on like not deviating from it because they feel like we're going to be kind of consistent Fair other people are like this person's fantastic I'm going to do that but I would say being

intentional on how you're handling comp especially from an early stage so you don't kind of once you make someone's comp you're not going to change it later so uh generally speaking so kind of just being intentional of like how you want to do that from the beginning is important um but but yeah maid on would be great and our our people team is they have a lot of data there that they can provide um from a benchmarking perspective and even just like toolkits on like building a compensation philosophy so most of you will use external accountants for sure like it's I mean I don't know the size of all your companies but like it's a while before you need someone full-time in house depending on the business um so there are a few like there's some that

we recommend that I'm happy to provide contact info for um that are sort of vetted that also know crypto really well um we've seen in the past like years ago or sometimes you know companies work with one that's not really like crypto knowledgeable and that can be a problem like even if it's fine now like it might not be later so there's a handful of outsourced um accounting and finance folks that do a really good job in our space in terms of how Hands-On they should be what they should do the the sort of like fractional Outsource model is great because you can dial it up and dial it down as you need them so there's usually a baseline set of work that they'll do

that's just like bookkeeping right they're like closing the books they'll set up you know if you don't have things like you know ramp or other credit card platforms or you need like your Mercury plugged into your QuickBooks or whatever like they'll help you set all that stuff up and um they'll do just all the bookkeeping on a monthly basis and then they'll give you a report at the end of the month and that's where you should kind of make sure you're reviewing it and that you're available to answer questions along the month if they have them but like if they're just kind of paying transactions recording transactions and they're giving you a summary at the end of the month like that's where you'd want to make sure you're looking at so you're not surprised at anything and then if there is something you want to kind of dial

them up for most of them have actually um like more Finance analyst type people like if you were going through a fundraise and you wanted their help building a model or if you they usually have like HR back office too like if you want someone to kind of do more of like HR operations kind of stuff like benefits things like that like they usually have people like that that can help um depending on the firm so there's some of that like GNA kind of back office stuff that you can Outsource and I would just have some sort of recurring check-ins with them and make sure that you're touching base on like it like I mentioned earlier like oh transactions over a certain dollar or things that are out of the ordinary that they haven't

seen there's things that you're going to spend on every month but if something is kind of out of the ordinary of that can they raise it to you like so finding out your threshold for plugging in with them but like all the sort of routine stuff you can totally Outsource to them and most of them will build you a financial model um they'll help you think about think about all of that and you can dial them up if you need them more you mentioned there are a lot of hidden costs involved in hiring um is there a rule of thumb for estimating those hidden costs as potentially a percentage of salary um is there like a expected range for that where you know if you're spending this much extra per employee that's too much versus too little and does that scale like linearly over time

with salaries or as you grow is that per is that kind of overhead cost going to increase or decrease so in terms of rule of thumb it kind of depends what you include in it and what you do as a company like from the perspective of if you have Office Space you want to maybe include like office space in that but um if you travel a lot and you do like offsites or you're like traveling around it's like are there travel costs or or all you guys just kind of like huddled one place and there's you know so there's I don't have like a good rule of thumb necessarily but I would look at your current to simplify your budget I would look at how it plays out in your current team and just sort of scope you

know scale that out in terms of if it scales linear linearly or not like again it kind of depends it should it depends what you're including if you're including something like office space cost per head's going to go down it just kind of depends how you're thinking about it my main point with that is like if you look at an income statement of most companies like truly employees are the vast majority of it and I've Just Seen situations where I get a budget to look at and it's like salaries are budgeted and then there's just like other stuff isn't factored in or they have benefits as they are today but it's not like linked to hiring growth or it's just kind of simple things of like you've got to fully burden the person got it thank you yeah hi I wonder

uh when would be a sign for a Founder to find oh I'm well overwhelmed and I need a exactive assistant or chief of staff and what's the difference between the two in terms of what kind of person do you look for chief of staff is generally a bit more strategic and oftentimes can sit in your place for things um it it really depends like company to company uh chief of staff is one of those interesting uh roles I would say that if you look up definitions for it it can mean very different things at different places so I would say like what do you need do you need help like booking meetings and making sure you are like getting all the information coming to

you and maybe someone like managing your inbox or making sure you don't miss meetings and so like do you need that do you you need someone that sort of has your mental model and you trust to be in meetings for you potentially like that's just it's sort of like what do you need and I would say what are the signs like are you spending more time on things that you feel like you add less value to and are less critical to the business that's kind of a good trigger of like how do you spend your day hm I only spent an hour of it on the thing that I think is most important in this business because I was doing all of these other things it's like okay I probably need to

hire someone whether it's assistant chief of staff HR person Finance person whatever it is it's just like how did I spend my time is this sort of breaking based on what I think is most important um and there's a Tipping Point thank you guys [Music]