February 14, 2019 | 6-minute read (1079 words)
Sometimes it seems investors want the impossible. You need to be early to the market, but already have traction. You need to show discipline with your operating expenses, but also need to keep building. How do you find that balance between innovation and having your you know what together?
A sound business infrastructure will help you show investors that your company’s foundation is strong. It will also help you internally analyze what kind of shape each element of your business is in, as well as make decisions about where to invest as you grow.
Society’s infrastructure includes roads, education, etc. Your business infrastructure includes the systems, personnel, equipment, and software used to operate. Larger corporations will have entire departments/divisions dedicated to these different structures or elements. While you may be the only person (or one of a few) on board now, there are still ways to create and plan for a winning infrastructure. The beauty is that as a startup this is expected to change as you grow, so it doesn’t have to be perfect – just strategic.
Use this as a checklist/outline. Quarterly (or monthly if you’re growing rapidly) look over this list and do an audit on how well each piece of the infrastructure is performing. What tweaks can you make to be more efficient and/or effective as your business grows?
Your infrastructure begins with choosing which type of business entity will work best for you. All your options (partnership, sole proprietorship, LLC, etc.) have pros and cons, so how much flexibility you want as an organization versus the degree of complexity you’re okay with will weigh heavily here.
“It takes a village.” The popular child-raising saying also applies to startups. To be successful, you will need to build an ecosystem of service providers, partners, and a general community you can lean on and use for talent acquisition. Look for long-term value – who can support your needs now and will be able to scale with you?
People like to reference Steve Jobs starting in his garage and you’ve likely seen the image of Jeff Bezos sitting at a desk in a tiny room with “amazon.com” spray-painted on a makeshift banner on the wall. A lot of the time you can work anywhere with a WIFI connection, but is that going to help you scale? Don’t overinvest in a long-term lease for space you don’t need, but make sure you have a space you can conduct business. There are a ton of shared workspace options. Look for ones that have flexibility to meet your needs as your company culture and physical needs evolve.
This is an easy area to overlook that won’t be so easy to fix if you go wrong. Avoid tax issues, lawsuits, and other scary scenarios by giving compliance the proper attention upfront and staying on top of any law changes that can affect your company.
Setting up your financial infrastructure has several layers:
- Expense reporting – The level of granularity companies need varies and the tools available are endless, but two things we can’t stress enough are separating personal from business expenses and tracking everything. You can start off with a simple spreadsheet, but you’ll want to know your options for software and get used to using one before you may actually feel you need it.
- Accounting – From tracking your Accounts Payable and Accounts Receivable to paying your bills, accounting must be taken seriously from day one. Whichever software you go with, be sure to only purchase what you need. QuickBooks is a tried and true option. Like most companies, they have different pricing levels to accommodate your needs at different stages of growth.
- Taxes – Another area that you want to plan for from day one, be sure to properly estimate, pay, and record quarterly taxes (including payroll taxes). If you have shareholders, you’ll also need to arrange for a 409A valuation.
- Projections – Having a system for creating and updating financial projections, including your budget, will be key for impressing investors and planning for growth. Bottom-up financial forecasts are more realistic versus top-down and show investors you understand all the key levers that will drive your spending/funding needs – headcount, marketing/sales spending, customer acquisition costs, cash burn rate, etc.).
Have a credible support resource to turn to for legal matters. Consider both your current needs (contracts, technical licenses, patents, IP, and documentation management) and your future ones (term sheets, M&A transactions).
It may be tempting to go with an inexpensive option but remember lawyers and bankers can be great sources of referrals and introductions to potential funders. Focus on the relationship’s long-term strategic value and your future growth needs. If you’re in a smaller industry or one with a lot of regulation, consider a resource who specializes in your industry.
Human Resources (HR)
Often, particularly in the first round, a majority of funds raised are allocated to human capital. Along with employees comes payroll, insurance, expense management, codes of conduct, and more. Hiring vendors or contractors on an as-needed basis may be more efficient as you start. And, in today’s competitive talent landscape, it's not enough simply meet legal requirements, you must also intentionally build a company culture that attracts and retains top talent.
Partner with providers who offer true end-to-end services that will help you develop best practices and systems, as well as support you with things like incentives and employee development plans. And remember – document, document, document for risk management purposes.
Sales & Marketing
Last but certainly not least, sales and marketing drive business. Early on you will be testing different strategies and tactics. You may even rebrand a couple of times. What’s important for this piece of the infrastructure is having systems for tracking results and managing change. For example, don’t overpay/commit long-term to a specific software or service until you’ve properly tested it. Take advantage of free trials by being intentional with your campaigns. Don’t underestimate the power of grassroots efforts – be sure that you’re always ready to rep your brand and tell your story.
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