You Need a CFO Before You've Made a Mess

Sean Weisbrot: Anthony Nitsos is the founder and lead guru of SaaS Gurus, a fractional CFO firm that focuses on SaaS brands. Whether you've raised money from investors or you bootstrapped yourself to profit, this was a fantastic conversation. We talked about what is a fractional expert, what is a CFO? What can you expect? From working with that person, when should you be looking to hire that person? What is some of the benefits of that? Uh, different kinds of fundraising, whether it's equity fundraising or venture debt fundraising, and so much more. So I know you're gonna enjoy this episode if you are looking at possibly hiring experts to work with you. So let's get into it. Of all of the things that you could do with your life, what made you wanna support startups? 'cause it's not easy.

Anthony Nitsos: I got my hands on science fiction book when I was seven. My very first one, miss Rol goes to Mars and I was hooked on science fiction since then. So, so bleeding ed, tech, technology, a lot of stuff that I read in science fiction as a kid, frankly is true. I. Now as fact, right? The cell phone is one of them only in Star Trek. It took them 24 hours to get an answer back from computer. Now it takes 24 milliseconds or something ridiculous like that. So startups are like the cutting edge of that. You know, this is the coolest stuff that everybody's experimenting with most of our clients in the last 12 months. Our AI. So we are deeply into the, you know, the, the wave of AI from the, the back office, if you will. Um, but you know, they're with the CEOs because it's a, you know, finance strategic position as well.

Sean Weisbrot: I got into startups because I had previously been successful with a non startup based business, and I thought, Hey, shouldn't be too difficult to 10 x or a hundred x my stack using some profit from that business. Horribly wrong. I learned a lot. Uh, but here I am back again after several years of taking a break because I still believe in it somehow. As long as the company is doing something valuable.

Anthony Nitsos: If you're looking for stability, if you're looking like doing the same thing over and over again, working in the startup space is not that, and I like that. That's, you know, that's, that's attractive to me from a personality perspective. I like the new and the different, so I happened upon it in a bit of a circuitous manner. It's not like I planned to be this, you know, expert in SaaS and finance, you know, back in like when I was in college or something. And by the time I got here, it had been a long and winding road.

Sean Weisbrot: What is a CFO?

Anthony Nitsos: We are the strategic enabler on the finance side of your business. Uh, chief Financial Officer, I also like to joke Chief Flushing Officer, because we're the ones that have to clean up a lot of the messes on the finance side of things. Um, we are basically there to advise you on all things money. Um, primarily it's a two, you know, I wanna say a two face, but it's a two-pronged perspective. There's the accounting perspective, which is, this is what's happened. We're gonna measure ourselves against benchmarks. We're gonna evaluate whether we hit plan or not. And then there's the other side of it, which is looking forward to say, here's what's coming. Um, you know, primarily through planning for cash, we spend a lot of time on that. So I like to joke, I'm the cash flow oracle. I'm not the chief financial officer. Um, and that's, you know, that's really what we are, we're financial enablers. Um, we're there to make sure that the company has the resources financially to plan appropriately.

Sean Weisbrot: What point in a business's lifecycle should they be thinking about having a CFO involved?

Anthony Nitsos: Well, because it's, you know, it's not ridiculously priced. You can access those kinds of resources very early on. Um, and accessing them early on doesn't cost nearly as much as accessing them later if they have to clean up a mess that had been created because accounting or finance or whatnot hadn't been done correctly and says there's a right way and wrong way of doing your finance and your accounting. There, there are benchmarks. There's agreed upon ways that we say, here's how we're gonna measure SaaS companies. Um, and you wanna set those up early from the beginning, because going back and re-engineering and cleaning them up is more expensive. So get in early, get it set up right, and then you don't have to worry about, you know, re-engineering anything later.

Sean Weisbrot: You don't need to have someone full-time who's working for equity. You can hire someone known as a fractional expert, and that's what your business does. You're a fractional CFO. Uh, can you speak to what the fractional part really means and. How a founder should understand what they're getting for that.

Anthony Nitsos: It really depends on the level of service that the fractional CFO firm, if you will, or person can deliver. Um, in our case, we're not, you know, a. There are a lot of people out there that do that as a single shingle, right? They're, they have, you know, they do a fractional CFO here and there, but we're an established business, so we have multiple clients literally across the world in multiple different industries. And so we're able to, you know, plug and play that knowledge across the entire portfolio. So if we have a customer over here, or a client over here that's experiencing X, we can say, look, we've, we've solved that issue over here. We don't have to experiment. We can tell you how to execute on that. So there's a lot of that cross, um, uh, cross flow of information between, you know, best practices across not just, you know, our industry, but our clients within our own clients, right? 'cause they're kind of a, I don't wanna say a test bed, but we're constantly trying to improve things. The Japanese drilled into me that kaizen is the way that you should always operate your business. And so I do, uh, constantly looking for ways to make it better for my clients.

Sean Weisbrot: That's something that I am getting the benefit from a business coach I'm working with right now who's focused on helping people to grow their business on LinkedIn, which is something that's extremely not well understood. Uh, specifically for the focus of building an audience that converts into paying clients and. He also has an agency that has, you know, dozens of clients. And so he tests everything with them and then he teaches us what he's learned from, from helping them. So I think that's really great. 'cause it's not like, oh, well I don't know, let's try this thing, or let's try this thing. Like, he actually has done it so he knows from experience, if you do this, this is what's gonna happen. And so like, I really appreciate that because we're not, we're paying a lot of money to, to, you know, access this knowledge.

Anthony Nitsos: We like to be very efficient. You know, we, we, I don't believe that this stuff that we do should be rocket science and should be opaque to owners and CEOs. So in a lot of cases, um, we're making the finance side of it accessible. I. In ways that make sense to them. Um, and they can interpret the numbers. Then when they're standing in front of a board or investors, they know they have the right numbers. They're not questioning them. But there's also the strategic side, which is, which is what's your company worth? Um, when you're structuring your contracts with your customers, are you doing it for maximum a RR, therefore, maximum valuation? Um, you know, are you hitting all the buttons on the SaaS side of things? You know, are you protecting yourself in the back in terms of insurance and risk mitigation? Do you have a proper cybersecurity pro, you know, uh, profile? We're not, I don't believe in, like I'm just the numbers guy. I'm the doctor of the company, if you will, in terms of analyzing and understanding the, the finance side of there isn't a single thing that a company does that doesn't have a financial impact. And so knowing where that's all going. Yeah.

Sean Weisbrot: So why is the CEO the leader of the company and not the CFO?

Anthony Nitsos: They have the strategic vision. I, I don't know how to put together the software platforms that my clients do. That's not my, that's not my forte, but I, I know how to really help them. I know how to make sure that we're going for the most valuation for their company. Ultimately, let's face it, you know, the vast majority of our startups are looking for an exit at some time. Whether it's, you know, in the near or intermediate future, right? They're looking for an exit. So I'm always thinking of that exit alongside of them to say, okay, you know, are you ultimately a strategic? Are you ultimately a rollup? Are you ultimately, you know, do you have the moxie to actually IPO yourself? I mean, all those questions come into play, and having somebody who understands how that side of the business works and positioning you early for that. Is invaluable. Um, you know, having done SaaS for years and years and years, we've been through a lot of activity, both on the m and a side, as well as the, you know, the, the nuts and bolts, if you will, the supporting of making sure your metrics are right. There's the whole strategic side of it.

Sean Weisbrot: If someone comes to you looking to hire you and they can't answer you, what is your goal? What's your exit plan? You'll still work with them anyways.

Anthony Nitsos: They're either gonna exit or they're gonna die. Okay? You know, you're gonna fail, you're not gonna make it. You know, it's not that, that's not it. I want them to succeed. So far we've had a really good track record of keeping our clients from going under or helping them. Right? I mean, ultimately it's their, you said, what's the role of the CEO? They're the leader. They're the ones that they're providing the strategic vision. Um, we're there to make sure that, like I said, as best we can, make sure they achieve that.

Sean Weisbrot: When someone comes to me and they pitch me, they would like, I need your help to fundraise, or, I want your help to fix my pitch, whatever. I will tell them you're not fundable. I'll just be honest. I'm not. I can't help you to fundraise because as though your business is right now without some serious work on the internal aspects of how your business is run, your team, your this, your that. You are not fundable. If you felt like someone was going to die, will you still take on the case to try to prevent them from dying or would you just go, look, I'm sorry. Like, there's nothing I can do for you.

Anthony Nitsos: The entrance is, does a client come to me with, they're so messed up that no, we would just be taking money from them. No. Um, I've never had that kind of a prospect, um, show up at my doorstep. I say without exception. Our clients are showing up after they've already been funded in some manner. Okay, I've got some, a quarter of a million dollars, or I have, you know, $2.5 million, or I've got whatever it happens to be. It depends on the stage of the company, but we have them all the way from the beginning. Um, very few. I've, I've had a couple of times where I've had somebody come to me on spec and say, okay, I need you to put together the business plan and so I need, and, and help with the pitch deck where they don't have any funding. Those I usually do on a fixed fee basis and make it very clear what the scope of work is so that they don't go, you know, crazy. Um, and I'm not gonna spend a lot of time on something that's ultimately not gonna work. Like, for example, they came to me and said, okay, we want you to build out a financial model. I said, you know, what are your assumptions? What's your go to market strategy? You know, what's your lead gen machine look like? What's your, what are your conversion rates? You know, have you thought through what that looks like? Oh, we don't have any of that figured out. That right there kind of tells me that this is probably not gonna be something where there's gonna get a lot, they're gonna get a lot of interest. So did I tell, would I tell 'em? No, no. It's possible that they might get something and we price ourselves very reasonably to help somebody in the very early stages. It's not like I'm gonna charge 'em 10 grand to put together a model that would be, you know, robbery. I'm gonna give 'em a fair price. Um, and you know, like I said, make this, I've learned over the years make the scope very clear. Um, we're not there to succeed or fail your business. We're there to strategically enable you.

Sean Weisbrot: Is the CFO's role to say, this is your vision. This is how much you need to make it happen. Go get that money. Or with the money you have, that vision is not possible, or like how, what do you do specifically for the CEO at that higher level to enable that vision or to disable the vision? Because it's ridiculous.

Anthony Nitsos: Ultimately all plans, whether they're strategic or tactical, whether you're using OKRs or you're using, using EOS or whatever, or you're just doing it by the seat of your pants. Um, ultimately you wanna translate that into a financial vision that others believe in. And that second point's important that others believe in. Um, by working with the CEO on it, in some cases, you know, very regular basis, depending on whether it's, you know, during a planning season, for example. Is to sit down and say, okay, what's your, what's your org look like? What's your tech stack look like? What are your opex that are gonna be outside of that? What's your down into, you know, what's your travel meals and entertainment? Looking all of that and saying, okay, here's the impact on cash. Here's the impact on the p and l. Here's the impact on your important SaaS metrics, if that's in fact what you do, and then you measure yourself against that. So it's a, you know, it's a visioning process in that, you know, you make a lot of assumptions about sales. You make a lot of assumptions about leads and what your, you know, your top line is gonna look like. And then you make the, in some cases, easier assumptions about the org. Who's gonna take, how many developers do you need? What do you need in the sales and marketing department? What's your back office profile look like and do using that org planning piece. You know, if you're a SaaS company, anywhere from 60 to 80% of your cost is people, you know, it's not like in the old days. It's not in the old days where we're moving widgets around. Right. It's, you know, we're moving bits and bytes at this point. So, you know, in that regards, you are helping them in vision. Specifically how to do it. In a lot of cases, you know, the advanced cases they're taking, you know, the quarterly, you know, key results, the actual Q KRS off the O, you know, the entire OKR plan, if you will, or some form of it. And linking that to financial metrics. You know, we have, you know, what you wanna do in a more mature company is make sure that your various departments are working properly. From a financial perspective that you're being efficient with your money. Your investors want you to be efficient with your money too. They don't want you like, you know, burning it in great big campfires, right? It's like, let's go staff up 30 people. Yeah, okay, let's go jump off a cliff because you're gonna have a train wreck on your hands if you do that. Providing that guidance as well. I've had. Companies come to me with a, a growth plan that says, yeah, we're gonna bring in, you know, there, there're 30 people now. Yeah, we're gonna bring in 30 people on September 1st. I said, no, you're not. That's not gonna happen. Right.

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Anthony Nitsos: Well, at some reasonable, you know, absorption rate where you don't kill your existing people because they still have day jobs to do in addition to bringing people up to speed. Yeah. That's, people don't think of a CFO in that role in terms of the org plan, but we're deep into it because we're having the conversation about here's what the salary's gonna look like to hire those three developers that you need to put this particular product on the roadmap by September or whatever the deadline is. It gets down into that far into the, into the, the discussions.

Sean Weisbrot: Can't the COO do this stuff? I

Anthony Nitsos: mean, I had my COO do it. A lot of CEOs are totally capable of doing it. Yes. Um, you don't have, you don't have to have a fractional CFO. It's if you don't have that function either in your head or somebody else who does that, and in many cases it's also a la carte, you know, there could very well be a COO who handles all that. And what I'm, my role at that point is to be very strategic to their CFO or to their controller. And say, here's how we're gonna do it for SaaS. Um, you know, we have lots of clients where we're engaged at, say, the controller and the CEO level. Um, and then we have other clients where we are the controller and we're the bookkeeper, and we're the, you know, the whole back office. It really depends on what the client need is, and that's the nice thing about the fractional space now, is that if you're at a really small startup and you just need kind of basic initial support, great. We'll set up your chart of accounts. We'll get your financial reports set up. We'll get your bookkeeping taken care of. We'll make sure though that it's set up for sa from day one so you don't have to redo anything. Um, and save yourself thousands, literally thousands of dollars, tens of thousands of dollars later, depending on how far down the road you are.

Sean Weisbrot: What is something that you see startup founders do consistently wrong when you meet them? I.

Anthony Nitsos: Word of mouth is great. If you build it, they will come. Field of dreams doesn't work a lot unless you have an active plan on how you're going to get customers and how you're going to convert them. How pro, how you're gonna convert prospects into customers. I say how you're gonna get prospects right? You a, a good inbound and outbound thought out strategy. It's unlikely you are going to succeed. Now it could be your proof of concept stage. Somebody says, Hey, I think this is a product that's worth doing. You know, I, you know, I'm an industry insider. I see this problem. I go get some money, hire a dev team. I come up with a solution. I get myself a minimum viable product. People are like, Hey, yeah, I would pay money for that. You go for the next round, for example, to, we've done that. Now we've gotta figure out how to scale this up. We know that we have good product market fit, now we need to get to the market. If you haven't really thought through how you're going to do that, you're going to waste money figuring it out. The question is, do you waste so much money that you don't figure it out and your business goes south or you burn cash and do figure it out? You know, or you find the right resources to help you. Which is just another way of saying spending money to figure it out. You know, we have two kind of. CEOs that we work with a lot. I hate categorizing people too broadly, but there definitely is a different set between a venture backed CEO and their company and a bootstrapper. You know, I've been doing this for a while. Not to say that, you know, I know how the world works in depth, but my experience is that the bootstrappers tend to be market insiders who have identified a problem, go out, hire a dev team, and they already have their go to market figured out. That's how they're able to bootstrap. They can get cash flow from day one, do it on a shoestring and grow it from there. The venture side, that tends to be the, I've come up with a cool product that I think has a market. It's a very different point of view. These are trying to figure out the go to market. They have the cool product. These have the go to market in mind. They need the cool product, right? So it's a different mindset. So. The reason why bootstrapped are in the position they're in is they have that figured out early that go to market is figured out early. They know what the problem is. They know where the product market fit is. They know what the ICP is from the beginning. They've got their personas. I mean, if you want to go to the, you know, more traditional way of doing it, or they figured out who their customer is and where their water holes are and they know how to sell to 'em bluntly. That's what separates, that's the one that is most missed by the, the venture backed side of things, is that figuring that go to market out.

Sean Weisbrot: I've interviewed many more bootstrap founders than I have funded founders, and I've been a bootstrap founder and a funded founder. And my bootstrap business made incredible amounts of money and my funded company never made a single dollar so. There's your ex, there's kind of proof, uh, as a single data point.

Anthony Nitsos: It kind of fits right now. So the, the company where you made oodles of money, were you like a market insider? You'd been working in the industry for a while, you knew how, where all the players were and you know where the, the demand actually lay.

Sean Weisbrot: Yeah. I was in China. I spoke Chinese. I was the only white guy who could, and I was helping blockchain companies raise money. Get them listed on centralized exchanges. I'd studied the industry from 2015 and 2016 I started making money until 2018 when the crypto winter happened, middle of 2018, and then crypto winter came, and then I said, oh, I'm gonna start a tech company that I know nothing about with the profit that I made. And like that was a really bad decision. But I also grew tremendously in a number of ways because of the experience. So I, I can't discount the growth that I've had as a person, as a business owner. But now I'm back to doing unfunded, you know, to, to doing bootstrap business because it's a lot better. As you running a, a fractional firm, you understand the benefits of not needing to raise from other people because you, you own everything and you can decide what to do with the money that you, that you make.

Anthony Nitsos: Um, we have clients that pay themselves very well and it's a lifestyle income. We have others that are plowing it back into the indu, back into the business in order to grow it 'cause they want to exit. Um, you know, it really depends on where their heads are in terms of, you know, their lives and their, you know, their lifestyle, if you will, with, you know, what kinda life do they want. And then, you know, the, the stage of the company and its product and where it's in, you know, as far as the product, as far as the marketability, as far as the, the commercialization phase.

Sean Weisbrot: Have you ever worked with venture debt?

Anthony Nitsos: Um, well, okay. Let's talk about kind of pluses and minuses, if you will. Menu a menu B, menu A. The pluses are, it's non-dilutive. It's cash that you can use, that you don't have to sell equity so your payday later on doesn't get impacted by, you know, if, if you can use this to build value, which is what you should be looking at venture debt for. Can I, where I usually see venture debt come in is bootstrapping. I don't see venture debt a whole lot on the VC side because the venture capitalists don't like venture debt. They like to, you know, have their positions, you know, without any issues there. But the bootstrappers, of course, they're, you know, in the position where they have enough cash flow to support venture debt. So you need to, you need to have an established cash flow, right? You have to have a, a customer base for the, the venture debt guys to actually take you seriously and say whether or not. They're gonna put, um, some money on the table for that. It's high interest rate, if you take a look at it from a, a pure interest rate standpoint, um, back in the day it was like 25, 30%. I don't know what the rates are today, but they're substantially less than that.

Sean Weisbrot: Typically I'm seeing 1% a month.

Anthony Nitsos: Right. So that's 12. I'm, I was about to say, I'm seeing double digits. I dunno if you're seeing it down in 12%. That's, that's not bad. Right. So then the question becomes, can

Sean Weisbrot: you grow your business more than 12% in the 24 months?

Anthony Nitsos: If you take in, you know, let's say half a million dollars for sales and marketing, right? You're gonna, you're gonna throw it into Rev, you're gonna want more than to get half a million back out. You're gonna want to get three to five times that back out, at least, um, to prove the concept that, yeah, I put money in here, my go to market works, and I get more revenue here. Um, so that, that kind of debt, um, if you're using the founder, if you're, if you're using venture debt for growth of your business, understand that that's high risk. That goes back to you. Do you have your go to market figured out? In other words, we are gonna pour this money in and then you need to have your cash forecast nailed down to make sure you can support that debt. 'cause you're gonna have to pay it back. Um, and you have to pay that back out of operational cash. So it's a, it's a two-sided story. What are you gonna use it for, and what do you think that bet's gonna look like? And then can you support the, the maintenance of that debt? In the meantime?

Sean Weisbrot: Part of my argument is if you're, if you've raised four or 5 million from a, a vc, your seed, seed, seed raise, whatever, and you can get an extra one, one and a half million dollars, it increases the likelihood that you'll survive to raise your a round. Chances are you'll waste some of that money that you've raised. So this gives you a buffer, and if you do it correctly, the amount you'll be able to raise at the next round will be more, and the valuation you'll be able to raise at will be higher because you've had more time and money to prove your go to market.

Anthony Nitsos: So piggybacking on an existing round, or shortly after a round, um, is a strategy for later stage companies, ones that have a round. Right. Sometimes they're using the venture debt for the first time, like Bootstrapper. They're just, you know, they, they've got whoever happens to be giving them their debt. Um, and they're in negotiations on that maybe to expand it, but it's all debt they had don't, have not taken in, say, a price round or a safe or anything on the equity side of things. If you've got an equity deal, and I've seen a client do this recently as well, we're looking at this right now, they just brought in a nice round. They're, you know, using the, their cashflow positive for the first quarter. They look like they're going to be, gee, would be nice to have an additional million and a half in liquidity just available in case we need it. So like a standby facility. Um, I'm seeing that as well. Um, you can find a, an investor perhaps that might guarantee a line of credit at a bank. You could even go that route, kind of an old school way of doing it. Or you could go to a founder's, uh, founder path or something like that and get, you know, a proper venture debt and bring cash in. Just make sure that you can afford the cash back out, um, without it killing your operation. For Bootstrap, that's a very important question. Does it fit into the Working Capital profile VC back? They, you know, if they had just got a big round Yeah. That, that could very well be a move. Um, it just depends on, again, how reliable that income stream is. That's gonna be the primary driver for how much debt you get.

Sean Weisbrot: Is there anything I haven't asked that you think you could say to add value?

Anthony Nitsos: Yeah, let me give you a little bit of perspective. My initial training was in medicine. I was actually in medical school when I decided that I did not wanna be a doctor. Um, but that belief in human, the human condition, and the fact that we're employing people, right? We've been talking all about the money side of it, but the reality is, is that this is what we do. You and I and everybody else out there as people, and we wanna do a good job and we wanna have fun doing it, and we wanna enjoy that. And we wanna have people that we work for that are, you know, respect us and set realistic goals for us. And don't change things, you know, arbitrarily, basically treat us well as human beings. I always stress that the, the human operations side of your business, the people operations side of your business is a. Lucrative source of creativity and success for you. If you treat your people really well, people will really reward you with their best effort if you respect them and treat them well and give them, you know, proper, you know, nurturing as well as goals and whatnot. And so I, I go back to my original training is in human medicine in that companies are very similar to us. People, corporation means body, and ultimately in Latin, right? So in that regard, it was easy. It's always easy for me to say, don't forget your people. Make sure that they're taken care of, because that is really what your success is built on in the end.