Money is no funny, especially, if you take a closer look at the latest list of CB Insights startup post-mortems. Debt, poor cash flow management and unwise distribution of assets were among the most reasons why certain companies chose to close down their operations. While most startups learned how to successfully raise funds, a lot of founders clearly lack the skills to manage those newly acquired assets. Their data suggests that most startups die after raising $1.3 million in the seed round(s).
Recently, I had a chance to chat with David Heacock – a Goldman Sachs employee, who left the company to pursue his own venture FilterBuy – now an 8-figure online business. David has agreed to share some tips about striving within a seemingly boring B2B niche and keeping the company’s financials in order.
Can you, please, briefly introduce yourself and tell about your role at Goldman Sachs?
I joined Goldman out of college and it was a formative 7 years for me, during which I experienced the financial crisis first hand. Figuring out the aftermath was quite a challenge. Yet getting to work with and learn from an amazing group of people during an intense time really gave me the confidence to do what I am doing today.
I was an FX Options trader when I left I managed the Emerging Markets options book in New York.
Why did you decide to leave the corporate world and launch your own company, FilterBuy?
In 2012, I left Goldman to buy out a small industrial supply distributor. It looked like a good deal and I felt curious about online commerce. By 2014, FilterBuy was launched as it is today. With FilterBuy, we are the direct manufacturer of air filtration products (we have a 100,000 sq. foot manufacturing facility in Alabama where all our product ships from). While we have a healthy (8 figure) consumer facing business, it pales in comparison to the B2B opportunity, which is our main focus.
You see, there is a fundamental shift happening in the way people are purchasing. From bricks to clicks as Deloitte puts it. Just imagine that last year 53% of global Internet users (or approx. 1 billion people) have made at least one online purchase.
It may seem that B2B transactions are still happening mainly offline, but the shift has already started. Frost & Sullivan projects B2B e-commerce market to hit $12 trillion in sales globally by 2020 with a compound annual growth rate of 8.11%. Forrester says that U.S. B2B e-commerce sales will leap from $855 billion in 2016 to $1.13 trillion by 2020.
The B2B market potential is much larger compared to the B2C segment, so that’s why I am devoting my time and resources right it now.
That’s curious. So what’s your company’s strategy for shifting the focus toward the larger market?
Over time, we expect to launch other brands with a potential consumer component, but even larger industrial B2B potential. Likely through a combination of acquisition and brand building.
At the end of the day, we are as much a technology company as anyone, with a team of great programmers. That allows us to accomplish many things at a scale that you couldn’t have dreamed of 20 years ago. Scaling and expanding business today does come with new challenges, but at least your geographical location isn’t just one of them. Yet still, you need to worry about your financials and accounts a lot.
Yes. Exactly. You do know that most startups die 20 months after raising the first investment rounds. What are the most common financial mistakes new entrepreneurs make?
I’d say being undercapitalized and having unrealistic expectations of what it takes to get something new off the ground. Even the best ideas take longer than most people expect to really get off the ground. Airbnb, Lyft, Uber, Instagram and all those other unicorn companies were not built in a day or two. While it’s hard to estimate how “continuous” your product development would be, don’t expect it to be lighting fast.
Also, if you grow too fast, that can be a double-edged sword as it can eat up your cash resources too quickly. Striking the right balance is tricky. Yet, you should aim for the closest estimates and most accurate projections you can create with the data at hand.
And how should startups build accurate financial projections?
For the most part, you can’t. I think a lot of people get too caught up in trying to project the unknown early on and it is often just a waste of resources.
By definition, when you are starting something new there are a lot of gray areas. This is why you need to have enough of a cushion to get you through the early stages. I think that having set goals for different time frames (6 months, 1 year, etc.) are important so that you can measure where you are on the right path and whether the idea is still worth pursuing.
What metrics should you track to measure your goals progress?
The best metric to focus on varies by your stage in business. However, at the end of the day, a business comes down to:
- Customers that pay you money for that product.
Before you can sell something, you need to make sure you have something really great to offer. For instance, we spent our first 2 years really focusing on building our manufacturing facility and the infrastructure to be able to support our business at scale.
Once you have your product and potential to scale, it comes down to a scalable customer acquisition strategy. Try to track the CAC costs at different stages and dilute the tested channels bringing low ROI.
Any final financial advice for the founders?
I’d say that at the end of the day, your job as CEO is to set the vision for the company, hire the right people to execute that vision and to make sure the company doesn’t run out of money. That means that you actually read the reports; track forecasts and create financial goals together with your team.
I would add to this that having enough of a financial cushion such that you can handle the inevitable setbacks is critical when running a growing business. That also goes for having some personal savings set aside to keep you sane and sound.
This post is part of our contributor series. It is written and published independently of TNW.