Become a Financial Quarterback

As the CFO of YipitData, Eric Lesser has to have a quarterback-like vision on his company's financial health.

Eric manages the finance and accounting teams to help the company financially strategize for all ongoing and new initiatives. His work cuts across the organization's different teams and is the linchpin to maintaining Yipit’s explosive growth.

Prior to joining YipitData, Eric was the VP of FP&A and Corporate Development at Payoneer. There he helped lead several venture rounds as part of the internal Corporate Development team. Having joined Payoneer in mid-2012, Eric watched the company transform from a relatively successful early stage venture to a global player in the payments space.

Give me the FP&A 101 for startups - What does it mean? What are the work products of someone in FP&A? What are some different calculations or metrics typically used?

FP&A’s main goal is to provide insights to help business managers make informed decisions.

What does this mean in practice? While each FP&A team will have different responsibilities, there are more standard FP&A work products, and ad-hoc analysis that will depend on the company and change as the company scales.

Some of the more standard work products can include forecast models, budgets, board reporting, unit economics and KPI monitoring, and other ad-hoc analysis.

To dive a little deeper into a standard work product, FP&A is typically responsible for creating a multi-year forecast for the company.  In order to do this the FP&A team needs to understand the drivers of the business’s revenue and determine what revenue can realistically look like a few years out and the resources needed to get there.

As an example, FP&A might first look at the business and come up with a reasonable assumption of how much it will grow based on historical trends.  From there maybe you layer on how much new sales the business will do based on the productivity of the sales team.  If you want to grow, you might add more salespeople, but then FP&A will need to understand how those new people increase costs – for example, you might need more office space, or maybe you need more people in HR to recruit them, etc.

So, it’s really about seeing the entire picture and coming up with a coherent logical story for what the future might look like.

When should startups begin thinking about implementing an FP&A process? What initial steps do you recommend a growing startup take to make sure they stay financially healthy?

Businesses would benefit from having a more structured FP&A process once they are in a stage where they need to allocate financial resources and prioritize among different investment decisions.

When a startup is early, and just trying to build and market a single product, it’s a bit simpler; you need to budget your cash, of course, but you aren’t deciding between multiple competing different investment opportunities that you need to evaluate separately.  Then you might reach a phase where you are growing super quickly and don’t really have time or a need to think about FP&A.

But once you are in a place where you could either invest in sales, product team or marketing it becomes worthwhile to add some more structure since you will need to figure out which is the best investment and what you can afford. At its best, FP&A helps the business understand the trade-offs of investing in one area versus another. On top of that, FP&A will be able to show you, with some reasonable accuracy, how much revenue the business will be needed to pay for those investments. Then, as a result, how much cash will be generated or, more likely for a startup, how much additional cash you will need to support the business.

Modeling can be a bit of an art - what factors go into your modeling process at Yipit?

I definitely agree with that statement.  We are certainly doing a lot of analysis for our models and are being as scientific as possible, but at the end of the day when modeling you are basically trying to predict the future and there are a lot of unknowns.

At YipitData and at Payoneer, our modeling process was somewhat similar in the sense that we differentiated between our existing products versus new opportunities. The existing business is much more predictable; we take a few different approaches but one way that we have seen some success in the past is by looking at the trends on a cohort basis and using that as a way to determine what the next few years might look like.

For example, we might look at products we launched in 2018 and see how those products scaled up in 2019 and 2020 and compare that to 2019 new products launched and the performance in 2020.  From there you can potentially identify some patterns that will help you determine what a realistic number in the future might be depending on a range of factors.

How is this different for new products vs existing products?

For new products, you don’t have these historical trends to analyze, and that’s when it can become much more of an art.  So there are a few different approaches here: you might try to figure out a similar product that was launched before and expect a similar result, or you might do more of a top-down market sizing analysis where you estimate how big the potential is and come up with a reasonable number for how many customers you can acquire over time.

For both existing and especially new products analysis is the key to putting a strong model together, but at the same time an effective FP&A team really needs to understand all aspects of the business.  So, you’d want to work with product and sales teams to understand if the assumptions you are using are reasonable, and if not, why not.

And once you have the model built, it’s really important to track actual results versus expectations so that you can learn about how to adjust in the future.

Who are the stakeholders when it comes to FP&A at Yipit? As CFO, what is your process for dealing with everyone and making sure everyone is aligned?

The FP&A team is really only as good as the inputs we are getting from other parts of the business.  The reason for this is that the numbers and financial analysis are very important, but numbers will only tell you part of the story when trying to understand prior performance and what it means for the future.

In order for FP&A to be effective, you really need to understand the business, which comes from building relationships with others outside of finance. That should really include all departments, such as sales, marketing, product/technology, operations, HR, etc.

The tricky thing here is that managers of these departments are usually very busy running their respective areas of the business, and it’s a meeting with FP&A can be seen as unnecessary bureaucracy that slows things down.

In order to combat this, I’ve found it’s really useful to not only use these meetings as a way for FP&A better understand their areas of the business but also to demonstrate the value of what FP&A can bring.

A few ways to do this include proactively sharing analysis that can be insightful and interesting to them, explaining why the information is needed and how we are positioning the company to the Board, and finally and most importantly really positioning the FP&A/manager relationship as a partnership that will help us justify investment in whatever they want to achieve.

This doesn’t happen on Day 1 and takes time, but it can be tremendously helpful in getting the alignment needed.  It requires an FP&A team that is not only good at number crunching but at explaining numbers on a high level to people who are not used to seeing them every day.

What other types of finance or accounting processes are in place for a team the size of Yipit (team wide, individual) and what is the cadence of reviewing these?

We will end the year with just over 170 employees, up from 115 earlier this year.  We’ve been fortunate to grow despite the difficult circumstances that everyone faced this year with COVID-19.

Some of our major processes include:

• Budget – this kicks off in September and finishes toward the end of the year.  It involves first getting a sense internally of where the business is likely to end up from a revenue / cash flow point of view, and then deep discussions with each manager to determine what are some of the new initiatives we will want to focus on in the next year and projecting how much they will cost and the potential return on investment.
• Budget versus actual analysis – the next step once the budget is approved is to share a file with each manager on a monthly basis to demonstrate what their expenses were versus the budget. This gives them clear insight into how things are tracking.  I tell the managers that while we do want to monitor expenses, the best thing that could happen is if we find some sort of investment that is working really well, and we want to increase the budget for that expense. This is a great opportunity for us to better understand what is happening in each department and what they are focused on and why.
• Board of Directors presentation – our Board of Directors has monthly calls and quarterly meetings, for which the FP&A team is responsible for putting together analysis charts and KPIs to demonstrate how the business is doing relative to expectations and why.
• Monthly financial close – we report our financials on a monthly basis and each month kicks off a 10 day in depth process to close our books and report accurately
• Monthly meetings with teams – The FP&A team meets with other teams outside of the budget process on a monthly basis to both share analysis and learn about what is happening in other areas of the business.  The more we can understand the business the better we are able to analyze and forecast
• Distribution of a KPI dashboard – this is a process we are just starting now on a monthly basis but at Payoneer it was more frequent.

What tools does your team use? How do you anticipate your toolset changing as your team grows?

On the FP&A side, our primary tool is Microsoft Excel / Google Sheets.  This has its limitations but gets the job done.  Over time I believe we will implement a Business Intelligence system for analysis, such as Tableau, plus a FP&A tool for budgeting such as Adaptive Insights.  The issue with tools like this is that it takes a lot of attention and time for the team to implement them in the right way, and since we have a relatively lean team, that’s not something we have prioritized.

Also, when you are a fast-growing company, your financial projection model may change from year to year. I’ve found it’s fastest to update and modify the underlying logic in Excel versus building out in a software tool.

On the accounting side, we use QuickBooks but over time may migrate to another ERP.

When do you think startups should hire a full-time CFO role?

I think hiring someone at the C-level should be after a couple of rounds of funding and real traction in the business.  This can really vary by company but for the sake of simplicity let’s say at a minimum reaching Series B funding round, and on a run rate of $10m+ revenue.

Prior to that a start-up may go two different directions – hiring a couple more junior people (controller/FP&A) or start with a VP level who can build out their own team over time.  I’d suggest going the VP route because you’ll find someone with a bit of experience who can manage a team and is still willing to do all of the financial modeling and other difficult analysis work required, while they work to get their first couple of hires. And if you’re lucky maybe this VP is able to eventually scale to the CFO role over time and if not, then you can hire that more senior person later on.

More broadly it seems like there’s two types of CFOs that companies can look at – those with a lot of accounting expertise and those that came more from a FP&A background and can be more of a strategic business partner.  In my own experience I see more start-ups aiming for the latter these days, but it really depends on the company’s needs.

You have helped fundraise hundreds of millions of dollars - What was your role in these rounds and what are the challenges for finance teams in handling deal sizes as large as those you saw at Payoneer?

At Payoneer I was responsible for FP&A and what we called Corporate Development, which included Capital Raising and M&A.  During the capital raise processes (I was there for a Series D and Series E) we did not use investment bankers which meant our team’s role was pretty intensive.

First, we had to prepare the presentation for the initial management meeting with investors, and from there to basically manage everything afterwards.  After the initial meeting the investors will ask a ton of questions about the business and financials.  Our team was responsible for putting together all of the analysis that answered these questions and walking the analyst on the investor side through them and getting them comfortable.  We also were responsible for leading diligence which meant putting a data room together and coordinating with all of the other managers in the company that needed to answer specific questions.

We had to work with the legal team to make sure the documents were in order and managed most of the investor communication during the process.

I’d say the capital raises took up around 80% of my time while they were ongoing, which was the biggest challenge, since at the same time there were so many other things we had to do to support the business that we didn’t want to put on pause.

Having a banker would help alleviate some of that work burden, but at the end of the day this is time really well spent for a FP&A team and is very rewarding and motivating if you get a deal done.

For the non-finance managers and founders, what resources would you recommend learning about the field?

For someone who is non-finance I think it’s important to just understand a bit more about how investors think about start-up businesses versus getting into the details of finance or accounting.

In the early days, you can outsource the accounting and finance related work before you get your first hire, and there are a lot of people out there you can hire to do that on a part time basis.

A great resource is AVC, a blog written by Fred Wilson of Union Square Ventures, and also Paul Graham has a great blog. I also like the Axios (Dan Primack) and Term sheet daily newsletters which talk about what companies are out there getting funding and some of the more pertinent start-up business/finance related issues that will help get you to understand the VC investor point of view a bit better.

Finally, I’d recommend just talking to CFOs/VPs of Finance in your network to learn about some of the issues that might be important in the near term.

What have you been reading lately (articles, books, specific writers etc.)?

I just finished the book Traction: Get a Grip on your Business, which is a great read to help think through some of the issues as you scale businesses. On the non-business side, I’ve been into autobiographies recently and really enjoyed Kitchen Confidential by Anthony Bourdain.

What startup(s) are you paying close attention to at the moment?

It’s not a startup, but I love Tesla and am fascinated by anything Elon Musk is working on. I also follow some of the fintech companies since I spent over 7 years at Payoneer – it’s been amazing to see the growth of companies like Stripe recently.

Favorite activities during your down time?

I love to travel and most recently was lucky to see the mountain gorillas in Rwanda a little over a year ago.  My wife and I also love going to new restaurants in New York and while that’s slowed down by COVID-19 we try to support them by doing outdoor dining when we can.

I’m a huge fan of playing sports and have been playing a lot of tennis recently.  I also play in a men’s basketball league one day a week but that has been on hiatus due to COVID-19.

If you are interested in reaching out to Eric, find him on LinkedIn here.