Managing Cash Flow to Drive Startup Success

Summary

Podcast Summary: Your Next Move – Episode: Managing Cash Flow to Drive Startup Success

Podcast Information:

• Title: Your Next Move
• Host/Author: Inc. Magazine
• Description: Features authentic and insightful conversations with today’s most innovative entrepreneurs and business leaders, produced in partnership with Capital One Business.
• Episode: Managing Cash Flow to Drive Startup Success
• Release Date: August 20, 2024

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Introduction

The episode opens with Sarah Lynch introducing the topic of cash flow management and its critical role in startup success. She provides an overview of the conversation, highlighting insights from Cynthia Lowe, Head of Beyond the Card at Capital One, and an in-depth interview with Ayesha Bo alongside the founders of Farther, Brad Genser and Taylor Matthews.

The Importance of Cash Flow Management

Cynthia Lowe emphasizes the fundamental aspects of cash flow management for businesses. At [01:11], she defines it as the balance between incoming revenue from customers and outgoing expenses such as inventory, payroll, and rent. She highlights a common issue where a timing mismatch between cash inflows and outflows necessitates access to additional funds. Cynthia notes, “Over half of the 33 million businesses in the US experience cash flow shortages at least once a year” ([01:30]).

Cash Flow Tools and Solutions

At [01:39], Cynthia discusses how business credit cards and other financial tools can aid in managing cash flow. Capital One offers flexible payment options, autopay features, and fraud protection, all of which help streamline expense management and safeguard against financial disruptions.

Notable Quote:

“Business credit cards offer a variety of tools and integrations to manage cash flow... Credit cards also offer protection against fraud which can impact your cash flow as well.” – Cynthia Lowe ([01:44])

Interview with Farther Founders: Brad Genser and Taylor Matthews

Phases of Growth for Farther

Ayesha Bo initiates the conversation by asking about the major phases of growth for Farther. Brad Genser outlines four primary phases:

1. Seed Phase: Establishing product-market fit.
2. Early Growth Phase: Rapid iteration and scaling.
3. Later Growth Phase: Accelerated scaling and refining operations.
4. Maturity Phase: Achieving profitability and expanding into new areas.

Notable Quote:

“Managing cash flow is fundamental throughout all phases, ensuring that each growth stage is adequately funded.” – Brad Genser ([03:45])

Seed Phase Challenges and Strategies

The Seed Phase is described as “an extremely gritty phase” where operations are managed manually, often relying on spreadsheets ([05:15]). Taylor Matthews highlights the lack of established processes and the necessity of building them from the ground up while maintaining a focus on people, processes, and technology.

Notable Quote:

“From a finance perspective, the people who are joining you are not necessarily... they might not be the most capable at creating structures and the like.” – Taylor Matthews ([05:24])

Raising Capital: Brad discusses the initial fundraising efforts, starting with personal networks and progressing to angel investors and institutional investors. They aimed to raise $800,000 initially but ultimately secured twice that amount to navigate unforeseen challenges like the pandemic.

Notable Quote:

“We ended up raising about twice that amount of money at the earliest stage of our company.” – Brad Genser ([09:30])

Founder-Led Sales and Building Trust

In the Seed Phase, founders often lead sales efforts to build trust with early customers. Brad explains that in wealth management, trust is paramount, and their personal involvement helped bridge the gap between the current product and the envisioned future.

Notable Quote:

“Being a founder adds a bit of credibility to that process.” – Brad Genser ([10:37])

Managing Cash Flow During Seed Phase

Taylor emphasizes the paramount importance of cash flow management in the Seed Phase, describing it as “cash flow is king” ([11:31]). They adopt a conservative spending approach, rigorously evaluating each expense to ensure longevity and sustainability.

Notable Quote:

“Every single expense is saying, do we need that subscription? Do we need this thing?” – Taylor Matthews ([15:14])

Expansion Phase: Scaling Operations

Transitioning to the Expansion Phase, Taylor outlines the shift towards building infrastructure to support rapid growth. With a team expanding to 170 people, maintaining culture, optimizing processes, and ensuring cash flow efficiency become critical.

Notable Quote:

“Your foundations have to be very, very strong for scale.” – Brad Genser ([24:24])

Spending Strategies: During expansion, spending becomes more strategic. Brad discusses balancing aggressive product development with disciplined financial management to support scalable growth.

Notable Quote:

“You're constantly making choices about how can I build, what next best feature can I build.” – Brad Genser ([30:57])

Maturity Phase: Achieving Profitability

Looking ahead, the Maturity Phase focuses on attaining profitability. This involves optimizing operations, automating processes, and ensuring that growth is sustainable and self-sufficient without relying heavily on external funding.

Notable Quote:

“Profitable growth is what it looks like... generating a healthy cash flow over time.” – Brad Genser ([36:59])

Challenges and Stress in Managing Cash Flow

Both founders acknowledge that managing cash flow is consistently challenging across all phases. Brad candidly shares the ongoing stress of monitoring cash reserves, describing it as “terrifying” but necessary for sustaining the business.

Notable Quote:

“The most stressful part of my job... is looking at our bank account because it's always a lower value than it was the day before.” – Brad Genser ([38:23])

Founder Lifestyle: Balancing personal life with the demands of managing cash flow is highlighted as a significant challenge. Taylor mentions the financial pressures of family responsibilities, underscoring the importance of maintaining a work-life balance.

Notable Quote:

“Kids are really expensive... you have to really balance.” – Taylor Matthews ([36:14])

Conclusion

The conversation concludes with reflections on the relentless nature of cash flow management in startups. Brad emphasizes the importance of perseverance and strategic planning, while Taylor reiterates that operational challenges are inherent in building a successful business.

Notable Quote:

“It's a lot more going on, gets a lot more complicated, and it's much more important that you're very, very disciplined.” – Taylor Matthews ([32:14])

Final Thoughts: Ayesha Bo wraps up the discussion by acknowledging the valuable insights shared by Brad and Taylor, highlighting the critical role of disciplined cash flow management in navigating the unpredictable journey of entrepreneurship.

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Key Takeaways:

• Cash Flow Management is Essential: Understanding the timing of cash inflows and outflows is crucial for sustaining business operations.
• Phased Growth Requires Different Strategies: Each growth phase—Seed, Early Growth, Expansion, Maturity—demands tailored approaches to managing cash flow.
• Founder-Led Efforts Build Trust: In early stages, founders play a pivotal role in sales and establishing credibility.
• Conservative Spending in Early Phases: Maintaining a disciplined approach to expenses ensures longevity during uncertain growth periods.
• Scaling Requires Strong Foundations: Robust processes, culture, and infrastructure are vital for supporting rapid expansion.
• Balancing Growth and Financial Stability: Even during aggressive growth phases, maintaining financial discipline is necessary to prevent cash flow issues.
• Personal and Professional Balance: Founders must navigate the stress of managing finances while maintaining a healthy work-life balance.

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Notable Quotes with Timestamps:

• Cynthia Lowe ([01:11]): “Cash flow management for business at its core is understanding how all the money that they are generating from customers for their goods or services best covers all the money out.”
• Brad Genser ([03:45]): “Managing cash flow is fundamental throughout all phases, ensuring that each growth stage is adequately funded.”
• Taylor Matthews ([05:24]): “From a finance perspective, the people who are joining you are not necessarily the most capable at creating structures and the like.”
• Brad Genser ([09:30]): “We ended up raising about twice that amount of money at the earliest stage of our company.”
• Taylor Matthews ([15:14]): “Every single expense is saying, do we need that subscription? Do we need this thing?”
• Brad Genser ([24:24]): “Your foundations have to be very, very strong for scale.”
• Taylor Matthews ([30:57]): “You're constantly making choices about how can I build, what next best feature can I build.”
• Brad Genser ([38:23]): “The most stressful part of my job... is looking at our bank account because it's always a lower value than it was the day before.”
• Taylor Matthews ([36:14]): “Kids are really expensive... you have to really balance.”
• Taylor Matthews ([32:14]): “It's a lot more going on, gets a lot more complicated, and it's much more important that you're very, very disciplined.”

This episode offers a comprehensive exploration of cash flow management in startups, providing actionable insights for entrepreneurs navigating different growth stages.

Transcript

[Capital One Voice]

With the Venture X Business Card from Capital One, you earn unlimited double miles on every purchase and with no preset spending limit, your purchasing power adapts to meet your business needs. Capital One what's in your wallet? Find out [e-mail] Venture X business terms and conditions apply.

[Sarah Lynch]

I'm Sarah lynch and you are listening to your Next Move Audio Edition produced by Inc. And Capital One Business. On today's episode, host Ayesha Bo talks with the two founders of Farther, Brad Genser and Taylor Matthews. Farther is a technology centric wealth management firm combining expert knowledge with cutting edge tech to create a more holistic approach to money management for their clients. In their conversation, they drill down on the notion of cash flow and expound on the importance of cash flow to a company's success. But before we get to that interview, I talked with Cynthia Lowe, head of beyond the Card at Capital One, to get even more insight into the importance of cash flow. Cynthia, thank you for joining us today.

[Capital One Voice]

Great to be here.

[Sarah Lynch]

Why is Cash Flow management so important?

[Capital One Voice]

First, let's define what we are actually talking about. Cash flow management for business at its core is understanding how all the money in the that they are generating from customers for their goods or services best covers all the money out inventory, payroll, rent and other expenses. The challenge for many businesses is that there's often a timing mismatch between the money in and the money out and therefore a need to get access to cash. Over half of the 33 million businesses in the US experience cash flow shortages at least once a year.

[Sarah Lynch]

Let's talk about how business credit cards and other tools can help manage these situations.

[Capital One Voice]

Business credit cards offer a variety of tools and integrations to manage cash flow. In addition to the typical 30 days of float you get with a credit card, all Capital One business cards let choose your own monthly due date to control when you pay. Reduce time spent on paying bills with autopay and avoiding late payments. Authorize recurring transaction and easily see subscriptions. This also helps with avoiding duplicate fees and tracking price changes. Credit cards also offer protection against fraud which can impact your cash flow as well.

[Sarah Lynch]

What are some other tools that can help businesses pay their vendors?

[Capital One Voice]

What I find fascinating is that 81% of businesses today still use paper checks for payments even when there are faster, cheaper and more protected ways to pay bills. Capital One offers a tool for all small business customers which allows businesses more flexibility in how a business makes payments and can offer the ability to pay 100% of your bills digitally and track all vendor payments with an easy to use dashboard. As a small business, you can choose the way you pay even if the vendor doesn't accept credit cards.

[Sarah Lynch]

Are there other financial planning benefits that business cards can offer? In addition to supporting cash flow management.

[Capital One Voice]

Business credit cards can contribute to strong financial management practices overall, including year end summaries that give you an itemized report of your spending to simplify budgeting at tax time integrations with platforms like QuickBooks, Concur, Expense, Expensify and others to seamlessly transfer spending information and see your accounts payable in one place. And finally, fraud and security alerts that let you know about suspicious or unexpected charges on your account.

[Sarah Lynch]

Thank you Cynthia for sharing these insights about expense management tools to streamline your business.

[Capital One Voice]

Really appreciate it.

[Sarah Lynch]

And now here is Ayesha Bo's conversation with Farther founders Brad Genser and Taylor Matthews. Enjoy.

[Ayesha Bo]

Thank you for sitting down with me again, Brad and Taylor, I'd love for you to take a moment and walk me through the major phases of growth for Farther.

[Brad Genser]

Well, thanks very much for having us. We really appreciate being here. Major Phases of Growth for Farther at our very beginning, we kind of defined a few phases that we would progress through as a company, and these are in part phases that we had we had established for ourselves. They're in part influenced by what we expected the market to demand of us as we continued to grow and advance through these phases. But you know, at a very high level, seed phase where we're just getting started, we're trying to figure out product market fit and, you know, prove that somebody somewhere is going to buy what we're selling. Then an early growth phase where we have some sort of semblance of product market fit, rapid iteration, continuing to progress through there a somewhat later growth phase where we're hitting scale and we're really trying to put the pedal to the floor, continue to do what we do really well. But that next level of scale over and over. And then finally, and we're not quite there yet, a maturity phase where we get to profitability and we can start to really think about how do we grow a very mature company from there expand into different areas and be really excited about hitting that kind of profitability mark.

[Taylor Matthews]

Building a business is a wild adventure, but it's something that's very structured and you have to be very cognizant of what you're taking risk on and what's fixed in each phase. Starting with the seed stage, the seed phase.

[Ayesha Bo]

We know that that can be a messy place. So can you tell me a little bit about your approach to Seed Some of the things that worked for you and how you navigated that tricky area.

[Taylor Matthews]

Yeah, you know, seed phase is an extremely gritty phase and this is where you're running everything in spreadsheets. From a finance perspective, the people who are joining you are not necessarily. They might be very committed to the journey, but they might not necessarily be the most capable at creating structures and the like. And you're surfing this kind of uncertain wave of your platform as you do this. So really we will say people, process and technology are always in view. People are getting used to what you're saying and the mission of the company. From a process perspective, there are almost no processes whatsoever and you're building those out. And from a technology perspective, it's all quite nascent. You're trying to figure out out the technology that you're building as well as the supporting systems that you're not building.

[Brad Genser]

I'll bring it back to the theme of today is cash flow. Like before, all that need to get some money and we need to run a business. We need to hire people, we need to build all of those people process and technology. And that demands cash. So the way that we started with that was PowerPoint and a dream, talking to our friends and family and progressing from there to a series of angel investors and ultimately our first institutional investor. But the idea was we knew that this was going to take some amount of cash to get off the ground. It's wealth management. It's not the minimal viable product for wealth management. It has a higher bar than most businesses because it's people's money. It's everything that you've ever built for in your entire life, everything that you've saved. We acknowledged that it meant that we needed to invest a little bit more upfront before we could go after those first true target customers of ours. And again, that demanded capital.

[Ayesha Bo]

Can you share a little bit about how you approach the process of raising your friends and family around? When I started out, I immersed myself in Guy Kawasaki. I was looking at pretty much everything Y Combinator. And I think you guys both know there's like this entire arc to creating a pitch. And there's even more of an art when you're talking to friends and family, many of whom are not ashamed to tell you how they truly feel about your idea. Did you find that you needed to iterate a lot, give us some tips and best practices at this phase?

[Brad Genser]

Sure. My mom definitely didn't understand why I was leaving a very well paying job to go to this. I think both of us were Also immersed in the kind of lean startup sort of environment. Both of us went to MIT together. That was very much how entrepreneurship was taught there. And we also probably spent too much time on crafting a deck and a financial model and all of these kind of artifacts that you're supposed to have in telling your story and kind of of bringing it to market. Especially as first time entrepreneurs. There's a pretty high bar to, you know, get folks to part with their capital. And, you know, that is part of it. But what matters way more, I think, is the story. And that was something that we got better at telling over and over as we, you know, heard lots, some yeses, thanks, you know, mom and dad, but also like some no's as well. And in trying to understand where the, where the gaps were was pretty important to that process.

[Ayesha Bo]

Did you find that the deck ended up becoming less important than the story that you were telling?

[Brad Genser]

Sure. And probably less important than just who we were as people. I think that that is fundamentally what you're investing in at the earliest stages of company. At some point we were selling ourselves. We're the type of people that have grit that we're going to figure things out. It probably won't progress just as it is on the page. It didn't, by the way. But we are the type of people that will be good stewards of that capital.

[Ayesha Bo]

I want to ask you about that because I found that the amount of money that I thought I needed was very different from the amount of money that I actually needed. So can you talk a little bit about how that worked out for you? How much did you intend to raise versus how much did you actually need at that point in time?

[Brad Genser]

It's a good question. And I'm not sure, like if need is the right word, but we set out to raise $800,000 as kind of a. That's what we thought it would take to get to some first product. What we didn't really consider was there's probably some thing that we need to do after we get to that first product. So we ended up raising about twice that amount of money at the earliest stage of our company. And that gave us not only the ability to get to launch, but also go through launch and prove some level of traction. Also, as it happens, coincided with the onset of the pandemic. So if you remember, at that time, everybody was terrified, like the walls were crashing down. Nobody knew what was going to happen. We definitely had to rethink our plans. No big marketing launch or anything like that. It was just Kind of batting down the hatches and proved that we could probably progress through founder led sales more than anything. But that was. Luckily we raised enough capital to get us through that period and then some.

[Ayesha Bo]

Can you talk about the importance of founder led sales during the seed phase?

[Brad Genser]

First, what our product is, is financial advice. At the end of the day, that's what we're selling. And financial advice is built around trust. When we launched, we had a very bare bones version of our technology product. But what we did have was the trust element. I was the first financial advisor on the platform. I was able to, to kind of bridge the gap between what people could see and kind of the dream of where it would become to where people were right now. And when you're asking somebody to part with their wealth or entrust you with their wealth and give you a chance to manage everything that they'd ever built up in their lives, it's a big ask. So being a founder adds a bit of credibility to that process.

[Ayesha Bo]

Can you talk a little bit about cash flow at this stage, at the seed stage?

[Taylor Matthews]

So cash flow is king at every stage. Naturally, there are some funny kind of things of like we remember from the stage that when we were fundraising, for example, I remember we flew to Boulder and we ate. We were like, we're spending $800 to go to Boulder. And we stayed at like some off site, like, so we shared a room at like, you know, like the Motel 6 across from the outback. And we treated ourselves to a Bloomin Onion when our meetings were done. So I think that there's so much unknown of how long this phase is going to last. Whereas later stages, you start to get a little bit more clarity on your Runway and the like that you really have to sort of hoard cash, if you will. Every single expense is saying, do we need that subscription? Do we need this thing? Can we get this thing for free? Can we use some other solution to, to sort of get us there to the point where we can invest in this? So it's very much about basically taking the most conservative approach that you possibly can during this phase. We break down the seed phase into three parts. First is financial principles. Second is business priorities. And third is the financial markers. So you can kind of look at your company through that lens, through each lens during a stage. And those are important lenses from a spending perspective. Very, very conservative. So you don't actually know how long this phase is going to last or even if it's going to ever end realistically. So you basically are in the most Conservative position on spending. You are not out there flying around, staying in nice hotels or buying really anything. And from a product perspective as well, your investment is really towards getting to a minimal viable product. And the minimum, when we say minimum product, that could literally be a website that says, hey, we have this product. And I think that this is something that people get sort of wrong about how small you can be in terms of your product before you start the learning process. Because ultimately, at the end of the day, starting a learning process is the key to success because you will never plan all the way from 0 to 10. You have to go from 0 to 1 to 2, 3 to 4, and you don't know what 2 through 9 look like thus far. From an operations perspective, you're absolutely, it is the founders doing everything just about, and you're keeping the team pretty small. You're trying to find maybe some strategic vendor relationships that can help you, can help you scale a little bit. But for the most part, it's going to be on you to do everything. From a business priorities perspective, we're trying to get a proof of concept into the market and we're really trying to prove that there is a market and really trying to prove that we have a product that could address that market. So for us, it's winning client, it's winning clients. So people giving you their money and paying you to give financial advice is the proof of concept. And that's a very hard proof of concept. We have a trust based business and those businesses are just naturally kind of harder to build. And again, you're kind of like just trying to build that initial enough proof that there is a thing here, that there's a market, that you have a product and that you can take it to the next stage. From a, from financial perspective, you are absolutely in the hole no matter what you do. Even if you buy a McDonald's biscuit for breakfast, that is negative cash flow. You do not have enough cash flow to cover that biscuit yet. And from a revenue perspective, you know, we're really not targeting on optimizing revenue at all. What we're doing is we are beginning to prove kind of the initial, the initial that someone will pay for it and then maybe gets a little bit of small data about what they're willing to pay.

[Ayesha Bo]

So to confirm, you were definitely cash flow negative in this phase, extraordinarily negative.

[Brad Genser]

Not only from a company perspective, from a personal perspective as well. Like both of us took pretty big steps back from what we were earning before, but you know, with great Risk comes great reward. Hopefully. As we kind of progressed through that early seed stage, we had some level of interest, like somebody somewhere had decided that we're, we're worthy of their trust. And what that serves as a marker of is like, okay, well, maybe there's something here. Maybe it's not just me, maybe it's not just Brad, but maybe there's. There's a company around this that we can build on. So the next thing that you need to do is to prove that you can do it at some next level of scale. For us, that was moving from one financial advisor to three financial advisors and showing that other folks could sit in the seat and build a business on our platform. And so that's what we set out to do, that's what we raised just a little bit more money to do, is to show that they could be successful just like I could. And that was. That's kind of the foundation of this next phase. Same principles, you know, financial, business and financial metrics, but just a little bit more. So we have now tried to demonstrate that we can grow to the next level. We also have to show that we can continue to iterate on the product, and part of that growth to the next level is just making the product more attractive, making it. We're in a weird business where there's a kind of a B2B element. So us selling our platform to financial advisors to come over and build their business on, but there's also an element of us selling to end clients, folks who are actually managing their wealth. And so we needed to iterate on both sides, listen to the clients, listen to the advisor, and make improvements over time. And it's never as fast as they want it to be, but we listen and we continue to give it a try. And then over time, as you do get those proof points, hopefully you're able to show that not only is this immediate next level of scale successful, but. But that you can add a little bit more and a little bit more and a little bit more. And that was. Those were the business priorities. Demonstrate that traction, show that we're growing, show that we can move at least through early adopters, maybe not quite beyond that, that point yet. And again, not run out of cash. This is going to be a recurring theme.

[Ayesha Bo]

Not running out of cash is a good thing. Can you tell me a little bit about how you approached estimating what you would need to withstand this phase?

[Brad Genser]

We constructed a financial model, and as I think anybody who has ever constructed a financial model knows, the only thing that you can know for sure about it is that it's wrong. But it did give us a semblance of what we believe that we needed, how we thought that we would grow, and a range. And I think the range is more important. We were encouraged to take just a little bit more than what our projections implied, and quite frankly, it's pretty darn important is we at the tail end of that phase, came very close to running out of cash. We were probably not at the point where it was existential. We were pretty much through a fundraising round. But it would have been embarrassing to have to go back and say, like, actually, we need a bridge right now to close out this process. But we came close.

[Ayesha Bo]

When you say that you were encouraged to take just a little bit more, could you express that in a percentage? Like, is it 10% more, 20% more? For those who are potentially entering this phase in the future, I'm curious if there's, like, maybe an idea you could give them about how to navigate or estimate.

[Brad Genser]

I don't know if I have the right rule of thumb. We ended up taking about 30% more than we thought that we needed. Having spoken to a number of entrepreneurs who have gone through this process, some have done exactly that. Some raised exactly what they were hoping to, some raised double or triple or even more. And I think a lot of that depends on where the market is. Can you raise that much more? If so, at what price? What does it cost you from an equity component of your company that you're giving up? And you have to. Only you, as the entrepreneur, really have a good sense of whether that's a good decision or not. But take a little bit more than you need, I think, is probably good advice.

[Taylor Matthews]

I think it's important to note that you don't run out of cash just because of bad things. You run out of cash because of growth, too. So it's basically, if you're successful, you need more than you think you do. If you're not successful, you need more time and therefore money than you think you do. It's basically just in the fact that in the case where you exactly predicted your growth and your costs, which is impossible to do, that you would be exactly on point.

[Ayesha Bo]

Yeah. And I think that's such an important point to make. Right is I feel like we spend a lot of time planning for the situations that could go wrong. But what if you're outrageously successful? What do you need for that? And factoring that into your estimation, I think is a powerful approach.

[Brad Genser]

It's definitely something that you want to think about, but probably not give too much mind share to. Quite frankly, if you're that successful and if people are just running over you to get to your product to really beep down the door to what you're selling, then you won't have a problem raising additional capital.

[Ayesha Bo]

But could you talk a little bit about the timeline to raising capital? Because yes, you could be successful, but it still does take time to bring the money in, even if you have strong indicators of success.

[Brad Genser]

So we took a very systematic approach to fundraising at every phase. Probably too much though, because we had heard all of the horror stories about how long does it take? And I would say the longest period of time that it ever took us to complete a capital raise is about three months. But over that three month period, this would have been at the very beginning of the early growth phase. We probably talked to 110 different firms that could write the check, it could be that serve as the lead. And over that three month period we got probably 90 no's. And then the other 20 were probably folks that were mostly just not telling us no to keep the option open. But you only need one. And we were very fortunate that especially the higher tier firms saw the opportunity that we were bringing to the table in a way that maybe some other folks were not able to. But being really systematic, treating it like a sales process and following up, that's the other thing. And knowing when to cut your losses, perhaps that's what you need to do.

[Ayesha Bo]

So one of the things I'm really excited about is just your approach, your rigor, the discipline. Can you talk a little bit more about this process of okay, we started with 120 and we got to where we needed to be in three months. I'm impressed by that. I think that people listening are going to be like, whoa, wait a second, what are some of the things that I can do to potentially be successful like you guys? What are the key takeaways? Was it the deck? Was it the outreach? How are you structuring your approach to we're going to make 120 pitches.

[Brad Genser]

You start with something and just like any product, you're effectively selling yourself. You're the product. So you need to iterate, you need to listen to what is working and what is not. Probably for the first third of those pitches, the story that we were telling was just not the right story. The metrics that we had was mostly just me and two other financial advisors. So there wasn't a metric around. How do we bring other financial advisors to the platform? That was the ultimate goal of the company was to build using the advisor channel. But what we had were direct to consumer metrics. And it turns out direct to consumer fintech is literally uninvestable. So we needed to change the story. Once we started hearing no, I think we probably, in fact, I know for a fact we went through 20 versions of our slide deck and probably as many versions of the financial model to really hone what we were saying to handle concerns, to build out that next level of materials for each due diligence process. And then again, it's knowing who your audience is. We started with a group of roughly 100. It was probably fewer than that. It was probably 80 firms. And over time we got introduced to other folks. But we did the research on who invests in this space. We tried to target firms that were specific to our market that would understand a little bit more about what we were doing. And then over time you have an intro meeting, you have a second meeting, you enter a due diligence phase and hopefully that leads to a term sheet. But that's just a sales funnel, no different from any other sales funnel discovery all the way through conversion.

[Ayesha Bo]

It sounds like you guys started growing really quickly. Can you walk me through the expansion phase?

[Taylor Matthews]

Sure, I'll take you through that. And expansion phase is about where we are right now and what's interesting. We'll talk about maturity phase too. But maturity phase conversations start coming in during this phase about our path to maturity, for example. So during the expansion phase we know we have something that's working and the way that we know something is working. You asked about founder led sales is we have people who can go out and sell what we have without us necessarily being there. Sometimes we have to be there for bigger deals. Yes, we both know that's true. We both know that's true. And it's so interesting. When you go through these phases from initial growth into expansion, no one looks back. And like yesterday you were an early stage company. They're like okay, now where's your chief financial officer? Where is your kind of security program? Where is all these things that are infrastructure? So there's a lot more focus on infrastructure. And for both the purposes of there's just higher expectations for a company and a product and processes from every stakeholder involved. But there's also, we have more people, so we're 170 people now, all in. So if you think about it, when we have processes that are suboptimal, that means our people are not acting optimally. So we get big force multiplication through the use of culture, setting through infrastructure. And that's the phases that, those are the phases that we're going through today. And it really is about again people, process and technology. You've got to set the right culture with your people. They have to be able to carry the message forward for you and be able to say this is our mission, this is what we're doing and be able to act independently to get towards that mission. And that's an educational process that takes a lot of place. Second thing that you'll notice too. So on a financial perspective, guess what? We have seed stage companies within our company as well. And it's kind of interesting being a founder. I think that as you go through these phases, your job as a founder is actually to establish these new markets. You are at the forefront of doing founder led sales and new businesses. We have a new asset management business that we have launched recently. I lead that and Taylor is leading a bunch of new expansions and sort of new markets that we're doing and new kind of ways to serve advisors. So you're seeing a lot more going on all at once and you're seeing a lot of kind of infrastructure kind of development at the same time, which is a lot, it's a lot to take on as a founder. The nature of a venture funded business or any really high growth business is that you have to do twice or three times what you did the previous stage. So if you think about it, your problem is getting progressively harder. So your foundations have to be very, very strong for scale. And you know, in terms of business priorities, we're moving along, we're scaling our operations up to meet demand. We more than doubled now like basically every few months. And so like we are on a constant curve of kind of, kind of going up, up and being able to serve more, making sure that nothing's breaking. While we're doing this at a higher standard, we're investing a lot in marketing and sales. So making sure that we're getting out there and telling our story to the broader market helps with penetration and cashflow is a tough thing to manage during the stage. We have this massive infrastructure that doesn't like investment that needs to happen, but that doesn't pay off immediately. So we have to balance that. And we're also growing fast, which causes cash to keep going. So we really need to be tight on how we're managing that. And then from financial markets perspective, revenue growth is much, much larger now. And it's kind of amazing as a founder to Go from the phase where you're like, we got our first dollar across the gate to like, okay, now we're signing multiple million dollar deals and doing that at scale and unit. Economics really are starting to matter. And this looks forward to the maturity phase where people are asking, what kind of company can this be? How big is it? And you have to show in great detail this is where every dollar that comes in goes and the filter and what comes out the bottom and what will come out the bottom. So it's a lot more going on, gets a lot more complicated, and it's much more important that you're very, very disciplined in basically everything because when you have 10 things going on, if you miss on five of them, it's going to be bad for you.

[Sarah Lynch]

We're going to take a quick break and be back with more.

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[Ayesha Bo]

Can you share a little bit about how your spending changed during the expansion phase?

[Brad Genser]

Sure. I think one of the things that there's a lot of tension around is we've raised more money. We have to put that to very good use to be good stewards of it. And we have to grow and to grow faster you can apply more money. But if you apply more money to grow faster, that also means that you have to have somewhat stable infrastructure around you, the people and process and technology that Brad was talking about. So you're constantly trying to balance those two things, trying not to spend too much and not to be wasteful, while also growing fast enough and applying the money in intelligent ways to grow faster. I think that is exactly what you're expected to do, especially as a venture funded business. You're expected to be cash flow negative, but you want to be cash flow negative while posting very strong growth figures and ideally more repeatable growth figures. So that's very much what this phase is about, is showing that you have a very strong repeatable sales motion and then you're going to support that with solid infrastructure so that when you make a sale, people are happy and they stick around with you.

[Ayesha Bo]

As an organization that has a B2B and a D2C model, can you talk a little bit about how you approach spending in those categories for growth?

[Brad Genser]

My engineers would tell me we don't approach spending aggressively enough. There's always more product to build. There's always more demand. There's always a feature that would satisfy somebody, especially on the edges. But again, you only have so much cash, so you're constantly making choices about how can I build, what next best feature can I build. What's next best market or target customer can I apply this sales model to? And not everybody's going to be happy all the time, but that's kind of the nature of everything. I think my job and our job is saying, no, we're not going to do that as much as it is saying yes, full steam ahead.

[Taylor Matthews]

I think it's really important to note that during this phase, the numbers are getting bigger, almost beyond human scale. And people think there's hundreds of tens of millions, hundreds of millions of dollars out there. But your opportunity set is also scaled with that. So you're always in a case where you are being disciplined about what you spend because you can outspend in your market no matter how much money you have.

[Ayesha Bo]

In this expansion phase, are you cash flow negative or are you cash flow positive?

[Brad Genser]

Seems like a theme at this point. We are continuing to be cash flow negative, but very much on purpose. And the idea is if we can take that next dollar of capital and apply it to growth and push our growth that much faster, then we're delivering on the return expectations for that cost of capital. And we're constantly having to try to make sure that that's true, that that continues to be true. And really only when it's no longer true, when you can't apply that next dollar to pure growth, are you going to enter that, like, true maturity phase. And I think, you know, we have a long way to go before that. There's a lot of value to unlock, but we're very much intentionally cash flow negative and probably will be for a while.

[Ayesha Bo]

So we started at the McDonald's biscuit phase, cash flow negative. We went into the next phase, cash flow negative. We're in this phase. We're cash flow negative. Can you show me the next phase?

[Taylor Matthews]

Next phase? Taylor, you want to take maturity.

[Brad Genser]

So this is something. We're more aspirational, and probably there are probably other folks who are better guides through this phase, but we see where we ought to get to. And I think that's kind of the aim of the company ultimately goes to this apex of maturity. This is where no longer are we cash flow negative. We may approach profitability. And there's also, I'm sure, going to continue to be a balance between growth and profitability there. But as you, as you get to some level of scale, it means that you no longer have to rely on external funding where you should be generating some level of cash flow that supports your business and then some. Ideally you're thinking about different markets, different, you know, how do you take what your original product is and upsell it and try and add more capability around that. And you're really trying to nail those operations and get, you know, automate everything that you can get as efficient as you can, because all of that is now squeezing more out of or towards that bottom line. And again, that drives more cash efficiency for the business.

[Ayesha Bo]

Can you talk a little bit about how your spending has evolved over the phases now and what your lifestyle may be like as a founder?

[Brad Genser]

Well, I think pretty consistently, especially through the early phases, the seed, the early phase, even the growth phase, we're definitely not making market from a cash flow perspective. That's okay. We have luckily aggressively been able to pay ourselves a little bit more, but that's not the real focus of the company. A lot of our value will come in the, in, in how we build towards this maturity phase as opposed to, you know, whatever we make along the way. But we can, we can afford to eat at McDonald's. Get that biscuit now. And it's definitely been a weight off of, I think, both of our shoulders to feel like we have something that is on more solid footing.

[Ayesha Bo]

And I think that's the important part. When I say lifestyle, it's more than financial, it's also mental health. Right. It's the ability to know that you've reached a certain point where the is operating. And it doesn't necessarily always require you to be there to make a sale or make a decision and you can start working on the business as opposed to working in the business.

[Brad Genser]

I think that's right. I think a lot of our job is to work ourselves out of our day jobs. And that comes from hiring really fantastic people to join the company and take pieces of that work. Usually they're going to be much better at whatever function it is than we were in the same way. But that also requires a certain amount of scale to get to that point.

[Taylor Matthews]

It's an important thing to realize that both Taylor and I have another startup in our families as well, and that drives a lot of Cash flow problems. Kids are really expensive. I have three. And I think it's really, from a founder's perspective, it's not like this is a decades long thing for us and you only have one life to live, so you have to really balance. You can't just like ghost your family and then like show up and be like, hey, I'm done with the company now. So you have to invest in their activities, you have to do all these things and a lot of those are kind of structural and you just have to kind of learn to be uncomfortable with the fact that your family is also an ever expanding phase of cash consumption.

[Ayesha Bo]

Can you share what maturity looks like for you?

[Brad Genser]

I think what we talked about, trying to get to a very stable place where our growth is predictable, where we can, where we have those people, process and technology elements in place to really drive us forward profitably. So like at a grand level, profitable growth is what it looks like. We already have the kind of inkling of what that ought to look like. It's doing the same thing at greater scale and continuing to find those next pieces of business that we can add on that we can build other smaller companies around. And that's, that's the diversification element that we can talk about. And then from a business priorities perspective, what we're, what we end up with is something that is more akin to ongoing improvement. The we have a team in place, we have a product in place. We no longer are spending way more on R and D than you know, than we're bringing in. We're no longer spending way more on sales and marketing and other growth than we're bringing in. And I think that generates a healthy cash flow over time. But big picture financial stability and cash flow positive.

[Ayesha Bo]

Looking back, could you share what phase did you find to be the most challenging when it came to managing cash flow?

[Brad Genser]

I think it's all of them. And that's probably a disappointing answer for everybody who's thinking about starting a business. But it's never easy. It's always scary. There's always, especially as you're in those early phases of a company, you constantly have the specter of running out of cash hanging over your head. Especially if you are a venture backed business, especially if you are a business that is in a growth phase. So I don't think we're out of the woods on that yet. It's still stressful, it's still scary. But we have more and more reasons to believe over time. And I think that that is endemic to how businesses are built Is you layer on systems, you layer on process, you layer on people and technology that will help you over time get to a point where you're maybe not eliminating the stress, but eliminating.

[Ayesha Bo]

I find that each level of success demands a different level of you as a founder. There were days when I was stressed over $5,000. There are days when I've been stressed over $50,000. And it's each time, the stress is still there. I still go through all of the pay stubs every single time we make payroll, even though I know that we have the money to do it. I don't know if you guys find that you have kind of similar experiences. It's almost like as you get more, you have more to think about. And so there's always sort of that underlying stress and tension of wanting to make sure that you're planning for the company to not only be successful, but be secure and profitable in the future.

[Brad Genser]

I 100% hear that. I would say the most stressful part of my job, like throughout the entire company, five plus years now, is looking at our bank account because it's always a lower value than it was the day before. That is terrifying. And I would say the other kind of, I think, universal startup fact is that every day is a roller coaster. You're going to feel like, hey, this is finally working. Everything seems to be going my way in the same day that you're going to say, I cannot believe we're still doing this as a company. But that's just how it works. And I don't think it ever changes.

[Ayesha Bo]

I love that we share that. I wake up every single day and the first thing I do is I always check the company account. I check the company account before I check my account. I don't know, do you guys do that?

[Brad Genser]

I try to avoid it.

[Taylor Matthews]

If I do go look, we hired.

[Brad Genser]

A CFO for that.

[Ayesha Bo]

Thankfully, I still do that. I still do it even with the accounts. I always look and look, okay, okay, we're good. And then I can start my day.

[Brad Genser]

Yeah, you're always thinking about it from the first minute that you get out of bed in the morning to probably the last thought in your head at night or something close to it. It's always on your mind, even if it's in the back of your mind. You have a lot of folks depending on you. You have investors depending on you, your families depending on you. It's, you know, it creates quite a lot of. It's not just stress, but like the burden of responsibility. And it can be a little lonely at times. And thankfully we have each other to support us and talk to on that perspective. But it can feel lonely. But if you keep in mind what you're working towards and if you keep putting one foot in front of the other and executing like you think you ought to, then people underestimate what you can do over a very long period of time. And I think that's what we're excited about.

[Ayesha Bo]

As you look to enter the maturity phase, can I ask, how are you approaching raising additional capital if needed, or looking at the transition into maturity?

[Brad Genser]

Well, I think raising additional capital is always a question of can you put it to good use in the way that is going to generate the expected return for your investors if you raise that next slug of capital and you end up with linear or stagnant growth, probably not a good outcome on anybody's side. Before we raise any round, whether that was, you know, see it or all the way up through where we are now and like kind of getting towards that maturity phase, we, we need to have a plan for how we're going to double, triple, quadruple, 10x really the company from between here and the next two or three years. And that is, you know, that's how we approach it. Once we can no longer do that, then I think, you know, it's probably time to stop raising capital or to do it in a very different way. But we have, you know, while we have that opportunity, it's probably worthwhile to have a little bit smaller piece of a much bigger pie.

[Ayesha Bo]

Could you share a moment when maybe you experienced less cash flow than you would like and whether or not you.

[Taylor Matthews]

Had to pivot all moments pivoting costly.

[Ayesha Bo]

No, but I feel that, I felt that.

[Taylor Matthews]

I really felt that the, you know, our business is, we get wealth advisors join us, they bring their clients and a big. It's. It's been a big question of timing for us as we've gotten our metrics in place of like, how long does it take to, to get the actual revenue to hit from the time that we sign an advisor and when you're on a timeframe of years not or like even a year to two years, months matter a lot. So you know, earlier on when we weren't so as good at like understanding this dynamic because we just didn't have the learning, we were taking longer to get assets over for mistakes that we made operationally or just because we didn't understand the different types of people in our market. And that is a moment where you can watch like these projections, your Projections are going down as opposed to up at the rate that you think they are. And you have to start like, Taylor and I have to rapidly start basically like cutting down on what we think we're going to do in the next phase. So roadmaps start changing, team expansion start started to change. And like, but that was like very early on in our, in our journey. But I think that's the story of every startup is you're going to run into revenue. Never comes in on time or in the, in the magnitude that you think it's going to.

[Ayesha Bo]

I really feel like they should just turn it into like a T shirt. Right? Like my T shirt's like cash flow is king and revenue doesn't come on time. And did you get like. And did you get my invoice?

[Brad Genser]

It's going to be a whole company.

[Taylor Matthews]

Basically. Basically. And there is kind of a key thing for all the aspiring entrepreneurs out there is that just because revenue is booked does not mean that it hits right. Or just because you think you have it doesn't mean that it's there until it's in your bank account.

[Ayesha Bo]

Is there an example that you could give of, hey, this isn't working and we're going to need to try it a different way?

[Brad Genser]

Yeah, I can provide an example from very early on. So when we initially started and you could still find vestiges of this on the Internet, we had a direct to consumer motion. So instead of just a financial advisor led client motion, a consumer client could sign up with farther without anybody talking to them. And as it turns out, people did, we advertise, we had articles, SEO, all the things that you're supposed to do. And what we found was it was not the target customer that we expected and not what we were really building for. That was possibly okay. There was maybe even an opportunity to pivot towards that, especially if it really started taking off. But what we found was it became operationally burdensome to support that client that really wasn't our target client. And we had to make a tough decision to shut down a revenue stream, a growth mechanism that we knew could work and that we knew could probably, especially over a longer period of time, progress. But it wasn't helping us tell our story and it was complicating our operations. So we had to make that tough choice.

[Ayesha Bo]

This has been a really great conversation. Thank you so much for sitting down with me again today. I know personally as a founder, I took a lot out of it.

[Brad Genser]

Well, thank you so much for having us. We couldn't be more excited to be here.

[Taylor Matthews]

It's been great to be here. Thank you.

[Ayesha Bo]

We're really looking forward to your next move.

[Sarah Lynch]

That's all for this episode of youf Next Move. Our producer is Matt Toder. Editing and sound design by Nick Torres. Executive producer is Josh Christiansen. If you haven't already, subscribe to your next move on Apple podcasts, Spotify, or wherever you listen, your next move is a production of Inc. And Capital One Business.