Bootstrap

Mr. Matthew Ley:  Welcome back to Boot Strap: Insights for the Self-Funded Entrepreneur with Frank Cianciulli.  My name is Matthew Ley, and I will be your host.  As we discussed last time, we’re going to go back to one of your questions, and we’re going to talk about setting up your financial organization.  Just like no company can really get going without any source of funding, how you manage that money can make or break your company.  And Frank has got a lot of experience, a lot of different sizes of companies in your history.  So let’s talk about it.  There’s a couple options when you’re starting.  You can do it yourself.  You can get a little bit of help.  Or you can bring in an accountant to be full-time on your staff.  What do you think is the best move for a bootstrap startup?Mr. Frank Cianciulli:  Well, as a bootstrap startup, by definition, I’d say it’s do-it-yourself.

Mr. Matthew Ley:  Okay.

Mr. Frank Cianciulli:  And obviously from a financial perspective it’s important, but I mean let’s face it; I mean if you’re just getting started there probably isn’t a lot of revenue just yet.  There probably isn’t a lot of accounting to be done, and it’s actually, you know, from just a controls perspective or really understanding your business, at least I did it myself with, you know, a couple of our guys, our sales guys for the first year or two.  You know, entering your own receivables and payables and bills and invoices into our, you know, there’s great accounting packages that are really easy to use.  QuickBooks comes to mind.  It’s so user-friendly.  You don’t have to be an accountant to use it.  The reports are amazing.  You press a button.  So I’m more of an advocate that you should try and do it yourself and save the overhead.

Mr. Matthew Ley:  Well, you know, people go to school for many years to be an accountant.  You can’t walk into being a CA.  What is the benefit of you doing it yourself in those early days?

Mr. Frank Cianciulli:  I think it just gives you a lot of visibility into your business.

Mr. Matthew Ley: Right.

Mr. Frank Cianciulli:  You know, sometimes if you rely too much on accounting and you don’t understand the numbers, you know, we rely on accountants to — or you know, our accounting department to give us best practices and forecasts and help us make business decisions.  But sometimes that doesn’t translate.  You know, oftentimes accountants are black and white, but there is a lot of nuance to business that you as the operator, the owner, know more than they do.

Mr. Matthew Ley:  Yeah, and I mean the last time I saw a balance sheet before I started looking at them in the business was probably my grade 11 business class back at St. Jean de Brébeuf in Hamilton — a little bit of a shout out there.  So I mean I remember the principles of it, but getting a completed financials was, I had to learn again when I got into business for myself.

Mr. Frank Cianciulli:  Well, let me just give you one example that I faced early in my business career.  When, you know, because we kind of took our eyes off let’s say receivables.  So [unintelligible] our cash, and then when I ran a report from QuickBooks, you know, I said oh my gosh, we’ve got customers that haven’t paid us in 120 or 180 days, and that really forced us to get on top of receivables and roll out a process.  If I didn’t have the visibility I mean I assume at some point, you know, a financial professional would have said hey, someone’s got to get on top of this.

Mr. Matthew Ley:  Your DSO is out of control.

Mr. Frank Cianciulli:  Exactly.  But that being said, you know, if you have the wherewithal there is wonderful services out there.  I think CFO For Hire, or there’s a few different companies that basically provide you outsourced at I think fairly reasonable prices.  Freelance bookkeepers is probably all you need, as well, and effectively — so I’m not saying, you know, there’s not ways to hire kind of part-time help that will be very cost-effective.  If that’s an option, yeah, I would recommend that within the first 3 to 6 months, especially if you have no financial wherewithal.  And you want to be focused on growing the business, so I think that is a valuable investment.  I’m just telling you what we did.  We definitely did it ourselves for the first year.

Mr. Matthew Ley:  So you did it yourself, and then you went to one of these outsourced organizations, or did you bring in somebody?

Mr. Frank Cianciulli:  No, we brought in — we brought in someone after about your one, year two.  You know, it was a little bit longer.  It was probably a year and a half in, and we were experiencing a lot of growth, so we managed a lot of revenue.  When I say we it was kind of me and one of my operations guys.

Mr. Matthew Ley:  Okay.  So after a certain point in time — and you would have experienced this in your first business because you guys did grow really quickly.  You were in $5 million in a couple years into the business.  You’ve got to bring in the big guns at some point, right?

Mr. Frank Cianciulli:  Correct.

Mr. Matthew Ley:  So you’ve got to bring in like the BDOs or the PWCs to do what’s referred to as review or an audit.  So at what point do you need to bring them in, or why would you?  And at what point is the review versus audit make sense?

Mr. Frank Cianciulli:  Yeah, those are great questions.  So yeah, first and foremost, like we talk about as far as hiring, you know, seasoned talent and when you bring them in, it’s the same thing with your accountants, or lawyers or any of that thing.  You know, when you’re a startup you don’t need the big four.  It’s overkill.  You know, people say well it looks good that you’re with KPMG.  I get that.  You know, at some point when you’re large enough that makes sense, but there are so many amazing small accounting firms that are more than able to handle your needs, and they’re more geared toward small businesses.  Their prices are a lot more reasonable and fair, and you can get access to them very well.  And it’s easier for them to understand your business.  So I would recommend until, you know, depending on your business, but I would say up until $5 million or even $10 million in revenue, a small, a smaller accounting shop or legal firm is what you need.  At that point then I would look into potentially the majors.

And the same thing review, Notice to Reader or an audit, you know, audit usually if you’re preparing your business for a sale is when you would want an audit.  So as a startup I don’t think you’re thinking that yet.  You shouldn’t be.  Even a review engagement is really only necessary if you actually bring in some kind of financing, like bank financing.  Otherwise a Notice to Reader, very cost-effective even with a big six accounting firm is probably only a couple thousand bucks.

Mr. Matthew Ley:  Okay, so a Notice to Reader, you know, when do I need that, or why do I need that?

Mr. Frank Cianciulli:  Well, you’ve got to file your taxes even if you’re not making money.  So they’ll do a tax prep.  And a Notice to Reader basically is showing you that yes, we’ve confirmed the numbers are accurate, but they haven’t — the difference between a Notice to Reader, review and an audit is just different levels of essentially checks and balances or confirmation of every single expense.  So really it’s not really until you’re a public company that you even do an audit.  Even very, very large private companies, especially if they don’t even have any kind of debt, are even doing Notice to Readers or reviews.

Mr. Matthew Ley:  Okay, so when you started the business it was, you know, what we remember from when we were kids.  You’re a little bit older than me.  Everyone paid by a check.  The check went into the bank.  You know, there was a person that you gave it to, and then you sent your checks out and you signed them.  But we’re in a different world now, and risk that some guys starting their business — or gals — starting their businesses right now have that you didn’t is this cyber threat, the fraud that is going on there.

Mr. Frank Cianciulli:  Very concerned, yep.

Mr. Matthew Ley:  You were telling me that you even got hit by this, and your organization is quite large and a lot of controls in it now.  Does that mean that maybe we need more financial, like call a larger financial organization sooner now to protect ourselves?

Mr. Frank Cianciulli:  No, I mean I think you just need best practices as far as, you know, things like signing authority, things like how to authorize a wire, you know?  I mean if you let someone in your accounting department, you know, be the sole person to sign a check or to wire funds, I’m not saying they would intentionally fraud you from an internal perspective, but things can happen.  People are hacking emails now, and you know one of the big prevalent scams, so to speak, is, you know, an email from the CEO to the finance department saying hey I need you to wire funds to this supplier.  And you know, they’re in your email, so it looks like it’s coming from you.  Next thing you know your financial person just wires a bunch of money that you can’t afford to some fraudster.  And so the key is to just eliminate, try and eliminate human error.  And that’s where processes and controls come in.

Mr. Matthew Ley:  It’s interesting you bring that one up because, you know, we’ve looked into it, and that is actually targeted at folks like yourself, an entrepreneur, because in a larger organization the CEO is not going to ever make that request, but when you’re in the business like you are or [unintelligible] —

Mr. Frank Cianciulli:  You’ve got to play [unintelligible].

Mr. Matthew Ley:  Yeah, you’re doing all of that.

Mr. Frank Cianciulli:  You know, you’re flying by the seat of your pants.

Mr. Matthew Ley:  Exactly.  Or sometimes your credit card is being used for whatever it might be.  The money is not as clean as it is in a large publicly-traded company, so they target people, people like yourself.

Mr. Frank Cianciulli:  That have less infrastructure processes.

Mr. Matthew Ley:  Yeah, exactly.  They’re counting on you to —

Mr. Frank Cianciulli:  To make an error.

Mr. Matthew Ley:  To make an error, and in some cases they are right, but it’s not just that.  It’s everywhere.  So it is definitely something to look at.

Mr. Frank Cianciulli:  So those [unintelligible].

Mr. Matthew Ley:  Yeah, definitely.  Okay, so with that we will be moving on to another review or an update from season one.  And just like the world has changed since Frank started his business and cyber threats are a bigger deal, so has the buyer changed in the sales organization.  And last year we talked about always be selling, and now we’re going to talk about always be selling in the modern world.  Until that point in time, stay lean, guys.  Like, share, invite your friends, loved ones and coworkers to watch the show, and we’ll see you next time.

Mr. Matthew Ley:  Welcome to Boot Strap: Insights for the Self-Funded Entrepreneur with Frank Cianciulli.  My name is Matthew Ley, and I will be your host.  On season two of Boot Strap one of the things we said we were going to do is look back at some of the most popular episodes that elicited the most engagement from you.  Our first episode, “People and Hiring Best Practices,” talked about what type of employee you should be looking for when starting a bootstrap startup.  And one clip brought up a lot of comments, and we’re going to play that clip for you right now.

“Anyone who has ever been through The Wish Group or met Frank has probably heard him say at one point in time, that Frank prefers ignorance on fire to knowledge on ice.”

So comments like that, and Frank, I mean you echoed them later in the series when you said that one of your big Frank-isms is that you prefer ignorance —

Mr. Frank Cianciulli:  On fire.

Mr. Matthew Ley:  — on fire to knowledge on ice.  But you know, when you talk to people out there about the current employment landscape, a lot of these people are coming in with not a lot of experience, or younger, and we hear a lot about how they’re just different.  It’s hard to find that diamond in the rough who is going to succeed this way.  Do you got any experience or any examples in the last maybe two years of someone who this happened with?

Mr. Frank Cianciulli:  We do, we do.  And you know I just want to preface that by saying, you know, a lot of people at our generation and older will always say that, you know, the new people coming up, or you know we talk about millennials, don’t have that fire.  It seems to be missing.  And I can’t comment on that because I don’t have a reference point 30 years ago to compare.  But I will say we’ve, you know, a great example is a guy we had that, you know, relatively young, but no B2B experience, didn’t understand anything about our product, but you know, you meet with him, and I’m sitting across from him, and I’m looking into his eye, and I just know there is the fire.  There is a hunger for knowledge.  And he wanted to grow and learn.  And you know it’s hard not to take a chance when you find someone like that.

Mr. Matthew Ley:  Right, and I’m assuming you had opportunities maybe to hire from competitors at this stage.

Mr. Frank Cianciulli:  Of course [sp].

Mr. Matthew Ley:  You’re not an early-stage startup anymore.  So what happened?  How long ago was that, two years ago?

Mr. Frank Cianciulli:  Yeah, about two years ago, yeah.

Mr. Matthew Ley:  So you know, talk to me about his first year, you know, what happened in that year and maybe where he’s going to [sp].

Mr. Frank Cianciulli:  Yeah, and typical — and that sometimes, you know, especially in a startup you think oh, do I go with a guy that has the experience, that maybe has a book of business he can bring over?  But you kind of know that they’re not going to be stars.  And so, but with this guy so you knew year one it’s all about learning, learning the products, getting comfortable on the phones.  He definitely wasn’t afraid of the phones, which was excellent.  That’s what you want in sales guys.  And then year two it really — I mean he had some success in year one, but year two is really where he started coming into his own.  You know, and just recently he said he’s never made more money in his career, and by year two, and in year three we’re looking at this is a guy that, without question, would have outperformed any senior guy that I would have hired.

Mr. Matthew Ley:  Yeah, so you’ve got to be pretty happy with that, two years to that level.

Mr. Frank Cianciulli:  We love when that happens.  That’s like a professional sports team drafting a young player that turns into a star within the first couple of years.

Mr. Matthew Ley:  How does he feel?  Like what — is he — I mean is he a kind of guy that’s really into what’s going on in the company?

Mr. Frank Cianciulli:  Oh, he’s become a cultural warrior.  He’s taken on so much leadership, as well, where you think hey, some of the things that he does, taking ownership over calls, I mean man, the guy is even coordinating our office move this past month.  These are some of the things I would have hoped my veterans would’ve kind of jumped all over, but you know the thing with ignorance on fire, especially once they then acquire the knowledge, is you’ve got a cultural warrior.  You’ve got an all-star.  So really great companies have to have that kind of — I call it a farm system, where you’re incubating your own talent.  And there’s more loyalty there, too, as well.  I mean I know everyone’s always afraid of having those kind of people being a flight risk, but there’s ways to maintain and to retain those people.

Mr. Matthew Ley:  Yeah, and I mean it’s one of the reasons why you lose anybody out there is when either side feels there is an inequity, right?  As an employer you don’t feel like they’re doing their job, and as an employee they don’t feel like the company is giving back the effort that — to the effort that they’re putting in sort of thing.  You brought it up.  It’s constant growing concern, right, when bringing in entry-level employees there is a knowledge that, you know, they’re in an entry-level.  They can easily jump to another entry-level for maybe $5,000 more, or closer to home, or on the subway line, or whatever it might be.  Are you — clearly you’re still hiring entry-level employees in different businesses.  What are you doing today to ensure that, you know, they grow into like this guy that you were just talking about?

Mr. Frank Cianciulli:  Yeah, and I don’t know that I’ve got, you know, the answer that will solve that problem, although I can share our experiences that have helped us.  You know, I don’t know if it’s just a millennial thing.  I think people of all ages, you know, when you’ve got a hot job market and people and recruiters are calling them, and it feels good when someone wants you and is offering you more money.  That being said, what I’ve learned with even millennials is that if you show them a path to how to grow, because oh they feel entitled, and they want to be VPs immediately, no they don’t.  They don’t.  But they at least want to see a path, and so that’s something we’ve been doing as well.  We let them know exactly what’s expected and where they should be in year one, and what the behaviors and what success looks like in year one versus year two and year three, and what the leadership potential — some people aspire to leadership, and that’s great.  As long as they can see that you’ve got a plan and you recognize that skill in them, then they’re vested to stay.

Mr. Matthew Ley:  Right.

Mr. Frank Cianciulli:  You know, and then obviously pay them as you go.  Again, I hate to use those sports analogies all the time, but if you’ve drafted a rookie and he’s been a star, you know, you sign him to a cheap entry-level contract.

Mr. Matthew Ley:  Yes, exactly.

Mr. Frank Cianciulli:  But then you’ve got to pay him.

Mr. Matthew Ley:  Yeah, you’ve got to pay up when he comes of age, right?

Mr. Frank Cianciulli:  Exactly.

Mr. Matthew Ley:  Or, you know what, be ready to let them go.  And in some businesses the economics of it doesn’t justify having a lot of those high-priced players.

Mr. Frank Cianciulli:  That’s right.

Mr. Matthew Ley:  Doesn’t mean they didn’t help you for two or three years, and you know, going to be happy for them to go off somewhere else and be successful.

Mr. Frank Cianciulli:  And you know what, there’s something to be proud of that, as well.  You know, I mean like every business we’ve had people that have moved on to great opportunities, and I’m proud of that.  I mean, if we were able to help, you know, shape that person’s skills and careers and help them realize their goals and dreams and indirectly help their families, that’s what’s wonderful about being in business and being an entrepreneur is that’s your way of giving back just in itself, creating employment and helping shape people’s lives.

Mr. Matthew Ley:  And that’s actually — you know, a lot of you out there, we know those are you, people who have come through The Wish Group, because a lot of you left comments in season one.  Okay, next episode we’re going to get back to some of your questions and the stuff you were talking about, and again, a lot of questions about finance, so what we’re going to do is we’re going to dive in on basically how to set up your financial organization.  Do you DIY?  Do you bring someone in?  Do you use a rental player?  All that and more on the next episode of Boot Strap.  Until that time, guys, keep it lean.  Share this with your friends, family and loved ones, or anyone you think might be interested.

Mr. Matthew Ley:  Welcome to Boot Strap: Insights for the Self-Funded Entrepreneur with Frank Cianciulli.  My name is Matthew Ley, and as always, I will be your host.  On this, the first [sic] episode of season two, we’re going to dive into one of your big questions from last year, and that is how to get your funding right when you are a bootstrap company.  Frank, when I hear funding I think banks, I think angel investors, venture capitalists, none of which makes me feel like it’s a bootstrap.  What do you mean when we’re — what do they — you talking about when you say funding in this environment?

Mr. Frank Cianciulli:  Well, I mean, you know, getting access to any amount of money that can allow you to launch and survive until you can drive business.  So yeah, everything you mentioned are different forms of financing.  I think most people believe that banks would be there, you know, if you have a great idea, where they’re not.  Banks typically do not fund — the most brilliant idea you can come up with, banks do not fund for that.  Banks give you money when you don’t need money anymore.  So for the most part, whether in Canada or the US, you’re tied to your own capital, friends and family or what we call angel investors or venture capitals.  And again, venture capital for the most part, at least in the last few years, has been geared towards technology.  So again, most people that got really great business ideas but aren’t really as sexy still struggle to get access to capital.

Mr. Matthew Ley:  Right.  And you’re doing a bootstrap business, so you might be using your credit card, your mom’s credit card.  I mean Jeff Bezos started his business in his parents’ garage, right?  He had that first server sitting there.  What recommendations do you give to someone?  They’re out there.  They’ve got an idea.  Like when you started, they knew they could be successful in an industry.  How do you decide whether or not you go out and get a — go for, you know, a couple million dollars and cash up or do it, you know, much more bootstrap?

Mr. Frank Cianciulli:  Well, rule of thumb is always, you know, get as much money as you can whenever you can.  That being said, a lot of entrepreneurs want to keep a lot of their business.  So the more money you go and raise when you don’t have any revenue yet, as people observe if they ever watched Dragons’ Den or Shark Tank, is the more of the business you give up — because they say well, your business has no value.  Well that kind of sucks.  The whole point of building a business is so you can have equity in it and own it.  So that’s why I’m more of a bootstrap guy and say listen, I don’t want to take anyone’s money unless I absolutely need it.  So every dollar’s got to stretch a long way.  So as far as in my case we did raise some money with friends and family, but only as much as we needed, and ultimately the real access to our capital, and which most people should really focus on, is sales.  Sometimes you can do a lot of presales even before you launch your business, and we can talk about that.

Mr. Matthew Ley:  So presales before you launch your business, so you’re — I guess you’re out in beta or something, or you’re just kind of getting started?

Mr. Frank Cianciulli:  Yeah.

Mr. Matthew Ley:  And then you use that money to fund, I guess, what you do next.

Mr. Frank Cianciulli:  Yeah, I mean if I were, you know, if I had an idea, and you know I wouldn’t necessarily wait to raise money, rent an office, hire some people and then start my prospecting.  There’s no real reason in most cases you can’t at least get that proof of concept and have some customers say hey, listen, this is an idea I’m thinking of.  This is how I think it will help your business.  I’m going to be live on this date.  Can I count on you at least at that time to come and talk to you and really, you know, get you into beta or actually buy my service?  That will give you an indication of how quickly you’re going to come out of the gates and give you a better idea of your actual performance or pro forma going forward.

Mr. Matthew Ley:  But isn’t sometimes that’s a problem, you know, in many cases the more you sell, your cost of goods sold go up, your infrastructure needs to increase, and then you get into a situation where you’ve got to pay people a lot of money?

Mr. Frank Cianciulli:  Yep, and now we’re talking about another great — that leads into another great source of financing is your vendors, which is, you know, not always easy, especially if you’re a startup because, you know, the suppliers might not know whether you’re good for the money.  But oftentimes you would be surprised, especially with startups.  You’ve got suppliers that are big enough to support you because they see the potential that you’ve got, so it’s going to be a — you’re going to be a big piece of business for them.  They might extend you 60- or even 90-day terms, and that helps a long way because then if you sell something hopefully you can get paid by your customer before you actually have to pay your supplier.

Mr. Matthew Ley:  And I would — when you started and you had vendors when you started [unintelligible], right?

Mr. Frank Cianciulli:  I did.

Mr. Matthew Ley:  I imagine you had, you know, a real conversation with your vendors about where you were at —

Mr. Frank Cianciulli:  Absolutely.

Mr. Matthew Ley:  — so they recognized the importance of maybe not being your bank, but of extending you those types of terms.

Mr. Frank Cianciulli:  Well, it kept me — you know, when we were late they kept calling.  We’re not your bank.  In our case we actually made them partners.  You know, we actually made them partners in our business.  Therefore they were tied to our success, and they, you know, they got value out of helping us or being our bank, so to speak.

Mr. Matthew Ley:  Right.  But that is an interesting form of funding, right?  You find a strategic partner, they get a piece or whatever for it, and as a result you can alleviate some of those cash stressors [sp] early on.

Mr. Frank Cianciulli:  I mean there’s two components to basic business, right?  You’ve got to become profitable.  But sometimes even if you’re — because some entrepreneurs say oh my God, I’m profitable, but we’ve got no money.  So there’s two components.  There’s being profitable first and foremost, and then cash flow.  But if you’re consistently profitable, obviously cash flow will catch up.  But while you’re getting started you’ve got to walk the fine line of both.  So obviously trying to collect money as quickly as you can is important.  That sometimes gets neglected when you’re out there trying to just sell and survive and grow your business.  You kind of forget about collecting, or you don’t have the process in place to collect that cash flow quickly.  But there’s other ways to stretch, right?  We talk about vendors giving you maybe some extra terms.  Credit cards are popular that way, you know, because you get an extra 30 days, give or take, if, you know, if you’re able to pay certain expenses to your credit cards as well.

Mr. Matthew Ley:  Perfect.  Well, part of that is the discipline within finance, and I would recommend if you haven’t seen it that you check out our discipline episode from last year.  But later on this season we’re going to get into how to structure your finance organization in a bootstrap startup and answer some key questions there.  But next week we’re going to go back.  Last week — last year one of our most popular episodes was the — I think it was episode one, actually, people hiring and hiring best practices.  And you said some things about the type of people you like to hire in a startup, which really resonated with everyone.  And so we’re going to do a deeper dive on next week’s episode.  Until that time, please leave your comments below, share this with your friends, family or loved ones, and keep it lean.