The last decade has brought forth a new group of entrepreneurs who go beyond the status quo. These professionals are not only changing the way markets operate, but they are also paving new paths on how they are going to achieve a new level of success.
Julio Martinez, CEO of Abacum, sat down with Ryan Denehy, founder and CEO at Electric, to discuss how to make difficult decisions to guide growth when building a startup. He also provided valuable insight on how to manage the relationship between the board of directors and the management team while also discussing the importance of fostering a strong relationship between the CEO and a CFO.
How to Make Hard Decisions to Keep Your Business Afloat: An Interview With Ryan Denehy
While creating multiple businesses can be extremely rewarding, it comes with its fair share of challenges. Being an entrepreneur isn’t just about starting a business; it’s also about growing one. To do so, you need to learn how to think like a serial entrepreneur and understand what it takes to run a business while maintaining healthy, future-proof financial statements.
Julio: Let’s kick things off by talking about your professional experience. How did you become a three-time CEO? Why would you walk this path so many times?
Ryan: I always wanted to start a business, even when I was ten years old. I am an enthusiast about building and running companies, particularly in the venture world. I believe that being able to create new things that people see value in is a unique opportunity.
Even though this is a stressful job, I can't think of anything else I would rather be doing. This is my third time building a company, and it probably won’t be my last.
Julio: Tell us about Electric - you have grown tremendously. What have you built?
Ryan: I learned a hard but valuable lesson building my first two companies, which is you really need to make sure you have a few things covered before starting a business.
The first thing you must do is ask yourself: do people need what I am creating, or is it just something nice to have? My first two companies ended up being successful, but what we were offering wasn't necessarily a mission-critical solution. While running my first two companies, I realized just how important a small business's back office really was and how they operate. This piece of the puzzle had not been reimagined as a modern, easy to use, easy to buy, and easy to deploy solution.
At my previous company, I would spend weekends with my Head of Operations, setting up laptops for new employees and filling out security questionnaires for our sales team. As a consequence, I realized that the HR and Finance departments had all these new software tools to utilize, but if a company didn’t have an IT department, they would have to spend pain-staking hours doing these processes internally.
Electric is an IT-support-as-a-subscription-software offering with some value-added services. Our customers are businesses with 10 to 150 employees that are not interested in building out a full IT department yet, but who have all sorts of technology that need to be managed and secured.
Julio: You have often mentioned that your first two companies were always on the brink of running out of money. What did this teach you about operating with less, especially in a time in which the market was not that kind to startups (10-12 years ago)?
Ryan: Operating with less was probably the best lesson I could have ever learned, as the only real way to figure out how to get from point A to point B efficiently was to have real constraints.
My first company was an online advertising business based in Los Angeles, with which we raised about $1 million dollars. We did not have a pile of money to fall back on, and this forced us from day one, as a company, to be as efficient as possible about how we were going to operate.
Even though the business started as a destination website for extreme sports enthusiasts, at some point, we discovered that there was no market for it. After doing our research, we concluded that the real business was in helping the already existing sports websites sell and deliver advertising to their audiences through our platform.
Since we were running out of money, we had to generate revenue immediately. Because we were able to pivot quickly, we started showing significant revenue growth.
It was a similar deal with my second company. My second business was a retail analytics software platform, with which, again, we struggled to raise money. Even though this was 2012 and we did everything right, we were fools when it came to explaining our business and how we were going to use investment capital to grow. That was the moment I learned that no one cares about what you did before if you can’t present your idea in an inspiring way.
So we ended up putting a ton of the money we had made from the first company into the second one, just to keep it afloat.
We needed to be very clear with ourselves about who our customer was, what they wanted, and what they were willing to pay for. Although we had an inside sales team, within six months, we realized there was no way to profitably sell our solutions to a small business retailer. Thus we started selling through partners, which increased our sales efficiency by 10x.
Julio: How have you, as a CEO, communicated the hard decisions with the rest of the company? What have you learned in each of your three companies about the role communication can have?
Ryan: I think the biggest thing I've learned over the years is that people who you want to work at your company are going to see right through it.
I believe you can never communicate enough. Even though we sometimes think we over-communicate, no one has ever said to us that we were communicating too much.
For example, right around the beginning of the year, we put together a budget that was just too cost-heavy. After presenting the budget to the board, they said that it was not going to work. We missed the mark, and the issue was that, as a result, we had to go back to the team and redo our planning.
So I got in front of the company and explained that we messed up as a management team. I told them why that happened and what we were going to do to make sure it would not happen again. That day I got more positive feedback from that presentation than I had for all the previous ones, just by being transparent.
Julio: What advice would you give to first-time founders when it comes to managing their board? Any examples of how you managed the tradeoffs of the short-term hard conversations for the long-term scalable outcomes?
Ryan: The most critical step is to pick the right board members from the start. Because, unlike an employee, it is really hard to fire a board member. It can be done, but it's a stressful, lengthy, and annoying process, and I can tell you that you wouldn’t want to be doing it unless it was absolutely necessary.
I spent plenty of time at previous companies getting advice on how to manage a board. But the reality is that the best advice I could have received at the time would have been to choose different board members to start with.
I looked for a ton of back-channel references on my investors before I took their money and, in almost every case, I partnered with firms at a slightly lower valuation in favor of a better partner. What matters most is the partner, not the firm.
Once you have built the right board, I would say the most valuable thing is being as proactive as possible with communication.
Most board members are going to be on the board of multiple companies, and you want to be the person they feel is keeping them informed all the time with both the good and the bad news. It never gets easy to deliver the bad news, but doing it will establish mutual trust between your management team and your board members.
The last thing I learned is once you find a product-market fit and you have a business that is starting to scale, getting an independent director on the board is key. You must find someone that you think can be a great coach and mentor to you as a founder or CEO and a good sounding board for your management team.
Julio: I agree many companies would benefit from having an independent board member. Let’s look now at the financial spectrum. How critical do you view the partnership between the CEO and CFO? What are the traits that can make or break this strategic partnership, and what are the expectations you have of a successful CFO?
Ryan: Finance and HR are the two functions that are the most underappreciated but have the highest leverage for a CEO, no matter what stage you are at. I think that as soon as you have a product-market fit and you have a functioning business model, Finance and HR are the first people you need to bring into your core operational functions.
In every company I have started, I have waited too long to put operations and systems in place, which becomes problematic later on.
From the moment somebody comes to your website to when they renew their contract and pay you, many things have to happen. Having a good Head of Finance early on can get the right systems and architecture in place.
The relationship between the CEO and the CFO has to be based on trust, as the CFO needs to understand every square inch of the company. Not only the good but the bad and ugly details as well.
When we hired our first CFO at Electric, we made a list of the reasons why they should not want to work with us. We showed them our dirty laundry to see their reaction to real issues, which turned out to be quite insightful. Hiring a CFO is critical, as they will be your partner in helping all the trains run on time and creating a business that can look at the facts and make money.
Julio: How do you think of Finance and the BizOps functions? What are the kinds of strategic projects and reflections that each one of them leads?
Ryan: They are certainly complementary. When I think about BizOps, I think of all the tools, systems, and workflows a company has. Their customer is the company and its employees. They are there to make sure that the tech stack and the processes we use make us a better business, whether that is through making us more efficient, helping us make more money, or instituting better controls.
The only challenge with having BizOps and RevOps reporting to finance is that their mission can become much more controls-driven, while BizOps and RevOps need to be driven operationally and efficiently.
Julio: How are you thinking of aligning at Electric the three anchors of planning: your Finance team and your RevOps function with your People team?
Ryan: For me, a business is a series of capacity models such as people or dollars, and the CFO is ultimately the one with the holistic view.
Our board member, Bob Goodman from Bessemer, who led our Series A and was about to close our Series B, called me one day saying we needed to get a CFO immediately.
He knew better than I did at the time that we needed a real strategic finance leader. Someone able to overview the entire lead-to-cash process, build a bottom-up financial model, and take into account the capacities across departments.
As a business grows fast, it becomes crucial to onboard a truly strategic profile, rather than a reporter of numbers, to help you evolve your thinking about how your business makes money.
Julio: One last question we always like to ask. What is the most relevant book you have ever read?
Ryan: I will mention two that I have read in the last year. One I reread is “The obstacle is the way” by Ryan Holiday. This is a book about Stoicism, which is a philosophy based on the fact that we don’t control what happens but how we respond to it. This is a quick read that draws different examples of this philosophy in practice, which I highly recommend to anyone wanting to control their psychology.
The second one is “Eleven Rings,” Phil Jackson's autobiography. Phil Jackson was the coach of the Chicago Bulls back when they went on their crazy run of the 90s. He grew up in a fairly conservative religious household, but his philosophy on people was influenced by the spirituality he saw elsewhere.
He was one of the first people to tell athletes that they needed to meditate and showed them how to focus on what matters.
When I put those two books together, I think about how much those readings have influenced the way I run my business now.
Building multiple companies from scratch means creating and managing several teams, systems, and workflows. Thus, to prevent future setbacks, it’s important to ensure you build your business foundations and tech stack early on.
The good news? There are plenty of ways to start and track the performance of a business. If you want to succeed as a serial entrepreneur, you might want to find out the best software that can help you streamline your strategic functions.
Abacum’s financial planning and analysis platform can help you align your entire organization and position yourself for success. Book a demo today to learn how your Finance team can be a key driver of change.
Watch the full webinar with Ryan Denehy here.