The Start-Up Corner: When Do You Need What
How many companies-- no matter tenure or size-- achieve the promise of what an appropriately leveraged General & Administration (G&A) function can and should do? And how many Founders and CEOs put in place the right leaders, the right expectations, and the right structures at the right time in their early-stage companies to assure that G&A fulfills its mission in support of business success?
Let's take a look...
THE G&A TEST: Gather friends from various tenured companies (at least in operation for 3 years), ask them to think about G&A, and then show them this picture. ------->
THE NON SCIENTIFIC BUT FUN METRIC: Track the rate of those who said, "Yup" versus those who said, "I don't get it, what does he have to do with G&A?"
THE INTERESTING AND UNSURPRISING RESULT: Now you know whose organization appropriately leverages G&A as a key contributor to business success (they aren't the ones who agreed with the picture).
The basic premise of G&A functions is to keep the business operations running smoothly. Full stop. The collection of support functions like HR, Finance, IT, Legal / Compliance and Communications enable efficient business processes and procedures that support performance, protect the business, and enable cleanliness within the figurative rooms.
The people in G&A functions may not always provide or support (or even know) efficient processes and procedures-- or enable cleanliness-- but that's what the G&A functions are there to do. It's up to you to set the appropriate leadership expectation for G&A and then put in place the right structure for them to provide, and for you to receive, optimal value as you establish and then grow your business.
In the start-up world, how you leverage and then apply the bare essential value of G&A will set the tone for your foundation, yet it's surprising to us here at Impono how many times G&A is consciously put off, or sporadically contracted, or entirely taken on by the Founder as the Founder is launching and focused on growth. In many ways, G&A is considered as an "other hand" trade off to establishing the rest of the business when in fact an early and flexible G&A structure can and will simplify your business as you grow.
Here's what you should know...
DO I EVEN NEED G&A? WON'T IT JUST SLOW US DOWN?
The first question we hear is usually whether a start-up needs G&A (yes you do). The question we wish we heard more of is how much of G&A is needed, how it should be hired and when.
Some start-ups stuff their org design with G&A functions because it makes them feel more like a "real company" or because based on their bigger (and established) company experience they simply think they need it:
They have hired people = they need an HR Team.
They have a general ledger or early-stage funding = they need a CFO.
They have agreements, contracts and IP = they need a General Council.
They purchased laptops = they need a CIO.
Founders and early-stage CEOs often do this because that's what they know, that's what "real companies" have, and on some level optics matter. If your organization is big, and you look big, then you are big. (and yes, big-when-you're-small will indeed slow you down... oh, and it's probably not the best use of your funds)
Tragically, those who build up a big G&A outfit right away often also think G&A is simple. The result: when the functions are built for optics-reasons, they are treated that way also.
In contrast, other start-ups neglect the functions entirely because, "it's too corporate-- we're a start up!!"
And yes, the best path is somewhere in between and fully conditional to the needs of the start-up. I've known start-ups that are anticipating such large-scale and accelerated growth that early G&A org builds with full-time employees (FTEs) makes perfect sense. Other start-ups remain small and compact enough to be on year 3 without any G&A full-time hires.
So what's the right way, right?
THEN HOW DO I KNOW WHAT I NEED? (PSST! YOUR BUSINESS PLAN IS YOUR ROADMAP)
As with all elements in start-up-land, your org structure must cover your bare essentials to operate. Look no further than your business plan to determine the who, when, and how for hiring, particularly with G&A-- and remember that a hire may not be an FTE.
By those standards, your first org design will and should change based on anticipated business growth and your evolving business plan.
We've helped start-ups appropriately adjust their org structure as much as 4-5 times in the first 3 years to assure the most efficient growth strategy and best use of capital. This generally includes a mix of outsourcing, contracting and full-time hires, each shifting and changing in their hire-status as the business needs shift and change.
For each step in your growth, your business plan (not you or your Investor(s) or your best friend) dictates your organizational design, and most certainly how your superior support team in G&A functions in order to lift your start-up. Frankly, there's no reason why you shouldn't tackle this check box sooner than later and why it's easier to do so sooner than later:
In start-up-land, you are creating your business. That means you have an opportunity to create a functioning, functional, highly respected start-up team, which includes the right amount of G&A with the right talent to satisfy meeting your early-stage goals, because...
The truth is there isn't much of a business to run yet-- it's usually about proof of concept, self-funding or seeding goals, Series A funding during or right after first proof is available, setting up partnerships, establishing a manufacturing cycle: the foundational stuff (and this is why having some collection of G&A in some form is critical to your start-up), and...
A great benefit to a start-up is that, in theory, you have no legacy to weigh you down, no mix and number of previous CEOs wanting different things, no need for change management for strategy shifts, no decades-old politics challenging whether the vision or mission still holds, no debt or creative funding that did not make the promised returns... none of the issues that often comes along with established organizations.
Use this freedom to your advantage. You will have less flexibility as your business grows and tightens its shape.
Even if your start-up has been self-funded and operating for a few years with you and two friends, you can easily and quickly set the right stage as you consider your growth. Any number of G&A experts will be essential for setting that very stage you need.
Early stage is the time to set a business foundation that makes flexible order now to avoid typical growth chaos later.
A GENERAL HOW-TO GUIDE: IT'S NOT AS COMPLICATED AS IT SEEMS WHEN YOU KNOW HOW TO OPTIMIZE YOUR START-UP G&A TEAM
While it might seem like a maze of difficulties to establish your start-up G&A structure, and you may prefer to leave G&A alone, there are several cost-effective G&A models available to you.
Let's take a look at the difference among your start-up options below, with a few disclaimers upfront: these general guidelines aren't intended for any specific industry, they assume USA domestic expansion across state lines with no international growth, and these guidelines will be different for companies headquartered and operating only in one USA state or (in contrast) with a dual-country presence.
Outsource to an expert professional services firm.
Application: often used for Legal/Compliance, HR and IT.
Structure: modular, can plug in and out; proven, reputable experts; includes different experts and disciplines available within the same organization.
Cost: ranges in costs, but considered very cost-effective especially in the early-days of a start-up; often includes retainer costs or services fees so that resources can be "on call"; paid by the hour or by transaction plus any fees.
Timeline: as long as your business plan dictates an outsourced structure for certain G&A functions; usually renewed with an annual contract and a 30- or 60-day written cancelation condition.
Pro: cost-effective if utilized appropriately; guaranteed "on call" resources with guaranteed credentials; no total rewards package or equity needs; provides various experts across the function (ex, a Legal firm will provide different specialty resources as needed all from the same firm, such as Corporate Council, IP Council, Contract Council).
Con: should be audited periodically for value and appropriate use-- outsourcing is not cost-effective if used for non-value-added work; resources are not full time or as close to your business as full time or contracted employees are (outsourced functions often spend some time catching up when called); may develop a host/parasite relationship if left unchecked and unaudited over time.
Contract an indie-consultant.
Application: often used for Communications; sometimes for Finance; sometimes for Compliance in certain industries when Compliance is separate from Legal.
Structure: transient; becomes a temporary quasi-dedicated member of your team via a Statement of Work (SOW); is "in the trenches" with your team; are proven experts in their field and able to quickly becomes experts in your business.
Cost: usually a range and negotiable based on scope, length of assignment, level of expertise, and sparsity of expertise in your industry; often paid by the hour; sometimes paid by the deliverable.
Timeline: as long as your business plan dictates an indie-consultant's level of expertise and there is mutual benefit to continuing the service, the service is renewed by a new Statement of Work (SOW).
Pro: usually "locally known" through referral; will dedicate expertise according to SOW; becomes very knowledgeable about your business and becomes a part of your team; you pay for what you need; often has complementary functional experts within network (ex: a contract Communications expert will know excellent Press Release firms, reporters, etc).
Con: not fully dedicated or "on call"-- they have other clients; can be cost-prohibitive if your business reaches a magnitude where it's more efficient to hire a full-time person, or you simply no longer require a high-level of start-up expertise in that particular G&A function.
Hire full-time employees.
Application: highly recommended for a Finance role if your business complexity is expected to increase: you have more than three critical suppliers, are preparing to manufacture in the next 6-8 months, have received Series B funding, and/or are in a start-up where there is complexity with your Investment or Ownership structure. (that said, you probably don't need a CFO at this stage-- you need an effective hands-on Financial Analyst who can flip between strategy and tactics and put flexible order in place to avoid future chaos)
Structure: permanent and motivated to assure holistic success as a dedicated team member who often has equity (by grant or contribution); assumes start-up risk with you.
Cost: depending on your industry, competition for G&A talent, and your experience with getting the most out of G&A, a full-time employment commitment might seem expensive: there will be expectations for a Total Rewards Package, often including benefits, equity, and severance negotiations up front, particularly if you are trying to pull an industry-expert away from a current employment.
Timeline: aligned to your business plan and/or performance results.
Pro: dedication, focus, seeing the business as "our business" and performing that way; often very cost effective depending on the expertise and time needed in the role.
Con: typical risks of hiring full-time employment: losing employees to more established or better-funded companies; risk of poor performance or burn out (both you can control); time and cost to manage HR Compliance; employee engagement and managing expectations that may not be realistic or available in the first few years. See below: with effective leadership at the helm and an appropriate HR outsourcing partner, these disadvantages should be easily managed.
NOTES ON HIRING FULL-TIME EMPLOYEES, PROCURING PEOs, and CONTRACTING WITH LEGAL FIRMS:
Investing in full-time human capital will always be an expensive line item for your business, so follow the platinum rule and be sure that your business plan dictates your hiring strategy (who, how and when).
Your first G&A Full-Time Hire: Finance. Most start-ups hire G&A-related FTEs when they are gearing up for launch, growth, and/or an increase in business complexity in other areas.
We almost always recommend a Finance person be your first G&A FTE, and we almost never recommend you outsource to a Finance firm-- the risks associated to your Financials requires someone to be as involved as possible in the nuances and learnings as your start-up takes off.
Remember: this first hire does not need to be a CFO (!!!).
Your HR Hire: Co-Employing with a PEO. We have found Professional Employer Organizations (PEOs) to be a savvy and cost-effective way to provide HR Services for companies that work across state lines (and internationally), as well as providing a simplified approach to HR overall.
I had my first PEO experience in the last start-up I was involved in [shout out to Insperity], and after conducting a Cost-Benefit Analysis the advantage and cost-efficiencies in using a PEO were evident. They will learn your business and provide you with near-dedicated resources across all aspects of HR (including Payroll, which bridges with Finance) for a fraction of the cost of hiring in an HR team, provided you need and then use all of the services a PEO provides.
PEOs will also take care of your back-office HR needs such as keeping up with a vast number of employment labor laws, which is particularly important if you have employees in different USA states or across country lines.
Your Legal Hire: Intellectual Property. Lastly, if you have a lot of patents you are filing or a complicated Intellectual Property structure that requires a lot of Professional Services Firm hours, we recommend you hire an indie-legal consultant or go with a smaller firm that specializes in IP vs using a Professional Services firm. A Singularly-focused expert resource is often far more cost-effective than a broad-focused expert team.
If your strategy and business plan is mostly or even entirely based on the success of your IP strategy, you may even want to hire an IP lawyer as a full-time employee. Again-- look to your business plan and hire the who under the right structure at the right time.
BONUS ROUND: IMPONO COMMUNITY ORGS ARE AVAILABLE TO SUPPORT YOU
The Impono Community is a group of indie-consultants who all share a passion for enabling the start-ups, small businesses and non-profits to get the most value from what our experts can provide.
Impono's expertise starts and ends with Strategy, Planning and Execution. That means we have just enough cross-functional expertise to build and improve any organization across various industries. It also means that when our clients or (even non-clients) require deeper expertise, we happily reach into our Community and make those connections.
If you are a start-up looking to figure out the best way to start and/or grow through seeding and into Series A (or B and C) funding, contact us and let's talk. We provide complimentary advisement all the time through the basic back and forth of dialogue and we would love to hear from you.
If we think we can help you, we will. If we think someone in our Impono Community can help you, we will forge that introduction and remain with you as long as it's appropriate.
We know that launching a new or transforming an existing organization isn't simple, but it can be easier with the right advisors and doers. Contact us. Let's see what we can do for you.
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