EARLY LEARNINGS—ITʼS ALL ABOUT GROWTH I began my role at Common at perhaps an unusually early time for a CFO. I was the companyʼs second employee (and joined principally because my son Sterling had been hired as the first). In the early days my responsibilities were not so much CFO as they were jack-of-all trades.
Fortunately, our CEO, Brad Hargreaves, had been a founder before, so payroll and banking had already been established. But I clearly remember setting up QuickBooks as a rudimentary accounting system and literally creating our chart of accounts with a little bit of outside help from one of Bradʼs friends and an early supporter of the company. I also acted as in-house legal counsel negotiating the contracts for our early projects and whatever else needed attention.
These were fun days, but there was certainly an urgency to grow. Brad had closed a Series A round and we had funding for investment but also an outside investor and board member to satisfy. Successful startups are created to solve a problem or meet an unsatisfied need.
The earliest fundraising is supported by a deck that generally describes a concept. If it contains any numbers at all it is probably limited to the TAM—"total addressable market”—that almost magical metric that purports (usually in good faith) to describe how big the opportunity is in front of the company. Given the VC portfolio model in which most investments fail or return mediocre results and one or two are “grand slams” that generate 100% of portfolio return, it is totally logical that a huge TAM is a gating item for any VC even to consider an investment.
Common, like so many other startups, was looking to develop, market and build something new. I donʼt want to overstate it. We were not creating something the world had never seen before.
People had been living with roommates in cities for decades. But we were bringing purposeful design, organization, bespoke technology, brand, community and most importantly affordability to what had been a very haphazard and often extremely poor experience. Our most pressing task was to establish consumer demand, which goes by the name “product market fit” in the world of VCs and startups.
Without this you have nothing and should pack it in and get a different day job.[1] To establish product market fit and to confirm everyoneʼs faith in the TAM you need to grow aggressively. I wonʼt say you necessarily need to grow at exponential rates, but you certainly need growth to compound. [2] Growth as a linear function wonʼt cut it.
Moreover, since as a startup you are burning cash every month the need for this type of growth quickly becomes paramount. There is another equally important factor that pushes growth to the very top of any list of company deliverables. Over the past several decades we have come to inhabit a world often described as a “winner-take-all economy.” I wonʼt pretend to be an expert, but it seems clear to me that this is related to our increasingly tech dominated economy.
“Network effects” has become both a descriptive term and a buzz word. Size begets more size. And in the end the market is dominated by one or two names.
Think Amazon, Meta, Google, Microsoft, and Salesforce and similar companies that have come to capture the lionʼs share of a market and its economics. In the world of VC, and the companies they finance, where grand slams are thesine qua nonof success, growth and market dominance have evolved into a weltanschauung that colors all aspects of the business. I will come back to this in the last article when I discuss the really hard stuff.
Notwithstanding the imperative to grow, a thoughtful CFO needs to think continually about the business model. The future is uncertain, and the evolution of the business may be beyond anyoneʼs current conception. Nevertheless, it is the responsibility of the CFO to always think in financial terms—revenues, margins, profits—and to make sure that the company is always on the right road, even if it is a long and winding one.
Speak up; be forceful but flexible; and make sure that you and the CEO have as close a working relationship as possible. You will both need each other in the months and years ahead. [1] Our understanding of product market fit evolved, and I believe this is an important point.
Initially, we gave equal weight to design, community, and affordability. As we gained more market experience it became evident that affordability was our most important value proposition. [2] Over time compound growth can be extremely powerful.