A boon for startups; Lead to growth

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The median compensation for a CFO in the United States is nearly $400,000 per year, plus benefits.

Know what you are doing and be able to explain it. If investors fully understand why you are outsourcing a certain function, they will look at you and see the planning and tax liability. They will see that you think like an investor and that you and they are on the same page.

Each year in the United States, according to estimates by the Small Business Administration, more than 627,000 new businesses open and about 595,000 close; only about 51% of new businesses last up to five years.(1) The investment community wonders why this is so. “A major factor in startup failures,” says Paul Ford, Founder and President of DS9 Capital, “it’s the lack of profitability; most likely due to salary cost overruns.

According to Ford, salaries are a major cost overrun in many startups. A platform-based infrastructure, for example, in which a startup buys services such as IT development from a contracting firm rather than hiring a chief technology officer and in-house staff, is, according to Ford, a formula viable for a startup. This, he says, both protects profitability and provides the business with the education it will need when it later opens its own IT department.

The most successful startups, according to Ford, based on the experiences of its own investment company, focus on profitability: make a return on investment, save money when possible, and build a strong foundation with a strong, cohesive workforce. However, to run a successful business, one cannot behave only as a leader: you command and the others obey. Behaving like a coach will lead to success, better team cohesion and morale, Ford notes.

He cites the example of Golden State Warriors basketball star Draymond Green, one of the leaders of an emerging trend in the NBA of players who can play and defend multiple positions, make plays for teammates and pave the way.(2) “If you’re the leader of a new business,” says Ford, “you need to coach the whole team: full-time employees, platform/split staff, partners, everyone Moreover, you have to think like an investor: what do we do, why do we do it and does it work?”

Fractional stick

Split employees – people hired for only part-time, usually without benefits – are used by companies that need access to advanced expertise in a given area but cannot afford the full-time services. (ie the high salary) of an expert. Few startup founders, for example, Ford notes, have extensive finance experience. They need guidance and skill to project their numbers, but they realize that the median CFO compensation in the United States is nearly $400,000 per year, plus benefits.(3) Rather than d To shoulder such responsibility, startup CEOs are turning to split CFOs, who work for them for a limited number of hours per month, at a small fraction of the cost of a full-time CFO. The same goes for CTOs(4) and CMOs(5).

On the other end of the hiring spectrum, startups, especially in consumer-facing industries like e-commerce, retail, and fashion, may suddenly find themselves in need of hiring a big number of full-time customer service, developer, sales, and merchant employees. Rather than trying to set up and run their own human resources department, these companies now often turn to professional employee organizations (PEOs) to recruit, vet and hire new employees, as well as to manage the payroll, benefits, HR, tax administration, and other personnel-related functions.(6)

There are, Ford notes, both advantages and possible disadvantages to using split and outsourced services. On the one hand, it offers real and significant savings in time and money. On the other hand, it could, if not done carefully and conscientiously, alert current or potential investors. The solution? Effective communication.

“Know what you’re doing,” says Ford, “and be able to explain it. If investors fully understand why you are outsourcing a certain function, they will look at you and see the planning and tax liability. They will see that you think like an investor and that you and they are on the same page.

About DS9 Capital:

DS9 Capital is a founder-friendly portfolio management holding company focused on building sustainable and stable cash flow businesses in insurance and healthcare technology. DS9 typically focuses on cutting-edge technologies and service offerings in the insurance and healthcare space relying heavily on cloud-based infrastructure, and more specifically on applying our expertise in domain to nanoscale enterprises in order to extend the value chain for all stakeholders. This value creation typically includes investments, leveraging our vast resources and networks to create a strategic pipeline of organic growth and realigning businesses to optimize business and IP assets. Our tactical goal with each of our companies is to leverage our expertise to generate higher margins and missed revenue opportunities.

1. Ball, Louise. “Small Business Startup Information.” Small Business – Chron.com, November 2017, smallbusiness.chron.com/information-small-business-startups-2491.html.

2. “Draymond Green”. Wikipedia, Wikimedia Foundation, 5 April 2022, wikipedia.org/wiki/Draymond_Green.

3. “What is the average salary of a chief financial officer (CFO)?” Investopedia, July 24, 2021, investopedia.com/ask/answers/010915/whats-average-salary-chief-financial-officer-cfo.asp.

4. Salary.com, site created by: “CTO Salary”. Salary.com, salary.com/research/salary/benchmark/chief-technology-officer-salary.

5. Mitchell, Ber. “Post Tip: The Benefits of Hiring a Fractional CMO (And How to Choose One).” Forbes, December 29, 2021, forbes.com/sites/forbescommunicationscouncil/2021/12/28/the-benefits-of-hiring-a-fractional-cmo-and-how-to-choose-one/?sh=5d243d7fc157.

6. “What is a Peo.” NAPEO, napeo.org/what-is-a-peo.

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