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Start-ups seek business success by capitalising on a need-gap in the market: Jeff Thomson

In an interaction with BW Disrupt, Jeff Thomson, President and CEO, The Institute of Management Accountants (IMA) highlighted the role of finance in the startup ecosystem

According to you, are start-ups focused on finance as much as they should be?

Over the past few years, we have seen India emerge as a very mature start-up market. The number of Indian unicorns being created is significant and just behind China and the U.S. In the first phase of growth, finance was perhaps not the most important factor that entrepreneurs focused on, but we have seen that change as the metrics of success changed. Rooted in a “grow at all costs” mentality, VCs are now more focused on profitable growth than ever. Challenges faced by WeWork and Uber with their IPOs in 2019 also brought this into stark focus and the reverberations of this were felt globally, India included. So yes, I would say that today, the start-up ecosystem is perhaps as focused on finance as it is on any other corporate function like operations or marketing – very much in line with counterparts in other countries. 

Because most start-ups are lean, entrepreneurs tend to focus on multiple areas at the same time – is that necessarily a good or bad thing?

Start-ups by their very nature are not as compartmentalised in their operations are their larger, more established counterparts. In most cases, one sees an entrepreneur’s business model as very lean – she and her team use resources – both money and people, sparingly. Which is why many start-ups have lean teams. Team members, including the funder, are not bracketed into operational silos and are more than often tasked with multiple responsibilities that get more clearly segregated and articulated as the company grows and work increases. However, when it comes to functions like finance, it always pays to have specialists on board right from the start rather than bring them on later. This is as important and relevant in an early stage start-up as it is in an older start-up. A specialist should not just be brought in for the requisite number-crunching, regulatory oversight or funding requirements, but also in order to bring in strategic and operational thinking. 

In your opinion, do entrepreneurs with a finance background end up being more successful? 

There are two types of finance professionals. The regular finance professional who is good with numbers. Then there is the specialist; ideally, a management accountant who can help, not just with numbers, but also with taking on a more strategic and operational role to give direction to the company. Such professionals and/or entrepreneurs are able to add greater value in every aspect of the business ecosystem, which truly makes all the difference in the long run. 

From young entrepreneurs focused on growing their business, what are the top 3-4 things that they must bear in mind when it comes to the finance function?

Technology and economic disruption are poised to reshape accounting and finance as we once knew them, thus, demanding that management accountants rethink their very roles and functions. Young entrepreneurs need to improve their decision-making skills in a highly volatile and dynamic ecosystem. Keeping this in mind, that the focus on finance needs must be broad, not siloed. 

The finance function is increasingly going to be defined by how well finance professionals adapt to technology and globalisation. Competitive challenges are evolving customer demands, disruptive technologies, and increasing regulatory scrutiny. This will challenge the entrepreneur and in turn, his or her finance teams, to be prepared to adequately meet these challenges while striving to be effective business partners and strategic advisors. By earning a seat at the table, specialised finance professionals such as management accountants are well placed to enable CEOs and cross-functional partners to address challenges and disruptions, head-on. 

When start-ups hire a CFO or senior finance professional, what qualities should they be looking for most?

Start-ups seek business success by capitalising on a need-gap in the market. But, sometimes just having a great idea may not be enough; the fact is that 36% of businesses fail within the first two years of operation. The most common reasons for failure include poorly thought-out business plans, running out of cash, and pricing or cost issues, according to the analysis conducted by venture capital database CB Insights. Sometimes the reason for failure is bringing in a product or service way before its time or misjudging the market need or relevance, entirely. 

Specialist finance professionals such as management accountants can play a key role in bridging this gap between strategy and financial control. Scenario planning, strategic options, and evidence-based decision-making are among the areas where management accountants can provide expertise. Start-ups, therefore, should look for finance professionals, ideally management accountants, by training their entrepreneurial mindset in addition to any other skills they look for in the candidate. 

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