PODCASTS / E117

Episode 117 – Archetype Founders: The Finance Founder 

May 1, 2024

Welcome to Episode 117, the first in my series on founder archetypes, the finance founder.

In this episode, I’m kicking off a mini-series of shows drawn from my extensive conversations with food and beverage entrepreneurs over the years. Most of these conversations, I’ll admit, were free phone calls years ago, which I don’t do anymore, but I do listen very well and take notes. Some turned into engagements and regular correspondence.

And then there’s the 50 or so clients I’ve worked with since I started this business. Now, you might say, I’ve noticed some archetypes during all of this. Marketers would call them personas. I hate that word, and don’t ever, ever say it in front of me. These archetypes are socially constructed primary orientations toward your business while you’re at worky work. It doesn’t predict how you behave elsewhere. You could say these archetypes are related to a founder’s core skill, your roll-out-of-bed natural strength, and that’s often the case. But that skill is simply the one they’ve been the most heavily rewarded for in their social lives.

It’s how they consciously define themselves because of all that social rewarding, all that puppy dog petting.

Inevitably, this primary bias gives them enormous strengths and masks enormous weaknesses. As I said in an earlier podcast, there’s no fucking lone wolf model that works in scaling a CPG business. If you want to do that, become me. The vast majority of successful consumer brands that have scaled use a co-founder business partner model. My own little founders quiz, over 500 people have taken it, so it’s now a statistically valid data set, and I can tell you that it correlates with being on the ramp having a co-founder.

The exceptions are very, very, very talented serial entrepreneurs who are also rich, so without the co-founder, they are able to actually accumulate a staff of experienced people due to their reputation and then function more like a traditional CEO. But since almost all of you listening right now are not one of these CEO geniuses, this is not terribly inspiring to bring up or replicable or in any way useful.

Why is this the case?

It’s the case because no one founder has all the skills necessary to scale a CPG business and a professional CEO walks into the job already knowing that. This is not software folks, which an introvert can scale in pajamas from his laptop in a coffee shop in Santa Monica.

Okay, with that preamble, it’s time to talk about my most frustrating archetype of founder, the finance founder. Oh so serious. Money, money, money. Again, I am not talking about personality types. I’m talking about a social orientation to work in which the most valuable thing is money, money, money, money, money and solutions to business problems. Ding, ding ding…are assumed to be financial in nature when there’s a financial problem such as subpar gross margins, MCBs devouring your gross profits, cashflow insufficient to fund the next round of growth. These folks nail it most of the time without a lot of external guidance.

Kudos to them. So many founders I meet face plant because they don’t take accounting seriously enough. You really need to take accounting very seriously in the early years, folks, when you’re really, really bad at it. However, the same exact mindset folks that wins in these mathematically tense situations is the same one that completely face plants when it comes to many sources of underperformance and weakness in a small growing CPG business.

Allow me to explain. I had a client recently who reached out to reconnect with me when I asked him his burning questions of the moment. He listed optimizing field sales for maximum ROI and optimizing his TPR programs at key accounts again for maximum ROI. Maximum ROI, return on investment.

This is the term most founders do not actually use regularly at all in my experience because they’re not finance people, but the finance founder will use it all the fucking time to evaluate everything, probably even his sex life.

A small CPG business’s top priority is to grow fast so it can scale to the point where fixed costs come down, and the key variable costs also come down due to scale, including costs of goods. This demands a long-term view of your business’s financial efficiency, not a near-term one. I’m not excusing people who send shipper displays to Nielsen D counties in the middle of nowhere with no star traffic because few humans live there. Why would you do this? That’s stupid shit, and it doesn’t require a financial spreadsheet to prevent it.

Wake up. But finance founder guy drops the, what is ROI question before every single executional decision? This is where finance founder guy gets in his own way. CPG businesses scale on the basis of growing consumer demand. Yet see, there’s humans who produce the numbers in your top line. A human is peeking through the grid in Excel.

There’s no financial trick to accelerate their involvement in your business. You can’t do anything in NetSuite to make that happen faster. The vast majority of executional moves in consumer packaged goods, including food and beverage, are indirect paths to financial growth. In fact, almost every fucking move has an indirect and only partial relationship to growth, especially the capital raise you just got and are beating your chest about finance founder guy who they trust 1010 times more than anyone else.

Shall I regale you listeners with the list of founders who have raised tons, tons of money and who are now out of out of business. Chef’d, what a horrible trademark. Chef’d was my favorite example of the financial arrogance in the recent past. The ROI question is extremely contagious in a small team because it seems so responsible, so mature, except that is incredibly flatfooted and shortsighted and honestly just naive in consumer packaged goods. It generally masks a personal problem in my experience and that personal problem is with taking calculated risks on indirect growth investments.

This is where most finance founders suck if taking those bigger risks, unless they manage a head fund in the past at low and build, those aren’t the kind of banker who start CPG businesses. They’re too busy enjoying their private islands. If only they would behave on those private islands. Please just for god’s sake.

What’s the ROI is the ultimate rookie question? Ultimate rookie objection to any move executional move, whose value to the business is long-term is simply not immediately understandable in some kind of dataset. Now in BigCo, there’s actually very little naivete with this question when it is used because what’s the ROI at BigCO is simply, fuck you, go away, because I had to irritate yet another stakeholder and get them to back down. In B2B sales, which is my lifeblood. One could say it’s a massive red flag. What’s the ROI working with PDS? I delete those leads very quick. Delete. Finance founders ask, what’s the IRA? Almost as many times as they swallow each day and they don’t discriminate based on the context in most cases. Many investments that work in CPG to drive growth work through indirection and can only be quantified inferentially through sustained velocity increases in point-of-sale data or through consumer survey measurements.

Ooh, that’s murky, surveys? Look, a lot of what we’re dealing with here is a lot like the publishing business, I’m in. CPG growth is not a laboratory science folks. Whoever told you it would be does not know what they’re talking about. Sorry, but finance founder guy thinks that it really should be. It should be like a chem lab because in Excel it’s just so organized and everything just looks so pretty and everything is a formula should they don’t just because he wants that much control over the future and this is not a smart approach to running these kinds of businesses and it’s not a smart approach to growth yield marketing. Ta da. He’s my favorite example of something that if you’re listening to this and if you’re leading field marketing defies finance founder guy. Blows his brain, what’s the ROI?

Well in the near term. It costs a ton to staff the event and use up cases of product for free samples. Oh my God. We’re not even charging them. We’re not even going to get a demo table where we get money. Oh my God, how do you know it’s working? How do I quantify the impact? When do I get a fucking return? This mentality reminds me of a horrifying anecdote from my graduate school research. Brace yourselves because this is a doozy, a 1919 letter from a wealthy American donor to a Christian missionary school in India. “I want to know how many converts I’m getting for every dollar I give you. I can’t continue to give.”

Wow, that my friends, is the crass Jesus love. The problem with finance founder’s constant ROI interrogation is that it dehumanizes the entire culture of the organization. I mean, it does.

It’s Nazi-esque. Believe me. This reflects on both the strategy the company takes and the many tactics that it will use to scale it all. So it contaminates the founder’s relationship with their employees because they catch on to this.

Suddenly they realize that their existence of the company is no doubt being evaluated on a crass ROI basis. That’s all you talk about all the time. That realization my friends, does not make people leap out of bed in the morning to work hard for your startup at low pay. Take that from a 52-year-old fuck, but most importantly, finance founder unrestrained by another business partner who could call him out on his bullshit and present a different sensibility that finance founder will inevitably, inevitably create a super narrow playbook of basically trade manipulation moves and Instacart ads. Because they’re the only ones who can be directly measuring quantitative data sets tight as sales.

If the goal is to eliminate all moves that have indirect influence, then you wind up with the shittiest possible array of tactics in that playbook. I mean, shit, the problem is that those measurable ROI tactics by themselves don’t scale CPG businesses. You don’t get to 200 million through trade promos. Doesn’t happen. It doesn’t happen. Instacart ads won’t take you there. They all tap out. These lovely measurable tactics don’t scale CPG businesses any more than simply selling in through a broker network to 90% ACV can create scale with a new trademark in constant growth. Doesn’t happen. Doesn’t fucking work that way. Scale. If it was that easy, the failure rate would not be 80% or higher. Folks, think about it. This is not a game of Jenga. Much more complicated. Scaling a CPG business is about a custom playbook of moves with indirect influence on top line success.

Just accept it.

Finance guys core impulse though is actually useful and it can be redirected productively to evaluating the ROI of dangerous trade tactics like TPR programs that suck up gross profits up like a vacuum cleaner, programs that brokers distributors and the fee-hungry supermarket chains that hawk them, blah, blah, blah, blah, blah, blah. Oh yeah, kid, this is how it’s done. Everybody does it this way, absolutely how it’s always been done. Ultimately, I don’t believe finance guys that should actually ever lead a CPG business by themselves.

Oh, they’ll get through the debt funnel and then it’s over. They absolutely need to be crosschecked by a co-founder or some kind of business partner who has a long game in mind and who understands that there’s an element of faith involved and experimenting to fine tune your playbook. This involves temporarily investing in a couple fucking zero ROI activities, my friend. Yeah, until you know what’s working and what’s not working in your specific business and competitive situation, which no, I can’t predict in my 400-page book for every situation, stop complaining on Amazon book reviews. I’m just kidding.

That’s it for this episode, folks. I hope you enjoy this little cutesy series on founder archetypes and remember, as always, be safe out there.