My Guest - An entrepreneurial CFO, Kevin Naughton has worked with four different venture backed companies over 20 years. He's raised over $60M of capital from a wide group of venture capital firms. Currently, he's part of the senior team at Prodea Systems. Prior to that he was twice the CFO of GTess.
Kevin earned a BS and MBA from Bentley College. While he's lived in Texas for many years, he's a native New Englander and a life long Cape Cod junkie.
The Take Home Lessons - During his two tours of duty at GTess, Kevin saw a number of key factors that led to the company's demise.
- All B2B start-ups have small customer bases almost by definition. GTess' customers began to consolidate which drove down both the number of customers and revenue.
- GTess also faced a classic pricing challenge. To gain early acceptance, discounts were given. This evolved into a longer term lack of pricing discipline. Understanding how to price the value that you provide is crucial.
- Start-ups are not normal. So using industry norms can take you down the wrong path. Kevin notes that sales people insisted on compensation plans that matched those of mature companies. This approach didn't emphasize new account growth which should have been the top priority.
- Pressure to hire faster and accelerate growth, however, creates its own problems. Kevin explains that rapidly expanding your sales team before you understand the sales model and cost structure creates huge problems.
- Lastly, like any good entrepreneurial CFO, Kevin worked to create financial metrics to understand the business. Without these a start-up is flying blind. In a distressed company, these metrics become critical to stopping the bleeding and communicating with potential acquirers.