Hi HN, I'm the founder of https://causal.app and the author of this post —
Most of the finance content online is very textbook-y and overkill for early stage cos, so wanted this to be a 'no-nonsense' guide for founders/ops people that have to juggle a bit of finance stuff alongside everything else.
We've helped lots of startups across different stages with finance stuff over the last few years through Causal, so I'm happy to try and answer any questions :)
A few things that could make this guide even better:
0. Variable costs vs. fixed costs, why the difference matters, and how to tell the difference.
1. The difference between gross margin and contribution margin, and the relevance to thinking about unit economics before deciding to focus on scaling.
2. The CEOs role as a capital allocator, and how to assess what % of your burn is going towards different objectives. (It's easy to be self-delusional if you don't approach this in a structured and disciplined way.)
I'm always curious what makes you credentialed for this type of business / corporate knowledge.
It's not to denigrate this person or their current company, but Causal itself seems to only be at the Series A point in funding, maybe they're working on their Series B. The author himself seems to have no other experience in startups, just some past professional experience. On the flip side, it is true his company seems to have 7 or 8 digits of funding and has a few employees after existing for 4 years, which is probably a pretty strong outcome in startup world.
I perceive this to be the value of YC itself for instance - institutional knowledge of a hard-to-get type.
Causal is a financial modelling tool so while we're only Series A, we've spent the last 4 years working with finance teams across all stages (our customers), as well as the wider startup finance ecosystem of accountants, CFOs, VCs.
The post is mostly based on that accumulated experience, but of course coloured by our own experience operating at the Seed/Series A stage as well.
Skimmed the post and there aren't really any "trust me, I'm experienced" items in there. The opinionated bits have detailed reasoning. I have relevant experience pre-seed through C with a bunch of companies, the only thing that stuck out is that the bookkeeping pricing listed is on the low end.
Maybe take the service provider recommendations with a grain of salt but everything else reads like a nice summary.
>> While Vembu has been running Zoho for nearly a quarter century, his sister Radha and brother Sekar own the bulk of the company, according to Indian filings. A product manager at Zoho, Radha has a 47.8% stake in the company that’s currently worth an estimated $2.2 billion. Sekar, founder of Vembu Technologies in Chennai, owns 35.2% worth $1.6 billion. Vembu owns 5%, worth $225 million. The family, now worth at least $4 billion, was ranked No. 48 on Forbes’ 2022 list of India’s 100 Richest under Sridhar’s name due to his prominence as founder and CEO.
* Per unique FDIC institution, of which there 3000-5000 of them, many of which offer financial services that break deposit down into FDIC insured amounts via institutions the are legally separated per FDIC’s definition, but treated as a single account for transactions.
See post related post that covers this, additional options, and HN user comments here:
Lots of tools integrate with Quickbooks and Xero now so you're right that a big chunk of bookkeeping work is pretty automated, but there will always be a bunch of transactions that don't live inside a nice system that will need manual categorisation, e.g. random invoices from vendors that need to be manually paid and categorised.
Outside of categorisation, there's some more technical accounting stuff that also needs to be done, e.g. accounting for revenue properly on the Balance Sheet.
If you just raised a $30-60+ million Series A and are relying on anything in this article, you will have bigger problems. It is this self-righteous approach to finance/accounting that gets companies into trouble down the line.
Hey man, the target audience is normal Seed/Series A companies —
$30m–60m+ Series A rounds are extreme outliers, especially in 2023, and the $1m MRR number you quoted in another comment is 5x higher than where most Series A companies are at.
Would genuinely appreciate feedback on anything specific in the post that you disagree with, with that target audience in mind :)
So this is the level of finance/accounting sophistication now expected for a business with a valuation of $30m–60m? Maybe I'm out of touch. I think this guide lowers the bar unnecessarily.
It's really not. The overall tone is "You don't know anything about finance/accounting as an inexperienced leader but that's okay! - Just outsource it! Oh and here are some tidbits so you can pass off as knowledgeable in conversation"
It's not tone - it's explicitly targeted at people who don't know much/anything about finance/accounting and almost by definition are relatively inexperienced at running a business.
There isn't a great alternative. Taking the time to become an expert certainly isn't a good idea. Hiring a CFO with seed money isn't a good idea.
This is not a helpful comment. Why not point out the actual issues, instead of just calling it "self-righteous", and assuming everyone understands what you mean?
I don't have time to go into details but the very big problems you could encounter mainly revolve around misses on compliance because you took a very lax approach to Finance ie. accounting standards, tax rules, payroll records, stock options and more. Just as a very simple example - I've seen a $1 million MRR company get eviscerated for not paying attention to something as basic as sales tax rules.
Most finance rules are quite reasonable and problems can be fixed retroactively. A serious company should absolutely approach their financial controls with the rigor it deserves but the cost implication of making mistakes early on is overblown.
If a company is turning over tens of millions per year and has missed something as basic as taxes then yes, absolutely, pain is inevitable, but it’s both solvable (after all, they’re doing tens of millions in revenue!) and very different from the type of problem a startup might encounter if they are cavalier with their finances early on.
The OPs post is of great benefit because often the key to avoiding problems is going from oblivious to aware… and so while a post like the OPs may not be exhaustive, it does put people on the right path, as it is heavy on the recommendations of getting a professional involved — and explains how to do that in a very accessible way.
How many startups have died because they didn’t know they had to charge sales tax? How many startups have died because they spent hundreds of hours obsessing over operational minutiae before they earned their first dollar?
(I don’t know the OP, but coincidentally I have worked with one of the companies he recommends, and I was very impressed — it’s clear to me this isn’t just churned out content marketing that uses the first Google result for “accountant”)
This would be more interesting if you did have time to go into details. I'd love to hear about the company getting eviscerated for messing up sales tax.
If someone doesn't pay taxes, they are in trouble. It doesn't it need to be in this write up. Taxes are always there, always complicated and always need to be calculated and paid.
It's a write up on finance basics, not a treatise on all issues at the intersection of finance/legal/compliance.
Most of the finance content online is very textbook-y and overkill for early stage cos, so wanted this to be a 'no-nonsense' guide for founders/ops people that have to juggle a bit of finance stuff alongside everything else.
We've helped lots of startups across different stages with finance stuff over the last few years through Causal, so I'm happy to try and answer any questions :)
Thanks for reading!