February 1, 2021

blog

The need for information systems to scale

At FRAMEWORK, we hold the belief that the very best kind of capital is revenue. It fuels growth but it also has the added benefit of providing signals to the startup on how they are doing. Revenue is the heartbeat of a startup and its regular signals dictate the rhythm of operations. However, over the last decade we have seen a consistent issue at startups including those that are doing millions in revenue — a lack of consistent and accurate financial and operational reporting. Too often, founders are being forced into the arms of part-time CFOs and bookkeepers. This is a great way to initially have a lean startup, but at some point the cost / benefit crosses.

Why not keep the part-time CFO? Part-time CFOs are an amazing resource and often add tremendous value. But if you believe that data is the key to driving revenue, then at some point having this resource dedicated, full-time, and in-house becomes critical.

We believe that this critical baseline can be amplified after we invest. But before we invest, we need to understand the data that drives the revenue and is the heartbeat of the company. This allows us to customize our approach.

What do we mean by this?

We have conducted and documented experiments in our successful startups that we want to bring to our investees to try. These can often allow a company to find new efficiencies in terms of marketing spend, sales, development, and other areas.

The experiments are then run systematically in controlled test environments. By this we mean we try them in small samples over brief periods of time and then religiously measure the results. We don’t worry (at first) about whether the idea scales or not, or whether the loss rates / conversion rates don’t meet current benchmarks. What we look for are signals. As we get positive signals, we then expand the experiment. For us, experimenting is critical to growth and if the data is missing it becomes impossible to run and benchmark these experiments.

We also hear repeatedly that the data is hard to get or will take time and effort. That is as it should be because if this were easy, everyone would do it — which is a cliché (we know!), but that doesn't make it any less true. We understand the most precious resource a startup has is time, however without data, scaling can become virtually impossible.

At FRAMEWORK, one of our key investment questions is how much value can we bring to the investee outside of our capital commitment. Without accurate, reliable data, it becomes impossible for us to measure this and therefore almost impossible for us to invest. We rely on these data points as the business cues and signals that support the incredible visions our founders are driving towards. This is why we believe one of the most important things you must do as an entrepreneur is build an information system and build that system to scale.

We believe in the implementation of these systems and tracking KPIs so deeply that we brought a full-time resource onboard to help us and our portfolio companies in these endeavours.

We welcome Divina Advento to our growing team! While she will be our Head of Finance, Divina will also be responsible for consulting, implementing, and following up on our approach to measure and track operational data. We can’t wait for our startups to meet her!