Chris Fenster - A Masterclass in CPG Finance

On this episode, we're joined by Chris Fenster, Founder and Executive Chairman of Propeller Industries - the embedded finance and accounting partner behind some of the most iconic emerging consumer brands of the last 18 years. 

Propeller has served more than 1,000 companies, including over a dozen unicorns, with a team of 250+ across three continents.

Chris breaks down why the 40% margin founders pitch often lands closer to 12 to 18% once promos, slotting, and trade deductions come out of revenue, and why margins counterintuitively fall before they rise as brands push from natural into grocery and club.

We get into the working capital death spiral, the gap between paying your co-packer and getting paid by the retailer, and the two failure modes Chris sees most: founders who size their raise off the P&L and forget the balance sheet, and brands that sprawl across too many SKUs and channels. He walks through the focus question every founder should ask, when to fund losses with equity versus layer on debt, and how to handle vendors when cash gets tight.

Chris also shares the Billion Dollar Beverage Blueprint behind Olipop, Poppi, and Liquid Death, the four stages of finance hires from zero to 100 million, why the independent board member is an underused secret weapon, and what changes after a 100 million dollar raise.

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Episode Highlights:

🚲 From bike shops to founding Propeller in 2008
📉 The 40% gross margin myth (and the real number)
🔀 Why CPG margins fall before they rise
💸 The working capital death spiral, explained
🎯 Focus vs sprawl ($20M one SKU vs $30M many)
🏦 Funding losses: equity first, then debt
🧱 The "back against the wall" efficiency mindset
🥤 The Billion Dollar Beverage Blueprint (Olipop, Poppi, Liquid Death)
🪜 The four stages of finance hires (0 to $100M)
🤝 Why the independent board member is a secret weapon
⚠️ What really changes after a $100M raise
🛏️ The Casper cautionary tale and the risk ratchet

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Table of Contents:

00:00 – Intro
01:19 – The accidental path to founding Propeller
06:43 – The 40% gross margin myth
09:36 – Why CPG margins fall before they rise
13:06 – The working capital death spiral
16:01 – Focus vs sprawl ($20M one SKU vs $30M many)
19:33 – What to do when cash gets tight
22:03 – Funding losses: debt vs equity
23:51 – The 'back against the wall' mindset
25:24 – The Billion Dollar Beverage Blueprint
32:10 – The four stages of finance hires
38:43 – Founder and CFO fit, and when it breaks
44:00 – Minimum financial literacy for founders
46:38 – The independent board member secret weapon
47:50 – What changes after a $100M raise
52:10 – The Casper cautionary tale
56:34 – Why Chris speaks up now, and where to find him

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Links:

Propeller Industries – https://www.propellerindustries.com/
Follow Chris on LinkedIn – https://www.linkedin.com/in/chrisfenster/
Follow Propeller Industries on LinkedIn – https://www.linkedin.com/company/propeller-industries/
Follow me on LinkedIn – https://www.linkedin.com/in/adam-martin-steinberg/

For help with CPG production design - packaging and label design, product renders, POS assets, retail media assets, quick-turn sales and marketing assets and all the other work that bogs down creative teams - check out https://www.kitprint.co/.

Shout out to my friends over at Glimpse, the go-to partner for automating retail-related back-office operations and unlocking margin trapped in invalid fees and manual processes.

Are you in the market for a new flexible packaging partner? Check out HD Packaging. Third-generation, family-owned and built for the needs of category leaders like Newman’s Own and A Dozen Cousins. Faster launches, lower costs, and no artwork fees. 

Transcript

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shelf help today we're speaking with Chris Fenster founder and CEO of Propeller Industries the embedded finance and accounting partner to release some of the most iconic emerging consumer brands in the last 18 years or so Chris started propeller I think back in in 2008 after spending a good chunk of time in 13 years or so as a both a co owner and a CFO of of a series of businesses some of which exited to to some significant category leaders start to finish was was one which is just the one that jumped out to me it's was a leading independent bike shop chain that was actually I think started in my hometown in Marin County California so that one immediately jumped out to me yeah propeller team I think it's a little over 250 people across three continents they've served close to 15 venture and growth stage companies including 24 unicorns so Chris and the team has definitely seen a lot so very excited to dive into it yeah Chris maybe just kind of first off for listeners maybe the for the ones that aren't that familiar with propeller love it just get quick lay of the land just in terms of kind of the the origin story the why behind starting propeller way back in 2008 and then maybe just kind of high level what the Kenna team does actually does for emerging consumer brands in terms of fractional CFO controller accounting F P N a trade spend all that kind of stuff and then we'll go from there sounds good first of all thanks for having me I'm a yeah they say like you know big fan long time listener I sort of stumbled into this like I I did not set out to start a company or be the CEO I I'm kind of more of a working in the background comfort level person and um so I was the first finance hire at four startups and the first one was the cycling business that you talked about in San Francisco that was I thought that was gonna be like a pit stop on the way to sort of going back to business school like I just was looking for something entrepreneurial to do to talk about in interviews and just really fell in love with the business and I think part of it was just like having impact in business building and you know I spent a couple years before that in consulting like my first job out of school was at a consulting firm and and I Learned a lot but I I didn't build anything that anybody would notice you know nothing that would like outlast me and and so I just I had the bug and I I was was interested in doing something more entrepreneurial before B school and and sort of stumbled into this cycling business and just wound up falling in love with it and and I love the impact that I could have and it was really dynamic and when I really started to think about it I'm not much of a school person like I was okay at it I wasn't great at school just sort of felt like OK I'm gonna stay here and and learn more and and see what we can do with it and so I I scrounged up some money from friends and family and and invested and became partners with the guy that hired me and and we just we busted our asses and made every mistake in the book and but also wound up selling the company to Trek a couple years later and you know I was like 26 and we had this you know wasn't a huge business but but it was solid and and you know you'd heard about it you like it was really well known in the area I think it was the second largest independent bicycle dealer in the country at the time and I just sort of felt like the man you know it was a it was a cool thing to do and it was you know it was sort of addictive like it was like a dopamine hit I think to feel like I could make a difference somewhere especially after consulting you know I was just like another kid in a suit and you know wasn't like a life changing financial exit uh but it was definitely life changing in terms of like direction and and passion so um what I didn't know was how hard it is to actually do what you know what we had done and so I I um I partnered with another guy who'd built in apparel business and um you know we we spent six years trying to do the same thing and just ultimately couldn't do it we ended up selling the company but you know I left with I left with debt and um you know it was just it was it was an unsatisfying outcome yeah you know for me and for all of our investors and sure you know it was I just I Learned a lot in the process right so I after that I was the first finance hire at two more startups and neither one of those really amounted to anything but you know I think what I sort of finally figured out is that I I really love the work and I can't help myself like I love getting into early stage companies and I love the exercise of figuring stuff out and I'm nerdy and I'm determined and and I'm sort of stubborn and I'll I'll stick with something until I really get it right and that was it was a good role for me but I was a little gun shy and I didn't want I really didn't want to start a company so I was looking for somebody else to hire me to be like the startup CFO person inside a bigger company and I talked to a bunch of other firms in San Francisco that had like part time CFO people and none of them focused on startups which I just thought was really weird and so I was I was just sort of like you know what I I think I know how to do this and after that second company I had I was looking for a rebound job cause I you know I needed a paycheck cause I hadn't gotten a paycheck in a while and and I stumbled into this nonprofit that handled finance and accounting for 300 other nonprofits it was it's still there it's down in the Presidio in San Francisco and that turned out to be the perfect model for what would eventually be propeller and so when I started propeller in 2008 I had this crystal clear picture of you know what it would look like because I'd Learned it this non profit like I'd done it and it turned out to be really timely it was you know it was a little bit of foresight and um I had the right DNA for the job cause I was I was really determined to do the job I was really passionate about it and if those three companies in a row hadn't failed I never would have started it but you know when when things everything went digital everything in the finance stack went from analog to digital and everything went from on premise to cloud and those were just both massive tailwinds and you know today almost everybody does things the way that you know we started to do them and 2008 so now the firm's a lot bigger it's not a startup it's you know it's 18 years and but it really it all came out of that first experience working in the bicycle business that you mentioned CPG pitch deck which I'm sure you see plenty of that says you know our gross margin is 40% let's say but then you know realistically some of the promos some of the deductions and Bill back slotting fees that 40% ends up looking closer to I don't know 12 to 18 12 to 15% or so assuming that you know resonates with you I guess like when you walk into a new CPG brand that Propeller's working with and you ask for you know what the true contribution margin is by skew and by channel what do you kind of I don't know typically find versus what the team thinks the number is yeah it's a good question and and the answer has evolved over time cause I think if we're talking about Propeller 18 years ago or 15 years ago we were working with really small companies our incoming clients was was basically anybody that would hire us right totally and I mean seriously and you know we and we didn't know what we didn't know I had worked at a CPG company previously so I had some experience you know working at one CPG company but like definitely didn't have the reps that I do now and so we would see all kinds of stuff and it would look a lot like what you're describing companies come in and and they don't actually know that all their trade deductions are supposed to come out of revenue and so right you know margins are overstated on sort of a gap level you know the bottom line number is is more or less right but the the gross profit number is is wrong and you know we could we could fix that pretty easily it would shake out more or less the way that you described it these days the incoming clients are are just bigger so now there are there are a lot of and bookkeeping firms have gotten a lot better so companies don't really need us at that stage and at this point the companies that come to us are you know are often doing five or 10 million in revenue and they've been working with a capable bookkeeping firm or maybe they've got a fractional CFO person so the the numbers are generally in good shape I think um there is an an evolution of margins over time um and that's something that I think we've gotten a lot more clarity on you know as as the business has grown we've gotten more reps and we've worked with larger and larger companies um so you know I think that's that's it maybe it's it's a different question than one that you asked um you know those those smallest companies with a with a 12 to 18 margins like a lot of them just aren't gonna make it sure sure right like they they just never get funded or they die before they get to propeller um you know the the good ones will will figure it out and then you know if we're lucky enough to work with them um you know there's a whole sort of evolution that happens after that as they go into like these different stages and they get you know different amounts of funding so I'm happy to chat about that if it's helpful yeah yeah go for it for sure that I think that definitely that you can look at like between five and 10 million and I've got you know we've got we've got a lot of companies in this data set like between five and 10 million like typical margins in CPG when they're accounted for properly are like 40 to 45 or maybe they they think they're 45 when we get the numbers right they're really maybe 30 40 you know by the time we get like accruals and slotting and everything sort of properly reported the weird thing is that gross margins usually go down before they go up so I know that seems sort of counterintuitive cause of like if you think they're at 12 and you know 12 or 18 like well there's no there's nowhere to go you can't go down from there right and survive but you know when the companies come in at like 35 to 40 like they'll typically decrease down to about 30% at like 80 million and then they'll tick back up you know to maybe 40% at 180 million and and and then they actually start to accelerate a little bit so like 45% at 200 million is is is you know is pretty standard across the board so the question is like why is that happening and a lot of it is channel expansion cause when you're in natural you just have more pricing flexibility a lot of companies are starting out you know or a lot of our clients are starting out in the natural channel and you just have a little more pricing power there but over time you get a funded right so so you know at a certain point somebody writes you a growth check and you've got 10 million bucks in your bank account and and a mandate to you know go turn 10 million into you know 50 million or whatever it's gonna be right um so that drives a you know bunch of investment like those dollars are there to be spent and a lot of that investment goes into you know slotting and more competitive pricing and you start to also see channel expansion into grocery where you know pricing is just a lot more competitive and then you can also see category expansion you know into new areas where you know maybe you got a bunch of new products but the volume is lower so the margins are lower cause you haven't actually hit scale yet so the combination of those three things like channel expansion product expansion and then just you know the more money you have the more money you're gonna spend is part of what actually drives those margins down trust me nobody puts this in their forecast right nobody comes in saying oh our margins are gonna go you know from like 40 down to 35 but like that's what the data says yeah so that makes sense interesting to be able to actually see the data across a whole bunch of companies yeah I'm sure cause for a long time it was like wait I think this is what happens but right I'm not really sure yeah I'm sure as you guys got more of that data set the more clients you get probably the more value valuable you are to clients cause you have that data set to say here's the patterns we see we're gonna help you avoid it I imagine yeah when it comes to cash conversion I've seen some stat and you can correct me if I'm wrong you're gonna know much better than I do I've seen some stat that it said you know 85% of new brands that fail in the first year that they do fail in the first year and the reason it is is just often because cash just kind of dries up during that gap between when you're paying your co packer and actually getting paid back by the retailer um assuming that from that you know assuming that you're on the same page like from your seat what does the I guess kind of want to call it working capital death spiral actually look like and then is there a certain revenue or kind of gross stage where it typically hits like where you're just talking about where you got up to that much larger size 80 million where gross margin drops a bit I imagine that's not where this happens but yeah where would you is there kind of a pattern where you see at what revenue or kind of gross stage where this really starts to hit and where companies can start to stumble and potentially fail yeah so look let's let's call out like two different failure modes for the death spiral there's an early failure mode and a lot of that is unforced air you know where founders figure out how much capital to ask for by looking at the losses that show up on their financial projections like on their PNL so they they figure out like how much money are we gonna lose over the next you know 18 months and and of course they always sort of underestimate it uh cause you know there's a bunch of costs that aren't in there that should be in there but a lot of them just completely forget to think about the balance sheet it's just like it's and it happens a little bit less frequently I think for our you know our clients now that we engage a little bit later but sure you know inventory 60 days of inventory and you know 60 days of accounts receivable you know minus maybe a little bit of accounts payable like that's the number and in a lot of cases whatever the number is on the PNL it's it's double that is what you really need and so they just they wind up not raising enough money and running out of cash before they've sort of hit the you know the proof point or or the the threshold to be able to raise more money at a higher valuation it's just completely because they weren't you know properly forecasting they weren't thinking about the working capital needs of the business so so that's the that's the first failure mode and you know that and that's one that we it's it's preventable you know but not if you don't have the right resources around you and by the way like your bookkeeper is often not thinking about this or even if they are thinking about it no they just may not have the sort of career confidence to get in your face and tell you totally right so you know put people around you that will you know have the hard conversation I think the middle failure mode is a little bit different and this it's it relates to what we were talking about before with margin so you know you brought that up and I think it's a good point like this is more about focus and channel discipline product category like I'll ask you so would you rather have a 20 million dollar a year business with a single product in a single channel or a 30 million dollar a year business with a dozen products in natural grocery club and Shopify like 30 million or 20 million skew cause it's a lot easier to manage a lot less inventory risk like you're not you're inevitably not gonna be sitting on one skew that's selling slower than you thought well you also that I think that's the right instinct and this starts to get into another piece of it which is sort of what do what do you want or what do you and I want like what do our investors want what is the cap table want twenty million dollar business with a single product in a single channel is beautiful it is and for the reasons you mentioned it's simple and it's like that it is um it's way more efficient it's way more capital efficient and at least as it relates to sort of working capital failure mode like every time you expand your product you've got to get you know minimum order quantities for inventory you've got to load up a channel yep you know you've got to load up the distribution centers and then you know you've got a bunch of receivables and then you're ramping up with the distribution in those new channels and so what are you you're doing a ton of trade spending so every every invoice for a dollar actually you know comes back with 50 cents on it because of all the trade deductions like it's horrible for working capital and and again like people just aren't a lot of times they aren't thinking about it and you know even if they are thinking about it like some investor gives you you know five million bucks to go expand your business and you know you get out there and start doing it if you underperform in any one of those four areas you know you might have several million dollars in working capital tied up in the in the channel and then one of them maybe doesn't work and it's like okay 30 million you know in across the higher risk factors in that in that bigger business just it creates a lot more ways to fail and by the way you had to take a bunch of dilution to get that extra capital true so like this you know the value of the equity that you have in that 20 million dollar business that hasn't had the dilution of a fundraise versus the value of the equity that you have in that 30 million dollar business that had to take dilution like you know you're either average or maybe slightly above average in a in a couple channels maybe not all of them or you're killing it in one like stay focused you know what I mean yeah when for let's just say it's a two part question I think for brands that are sitting on you know they've got a brand that you know the revenue is growing the growth is looking good but like cash position is getting what's like I don't know maybe just call out like two or one to three like top level things that's like they should focus on that could have the biggest impact in terms of getting them in a in a better position whether this second part is related or not I'm to take off you know inventory or yeah gotcha okay so let me let me hit the the first part first so like perfect if they're not related you can separate them well they yeah they're definitely related but it's there's some complexity in it but I I think I can unpack this so like you know when you're running low on cash obviously this depends on your runway so it depends on your runway and sort of your like how resilient your business is you know are you within spitting distance of profitability is your are you um I forget who coined this thing but like are you default alive or default dead oh I think it was day I think it was sax yeah yeah that sounds like a like sounds like a sax thing um so you know if if if you can get to some position of stable cash flow and that buys you time to go execute even if your revenue has to decrease a little bit right so if you're spending a bunch of money on growth I mean this is sort of the lever that a lot of companies have pulled over the last couple years like you're spending a ton of money on growth and you're doing it inefficiently and and maybe some of that was subsidized by you know investors that that you know back the truck up and put a bunch of money in your business I've seen extraordinary things from companies that just have like unhealthy inefficient marketing spending like becoming efficient because they just didn't have a choice it's amazing what you can do when your back's against the wall and sometimes it just makes you wonder like why don't I just keep my back mostly against the wall all the time cause it's just it is so much more consistently you know efficient so you know obviously look if if you can get to profitability get to profitability there's all sorts of things that we could talk about that would probably get me in trouble in terms of you know how do you get your vendor your your vendors to be patient because for a lot of companies you know the the cost of goods sold is the single business biggest expense you know besides payroll or sometimes you know it's even bigger than payroll and so I've definitely seen people get creative in terms of going back to vendors like uh you know their manufacturers and and being transparent with them you know about the challenge like if if you can see a pathway to get to a fundraise you know you might be able to just negotiate something with them maybe they'll take some equity cause they're already investors right they're they're just not getting upside like right their investment is basically the receivables that they're taking on you know what I mean so it's like they're stakeholders in your business and I've seen people make really good partners out of them but you gotta be transparent like you know it's just high integrity approach usually usually wins there on the on the debt like I think the right answer on debt is almost always debt and equity because the reality is like a a healthy business hasn't has a nice ratio of these things like there is no substitute for permanent capital and operating losses almost always need to be funded almost entirely with permanent capital which just means equity it could be you know it a safe note convertible notes like all fall into that sort of permanent capital bucket you just need a certain amount to it's like the lifeblood of the business basically but then it's super healthy to have some debt on top of that and the right ratio will be different for you know for each business like in a really heavily working capital dependent business that you know has a fair amount of equity 80% of receivables and and you know maybe 40 or 50% of inventory um you know can often be um leveraged into you know asset based lending and sometimes it makes sense to layer on a little bit of venture debt on top of that depending on a situation generally speaking you should you should think of of this as like a healthy ratio that you know will evolve over time like across stages and at a certain point you know you can you can do a ton of debt there like private private debt lenders at your hundred million in revenue you know probably profitable at that point but you just need to fund working capital right all sorts of options on the table at that point but I think it's it's obviously trickier for the smaller businesses especially the ones that aren't within spitting distance of profitability yeah it's it's totally funny it's kind of off topic but not to throw us off but you you talked about why don't businesses just always operate like their back is against the wall and I think it was I can't remember which of his companies I'm pretty sure it was Tesla and I think it was their president or CEO or something it would talk about in some story that even at their level where they were doing you know tens or hundreds of billions of dollars of revenue Elon still like forced the company of cash in the bank at all times so you like forced the company everyone on the team even at that size to have that mindset of we actually our back always is against the wall which is I thought was crazy at that size yeah I mean there's there's just nothing like not having a choice to like you know force you to figure out how to be efficient right totally and it's interesting too cause I like most of our clients are pretty well capitalized but there's a decent number of them that that bootstrapped or just raised a really small amount of money and like I've seen some unbelievably good efficiency out of those businesses and in I think in probably most of those cases the founders would tell you that like they just didn't it never occurred to them to that they could spend a bunch of money to sort of buy the revenue right they just they just had to be clever they had to be creative cause they they just they didn't know people that were rich or totally I mean it's and it's you know it does I mean it gets to your point um like I think keeping companies a little bit hungry is usually a good idea let's talk about this thing called the Billion Dollar Beverage Blueprint for a second I think you published this piece on this like Liquid Death have all kind of had in common from a financial your standpoint and it seemed kind of like the I don't know if you want to call it the punchline kind of seemed to be the all three transition from a built trade spend systems at similar scale hired finance teams a kind of predictable milestones I'm not exactly sure what it is but yeah can you kind of walk me through the the blueprint of kind of the patterns yeah sure I I think there's a couple components here I think the to to give all the companies credit and just sort of state the obvious um like the product is the business market timing reading the tea leaves and the trends and you know certainly for Ollie Pop and Poppy it was I would say that it's sort of less like prebiotics or gut health and more just healthy soda I mean that was the thing I think that the you know the investors and and you know probably even like Ben and David at at ollypop were were most excited about like yeah great gut health you know adds this functional benefit to it but you know in this case like I don't know that those would be the you know the market size opportunities that they are if it wasn't really appealing to somebody that doesn't care that much about gut health like it just tastes really good and yeah it does you know it's not it's not full of sugar and so the you know between Olly Pop and Poppy I think it was it was a little different like you know Ben and David at Olly Pop had literally built a similar business before so and and you know I don't think it was sort of a great outcome for them so by the way it's super remarkable that that those two decided to work together again cause like that never happens like I don't I don't know if you've had a like a business with a co founder but like when my second company went sideways it was like it's just it's really tough like you know me and me and Tim are really good friends today but like it's tough to stay together and let alone to decide to start you know within a couple years of similar business like yeah I think you know that they really knew what they wanted to build they had real clarity around it um you know in the case of of um Poppy founders had started a it was a different business you know it was a like a vinegar a like apple cider vinegar yeah I remember they went on Shark Tank it was like a mother's something or yeah yeah yeah mother's exactly yeah yeah and then yeah Rohan invested and like you know they made a decision to sort of pivot into the category and like and that was a remarkably good decision and you know for Liquid Death that's obviously that is a just phenomenal brand and so much just crazy creativity but it's also it's just it's a giant market right and so I think the the thing there about sort of like you know market size and market timing you know you wanna get a billion dollar outcome you like you gotta pick a billion dollar market and in the case of prebiotic soda not a billion dollar market right like that's it was probably a five million dollar market maybe not even that when they started these businesses but you know that wasn't it like the market I would say is just healthy beverages it's healthy soda so I think that was the first thing and it's probably worth saying that like yeah you need to be properly capitalized and you know the least of it is just getting some level of of you know professional financial help in there and and um you know we worked with both um Ollie Pop and Poppy and and so we don't we don't have anybody on cash basis financials like cause you just you can't sort of do the strategic piece of the work that you know we're really meant to do without clean data so at least getting them on scalable systems that are stage appropriate is I think the important piece there the other thing I would say is just like competition as advantage is probably worth calling out and especially in this case because lolipop and and Poppy are direct competitors like and as I'm sure has been said before like you know nothing like a great rivalry to make both companies better whether it's like pro sports or I don't know even like you think about like Federer and Nadal just like pushing each other constantly like we could see that sort of between the two businesses like there's a super healthy rivalry but like the other piece of it is is when customers walk into the store it's not just one brand it's like an entire wall you know or just like the big stack in the cooler and you know now it's like wait what what are all these probiotics it just it really helped I think speed adoption I think each company maybe without knowing it really pushed the other yeah totally and um and that for sure helped the category and look at it now I mean it's just it's you know it's going nuts and then the the I think the last thing is just financial support or even you know this this is true of all the operating disciplines like support that can scale like I think the only thing you can be certain of you know in in getting a company to a unicorn valuation is that you are you are gonna have to break and rebuild everything over and over again and you know it's hard you kind of have to build for the stage that you're at sure like in most cases you can't overbuild or even if you could that would be a super bad idea but it it just means that you have to build with flexibility in mind like you've got to know that hey the the person that gets me to this stage is not gonna get me to the next stage and and you you just gotta be willing to do that honestly that's that's an area where you know having a partner that can sort of provide continuity across the different stages it just gives you a lot of flexibility and and in each of these cases like you know almost every company we work with that's had great success has gone through a bunch of people except maybe groons which just did it so fast hahaha that was really like remarkable and but different story but like you know there's there's some collateral damage that comes from you know that level of dynamic growth and you know the nice thing about a hybrid team or a you know a a team that's like a combination of W 2+ you know some partnership is that the you know the partners can provide some continuity through the the change which in most cases is inevitable yeah I think you told me when we chatted a few weeks ago you told me that typically those brands will go through four different heads of finance kind of along the way um what changes about that finance job where different people different skill sets need to come in it let's just say at that you know I don't know two to 25 million and then you know up to the next is like you know 25 to 50 50 to hundred and then you know getting that larger stage hundred million hundred million plus yeah so that's a tricky one I mean there's there's sort of um I think there are are really four distinct stages let's call it between zero and and 100 million and um and it's really hard to skip one like you kind of have to go through all of them which is sort of frustrating um but it kind of it creates this paradox where if you the more you optimize for the stage that you're in the less capable that person or team is of surviving to the next stage so and I might break it down with like the first sort of higher the first need let's like call it the earliest sort of zero to 5 million like you said 0 to 2 but I think this happens you know across sort of a pretty broad window like the first hire needs to be a survivor like it just needs to be somebody who can do everything sort of a Swiss Army knife role and look maybe you've got like a bookkeeping firm and you've got a part time CFO and you know a lot of companies are just they're just surviving it right and the reality is like your finances aren't that important right in that earliest stage like I know they're probably pretty simple too yeah it's so simple yeah and I I feel bad saying this because like this is supposed to be the thing I care about most in the world but like dude nobody wants to be you know the company with unbelievable bookkeeping and a mediocre product right or like not great customers and honestly the bookkeeping is not gonna get you to the next stage so like you know be cheap and you know don't be irresponsible don't get thrown in jail but like survive right you just get to the next stage so that sort of describes the the you know the kind of mindset that you need if you assume that then the next stage is this sort of traction stage so like let's call it 5 to 25 million like you know it's a lot of breath but you know it's clear that you need to professionalize you know the the finance function and and you know what does that mean that's like you know it's it's cash to a crew and it's let's make sure that trade deductions like your numbers just need to be right and they need to be consistent they need to tell a story a lot of times the founders need somebody who can kind of be a translator like what are the numbers telling us uh huh you know and and what does it mean like what should we do differently are we healthy or are we unhealthy or or you know what are the nuances in there and and you know you have a lot of Swiss Army knife type people in that zone and um and that's relatively easy to hire for like there are a lot of sort of finance directors in that zone like there's some finance vps but they're they're not like a company that size doesn't really need a VP and like even if it did need one it's hard to recruit great talent because most people that are really vps know that the job kind of sucks at that stage it's just a ton of controller ship so it's like you know the conundrum in this stage is like you know maybe you want a VP but like the person that's gonna take the job is probably more of a director right or maybe it's a controller and they get sure so you wind up like the failure modes for this are like over titling you hire somebody in in that stage you're gonna outgrow them really quickly you know if you have any level of success and then you're gonna be stuck with somebody that has a title that they haven't yet had a chance to grow into and you know we see this a lot'cause we have a lot of companies in that you know in that sort of traction stage yeah the next one after that is sort of like an awkward phase because you've you finally get things working pretty well in the traction stage and like maybe you're in Quickbooks and you you know you've got your inventory tools and you've got your EDI and your trade deductions stuff is like going okay and now you know somebody backs up a truck and puts 10 million bucks into your business and now you're going into that margin stuff we talked about before and you've got a whole bunch of slotting like slotting is like half a percent when you're you know super small but like you know in that sort of like 20 to 80 million range there's a lot of dollars coming in your you know your channels are expanding and slotting goes up to like three and a half percent and and you know and that's part of what's driving that margin down like that's a that's a difficult it usually it helps to have some pattern recognition in there like is it working cause cause you know three and a half percent of of you know 50 or 80 million dollars is a big number and you know you hope that you have good people in your you know in your sales team but like it it's really helpful to have a finance leader the finance leader at at 25 million like probably doesn't have that skill set unless you could convince somebody to come down from a much bigger business but so few of the companies actually make it from 5 million to 50 million that like a lot of them aren't willing to take that job so you see what I mean like there's this like it it just gets so tricky to move from stage to stage and then eventually like if you're lucky enough to get into that you know seventy five hundred million dollar range like okay that's a business that's like you know in most cases clearly exitible you know if it has growth you can attract somebody from a much bigger business to kind of come down market that person's gonna have the resources to you know hire up the like a head of F P N a and and like just do the things that you can do at the bigger business and so usually that's kind of where you start to find people that you know can actually survive you know to 200 or 300 million okay and we've definitely seen that you know in our businesses the founder and kind of finance leader or the founder a healthy founder and CFO relationship looks like and maybe it's another way to answer it when the relationship breaks like what's the most common reason yeah that the question really resonates for me because in those you know four roles where I was a CFO at a startup I I felt like my job was to sort of fill in gaps for the founder for the CEO and you know in every case like the founders I was working with were really really smart and in many cases just had a ton of creativity and I'm sort of a structure like I'm more of sort of a back office like I'd I'd probably more comfortable working in a windowless room than like you know going on a podcast but that made me a good partner for them like you know they were out with you know selling or figuring out product and I was in the windowless room trying to make one system talk to a different system or you know figure out what story the numbers were telling so I feel like every founder should be hiring the you know the finance relationship for their gaps and like a founder that went to Wharton you know or used to work at you know Goldman Sachs is probably not gonna need you know a high horsepower F P N a C F o so you know that might free them up to hire for domain experience and maybe they don't need a finance VP maybe they need a controller and and you know that is really the you just it's an opportunity filling that you know finance leadership role is an opportunity to create like a healthy balance between the the leadership so you know you want some overlap but not too much yeah the most common break is is just growth I think it goes back to that talent paradox thing that I was talking about before like success breaks things and you know maybe one of the unforced errors around this is just hiring too early so like we we see we have a growth stage practice area now that was sort of you know we we built that like three years ago cause we just had more and more companies that were larger and and you know they were sort of graduating they would they would you know they'd get to$30 million or something you know we'd always told them like you'll get to a certain size where you should just bring it in house and you hire W2 people and you know companies were they were doing that but then you know maybe the growth slows and and um you know the business um you know it it's not quite at a point where it can get to the next level and then they're trying to save money and they're realizing they're spending too much so they would come back to us and we you know we eventually realized that um we were losing our healthiest companies so we we built this um sort of a different product it's like a different service model for companies in like called 30 to 300 million range and now we've you know we've got like dozens of nine figure businesses in that thing it's not really what we're known for but it's sort of you know we're doing unsexy right you know behind the scenes kind of work you know part of what we were um solving for there was the failure of early hires so you know somebody brings in a director um you know at 10 million they outgrow a bookkeeping firm at 5 million and then they just assume well we you know we should just hire a W2 so who can we afford and who can we attract well it's a director level person who comes from a good company you know you get somebody in that business but then the business triples in size in 18 months and like the person's not gonna make it and you're also not really at the point where you know you can hire for the talent that you need so some of those companies would come back to us and that's a yeah that is preventable cause I think the thing is when you outgrow your bookkeeper it's not that like you've outgrown you know a a um you know a fractional model I don't wanna use that word cause like we don't really call ourselves fractional anymore cause it just it you know it feels like a part time thing build me a financial model and then bail that's not what we do right so we like we call ourselves embedded now like you know we'll start early and some of these cases like with good culture we've been in that business almost as long as like Jesse the founder you know so we think about it a little bit differently but I think you know part of it is that failure mode around hiring too early um you know or like the talent paradox where you're you have this conundrum about you know hiring for the stage or hiring for scale I think you just have to accept that like you know sometimes like breaks are just part of the deal and planning for it is probably a good idea you know making making sure that things are documented and you know that that the knowledge doesn't walk out of the room you know when somebody gets recruited by a different company or you have to make a you know a leadership change for the founders that are now let's just say they have more of a brand sales background lens versus ones that you know had a finance background maybe they went to Penn as an example um especially for those founders that their things are really starting to take off they're starting to get to some level of scale what's kind of the minimum financial literacy that you feel like they need to have to they want to be dangerous and to the minimum they need to have to not I don't have things blow up in their face that's an interesting question I think for a lot of people you know it's weird like some folks are takes it takes all takes all kinds right we work with 14 Founder I probably work with like 100 founders like closely enough to to feel like I got them and everybody's just wired in a different way like some people are really detail oriented and really want to have an understanding you know or like just wired to ask questions you know until they get to a comfort level and then other people like really don't wanna go there like really don't wanna talk about the balance sheet and really don't wanna talk about the cap table do you know what I mean and and I think that part of the job you know it's funny like I've been doing this for 18 years and so the way that I show up today is a lot different than the way I showed up 18 years ago sure of course like you know I think part of the job is to um if somebody doesn't ask me the question but I think something's important like I I I will you know prescriptively ask the question or introduce it so like I've I've had I can think of I can think of a bunch of conversations I've had over the last year where I just went to somebody who wasn't asking for my advice with something that I thought they should do that I thought was important and you know some of that has to do with career confidence a lot of that has to do with like having not made that observation or not made that comment for a previous business and then regretted it like seeing the consequences of the action not taken and yeah feeling responsible honestly like there was a bunch of like really difficult things that I could have prevented if I had spoken up earlier right I think it's important for founders to find a person who will do that and it doesn't necessarily need to be the financial person you might already have somebody like that it you know could be somebody on your board it could be your spouse like it's just somebody who sort of understands the domains that are important whether it's you know it's finance or strategy or marketing or whatever and is like gonna get in your face a little bit if there's something you should be doing that you're not doing yeah that totally makes sense and by the way sorry to interrupt now you're good you're good okay one super underutilized way to do that is the independent board member like I've I've just come to believe that the independent board member is a secret weapon but we don't have you get somebody with your Series a and then you get somebody else with your you know Series B or Series C and then you've kinda got like you know two founders and a couple investors and but at a certain point the later stage companies always get an independent right maybe it's at the Series C the investors you know they get a seat and then they you know they negotiate for like an independent board member seat I think doing it early is is a total secret weapon like I I know a couple of folks that have you know had early early independent board member seats and I've seen it in our own board uh you know for propeller and it's great cause those independent board members like the good independent board members it's it's I think they they feel rightfully so that it's their mandate to like get in there and and you know tell you maybe what you you know have the uncomfortable conversation a lot of brands are raising capital right now it seems like the market is definitely been heating up lately when we chatted a little while back you basically said to me quote once you've raised 100 million there's really only one path forward at that point what changes structurally about about the business after the hundred million dollar raise and in terms of what you mean by that yeah so there's a um it's a it's a systemic problem um a lot of things change when you've put that much money into a business and they're not that many that have raised you know hundreds of millions in CPG I mean the the three unicorns that we talked about before um you know have have all raised I think they've all yeah they've all raised well over hundred million like every every dollar that you put into a business has to come out of the business before the founder see a dime like unless the when the company goes public like there's sort of a different situation there cause it all gets converted into common but like when when you take that money it creates a there's a systemic split that occurs because the the the investors deploying the capital have a different set of interests um than the founders do they're gonna get paid first their job is to actually put other people's money to work um and and their job is to return the fund right you raise a hundred million dollar fund like you're making a ten million dollar investment you want you expect to be able to um get a lot of money out of that investment you might even put more in later right so once you've got a hundred million dollars into a brand it it's not enough to have you know 100 million dollar exit like nobody makes money in that right and even a 200 million dollar exit is like not what the investors were looking for in most cases right in in in private equity like that's you know that's probably a decent outcome you know if it happens in six months it's a great outcome but if it happens in six years it's like really not great that's gonna drag your numbers down so what's happening around those decisions is I think where things become problematic so there there's this sort of systemic misalignment that occurs sometimes between the common stockholders the founders and the institutional investors you know who who need to get a big exit they need you to take risks in order to be able to get that outcome if you're a first time founder like every every time you set the bar higher it just creates more risk like it is objectively much more difficult to build a hundred and fifty million dollar business than a hundred million dollar business right or or a 300 million dollar exit you know when you get to the point where where you've got a you're talking about the Tam and the market size it's just adding a ton of risk it's often true that the founders just don't fully appreciate that in the moment you know I'm I'm running out of money and I need to get this investment and this investor came to me and they gave me a term sheet for a bunch of money and it's a great valuation you're not thinking in that moment that if you take that money at that valuation you're obligated to spend that money to create a business that you know has a much higher valuation than it would if you didn't take that money or if you took that same money to lower valuation so right there's you know we can call that sort of the risk ratchet like every time you take more money the risk ratchets up it creates pressure on you to build an extraordinary business just to get your money back versus like maybe a really good business that could do really well for you and this stuff just happens it happens slowly you know you're you're chasing this higher risk profile and you're hiring new people and you're spending a lot more money in the complexity that business increases and next thing you know like you're just over your skis you're over your skis as a leader a business that you might have been perfectly capable of building you know with a small amount of money you know without a lot of institutional support is now really hard you know you're you're using all that capital to launch new skews into new channels and now your working capital is you know ratcheting up and you've got to hire a new CFO and it's like all this is incremental complexity versus you know what you might have had to do if you were just building a really good business with a lot less money so I think that's sort of the conundrum um and we've seen some examples of that um you know I think that like one of the best known ones which has been talked about a lot so I won't you know I won't feel badly talking about is Casper the mattress company yeah you're yeah I'm sure you're familiar with them like very familiar e commerce darling right they were early after Warby Parker and you know it was and they're credited I think with like inventing the mattress in a box category but yeah you know that was a that was a it was an amazing business I mean and and we you know we got in pretty early I didn't know then what I knew now for sure so we got to see it from its earliest days and it was you know they did like a million bucks in revenue their first month and they did it again their second month and again all this has been like publicly disclosed so um and it was a really healthy business they raised a couple million dollars in a seed round and and like didn't spend that much of it cause their working capital situation was really good you know consumer direct business so they get paid right away and then they had terms from their suppliers so like they didn't even spend that much of the money that they had raised and they did like a I think it was a 13 million dollar Series a maybe five or six months after they launched business was really healthy up to that point and and they continued to grow like crazy for another year or so and then they did I think it was a like a 50 million dollar series B and I forget who came in in that round but they really started investing heavily in growth at that point you know what I don't think we knew then that we know now is that like direct to consumer businesses sort of can reach a threshold pretty early you're only gonna reach so many people and it looks really healthy and it looks like it's got you know tech growth and and so they were getting tech multiples and then all of a sudden like you kinda reach this glass ceiling where it's like hey there you've you've got all the online customers and by the way like people aren't there's no sort of LTV on a mattress like people buy a mattress and then that's kind of it and if you don't have first order profitability you know it's like you can really get yourself into trouble like yep totally you know we can know all those things in hindsight because of what happened there but like you know the footnote in that story is they wound up raising like $350 million and then you know eventually managed to IPO I think they just barely got out yeah and even at the IPO price like the IPO price was basically the amount of capital they raised a memory yeah it's like you know investing 350 million bucks into a company in order to get 350 million bucks out of it right you know is not a great outcome the early investors probably did fine because that's the scenario where you know in an IPO everybody converts to common and the early investors you know probably got like a decent return but you know these guys had turned down an offer from target for almost $1 billion and and you know I think this shows you and by the way these are some of the smartest entrepreneurs I've ever worked with like I want to say Neil was like building like rockets for NASA or something he's building robots for NASA and you know Philip had built a similar business before an exit like really really smart guys so like my point is this can happen to anybody and it's like this sort of systemic problem um and you know we have the benefit obvious of having Learned from their experience but you know I still see this happening inside businesses like the investors wanna put capital to work and you know smart founders get you know caught up in it and and you know nobody wants to be the person to say like hey you're not worth this valuation right and you know but you can see how that would would lead to like it's almost like it's like boiling a frog right you make a series of decisions that you know individually don't kill you but which collectively you know compound and and create a situation where a business actually can't afford to be good any longer and it's only option is to chase this sort of unicorn outcome and and you know I think that's an example of what happens we all in the community I think have some obligation now to just talk about it so I'm sure I'm yeah you know it's and again it's a thing that I I wouldn't have felt comfortable doing you know you know probably even five years ago but yeah you know now I just feel like okay it's it's you know I'm I'm sort of too old to not say anything about it like and I'm I'm not the CEO anymore like I recruited a great CEO a couple years ago and so now I'm a chairman and I kind of yeah I just feel like I have a little more flexibility to shoot from the hip a little more yeah a little bit you know I've got enough gray hair now where I you know it's like okay what's gonna happen you know totally totally well yeah Chris this has been uh this has been awesome I think this is gonna be incredibly valuable for a lot of up and coming founders that are building brands and other finance and ops leaders that are listening to so really appreciate the time what's the best place for people to kind of follow along with you I think you've got like a blog or website or something and you're on LinkedIn too what's the best place for people to follow along with you and call all your expertise yeah I'd like LinkedIn I think LinkedIn is probably good I've got a substack I've written a couple things on Substack that didn't feel quite right for propeller so those are those are probably the two places perfect awesome Chris I appreciate the time I think I think that's the pod awesome there's a couple different sectors yeah it is it's sort of just how it is it's just yeah it's exactly right tighter AR financing versus just raising more equity to only be operating with like a few weeks of that you've seen across those what have you found we just don't see that many of them you kinda