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Profile of the Week
Name: Rich Mazzola, CPA
Current Job: Manager, Skoda Minotti’s Emerging Companies Practice
Favorite restaurant in town? My all-time, every-day-of-the-week favorite is Bruno’s on 41st and Fulton. Good old fashioned Italian food. However, I live in Gordon Square and love the restaurant scene there. My wife and I really enjoy Luxe and Ninja City on the days where we don’t feel like cooking.
Favorite thing about Cleveland? My favorite thing about Cleveland is the sports scene. There are not many cities that have all three major sport teams downtown within 20 minutes walking distance of each other. The community that forms when the Browns, Indians, or Cavs are winning is incredible and intoxicating. My wife and I lived in Oklahoma City for a few years. Every time Cleveland was playing, we would always find a community of fans in OKC, Dallas, or wherever we were that day.
Q: Can you tell the readers about your new startup initiative at Skoda? After working at a start-up myself, I recognized a strong need in the start-up community to have a financial and accounting resource. Once I returned to the firm, and with strong backing from Skoda Minotti’s leadership, we launched the Emerging Companies practice in March 2019. We went public at JumpStart’s Startup Scaleup event this past June. Since March, we’ve added 23 new start-up clients and assisted each of them in navigating the growing pains of launching a new business.
We recognize that emerging companies need dedicated, caring partners who can help navigate the challenges and complexities of early-stage development and transform big ideas into viable, growing businesses. For entrepreneurs, that means that we aim to work alongside you at every stage of your journey, leveraging the deep experience and applying unique insights that position you for success, all within a rate that fits your budget. Our services are focused on fractional accounting and operational services, board of directors’ governance, and investor relations services. For a pre-seed company, for example, that means that we usually can help with financial projections and pitch-deck preparation. If a pre-seed company needs help connecting with investors, we tap into our network to see if we can find interested parties as well (although I should clarify that we are not investment bankers). As an emerging company continues to grow, we assist with setting up their internal accounting systems and processes with our fractional controller and CFO services. As a fractional CFO, our team acts as your financial expert, guiding you towards growth opportunities, understanding the financial implications of your business decisions, and interfacing with your investors and board of directors. As a start-up continues to grow and hire department leadership, we can layer in our fractional COO, strategic marketing and IT services. Our goal is to remove as many barriers to scaling for growth as possible.
Q: Being a service provider is significantly different than selling a product, can you talk about some of the tips you have for other service providers out there for finding clients and maintaining successful relationships? I’m sure I will sound like a broken record, but it’s all about relationships. When selling a product, you are attempting to strike a nerve in a target market in order to create a need or desire. Service providers are focused on the individual vs. the service offering they are working to sell. So when I say it’s all about relationships, there are two sides to that coin. The first is you are only as good as the depth and the skills of your network. You don’t have to know everything to be a successful advisor, but you need to have a network of other experts to leverage when the need arises. So working and forming relationships with other service providers such as product development groups, angel fund networks, venture capitalists, community resources such as incubators, etc. that specialize in your niche area, will add validity to your work and the overall success of your client. The second is obviously forming a relationship with your clients. Some of my most successful client relationships ended up becoming great friends of mine, some even came to my wedding last year. A foundation of any strong business relationship is trust. Once you have trust, the client and their team understand that everything you do and say is and has always been in their best interest. Not to say disagreements won't happen, but the concept of "disagree and commit" is formed. Disagreeing and committing is a general business strategy to accelerate your internal innovation. You won't always agree on the next steps in a business strategy or a solution to a business hurdle, but once a decision is reached, everyone on the team including you, as the advisor, commits to the decision and will execute wholeheartedly. In terms of finding clients, it goes back to your network, the more you are able to prove your concept over and over again, the more they will end up referring you.
Q: What are some tips for companies when looking to hire a service provider? When we were validating the market need for our practice, a common theme came to light: I’m paraphrasing, but it went something like, “I wish I had spent the additional dollars investing in a premium advisor earlier on vs. always going with the cheapest at first.” We ended up hearing this a lot since start-ups that became successful ended up having to spend a lot more money fixing earlier mistakes within their accounting records, their taxes, corporate organization, or other internal processes. Our value isn’t necessarily in that we do good accounting work – which we certainly do! – but, rather, it’s that we do this all the time and we’ve experienced these same obstacles many times before. Having an Emerging Companies advisor on your team doesn’t just give you an extra sounding board, it gives you the knowledge of a 300+ advisory firm that specializes in over 20 service areas. When looking for a service provider, look for a strategic partner that will add value along the way – from your entry to your exit -- and not someone that will just check a box with the lowest price.
Q: You went to work at a startup and then went back to the corporate side, what are some of the differences you see? Both environments have their own pros and cons, like anything else; I believe these are the two best things from each side:
Start-up Side: I think the biggest thing start-ups have as an advantage is their flat management structure. There are not many layers between lower-level employees and the CEO. A flat structure in a start-up organization provides the flexibility to pivot and adjust to unforeseen market conditions while having the attention of the CEO to stay on mission. It also allows for innovation of the product features to continue to develop. Respective department heads will have different views of ongoing issues in the product/service. Those views can efficiently be communicated up to the CEO for action. A second benefit in working with a start-up is the problem solving. When a problem arises in your area of expertise, you are the only one that has the tools to fix it. It allows for creative reasoning and the ability to recommend appropriate changes. The feeling you get when a solution is implemented and it works is incredible!
Corporate Side: On the corporate side, a big benefit is the structure and job security of the company. As an employee in a corporation, you are hired for a defined purpose, you know what you have to do to meet the needs of that position and anything above those needs are seen as you performing an excellent job. There is less chaos working for a larger organization which allows you the comfort and work-life balance you may wish to have. In addition, resources tend to be more plentiful. So, in the instance where there is a strong initiative to attack a new revenue stream, internal investment can be pulled together to make it happen vs. targeting outside investors.
Q: I grew up learning the basics of debits and credits, but what are some unique issues that early-stage technology companies face on the accounting front? One area where start-ups tend to have questions is in software development costs: specifically, should you capitalize them or expense them? The simple answer is to expense these costs if the product is not yet feasible; if the product is already in production, you should capitalize the costs. I would refer to GAAP codification code 985-20-25-1 through 25-11 for more detail.
Another area that is commonly misunderstood is when to pay employees in equity versus payroll. All too often, this is not recorded by the start-up and requires pricey clean-up of the financial statements later. You should be recording the wages/consulting fees as an expense during the vesting period and crediting the other side of the entry to equity in stock options.
One of the newer areas that startups are discussing lately is ASC 606, revenue recognition on long-term customer contracts. In the past, you would recognize the revenue of the contract evenly. For example, let’s say on a 12-month contract of $12,000 annually, you would recognize $1,000 in revenue per month. The change under ASC 606 now requires you to recognize revenue after certain milestones are hit in the contract. Under that same example, let’s say we decided that 10% of the fee related to onboarding, 50% of the fee related to the successful completion of the software, and 40% after the software was tested and delivered. Instead of recognizing the revenue evenly, you may recognize $1,200 in month 1 after the onboarding process, then $6,000 in month 8 after the custom software was developed, and the $4,800 in month 12 after the product was delivered. This can create a revenue recognition nightmare especially for start-ups when most of their early contracts are custom and all different.
Lastly, another area to pay attention to is ASC 480, distinguishing liabilities from equity. This is often a missed area with early-stage investment as the investors typically request convertible notes as their equity approach. There are various cases where you should record it as a liability and others when it should be treated as equity.
You can reach Rich at 440-386-5164 or firstname.lastname@example.org.
This Week’s Events
Crain’s Cleveland: BoxCast expands in the worship market with the acquisition of Florida company Sunday Streams
Cleveland Plain-Dealer: Young professionals like Cleveland area but leave; local groups aim to keep them
Cleveland Plain-Dealer: Cleveland Rising welcomes new voices, but critics worry status quo will persist
Let me know if your company is hiring
Let me know if you are hosting an event
If you are interested or know someone who would be interested in being highlighted for our profile of the week, let me know.
About The Author
My name is Ari Lewis and I do comms/pr for technology companies and am a partner at venture capital firm focused on blockchain companies. Follow me on twitter @amlewis4 or connect with me on LinkedIn. Always open to meeting new folks. Email me if you want to get coffee.