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September 14 2020 - New York, NY

Budgeting conflicts: Michael Tannenbaum

Thomas:
Budgets are always a topic at startups. And in this episode, Michael will walk us through budgeting conflicts, how to resolve them and sort of the commonalities he's seen in his tenure. So Michael, first off, why do budgeting conflicts even happen? They happen generally because of uncertainty and ambiguity. Meaning a company is typically it's not in this sort of new born. It's like a school with a collection, it's like a high school with a bunch of people that went to different middle schools. So because of that, people are used to having sort of their own ways of budgeting. Especially in a fast growing company where there's lots of people who've been at other companies and they're all joined relatively recently and so people just aren't sure what to do about budgets. So it's usually from uncertainty and ambiguity.
Michael:
They happen generally because of uncertainty and ambiguity. Meaning a company is typically it's not in this sort of new born. It's like a school with a collection, it's like a high school with a bunch of people that went to different middle schools. So because of that, people are used to having sort of their own ways of budgeting. Especially in a fast growing company where there's lots of people who've been at other companies and they're all joined relatively recently and so people just aren't sure what to do about budgets. So it's usually from uncertainty and ambiguity. Look, the reality is budgeting conflicts happen. It's hard to budget at startups because budgets are important to some people, but they're ultimately, a startup is not really valued or successful based on how closely it adheres to a budget. That's kind of not the environment that breeds success. And so the things that I tend to focus on are accountability and review, meaning making sure people are aware of the spend and that they internalize the spend. And that meaning they actually feel and are aware of how much their teams are spending because it's really easy to spend a lot when you're not aware.
Thomas:
How do you go about creating a sense of clarity around all this uncertainty and ambiguity?
Michael:
So I recommend focusing on a few things that affect everyone. One of the things that provides a lot of ambiguity but actually doesn't matter that much is morale and team events type things like can you take your employee or sort of your direct report to coffee for a one-on-one and charge it? Can you have a virtual offsite where everybody orders a meal to discuss performance for the month? Can you do those kinds of things? I think that sort of ambiguity is something that affects almost every manager in your company, but it's actually really easy to solve because at the end of the day it doesn't move the needle. So whether you say you get 50 bucks a month or 75 it's really not going to make a difference relative to your AWS bill or all the SAS that you have, which is senseless or all this other stuff. So I think the important thing there and to provide sort of like a sense of calm and a sense that there are some controls on the environment and also to give managers that come from places where there was more discipline, you want to just have a specific guidance for there. No matter how small or early your company is, I think here saying it's up to you, discretion at the manager is just not your friend. I think people get nervous about that level of discretion. People come from environments where you could be in trouble for abusing stuff like this. I've done the discretion game, we have a fair amount of people who come from Latin America at the company, like steak. People were going to steak houses. They thought that when you don't tell people what discretion is, discretion can mean what we all like flaming on. And if you didn't say that it's not okay, and your culture is eating flaming on at noon, then what do you do?
Thomas:
And now does that discretion sort of get molded through what would be a process or policy? How do you go about that?
Michael:
Yeah so I think you start with sort of the things that affect everybody. I think one thing that we've recently done at breakfast, not tried to treat every single group the same. So for example, legal, it's hard to give them a budget. It's hard to ask them to do a budget at the same time as everybody else because they're not going to know what outside counsel, which is what moves the needle on legal budgets typically. How they're going to engage with outside counsel until you've told them what you want them to do for the quarter. Somebody like product, that kind of budget is going to be typically if they're managing the cogs and sort of the expense associated with the product, that's going to be a lot to do with the financial forecast. So that is a different budgeting forecast and process. I think that there are some other things though that affect everyone. One is SaaS. So you do need a central process for SAS after I'd say 50 people, SAS creep is definitely real. If I were to go into Brex until we started cleaning house, there would be three or four different marketing automation softwares that people had purchased that some are being used, perhaps some aren't being used. Bunches of different versions of things that are kind of productivity, software, tracking, different product teams might be using. So I think start at instilling some guardrails around who can purchase SAS. I think once you get to be 50 or so people, you are not really slowing people down if you make them go through a small process of purchasing SAS. The reason why I keep talking about SAS is that anybody with a credit card can sort of put SAS on their card and get it now, which is obviously in the history of American or I say global business purchasing is kind of unique for the cost of something that expensive, how easily you can just pay online with a credit card. So that's one area. Of course the head count's not the focus of this conversation, but that absolutely needs a separate process, that's the biggest cost. One sort of tip for me is a lot of times people do headcount forecasting on people and just heads, butts in seats. But how more expensive those butts in seats are, is actually just as relevant as how many. I've even seen from my own team, which is unspeakable, is like we get approved an AP clerk and then they come back and they're like, Oh, let's swap it with a staff accountant. And it's like, okay well, those are actually different costs. So it's not the same thing. Yes, it's one for one, but it's not dollar for dollar. I think everything else for sort of startup newer companies, finance should just manage a lot of these costs, facilities, insurance, even the cost of third party like APIs and stuff that are associated with the product. I wouldn't waste products time with that stuff, the finance team should just do it. People don't really want to deal with budgets but at the same time, the founder or CEO wants to make sure that somebody does. So that's really the job of finance.
Thomas:
Yeah. And then I guess that obviously brings some disagreement to the table right. Is there anything you would recommend there when finance is bringing a budget to the table?
Michael:
I think once you have this process clear, if you're still having disagreements then you're probably not as clear as you think and then you should sort of revisit your process. I think the thing that I have to keep telling the finance teams over and over is like, remember everybody who comes to work thinks they're doing the right thing. You have to assume people aren't bad actors. So if there's things that are going out of control with the budget, it's highly unlikely that people are purposefully doing something to harm the company, their incentives aren't aligned to do that. So I think you have to sort of look inward and say, what about the budget process is not working that we have this rather than what most finance teams like to do, because it's kind of fun. It's to sort of blame whoever's in marketing or whatever and criticize how ridiculous their spend is and laugh about it together on Slack. Yes that is fun, but it's not productive. And you kind of need to look at yourself and say, well, why are they doing this? Because it's unlikely, unless they're a bad person which is not common, that they're doing this to harm the company.
Thomas:
And that closes it up for budgeting conflicts. Michael, thank you for stopping by.
Michael:
Thank you.
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