1. May 19-20 l Washington, DC l Omni Shoreham Going Beyond $5M in Revenue COO Advice Peter Bauert COO, Parallels

2. Parallels Summit 2008 2 Agenda Lifecycles of a Company Common issues with earlier stage companies: Revenue recognition Cash Accounting Record Keeping Value of good supporting functions

3. Parallels Summit 2008 3 Life Stages of a Company Early StageExpansion Maturity Revenue Concept RefinementScaling Optimizing

4. Parallels Summit 2008 4 Differences between Early & Later Stage Early Stage Go-to-Market Define your offerings Find your space Operational Cash, Cash, & Cash Informal books/records Team Owners know everything No “management” Later Stage Go-to-Market Scale your sales effort Segment your offerings Operational Revenue Growth Profitability Team Need next level of trusted managers Need for trust & delegation

5. Parallels Summit 2008 5 Why should you care? Need to be ready to ride the wave / go through rapid expansion phase of business When the demand for your offering accelerates, you want to be able to take advantage rather than to spend much of your management time on internal finance / legal / etc. Fixing your books / processes / team later will cost more and it will be a big headache You don’t want to start thinking about finance / legal / etc. when you think it is time to sell your business or raise funding

6. Parallels Summit 2008 6 Issues: Revenue Recognition One of the finance issues that trips up many small business as they become bigger is Revenue Recognition Four basic principle you should keep in mind before calling a “deal” revenue: Existence of pervasive evidence of an arrangement Delivery has occurred The fees are fixed & determinable Collectability is probable

7. Parallels Summit 2008 7 Issues: Cash Accounting When starting a small business, it is easier to do cash accounting (i.e., profit = cash in – cash out) There are several fallacies with cash accounting You could actually be loosing money, even though your cash in > cash out If you want to raise money / sell the business, your business will be viewed as “less attractive” due to cash accounting Investors / Buyers want to see GAAP accounting

8. Parallels Summit 2008 8 Issues: Proper Record Keeping There are two aspects to proper record keeping Financial Legal It may not seem important when you are a smaller business, but record keeping as owner has an infinite memory Problems can arise when Someone gets hit by the bus Disputes arise Investors / Buyer wants to perform due dilligence

9. Parallels Summit 2008 9 Keeping it Real Irrespective of what I just said, it is still more important to attract customers, deliver the service/goods, and growth the business Business founders / owners usually do know best, but they should know their limitations Finance, Legal, HR, etc. should not be there to hinder the business, but to help it succeed and growth Make sure you hire / contract the right individuals

10. Parallels Summit 2008 10 How G&A staff adds value to the Business Don’t treat G&A staff as necessary evil / after thought, or something that you should “always” outsource Outsourcing has many advantages, but not building up internal competency will have long- term down-side There are many tasks that G&A staff perform that may not add direct value to the business Some of them might keep you out of trouble with authorities (IRS, EEOC, etc.) Other tasks add direct value to the business

11. Parallels Summit 2008 11 Finance and the Business Let’s make sure we understand the difference between Finance & Accounting There is a lot of insight about the business that can be gained with the right finance person; ex: Customer acquisition cost analysis by source Customer lifetime value analysis Churn analysis Etc.

12. Parallels Summit 2008 12 Lawyers and the Business It’s critical for the business to have access to a lawyer that understands your business / takes an interest in it A good lawyer not only helps you negotiate the proper terms regarding issues like warranty, indemnification, etc, but also pushes hard to get better economic terms Don’t let lawyers argue to long about who is right & who is wrong -> that adds no value to you Always have your lawyer net it out in terms of $ exposure.

13. Parallels Summit 2008 13 HR and the Business Tactical HR (ex: payroll) can / should always be outsourced Recruiting is one of the key areas for HR to help add value to the business The cost of hiring the wrong person is hugely underestimated Cultural fit can be more important than experience Don’t underestimate efforts around retention – it’s cheaper to keep the employees you have than to get new ones

14. Parallels Summit 2008 14 Summary Building the business is the most important task Proper supporting functions (Finance / Legal / HR) should help the company’s goals and not be hinder it Don’t underestimate what support functions can add to the Business – especially insight that can be gained from Finance Don’t delay – you never know when you someone will want to take a look at your books / operations

15. Parallels Summit 2008 15 Q&A