MANAGEMENT TEAM

Members of the management team can have many titles, sometimes more than one, and it is not always clear what title to assign to a particular job description. Do not get carried away with assigning titles. At the earliest stages, a biotech company only needs a qualified head of R&D (e.g. Chief Scientific Officer or Chief Medical Officer) and an experienced business person who can negotiate deals and raise money (Chief Executive Office or Chief Business Officer). As the company grows, the team may expand to include a Chief Operating Officer (COO) and Chief Financial Officer (CFO). In general, it is best to keep the titles of other employees as humble as possible; having too many Senior Managers or Vice Presidents can appear silly when a company is small.

THE SCIENTIST CEO

Scientists who try to start companies have a reputation for wanting the CEO title, partially out of the conviction that science drives the startup. When venture capitalists decide to finance companies led by scientists with limited business experience, they may install a CEO they consider more qualified. It can be difficult for a scientific founder to give up control to another person, but one of the biggest mistakes an entrepreneur can make is to insist on being CEO just because the company was his or her idea. The CEO should have business experience and enough of an appreciation of science to intelligently describe the product to savvy investors and customers. The CEO must be able to make difficult decisions during times of crisis. Experience running a company is the only real preparation for the duties of running a company. The scientific founder may be better suited to serve as an advisor if he/she lacks the necessary leadership ability to be on the management team.

ALTERNATIVES TO CFO

Many entrepreneurs assume that they need a CFO from the start, but a small company's finances, accounting, and finance activities do not necessitate a full-time person for such a senior position. You may have an office manager to take care of bills and payroll using common accounting software program. To produce financial statements and budgets, you could contract with an outside CPA. There are many small firms and individual accountants who can provide these services to your company. They can also provide you with valuable information gleaned from their experiences with other startups. Once the company accumulates many customers, employees, and vendors, a full-time bookkeeper or controller may handle accounting internally. Regardless whether you have a CFO, you are obligated by your stock agreements to hire an independent auditor, such as PricewaterhouseCoopers, Ernst & Young, or Deloitte & Touche, to review your records. This same auditor should also assemble high quality financial statements (do not outsource this to a small firm or independent accountant if you ever plan on going public). Depending on whether you can negotiate a discount, auditing and advanced accounting services will cost $15K - $30K annually. If your company requires accounting assistance with a complex transaction such as a partnership deal, total annual accounting costs may approach $40K-$60K.

Because startup finances are simple and outside accounting services are inexpensive, consider hiring a CFO at a later stage. Your accounting firm may even be able to introduce you to potential candidates without the commission that headhunters charge.