James shares his thoughts on following your passion to make a positive difference in the lives of the people he serves. Specifically, James’ work with nonprofits is focused on those that have an international presence in countries like Africa, India, and Nepal. James has a long history of working in microfinance in developing markets and non-profits with global operations have some very unique challenges and needs.
Russell Benaroya: Hey, everyone. Welcome to the Stride 2 Freedom podcast. My name is Russell Benaroya, and I’m the co-founder of Stripe Services, a virtual back office, bookkeeping, and accounting firm serving hundreds of clients around the United States.
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This week, I am excited to welcome James Vanreusel from Vanreusel Ventures to the Stride 2 Freedom podcast. Welcome, James.
James Vanreusel: Thanks, Russell. It’s great to be here.
Russell Benaroya: Great to have you. James provides CFO advisory services across a range of sectors that he’ll tell you about in his introduction. The reason I wanted him here today was to talk about his work in the nonprofit sector. I have an assumption, a story may be, that many nonprofits are taking quite a beating right now in this environment. I’m interested in how an outsourced CFO can be a guide to help them navigate through these uncertain waters.
James has a very storied career of how he even got into running his own firm. What’s so great about having James on is that he is both an entrepreneur and a practitioner. So let’s jump in. You’re ready to go, James?
James Vanreusel: Ready, let’s go.
Russell Benaroya: A question for you before we dive into the business, if you had to give one piece of advice to your younger self, maybe it could be around navigating your career, what piece of advice would you want to give your younger self?
James Vanreusel: I think about this all the time. What do I wish I’d done 20 years ago or 10 years ago? As I look at Silicon Valley and all these great startups and how these 20 and 30-year-olds are getting into these great companies and starting great companies, it’s always following your passion, follow what you’re really interested in and it’ll all happen for you.
One area that I’m pretty interested in these days is the whole blockchain crypto space. I was listening to a podcast of somebody who joined either Coinbase or CoinDesk back in 2013, straight out of college, and just got the bug and didn’t really know a whole lot about it. I feel like if that is what you love and you see something that’s going to happen 10 years from now, you should just go for it.
I was looking today on a couple of VC firm websites. One of them was Union Square Ventures in New York, and they always talk about their hypothesis. So they had their 1.0 hypothesis for investing and that was around bringing people together on platforms. Then 2.0 was already in the crypto space and this was 2013/2014. You think, well, that’s only becoming bigger now, but they were already investing in it six years ago. They’re already on that 3.0 hypothesis now.
I was looking at that and just thinking, maybe this is something that I need to be looking at. So, thinking where the puck is going to be 10 years from now is something that I would advise myself to do.
Russell Benaroya: Do you believe that in your capacity today providing strategic finance-related guidance to for-profit companies and nonprofits alike that having that orientation toward where the puck is going helps you better help your clients than maybe traditional CFO advisory professionals?
James Vanreusel: I try to have a very broad viewpoint of finance. I don’t think I’m a traditional CFO. A traditional CFO is very much somebody who’s spent 10 years at a public accounting firm as a CTA, audit; I didn’t do any of that stuff. I started on Wall Street, I have a CFA, so a very different way of coming at it. I spent eight years looking at public investing.
I still look at that a lot and I listen to a lot of paid services and really dig into that. When I’m in board meetings, and a lot of the people in the board meetings work with some very big companies, even in the nonprofit space, they’re thinking public company. So I need to think macro; what is the dollar doing relative to treasuries, relative to gold, to Bitcoin, to bonds?
I feel like that is a little bit of an edge; my interest in the whole blockchain and crypto, what can happen to that, which is a little bit on the periphery. Then there’s always keeping up with the “meat and potatoes” of the accounting field and FP&A, which you have to do, but I feel like the other stuff is where the edge is.
Russell Benaroya: How did you get involved in working with nonprofits? What did you see was the problem to solve there? Was it somewhat circumstantial based on where you started seeing growth or was it intentional? Love to get the background and the story behind that.
James Vanreusel: Coming out of Wall Street, I wanted to do something different, something that was more meaningful for me. So I went into micro-finance. Microfinance is providing small loans primarily to women in developing countries to help them build their own businesses.
For about five years, I was a full-time CFO launching and operating these banks on small islands in the South Pacific, in Samoa and Fiji and Tonga. That was a bit of a hybrid; for-profit and nonprofit. A lot of the investors in that also would invest in for-profit entities, but also had foundations.
When I left that position, I moved to San Francisco and I started my own company. The first thing that happened was three days after landing in San Francisco, the largest investor in the microfinance network introduced me to one of her portfolio companies that was a nonprofit. He said, “Just talk to the CEO, I think he could use your services.” I talked to that person and started working with them. That was the first real nonprofit that I worked with and it’s gone from there.
Russell Benaroya: What is it about the unique needs or problems to solve that nonprofits have that you are oriented toward helping them as opposed to just another fractional CFO that takes on a nonprofit client?
James Vanreusel: All the nonprofits that I work with are based in the US and they have global operations. So all their fieldwork is done in different countries in Africa, in India, in Nepal. There are very specific cultural differences, taxation differences, regulatory differences that need to be kept in mind. The more you do that – you never get used to it and it’s always complex – but the more comfortable you feel, and the more traps to look out for.
Russell Benaroya: So it’s not just you serving nonprofits, it’s within nonprofits you serve the niche of US-based nonprofits with an international impact?
James Vanreusel: Yes.
Russell Benaroya: Got it. When a nonprofit comes to you and says, “Hey, James. We’re interested in having you come on board,” what is the state or the situation that you’re often walking into? Are you cleaning up a cluster? Are you helping them expand?
James Vanreusel: Usually, there’s a problem that’s come up and the board has mandated the CEO to go find help. Usually, with all startups or smaller companies, it’s always around cash liquidity or it’s around misappropriation of funds, something like that where the internal controls have gone awry.
A lot of the times, with the cash, the modeling was was either just not there or was incorrect, the way of predicting fundraising was wrong on the internal controls. It was probably having people who were inexperienced working with them and then somebody came along and knew how to play the system. I always say you’ll always get found out. It just depends on how quickly that happens. If you have the right internal controls in place, if you can figure it out within 30 days, that’s pretty good.
Russell Benaroya: Are you coming in on a bit of a forensic basis or both forensic and ongoing? What’s a typical engagement look like?
James Vanreusel: There are two types of engagements. One of them is the shorter term. It’s typically an investor who says, “I will provide this amount of money for this portfolio company that’s typically very young and new to the portfolio, to go in and work with them for X number of hours and strengthen their financial system so that they realize what needs to be done so that there’s an incentive for them to start investing in their finance team.”
The other engagement is more full-on. We will come in and we will review everything. We typically work with a scorecard and figure out where the big gaps are and then put together a 90-day action plan of the immediate band-aids that need to go on. Then monthly, there’s a big rock that leads to the budget, leads to audits coming up, you start prepping for all that stuff. It’s hitting all the big buckets of forecasting, audits, budgeting, internal controls, making sure that the impact is being reported properly to donors and that there are no errors.
Russell Benaroya: Is there a size characteristic of nonprofit that you typically work with or not?
James Vanreusel: Usually, it starts around a million in income, which is still relatively small, but then we can do a lot more advisory work. Anything below that, we’ll recommend an accounting firm because they just need to have clean books.
It depends on the complexity. It can be anywhere from 5 to 15 million, at which point we’ve already hired two to four people in their internal accounting and finance team. Then they get to the point where we help them hire a full-time CFO so we can remove ourselves from the company. That’s typically the end engagement. We did one at the end of last year, we just finished one last month. That’s what we consider success.
Russell Benaroya: What’s going on in this environment, broadly defined, the COVID environment with the nonprofit’s that you work with? What are you hearing different from them? Or maybe you’re not hearing from them because they are freaking out about other things. Bring us into them this moment of time.
James Vanreusel: I would say, March was chaotic, April and May slowed down significantly. I’m recommending cutting expenses so everybody’s cutting expenses and so there’s a lot less going on. Then in June, and especially last month in July, things really picked up again.
I work with a lot of global health nonprofits and some software nonprofits, and they’re all doing very well. What we saw on the healthcare side is that, yes, there was concern that the fundraising would come down, but then they saw increased fundraising for COVID response, which they were ideally positioned to do. We’ve seen them coming in close to target for the year if we extrapolated, which is a great outcome.
I would say, coming into August now, the big question is still 2021. What are donors/foundations going to do in 2021? What kind of expense run rate does the nonprofit want to end 2020 with because that’s what you go into 2021 with? If there’s still concern that the fundraising is going to be lower, then you’re going into the year having to cut expenses.
So Q4 is a really important quarter and I think there’s going to be a lot of communication with the existing donors and just getting a sense of the other donors out there as to what they’re thinking.
Russell Benaroya: If you look at the total market opportunity and the trends in the growth of nonprofits based in the US that are making a global impact, what do those numbers look like? Is this a growing trend where more nonprofits are arising every day that want to make an impact in Africa and other countries?
James Vanreusel: I think there are a lot but maybe there could be more. I work with quite a few of the portfolio companies of a foundation called Draper Richards Kaplan Foundation. They set themselves up a little bit of a venture capital model. They’ll bring in a startup, fund them for three years, give them $100,000 a year, and then let them go. In the final year, there are other funders waiting for these graduates because they know they’ve gone through three years already and they’ve probably got about five years of existence behind them and then they take off.
I don’t know the performance ratings of the portfolio, but I think, like any other portfolio, there’s probably some that do exceptionally well and some that are average and some not so good. They have a pretty big portfolio; you can see it on their website. I think the overall alumni plus current are well over 100.
Russell Benaroya: Tell me about the difference between building a firm that is all about you, James, versus building a firm, Vanreusel Ventures, which may transcend you. Talk about how you work. Is it all about engagements for you or do you have a team of people? How do you think about the business of building a professional services company?
James Vanreusel: Initially, it was just me, and then I pretty quickly realized that I couldn’t take any vacation because clients continuously want to use me. Then I hired my first employee and that’s a big deal. That first person, starting payroll, all of a sudden you’ve got a back office. That was a big change.
The other thing that I’ve encountered is, if you train your people well, then you’re going to get them poached. I’ve had both private equity and big tech poach people from me, which is great for them but disappointing for me.
Russell Benaroya: It’s the highest compliment you can get, right?
James Vanreusel: Yes, exactly. I think the whole purpose of the company is to create leverage. One person could really only take care of three to five companies with any serious engagement, but if you can create a team of analysts and operations managers, then you can exponentially increase that.
I have a couple of rules. One is I only want to spend about 20% of the client time on the client, and my team will spend 80%, both because it saves money because they’re at a lower fee, but also because even at that level, sometimes it’s still busy work. Also, it’s a good way to replicate myself.
Then the second thing is, how do I continuously remove myself from the company? How can I bring people in to do what I do? That has been the most difficult thing for me.
Russell Benaroya: It is the conundrum for many professional service firms that want to build a machine or a system that is bigger than just the individual. I like asking this question to folks on the podcast because I think most professional service leaders want to figure out how to make themselves obsolete, and therein lies the opportunity and also the value proposition to a client who doesn’t feel like you’re a single point of failure. That’s cool. I appreciate hearing about how you’ve approached it and your intention around that. What is something that people don’t usually ask you but you wish they did?
James Vanreusel: I always feel like the board or the finance committee or the audit committee doesn’t spend enough time with me. They’ll always spend a lot of time with the CEO, but they really don’t spend much time with the CFO and dig into what are you really concerned about? What do you think are the big three risks right now for the company? I’m always surprised by that.
Russell Benaroya: Why do you think that is? What are they scared of?
James Vanreusel: I’m not sure but I always see that. I wish that they would ask because there are always risks. There’s always something coming up. A lot of times, the CEOs of these fast-growing companies are always very charismatic and they’re overly positive.
The board might ask him something and everything is more positive than maybe it should be. So you go to the CFO or someone who’s supposed to be more of a downer and tells you the risks. Then maybe you have to discount that a little bit because they’re trying to pull the CEO back a little bit and the CEO is just plowing ahead like an entrepreneur should do. Everybody has their role and if they play it well, there is that balance.
Russell Benaroya: I look at it a little different, which is when you do a good job of grounding that audit committee, board in the facts, then, yes, the CEO might have a very optimistic story around those facts, but there are also some real risks around those facts. So, let’s get the facts, the data. The data should be the initiation of what then begets the story. Yes, CEOs are typically very optimistic for sure.
If prospective clients want to get a hold of you, what’s the best way to reach you? Just vanreuselventures.com?
James Vanreusel: The website works. My email is email@example.com, or my direct phone number is (415) 671-4633.
Russell Benaroya: Now that’s totally out on the internet. Awesome. Have you binge-watched any shows in the last six months that you’d highly recommend?
James Vanreusel: My wife and I are going through Ozark right now.
Russell Benaroya: Just finished season three.
James Vanreusel: We’re at the beginning of season three. I hear it’s a big cliffhanger at the end.
Russell Benaroya: We can’t talk about it on here. That’s cool. Any interesting books or articles that you’ve read recently that stuck with you?
James Vanreusel: I am reading a book on AI right now and I think I can tell you what the name is.
Russell Benaroya: And/or I can put it in the show notes.
James Vanreusel: I’m really interested in anything AI, anything machine learning, blockchain is interesting. Then I read a lot of articles every day. Yesterday, I finally went through The Observer Effect. It was the first interview with one of the founders of Andreessen Horowitz and that was very interesting. It went through what does he read? How does the calendar stuff? What’s productivity look like? How does he think about stuff? That was a pretty long read, but it was very interesting.
Then the other good read was the Wall Street Journal article this weekend on Tim Cook who took over from Steve Jobs. So from 2011 to now, how did he do it? So much to unpack in there. Even after a very long article, there were just so many things you could dig deep into.
Russell Benaroya: I did see that headline. I didn’t read the article, but I’ll include it in the show notes here. Super interesting, thank you for sharing.
James, thank you so much for joining us today on this edition of Stride 2 Freedom. It’s so great to have you.
James Vanreusel: Thanks a lot, Russell. It was a pleasure.
Russell Benaroya: I really learned quite a bit. Again, I know that you provide fractional CFO services to a broad variety of industries, but really zeroing in on the nonprofits, US-domiciled, global impact, that really helps get very clear that that is a zone of genius for you. I’m really excited to both continue to explore that with you, but also help other people know that this is what you do. If they’re endeavoring into global impact, you are somebody that they should call. I really appreciate it so much.
James Vanreusel: Okay. Thank you, Russell.
Russell Benaroya: Have a great day, everybody. Take care.