Financial Reporting for Startup and Ecommerce Organizations
by Luke Chung, FMS President
As part of the Washington DC Digital Capital Week conference, I was invited to participate on a panel discussing our experiences helping startup and
ecommerce organizations with their financial reporting needs. Here's a summary of my comments.
Decision Processes and Reporting Systems Evolve Over Time
The decision making process is something that evolves over time so itís nearly impossible to create a complete
solution up front. The business changes, customers and opportunities come and go, sales and marketing results
vary, and the economy and government regulations are always in flux. Itís important to understand what data
is necessary to make decisions, try them quickly, then determine what needs to be kept. Different groups may
need different information. For instance, accounting, operations, marketing, sales, and management all have
different needs for data. For startups, the data is limited and so are the needs. At the most basic, data is
necessary for operations and accounting. Over time, the value of data such as customer lists, buying history,
marketing response rates, customer churn, etc. become more critical. An organization should naturally invest
in better data analysis and reporting when the results justify the cost of building it.
Starting with Excel Spreadsheets
Most organizations start with spreadsheets. Excel remains the most easily used and customizable
platform. Most managers know how to use it and it works well because managers can manipulate their
data, understand it and customize what they need. However, spreadsheets faces limitations with
scalability as data changes. Anyone whoís tried to maintain a spreadsheet over time when new columns
and records get added forcing formula adjustments, etc. spend a huge amount of time maintaining these
and then make mistakes that result in bad decisions.
Evolving from Spreadsheets to Databases such as Access
The next progression is using a database. Properly designed databases scale very well and
support an unlimited number of records. In databases, new records are free but new fields are
expensive. With a database, queries and reports can be designed that can be repeatedly run over time.
Filters for date ranges, customers, products, regions, etc. can be implemented very cleanly and
scale over time. The most popular database in the world remains Microsoft Access and many people who
are comfortable with Excel can use a Microsoft Access database to create ad hoc queries, filters,
and reports. We would recommend an experienced database designer to make sure the database is
designed properly so it scales over time, but Access allows non-programmers to easily manipulate their
data and export it to Excel for additional analysis. Database developers can also write code to generate
more complex analysis. In many organizations, data from larger systems get imported into a local copy
of Access for analysis and reporting. Access also offers the additional feature of being able to link
directly to other data sources such as SQL Server, Oracle, and MySQL. This allows using data beyond the
2 GB limit of Access databases.
From Direct Analysis to Using Professional Developers
As the data needs evolve, organizations require more sophisticated systems and can justify the
additional cost of doing so. With data in an enterprise platform such as SQL Server, business
intelligence tools and reporting services provide additional ways to slice and dice data. Custom
reporting applications can also be created to produce reports that are available for internal and
external (customer) needs. Integration layers between external vendors may be necessary, etc. At
this point, itís unlikely the decision makers (managers) will be able to create their own
solutions. Professional developers get involved to design and create the output, and the cost and time
it takes to create each report is significantly higher and less exact. That said, data should still
be possible to export into a platform like Excel or Access to perform unplanned analysis.
Combining the Best of Both Worlds: Healthy Hybrid Environments
Enterprise software solutions should provide institutional (ďcannedĒ) reports and systems that
managers can use, and give them the data they need to perform their own analysis since theyíre closest
to the action. One can expect that over time, some of their analysis become mission critical and should
graduate to the organizationís main systems. Some organizations resist this architecture because they
want to create and control systems centrally and have the IT department do all the work. What they
miss is that by empowering information workers to do their own analysis, the natural evolution of
decision making is supported.
A healthy organization acknowledges that their reporting and analytic needs will never be finalized
and must change over time. When managers "design" what they want, it often changes when they first see
it. This is not because the manager was being difficult but because people often don't know what
they really want up front. It's an iterative process, which is terrible for traditional application development.
Experienced developers also recognize that many organizations create expensive solutions that
are poorly received or under-utilized, so its important to minimize these situations. It's always
possible in hindsight to say a particular piece of work could have been done more cheaply if it were
done "the right way" by professionals originally, but that addresses the issue backwards.
By letting people create their own analysis quickly, cheaply, and fail cheaply, the limited and expensive
IT resources don't need to be involved with a vast majority of this in-process work.
Data Analysis for Competitive Advantage
Most analysis is simply analysis and goes nowhere. It's trial and error. Itís a rare piece
work that becomes mission critical. By focusing the organizationís IT resources on institutionalizing
whatís actually proven and using cheaper methods for less critical work, the entire organization can go after
opportunities at a lower cost, not give away business to a competitor, and gain a competitive advantage.
Here are some additional resources that may be helpful