Founded in 2014, oVertone is a direct-to-consumer, consumer packaged goods (CPG) company initially founded to sell healthier hair conditioners that wouldn’t fade hair color. Today, oVertone is disrupting the almost $25 billion hair color industry with a hair-healthy alternative sold exclusively through e-commerce.
Most venture-backed and traditionally funded companies start with considerable expertise in the middle and upper areas of their organizational chart. oVertone wasn’t one of these. Maegan Scarlett and co-founder Liora Dudar bootstrapped oVertone with a $7,000 personal investment.
“We had scrappy hustlers who were willing to come in and wear a bunch of hats but nothing from an executive team perspective. We had to build our organizational chart from the bottom up. It was just my partner and I,” says Scarlett. “Lean and scrappy,” she calls it.
Dudar, a renowned photographer, was both creative and naturally good with people. She handled team building, administrative and internal duties, as well as the visual aspect. Scarlett had the business background and managed vision, growth and strategy.
Until they found AVL, Scarlett was the closest thing oVertone had to a CFO. She could read a profit and loss statement (P&L) and could ensure the company remained cashflow positive and profitable, but that was the extent of it. She wanted more financial insight — someone who could do advanced cash forecasting and help leverage oVertone’s dollars efficiently.
“The reason you go to a therapist is not that you don’t know yourself,” explains Scarlett. “It’s because you want someone to look at your patterns and pick up what’s normal and what’s not. I needed someone to come in and take a look at our P&L and tell me what was normal and what wasn’t.”
Having handled P&Ls at several different companies, Scarlett understands them. She didn’t need an accountant or controller. What oVertone needed, Scarlett believed, was someone who had seen thousands of P&Ls. She wanted a CFO’s high degree of expertise but couldn’t afford to spend half a million dollars to get it.
The company had reached an influx point where their growth needed to kick up in a more intelligent, intentional way.
“We were growing quickly and not using our cash effectively. I needed to make sure we were using that capital as efficiently and effectively as possible. That was not happening with me looking at the bank balance and our very simple P&L and just saying, ‘Okay. Spend as little as possible.'”
Scarlett is a member of the Entrepreneurial Organization (EO) Colorado, a chapter of a global business organization with a focus on entrepreneurs. She asked for recommendations and was introduced to Chris Schwalbach, managing partner at AVL, who in turn introduced her to AVL CFO, Mike Kitsen.
AVL’s model was exactly what Scarlett wanted. “We wanted somebody with more expertise than we had the cash for. We didn’t need someone full-time, just 5-10 hours a week.”
Kitsen was the perfect fit. On paper, it looked a little different.
“The cultural fit was hilarious,” says Scarlett. “We were a group of mostly millennial women. He’s a 60-something-year-old white dude from Indiana, on the board of a multi-billion dollar publicly-traded company. He arrived and fit in so weirdly well.”
That cultural fit is critical. Many small and growing companies have a powerful corporate culture. Moreover, many of those scrappy, up-and-coming corporate cultures do not necessarily align with what you traditionally think of with a CFO, says Scarlett.
Scarlett credits Schwalbach with doing a great job assessing the company culture before recommending Kitsen for the job. “It was really impactful that Chris found us someone who was such a good cultural fit so quickly. He understood the vibe of our office and found someone who, maybe on paper, we wouldn’t have picked out.”
Kitsen, she says, crushed it.
Kitsen took a look at the company’s website traffic and some very generic top-line numbers. He built out a tentative cash forecast that was almost spot-on to bring to his follow-up interview.
“Before he even started working for us, he was bringing suggestions and thoughts, and he was very proactive, which was amazing,” says Scarlett. “And then, as soon as he came on board, he did a ton of research into our industry.”
One of the other reasons that Schwalbach suggested Kitsen was his background in the paint industry.
oVertone was highly unusual in the beauty-product world in that it manufactured 100% of its products. Today that number is still 80%. In addition to someone who could interpret the numbers, they needed someone who understood the complex operational logistics of using cash effectively through the manufacturing process.
One of Kitsen’s first acts as the company’s fractional CFO was to create a more efficient model for its manufacturing process.
“Within the first 90 days, we had significantly better terms in renegotiated contracts. We also had a more effective and efficient cash-use model for our existing manufacturing,” Scarlett explains. “Already, our single dollar was going further and spending longer, and we were making that money back faster.”
Most CPG companies have some sort of negative cash flow because they have to buy their products and have them produced in some capacity before they can be sold.
“Kitsen created a much more efficient balance of that cash model quickly for us. That was the first, most effective thing, and that was the biggest thing that we needed,” says Scarlett.
Scarlett points out that many young entrepreneurs do not know how to leverage other people’s capital. This is particularly true if you’re a bootstrapper like oVertone was.
“We’re familiar with how it works,” says Scarlett, “but to the extent that it makes more sense to grab this money here or it use it here… Mike put the overall cash flow and capital strategy into place for us. Before that, it was very rudimentary. Just spend as little as you can and try to get through.”
Kitsen sourced lines of credit for the company and then worked on the related contracts for anything pertaining to banking, lines of credit and the use of credit.
The company’s growth exploded. “We were growing in large part at that velocity because Mike was doing such an excellent job at creating an efficient capital structure for us,” adds Scarlett.
He also helped them put out the inevitable fires. Two years ago, oVertone endured a manufacturing firestorm when several of their primary vendors simultaneously ran out of the ingredients they relied on to make their products. So, capital and cash flow were not just critical to building velocity for the company.
“We needed it to keep the business alive while we were on heavy backorder due to the vendor snafu,” says Scarlett.
As the company grew, so did Kitsen’s responsibilities. “He went from 10 to 15 to 20 hours, and it was just a natural, incremental progression of responsibilities.”
It became clear to everyone that oVertone needed a full-time CFO. Having a fractional CFO eased the way.
“I think going from no CFO to a full-time CFO would be a very tough transition. You’ve got to be so far behind when you finally do hire,” says Scarlett.
The point of hiring a C-Level executive, she points out, is that they are supposed to be better at doing their job than you are. In theory, you are not the best person to train that new person, so having a company like AVL on board to help with the transition was critical.
“I’m not nearly as good at the CFO role as Mike. Even if I spent twice as many hours with him, I wouldn’t be as sophisticated a financial executive. So, the process of having someone who could ‘AVL train’ their successor is important,” says Scarlett.
New hires come with a huge opportunity cost. There is the risk of turnover, having someone come in unprepared or even the time it takes for a new person to get their feet under them.
“Hiring a new person can create a two-month hole in your organizational chart. Going without an accurate or well-thought cash structure because you have someone who is new or just adjusting to the team is going to impact your business. It’s hard,” she says. “AVL does a great job handling the transition and eliminating that two-month gap.”
Scarlett envisions a long relationship between oVertone and AVL. Although they have transitioned to a full-time CFO, they continue to employ AVL accountants and an AVL controller.
“I think I just have a lot of trust in the people they bring on. They clearly vet their people really well. Every single person has been knowledgeable and great at their jobs.
It sounds like a small thing but having that level of trust in someone to bring you a proficient person who is going to do their job well and care about doing it well is priceless.”