GTM Strategy and Valuation Insights for SMB Founders

Discussion with Scott Wells

With over 25 years in corporate banking, treasury management, and CFO leadership, Scott Wells has sat on both sides of the capital table. He has advised founders as a banker, run financial operations in private equity–backed companies, and now leads Red Lion Advisory, a fractional CFO and capital advisory firm. His career spans deals from $5 million to $2 billion in annual revenue, municipal bonds, structured products, and M&A integrations. In this article, he distills critical lessons for small and mid-sized business (SMB) founders on building financial foundations, aligning with investor expectations, and avoiding the missteps that derail go-to-market (GTM) strategies and valuations.

Building Strong Financial Foundations

Early-stage founders often channel their energy into perfecting the product and chasing sales, but in doing so they can overlook the operational and financial architecture that will ultimately determine whether growth is sustainable. Wells warns that this blind spot becomes most visible when momentum builds, stretching leadership bandwidth between serving the market and keeping the back office running smoothly.

"They often overlook building a solid infrastructure, and that lack of a strong foundation forces them to shift focus away from growth once they start gaining traction and success", Wells notes. Without a strong backbone, cash flow planning, systems, and governance, even a promising company can experience liquidity crunches, stalled investments, and missed opportunities. Wells stresses that companies under $5 million in revenue are especially at risk: while product-market knowledge may be strong, fiscal discipline often lags.

He illustrates with a client who relied solely on debit cards, lacked leverage, and saw every dollar of incoming revenue immediately committed elsewhere. This left the business unable to reinvest in growth initiatives. For Wells, the fix lies in proactive design of the financial foundation, establishing working capital lines, structuring debt strategically, and hiring trusted personnel capable of both execution and strategic pushback. "You don’t want a yes person, but you want someone whose ability to work with you as a founder might run contradictory to what you have", he explains.

Key Investment Metrics that Drive Investor Confidence

While KPIs vary by industry, some financial markers consistently shape investor confidence. For Wells, valuation, cash flow, and payback period lead the list. Investors, whether VC, PE, or high-net-worth, want a clear path to returns within their horizon.

Operational priorities differ: “If you're a marketing company you’re going to look at CAC. If you're a B2B company, CAC doesn’t matter in the same way”, Wells notes. Still, LTV and profitability ratios remain critical, alongside a transparent capital efficiency story.

Customer and client feedback are also crucial in demonstrating market validation beyond revenue growth. Depending on the industry and product, investors will want to know if it’s a one-off buy (e.g., a car) or a multiple-purchase item (e.g., a snack product) and to understand the underlying drivers of repeat sales. 

EBITDA often serves as a proxy for cash flow, helping reconcile accounting losses with operational performance. “You could have a net loss of $300,000 but depreciation and amortization of $500,000, technically you made cash according to your EBITDA”, Wells explains. This cash generation capacity directly impacts valuation models and return projections.

Ultimately, investors assess whether the expected return justifies the risk and timeline. As Wells puts it: “If I’m investing $2 million in a company that’s only generating $200,000 a year, it would take about 10 years to break even. Am I willing to wait that long? Probably not”.

Measuring Performance, Monitoring KPIs, and Adapting

The discipline of tracking performance metrics is one of the clearest differentiators between companies that thrive and those that stagnate. Wells is unequivocal: “Businesses that measure their results are more successful than businesses that don't. Simple as that”. He adds that without reliable data, leadership is often flying blind when making growth decisions, increasing the likelihood of costly missteps.

He has seen companies expand rapidly without monitoring profitability at a granular level, leading to overextended resources and collapsing margins. They lacked a consistent tracking system and had little clarity on what exactly they were selling or how each product or service was performing in the market. In a striking example, a nine-year-old, multi-location business prioritized opening new stores over assessing profitability at each site. The result: profits from the flagship location were quietly eroded by losses from newer stores.

Implementing KPI dashboards and structured reporting is, in Wells’s view, non-negotiable. “If you’re not measuring your results, you’re not going to be able to understand what you’re doing”, he states. These tools provide visibility into daily, weekly, and monthly performance, allowing founders to pinpoint underperforming areas, address operational inefficiencies, and reallocate resources strategically. Beyond internal efficiency, such disciplined measurement strengthens fundraising narratives by proving to investors that the leadership team understands, and actively manages, the key levers of growth.

Balancing Market Vision with Financial Reality

One of the most common missteps Wells observes is overestimating the total addressable market (TAM) and the speed at which a company can capture it. “Hubris is always a big issue”, he warns. A top-down model that assumes double-digit market share gains without conservative guardrails is an immediate red flag for seasoned investors.

For top-down projections, credibility hinges on conservative, evidence-based assumptions. If founders claim they will achieve $10 million in revenue in the coming year but deliver only $1 million, trust erodes quickly. A shortfall of 10% may be acceptable if backed by sound reasoning, but missing by 90% signals poor forecasting discipline.

Bottom-up models provide a more grounded approach by building projections from operational realities, sales cycles, conversion rates, unit economics, and known capacity constraints. These models are especially valued by private equity and other cash flow-oriented investors because they connect forecasts directly to operational levers. However, even bottom-up projections must be regularly recalibrated. If a company forecasts $2 million in cash flow but comes in at $600,000 without adjusting future expectations, “investors are going to be like, you don’t know what you’re doing”, Wells notes. Such disconnects can be forgiven once if accompanied by transparent analysis, but repeated misses without correction quickly destroy credibility.

Aligning Valuation with Investor Goals

Founders and investors often approach the negotiating table with fundamentally different financial objectives and time horizons. Debt providers typically operate within capped return expectations and seek to recover their investment, plus interest, within a defined three-to-five-year period. Wells explains, noting that debt providers prioritize predictable payback periods where returns are limited to principal plus interest. Equity investors, by contrast, “are going to make the upside because they believe in the upside”, and may accept initial losses if it positions the business for exponential growth, since their returns are tied to long-term value creation rather than fixed repayment.

“You have to be as honest and truthful about the current situation as possible”, Wells advises. This honesty goes beyond presenting clean financial statements, it requires a candid discussion of the trade-offs between short-term profitability and long-term market capture. Founders must determine, and clearly communicate, whether they are in a stage that benefits from patient capital willing to endure early losses or financing that demands a faster return. They must be able to justify how that choice supports their strategic plan.

When these perspectives are misaligned, negotiations can stall or lead to partnerships strained by incompatible expectations. Wells emphasizes that the most productive relationships occur when founders “make sure that they are targeting the ‘right’ investors”, meaning those whose mandates, return horizons, and risk tolerances align with the company’s growth trajectory. This alignment not only reduces friction in execution but also increases the likelihood of sustainable, mutually beneficial outcomes for both sides.

Key Takeaways for Executive Leaders

• Build the foundation early: Solid financial infrastructure, capable teams, and clear market focus set the stage for growth. Many investors skip deep due diligence and later regret it, so founders should know their numbers, revenue, margins, CAC.
• Track what matters: Go beyond simply tracking numbers, monitor KPIs that truly reflect operational health and growth potential, using them to identify trends, uncover risks, and make informed strategic adjustments that build investor confidence.
• Match capital to strategy: Target investors whose profiles fit your business model. For example, Wells once advised a manufacturing firm to stop pursuing VCs, who favor high-growth, low-cost plays, and instead seek high-net-worth individuals and corporate investment teams for better alignment.