Why Fast Growing Companies Should Start Controlling Their Tech Stack
I came across an excellent case recently that made me think about how controlling the technology stack is vital for every company, regardless of their size.
Jeff is a sales manager in a growing startup. He and a small team of account reps have a ‘David versus Goliath’ mentality; believing they have the hustle, passion and product to land even the biggest enterprise fish.
In the drive to succeed, however, the team has pulled out all the stops when it comes to finding SaaS tools to give them an edge. From messaging apps, to virtual chat bots, to email marketing stacks, voice-to-text tools and intelligent call routing applications, they’ve left no stone unturned when it comes to optimizing how they sell.
As the team grows, licenses are added for every new hire. When the company hires a new CFO, she’s appalled to find an ever-growing stack of monthly invoices. She asks Jeff for an inventory of what is being used, by whom and why. He can’t make the case for what matters or the ROI for sales. And the finance team struggles to even show what is owned and being used.
In the growth hustle, no leader wants to waste money. It’s just that the promise of SaaS is too enticing: more sales, more growth and more efficiency are just a click and card swipe away.
The reality in fast growing companies we had conversations with, is similar. Spend visibility is poor and patterns are out-of-whack; disconnected from core business competencies and unrelated (intended or not!) from what really matters for growth.
What can fast growing companies do about it?
Think of the spending strategy
SaaS’ ease makes companies get soft when it comes to financial rigor. Harvard Business Review author Karen Firestone challenges companies to understand what is mission critical to their business in her article. Otherwise it’s difficult to “[...] know what tradeoffs to make when it comes to allocating resources to build a new business.”
One important question she also asks is "What is your business’ core competence? How can you focus your spending on that?". Everything, from the office space you lease to the apps you deploy should be connected to that bigger mission. This allows companies to know what they can lose. Only with the mission in mind can they “[...]ruthlessly comb through costs and consider what is non-essential and what [they] can live without.”
Reach financial awareness to control the burn rate
Burn rate is “a measure of negative cash flow that describes the rate at which a company is spending capital to finance overhead before generating positive cash flow”. The team at MicroVentures, an equity crowdfunding investment platform, connects financial awareness with the idea of “burn rate” – an important metric for VCs looking at investing in a company.
Ultimately, a company’s runway, that is, the length of time before cash runs out is decided by a frighteningly simple equation: Cash Balance / Burn Rate and both variables are a function of spend.
Start looking forward
On his popular blog of entrepreneurship musings, Fred Wilson, founder and VC at Union Ventures, recently discussed the overlooked function of finance in high-growth companies:
“What is even more important in a high growth situation is the ability to look forward, to project, and to make sure that the company doesn’t run out of money [...] In order to look forward, you need to know where you are, and that requires a solid baseline derived from looking back. [...]Looking forward requires modeling and it requires the ability to anticipate.”
SaaS is central for the fast growing company
Mark Suster whose blog has become required reading for investors and tech startups shares in his aptly titled piece, What Happens When Startups Turn from Their Innovation Stage to Operational Excellence? how nearly every successful startup he’s seen has moved along some similar growth pattern: innovate, systematize, then scale operations. Those that fail, make one of a few grievous missteps including, “fail[ing] to invest in internal systems to support growth.”
SaaS is at the center of the operational universe.
At Cleanshelf, our conversations with fast growing companies center on ways for them to save cash and redirect employee productivity and collaboration by maintaining cost-effective and well-utilized tools. We remind them: SaaS has become central to your organization. Every single role in your company is either improved, or slowed, by the tools at hand. Whether there are too many tools that distract, unmanaged tools that present security and compliance issues, or ignored tools that burn money and eat up finance’s time to find and manage, SaaS is at the center of the operational universe.
The enthusiasm of entrepreneurial life will only carry a company for so long. Eventually, success will ride as much on decisions about strategy, tools, resource allocation and processes for scale as it does ambition. So start controlling processes and align cash with purpose now.
The best place to start? Your SaaS.
Cleanshelf is the leading SaaS spend optimization solution focused exclusively on tracking, controlling, and benchmarking subscription SaaS applications. Cleanshelf’s cloud technologies help companies save up to 30% on their SaaS spending by automatically identifying unused, underused, or unmanaged licenses and subscriptions.
Headquartered in San Francisco, CA, Cleanshelf serves dozens of clients, including Drawbridge, Revinate, Dynamic Signal, Qumulo, and Service Rocket.