I came across an excellent case recently. It made me think about how tech stack control is vital for every company, regardless of its 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, every new hire gets a stack of licenses. When the company hires a new CFO, she’s appalled to find an ever-growing stack of monthly invoices. She asks Jeff for a breakdown of who is using what and why. But 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 on their tech stack. 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?
Tech stack 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. A company's tech stack plays a vital part in this calculation.
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.”
Tech stack control is vital for fast growing companies
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 on their tech stack. We help redirect employee productivity and collaboration by maintaining cost-effective and well-utilized tools. We remind them: SaaS has become central to your organization. The tools your company uses either improve or worsen every single role in your company. 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.
Ready to start controlling your enterprise SaaS?
Cleanshelf is the leading enterprise SaaS management platform focused on tracking, controlling, and benchmarking SaaS applications. Their SOC 2-compliant and AI-powered technology helps companies save up to 30% on their SaaS spending by automatically identifying unmanaged contracts, duplicate licenses, and wasted cloud software subscriptions. Based in San Francisco, Cleanshelf provides an enterprise-grade solution to over a hundred clients, including Hilton, Looker, and CoStar Group.