Managing Growth in SaaS Startups From a CFO’s Perspective
Managing and supporting growth in a SaaS startup is one of the most critical and challenging aspects of the CFO role. As a CFO of several startups I have seen and supported rapid growth rates for these companies and implemented processes to help with long-term growth.
Here are several key areas you should focus your efforts on:
Reporting — It is essential that you have a regular monthly and quarterly reporting cycle. Even if your business is more quarterly driven, it is important you have a detailed monthly reporting cycle as well. In a startup that is growing rapidly, you can’t afford to wait every 90 days to react to emerging trends. In addition to standard financial statements, you must also track your unit economics (including life time value, cost of customer acquisition, magic number, etc. ) and know the sensitivity inside and out. These are the key levers that you will use to evaluate the effectiveness of your Sales, Marketing, and Product Development efforts.
Long Term Models / Sensitivity — You should go to great lengths to build long term financial models that are flexible and can be used as great tools to track your actual progress. By having a great reporting process in place, including key unit economic metrics, you can easily integrate those concepts into your financial model. This model should allow you to determine how more aggressive revenue growth plans will impact the investment required. The models should also clearly illustrate the sensitivity in your unit economics as you determine what level of revenue growth is reasonable for your business model. Another ancillary benefit is that by having a detailed financial model with key metrics, you can easily work with future investors to quickly understand your business.
People — There are several age old statements that apply here. Hiring someone smarter than you is a good policy to follow. Setting up a great recruiting engine is essential to hiring the best people. The recruiting process is an extension of your brand, so having a defined process is important so all candidates have a similar experience. The key item to manage during rapid growth periods is keeping the bar high on talent you hire and not succumbing to the pressure to fill open requisitions because you are behind on your budget. Holding out for the best talent and best culture fit will payoff on multiple levels.
Systems — If your startup is experiencing rapid growth that is expected to continue long term, it is critical that you have a roadmap for your internal systems. You should develop a plan for all key systems including CRM, ERP (Financials), and so on. The 2 key components to focus on here are integration between systems and costs. Determining in advance how each system you plan to purchase integrates with existing systems is hugely important. The other area of focus is on cost. Focusing on per user cost per year in a SaaS system is supercritical because your total cost can balloon as you grow and add employees who require additional licenses. Make sure you plan for success and that you are diligent about negotiating each SaaS application you purchase in the early stages of your company’s growth.
Strategic Planning — Your strategic planning process is the most critical to help ensure everything is aligned within your startup. Clearly communicating the strategy internally so that everyone is on the same page is crucial. You should also stay in lock step with your investors and BOD so that everyone is in sync. You also need to have a system whereby the key stakeholders review your strategy, updates are made as needed, and changes are communicated to everyone, etc.
Most importantly, the discipline of reviewing how actual results and programs are progressing vs stated goals with brutal honesty is key to a good process that can scale as you continue to manage aggressive growth targets. That, combined with a rigorous system of recruiting and reporting will get you and your company through accelerated growth cycles.
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