Spender Beware:
A Cautionary Word About Startup Tech Budgets
Instead of “buy,” use a “try, learn, adapt” strategy
Earlier this year I left a job working for a startup that was spending about $3,200 on software-as-a-service (SaaS) every month. Now, depending on what your business finances look like, that might seem like a fortune, or it might seem like pocket change. The disclaimer to this article, then, is that the amount you spend on any aspect of running a business is totally relative, so only you (or your CFO) really knows how much is too much.
Here’s what I can tell you about the startup I was at. We brought in enough net revenue in the company’s first six months to make a $40,000 yearly tech budget seem extremely reasonable. And yet, we hadn’t scaled enough for that revenue stream to be considered stable. Every client was a high value client, in other words, and even a few of them jumping ship (which they did) meant a lot less money to go around.
If you’ve operated or worked in a startup, you don’t need to be told that money is the lifeblood of entrepreneurship. You probably already know that out of the thousands of small- to medium-sized businesses that fail every day, over half of them fail simply because they ran out of money.
Put simply, safeguarding financial capital, or at least preserving access to it, is the only way to make sure your business will survive long enough to become profitable.
So, back to my quick story:
We were using SaaS for everything, but most importantly, for everything that we really didn’t need to.
We used Typeform when we could’ve used Google Forms.
We used Monday.com when we could’ve used Google Sheets.
We used Alexa, Hunter, Airtable, Trello, Slack, Canva, Zapier, and the list goes on and on into relative obscurity.
Don’t get me wrong, most of these afforded a considerable amount of convenience to our operation, and if the plan to scale drastically had ever been realized, then their benefits would have probably increased exponentially. But the plan wasn’t realized, and that money would have almost certainly been better spent on solving problems of a more immediate variety. Convenient? Yes. Helpful to the bottom line? Not in any measurable way — or even in any way that we bothered trying to measure.
The guy who handled the tech side of things for the team was incredibly good at finding the best tools and innovations. However, pouring our $40,000 SaaS spendings into an extra full-time employee probably would have been more helpful to us at the time. Point being, sometimes what looks like the best tool for the job isn’t actually the best tool for your business today, this month, or this year.
If one thing is certain, it’s that every new startup will need a whole toolbox of SaaS solutions, and doing business through a pandemic has driven that point home with a vengeance. But telling the difference between indispensable tools and dispensable providers can be a subtle art. Here are four extremely simple questions that can keep you on the right track when it comes to choosing platforms and services:
Answer these 4 questions before clicking “buy”
1. What is the main function of this software?
The key to the importance of this question is its wording. To identify a software’s capacity to aid your business, you really want to consider its main function, not the bells or whistles or color palettes that come attached.
Let’s take VideoAsk for example. It’s a software that lets you send a custom video to someone and gives them the option to reply (to your tailored specifications) via text, audio, or video. Cool, right? Yes, once you see it in action. But the main function is very simple: communication. Now, there are some businesses out there for which VideoAsk is probably a lifesaver. Was it for ours? No, but we paid for it anyway.
Once you’ve identified the main function of whatever software you’re considering, the question becomes:
2. Is this something I need help with?
In order to figure out whether you need SaaS that performs a given function, you ask yourself, “is a lack of functionality in this area really costing me?” With the VideoAsk example, this becomes, “is effective communication a problem for my business?”
Actually, for us it was. We had clients all over the world with busy schedules, and a need to contact them regularly. VideoAsk did not end up solving the problem for us, despite looking good in the process. The issues we faced with communication were ultimately more complex. But asking this question is crucial for two reasons.
First, if your answer is “no” because you don’t really have a problem in that particular area, then the bigger question has also been answered: don’t pay for a solution to a problem you don’t have.
Second, if it is a problem area, then you’ve taken the steps to understand why you’re tempted to pay for the software, which means you can judge the success of that solution over a given amount of time, and choose whether or not to keep paying for it. But wait:
3. Is it available for free elsewhere?
There are all kinds of SaaS offerings out there that go far beyond the basic tools you’ll find within Google’s standard suite of free software. Some of those may prove vital for your business, while most you’ll never have a reason to know exist. Regardless, the reality is that the majority of software services are, above all, aggregators. They take a boatload of resources, many of which are individually free of charge, and put them in one place for you, accentuating them with a stylish interface and a (usually half-baked) customer support system.
Obviously, if these are resources that you’re using a lot, it can be worth paying for a service that adds convenience. Time, after all, is money. When in doubt, though, paying for the service preemptively is probably not the way to go.
What does VideoAsk offer that can’t be accomplished with Gmail or Whatsapp? Smoother, more stylish interfaces, mainly. If that’s something you can afford, then go for it. If you’re on a tight budget, maybe wait it out a bit longer. With that said:
4. Do I need this today?
Let’s say you’ve already asked the above questions and still arrived at the conclusion that a particular SaaS is something that you really can’t do without. But when can’t you do without it? Right now, or when you significantly scale? Because those are very different things. Can you put it off for a week or a month until I have more data to justify it as a necessity?
If you’re not sure, then just ask yourself this: will this particular purchase attract or retain a client? If you’re not in danger of losing any sales, and don’t stand to gain any because of new software, either, then what are you really paying for?
A final note on expectations
Remember when I said that our startup’s communication problems were too complex to be solved by VideoAsk? Systems theorists would be quick to point out that attempting to solve complex problems with solutions that are merely “complicated” (link to the difference) guarantees you’ll come up short. Unfortunately for most entrepreneurs, systems theory isn’t something that they’ve had the luxury of studying in their nonexistent spare time.
Pain points within your business model are rarely as simple as they seem on the surface. One way of dealing with them without throwing money at unproven tech is to banish the notion that you can “solve” them, and instead adopt the mindset of “how can I manage this problem?”
