SAAS GROWTH: GETTING FROM $20M TO $200M

SaaS Growth  

For SaaS companies targeting fast growth to $100M and beyond, the company’s data management of its own business information can enable the growth path or bog it down.   Manual and “heroic” efforts to get the data out of business systems for reporting and analysis will get harder and harder to do as systems, records and activities multiply exponentially.

Growing SaaS ARR 10X requires significant maturation in a company’s systems, processes, data and reporting.  Why?  At a typical $20M SaaS company, every department of the company has subscribed to myriad SaaS services to manage everything from sales commission calculations to marketing apps to employee expense management and more.

We all know that over the last 20 years, fundamental changes have happened in the way that companies consume business systems.  The customer appeal of SaaS was that you could go around IT and expense easy-to-use business systems, without a centralized group slowing down the decision-making or implementation process.

So, individual departments buy business systems without much more coordination other than to see if the purchase fits in the budget.  And SaaS companies took that ball and marketed the heck out of the value of going around IT departments to the point where IT departments now barely exist in companies outside the Fortune 2000.

Business Operations Managers – the New IT Department

A new phenomenon has arisen whereby “business operations” managers for specific areas, like Sales, Marketing, Customer Success, etc., are responsible for both the systems supporting that functional area, and usually the reporting from those systems. Business operations managers sit either in the actual department they are supporting, or in Finance.  When the business operations managers sit in the functional departments, the company runs the risk of their business systems and management being silo’edwith less unified management and integration between systems.  Even Salesforce admins (similar to a Business Operations Manager) can be split into Sales for SalesOps type activities, and into Marketing for marketing activities.

In effect, the Business Operations managers are the new IT. But they generally don’t have the management and systematic decision-making process of IT.  So, cross-functional projects can take forever and require senior management involvement for something as simple as making sure that the customer definition in the three, or five, or fifteen systems that count or touch customers is the same.  We’ve had many discussions among SaaS Finance execs in OPEXEngine’s SaaS Finance Meet-Ups on just this topic.  And god forbid if Salesforce (or whatever CRM the company is using) is re-jiggered to support a new sales methodology or customer profile – who in Sales is going to check with every other department first to see if it has any impact on other systems?  The flexibility of the CRM is a double-edged sword.

Best in Class

Best in class companies start investing in better management of their systems, processes, data and reporting earlier rather than later for the simple reason that integrated and efficient systems will get them to $100M faster.  These companies will have better and faster analytics to show them how and where to grow with better resource allocations.

By $20M, best in class SaaS companies have at least integrated their CRM and financials apps together and integrated them with their own SaaS platform.

By $20M, best in class SaaS companies can relatively easily compile key SaaS metrics and benchmark them to identify areas of strength and weakness.

Expert Advice

To learn more about sticky issues companies have getting from $20M to $200M in terms of data management and what best in class SaaS companies are doing, I spoke with David Carnes, founder and CEO of OpFocus, a Boston-based consulting firm which helps SaaS companies improve systems, processes and reporting.   David has a wealth of experience working these issues through tech companies, with both a bottoms up perspective implementing and integrating systems to a tops down strategic perspective working with companies to build strategic operational road maps to support rapid growth.

I asked David what’s the most important thing that a SaaS company needs to do to grow revenue 10X.

David:  Most companies have a mess on the operations side, let’s be frank.  The primary focus of any SaaS company is Sales/Marketing and product.  And that’s good.  But it leaves operations behind and that can really mess up growth.

To get from A to Z, to grow 10X, most companies have a financial plan, but they don’t have an operational road map that fully supports the financial plan.   Take, for example, the company that plans to grow revenue after the initial growth stage by developing partners and a channel.  Doing business with and through a channel requires a number of changes to the CRM, marketing and billing systems, not to mention financial reporting and calculation of the metrics associated with the revenue coming from channel.  Many of these changes get implemented piecemeal, until it gets too big and the integration and/or reporting from the systems is slowing everything down.  Then some management attention is thrown at the problem, but figuring out the fix can take forever if this issue wasn’t on anyone’s radar screen to solve in a given timeframe.

The same problems and issues come up whether the growth plan calls for channels, or maybe the plan calls for improving retention rates, or shifting the sales organization to a vertical focus from a purely geographic focus, or by adding new products and new markets.

All these growth activities require changes to the systems, data and reporting – and often require that additional new services be added to the mix.  Then, new processes need to be implemented to make all this happen, but it has to be done in a way that the organization doesn’t revolt and reject the new systems and processes.

OPEXEngine:  What’s the best way to get started?

David:  First off, a company has to document all its key business systems and processes and current reporting requirements.  Just that process alone is an effort.  Then the company should review its technical and process debt.  In other words, what’s broken already that really needs to be fixed to keep the business at a steady state.  Then you can compare that to where you want to get to as you are growing revenue 10X and build a high level operational road map to support the financial plan.

OPEXEngine: What traits are common in successful SaaS companies?

David: Successful SaaS companies realize sooner that a business operations function must emerge which runs across departments within their organization.  This individual or group owns systems, data and reporting across the business, and is tasked with defining and driving governance, process and policy. Another trait we see is investment in a proper BI tool, which supports reporting across systems and departments.

Summary

Problems:

  • SaaS companies, maybe because of the nature of their own business, are particularly prone to using myriad SaaS business services internally.
  • Management of these systems tends to be silo’ed in functional departments and integration is limited.
  • Common definitions of key metrics are not consistent across functional groups.
  • Most companies don’t invest early enough in more sophisticated analytics to enable them to grow faster, but rather depend on band aid type efforts in Excel on a regular basis to cobble together reports.

Solutions:

  • Similar to the budget process, companies should have a parallel operational planning process, with a road map tracking to the financial plan, and supporting both high level company objectives and individual departmental needs.
  • Put in place a business operations function that runs across departments to own systems, data and reporting across the business.
  • Invest earlier rather than later in a BI tool which supports reporting across systems and departments.

The sooner a company focuses on maturing its internal operations, systems and processes, the faster they will grow (all other things being equal).  This allows senior management to have the reporting and a common framework to look at the company’s performance and operations, leading to faster decisions, faster problem solving and continual improvement.

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