As a startup CFO, you’re used to scrutinizing costs. Scaling businesses have a lot of expenses, but need to stay lean to scale quickly. It’s your job to keep an eye on the bottom line, and ensure outgoings are necessary, accurately forecasted and balanced against income.
It’s likely that software is one of your biggest cost centers. In 2021, SMBs spent an estimated $684 bn on IT, and for most, software is now their biggest expense after payroll. Those costs can be hard to swallow on a tight budget. And things get even more uncomfortable when it turns out certain software investments aren’t driving nearly enough value.
According to Cledara research, only 20% of CFOs are confident that all their SaaS subscriptions are adding value. That means the vast majority think they’re wasting money on tools they don’t need, aren’t fit for purpose, or are exposing them to business risk.
Unfortunately, they’re right. Software pricing can be hard enough to get a handle on: though setup fees are usually small, different packages, tiered plans and additional features can mean actual costs far exceed quotes. But even if you can get clarity on what you’re spending, the complex nature of software subscriptions means business value is near-impossible to quantify.
That leaves Startup CFOs in a sticky situation. How do you know if what you invest in today really is the best use of your budget? How do you ensure that investments in the future are the right ones to help you scale? There are 3 critical steps you can take to be sure that your software drives value today, tomorrow, and in the long run.
1. Today: Assess your current software costs
The first place to start is to assess the software you already have inside the business to get a clear picture of what it’s actually costing you. There are 3 phases to this.
The first is creating an inventory of all the software currently in use. This might be easier said than done. If there’s no centralized approvals process or software log, you may have to go through business bank statements to identify each individual line item. That still might not get you a complete picture: if employees have bought software using their own cards and expensed it back, there’ll be additional costs you may not be aware of.
Once you’re clear (or as clear as you can be) on what software you have, check contracts and pricing structure. In some cases, additional fees kick in after a certain period of time, or if usage thresholds are exceeded. You need to be clear on this, so you can accurately forecast it.
The final step is to check for signs of “hidden costs”. These can often be hard to spot: the human cost of tools that don’t integrate well with each other, and therefore cause tensions between teams, is hard to put a number against. But others are more straightforward. If you find duplicate (or very similar) software subscriptions, software with no owner, or an owner that’s left the business, there’s a good chance they’re not adding value.
2. Tomorrow: Create a software evaluation process
Once you know what you already have, it gets easier to evaluate requests for new software and understand if they’re worth the expense. If you know another team doesn’t already have similar software or that suggested new tools have strong integrations with your existing stack, you can be more confident that they’ll add at least some business value. It’s worth creating a solid vetting process to dig further into new software and ensure it’ll help, not hinder you as you scale. There are a couple of different aspects to this.
One is functionality. Does new software enable you to automate tasks, and free up team time for more valuable work? Can it clearly drive improvements against key business metrics, like customer conversion rate or churn? Deciding on the metrics that matter will depend on the specific needs of your business, but make sure whoever is requesting software can clearly articulate the value it adds. Teams can often have their attention grabbed by tools that look good, but in reality, promise little.
The other is sustainability. Thinking about things like cost, compliance and scalability upfront can avoid the risk of hidden costs mounting later on. A startup tool might come at an attractively low price point, but if it will have to be replaced once you reach the next growth stage because it’s not ISO 27001 compliant, or can’t handle high transaction volumes, it may not be worth buying. Just because it adds value today, that doesn’t mean it’ll still add value tomorrow. In businesses that grow and change as quickly as startups do, that’s important to bear in mind.
3. Long term: Review software usage
To ensure that software continues to add value, you need to closely manage and continue to reevaluate it throughout its entire lifecycle. One of the most important things to look at is usage. The pace with which growth businesses make software investments is startling. On average we see our scaling customers adding 5 new SaaS applications every quarter. That means managing 20 new subscriptions every year. But SaaS rarely churns. That means there’s a good chance your team is buying new, better tools, and abandoning old ones without canceling them.
If getting visibility over software tools is hard, getting visibility over who’s using them, when, and how often is even harder. But without that insight, it’s impossible to gauge if they’re driving ROI. You could tackle this by speaking to subscription owners individually to get a sense of how software is performing, but that’s messy, time-consuming, and unsustainable as the number of tools inside your business grows. So what’s the alternative?
Software management tools help drive more value from SaaS
Software management tools like Cledara can help give you more control over software from the point it enters your business, so you can be confident it’s driving value.
Cledara’s Engage feature gives you a whole new level of visibility across all your SaaS applications, allowing you to detect all Informal SaaS company-wide and take action right away.
Centralizing all software purchases in one platform increases visibility over your total software landscape. That makes it easier to evaluate requests for new tools, and build the robust processes needed to assist with budgeting and compliance tasks. Cledara also enables you to create virtual cards with pre-approved spend limits for each individual subscription, so costs are clear, trackable, and kept under control.
To learn more about how to build a sustainable, scalable software stack for your startup, download our free eBook or book a demo.