FinOps Principles for Startup Finance Leaders

Time to get a better handle on the money going out the door - FinOps is the way to do it.
FinOps Principles for Startup Finance Leaders
  • Cloud service usage is growing for almost every company of every size.
  • FinOps is a form of cloud financial management better suited to the realities of running SaaS and startup businesses mostly or entirely in the cloud.
  • A shift to FinOps means startups need to keep culture, communication, and cloud cost management best practices top of mind. 

Cloudy with a chance of cost blowouts. That’s the operational outlook for startups and SaaS businesses over the next few years. 

Back in January 2020, the O’Reilly learning platform took the temperature of cloud usage by speaking to C-level executives, software engineers, and systems architects in SaaS, finance, and other industries. They discovered:

  • Almost 90 percent of respondents use cloud in one form or another and nearly all expected to grow their usage over the next 12 months.
  • A quarter of respondents said their companies plan to move all of their applications to a cloud context in the next year. 
  • More than half of the respondents use multiple cloud services and microservices.

And these findings were gathered before the pandemic officially began and before much of the world went all-in on cloud-enabled remote work. 

This is one of the reasons why FinOps will become more and more useful to startup CFOs, founders, and development teams across this decade.  

So…What is FinOps?

FinOps (short for financial operations) is all about how businesses manage their finances in the cloud and their expenditure on cloud-based services, such as Amazon Web Services (AWS), Google Cloud, and Microsoft Azure. You might have heard FinOps called cloud financial engineering, cloud optimization, or cloud financial management too. 

How do FinOps principles differ from RevOps and DevOps? 

You might have heard some similar-sounding terms like RevOps and DevOps. But they’re not the same — here’s how to think about each of them.

  • FinOps is a cloud operating model that draws on people, culture, processes, and technology for managing financial operations.
  • RevOps aims to amplify income potential. It goes beyond products and pricing. RevOps can optimize processes and technology across every part of your customers’ lifecycle, covering marketing, sales, and customer success.
  • DevOps combine software development and IT operations, ideally to shorten the development lifecycle and continuously deliver high software quality.

“There are two fundamental parts of a business,” said Cledara co-founder and COO, Brad van Leeuwen. “Money coming in the door and money going out. The explosion of RevOps in recent years shows that companies have started taking the first part seriously. As tech companies tighten their belts, getting a handle on money going out the door will become increasingly important and FinOps is the way to do it,” he said.

Can FinOps solutions help startups and SaaS businesses? 

FinOps matter for startups because runway and revenue are constantly shifting in the early stages of the business. And they matter for software businesses of every size too, because:

  • FinOps offer financial leaders a more suitable framework for managing the unique operating models of SaaS companies. 
  • SaaS companies live in the cloud. They are hungry for cloud services
  • And they can grow (and shrink) rapidly, as we saw with cloud providers like Zoom during the early days of the pandemic. 

As a financial management strategy, FinOps can put you in a better position to manage otherwise unruly costs, by helping you:

  • Negotiate rates with cloud service providers
  • Predict SaaS costs and peak usage
  • and project growth in other expenses.

FinOps are also more suitable for startups with distributed and all-remote teams because they help finance, IT, and other key teams and projects to share financial accountability for cloud services. With the 2020s ushering in economic uncertainty, startups need to put more of a focus on belt-tightening. FinOps will likely be a key tool to manage the uncertainty volatility of the years ahead.  

“As tech companies tighten their belts, getting a handle on money going out the door will become increasingly important and FinOps is the way to do it.” — Cledara co-founder and COO, Brad Leeuwen

3 ways to increase your use of FinOps

Cloud operations can be a paradox. They can bring significant cost savings, but they can bring significant expenses too. This is why all cloud usage, spending, and ROI need to be actively managed and monitored. FinOps give you a way to do this, without burying everybody in more bureaucracy. Here are three steps you can take to achieve this.

1. Start with culture

FinOps is as much about culture, as it is about practices, processes, and technology. That means much of the work begins before technology gets involved. It means accepting that the traditional role of procurement does not work in the cloud-led age. And it means that IT leaders need to shift theory mindsets from being what one CIO calls ‘unit buyers’

  • Finance leaders are well-placed to help growing startups reap the rewards of cloud operations, by shaping company thinking about services.
  • Together with IT, they can help the executive team — and every department — to see where SaaS and development spending is getting results, and where it’s wasted cash. 
  • Pragmatic finance leaders know they need to be flexible about costs when a startup has finite cash flow, be that for the next 18 months or less. 

2. Make collaboration a must

It’s frustrating when teams hoard information, budgets, and resources. It’s been a problem for decades, especially in large corporations with multiple offices across states and countries.  But smaller companies experience silo-based issues too. It’s the result of our new world of remote work, collaboration across timezones, and online project management. 

  • Take engineers, who are central to developing the products, apps, and software that drive so many startups to become household names
  • They need to get on with the job of development, but their need to ‘get it done’ can also lead to huge cost blowouts around cloud services
  • To tackle this problem, IT and finance need to communicate early and often, to understand each other’s priorities and problems.  

3. Set cloud usage and spend goals 

This is what FinOps is all about: getting RevOps, DevOps, and FinOps to unite around a shared challenge. Ironically, a cloud problem has a cloud solution. With culture change and better communication in their sights, startups can use financial automation to bring it all together. Platforms, such as Cledara, can help CFOs, CIOs, and leading engineers solve the common financial and cloud issues that early-stage startups encounter:

  • Early contract terminations
  • Allocation of ‘instances’
  • Spikes in user sign-ups
  • Product launch delays or bugs
  • Service level agreement issues

A combination of the right tech stack and the right culture will help you tackle these issues, right-size your software resources, and ensure the development team stays on target without reducing your runway. 

Manage cloud finances and SaaS applications

A KPMG expert in enterprise architecture, finance, and operations suggests the following steps for putting FinOps to work in your favor.

  • Define the objective of SaaS instances
  • Subscribe only for must-have features
  • Do cost-benefit analyses for add-ons 
  • Only buy licenses for users who need the application.

“The more complex the company and cloud usage — [across] teams, workloads and clouds — the greater the FinOps need, according to State of FinOps Report, which found executives identified a stronger need for FinOps as spending hit $1 to $10 million. If your company falls in that range too, FinOps could be the financial management strategy you need.

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Jenny Liu
Head of Finance @ Marshmallow