February 3, 2023
3
MIN READ

FinOps Principles for Scaleup Finance Leaders: The Definitive Guide

Finance
Operations

Strategically implementing FinOps principles can help you bring clarity and efficiency to your scaleup's finances. Here's how to get it done.

Cloud services are key to managing a modern-day business. Especially, a startup or scaleup. However, rising cloud spending is causing companies to face enormous challenges. And the results go from overspending and wasted resources, to confusing workflows and a drop in team productivity. 

FinOps has never been so important. But, what is FinOps, and how can you get started?

In today’s guide, we’ll explore:

  • What is FinOps & how it differs from RevOps and DevOps
  • Why FinOps matter for scaleup companies
  • FinOps’ lifecycle: inform, optimize, and operate
  • FinOps principles & best practices to take control of your cloud spending

Ready? Let’s get into it!

What is FinOps? FinOps’ Meaning Explained**

You probably already know what FinOps is. But, just to make sure we’re on the same page, let's cover some basics.

FinOps (short for “financial operations”) is a management discipline that focuses on maximizing the ROI of a company’s cloud spending. You might have heard of FinOps under other names, such as:

  • Cloud financial engineering
  • Cloud optimization
  • Cloud financial management

While FinOps was originally focused on cloud storage & hosting, the discipline has expanded to also include SaaS spending. 

FinOps is a combined effort between the leadership of three key business areas:

  • Strategy
  • Finance
  • IT 

FinOps practitioners help their companies to:

FinOps teams come in all shapes and sizes. However, across companies, you’ll most commonly find five major FinOps stakeholders (or personas):

  • FinOps practitioners, who focus on culture-building and facilitating finance and IT collaboration
  • Executives, whose role is focused on making sure that teams don’t exceed budgets and work effectively
  • Engineering/Operations team members, who develop and support the organization's services
  • Product owners, who focus on accelerating product growth.
  • Finance specialists, who collaborate with FinOps practitioners closely to develop accurate forecasting models using historical billing data
  • Procurement specialists, who make sure contract terms and prices are met and streamline procurement procedures

How FinOps Differs From RevOps and DevOps 

You might have heard some terms that sound similar to FinOps, such as RevOps and DevOps. But they’re not the same.

FinOps manages people, culture, processes, and technology to maximize the efficiency of a company’s cloud spending.

RevOps, on the other hand, is also a management discipline. But RevOps aims to amplify income potential. It goes beyond products and pricing. RevOps can optimize processes and technology across every part of your customer’s lifecycle, covering marketing, sales, and customer success.‍

Meanwhile, DevOps combines software development and IT operations, to shorten the development lifecycle and continuously deliver competitive digital products.

Now that you understand what FindOps, RevOps, and DevOps are, let’s dive deeper into FinOps. 

In the next sections, we’ll explore:

  • The benefits that FinOps could bring to your scaleup
  • FinOps’ lifecycle
  • FinOps principles & best practices

How Finance Operations Empower Scaleups to Grow** 

Now, the million-dollar question: What makes FinOps so relevant for scaleups? 

The answer is simple. Software spending is on the rise, and there are good reasons why. The average scaleup relies on CRMs, internal communication, management, and even process documentation tools to run efficiently.

However, while the right tool stack will undeniably make your scaleup’s processes more efficient, it’s very easy to go overboard and overspend on software. 

Especially considering that scaleups are characterized by their operational robustness and sustained growth, these companies are more prone to software overspending than cash-strapped startups.

This can lead to problems such as software redundancy, unclear workflows, and shadow IT. 

In fact, according to a survey by Cledara:

  • About 59% of startups estimate their employees have 93 unreported SaaS subscriptions
  • 63% of employees say SaaS management problems are ruining their company's culture
  • 62 % of team members think manual SaaS management gets in the way of prioritizing strategy

Here's where FinOps comes in handy. All in all, FinOps is great for scaleups because it offers financial leaders a suitable framework for managing SaaS spending in a scalable way. 

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

  • Predict SaaS costs, peak usage, and adoption trends
  • Boost financial accountability between finance, IT, and other key teams

According to the 2022 State of FinOps Report, “The more complex the company and cloud usage — [across] teams, workloads and clouds — the greater the FinOps need”.  This report also found that 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.

“There are two fundamental parts of a business,” says 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”.

Now you know why FinOps can have a positive impact on your scaleup. So, let’s look a bit deeper into how it actually works. 

FinOps Lifecycle** 

FinOps’ life cycle has three phases:

  • Inform
  • Optimize
  • Operate

These phases aren’t carried out linearly. In fact, you've got to iterate constantly, across the three of them. But what are they about?

Let’s take a closer look!

Inform

The Inform phase focuses on:

  • Sharing resources for cloud spending allocation
  • Building mechanisms for shared accountability across teams

Basically, it focuses on three key questions: 

  • How much are teams spending?
  • What are they spending on?
  • What’s the reasoning behind these costs?

Optimize

The optimization phase basically consists of identifying factors that can be used to optimize costs, and measuring them. 

Some of these factors are:

  • Potential resizing
  • Cloud storage usage
  • Tool redundancy
  • Tool adoption

As a KPMG expert suggests:

  • SaaS instances should have a clear goal
  • You should only subscribe for must-have features
  • A cost-benefit analysis should precede the purchase of any add-ons
  • You should only buy seats for users who need the application

The optimization stage isn’t a discreet one-off process. It’s an ongoing effort.

Operate

The operation phase focuses on procedures. The goal here is to set up processes that support technology, finance, and business goals.

Generally, companies automate  most of these processes, which include:

  • Cloud-based expense management and monitoring 
  • Real-time billing
  • Value tracking
  • Setting account restrictions and spending alerts

In the next section, we’ll dive into how to implement FinOps, through 4 essential best practices.

How to Implement FinOps at a Scaleup: 4 Essential Best Practices**

Cloud operations can be a paradox. They can bring significant cost savings, but they can come with hefty expenses too. This is why cloud usage, spending, and ROI need to be actively managed and monitored. 

FinOps gives you a way to do this, without exhausting you with tons of bureaucracy. 

To get on board, we recommend: 

  • Starting with culture
  • Making teams collaboration a must
  • Asking the right questions 
  • Setting cloud usage and spending goals

Let’s dive in!

Start with Culture 

FinOps is as much about culture as it is about practices, processes, and technology. That means that much of the work begins before technology even becomes part of the conversation. It means accepting that the traditional role of procurement doesn’t 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’” 

Here’s how your teams could make that shift:

  • Finance leaders should take on the challenge of helping to reap the rewards of cloud operations, by shaping how the company thinks about cloud services
  • Finance and IT should work together and 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 need to be flexible about costs and adapt to a changing cash flow

Make Team Collaboration a Must

Information, budgets, and resources should not be hoarded by teams. It’s been a problem for decades, especially in large corporations with multiple offices across states and countries. But startups and scaleups experience silo-based issues too. It’s often the result of the new world of remote working, collaboration across time zones, and online project management. 

Take engineers, who create the products, apps, and software that make so many scaleups thrive. 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. 

Ask the Right Questions 

Throughout the FinOps lifecycle, it's important to know what exactly you're interested in covering.

Here are a couple of questions you’ll probably want to ask yourself:

  • What do you want to report on?
  • Where do you spend most of your money?
  • How are you going to track cloud technology usage? Will you use a chargeback or a showback?
  • Do you have a high turnover rate? What's the plan for tracking the software spending of people who change teams?
  • Are FinOps best practices training days assigned to teams?
  • When certain services change, how will you let people know?
  • Who is making the decisions about what tools to adopt?
  • What is the estimated budget for each team?

Pro tip: When writing reports, we recommend using a common vocabulary, instead of employing precise but discipline-specific terms. That way, your whole team will be on the same page.

Set Cloud Usage & Spend Goals 

SaaS companies use several tools to maintain the FinOps lifecycle. Ironically, a cloud problem has a cloud solution. 

With culture change and better communication in their sights, scaleups can use financial automation to bring it all together. Platforms, such as Cledara, can help CFOs, CIOs, and leading engineers to solve the common financial and cloud issues that growing companies encounter.

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.

Take Control of Your Cloud Spending with Cledara**

In today’s post, we shared everything you need to know about FinOps for scaleups. Luckily, there are tools that can help you automate tedious financial processes and take full control of your scaleup’s software stack

That’s how Cledara enters the picture.

With Cledara, you will:

  • View all of your software subscriptions in a single dashboard 
  • Manage SaaS platform access and seats effortlessly
  • Unsubscribe from unused subscriptions, with one click
  • Make sure that every team has access to the tools they need
  • Prevent shadow IT
  • And much more

Interested? Book a Cledara demo today!

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