Are you a startup CFO concerned about the state of the economy? You’re not alone. It’s easy to get caught up in the cycle of negative news. First, there was the pandemic, then the subsequent supply chain crisis, the conflict in Ukraine, and now rising inflation rates raise the specter of recession.
If there is one thing startups are good at, it’s finding solutions to complex problems. Undoubtedly, this is a trying time: while you’re not necessarily expected to turn a profit in your first few years, investors do want to see that building sustainable revenue and maximizing efficiency, and that’s difficult in the current market conditions. One of the most common ways to grow is to rely on cloud software – it helps automate tasks, and make efficiency gains without having to rely solely on new headcount hires.
Software alone, however, is not a panacea. It’s likely to be one of your biggest budget items, and if it’s not managed properly and combined with smart internal processes, it can end up draining more value than it adds. So, how should you think about software expenses, and how can you ensure you have the right software to sustain a downturn - and return to growth?
How the economic downturn is impacting startup CFOs
Downturns are certainly challenging for every business, but for startups in particular. Startup success stories that have already gone public have experienced significant drops in valuation. The IPO market has slowed, with volumes falling by 37% in Q1 2022. And for earlier-stage companies, it’s getting harder to win the attention of VC investors. Many have resorted to layoffs, realizing that with their next fundraise looking less certain, they may have overspent on headcount and overestimated their growth trajectory.
CFOs can take a proactive approach before resorting to such drastic measures. In fact, a downturn is a perfect time to assess expenses and assets as a company and make sure they’re driving maximum ROI. Your tech stack is a great place to start. As the second biggest expense after payroll, it’s a great place to look for fat to trim. And there’s plenty of it: research shows that only 20% of CFOs are confident all their SaaS subscriptions add value.
How software eats into startup budgets and slows growth
Perhaps unsurprisingly, software spending hasn’t slowed. Despite the downturn, flagship cloud software companies like Azure, Google Cloud, and AWS are still reporting strong growth. Startups are still turning to SaaS to fuel growth and plug the gaps created by shrinking headcount and budget. In fact, Gartner predicts global cloud spending to reach $500 billion in 2022, a growth of over 20%.
Specifically, buyers are looking for software that “can disrupt digital businesses and operations in enterprises directly”. But CFOs should exercise caution. Scrambling to add software that gives a competitive edge and streamlines operations can actually do the opposite if it’s not bought strategically and managed sustainably.
Rather than adding value and reducing manual labor, the wrong software (or the right software brought in at the wrong time) can result in hidden costs, open the business to security risks and put team culture and collaboration in jeopardy.
In a volatile environment, startups need to act strategically to avoid those issues. When vying for limited investment, poor software management processes that eat into your bottom line look particularly unattractive and could put your next funding round at risk.
How SaaS management tools can help startup CFOs save money
It’s a dilemma. Stop spending on the software your business needs to compete, but save money and reduce risk? Or keep adding new software to scale in the short term, but expose yourself to issues further down the line?
SaaS management tools mean that startup CFOs don’t have to choose between scale and sustainability. Startups don’t need to stop buying and using software – but to ensure their own survival, they do need to manage it better. That means thinking through the entire SaaS lifecycle. A solid vetting process at the point of purchase is critical – but so are embedding a culture of accountability, getting the right stakeholders involved, and maintaining visibility over software usage, billing, and offboarding. Most Startup leaders are lacking some (if not all) of the above; our research shows that 65% feel there’s room for improvement in the way they manage their SaaS.
It’s a big job, but one that’s never been more important as startups struggle against fluctuating market conditions. We’ve put together a comprehensive software buying guide to onboard and manage the right software at the right time.
For more details, and to find out how Cledara can help you get a handle on your software budget, sign up for a 15 min demo.