Startups often set out to change the world, delivering a new product or improvement on the status quo that makes peoples’ jobs easier and lives better. However, if hit HBO show Silicon Valley taught you anything, even if you have the best technology, managing the business side isn’t quite as easy.
Hiring staff, managing sales and development teams, handling billing, controlling expenses and so much more — from early stage to post-IPO, your ability to manage your business as it grows is not easy. Following our last article on the subscription model and how to overcome the challenges it presents to your billing and revenue recognition, we would today like to turn our attention to the perils and opportunities that pop up as your company grows, while discussing how you can capitalize at each stage of the journey.
From Seed to IPO: The Growth Journey
Managing a startup isn’t easy. Whether you are working on your first sale, trying to prove your revenue model to investors or rushing toward the pre-IPO phase, as more money flows in from either investors or customers, the risks begin to scale as well. With each new round of funding, you need to prove new things to new people, capitalize on the opportunities that come into play and present increasingly complicated metrics.
Investors at each stage of the journey have expectations of what you are doing with their money, and you need to deliver.
Seed Round: Proving You Have Something
Everyone has to start somewhere. Unless you created a viral product out of the box, you have to hit the pavement and sell, finding customers who will not only use your product but also tell their friends, and establishing a product-market fit. Aside from not having money, this is the time at which your business sees the least financial risk — you either have a product and a market or not. Make sales, manage the little bit of money you have and keep your work simple.
At this stage, you can survive with a shoebox of receipts, an entry-level accounting software system and an outsourced bookkeeper, but from here on, it gets challenging.
Series A: Prove You Can Make Money
Now that you’ve begun to reel in the customers, brought in a few sales people to start your path to scale and are approaching your first funding round, you have to prove both that your product is viable and that it can make money. According to Sage Intacct, this is where you start looking for 100% growth and have 75% of your sales team meeting their quota.
This is also where you will need to have a finance expert on staff who can not only think at a strategic level to establish processes but also doesn’t believe tasks are below them. Plus, it’s the stage when your quote-to-cash process, billing and reporting abilities are tested, making this the stage when you start to realize you’ve outgrown your entry-level solution (and when it’s easiest to implement software that facilitates your growth).
Series B: Prove Customers Are Still Using Your Product
You’ve doubled in size and the growth has begun to taper, but you’re busier than ever. The real question — are your customers renewing? It costs much more to find a new customer than it does to retain one, so being able to prove that you can keep customers is a necessity. Investors in a software as a service (SaaS) firm will look at churn and customer acquisition cost. Reporting, FP&A and revenue recognition needs are popping up, and it’s likely you need a battle-tested CFO who can deliver the strategy your firm needs.
Growth Stage (Series C-F)
Now your business is starting to roll. New customers, new interest from investors and also new interest from regulators. There will be additional scrutiny at this point from everyone, and you need the visibility and control to deliver. A company’s objective at this stage is to grow more than 40% with a repeatable process for getting product made, sold and supported. That way, a company builds an efficient, profitable machine. Teams should track profit and not revenues because some business models are low margin, such as some examples we see in the sharing economy.
Pre-IPO, IPO and Post-IPO
The high-risk stage, this is also the stage when you need the best understanding of numbers, business drivers and more with someone who can present the data to regulatory bodies and investors. At this stage, you need to have streamlined processes, robust controls, a large staff to manage finances and the technology to support processes.
Infographic: The Evolving Needs of the Growing Company
A recent Sage Intacct infographic looked to discuss some of the ongoing challenges and evolving metrics that growing businesses have to focus on at each stage of growth — as well as the opportunities that exist to automate processes to facilitate growth.
Whether you are looking for your options before you launch, are taking on new funding or are meeting with investment firms, this infographic delivers important insights and benchmarking information on how you can make your job easier with automation.
Wipfli and Sage Intacct: Here for Your Growing SaaS Business
At Wipfli, we work with a wide range of SaaS companies to deliver the advisory services and technology they need to grow.
Learn more about your path to IPO with the free Sage Intacct guide, IPO and Beyond: Creating an Enduring Financial Foundation, and if you are ready to take your next steps, contact us to learn more.