How to calculate a SaaS startup budget
A third of startups end up closing shop for the simple reason that they run out of money. Don’t let that be you.
DashThis has been in the automated digital reporting business for almost 8 years now, but we started out like most SaaS businesses out there: in our founder’s basement. The fact that we deliberately avoided venture capital funding made conscious spending not only important, but necessary.
So although there is no magic formula for entrepreneurial success, every entrepreneur knows that developing a great product and starting a new business requires a fair amount of money.
Related article: How to start a business with no money
So how do you know where you can afford to spend your money, and where you can’t afford not to?
Well, in 2017, DashThis hit number 58 on the Growth 500 (the list of Canada’s Fastest-Growing Companies). So although it’s been a complex, winding road to get here, one thing is for certain: our 1,302% 5-year revenue growth is entirely thanks to spending where it counted, and holding on to our pennies where it didn’t.
Here’s how we did it.
Your product is the base of your entire business, so you’d think its development is just a necessary expense that you’re going to have to shell out for. But while product development can be one of your biggest expenses (depending on the field you’re in), it doesn’t have to hurt.
Above all, make sure you spend what you need to in order to create a relevant and long-lasting product: don’t develop features or write code today that you’re going to end up throwing out tomorrow.
Basically, make sure you avoid technical debt, which is supremely expensive (especially for a software company like us). Although it may seem logical to save money and time in the beginning of development by cutting corners where they can be cut, you’ll be kicking yourself later on down the road when you have to either undo shoddy work, or work around it and continue to live with unsustainable code.
You’re an entrepreneur, you’re only human; don’t waste money trying to be perfect straight out of the gate.
The same goes for your product.
Although you should spend the necessary amount to have a great product that is as relevant as possible (and avoid the technical debt mentioned above), save money by putting your product in your target audience’s hands as soon as possible.
Work iteratively, one feature and one piece at a time. Create a minimum viable product, and gather feedback from your users as soon as they’re kind enough to provide you with it. Improve what needs to be improved, and if a feature becomes too complex and unwieldy for yourself or your users, ask yourself whether or not it’s truly necessary at this juncture.
This ensures that you aren’t wasting precious development time on unnecessary extras, and it also helps you create a product around your customers’ immediate needs, thus enabling you to create a business that can stand the test of time.
Your product doesn’t exist in a vacuum; not only is there a development team behind it, but there’s also a service team there to help customers understand your product and use it to its full potential.
And although customer service/account management/client support/however-you’d-like-to-call-it sounds like a necessary expenditure (and one that you’d like to reduce), when done well, it can actually be one of your greatest assets.
Not only is technical debt supremely expensive, but so is customer churn. As such, your customer service should be as important for your team as product development. Particularly when you’re just starting out, the quality of your service is everything. Especially in a time where customer service automation and chatbots are just about everywhere, having personalized service can really set you apart from the competition.
DashThis was built on epic customer service. When the business was just starting out in our founder’s basement, he used to get up at 3am to answer questions from clients living on the other side of the world.
Today, not much has changed. Every single person who contacts DashThis, even through our generic Contact page form, will get a personal reply written by someone here. Every DashThis user (even those who are just trying out the system for free) has their own account manager dedicated to them. Account managers can often be seen recording screencasts to send to their clients to answer technical questions with visual aids, and in general, our account managers tend to become friends with clients just through the consistent contact they have.
This level of personalization is reflected in the positive reviews we receive from existing and previous clients: even on the off-chance that our software isn’t what a consumer is looking for, our customer service is still deemed to be a cut above the rest.
And as we all know, good word-of-mouth is the best marketing there is.
If there’s one thing DashThis is evidence of, it’s that personalized customer service can enable a small SaaS from Canada to compete with the Silicon Valley giants on even playing fields.
You want to do everything for your clients; it’s only natural. And as I just explained, personal and dedicated customer service can give your small business an edge when you can’t compete against the bigger businesses on things like number of features and amount of funding.
However, you also need to know how to gage your customer investment too. At first, you’re going to want to accept every request and bend over backwards to make your clients happy, even if they’re asking for something that you weren’t planning on incorporating into your offering at first
Sometimes though, you’re going to have to say no. It can become wildly expensive to cater to every customer’s whim. Instead, you need to enable your customer service team to know when to find alternatives for requests, and when to politely tell a client that your offering may not be the best option for them.
It sounds counter-intuitive to risk losing a client. But having the wrong clientèle, and having an entire team of account managers working 24/7 to try to convince a client that you ARE right for them, is a far more expensive gamble.
You spend the better part of 40 hours a week with your colleagues if you’re working in a regular corporate environment. When you’re an entrepreneur, you’re probably spending way more than 40 hours a week working, and startup work environments are usually a lot more intense and stressful than regular corporate settings.
Remember, high turnover is an expense you can’t afford, but paying fair market value for your employees and treating them well is an expense you should afford yourself.
DashThis isn’t shy about treating employees to champagne on a random Thursday when the month’s sales are particularly great, or having people work from home without question when a child is sick, or giving employees time to take university courses if they want. Keeping the atmosphere flexible can be expensive if left unchecked, but having employees that feel fulfilled in their work environment lowers turnover exponentially.
In addition: find people you respect, who are great at their jobs, and who aren’t afraid to disagree with you and force you to look at things from a different perspective. Don’t hire “yes-men”. Hire a collaborative team that can challenge you and take your business where you can’t take it alone. And don’t think of their salaries as expenditures. If they are worth way more than what you pay them, than they’re worth the money; paying less for less value doesn’t get you anywhere.
Since you want to be spending whatever is necessary to surround yourself with the ideal team, don’t rush into it. Take your time to find that perfect team member, and save that money that you might have otherwise spent on a less than ideal person.
In essence: hire fewer people, but hire better people. There is no need to fill a chair just to fill it.
A weak link in your figurative team-chain is more expensive than having everyone else pick up the slack for a period of time.
And remember the saying: hire slowly, but fire fast. Although this ideally shouldn’t happen if you take your time and hire the precise types of people you need for your business, it’s still true: don’t be afraid to fire someone who doesn’t have the right attitude.
Although skills can be taught, attitude and motivation is either there or it isn’t. It’s wildly expensive to keep someone on staff who is bringing down the entire team with negativity and counter productivity.
If you want to succeed, focus on the quality of your team, not the quantity of new hires.
We’ve covered what we’re creating and who’s doing the creating, but how about where and with what? The environment in which you work, and the tools with which you do your work are crucial to the product creation process. However, this isn’t to say that these aren’t places that you can’t save a bundle as an entrepreneur.
In much the same way that it’s important to spend on your hiring the ideal employees, it’s also important to spend on their well-being. Give your team the tools they need to do their best work.
Anyone who has ever worked at a desk before can tell you that a bad office chair can be distracting day-in and day-out. At DashThis, one of the first office-supplies we paid for were ergonomic office chairs and electric stand-up desks. These didn’t come cheap, but they make the 40 hours a week we spend in them more comfortable. If we can stand-up, move around, and adjust ourselves according to how we feel, we’re much more apt to be more productive.
There is also around 1 brand-new laptop and an average of 2.5 extra screens per person here. Some developers need 1 horizontal and 1 vertical screen to work. Some writers might need just 1 screen, but one big enough to have 2 or 3 open articles side-by-side. Our analytical marketing team needs access to numerous different tracking softwares.
Whatever tools your team might need to produce their optimal value, make sure that they can have it. If you’re convinced that you have the best team for the job, you need to make sure that they have the best tools for the job too.
On the flipside, although it’s important to spend on the necessary tools and furnishings needed for your team, don’t spend a penny more than you should. Save money by doing regular spot-checks on all the tools you use internally. For example, we noticed that certain web tracking software that we used in the beginning wasn’t necessary a few years down the road… and yet… we were still paying for the monthly subscription.
So as your team changes and your needs change, remember to take a look at everything you’re spending money on for internal use, and if needs can be combined into one tool, or eliminated altogether, don’t hesitate to do so.
In terms of offices (rent is expensive!), they might not even be necessary from the get-go. The DashThis team was actually entirely remote for the first 4 and a half years of business. We were in our basements, home offices, the local coffee shop… Offices were a non-necessary cost at first, because let’s be real: fancy offices don’t sell products.
We had to sell our product first, then we could entertain the idea of offices.
We moved to offices only when we grew enough in size that being apart was starting to cost us efficiency, collaboration, and innovation. Then, and only then did we move into offices. And even so, we started in a warehouse-type setting directly on the cement slab, with wires hanging from the ceiling, and 50$ foldable lunch tables. It wasn’t chic, but it was just what we needed: a place to work together.
The long and short of it is this: as an entrepreneur, especially if you’re bootstrapping your business, you don’t have a single dollar to waste.
The most significant, and worthwhile, investment that you can make is your people: your team, your clients, and their happiness.
If you can’t compete for clients against the large multinational corporations through the number of features or the speed of delivery, that’s okay. Because as a small business you have the advantage of being able to take the time to really talk with your clients, listen to them, and build a product that was made just for them.
The same goes for your team.
Surround yourself with a team that has the success of your brand to heart, who come to work every day with a fire in their eyes and a will to do everything in their power to succeed. And once you’ve found them, make sure they know how valuable they are to you. That trust and loyalty will be returned to you in spades.
Everything else, to a certain extent, is secondary.
Because a team that creates a product as if there’s nothing else they’d rather be doing, for clients who genuinely want to do business with you, is like sitting down at the poker table with pocket aces: you aren’t guaranteed to win, but you’ve still got a leg up on everyone else around the table.
This is a functional model you can use to create your own formulas and project your potential business growth. Instructions on how to use it are on the front page.