Keeping it SaaSy: Making tough decisions
In this instalment of Keeping it SaaSy, we chat with Scott Deane, CEO of Alloc8 about making tough decisions. With 25 years’ experience as a leader in the software industry, he has plenty of experience to draw on for this chat.
Scott, tell us a bit about yourself and your career
I’ve been in the software industry for around 25 years and have filled a number of different roles. I initially started my own business (with a business partner) creating a purchase to pay solution used by medium to large corporate and government clients. We grew over a ten year period and had a successful exit, where we sold the business to a US based company. Post that exit, I’ve been the CEO of multiple software businesses, and more recently SaaS and cloud based businesses. So from startups with just the two of us figuring out where the next dollar comes from, to large corporates with 1000s of employees, I’ve experienced it all and have been involved in multiple acquisitions and exits.
Let’s talk about making the decisions that you might not want to make but have to. Do you think there’s a lot of this going on in the market at the moment?
There is and it’s changing rapidly. In the SaaS industry, there has been an enormous amount of capital available for some time. It was a bit like an endless Christmas, crazy amounts of money was being thrown at businesses.
In the last 12 months, investment capital has dried up significantly and for many businesses, a decision needs to be made – continue to grow at all costs or try to make themselves profitable. The latter is what a lot of business leaders are grappling with right now, trying to make their business profitable so they can self-fund.
Unfortunately, the quickest way to profitability is often to reduce headcount, hence the mass layoffs we’ve seen recently. Generally, these businesses have had excessive headcount because they’ve had investment for growth, and haven’t been able to move from growth to profitability. Then you’re in the situation that we’re in now where the investment stops and you either don’t have a business or you need to trim things down. Everyone is wrestling with this, including myself. It’s the reality of things right now.
What do you think has brought about this situation?
SaaS businesses are realising that they can’t grow in the way they wanted to or planned to, as right now, the money to fund the growth isn’t there. Leaders now have to run a business to profitability (which is a good thing) and it’s challenging when that hasn’t necessarily hasn’t been the focus. If you think about a traditional business, the valuation of the business is typically based on a multiple of its profitability – essentially, it needs to be profitable to create value. In the SaaS industry the valuations are often based on a multiple of annual revenue, so profitability hasn’t been the priority. So, when you can no longer throw people, tech and money to try to reach your ARR targets (which created the value), decisions have to be made. Globally, we’re seeing tens of thousands of jobs being shed as a consequence.
There’s also pressure from investors to reach targets – it’s all about that J-curve growth, especially if the business is early in its start-up phase. I’ve sat in meetings with potential investors and if you’re not reaching 100% compound growth, they’re not interested in talking to you. Very few businesses sustain that growth realistically, hence once again, the shedding of jobs.
Even though it’s turbulent right now, I think a lot of good will come out of this current scenario. SaaS leaders will learn from it and develop better businesses going forward. Businesses will still be able to grow and grow fast, but the pressure to grow at all costs is dissipating and the focus is shifting more to sustainability, profitability and ensuring that businesses are investing funds in the right areas and people. Does the business have the right tech stack to get the growth they want or the right people to manage their clients and give a good experience? All of these are stock standard decisions businesses need to make, and will mean businesses will be better set up for the future.
As an owner or leader of a business, you have many variables in a decision. Do you think certain things have to take priority over others?
It’s always tough and it depends on the board and the priorities of the business, but people need to be a priority, because finding good people is really hard! When you do find them, you want to look after them, so they’ll stick around, but that doesn’t mean retaining people at all costs either.
The core objective of a business is to make a profit. So as a leader, you need to do what’s necessary to make sure you’re able to survive, which sometimes can involve reducing staff, going into maintenance mode and cruising for a period to become profitable, so you can then try again.
Whether you’re building for an exit event or continue to build your business for the long term, in the end, you’ve got to ensure you have a business that can be profitable and that can involve some very tough decisions.
Do you think dealing with guilt – and letting a decision drag on for too long because of this guilt – is an issue many leaders have to face?
You wouldn’t be human if you didn’t feel guilt when making those types of decisions, especially when they affect individuals.
Procrastination can be an absolute killer in everything in life. I’ve been guilty of holding on to decisions or taking too long to make a decision, like everyone. But in the end, my advice would be you need to make a decision, however difficult it may be. Non decisions can also kill a business.
It’s best not to make these decisions on your own. It always helps to share and talk through some of the decisions you need to make with someone else, so seek counsel from someone you trust and respect – whether that’s a partner, a colleague you can trust, a board member, or someone you trust who has experienced it before.
Once you make a decision, you have to act and move on. You may feel like crap as they’re not nice decisions to make, but you’ve just gotta do it. And sometimes you make the wrong decision and if you do, be prepared to acknowledge it and if needed change it.
Have you ever had one of these roadblock moments that relates to tech, rather than P&L?
Yeah, it’s happened. I’ve been in a couple of situations where the technology has failed and it’s no fault of any of the current staff – often it’s a decision that was made long before any current members are involved. You’re faced with a choice: do you fix the foundations of the house or do you keep trying to go on and plug things up?
I had a moment in one business where we literally stopped selling for 12 months because we had such a problem with the technology stack, that if we continued to go on, the business would implode. We were very open and honest with our customers, explained what was going on and thankfully didn’t lose too many during the remediation process. Once that was done, we had explosive growth, because we knew we had a good idea/solution and finally had the tech to reflect it. It was one of the toughest decisions I had to make and it was a hard discussion to have with the board, but it was the right one and the results proved it. Sometimes you have to take a backwards step to go forward.
Do you have a decision making framework or any external people to lean on?
I look at things pretty simply. I like to talk my thoughts and ideas out with people that I trust and respect. I’m also a bit of a data and numbers guy, and literally will do a for and against column and this helps me decide why I should or shouldn’t do something.
I like to describe myself as an open book manager and I share everything with my teams and immediate management. If decisions need to be made, it shouldn’t come as a major shock as I’ve shared the good, bad and ugly with everyone – to me, almost everything is sharable in a business (but obviously not people’s personal information).
The best piece of advice I could give to those reading this, be a sharer. Don’t keep everything to yourself. It’s a business, so people need to know what’s going on and why it’s happening. The more you share data and information, people aren’t looking at you as if you’re heading into a car crash when big decisions are announced, because they’re already across it.
You’ve got to treat people as equals and have open conversations with them. Things don’t always go right and I think people respect you more if you’re open and honest with them. I’ve worked over the years with people who didn’t share critical information and hated it, so I always promised myself that I would never be that person.
Want to chat with Scott about making hard decisions or what’s going on in the SaaS space? You can connect with him on LinkedIn.