Planning advice — The lifecycle of SaaS spend.
The stage of your business tends to dictate how you use and spend on SaaS.
Michael Tannenbaum
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5 min read
5 min read
Planning advice — The lifecycle of SaaS spend.
The stage of your business tends to dictate how you use and spend on SaaS.
Take some of the guesswork out of planning.
As 2024 planning is in full swing, I think it’s helpful to share some perspective on how SaaS decisions are made inside tech companies and how those decisions affect vendor selection and spend.
I’ve been either the CFO or COO of Brex as the company scaled from 3 employees and zero revenue to over 1,000 team members and hundreds of millions in revenue. I saw a similar trajectory at SoFi. There are three distinct phases of SaaS that align with the stage of the company, and I wanted to outline them for you here.
Early stage: small number of inexpensive bundled vendors.
Early in a company’s lifecycle, software functionality is typically bundled, even though purchasers don’t think about it that way. Buying decisions are usually based on referral, word-of-mouth, and what the early team used before. The purchase criteria is inexpensive, functional, and can scale for the short-term as the company hopefully grows. To borrow a phrase from Clayton Christiansen, people are looking for “good enough” functionality.
Resources — especially time and money — are precious early in a company, and many software decisions are made before it is known whether the company will succeed. Company leaders are looking for vendors that do multiple things, as they seek to (1) spend less on software and (2) seek to reduce the time technical teams spend implementing vendors (in favor of building out the product).
The result: you end up with a small number of inexpensive bundled vendors.
This could include a productivity suite (Google or Microsoft), a cloud vendor that does hosting, compute and often much of the data storage and analytics architecture, a CRM, and maybe an ERP/accounting system (often managed by an outsourced person), among other less critical software. Very rarely would there be any “best of breed” or “verticalized” SaaS that is either industry-specific (e.g. an ERP for logistics companies) or team-specific (e.g. a tool to help marketing run sophisticated email campaigns).
At Brex, our CRM and ERP decisions highlight the way early stage companies make SaaS decisions. We chose an SMB-focused, freemium version of a bare bones CRM and mapped our pipeline stages, and used almost all of its functionality across customer acquisition and lifecycle marketing.
Growth stage: the SaaS explosion.
As company’s scale into the growth stage, varying teams within an organization typically purchase a large variety of software tools. New leaders are brought in with growth mandates and aggressive goals, and they turn to software to help execute against those goals. Teams around the company are being pushed to deliver more growth and results, and they naturally seek any lightweight software that can help.
Productivity software in this phase especially tends to proliferate, as different teams select their own tools to do similar tasks. It’s very possible that one company might have different teams using Atlassian, Asana, Monday.com, Coda, Notion, Airtable, Google Workspace, and Microsoft, among others.
Finance teams in this phase are stretched and focused on building predictable forecasts, revenue, and larger budget items. There is usually no centralized procurement department that could help evaluate or streamline software vendor selection. There is no single owner of software spend inside the company, so there tends to be little to no accountability or control outside of an overarching budget.
The result: proliferation of “best-in-breed” software on a team level, with no overall cost or efficiency strategy.
Late stage: where the reins tighten.
At the late stage, SaaS becomes more streamlined and costs matter as companies begin to focus on optimizing profitability and cash flow.
Companies build out robust procurement organizations that consist of finance, legal, and IT stakeholders. The organizations carefully review factors like costs, contract terms and conditions, and data security and privacy. There is typically an individual whose job it is to maintain a software budget. Given this person is across all contracts, they become familiar with pricing and features of software suites, and that’s where the savings come in.
The software environment is almost a reversion to that of the early stage, in terms of desire to reduce implementations and save money, but with much stricter vendor criteria across legal, privacy, and security dimensions. Features like integrations with SSO vendors (e.g. Okta) and compliance with state and national privacy regulations (e.g. CCPA, GDPR) become requirements.
At this point, companies evaluate existing vendors and look to expand functionality with them, for both cost and time savings. Bundling features is a good way to get the most out of a solution, and it also minimizes vendor reviews, time negotiating contracts, implementations, and overall change management. It is very common for an IT organization to ask users to use a solution from a selected vendor that is less strong than a point solution, but has a much lower total cost of ownership.
The result: vendor consolidation as companies consider total cost of ownership at the expense of feature perfection.
With Brex’s CRM, this meant actually consolidating down to a few sales and marketing software suites. Specifically, the Customer Success team wanted to implement a customer renewal management software. To make room for the cost of this vendor and the resources required to maintain it, we analyzed which of our existing vendors offered functionality for which we had separate point solutions. We were able to reduce direct and overhead costs by consolidating six sales and marketing vendors into three. You can also read up on some new approaches to B2B SaaS decision-making in my blog post "Budgeting best practices from a CFO's SaaS spend review."
SaaS has to work for the bottom line, too.
Every company has their own journey through SaaS usage and spend, but the phases outlined above should provide a helpful framework to think about how to optimize both SaaS productivity and costs at each phase of a company’s lifecycle.
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