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Chapter 7: setting up business operations for your startup
The backbone of startup operations is more than just keeping paperwork organized: ‘operations’ encompass finance, legal, compliance, HR and general admin.
Having solid processes in place from an early stage for each of these can make all the difference when you’re ready to start scaling your business. Here, we cover 3 key business operations for your startup: 1. Finance 2. Legal 3. Processes
1. Finance
To run a profitable SaaS business, you must be able to recognize where your costs are coming from, or how much capital you need to operate. Start by familiarizing yourself with the fundamentals of Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR), gross margin, expenses, and cash flow.
Outsource what you need to from an accounting or tax perspective, but make sure your most experienced team member manages those numbers and regularly reports them transparently to the rest of the team: management transparency is one of the top factors that determine employee happiness. It can be as simple as creating an Excel sheet with your main metrics and going through it together every month. Having a successful operations manager on board could help your early-stage startup thrive.
2. Legal
The more complex your SaaS is, the more attention you need to pay to the legal aspect of your business. Put some effort into your Terms and Conditions (T&Cs) even before you get paying customers. Don’t just ‘wing it’. But don’t overdo it, either: just have a basic framework in place, think about your liabilities, and build a foundation so you don’t regret not having done it sooner.
If you offer a simple service, you can start by looking at services or businesses that do something similar to yours, even in a different industry or market: check what they highlight in their terms (look out for things like invoicing, confidentiality, obligations, indemnification, warranties, limitations, etc.) and use that as a framework. The same goes for your privacy policy.
If your service falls under regulatory aspects, or you have customers in several countries, you might need to consult or hire (part/full time) legal counsel. For example: if your SaaS helps with investment advice or stores bank records, you are entering a sector that is more prone to regulation and therefore requires more stringent T&Cs. If you have EU-based customers and are handling or storing personally identifiable information, you needed to become General Data Protection Regulation (GDPR) compliant by May 2018 or might face hefty fines in the future.
As your business grows and your customers base expands, you will need to engage legal counsel on a more consistent basis: we recently updated our terms to version 3.0 (have a read-through here) and brought a legal counsel in-house for the first time. We also engaged four outside lawyers to review our new T&Cs: two from Malta, one from the US, and one from Germany, to ensure we would cover different territorial concerns for our international customer base.
3. Processes
When you think about implementing a process, define your success criteria first, then identify the sequence of events that will lead you there. You can then review and refine accordingly as you go along, depending on how close you are to your objective.
Case study: Optimising our accounts
Some months ago I wanted to lower the financial service fees that impact us, merchant and payment service fees in particular. The success criteria was obviously ‘achieving lower financial fees’, and the sequence of events to lead us there was doing some research > identifying the desired merchant fees > contacting vendors to work towards them. In the research phase, we discovered that one of our vendors (PayPal) had a simple, scalable process we could enroll in so as our transaction volumes grow, rates automatically go down. So we enrolled and instantly we began receiving a more preferable rate. It literally took us 5 minutes to start saving money.
We also discovered that the best way to lower our fees from a banking perspective was to avoid currency conversion fees. We knew we were being impacted by these fees but they were largely hidden from us. It was not until we went digging that we realized how much we were spending / losing in these transactions. Most banks don’t highlight these fees and if they do they are generally baked into the % rate which makes it even harder to track. Although it was not part of the initial plan, the next step was opening accounts in US dollars (USD) with our banking partners; now when anyone pays us in USD, the dollars get spent on payments we make to US-based services and team members. We also looked at the easiest and most affordable way to pay people in foreign currencies that were not € and USD, and this is where we started using Transferwise. So in a sense, we went from ‘how do we lower our financial fees’ to optimising many different aspects of our accounts receivables and payables, from the moment somebody pays us to the moment we pay someone else.
Also, remember that accountability is key: once you define your success criteria, you must make someone accountable for the journey to take you there. If you don’t know who owns a customer’s complaints, for example, then your processes need strengthening. Most importantly, make processes important from the get-go: you can get by fine as a small team without clear processes, but building them now will provide strong foundations for future growth. After all, business development starts at the center of your business with your operations team.
Here is a lesson I learned from Jason Lemkin: before you reach $10 million Annual Recurring Revenue (ARR), people are not looking at you that much. This is not the time to be complacent: focus on creating a good and structured internal process. When you hit $10 million, suddenly everyone starts looking at you, and you should have everything planned and organized by then.
Something good enough today is better than something perfect tomorrow
Agile practices have been around for a while to help teams produce more value, faster. Instead of trying to deliver one big project all at once, an Agile team breaks it down into smaller chunks that get released regularly and iteratively.
Measure, iterate, optimize: that’s what Agile execution is all about.
You don’t have to go all-in right now and create complex processes—in fact, the whole point of Agile is starting small and continuously improving. Start like this:
ask your team “what is the bare minimum we can ship to validate our ideas or prove/disprove a hypothesis at this point?”;
work on shipping or releasing what you agreed to;
stop and observe how the process went, and determine what you and your team can do to improve in the next iteration. This is the practice of retrospectives.
Use retrospectives on a regular basis to discuss what went well and what did not, review your process, and find bottlenecks and fix them (ps: we have a free retrospective template for you to copy and use, too). A useful business analysis from time to time can get you where you need to be. Hold larger retrospectives to look at the bigger picture too. For example: have quarterly retrospectives to examine what you’ve achieved, what your velocity has been, and whether or not what you shipped aligned with your projections and quarterly goals. This is especially useful for early-stage companies where your growth might be very fast.
How Agile can improve startup operations
If you want to bring Agile into your established organization, you will need to highlight and explain the benefits and get buy-in so the team will want to do it, as opposed to being forced to. Before you think switching to Agile is a waste of time and money, consider Skype’s case: previously bought for around $2 million, the company moved to an Agile framework practically overnight and was later re-sold for $8.5 million thanks in part to this massive operational change. Sergei Anikin was working there as a manager at the time, and has some insights into how the change played out:
Chapter takeaways
Learn the fundamentals of MRR, gross margin, expenses, and cash flow.
Share your financials regularly and transparently with your team.
Write your terms and conditions as early as possible.
Build processes around your success criteria.
Consider implementing agile practices across the business.
Retrospectives are an easy way for you and your team to learn from your errors and successes and improve upon them.
Blog Posts
How We Run Our Growing Engineering Team at Pipedrive, Sergei Anikin
SaaS Financial Model: Simple Template For Early-Stage Startupss, Gary Gaspar
A SaaS financial model you’ll actually update, Corey Haines
Video & Audio
Agile Product Ownership in a Nutshell, Henrik Kniberg
XAwards: Operations and Planning Panel, Antoine Bonello and Ken Weary
XAwards: Execution Panel, Bob Jelica, Sergei Anikin, and Marc von Brockdorff
Books
Extreme Ownership: How U.S. Navy SEALs Lead and Win, Jocko Willink and Leif Babin
The Lean Startup: How Constant Innovation Creates Radically Successful Businesses, Eric Ries
The Elements of Scrum, Chris Sims and Hillary Louise Johnson
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