When you’re starting your own business, every cent counts. Most start-ups only survive the first few months or years if they’re run on a diet of austerity and hustling (they don’t call them lean start-ups for nothing). But if you plan to rapidly grow your business, you need to bootstrap with an eye to the future – by which I mean ensuring that your early decisions and processes are also able to scale.
Take the issue of business applications. Enterprise software counts among an organisation’s most important assets – it runs business operations and literally keeps the gears of business turning. Like any other strategic asset – if the business fails to effectively manage its software, there can be dire consequences financially and operationally. And small companies need to understand that software is one of the most difficult and complex of assets to manage.
Evidence of software management challenges can be found in recent research. Working with IDC, we ran a survey amongst Aussie firms with $100 million or more in annual turnover: the sort of businesses most entrepreneurs hope to grow their start-ups into one day. It turns out that nine in 10 of those businesses have been hit with remunerative penalties (what we call “true-ups”) for not complying with their software licences in the past two years – and of those, 65 percent were for a million dollars or more.
Most of these businesses, however, haven’t been intentionally breaching the terms of their licences. They’re what I think of as “accidental pirates”: organisations that have grown faster than their due diligence processes can keep pace with. As a result, things slip through the cracks: someone procures a tool on the wrong licence, someone else shares an app to a few too many staff members. Or a company uses an application in a virtualised or cloud environment – not realising the licensing implications of using the software in that way. And before you know it, you’ve got a million-dollar penalty on your hands.
This isn’t just about software, either. Rapid growth can be fatal if your operations and culture don’t keep up. Some entrepreneurs manage this by deliberately limiting growth or pacing their expansion, but that’s not always an option when getting first-mover advantage is critical. The trick, then, is to think about how easily your current business setup can scale up to match revenue and turnover growth, and do so from the beginning instead of retrospectively.
Let’s go back to the example of software. A typical start-up will gravitate towards free or almost-free applications, usually SaaS tools which allow members to collaborate and share information with only an internet connection. These apps, however, typically also have enterprise licences which kick in after you add a certain number of users to an account, and their costs are often significantly higher than free.
This isn’t to say you should eschew a piece of software solely on this basis, especially if it meets a critical need in your business. But if you’re a founder, you should be putting processes and technology in place to manage your critical assets, before they get out of hand and potentially hinder growth. This is doubly so when dealing with SaaS apps, where remote storage of your data creates an additional layer of lock-in than traditional software.
In other words, your choice of software tools in the bootstrapping days can have a big impact on how your business matures. You also need to be proactively managing your software now – demonstrating that you are operating your company like a world-class organisation even before an IPO. And you should be considering the effect and frequency of compliance: almost one in two of the businesses we surveyed, for example, had been audited three times or more in the last 18-24 months.
I’ve talked about software licensing because it’s what I’m most familiar with, but the same issues apply to every aspect of the entrepreneurial process. Infrastructure, process, and compliance – these are the things which don’t usually worry start-ups, but can cause major stress for mature businesses. If you want to get your start-up to the big league, it’s worth making sure those bootstrap foundations can take the weight.