Traditionally, measuring business success requires a greater understanding of your company’s go-to-market lifecycle, how customers engage with your product and the macro-dynamics of your market. But in the most challenging environment in decades, those metrics are out the window.
Enterprise application and SaaS companies are changing their approach to measuring performance and preparing to grow when the economy begins to recover. While there are no blanket rules or guidance that applies to every business, company leaders need to focus on a few critical metrics to understand their performance and maximize their opportunities. This includes understanding their burn rate, the overall real market opportunity, how much cash they have on hand and their access to capital. Analyzing the health of the company through these lenses will help leaders make the right decisions on how to move forward.
Play the game with the hand you were dealt. Earlier this year, our company closed a $40 million Series C round of funding, which left us in a strong cash position as we entered the market slowdown in March. Nonetheless, as the impact of COVID-19 became apparent, one of our board members suggested that we quickly develop a business plan that assumed we were running out of money. This would enable us to get on top of the tough decisions we might need to make on our resource allocation and the size of our staff.
While I understood the logic of his exercise, it is important that companies develop and execute against plans that reflect their actual situation. The reality is, we did raise the money, so we revised our plan to balance ultra-conservative forecasting (and as a trained accountant, this is no stretch for me!) with new ideas for how to best utilize our resources based on the market situation.
Burn rate matters, but not at the expense of your culture and your talent. For most companies, talent is both their most important resource and their largest expense. Therefore, it’s usually the first area that goes under the knife in order to reduce the monthly spend and optimize efficiency. Fortunately, heading into the pandemic, we had not yet ramped up hiring to support our rapid growth, so were spared from having to make enormously difficult decisions. We knew, however, that we would not hit our 2020 forecast, which required us to make new projections and reevaluate how we were deploying our talent.