How often do you go to the grocery store?
I’ve managed to get my trips to Trader Joe’s (don’t judge me, I love their Joe-Joe’s) down to once every two weeks. I factor in all the snacks, frozen food, and perishables to a point where I manage to get through a month with only two refueling stops. This has made it so I’m saving more money than if I were to go once a week. Whenever I go there I always end up buying an item or two that I didn’t plan on getting (increasing the overall spend).
Running a SaaS and Subscription business is similar, and no I’m not talking about the office snack budget, I’m talking about capital. Whether you’re customer funded or in a late-stage seed round, you’ve got resources you need to manage. And the best way to do that is to have a framework for using capital efficiency.
Meet John Jahnke (John Yawn-key), CEO of Tackle.io. With a career spanning multiple decades as well as being backed by Bessemer and a16z, John has an educated look into what using capital effectively means.
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Here we summarize the main takeaways for you to implement or hand off to your team for implementation.
What is capital efficiency?
Capital efficiency refers to how efficiently a business uses its capital to operate and to scale.
Why is it important?
Capital efficiency is important in order to be able to grow your business properly. Capital efficiency fosters good business habits, which in turn will boost profitability and growth. Furthermore, aside from helping you achieve profitability and growth, capital efficiency also helps you withstand and overcome unforeseen events or obstacles. Being cautious with your capital will allow you to be better prepared to face challenges, and in business there is no shortage of challenges.
What to do today:
- Follow John Jahnke.
- Schedule a time to meet with your leadership and financial teams.
What to do next quarter:
Develop a capital-efficient framework to help you make sound business decisions and hold you accountable to them.
Starting and running a business is expensive. Utilizing your capital wisely is absolutely crucial no matter what stage your business is at, but when you’re first starting out, it’s of great importance. Achieving capital efficiency, however, is easier said than done, especially if you’re newly entering an existing industry. So, we’ve gathered some helpful tips to help you get started.
- Nail your value proposition as fast as possible
When you’re first getting started, sales conversions can be difficult to obtain, so it’s important to do all that you can to help make those conversions. Having an effective value proposition will ensure you’re attracting the right prospects, increase customer engagement, as well as differentiate you from your competitors. All of of which will help drive your sales conversions and significantly impact your revenue.
Additionally, your value proposition can also influence investing decisions as it will help investors understand your positioning and ultimate goal.
- Hire the right people
Hire appropriately and according to what you really need to get started. As John suggests, determine the minimum viable team needed to pursue a goal. This not only refers to your in-house hires. It also refers to hiring the right freelancers or contractors.
- Focus on what matters
The fastest way to unnecessarily burn through your capital is to try and do things at the level of an established company. Understand that you can’t do everything right away. Focus on what you can do with the money and resources you have, and do it really well.
- Avoid unnecessarily reinventing the wheel
In business, time is one the most valuable resources—time is money. And there are times when it makes sense to do something or build something from scratch, and there are times when it’s simply a waste of time and resources, which includes your capital. It’s important to figure out early on how to efficiently develop and produce. Utilize templates, frameworks, and applications that are already proven to work and save you time.
For example, instead of coding your own website, which would be very time consuming, buy a high-quality template that will not only save you the time, but also money.
- Save wherever possible
This bit tip might seem obvious, but it's surprisingly often overlooked. There are many ways to preserve capital. You don’t always need the most expensive thing. Expensive doesn’t always mean it’s the best for your business. Focus your spending on what makes sense for you business and its long-term success
What to do within the next year:
Capital efficiency is an ongoing process and practice. Continuously evaluate the output and implement the needed modifications to improve any and all processes.
Who should own this?
Leadership and finance, or anyone in charge of budgets.
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This is a ProfitWell Recur production—the first media network dedicated entirely to the SaaS and subscription space.