Editor’s note: This is a series of stories brought to you by Julius Bachmann, a Berlin-based founder coach, and Joyce Mackenzie Liu at Pegafund, providing hands-on advice for how to build and define a startup’s operating model — feel free to reach out to them if that’s something you need. The articles are written exclusively for Tech.eu and edited independently by our team.
For growing scale-ups, it can be challenging to know where to prioritize your efforts and resources. You need to juggle customer demands, investor expectations, and the needs of an expanding team, all at once. Having an operating model offers a helpful blueprint.
Not long ago, I hosted a discussion with Jacob Quartier, then-VP of Finance at Showpad, one of the world’s leading sales enablement platforms. Showpad is a 400-person company with annual recurring revenue of €60 million, and 1,200 customer logos. Workflow solutions are growing in importance for businesses around the world, with the global sales enablement platform market expected to reach a value of $2.6 billion by 2024.
We talked about how Showpad’s operating model has helped the company know where to focus its energies and resources to help drive this growth. Jacob had plenty of great insights on the development of scale-up operating models, including investing in core tools, hiring staff, and monitoring company performance over time.
We got started with a broad question: how does Showpad’s operating model guide the company’s day-to-day activity?
“Growth is criterion number one” — How Showpad uses its operating model to scale
“The term ‘operating model’ is used differently in different industries,” says Jacob. “For me, it’s about setting up a system to help with further scaling. In the startup business, growth is criteria number one in the beginning. To support that growth, we needed an operating model to organize our efforts.”
“Technology is critical, and making sure we invest in the right tools and applications, like ERP systems, and our CRM. We have a lot of data available, and we need to put it to work in the right ways. It’s important to get the foundation right.”
As Jacob explains, deciding on a core set of tools and systems is critical to managing growth over time. It’s also something that can differ a lot between companies.
“If we don’t set up those fundamentals right in the beginning, especially our CRM, this can really hurt in the long run,” says Jacob. “You need to consider this as you grow, because what’s good
for a company with €5 million in revenue might not be good for a company with €20 million. It’s important to select the right systems and tools to support future growth. If we think a solution or system will only last for two years, then we won’t go for it. Our key technology stack should last at least seven to ten years.”
For a company like Showpad, an operating model helps to guide tough decisions on behalf of teams and individuals.
Using an operating model to guide tough decisions
As Jacob points out, Showpad has had an incredible growth story. “Over the past five years, we’ve grown from €5 million to €60 million in recurring revenue. That’s super fast growth, and it has required a lot of changes to the company.”
“We started by focusing on Belgium and the US, but we’ve now invested in new markets, like London, Munich, and elsewhere. Each of these moves involved extra leadership requirements, and we needed to reinvent ourselves a few times. Our core operating model remains the same, but we also have regional variations in our go-to-market planning.”
Showpad’s operating model has helped guide other key decisions, such as knowing when to rely on external support, and when to bring things in-house.
“In terms of finance, at first we relied on external parties, because we didn’t want to become too heavy as an organization. As we grew, we saw the benefits of moving our finance functions in-house, especially cutting down the communication time with our accountant. This helped us to gather data a lot faster, and to make better decisions.”
“With in-house accounting, we could prepare our management financials within seven days, including business review. That wasn’t possible with an external accountant.”
Another key thing, says Jacob, is to avoid too much transformation down the line.
Avoiding disruption as your company grows
No matter which market you’re in, it’s important to have consistency in your company’s operating model. That’s why it’s so critical to choose the right core tools from day one.
“Too much transformation from a systems perspective can be costly,” says Jacob. “For example, we’re using Salesforce, and that’s scalable enough to avoid having to change anytime soon. The systems have a way of forcing you to choose certain processes.”
It’s important to put the time and effort into choosing the right set of core tools, and to make sure these tools can adapt and change as your company grows. Otherwise, you can cause a lot of disruption and inconvenience for your teams - not to mention a huge cost.
“If you have to switch tools every two to three years, this can cost a fortune,” says Jacob. “It’s a real distraction, and you want to avoid it as much as possible. That’s why we selected tools like Salesforce for CRM right from the beginning, and NetSuite for ERP when we hit €5M in annual recurring revenue.”
One other advantage of a great operating model? Knowing when to hire new staff.
How an operating model informs your staffing strategy
For scale-ups looking to make the next step in their evolution, an operating model can help with decisions around when to hire for new roles.
“It all depends on the phase you’re in,” says Jacob. “For example, when we shifted our finance roles in-house, we knew we needed a very strong accountant, because finance is also about business hygiene. That’s always been important to us.”
Once you have these basics under control, says Jacob, you and your teams can start to focus on other functions. “When you have those fundamentals in place, such as the controller roles, you can start to help the rest of the business by feeding information back to other teams. You can match projections against actuals, and find ways to improve over time.”
And while we’re on the topic of collecting performance data...
“Standardization is important” — Using key metrics to guide growth
As Jacob explains, a key part of Showpad’s operating model involves setting and measuring standardized performance metrics.
“We’re a metrics-focused company, and we’re very data driven. We use one set of metrics across the organization, because standardization is important. These metrics are new bookings, gross churn, and net retention. We can’t use a different set of metrics for each location - that’s not the way to scale. We have one core standard, and one defined procedure.”
“This takes a degree of centralization. We focus on some metrics on a monthly basis, and some on a quarterly basis. You can’t always draw a lot of conclusions from monthly numbers, though we do track them. We look at new bookings, customer retention, cash burn, and other metrics.”
And when it comes to metrics, there’s also the question of how to balance automation against hands-on analysis.
Balancing automation against hands-on analysis
These days, there are software tools to automate pretty much any business process. But as Jacob points out, a hands-on, personalized approach is often the best choice.
“For me, it’s about finding a balance, and being pragmatic. For example, let’s talk about billing. Showpad is a B2B company with 1,500 customers, and we bill annually, so this isn’t a high-volume area. For a company doing monthly billing, this would be completely different.”
“We’re also scaling more towards the enterprise segment. This means automating where we can, while still recognizing certain exceptions. Trying to automate for exceptions can drive people crazy. Sometimes, it’s just easier to manage things manually.”
One other way an operating model can help scale-ups? Ensuring the right level of accountability for company spending.
Driving greater accountability for company spending
For Jacob, ensuring accountability for company spending is a key priority.
“A lot of growth companies spend a lot of money, but there’s not always a great awareness of how to measure the performance of this spending. If people aren’t made accountable, they won’t take ownership, because they don’t know how much things cost.”
“Let’s say we invest in a tool with ten users, and it costs €5,000 per year. That’s okay. But if we expand to 200 users, that’s twenty times the cost. You need to create the awareness around this spending and make people accountable.”
That’s why Showpad asks its people to justify all recurring spending. “We always ask why we need to invest in a particular tool, and how it’s adding value. You need to make sure you’re not becoming too fat or adding too many new processes. You want to stay lean and mean.”
“For example,” says Jacob, “when we implemented a BI tool, our goal was to allow leadership to show more visibility in our metrics. We needed to think long-term about which day-to-day metrics we wanted to have in that system. If leadership wants to track certain metrics, everyone should be able to track our progress and see how they can influence our performance.”
“This meant a larger group of people needed access to the BI application. Instead of 30 leaders, the customer service organization and sales organization needed visibility too, and that increased our licenses up to 200 users. It’s important to be aware of this at the very beginning.”
What scale-ups are getting right about operating models
To finish up our discussion, we talked about what other European scale-ups are getting right about their operating models, and how these best practices can help other businesses.
“More companies are realizing the value of customer retention,” says Jacob. “You can’t scale if you’re not protecting your customer base. Acquiring new customers costs a lot of money, and if you can’t keep them, this is expensive.”
“The customer journey is huge for us. We want our customers to know exactly what our product can do, and to use it in the best way possible. That’s why our operating model focuses so much on building great relationships between our teams and our customers, because we want them to be successful with our product.”