Hi, it’s Victor Cheng from SaasCEO.com. And today, I want to talk to you about running a really well-run business. Now, it’s actually quite easy to run a business that’s growing when the economy is growing and your market segment is growing. You can make a lot of mistakes and still grow. It’s very easy and very tempting, by the way, to think that just because you’re growing you must be doing something right, as a manager, as a CEO, as a management team. The thing to appreciate is especially in the kind of markets that a lot of SaaS companies operate in we try to operate in growth markets. Growth markets, by definition, are growing. And so, if you just do a mediocre job, you still grow. And it is tempting to sort of presume that you’re growing because you’re really good at running your business. It’s actually a more accurate assessment of a CEO and a senior management team when you can run a business and have it be prosperous in a very difficult economic environment. Because you don’t get any freebies, you don’t get anything that sort of goes your way by accident. Every bit of growth you get, you have to go out and fight and earn through discipline operations, market positioning, doing all the basics, both strategically and operationally.
So, I’ll give you a quick example. Back in 2008-2009, like 95% of businesses prior to the stock market crash of October 2008 were growing. And when the market crash came, there was a global recession, in probably several dozen countries around the world simultaneously, and a lot of businesses suffered. It became very obvious very quickly which businesses were well run and which were not, because a growing economy masks a lot of mistakes. And so, one of the things I want to talk about is accountability. And what you want to be doing in all market environments, but especially in a changing market environment is making sure that you’re running a tight ship and having your staff and team be accountable for their performance and outcomes that you’ve deemed important. So, you build your plan, you figure out what you want to get done, and you delegate to specific individuals on your team which part of that plan they need to get done. Then, you measure in some way, preferably quantitatively, and you go verify whether they got it done or not. That’s management delegation. It’s a little oversimplified, and I’ll get more into how you delegate effectively in a different video. But that’s the process.
But the key is three things: 1) being clear on what you expect; 2) having a way to measure it; and 3) actually verifying whether they got it done or not. That is accountability. And it’s easy to be sloppy when top line sales are still growing. If three out of your six executives didn’t meet their goals but you still grew compared to last quarter, it’s easy to kind of just be like, “Okay, it’s not a big deal, you’re still growing.” That’s sloppy. I’m sorry, but that is sloppy. What you need to do and especially in a recessionary market environment is two things. You need to drive growth while improving profit margins. Now, a lot of startup companies and SaaS companies, they don’t really look at the profit margins all that much because they’re used to growing, especially if they’re accustomed to a favorable market or economic environment. But, you’ll find that, in very large Fortune 500 companies, CEOs are always reporting to Wall Street, the change in their profit margins as well as the change in their growth rate. That’s what Apple does, Starbucks does, Facebook does. “Here’s our operating profit margin and here’s our growth rate.” And a well-run business is one where they’re still growing and the growth, ideally, is increasing. And they’re improving margins. Every dollar in sales that comes in, they actually keep more than in the prior year. You want to do the exact same thing when you’re running your business, even though it’s smaller. That’s discipline management. You’re growing and being more efficient increasingly over time.
Now, there’s a time and place to focus on efficiency. So, let me talk about that a little bit. If you’re growing 100% to 200% per year in top line sales, it’s okay to be sloppy. Get the sales, because sales are hard to get. A great example right now is I looked at the market capitalization for Zoom, the video conferencing software. I’m stuck at home, I’m not leaving for a while, everyone I know in the state of Washington either is or will soon be stuck at home and I want to go talk to friends and I can’t see them in person. So, I have a Zoom call set up with just friends tomorrow night just to have happy hour. We’re all going to drink a glass of wine in our kitchens and then videoconference. We just chat, because what else are we going to do? You can’t go anywhere. All the schools in the state are closed. A lot of schools across the country are closed. And they’re trying to conduct classes. And guess what? There’s no software to do that. The one they’re going to buy is probably Zoom.
So, I looked at the market capitalization of Zoom. And a week ago, it was $32 billion. I looked at their net income run rate, I think it was $60 million for the year, so $60 million EBIDTA with a $32 billion market valuation, which is just ginormous. Now, I did the math, that valuation implies they’ll get to a billion in sales this year. Personally, I don’t think they’ll get to a billion. I think they’ll get to the hundreds of millions quite easily, but they will be in a growth market. Their sales are going to skyrocket because, suddenly, every government institution, every commercial office, every business, every school has to buy the software and Zoom’s the market leader in that. So, this environment for Zoom is not a time to focus on operating efficiencies and improving margins. This is the time to get every deal you possibly can, pull all-nighters, take every phone call 24 hours a day, because customers are beating down your door to throw you money. They have a deadline to get started to use and there’s no other credible provider to offer what they offer. That’s the time to just focus on growth, pure and simple.
Now, when sales slowdown, which is true for a lot of market segments, that’s a great time to work on efficiency. Because when you’re growing 100% or 200% per year, it’s not worth it to slow down to improve your processes, have better checklists, cut out unnecessary steps, put automation in for certain steps, improve your workflow, manage accountability better with metrics and tracking systems, accountability systems. That’s all extra work. And sometimes, it’s hard to do and not worth it when you’re growing really fast. But as growth slows down, this is time to get lean and mean. Cut out excess steps in your processes, remove unnecessary costs that don’t have any value, streamline your processes, put in automation when you can, because it’ll save you money in the long run. And now you have the time to go do it. So, that’s an example of how the operating focus can shift a little bit, depending on the external environment.
So, this is a great time to go work on those projects that you’ve always wanted to do, perhaps didn’t have enough time for, but make a lot of sense down the road. And this positions you well for growth down the road when the market demand changes or you’re able to adapt to where the market demand is now. We have some of these processes in place to make it easier to be nimble, to scale with growth, and to be more profitable while you’re at it.
So, that’s an idea of how to think about this particular market environment and some of the opportunities it presents, and where you can devote your energy and time to be prepared for growth coming forward.
So, on that note, I want to wish you the best of luck and I’ll see you on another video. Thanks, everyone. Have a great day.
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How to Scale and Grow a SaaS Business