In September of this year, we launched Cleanshelf to help high-growth businesses better manage and optimize their software spend. We’re excited to tell you about it; but first, a bit of context.
Software-as-a-Service applications have had an inarguably positive impact on the way we work, and their inherent flexibility is a big driver of their success. A lot has been written about the consumerization of the enterprise, and the impact this has had on how software is bought and how it’s designed. B2B SaaS vendors must now continuously improve their products to keep their customers happy, without the long-term lock-in that traditional software vendors benefitted from for many years. As a result, companies using B2B software now enjoy greater purchasing flexibility and much-improved user experiences.
However, this modern way of selling and delivering software has brought with it a new set of challenges – and costs – to the same businesses that benefit from its flexibility. And, the consequences are real; software spend is one of the top expense categories for a high-growth business and also one of the most difficult to manage. $50 per user per month may sound inconsequential, but when you add that up across 50+ tools and dozens/hundreds/thousands of employees the cost implications of unused software become clear.
Before we go further, let’s first explore a few important facts:
1. SaaS is growing like a weed, and becoming more specialized
Enterprise SaaS adoption is growing tremendously - according to the Skyhigh Networks’ latest Cloud Adoption and Risk Report, the number of cloud services used by the average enterprise company has more than doubled in the past 2 years. Not only is SaaS growing as a whole, but it’s becoming increasingly specialized, which has landed us in the age of the “stack.” Take, for example, the sales organization of a B2B software company. Five years ago, a salesperson’s software stack likely consisted of Outlook and Salesforce, full stop. Fast forward to today, and that same salesperson has 10 different tools at her disposal, each designed to manage a specific micro-step of her sales process.* The number of tools and vendor relationships an organization needs to manage has grown exponentially.
2. The SaaS purchasing process is decentralized
In the old days – that is, more than a couple years ago – nearly all software was purchased by a centralized IT/Finance/Procurement function. Not only was this group charged with keeping vendor costs down, but it also had visibility into the entire organization. Fast-forward to today, and anyone with a credit card in his pocket can buy the next tool that promises to help him perform his job better/faster. According to IBM/Gartner, 70% of SaaS purchases in the enterprise are made by the individual business unit. In high-growth, venture-backed companies this figure is likely closer to 100%. Moreover, it’s not uncommon for a company to have multiple contracts with a single software vendor, each negotiated and managed by a different department, resulting in missed opportunities for bulk discounts (not to mention causing massive headaches for the accounting folks that need to record all of this on the books). Getting the right software into employees’ hands quickly is a good thing; but this decentralized buying dynamic makes it increasingly difficult to manage the entire organization’s software assets, especially since personnel and business needs change often.
3. The SaaS purchasing dynamic makes it difficult to keep track of spend and usage
Unlike other major expense categories for an organization (e.g., payroll or rent) software expenses are spread across hundreds of transactions per month and dozens of lines in a company’s P&L. The result? Purchases are made on personal expense reports where that detail may not show up in the general ledger; LinkedIn Sales Navigator shows up as Recruiting expense. Unless you have stellar bookkeeping, which most high-growth businesses do not, tracking software spend using traditional accounting software is extremely difficult. Rarely is there a record of approvals or a repository of which licenses belong to which employees. More importantly, it is nearly impossible for an organization to understand the implied ROI it is getting on this software spend. Are we using all of the licenses we’ve purchased? Is this particular tool actually helping our employees do their jobs better and faster? Do we really need the Platinum Plan, when we’re only using the benefits of the Silver Plan? Did we ever cancel the Adobe license for Mike, the graphic designer who left 10 months ago?? These questions remain unanswered. In part, because finding the answer and addressing the issue requires a wild-goose-chase that most finance teams of high-growth business don’t have the time and resources to pursue.