Up until a year or so ago, less than 5% of startups would even consider the concept of engineering being a profitable and healthy organization. ZIRP and the financial climate meant that wasn’t really a consideration. You could continue piling up more and more coders. As the industry is going through a healthy correction, you might find yourself in a team where none of your people ever had to think about such a thing. However, with some guiding principles, you can set out to create a product engineering organization that’s impactful and profitable.
This is part 1 of a 4-part series:
- Highly Profitable Engineering Teams
- Making Profitable Software
- Profitable R&D Structure and Growth
- R&D Innovation for Fun and Profit
Here’s a very typical story about SaaS companies in recent years. On their journey to grow the business, some concessions are made. Especially when selling to bigger clients, the sales team might be eager to agree to all sorts of details that seem minor, but that accumulate with time. For example, different limitations on how often the software can be updated, roll-out plans, feature toggles upon feature toggles, etc. Before you know it, your engineering team is contractually obligated to support half a dozen different versions concurrently (or even more). Very quickly, 30% or more of your time is going into maintaining this complexity. That’s one example of how you end up with unprofitable organizations and have to grow in correlation with the growth of the business just to keep your head above the water. Here’s how I pictured this in Capitalizing YourTechnology:
To start addressing this issue, we have to have a radical solution, in the etymological meaning of “radical,” and go to the root of the problem. To disconnect the correlation between business growth and the size of R&D, your team must be aware that this is a critical success metric and then work to align complexity differently. By that, I mean that there will always be complexity in successful and changing companies, even when we mindfully try to keep it to a minimum. However, we do have control over the “axis” of said complexity and can put in efforts to ensure it’s not in correlation with the wrong things.
For example, to treat the above scenario, we’d start by setting limits with sales and ensuring that the sold product has a single deployment plan and minimal breaches of protocol just to close deals. I’ve seen startups closing six-figure deals only to realize they aren’t profitable because of these. You can avoid it before it gets that bad.
Another example would be thinking about the complexity of the software’s architecture. While having too many microservices has become an epidemic throughout the tech industry, even this has levels of impact. You can set an internal standard that aims to add extra complexity—as in the form of services—only when that complexity reduces long-term efforts.
Tech Debt and Tech Investments
Relatedly, healthy organizations should prioritize bringing in external help (experts, outsourcing, paid services) when those aid the company’s long-term health. Thus, any help solely for working around short-term issues should be limited in scope and duration. Otherwise, the short-term load becomes tenable until it no longer is.
Similarly, you should ensure the minimization of tech for tech’s sake. Tackling tech debt shouldn’t be done because it feels nice, but when we can show a business case for doing so. That’s how some companies got rid of much of their debt when showing how efforts to increase profitability, reduce cloud costs, remove costly dependencies, etc., align with tech improvements. Just like you shouldn’t go into optimization without measuring and seeing exactly which part needs the effort, the same goes for replacing tech debt.
Lastly, profitable teams depend on maximizing what you’ve already worked hard to get—your team. Yes, you’ve probably tried to get the best people already. However, talent growth is virtually limitless. That means you can see dramatic improvements in profitability and impact by investing in the development of your people and, of course, yourself.
What sort of coaching, mentoring, and support are present for your star employees to continue improving? How are you cultivating a culture of growth and relentless pursuit of greatness? The best teams I’ve helped were those with leaders who worked on themselves and made growth a priority.
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