By Andy Bird CEO of Inoapps www.inoapps.com
Named after the mythical animal Unicorn businesses are, as their name suggests, extremely rare. To qualify, an organization needs a valuation of $1bn. These are companies that, through their continued success and ability to manage growth, attract many hundreds of millions of dollars from investors and banks alike. There is much debate though about how a business might become a unicorn and which ones are most likely to make it.
When it was reported recently that specialist technology investment bank GP Bullhound had identified my own company Inoapps, as one of twelve potential Scottish Unicorns; it was naturally an important milestone for us. We had been recognised for our rapid global growth as an Oracle Platinum Partner across EMEA, APAC and the Americas. This assessment had also recognised our potential to grow further and our ability to attract significant funding.
So it is speaking from experience then, as the head of a potential Unicorn, that I can see a number of opportunities and hurdles that either promote or negate a company achieving such significant growth. These are factors that will either sway or deter the favour of banks and other investors, differentiating a ‘potential unicorn’ from those organisations whose ambitions will always remain commercially mythical. To me, the key issue is one of getting the right IT infrastructure to support the levels of rapid and significant growth required. However, often, this need to transform a company’s financial and IT systems only becomes apparent to these organisations during key financial events, once new second stage investors start to get involved.
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These are the financial events that transform the prospects of already fast growing companies, by catapulting them into a whole different league. This could be an IP listing or more often the need to identify new and significant sources of funding future growth. For rapidly growing enterprises, successfully attracting fresh funding is of paramount importance. Before an IP listing or signing off on a fresh funding round, banks and investors apply considerable scrutiny to the fast growing organisations that court them. However, this scrutiny doesn’t just apply to the finances or corporate treasury history. Banks and investors also closely examine the IT systems and administrative infrastructure that these fast growing companies have in place.
This systems scrutiny, by potential funders, seeks to reveal whether the right infrastructure is in place to support on-going growth should they choose to invest. It’s a natural process of risk reduction. Naturally, the investors’ fear is that the wrong systems will seriously damage the company’s prospects should they fail to keep pace when further growth is at hand.
Investors would like to see these companies upgrade to flexible Cloud based technologies that not only support growth and flexible working practices (such as mobile working) but that can also encourage innovation. Most importantly, such modern best-practice Cloud technology is incredibly scalable too – and able to cope with even the most rapid growth scenarios. As Unicorns are potentially quite different businesses, both banks and investors realise that if you are going to build something significant that is truly scalable globally, then you need a software core that really makes the most of the organisation’s potential. New back-office Cloud technology can enable this and do so quickly.
We frequently see this type of scenario occur with young, rapidly expanding Professional, Business and Financial services companies. Potentially, these include a number of companies that are ultimately destined for Unicorn status themselves. Typically, though, as these are organisations that have focused initially on securing rapid growth; a great deal of their early IT investment has been deployed to support their customer-facing and front-end operations. Thus, by the time they come to secure additional funding, they have often outgrown their original back-office systems and the back-office software they are using is wholly inadequate. Indeed, it is not unusual to find fast growing mid-market companies still cobbling their financial back-office data together with a mixture of entry-level accounting systems & spreadsheets.
The situation is little better with those using aging on-premise ERP systems. Here, over conservative FDs expect their IT staff to drive the choice of new back-office systems; whilst remaining fairly detached from the day-to-day implementation processes. The upgraded system could then take several years to get right and is deployed at considerable expense. Indeed, we have heard of long and complex on-premise upgrades costing more than £1m, which did not deliver any new functionality at all. These days the banks and investors just won’t wait that long and expect far more.
In contrast, by moving to the Cloud for application areas such as ERP and HCM, most systems’ weaknesses can be quickly overcome, often in just a matter of a few months. In addition, once transformed, the modern best-practice systems used in the back-office deliver superior levels of management reporting and analytics. This facilitates better business decision taking, budgeting and planning.
Another interesting factor, which we have noticed with these fast growing companies, is the appearance of a new breed of switched-on CFO. This new generation of CFO is far more hands-on and keen to identify new solutions that provide a structured, disciplined and future proofed alternative that is cost–effective. They are also aware of the kind of scrutiny they are likely to face. They have witnessed too how Cloud applications have permeated the mainstream and they are aware of the low entry-costs that this particular technology can deliver, together with a host of other best-practice benefits.
This new breed of CFO is also aware that there are a number of vendors that supply Cloud business software. With the technology’s incredible scalability, these modern CFOs see the clear advantages of buying multiple cloud applications from just one provider, where the apps are designed to work together, thereby eliminating any integration costs. As a result, the CFOs can acquire a complete range of modern and fully integrated best-practice Cloud systems quickly on a cash flow friendly OPEX basis. This approach also ensures an impressively low Total Cost of Ownership.
At Inoapps, we understand these benefits fully. We faced the same level of investor scrutiny in advance of our own financial event; receiving a £10 million investment of growth capital from BGF (Business Growth Fund), the independent company established to provide growth capital to UK businesses. For us an Oracle Platinum Partner we implemented integrated Cloud applications across our own finance, HR and sales & marketing operations. We made the move so that it was evident to investors that we had both strong financial control and a framework that supported growth through innovation. From a business point of view, this also gave us a very clear understanding of the needs of other fast growing companies seeking to achieve the same output.
So whilst not all fast growing companies might end up as Unicorns, it is clear to me that moving to the Cloud can provide a range of integrated cost-effective solutions that support the levels of sales growth and innovation required for commercial success. In addition, the cash flow friendly, methods by which these systems are available also fits naturally with a ‘need for speed’ once the pressure from investors gains momentum. The decision whether to carry on though with inadequate systems, or to make the move to the Cloud, is of course ultimately a choice that FDs, CFOs and their respective boards have to make for themselves. However, the chances are that in making the move to the Cloud, they will have the IT to deliver and support legendary performance levels for their business. If they don’t, they might find that their ability to generate & support further growth is purely just a mythical aspiration.