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Paul Lynch believes the growth-at-all-costs age in technology startups is nearing an end, and that’s part of the thesis behind the software company he has just taken over at the downtown tech firm hub Scaleworks.
Lynch, previously of Scaleworks’ code repository Assembla, which was sold last year to a Houston firm, took the reins last month at Chargify, a business-to-business, software-as-a-service (SaaS) billing platform that has grown more than 40 percent each year since joining the Scaleworks fund in 2016.
Scaleworks, which calls itself a venture equity firm, acquires business-to-business software companies that have a high potential for recurring revenue.
Lynch will help to oversee a new product expansion at Chargify, one that aims to buck the trend in the SaaS ecosystem of frenetic growth and usually poor revenue management, he said.
He said the number of SaaS companies that do not understand their revenue is astonishing.
“That is something that would have been inconceivable 20 years ago,” Lynch said. “Everyone looked at revenue, invoices, annual recurring revenue, and everything else. Today, with the complexity of billing and the complexity of generating invoices that tie into your revenue modeling, it’s really, really hard.”
Billing and revenue management, according to Chargify, is a unique challenge for business-to-business SaaS companies, whose subscription-based services are provided on a personalized level throughout its client base, are dynamically updated based on usage, and involve constant experimentation in a space where businesses are in perpetual flux and often grow at breakneck speeds.
Chargify launched this week its Sales Commission Calculator, a revenue management software product that aims to help its client base of 1,600 mostly software firms calculate their revenue – a number that eludes many companies, according to Chargify. It also helps clients track sales commissions, which are inaccurately paid out by more than four out of every five organizations, Chargify says.
With the launch of its expanded product, Lynch said he expects Chargify to build on 2018’s growth, during which the company doubled its global personnel, from 35 in 2017 to 75 by the end of the following year.
The employee count at the billing software company now stands at 85, and the firm occupies Scaleworks’ largest space at its 110 E. Houston St. headquarters.
Chargify will celebrate its 10th anniversary next month. Founded as a service within a software platform known as Grasshopper, the company received a crucial investment in 2011 from the billionaire owner of the Dallas Mavericks, Mark Cuban, also an investor on the TV show Shark Tank, that allowed it to spin out into a separate entity. Its customers include Newsweek; Stack Overflow, a question-and-answer forum for computer programmers; and fellow Scaleworks portfolio member Earth Class Mail.
Developing its revenue management applications was an evolution Chargify arrived at by responding to the changing needs of its customers, said Barrow Hamilton, vice president of product.
“It’s really been a discovery process with our customers, helping them respond to the challenges they have,” Hamilton said.
Lynch said this prompted Chargify to evaluate the core functions of its business. The team began to ponder whether there was a bigger opportunity than just serving its clients’ billing needs – perhaps managing software companies’ revenue could be a market unto itself.
“When we spoke to our customers and when we spoke to the market, they uniformly said, ‘Yes, this is more than just a [function of the business]. This is a business model.'”
As the global startup ecosystem matures, Lynch said, there will not be enough venture capital to fuel every business and that startups and older software firms will have to become more sophisticated in how they handle their income and expenditures, rather than continually tapping into VC funds.
“Suddenly [founders] are going to be turning around and saying, ‘You know what? Let’s start getting tools in here to manage our accounts receivable, let’s start collecting money, let’s start looking at these weird kind of concepts of return on investment and capital reinvestment and debt.”