The $10m engineering problem

ARANK

When evaluating the value of any business, one of the most important factors is the cost of goods sold (or COGS). For every dollar that a business makes, how many dollars does it cost to deliver?For a traditional business, there are many ways to minimize COGS. You could optimize your supply chain, find cheaper raw materials, or negotiate better rates with your suppliers. But all of these take time.In the age of the cloud, we’ve entered a new reality. Your costs might grow by 10x overnight as a result of a sudden increase in volume or a one-line config change.In September 2018, we found ourselves hitting fever pitch. We were contemplating a new funding round. All of our business metrics looked great—revenue growth, customer churn, new product attachments were all positive. All of them, that is, except our gross margin.As one board member put it: “Your gross margin is a bit of a black eye on the whole economics of the business.”To remedy this, in the six months between July and Janu…