Why Startups Should Focus on Building Strong Information Systems?

By now, you must have heard the old adage that 90% of startups fail before they reach their 10th year anniversary. That’s as true today as it was a few years ago.

While a startup not reaching its goals is a multi-factored event, most go belly up because they failed to solve a market need and they lacked focus. Interestingly, a recent study on Small Biz Genius found that leaders point to incompetence as the most common reason for these failures. This incompetence can cover any number of other factors, including weak management and no knowledge of finance, among other things. This clearly shows that there’s an inseparable link between competent business management and scaling.

Having the right people at your startup’s helm and having the right systems in place is crucial if your company is to scale. Leaders who are competent in marrying business with financial goals, as shown in our article on Unit economics, can be a catalyst to help your product growth strategy. On the other hand, strong management information systems (MIS) can also help leaders make this possible.

What are information systems?

Management information systems are digital databases that store and organize a company’s financial information. It can also generate regular and special reports regarding the progress of your finances by comparing your goals with your actual financial flow. Through it, leaders can have an overview of the company’s growth as a whole and, at the same time, it gives managers timely and data-driven feedback to improve performance. As it’s pre-programmed, you can easily sync an MIS to your business cycle – giving startup leaders ubiquitous access to your company’s financial information.

How strong information systems help you grow?

A recent study from researchers at the Federal University of Rio Grande do Sul found that startups that have strong information systems are more likely to achieve high net profit performance. The study, which analyzed startups in the Technology Parks inside the University of Portugal, notes that information systems are crucial in bridging strategy and cost.

The capacity of MIS to show cash budgets, variance analysis, approval of operating expenses policies, investment approval policies, product and customer profitability and acquisition costs among others aid in giving startups a clear picture of their profitability at every turn.

In addition, MIS helps the business and its leaders remain agile. Experts from Maryville University believe that management information systems are ultimately about the relationship between people and technology which, in today’s business landscape, applies to a variety of settings.

As more businesses rely on information and technology to navigate today’s increasingly unpredictable markets, MIS can support data-driven decision-making by increasing access to actionable insights. Strong MIS can give businesses and leaders the capacity to respond to market shifts in real-time and in full confidence, which is crucial for a scaling startup.

How to build strong information systems?

Focus on clear business and financial goals.

At the end of the day, MIS are tools that enable startups to achieve their goals. Without clear objectives and demarcated metrics, the reports the MIS will generate won’t mean a thing.

Develop action models.

Train managers to better understand which metrics are important and actionable. On the other hand, the reports should prompt regular audit and review of documentation to serve as feedback to both managers and the overall business. The goal is to improve and adjust plans based on the information.

In today’s constantly shifting market and increasingly competitive startup space, it’s important to focus on competent leaders who make data-driven decisions. A strong information system can give you a huge advantage in making your startup grow.

Robin Denton

Robin Denton is a freelance adviser for companies going through digital transformation. She specializes in helping them adopt the best information systems for their needs at all stages.

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