Geo-political Instability, and the Impact on a Software Startup

Wednesday, September 25, 2019

Navigating the waters of currency markets' instability

  

With all the recent headlines circulating around global political tensions rising, the news can feel overwhelming at times. From public spats between President Trump and Xi Jinping regarding the ongoing trade war between the U.S. and China, and thousands in the U.K. taking to the streets to protest Boris Johnson proroguing Parliament before Brexit date, it can all feel a bit esoteric and abstract, too.

 

In terms of truly understanding all the intricacies of these nations' relationships, it may well be esoteric, but it's not abstract. There are very real business considerations on a day-to-day basis, and the currency fluctuations and tariffs caused by these political tensions don't just have an impact on the automotive and natural resource industries. At Bipsync, a 30-person software company split between New York City and Cardiff, Wales, we are acutely aware of the real-world impact these geo-political events have on our business.

 

The impact is felt regarding top-line revenue considerations, as Bipsync has a truly global client base, with significant new business pipeline exposure to the U.K. and APAC region, which are both experiencing real drags on their currencies relative to the US Dollar.

 

It calls into question, which currency should we be quoting prices in?

 

In effect, given our typical subscription term is 2- or 3-years long, who is more negatively exposed to currency exchange risk over that period of time?

 

An optimist would say, U.K. and APAC prospective clients should take the pricing in USD, since we're already at 20-year lows in both the British Pound to USD ratio, and AUD to USD, for example - however, a pessimist would take the other side.

 

Who knows who is right? Most people negotiating B2B software contracts aren't also global macro-economists, so it's hard to say. We at Bipsync don't pretend to be experts in terms of predicting long-term currency market movements, but it's still a conversation we have to have with prospects.

 

And there is a real impact regarding operating expenses, too, as most of the operating spend for a SaaS business like Bipsync's is in its people, and half our people are the U.K. (but we report financial results in USD). On a relative basis then, half of labor spend is lower than originally projected, so OpEx is down, and EBITDA is up.

 

This isn't necessarily cause to celebrate, though. The reason for this actual-vs.-projected OpEx delta has come to be at the price of protests in the streets of the U.K., the streets where our British teammates live, so we have to be mindful of that - (not to mention when those teammates come visit us in New York, everything is more expensive). It's complicated.

 

On one hand, working for a globally-distributed software company, with team members and clients around the world, means we're navigating these waters on a daily basis, which is kind of fascinating. On the other hand, it's a bit unsettling to think that political leaders' posturing on the global stage has such real effect on our day-to-day lives, not just the headlines.

 

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I'm a lifelong learner, and I enjoy thinking about and discussing markets, business ideas and economics. 

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