CTOs! You need to understand a balance sheet.

The title sounds technical, but the best CTOs are mostly financial and strategic.

The CTO role is an executive level business role, that's disguised as a technical one. 

Here’s a truth that takes most CTOs years to learn (and a few boardroom beatings to accept):

Yes, you need technical depth, But that’s not what makes you valuable.

If you think your job is:

• debating microservices vs monoliths
• obsessing over code quality
• choosing between AWS/GCP/Azure

…you’re CTO'ing all wrong—and probably frustrating everyone above you.

I learned this the hard way; I used to go into board meetings armed with project status, deployment metrics, and technical plans. 

An Operating Partner finally pulled me aside and said:

“Darcy, we don’t really care about the technology. We care if the company is burning cash efficiently, the ROI of the projects, and if the product will scale without spending like maniacs.” ie: controlling COGS.

That was the push that I needed. A CTO is not measured by code. A CTO is measured by runway, margin, and growth.

Why the Balance Sheet Matters 

The balance sheet is a secret weapon.
It tells you what the company owns vs what it owes.
It shows survival, leverage, and risk.

For SaaS companies—especially if they are Venture-backed or not cash flow positive —three balance-sheet signals matter more than any architecture diagram:

• Cash & Runway (particularly if you aren't cashflow positive yet)
• Deferred Revenue 
• Gross Margin

Learn these and every technical decision suddenly has business clarity.

1. Cash & Runway — Every Technical Decision Burns Days of Life

`Formula: Cash ÷ Monthly Burn = Months of Runway`

Example: 

• Cash: $3M
• Burn: $250k/month → Runway: 12 months

Now every tech decision has a cost measured in days of survival:

• You should know how much it costs to run your team every day.
• That $50k/month AWS bill = costs the company 7.6 days of runway per month.
• Hire 2 engineers = subtracts 4 days of runway each month
• Cut cloud costs 25% =  extends runway by a month. 

These aren't real numbers - just way of framing numbers into business outcomes. If you are not cash flow positive, It's critical to think about runway. You are either extending life or shortening it.

Runway Rule of thumb:

• 18+ months → strategic thinking allowed
• < 12 months → optimization mode
• < 6 months → panic mode, no experiments

Real story:
A portfolio business I was working with wanted to do a $400k cloud migration that added $20k/month in ongoing costs today, But it was going to enable them to scale more affordably in the future. It would take two months to implement and they had 12 months of runway; The CEO was nervous.

My Math said:

This reduces your life by two months to maybe save money later, and deliver no value now. 

It didn't make sense, They didn’t do it.

Instead we optimized what they had by fixing some over-provisioned services and converting from pay-as-you-go cloud to reserved pricing which reduced their spend by almost 50%, and added three months of runway which they used to focus on their core value proposition.

• No migration.
• No heroics.
• Just simple math and some vendor management.

2. Deferred Revenue — The Leading Indicator of “Product Trust”

• Deferred revenue = customers paying you for a year upfront.
• It’s a liability on the balance sheet, but it’s the best liability you can have:
• Cash up front
• Future revenue already locked in
• Proof of customer trust

Declining deferred revenue = customers shifting from annual → monthly can mean they don’t trust your product enough.

Real story:
A Saas business's deferred revenue kept dropping for three quarters while recognized revenue kept growing. Sales was doing a great job at closing net-new business and the product team was cranking out features like mad for them to sell; and everyone celebrated!

But, The CFO did not; I was an advisor so he asked me to help.

Existing customers were avoiding long commitments, churn rate was increasing and he wanted to know why.

Answer: The product's core features were stagnating with all the focus on shiny new features and competitors were catching up to the core offering. To top it off, long term customers were losing faith due to rash of outages the company had suffered in the previous year.

We paused roadmap work for six weeks, focussed on uptime and stability; and called every long standing customer to regain their confidence by refocusing some of the roadmap effort on core improvements. Deferred revenue started to stabilize.

While the company was celebrating top-line revenue growth, We avoided a business collapse because the CFO was monitoring signals on the balance sheet. But this isn't somebody else's job. As CTOs , it's critical to know how to interpret these signals.

3. Gross Margin — The Ultimate “You Have Your House Together or You Don’t” Metric

Gross margin shows how much revenue is left after COGS:

• Cloud hosting
• Support
• Third-party API fees
• Payment processing

`Formula:v((Revenue - COGS) / Revenue) × 100`

SaaS benchmark:

• 75–85%+ → healthy
• 60–75% → fixable
• < 60% → stop arguing architecture, you have a business problem

If infra costs are >20% of revenue, you’re not a “tech innovator”—you’re just building a growing cost centre.

• PE firms love companies with high gross margins.
• Investors pay premiums for them.
• It feeds into the valuation multiples.

A 10% improvement in gross margin could add millions to exit value. This is where fnancial and technology strategy aligns.

The Mindset Shift

Old CTO thinking: “We should rebuild this into microservices for scalability.”

Business CTO thinking: “That technology migration costs 60 days of runway, takes 6 months to deliver, and pays back in 18 months, while increasing COGS by 15%." - Do you have that runway? How does that affect your gross margin? 

That’s the difference between a "tech lead" and an executive.

Your 30-Day Plan (Zero BS)

Week 1 — Learn the numbers

• Cash on hand
• Burn rate
• Deferred revenue trend
• Infra spend as % of ARR

Week 2 — Create some runway

• Reduce cloud waste (15-25% is standard fat in most businesses)
  • Pro tip: A good COGS KPI is knowing your Cogs cost per / MAU(Monthly active user) 
  • Try to drive that down at 5% per quarter after you are confident in product market fit.

Week 3 — Change decision framing

• Every tech project proposal should include: cost estimate, runway impact, payback period

Week 4 — Change how you communicate

• Stop talking "technologies"
• Start talking “gross margin, payback period”

Example:

• Not: “We moved to Kubernetes.”
• Yes: “We reduced infra spend 35%, extended runway 2 months, increased gross margin 4 points.”

Business people like that sentence a lot more.

The Bottom Line

Great CTOs don’t build software. They build businesses.

When you can say:

• “I extended runway by 2 months,”
• “Deferred revenue is increasing because stability improved,”
• “This new system doesn’t pay back before our runway ends, so we’re not doing it,”
• …you stop being a technical lead.

You are on your way to becoming a business leader.

That’s the difference between building features and building enterprise value.

Want Help Making Your Tech Org a Profit Engine?

I work with SaaS scale-ups and acquirers to:

• Make technology strategies make business sense
• Fix gross margins
• Optimize tech orgs for exit readiness

👉 Book a call: https://darcyreno.com/booking

About the Author

Darcy Reno — executive technology leader, career CTO, exited-founder.
25+ years improving SaaS efficiency and value creation for software scale-ups and portfolio roll-ups.
Not afraid to kill bad ideas.

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