As AI spending grows, mid-market companies must rethink capital planning to avoid making bad bets

Tech companies in areas like SaaS, fintech and healthtech, as well as firms in most other industries, are increasingly eager to integrate AI into their businesses. But all that integration, whether into products, processes or both, will put a major dent in your budget.

So how do you make sure you’re making smart AI investments and not just burning money on shiny new tech? Keep reading to find out how to rethink your approach to capital planning so that when you spend money on AI, it drives your business forward.

Companies are struggling to decide how to allocate capital toward AI

The biggest tech giants are sinking hundreds of billions of dollars into AI. But outside of headline-grabbing moves by the likes of Microsoft and Google, many leaders feel unsure of how to best work AI spending into their ever-tightening budgets.

 Some C-suites, for example, may wonder if they need to invest in new core systems, a major financial commitment. Others may feel pressure to quickly integrate AI into their product offerings, but hesitate at the downside exposure if that effort doesn’t pay off.

In some cases, you can actually implement AI more deeply within your business for little to no extra cost (if your team already uses Microsoft, for example, you already have a bunch of built-in AI features like Copilot). But at some point, you’re going to have to make some big bets.

That’s where smarter capital planning comes in.

Your strategic goals (not hype) should drive your AI investments

In a hyper-competitive business environment where even shoe companies are getting into the AI game, leaders face pressure from investors and boards to do something, anything, to become a more AI-focused company. That may be doubly true for non-AI tech companies whose private equity backers are now concerned about decreasing valuations of some of their non-AI native investments.

But don’t put the cart before the horse. While AI is revolutionary, core business fundamentals have not changed. If you want to make smart AI investments, you have to first establish clear strategic goals and only then start thinking about how AI can help you achieve them.

Where do you want to go? What problems are you trying to solve?

Look strategically at AI as a solution to specific business problems

Think about your biggest business problems. These almost certainly include generating revenue, driving efficiency, improving your products or services and cutting costs.

Your strategic goals will focus on solving one or more of those problems. So, as you begin to evaluate your capital planning — including your AI spending — you should ruthlessly prioritize capital allocations that move the ball forward on strategic problem-solving.

Does an AI investment help you boost revenue, operate more efficiently or make your products more appealing? Then it probably warrants real consideration.

But if it doesn’t, you may just be burning through your runway for nothing.

How should your tech company implement smarter capital planning to drive more effective AI spending?

CEOs and leadership teams often think of capital planning in one-year increments. However, because AI technology is evolving so fast, annual planning may no longer be enough to keep up with changes in the market, so it might be time to move to more flexible six-month cycles instead.

Within that framework, consider steps like:

1. Know your north star

Each capital planning cycle, focus on tackling one major business problem. Are you going to boost efficiency, drive revenue, cut costs or make your customers happier? Your AI investments should be in service to this north star.

2. Don’t let what’s available drive your business

Determine what you want to do with your business and then find the right AI tech to drive that strategic goal or goals. Don’t make the mistake of simply building your business around whatever AI tech is available.

3. Consider sequencing

AI is both a short-term and long-term play. So, think about it in terms of sequencing: now, next and never. What AI investments make sense right now versus what you should be targeting over the next 1-3 years (or not at all)?

4. Think about your competitors

How does AI affect your competition and market share? Think about your defensive business posture: whether AI will help you ward off competitors or leave you more exposed. Also consider your opportunities, like whether smart AI investments could actually give you a competitive edge.

5. Talk to your vendors

Your core vendors are almost certainly as eager as you are to integrate AI more deeply into their own products. Ask them to show you their AI roadmaps so you can understand how the AI capabilities of your core systems are likely to evolve over the next several years. This will help your strategic planning as well as allow you to avoid spending money on new AI tools that may already be coming as near-term upgrades to existing, contracted systems.

6. Ask your customers what they want

Do your customers want more AI in your products? If so, in what way? Would they tolerate you making greater use of AI for customer service functions or would that anger them? You need to know the answers to these questions, so start asking them.  

7. Evaluate product-facing AI opportunities

Based on customer feedback and your product team’s own assessment of the market, think about where you might benefit from adding AI features or capabilities to your core products. Can you work AI into existing products, or do you have to redesign from the ground up?

8. Be prepared to make sacrifices

Making a big bet on AI probably means cutting spending from another area of your business. Decide what spending you’re willing to pull back on and whether that’s worth the trade-off.

9. Keep an eye on your runway

Right now, investors love seeing AI investments, so as you develop your capital and strategic planning, you may have an easier time raising more money from VCs or private equity. But don’t lose sight of your runway and burn rate either. A big AI bet can draw down your reserves fast, and you don’t want to be caught unprepared.

10. Keep software contracts as short as possible

AI technology is evolving so rapidly that you don’t want to get locked into a long-term software contract right now. If you do, you could think you’re signing up with the market leader, only to watch their competitors quickly develop more advanced (and useful) alternatives. Keep your contracts as short as possible and know your renewal dates with existing providers so you can stay as flexible as possible.

Look to an advisory firm for more guidance on AI investments

An advisory firm can join you on a deep dive into your strategic and capital planning to support you in making smarter AI investments. The right advisor will help you to:

• Consider AI in the context of your budgeting and FP&A.
• Develop an AI roadmap to back up your strategic goals.
• Build out your internal AI capabilities through rapid analyses on use cases, pilot projects or custom agent development.
• Guide you in implementing governance policies to boost AI efficacy and reduce risk.
• Beef up your cybersecurity to avoid exposing your data to threats.

How Wipfli can help

We advise tech companies on AI, performance, product development and growth. Let’s talk about the specific problems you face and how you can implement tools like AI to solve them. Start a conversation.

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