May 5, 2021
A bird on hand is worth two in the bush. A dollar saved is a dollar earned.
The startup landscape is changing rapidly with more and more startups are created everyday. As this is an encouraging sign of entrepreneurship, statistics shows nine out of ten startups fail in five years. One of the top reasons for the failure is running out of funds too soon.
In the past having a good idea was enough to raise capital. But, today’s investor expectation is to have a product with traction. This means survive for longer time with limited funds.
Either you’re bootstrapping or raising funds, it is imperative being resourceful, times thrifty and stretch your hard earned dollars further along until the next milestones.
Below are some of the ways you can reduce your cost, save and keep your startup cost low.
For early-stage startup, one of the major cost is the product development. The development costs includes initial minimum viable product (MVP), maintenance and continuous improvements.
The main purpose of the minimum viable product (MVP) is to create a basic version of the product, launch and collect customer feedback as soon as possible. During the early stage of the development, there are many product assumptions, which increases the product/market risk – whether the market will accept the product or not. According to startup statistics, nearly 10% of startup fails in the first year.
Due to the inherent risk, it is worthwhile not to invest too much upfront on the MVP development. You can hire a freelance team to get the work done instead of building internal teams. This approach keeps your cost and risk low, and get the product to market faster. If the product gains transaction as expected, you can build your internal teams. If the product doesn’t meet customer expectations, you can pivot and shut it down with less risk.
We often see startups come up with a grand vision and try to get all the bells and whistles of the product upfront. This increases scope of work, complexity, development costs and posts several challenges getting the product out to the market.
Again, the objective of the MVP is to get maximum validated learning with minimal product. So, the focus should be on getting a minimum or core product, faster and cost-effective.
By going through the user journey mapping, roadmaps, product backlogs, and prioritizing features, you can narrow down a small set of features that can provide maximum benefit to your customers. Check out our product checklist blog for more info. Focusing on those key core features, would keep your MVP cost low.
Unlike in the past, the technological advancements has brought many specialized tools and applications that you can easily integrate and achieve results, instead of building in-house. Applications like Slack, Stripe, SendGrid, Typeform, etc offers APIs that you can easily integrate offering better user experiences with lesser effort. This can also save expensive development cost.
Another best way to keep your software and licensing cost is leveraging open source products. Depending upon your technical architecture and development stack, you can pick and choose suitable tools and technologies.
Thanks to cloud computing, infrastructure setup has become real easy. Within a few clicks, you can build your infrastructure using one of the popular cloud providers. However, the infrastructure cost may be a bit tricky. The infrastructure cost usually starts low, but quickly adds up.
Most cloud providers use a pay-per use model, which charges for each resource separately. The price varies depending on type, size, network, bandwidth, tools, etc. If proper attention is not given, the cost can increase quickly and end up paying a lot more than needed. Take the time to understand the cost of each resources and see whether it is required. You can also contact your service provider for and clarifications.
We often see startups setup either huge or small infrastructure to support the user base. Setting up a large infrastructure for a limited number of users means wasted resources. At the same time, limited resources for large user base creates performance issues leading to poor customer experience. Hence right sizing is key to keeping your cost low.
First, setting up a scalable infrastructure is key to evolve your infrastructure as you grow. We recommend to start with low, track the performance and grow as your business grows. With cloud infrastructure, it is easy to scale up. We have done many times ourselves.
Second, use right size of infrastructure based on the purpose and usage. For example, your test infrastructure shouldn’t be the same as your live environment, as you have less number of test users compared to live environment.
Setting up a scalable infrastructure, right sizing based on the purpose and usage, will help keep your startup cost low.
One place we see founders miss out is not taking advantage of various discounted programs available for startups. Many cloud service providers such as AWS, Microsoft, Digital Ocean, Google – all have generous discount program for startups.
The cloud providers usually charge for resources based on the uptime, whether you’re using it or not. This means the resource meter is running during weekends or off hours. By shutting down the unused or during offline hours, you can reduce significant cost. For example, if your developers are in one time zone, you can auto shut down after normal business hours and start right before the business hours. At FreelancingTeams, we have teams in different locations and time zones. We’ve automated the process of shutting down and starting off using simple scripts.
According to Embroker startup statistics, one of the most expensive startup costs is the human capital, averaging $305K for about five employees.
When it comes to resourcing, there are three options – build, buy and borrow.
There are advantages and disadvantages using each of these approaches. Click here to learn more. By using the right strategy, you can best use the right talent and keep your overall startup cost low.
Given there are millions of new businesses created each year, it is hard to ignore startups. Many large corporations offer many startup focused deals and discounts to start and run the business at low cost. For example, AWS offers $5000 credit through their Activate program. Similarly Microsoft, HubSpot, Salesforce, Google, Stripe, Sendgrid, Typeforms offer similar discounts. If you’re working with an accelerator or startup development organizations, be sure to check on offers and discounts. This programs can come in handy reducing significant upfront cost.
Today, there are large number of startups and businesses are started every day. At the same time, 9 out of 10 startup fail in 5 years. By keeping the cost low and stretching your dollars further and sustain your business for longer time increases the chances of success. Hence, saving starts for day one!