Some numbers are just terrifying. Nowadays, various reports like this one indicate that 90% of startups fail. With all the growing hype around startups, the legitimate question is “What are the reasons for that”?
According to statistics, more than half of startups die within the first four years of existence. Almost half of them (46%) perish due to lack of money. It’s true – not every project can attract investments, so startup teams have to save their limited funds. In this article, I’ll describe practical ways to reduce costs at the start of an IT-oriented business.
Do you really need an office?
When it comes to expenses for startups, there are two major factors to consider: the rent of office and salaries. Many project founders seek to reduce these costs: they use coworking or even start a business from home — in the US, half of all small business companies work this way.
This approach saves funds, but often plays a major role when it comes to hiring employees. I mean remote work, of course. Especially when talking about millennials – the largest generation in the workforce now. According to Bentley University study, 77% of millennials believe that a flexible schedule would make them more productive.
Are you familiar with the name WordPress? I’m sure you are, and the company behind this CMS – Automattic – is one of the brightest startups that have achieved success with this approach. The company managed to build a successful business without offices, in which the majority of employees work: team members are scattered in more than 40 countries and work remotely. Here’s what Automattic CEO Matt Mullenweg has to say on the matter:
“Automattic is a totally distributed company, so everyone works from wherever they are in the world. It could be a coffee shop, it could be their home, it could be a co-working space. We hire people regardless of where they are”.
What about outsourcing?
Outsourced software development is on the rise. Many successful companies have used this model in the period of their formation. Vivid examples of such startups are Basecamp and GitHub. Deloitte report claims that 59% of companies view outsourcing as a tool to reduce costs. According to the Information Services Group, the annual global revenue from information technology outsourcing is estimated to amount to between $60 and 70 billion.
An outsourced software development team saves money and time in various ways. There’s no need to go through the traditional hiring process or incur the overhead costs associated with new, permanent hires. Furthermore, the outsourcing partner you choose is responsible for selecting the most qualified job candidates, providing them with the tools they need, and having replacements available if a team member unexpectedly leaves the project.
Have you considered moving to the cloud?
Another resource-intensive activity of any startup is building your own technical infrastructure. According to the Gartner report, companies all over the world spend $3.8 trillion on information technology, and software accounts for almost $440 billion.
You can save money here too – so the popularity of cloud services is growing. IDC analysts predict an increase in the cost of such services to $277 billion by 2021.
Cloud technologies allow companies without significant resources to gain access to infrastructure, which they simply would not allow themselves to create on their own. Today, in order to organize an accounting department, a startup does not need to buy and configure servers: many solution providers offer ready-made virtual servers to solve such problems. As a result, the company saves on hardware, its configuration, and support. In a nutshell, moving to the cloud is a great way to save and resources.
Optimize the cost of business travel
According to statistics, in the United States alone, companies spend more than $45 billion a year on business trips. Unlike some other large-scale categories of spending, it is often impossible to simply reduce the number of trips here: you cannot help but fly to a meeting with an investor or an important client.
However, there are always ways to survive. To do so, your startup should take advantage of planning in advance. The very first thing to do would be the creation of a business trips calendar with all the meetings you have planned. This way, you will be aware of where and when the members of your team have an appointment.
With a detailed schedule at hand, you will have an opportunity to bring together your trips. What if a single person is enough for this particular meeting? Or what about sending a single person to several meetups? Or maybe scheduling meetings close to each other is better to save on flight tickets?
Cost reduction is an important part of any startup lifecycle. Otherwise, you may join numerous projects that have closed in their first years of life. At the same time, there are quite a lot of successful projects which started outside of offices and used the cloud to optimize costs. Examples of companies like Automattic, Basecamp, and GitHub suggest that conscious cost reduction can help in business.