How tech startups can survive the upcoming recession?

How do you suspect an upcoming recession?

There are a lot of significant signs that suggest a recession could be approaching. Institutions like the World Bank are predicting high chances of a coming recession. After over ten years of significant returns and consistent growth, the tech sector has recently begun to decline. In this situation, cutting costs as soon as possible—starting with headcount—is often the first instinctive response. The Russia-Ukraine war has led to an inflation and liquidity crunch in the market, which is naturally denting the ability of the startups to raise capital. On top of that, numerous variables, including increasing interest rates, rising price pressure, declining consumer confidence, and diminishing demand might contribute to a recession. Companies are getting ready for a cutback by laying off employees, freezing spending, and reducing budgets. 

This beginning of a new recession might cause the startup ecosystem to free fall badly, as investors are starting to limit the funding in startups based in their stage of growth

How a recession could impact your startup, and what to do about it?

Startups are especially at risk during a recession because they constantly need to raise capital to grow and depend more on external investment. Many investors, companies, employees, and others have already been adversely affected by the mere possibility of a recession. Be it VC firms or angel investors, everybody is affected by this economical shift. Many of them have already reduced their level of risk tolerance and started making more cautious wagers.

As they prepare for a recession, startups have started to lay off employees. Unfortunate decision of laying off employees could result in doing a permanent damage to the culture of the startup and lose key talent, etc. etc.

Why Laying Off Employees is not the right solution for this problem?

Laying off employees is never a permanent solution in order to reduce overhead costs. While relying on the futile strategy of laying off a company’s valuable employees, startups generally fail to answer questions like- Are you ready to take the risk of losing key talent that may be essential to the company’s future growth? How would you predict which employees will be most critical to the company’s long-term success? Have you thoroughly thought about the trouble attracting new recruits?

When employees witness their coworkers go, they may develop resentment toward management, which can harm a startup’s culture. This may result in a negative work atmosphere that holds back innovation and productivity. Additionally, layoffs indicate to customers and investors that the company is having trouble. This may harm a startup’s reputation and make getting additional funding more difficult. 

In conclusion, while layoffs may appear to be a quick answer for a struggling startup, they often have the opposite effect over time.

So What Should Startups Do Instead?

Companies miss out on one great opportunity for increasing gross margins they can benefit from immediately – Reducing cloud costs.  Cloud costs make up a big chunk of every budget today and will hit 51% of IT spending by 2025 and continue increasing. Still, businesses struggle to balance cost and performance in the cloud. The cloud bill is an excellent candidate for optimization, potentially making a huge difference to gross margins.

See how startups are changing their approach to cost saving?

As we talk with our customers, the foremost questions that come are- Is the cloud cost correct, how do I make sure that the AWS bill is making sense for us? Am I being charged for what I’m using? Is this within our company’s budget? Does this match our business needs and requirements.

Engineers say, an increase in cloud cost is usually an indicator of company growth. But the problem is, without adding business context to cloud costs, people can’t relate if this growth is in the right direction or not.
Once the engineering and finance people get 100% visibility of their cloud cost in correlation with business & finance metrics, everyone can understand cloud cost in their own metrics of growth and see how it is affecting a company’s overall gross margins.

Managing and monitoring cloud budget has been a very prominent and persistent problem for a decade now. Its time now when organizations realize that in this upcoming recession, laying off employees doesn’t even have to be an option if you figure out a way to keep your cloud costs in check.

Startups want to know what are their COGS with respect to the cloud so that they can keep it in control and align their business and engineering teams accordingly.

Why is Cutting Cloud Costs the right solution?

The cloud offers startups a wide range of capabilities that simply aren’t available with on-premises solutions. Cloud gives the ability to innovate, its dynamic scalability can help startups quickly adapt to changing market conditions and customer needs. But, this boon of technology comes at a big cost. Cloud hosting costs are often the second highest cost after headcount, an obvious place to look for savings. 

However, cutting costs in the cloud again has a cost. With a few exceptions, most optimization projects require engineering work, which consumes a lot of their time and diverts attention from other priorities. In other words, it may save money, but it’s not actually cost -free. 

The cloud eventually strains company profits. Startups become more dependent on cloud services as they expand. The cost of cloud services may eventually cause the company to suffer. Startups must take aggressive steps to lower their cloud costs if they want to stay ahead of the curve. This does not imply sacrificing features, quality or reliability of the products. Instead, it’s about using the right tools and processes to optimize efficiency and control spending.

How to do it the right way?

Cutting cloud costs has become a top focus for organizations across industries as the possibility of a recession grows. It’s crucial to adopt a comprehensive strategy that considers all facets of your cloud usage if you want to achieve significant cost savings. The AWS Well-Architected Framework is a tool that can be used to manage your time effectively while considering cost optimization. This framework offers instructions on how to create safe, effective, and efficient cloud-based systems. Measures to reduce costs can be broadly divided into two categories: First, those that the cloud provider can put into practice, such as right-sizing resources, recognizing idle resources, and realizing extra storage. Second, those that call for customer cooperation, such as creating a cross-functional FinOps team.

There is a solution that can help you navigate these challenges and optimize your resource usage for maximum cost savings. OpsLyft is a cloud cost optimization tool that makes it easy to achieve superior cost savings without sacrificing agility or performance. The value of using the OpsLyft platform in any midsize to enterprise company is that it enables developers to save countless hours in analyzing and fixing complex cloud operations issues and deliver massive cost savings to while ensuring reliability and performance of cloud-based systems.

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