It’s no secret that startups are weathering the harsh winter. It’s not an African problem but a global one. Funding has dried up and left many out in the cold to meet whatever end awaits them. While some companies were going to die anyway because their business models were flawed from the jump, others with potential for survival, who had previously been told the only way to grow is to throw money at their problems, are now forced to navigate this turbulent weather.
The mantra for all startups in these times is clear: be frugal or die. Now that the money has stopped flowing, the only way to grow is to first survive.
The reality is that survival has always been the bedrock but it might have been all too easy to temporarily lose sight of that when the money was flowing freely.
But not to worry, I’ll share some of the most essential strategies any startup needs to run a cost-efficient shop; most, if not all, of which I’ve been operating with in my LaaS startup, Lendsqr.
Let’s get right into it:
#1 Infrastructure: Optimize cloud resources
Every startup probably runs their shop in the cloud with most on AWS, Google, and to a small extent, Azure.The most significant drain on a startup’s budget is unnecessary spending on cloud infrastructure.
Many startups lack competent engineers. Truly great engineers are hard to come by and with the number of startups we have around, let’s face it, someone definitely drew the short straw on talent. What happens is these engineers overspend by spinning off more services than required at that moment, which is the fundamental sin against the ethos of elastic cloud. I’ve seen engineers spin off servers that can carry as much as 1 million customers doing 100 requests per second for a company that’s just starting out. Absolutely unnecessary.
The key is to use the lowest configuration that serves the purpose and then scale resources as the startup grows. Avoid unnecessary features like Multi-AZ (multiple availability zones); unless you’re operating at a scale comparable to Netflix and co, you don’t need it.
At a certain scale, you might even be better off having your own server instead of using costly services that don’t scale. I once helped a tiny startup crash their infrastructure costs from about $3,000/month to about $250/month from just shutting down redundant services.
#2 People: Hire and manage people resources ruthlessly efficiently
A common mistake startups make is hiring expensive resources just because they can. Don’t hire anyone unless you absolutely need them to survive. This ensures you remain agile and efficient. You’d be surprised to find out that you don’t actually need so many people to survive.
It’s also important to let go of people who aren’t aligned with your goals as a startup trying to survive by all means. People who aren’t in it for the long haul and care more about work-life balance and having a soft life, need to go. It’s not a matter of being mean, you’re simply fighting for your life and you need only those willing to fight with you, come whatever may. If your startup dies, everyone goes away anyway.
Contract-based arrangements are also a way to go, however, I recommend that they be tied to output rather than a fixed monthly payment. For instance, with some of the external engineers I work with, I apply a pay structure of a base pay plus sprints delivered. If there’s no work done, no one gets paid. So no one earns off you unless they work for it. There’s no need to fund people irresponsibly.
At Lendsqr, some of my content writers are on pay for content delivered. If there’s a mental block, we both “pay” for it.
Additionally, for founders operating in Africa, stop looking for fancy engineers outside of Africa; it would do nothing but destroy your startup faster than you can whistle. Hire locally and save money on what foreign engineers will charge you.
#3 Marketing: Focus on tracking metrics and organic growth
In challenging times, you can’t do without reevaluating your marketing activities. Stop spending unnecessarily on events and sponsorships; most don’t yield any substantial value. At Lendsqr, we tried sponsorships last year and only found out they didn’t work because we were tracking everything.
Channel your efforts into metrics-driven marketing and you can still create the buzz you need by leveraging the expertise of senior team members like founders, CMOs, and CTOs and encouraging them to blog and engage in relevant spaces online. This performs much better for driving sustainable organic growth.
#4 Software: Go cheap when you need to
Most people believe the most expensive option is the best way to go. Maybe. But have you considered if it’s best for you? Stop using expensive software especially for support functions that deviate from your core business. For instance, my company switched from Camtasia ($179.88 / year) to CapCut ($0 / year) to save money and since we’re not planning on becoming a movie production house anytime soon, I’d say we’re good.
The same logic applies to our other tools like Figma and Postman where only those who need it have access so we don’t rack up license costs. The only tool we splurge on is Github where we use the Enterprise plan because cutting costs without compromising productivity is key. So don’t skim on what’s crucial.
Some of the other great but affordable tools we use include Metabase for analytics, Google Workspace and Google chat (goodbye Slack); Typesense for our search engine – which is just as good as Algolia – and Sentry for code quality. Opting for open-source solutions and selecting tools based on necessity rather than popularity can significantly reduce software expenses.
#5 Haggle: Negotiate the services you use like pepper and tomatoes
Don’t be quick to take pricing at face value. Sometimes you could just call the vendor and haggle your pricing. I have saved as much as 50% on some critical software or services just by haggling with the provider. There’s no shame here.
And if you can get a significant discount by going for a yearly contract instead of monthly, bite the bullet and pay up. Sometimes, you can get as much as 40% on some software and services (AWS for example) if you have a multi-year commitment.
#6 Operating costs: Embrace remote work if you can
In the era of remote work, startups can forgo the need for fancy hardware and expensive office spaces. Adopting a remote work model not only aligns with the current trend but also allows you to save significantly on office-related expenses.
In my company, we work remotely; my employees love it and so does my pocket. Although we do hybrid once in a while; rent a place, have everyone come around, we get a ton of work done and everyone has a great time.
Another great benefit of remote is that you can employ great people from all over the world (please, be aware of time zones) who would do great work at a significantly lower cost of employment. You aren’t cheating anyone; you are giving opportunities. Brownie points for you!
#Bonus tip: Audit. Audit! AUDIT!!
Listen, I cannot stress this enough: audit as often as you can. Sit down with your finance people and audit your infrastructure bills monthly. If you have services no one uses running at night e.g test environment and the likes; get your engineers to write a script that shuts all these things down automatically whenever they’re not in use and they can bring them back up again when needed. Query extensively and strip what you need to without compromising on quality.
Review salary costs, bonuses, allowances and other operating costs and adjust where you find you’re spending on things you shouldn’t be spending on. Everyone has to be prepared to make sacrifices and if they’re not then let them go; they’re not for you.
Auditing bills and removing redundancies can lead to substantial cost savings. Run numbers on these costs every single month and never stop asking, “how low can this number go?”
For startups looking for funding, these are challenging times and the only way to survive and ultimately thrive is to tighten our belts and adopt a frugal mindset.
With these strategies, based on lessons I’ve learnt firsthand from running a startup, you can optimize your infrastructure, manage your resources better and save about 60-70% on redundant costs to significantly extend your runway and increase your likelihood of long-term success. It’s not just about how rapidly you can grow when you’re flush with cash, it’s about setting yourself up for sustainable growth and like it or not, frugality is a necessary evil.