The current recession makes startups rethink their expenditures. Looming debts, volatile stock markets, plummeting cryptocurrencies, and overall business turbulence force entrepreneurs to alter their long-play strategies, focusing on a fast ROI boost. We’ve asked top tech founders about their cost-cutting strategies in 2023.
Aggressive saving at Lemon.io
Since the end of February 2022, when the full-scale Russian invasion began, Lemon.io has struggled to keep up with new circumstances, managing to take care of all its employees, clients, and developers it connects with Western tech startups. However, as the year’s end loomed, fragile equilibrium gave way to a gentle decline. The three founders decided to tighten the belts and speed up all the revenue-generating processes.
At the end of 2022, Aleksandr Volodarsky, CEO of Lemon.io, announced the start of the aggressive working mode in the company. It aims to cross the crisis chasm and get +100 new clients on balance (i.e., 100 more than the overall churn count).
Vasyl Dzesa, COO of Lemon.io, one of the top team executives whose business is directly connected to financial strategy planning, shared the top five guiding principles he implemented into the company’s financial policies.
In addition, we’ve done deep research and found out what recipes of cost-cutting some of the top executives of the tech market use in their anti-recession practice.
In this article, you’ll read about six more saving strategies from:
- Kimia Hamidi, Head of Savings at Ramp;
- CFOs of Spendesk, ClickUp, and Alan;
- Andy Byrne, CEO of Clari;
- Padmasree Warrior, CEO of Fable;
- Keith Masuda, VP of finance at Modern Treasury.
You will learn more about strategic negotiations, staunching cash flow, and excluding anything unessential from your budget. What costs tend to go unnoticed, how can one optimize operation management, and where to start?
Five tips from Vasyl Dzesa (COO at Lemon.io)
- Keep the balance of cost-cutting and common sense. Abrupt sparing on all the subscriptions and services will save you hundreds but make you lose thousands, telling on teamwork efficiency. If a 15 dollars monthly service subscription lets your sales team spend 4 hours less on tasks, you’ll waste more than 15 bucks by abstaining from it.
- Follow your cost accounting. A spreadsheet with all the subscriptions and licenses will help you not to lose track of your expenses. At the starting point, they are few, and you know them all by heart — but as time goes, they pile on, and without a track record, it’s tough to monitor saving options. Besides, you can forget about the next yearly subscription due date.
- With the first two mechanisms in place, start looking for reasonable alternatives. What service subscriptions can you downgrade without losing productivity? Can you switch to the (typically cheaper) yearly subscription and spare costs? Remember that sometimes the sole alternatives’ research and subsequent decision-making take a lot of time and make switching a more expensive option — if the alternative option is just a few dollars cheaper.
- Negotiate. Many service providers don’t reveal the price until their sales rep contacts you. Don’t accept their first offer — they are often ready to negotiate, granting you a chance to spare. One of the services we use gave us a 15% discount after two rounds of negotiations. At first, they will always decline any discount possibility. Be pushy and drive a bargain.
- Find a provider. Buying the most popular tech startup services through a provider is often cheaper since they have bulk discounts. Remember that you’ll lose his discount after parting with the provider, having to negotiate with each service separately.
Four tips from Kimia Hamidi (Head of Savings at Ramp)
1. Define your goals
Ranging of recess-surviving strategies depends on the specifics of each business’ recession. Depending on your burn rate, your scenario can be anywhere near these options:
- Avoid death by trying to make it to the next funding round (i.e., survive);
- Get to a breakeven point.
- Control your destiny and become profitable (the best-case scenario).
2. Perform a ruthless financial audit
- Can you spare with no adverse consequences?
- Do you have better vendors with more favorable prices?
- Will you feel the effects of using cheaper tools?
3. Negotiate and sign more favorable contracts
You’ll have the chance to revise your contracts and include profitability-boosting advantageous clauses. Your vendor will almost always prefer to retain a devoted client rather than invest a lot of time, money, and effort to find a new one during a slow period.
4. Risk asymmetrically
My final trick is to take asymmetric risks, which our co-founder and CTO, Karim Atiyeh, characterizes as larger, more audacious wagers with a high likelihood of success. Risk-reducing safe play schemes may appear to be the better course of action but will ultimately result in stagnation.
Five tips from CFOs of Spendesk, ClickUp, and Alan
Three of the top tech CFOs spoke at the CFO Connect Summit 2022 about preparation for the future and dealing with the weak economy. Here’s a brief sum-up of their theses.
Being as cost-effective as you can amid an economic downturn is your main objective. This allows some businesses to stretch their cash runway (before they run out of money) long enough to make it to another busy fundraising season.
1. Build scenarios for a range of possible outcomes
Scenarios assist in aligning your vision with those of the CEO and board. The current economic situation can easily overturn your 20% annual growth plan. Therefore, it’s essential to have reasonable expectations and to grasp each potential circumstance thoroughly.
2. Spare strategically
Let the impact be your crucial criterion. Once more, and possibly even more clearly, the 80/20 rule is applicable in this situation. A small number of expenses will significantly impact your overall spending. Smaller “luxuries” may be simpler to remove from operations, but they won’t make a difference.
3. Intensify the efficient efforts
You need to develop, but you want to do so responsibly.
Facebook advertising can be generally cheaper but less impactful, whereas LinkedIn is more expensive and, at the same time, more convertible. You’re probably better off retaining the LinkedIn efforts, provided they are profitable in the not-too-distant future.
Counter-recession plans work only if the collaboration is in place. All the departments should unite their efforts to lead generation, conversion, and making processes cheaper.
5. Seize the chance to take the lead
This environment provides an opportunity to build relationships with other teams and impart financial literacy rather than playing the evil policeman in every engagement. You’ll be in an excellent position to recover when the market flips if you invest in your people and actively support their growth.
The cost-cutting thread from Lee
Three tips from Andy Byrne (CEO of Clari)
1. Make your impact thesis. Form your ultimately honest and definite thesis about the impact of macroeconomic conditions on the most critical dimensions of your revenue.
2. Follow the churn. Look for signals for downward pressure on your renewals and churn since the latter is the key indicator of the downturn.
3. Calibrate the 3 C’s: Coverage, Capacity, Conversion
Compared to the previous four to eight quarters, what are your pipeline coverage, buffering capacity, and predicted conversion for the current and following quarters? Do you have the personnel and procedures to establish and pursue a pipeline? Try to answer sincerely — and start acting!
Three tips from Padmasree Warrior, CEO of Fable
- Raise expectations and reward high performers. Your team knows about the downturn, whether they’re reading the news or hearing about a friend’s layoff. Be straight with them about the state of the industry and the need to operate at 110%. And when you see someone going above and beyond? Ensure you show them—and the rest of the team—that you recognize and reward their hard work.
- Focus on building a differentiated product with real user value. Companies aren’t the only ones impacted by a recession—your customers will be, too. They’ll be doing their belt-tightening, and anything they’re paying for that isn’t providing value won’t cut.
- Invest in upskilling/reskilling. Not all of a cost-conscious business environment is harmful to employees. Instead of hiring a new (and expensive) leader, look for ways to retrain and upskill your current staff.
Three tips from Keith Masuda, VP of Finance at Modern Treasury
- Empower the whole staff, not just the finance department.
Educate the employee base, so they know what is happening in the business and what all these tech words mean. I present the current financial metrics monthly or a few months and try to dive into some of the most confusing topics.
- Invest with greater care for future uncertainty. SaaS is a very complicated segment operating in a dynamic environment. Add a recession on top of this, and you’ll understand the potential risk span.
“What we are thinking about now is making sure we are hiring carefully. And we are still investing, but in the right ways, closing down investments when they don’t make sense anymore and investing in new areas where we think there’s some promise. We are more cognizant of the spending and hiring now that we’re in mid to late 2022.”
- If you want to assemble a best-in-class financial team, start by determining what assistance you need as a business and who you can bring to fill the pivotal roles. Find the ideal candidates for your company’s stage — remember that different players are needed for various company kinds and stages.
“I try to look for the best possible people for the company. Everybody is always trying to find the best people or the A players. No one wants to hire a C player. And many A players are perfect for an early stage, and some are perfect for a large public company. So I try to find good A players for my company and stage.”
2023 has just begun — but it already posed a whole new bunch of challenges. The war-stricken world economy, global turbulence, and recession hit entrepreneurs, urging them to resort to new means of sparing. Cut your costs wisely — and may this article be helpful for your startup economy.