In the conditions of economic recession, small and young businesses are the first to feel the setbacks. Limited by the investors and deadlines, startups struggle through the crisis period and face damages to their main revenue generators – their digital products.
The majority of startup budgets for development are taken from the loans and financial support of investors. These two sources of revenue become less accessible as the banks turn into the “maximum feasibility” mode and reduce startup investment. And so do the investors.
Now that we know that it’ll be more complicated to win the next round of funding, it’s about the time we start searching for ways to reduce the development costs with the money we already have in our hands.
Prepare Ahead of Time
The economic recession is irreversible and unavoidable so it’s easier to get prepared than suffer the consequences. So here arises a question: how does a startup foresee an economic crisis? The answer is by communicating with the sales representatives and tracking the situation on the global market. The economic decline is a gradual process that has repetitive patterns such as a decrease in sales. Knowing the general revenue is decreasing, you can launch the preparation plan.
What should be your next step after you realize the approaching economic decline? First of all, optimize budgets you’ve planned to spend on subcontractors and vendors and, if possible, transfer the responding services to your in-house team.
The winner is the one who comes out of the economic crisis with the smallest debt. That’s’ why it’s recommended to plan for a 50% reduction of expenses and make sure that you have enough money to cover remuneration to your employees.
Be proactive in the face of economic decline and take loans before it becomes too hard to get them. When the crisis approaches, more startups will be seeking financial support from the investors and banks so use your chance before your competitors do.
Set the “Saving Mode” On
There are two popular approaches to getting through the crisis. First one – cut the expenses, close contracts, let go of the valuable human resources and wait for better times. Taking a safe way out seems to be the right thing to do to avoid bankruptcy.
While slowing down the business activities and working on “saving mode” is justified from the financial point of view, in a long-term perspective it can decrease the startup’s ability to compete on the market.
When the economy will be turning around, startups who evolved through the crisis are most likely to succeed and win a larger market share by using the chance and low competition.
Yet, for those startups who want to remain on the market and thrive through the crisis, there’s an alternative approach.
Optimize Costs and Scale Wisely
The time your product isn’t being developed is the time you’re falling behind the competition. Even when the startup is not vigorously implementing new functionality, the product still needs resources for maintenance. Consequently, to gain a competitive advantage, you should guarantee stable product performance and the rollout of new features to the target audience even during the downturn.
The alternative approach is to optimize the cost of product maintenance and development by outsourcing your development to vendors. Multiple software development companies from the popular outsourcing regions such as Eastern Europe, Latin America, Asia, and Africa can cover your need to scale.
Outsourcing your development is an effective approach when you want to scale your product and keep a sustainable number of in-house employees. Some progressive business models allow startups to hire remote developers who work as an extension to their development team. The model helps retain the existing tech team and scale product spending less money.
Each region offers different developer rates and can supply tech talents with various levels of expertise. For instance, if you plan to optimize development costs and maintain a high quality of the code, try outsourcing to Ukraine, Poland, Philippines or any other outsourcing destination you find attractive in terms of rates and quality.
