Starting a business is fun, although it can be tempting to go for broke because you are confident that your product will be a huge success. However, according to CBInsights, of the top 20 reasons why startups fail, cash shortages come second on the list (29%), right after the lack of market demand (42%). How do you make sure your tech startup can save money and survive? Here are six tips for startups to reduce their software product development costs.

Building software that works on a tight budget is the biggest challenge most innovative startups are facing today. On average, every sixth project runs over budget by a whopping 200%.

Speaking about the main reasons for budget overruns, high costs of local tech talent, poor planning, lack of communication within the team, technical incompetence or unrealistic requirements top the list.

Is there a way to successfully build your startup product without losing all your money? Absolutely!

Here are some tips for managing product development expenses on a shoestring budget that I’d like to share with you.

Build a cost-effective product development team.

People are the most important part of any software development project. When you have experienced and motivated people with excellent technical and communication skills, you are halfway to deliver a successful product.

It takes time and money to build a development team that will deliver above your expectations. You need to find talented people, pay for onboarding, adaptation, and training, as well as equipment, workstations, software licenses, etc.

Also, if you are building a new team from scratch, it will take a while for people to get to know your business, technology, and the product they are developing.

If you work remotely, hire wisely. If you run a distributed software development team, you need to make sure you are hiring the right people for team roles, and you’re paying a fair price for them.

Tips for building a cost-effective yet highly qualified team

1. Consider building a smaller team first

The larger the team, the more difficult it is to manage it and bring it up to speed. The rule of thumb, according to Jeff Bezos, is – if you can’t feed your team with two large pizzas in a meeting, you’re in trouble.

Having too many people on your team means more disagreement, more communication gaps and issues, higher resistance to change, and ultimately lower productivity.

It is best if you build your core team before starting the project. If you constantly shuffle people in your team throughout the development process, you will most likely reduce the productivity and delay the progress of the project.

2. Distribute your team across several locations

In the world of globalization, it makes no sense to be bound by any physical boundaries. You need to stay cost-conscious and eliminate any spending unless it’s really crucial for your project success.

If you can’t attract or afford to hire a mature solutions architect within your home country, hire one overseas and integrate them into your in-house team smoothly with the help of video conferencing, project management tools, messengers, shared dashboards and team-building activities.

One of the leading fintech startups in the UK couldn’t find and hire the right skill sets locally (due to talent shortage and high rates) and it risked delaying product delivery and losing traction.

To solve this issue, the company hired a local tech consultancy with an R&D Center in Ukraine, Europe’s leading hub for outsourced software development, and the largest tech talent pool.

The consultancy helped them build a distributed software team across three locations: the UK, Spain, and Ukraine. DevOps, business analysis, and security functions stayed in the UK, while most developer roles (.Net, AngularJS), QA, solutions architect, and scrum master were hired in Ukraine and Spain.

Because Ukrainian and Spanish resources were way cheaper than those in the UK, the startup could save significant costs and build their MVP fast enough to attract £1 million from VC funds and private investors.

Many startups begin as a “one-man show” or as a team of two or three people. But as you elaborate on your MVP and build more features, you’ll need to scale your product and, thus, hire more employees to join your team.

Consider going remote

The Covid-19 pandemic has shown that we no longer need to rent an office space to build and deliver great products. In fact, more and more organizations all over the world are choosing to work entirely remotely.

By using remote teams and collaboration tools like Skype, Slack, and Trello, you can save tons of money by ditching the brick-and-mortar office space.

One study found that if a company allowed an employee to work from home half the time, it could save an average of $11,000 per employee per month.

Going remote also allows you to move to a less expensive part of the country to save costs or even to migrate to lower-cost yet resource-rich countries like Ukraine or Portugal.

More and more startups are abandoning the hustle and bustle of metropolitan areas in favor of cheaper cities with populations between 20,000 and 100,000. As technology advances, nothing prevents you from running a successful technology company from a home office in, say, Leicester, UK (where I live and work).

Start with fewer features

Every feature you build will cost you money.

Before you release a full-fledged product, your startup won’t know what features will be important to your users. For instance, your team might spend a lot of time and money developing a feature only to find out later that your users find it useless.

The smarter choice is to build a solid MVP first with the most in-demand features only. Once your MVP is released, you can collect valuable feedback from users to find out exactly what features they like and want to see in your app. Then, as you attract more funds, you can build features that will further enhance your product.

Your goal should be to build and market a product with minimum features that can help you onboard the first paying customers and start making money or attracting new funds.

Start testing early

To avoid delivering a glitchy product to the market, you should start testing it early in the software development process. By doing regular tests throughout the development lifecycle, you will discover and fix issues before moving on to other parts of the project.

If bugs pile up and you get to the end of the development process, you will need to go back and rework it. Making changes takes time and money. It will also push the release date back. You will be left with a low-quality product, wasted money, and psychological stress.

There are ways to reduce defects, but there is no way you can catch them all.

That is why bug tracking is really an important step towards reducing your product development costs.

The worst thing you can do is build your software in such a way that your users cannot use it. If you want to change something after the release, brace yourself for overheads and additional payments. Poor project planning typically results in overblown budgets.

Early user acceptance testing (UAT) can be used to minimize development costs down the road. UAT should be done after unit testing and functional testing, but it can also be done during the prototyping phase. All you need to do is create test scenarios based on your user journey or personas and have an industry or customer experience expert run the tests.

This approach will also help you reduce turnaround time and identify defects that can be fixed promptly to avoid overheads.

The same refers to security: penetration testing should be embedded in your entire product development lifecycle as early as possible to avoid overheads at a post-release stage and unhappy clients.

One study found out that developers spent up to 50% of their time fixing bugs that could have been avoided earlier in the process. At the same time, the cost of fixing errors after development was up to 100 times higher.

Choose the right tech stack

Choosing a tech stack for your project development is similar to choosing a car to buy. As a future owner, you need to take into account the cost of your car maintenance after the purchase, as high maintenance costs will add up to your total cost of car ownership.

According to Colette Wyatt, CEO of a UK-based software house Evolve, the cost of technology you are going to use for your project will directly affect the cost of your product development. What tools will you use? What framework will you work with? How large is the available pool of developers skilled in this or that stack? These are questions you need to answer in the first place.

Choosing the wrong technology stack can be costly, and it may bring you the following problems:

A new stack will take additional time to accept, so your build time will be longer than expected;
Some of the latest tech stacks have frequent update cycles that will require frequent changes to keep the application running with the latest codebase;
You may have trouble finding experienced developers;
The technology stack can be hard to sustain.

Go to Cloud

If you’re a startup specialized in data analytics or data science, ignoring Cloud migration equals shooting in your own leg. Even if data isn’t your core business, you still should consider taking advantage of Cloud opportunities and streamline all of your data-intensive processes by migrating your eCommerce or customer analytics to Cloud.

Cloud computing can be extremely cost-effective for startups due to the increased productivity they gain. Deploying cloud-based software is significantly faster than a conventional setup.

While a typical company-wide installation takes weeks or months to complete, cloud software deployments can happen in hours. It means your employees will spend less time waiting and more time working.

What other benefits does Cloud-native architecture offer?

Greater flexibility

Cloud solutions are available on a pay-as-you-go basis. This format provides savings and flexibility in several ways. First of all, your startup doesn’t have to pay for software that isn’t in use. Unlike upfront licenses, in cloud computing, you typically pay per user. Plus, pay-as-you-go software can be canceled at any time, reducing the financial risk associated with any software that doesn’t work.

Finally, the initial cost of the Cloud is lower than on-prem solutions. For companies that need top-tier products but don’t have a lot of budgets, cloud solutions offer fantastic flexibility.

Save on hardware

For high-growth companies, new equipment can be cumbersome, expensive, and inconvenient. Cloud computing solves these issues thanks to resources that can be obtained quickly and easily. Moreover, you eliminate the cost of repairing or replacing equipment.

In addition to the purchase cost, external equipment reduces internal power costs and saves space. Large data centers can take up valuable office space and generate a lot of heat. Moving to cloud-based applications or storage can help maximize space and significantly reduce energy costs and utility bills.

Pay less with Cloud credits

One company boasts being able to reduce its AWS costs from $55k to $20k per month and accomplish more than $500k yearly savings.

To replicate their success, here’re some tips:

Applying for Cloud credits can reduce your annual development costs by as much as $100k (however, you need to check first if you’re eligible to apply).
Utilizing spot instances can save you up to 90% of costs;
Purchasing reserved instances in the Cloud marketplace can help save up to 75% of all Cloud expenses, etc.

Conclusion

Wrapping up, to reduce your software product development costs, you need to do the following:

Build a great team, either in-house or distributed across locations;
Start testing as early as possible;
Focus on the main features that will help you onboard first clients and monetize your solution fast;
Leverage Cloud computing.

A mix of the right people on the team, proper communication, the right tech stack, Cloud-native architecture, and a reliable tech partner is a significant prerequisite of successful product development.

Image Credit: Scott Graham

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