How to Cut Cost for your Startup
Over the past few months, we have seen a significant crash in the US and global stock markets, mainly affecting this time to technology companies, which in some cases, have dropped around 50-60% from the peak at the beginning of 2022. The pessimistic global economic Outlook, the high inflation, interest rate increases both in USA and Europe, and the Ukraine war amongst others, are impacting the markets with special harm to tech companies, which are suffering to sustain their high prices and to justify the inflated trading multiples.
As a result of these recent falls, numerous media and well known institutions have predicted the end of the cycle for the technology sector, and consequently, a great negative impact on the Venture Capital and Startups sector. Since free money for startups ends, and high valuations in the public markets fall to standard ranges, this directly impacts the startup ecosystem very negatively. This drop in the public markets drags all the startups starting from the highest series down to the earliest Seed and Series A stages.
A few weeks ago, several emails and communications from prestigious institutions such as Y Combinator, or Sequoia, among others, went viral, predicting the end of the cycle of the venture capital sector and recommending all portfolio companies and founders to prepare for the worst. A very alarmist message that has already claimed its first layoffs in large technology companies and that slowly will be spread across the rest of the startup sector. Both institutions recommended to adjust costs as soon as possible, reduce all unnecessary expenses, reduce staff to the minimum necessary and raise as much capital as possible.
From Snab, we have recently reviewed our cost structure, and we have identified certain cost saving opportunities for all startups, and simply other opportunities where to cut costs for startups.
Cost Saving Opportunities:
Tax Bonifications for Social Security expense related to Research & Development (R&D)
These bonuses allow companies to save 40% on business contributions to Social Security contributions for common contingencies of the research staff of any company. In order to benefit from the progam, these workers must belong to contribution groups 1-4, and it works for any type of contract, ie: permanent contracts, internships, or works or services of at least 3 months. In addition, for the bonuses to be applicable, the research staff must dedicate 100% of their time to Research & Development (R&D) activities. As you can imagine, this is a great way to cut costs for startups.
How are bonuses applied?
To register research staff, Social Security must be notified of the special employment relationship through the Cret@ system (code 9916) within the first three days of each month. Once done, the company or agency that handles the issue will have to adapt the company’s payroll system so that the 40% bonus is applied monthly on common contingencies.
What activities are considered R+D+I?
The catalog of activities that are considered as such for the purposes of applying the subsidies is quite broad. In the field of startups, it should be noted that software development or prototyping, among others, are included as such.
How much can a company save with this measure?
Approximately between 200-300 euros per research employee per month, that is, between 2,400 and 3,600 euros of approximate savings per year in a company that has between 5-10 developers.
Apply to Google for Startups
Google for startups is a program sponsored by Google through which you access a network of Google contacts and numerous benefits and credits. Over a 2-year period, the company will enjoy $200,000 worth of credits to spend on Google Cloud products. The first year, the first 100,000 thousand dollars are fully covered. The second year, the credits will cover 20% of the expense, with a cumulative total of up to $100,000. Beginning the following month from the time you are selected, invoices will show an adjustment of credits so that the payment balance is zero. In addition, Google offers credits to attend Google Cloud operation courses, and they give unlimited access to technical support.
The application process is relatively simple, you just have to fill out an online form with various information about the startup and in a matter of days they confirm acceptance or rejection. You find more information directly in their website. https://startup.google.com/
Apply to AWS Activate Startup Programme
The Amazon Activate program contains great advantages for startups. First, and foremost, is AWS Credits worth up to $100,000 USD valid for 2 years and $10,000 USD to redeem for assistance and support. In addition, AWS has alliances with other products for startups, for which it also offers substantial advantages. For example, credits for Notion worth $1,000 dollars, also for the same value credits for Miro, $5,000 dollars in ClickUp credits, and exclusive offers to use services from Brex, Hubspot and Quickbooks among others.
The application is also relatively simple, only providing information about the startup, the activity, the technology and the sector, and in a matter of 9-10 days you are notified of admission to the program. The application can be started on the following page:https://aws.amazon.com/es/activate/
Apply to Microsoft for Startups Founders Hub
Like Google and Amazon Web Services, Microsoft also offers its program for entrepreneurs, offering very interesting advantages.
The advantages are similar to those of the other programs. Microsoft offers up to $150,000 in Azure cloud service credits, plus $1,200 in assistance and support. In addition, depending on the product, they grant between 10 and 20 free licenses for one year for the use of Microsoft 365, Github Enterprise, Power BI, Visual Studio Code, Open AI API, among others.
To fill out the application, you need to go to the following page and start the application:
For this, it is necessary to apply through the Linkedin profile, so that they can verify the identity of the applicant. The form is similar to that of the other processes, requiring information mainly about the startup, the technology, the sector, the founders, the investors, etc. Unlike the others, Microsoft asks you to record a small introductory video about the founder and including a demo of the product he is creating.
In conclusion, the opportunities explained above can lead to great cost savings for the company in its initial stages, and a great way to cut costs for startups in a way that wasn’t predictable . Especially now, in times of uncertainty and when the VC landscape looks set to come to a temporary standstill, it is in startups’ best interest to embrace every possible form of cost savings. The proposed initiatives can mean between 5,000 and 10,000 Euros per month to cut costs for startups, which is a great saving for any company, and a very suitable way to extend the runway of the company.
Last but not least, manage liquidity with Snab
Lastly, during uncertain times, costs savings are not enough. It is key to start a detailed exercise of managing the liquidity of the business. Cutting costs its just one part of the exercise. It is crucial that you model or budget the cashflow of your business, calculate your runway under different scenarios, manage suppliers and analyze which ones are relevant to your business and which others you can either replace for some others more cost effective, or simply make the decision of cancelling contracts of any unnecessary ones. On the clients side, key to focus most of the efforts in those that pay in advance, earlier than the others, etc. Both managing suppliers and clients is key for the survival of your company. Tools like Snab, allow you to monitor closely the cash position of your business, and it gives you plenty of visibility on cash collections and payments. All of these extremely needed to run your business successfully.