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.
