Cloud cost optimization Startups have become ubiquitous, and they’ve found a friendly ear among corporate clients looking to cut costs during the recession. But should young startups be scrutinizing their cloud spending in the same way?
According to many cloud investors, startups should prioritize building over optimization — unless it saves them big bucks.
Shomik Ghosh of Bolstart Ventures puts it succinctly: “At the initial product or go-to-market stage, maximizing cloud spend should be the last thing on a developer’s mind, beyond using as many cloud resource credits as possible.
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While early-stage founders shouldn’t lose sleep over cloud costs, they should still carefully consider other expansion decisions, such as cloud marketplaces, before venturing out. Angel investor Anshu Sharma, an entrepreneur himself, says that using cloud marketplaces as a distribution channel has its pros and cons and probably shouldn’t be done from day one because “it can sell your offering.”
Astasia Myers, co-founder of Quiet Capital, agrees, saying that startups should first focus on finding a product market fit. “We encourage startups to consider cloud marketplaces after they find product-market fit, not before,” she says.
“To successfully leverage cloud marketplaces, the solution’s product marketing, value proposition, and return on investment must be transparent, while demonstrating rapid time-to-market and post-PMF.”
But, given how fast things move, startups can explore the marketplace earlier than they can: “Historically, we’ve seen startups join cloud marketplaces at Series D+. Now we’re starting to see companies consider it after Series B.
Founders should also remember that startups are meant to be big and therefore need to plan ahead. Liran Greenberg, co-founder and managing partner at Team8.
To find out what investors are giving cloud-related advice to startups right now, we spoke to:
- Shomik Ghosh, Partner, Boldstart Ventures
- Liran Greenberg, Co-Founder and Managing Partner, Team8
- Tim Tully, Partner, Menlo Ventures
- Astasia Myers, Founding Partner, Quiet Capital
- Anshu Sharma, Angel Investor and Co-Founder/CEO, Skype
Shomik Ghosh, Partner, Boldstart Ventures
Founders are looking to cut costs at the lowest possible time. How important is it for startups to optimize their cloud spend in the early days?
It depends on what you mean by “early days”. In pre-production or go-to-market (GTM) stages, maximizing cloud spending should be the last thing on a founder’s mind, aside from using as many cloud resource credits as possible. Finding product-market fit, understanding engaged users and end-user workflows and how the product is important to these users is the most important area for founders to focus on.
As the company starts to earn a few million in ARR, it starts to make sense to closely manage cloud spending to improve gross margin and therefore bottom line (net cash burn or free cash flow).
Major cloud providers often entice startups with free credit, but then charge data withdrawal fees. With cost optimization becoming more important than ever, how important are the initial decisions in choosing a cloud provider?
I think choosing a cloud provider based on price in the first place is missing the forest for the trees. I know some founders who switch cloud providers to continue using free credits in the early days. This can happen when there are only a few people on the team, but as the team grows, everyone has to learn and relearn documentation, APIs, and UIs that have more hidden “value” than money saved.
Cost optimization is not just about the amount of the bill at the end of the month. Also the speed of the team’s product development, elimination of downtime, developer experience so teams can move faster etc. All these points should be taken into consideration when choosing a cloud provider in the early stages.
What are the pros and cons of using a multi-cloud setup instead of building on a single public cloud?
Depending on the scale of the company, teams tend to focus a little more on functional areas. In the early days, everyone does everything, but as the team scales, you not only have the back-end infra team, but within it, the database team, the security team, the ML team, the QA team, etc. Multicloud can. Help get the best-of-breed tool benefits from every cloud provider.
Going from zero to one is very important in the early stages of a startup’s life. Astasia Myers, Founding Partner, Quiet Capital
For example, Google BigQuery may be better than Redshift or Azure Synapse for some use cases, while AWS may have a better infrastructure management tool. The tradeoff, of course, is to make all those tools interoperable across platforms, and the major cloud providers aren’t really incentivized to do that.
This is where startups come in and focus on making the best of a product, they can work across platforms and integrate easily (i.e. Snowflake can be used on any major cloud provider).
When should a startup consider going pre-emptive, and if so? Would you advise AI/ML beginners differently?
In terms of terminology, I think that On-Prem should also be called “Modern On-Prem”, Replicated was created, because it not only covers bare metal self-managed servers, but also virtual private clouds.
The most common reason startups should consider modern on-prem is to handle sensitive data, especially in regulated industries (healthcare, financial services, or pharma). The scope of what is considered sensitive is growing with the regulations, so it’s something more beginners should be aware of.
Because large enterprises keep some data in tightly controlled environments, many ML tools must be deployed in any environment. Ultimately, startups need to meet the customer where they are – if you’re designing cloud first and dealing with customers with sensitive data, you should consider what an “any environment” deployment strategy might be, use a redundant, build. Choosing not to work on your own or with clients.
Have cloud costs leveled off relative to lower computing or storage costs?
I think that’s a tough prediction for anyone to make. People say that Moore’s Law is approaching, but another law is emerging. I don’t think human ingenuity is high enough, and companies continue to cut costs on the platform by using ASICs. [application-specific integrated circuits] or ML to optimize workloads. For example, Snowflake inflation continues to decline. So it’s hard to say that cloud costs have plateaued.
What do you think of cloud marketplaces as a distribution channel?
They are great! The most obvious benefit is being tied to a customer’s overall billing commitment to that cloud provider. It speeds up the procurement cycle, allows the customer to consolidate billing and take better advantage of the massive forward contracts promised to the cloud provider over many years.
If this Agreement is not used in full by the end of the term, the Customer shall be charged for services not provided.
How big is the market for cloud providers to offer additional services beyond their core offerings?
When I say infinite, I am not being facetious. For confirmation, just go to AWS and check the product catalog for the various services listed. It will take years to fully understand all that it has to offer.
And if we expand the terminology of “cloud providers” beyond computing and storage, pretty much every public and private company has multiple product offerings that offer cloud services.