Managing Cloud Spend from Day One
With increasing concerns about economic headwinds heading our way, founders are facing increased pressure to preserve cash and extend their runway. The potential for a lean couple of years ahead means taking a hard look at everything from headcount and real estate to marketing and tech spend.
The shift to cloud has unlocked tremendous business value and accelerated innovation through increasing agility and providing enabling technologies ‘on demand’ and ‘as a service.’ These pay for use consumption models can quickly turn into runaway expense if not governed in a structured manner. Many organizations today experience some form of unexpected or overage cloud costs on a monthly basis. As a result, it’s not unusual for small and medium enterprises to be allocating roughly half of their annual technology budgets towards cloud services.
The good news is there are strategies to consider and levers that can be pulled to affect meaningful savings for early-stage companies building their products and services in the cloud.
Providers Get Flexible
Along with many advantages that building in and for the cloud affords, it also comes with some interesting economics. The faster you scale, the quicker the costs compound. This may not seem so consequential when you’re going from zero to one but can become a real challenge for companies scaling to the next several orders of magnitude.
The good news: Cloud providers understand the current headwinds companies are facing. They’re incentivized to work hard for your continued business – both Microsoft and Amazon proactively talked about helping their customers control cloud spend in their Q1 earnings calls.
In the last couple of months, we’ve seen early stage DTC portfolio companies cut their cloud spend by north of 30% without sacrificing quality of service. Here are some tips on navigating the process.
Find Allies in Your Account Managers
Programs like AWS Activate and Google Cloud Startups Program use credits to incentivize companies to develop and consume services on their platforms. While credits can feel like free money early on, you should be thoughtful with how you are leveraging these promotions and budget them like any other expense drawing down your bank account.
Along with the credit programs, you have access to account managers who you should consider as resources. Engage with them to discuss your goals, map out a forecast, and monitoring plan to review your utilization. When these teams understand your goals, they will be in a better position to align strategic and promotional programs, and help explore technical and financial engineering opportunities to help you reduce your cloud spend.
If you wait until two years into your engagement to reach out to introduce yourself to your account managers after you’ve runout of credits, the chances of them being willing or able to help will be quite low.
Change Your Compute Behavior
If you have flexibility in when your applications can run, consider Spot Instances or Spot VM’s. This can yield significant savings – in some cases, up to 90% over published on-demand rates.
Consider also signing up for an EC2 savings plan or Google Committed Use Discount Program. These programs offer lower pricing over on demand rates based on committing to specific usage, usually over one- or three-year periods. There are no upfront spend requirements for these programs and they can result in significant savings (AWS claims up to 72%).
Review Your Application Architecture
Check out AWS’s Well-Architected tool, Azure’s Well-Architected Framework and Google’s Cloud Architecture Framework for architectural review processes that can identify opportunities for improvement and cost optimization. Pay particular attention to your VM’s, machines, databases, telemetry and logging.
If you’re a later stage startup or more infrastructure resource intensive company (or are on track to becoming one in the next two to three years), consider exploring a Private Pricing Agreement (PPA) with your cloud provider. PPAs offer custom pricing and enhanced resources that are usually reserved for companies spending more than ~$50K/month but in some cases can be made available to companies scaling in that direction.
When you have a good grasp of your usage and spend, and how to best optimize your relationship with your current provider, consider diversifying where your compute happens. Migrating to or diversifying with another CSP migrating is a heavy lift but there can be incentives available to do so. If this was already a part of your long term plan anyway, now’s a great time to kick off those conversations.
Other Tools to of the Trade
Beyond what the CSPs themselves offer, there are a bevy of tools/services focused on cloud/SaaS spend optimization that can help find significant efficiencies in your tech spend including: Cast.ai, Zesty, Zylo, Vendr, and CloudZero. These tools are provider agnostic and can provide a lot of value to help optimize spend, increase visibility, and improve governance across your CSP and SaaS relationships.
Finally, Tap Into Your Investors
Please know that you are not facing the current economic uncertainties alone. Investors and portfolio support teams are here to help companies strategize in situations like this. We can connect you to resources and to other founders who are working through similar challenges so you can collaborate and exchange best practices. We can also offer aggregate learnings from across myriad sectors in organizations from seed stage to publicly traded companies. We are happy to be a first line resource for you.