Startup IT Finances and How Not to Get Caught in a Trap

IT may be one of the biggest cost items or it may be small and very effectively used. Which of the options do you think is more attractive for the investor?

A startup and finances are two terms that cannot be separated and any conversation about them may become stressful. A particularly relevant topic is IT and the infrastructure used by a startup for its operation. Depending on a method to acquire the infrastructure the IT may be either one of the biggest items or it may be small but very effectively used. Which of the options do you think is more attractive for the investor?

In order to consider well which IT you should choose for your startup – regardless of whether you are about to found a new startup or considering to change the existing one – I will provide you here with a couple of ideas which may help you to decide based on the financial aspects.

Some basics to start with…

A major question is the initial investment in the equipment. IT will definitely „bite off“ a chunk of capital expenditures (CAPEX) because the personal IT equipment and internal systems are always needed. However, when it comes to investment in the infrastructure a question remains whether your startup truly needs to make that investment.

“There is an app for everything for a few bucks “ – this is the mantra which definitely works for a small startup in the early stages of its development. Very quickly, however, you will understand that this approach is a good servant but a bad master. It often turns out that a year later the company finds out it is using 15 different applications with different terms of payment, they are not linked in any way and their efficiency and easy deployment changed into the time uselessly spent to “transfer information” from one application to another. Once this happens it is high time to get your own IT.

Moreover, it may even look reasonable, because you will be OK with just one server. You will simply plug in a piece of hardware in the office and go on. Still, you should consider whether this is the right choice. If you fail to use virtualization on your server you will be using less than 20% capacity of your investment. And if your need is not exactly the same as the server’s capacity your investment will not be efficient.

Do you really need a physical machine to run your IT? Today sophisticated services are available which will take the burden of physical servers off your shoulders. Virtual servers, virtual data centers and private cloud on shared infrastructure will help you to meet your needs and to reduce the initial investment because they are provided as a service

Efficient operation vs. “efficient operation“

Efficiency can be real or it can be only perceived. For example, you might be surprised by the information about the used capacity of servers by a company. The perceived efficiency is the reason why many companies still believe that physical servers are the efficient choice for a small company. Certainly, there are some companies that are able to fully use them (e.g. computation clusters) but for dynamically developing companies physical servers are not the way to go.

Consequently, IT operating costs may significantly differ based on the specific IT equipment. We must keep in mind who is responsible for operation, administration, maintenance, repairs and security of the physical infrastructure. If you have physical servers then you are also responsible. And therefore you have to add to your investment and operating costs also wage costs of a person who will take care of the servers. Somehow, the costs have jumped up quite fast.

In case of virtual infrastructure provided as a service the entire responsibility is carried by the provider. Then you can fully concentrate on development of your startup and you are not bothered by equipment administration.

Alternative currency – credit

Now let us leave the world of physical servers and have a look at virtual infrastructure. In this connection we want to mention its interesting aspect – payment with credits. You may remember some services provided in the past that used prepaid cards which, however, actually had been retaining your money until it was spent. This means that money was deposited with the service provider and you could not use it for anything else. And you had to use that money only for one particular purpose.

Nevertheless, startups usually do not have spare money that can be just deposited with no use. Therefore it is important to know the terms of payment for your virtual infrastructure.

  • What are the options?
  • What are the margins for a more dynamic charging method?

Believe it or not, the Pay-as-You-Go model, which is so beneficial for many companies, is penalized with higher prices by big global providers compared to when you subscribe the service for several years. This is called support of flexibility.

Great price and small footnote

In addition to know about penalization of certain payment models you should also make sure which services are included. Some providers try to save the disk space and in the basic version you will only get non-persistent disks (in other words, if something goes wrong and the server fails you end up with nothing). Other providers do not include software defined networks in the price. That is why you have to go through a very long list of services from which you can select a fully functional virtual environment that includes everything you need.

This effort is not needed if you decide to use private cloud on shared infrastructure. The Pay-as-You-Go model is not penalized and everything you need for your IT infrastructure is already included in the price – processors, RAM, disks, networks, IP address, support and surveillance. Some providers even offer surveillance 24/7 and all team members are Czech and speak English (we are one of such companies).

We all hate fees but they will not go away

Now we have identified all the required services and the selected payment model. This is the final price, right? Well, it depends. Have you checked that activities running on your infrastructure are not subject to additional fees? What about communication with the server or with the database, entries of individual pieces of information, retrieval of information… there are plenty of such activities and some providers indeed charge fees for them.

To make sure that your invoices are truly simple and transparent you have to be fully aware of what is in them. Some providers will deluge you with Excel rows that will leave you confused about what you are paying for. Remember that in case of virtual infrastructure you will be paying for CPU, RAM, SSD/HDD and IP address and anything else means an additional fee for something that should be already included in the basic price.

The lesson to be learned is …

… that the right selection of IT infrastructure is far from easy. You should think twice about your current needs and about your prospects of growth. Based on that you need to choose the environment which will exactly cover everything you need now and only when the time comes to adjust the environment you will pay more – but only for things you really need. We are prepared to look at your IT and help you to get the right IT setup from the very beginning.