September 21, 2022 / Cafeto

Software development for startups is facing uncertainty due to the economic crisis in the United States. Inflation, the impact on production lines, a falling stock market, and a slowdown in fundraising are examples of these situations. We are going to look at alternative actions for your company.

How to deal with the economic crisis in your startup

Year-on-year inflation in the United States has far exceeded Bloomberg estimates, reaching 9.1% in June. In fact, it is the highest figure reported by the Department of Labor’s CPI (Consumer Price Index) since 1981 (Santillán, 2022).

How can your startup cope with this inflationary crisis and minimize its adverse effects? Cafeto addresses this issue because of its importance and presents you with three factors to consider in helping you manage this crisis:

  • Focus on wages
  • Saving on supplies.
  • Outsourcing to achieve your business objectives and mitigate risk.

Factor 1: How to address wages in the face of rising inflation?

Inflation shocks and market volatility force companies to consider special measures.

There is an escalation in the costs of operations, services, and supplies and an increase in interest rates. This is a critical time for Covid’s post-pandemic recovery. Consequently, your company must be careful in its investment planning, especially in an inflationary period.

Is decreasing wages a solution? Even if you consider it an option to try to make ends meet, inflation quickly outpaces wage settlements (Benedito, 2022). The following two questions help us to analyze this point:

What is the top of the wage spiral in the face of an inflationary crisis?

It creates a vicious circle that, in the case of those involved in software development for startups, for example, a custom application development company, leads to a constant request for increases.

But these measures cannot be endless in an adverse economic environment. To maintain a competitive position, the focus in startups should be on keeping salaries and including non-monetary benefits for your employees, not increasing wages.

Is it advisable to decrease salaries as a cost-saving strategy in a crisis environment? Decreasing salaries may be a decision you see in other companies or sectors, but it is a risk. Technology startups are in an industry with a high demand for professional staff, and companies compete for human talent. Lowering your team’s salary conditions may invite them to migrate to other companies, including your competitors.

outsourcing for startups

Does passing wage cost increase the price of your services?

Application development services companies cannot always pass on costs in their final prices. Doing so means losing competitiveness in a highly competitive industry.

The moment costs rise due to progressive and constant increases, your company will have to reduce its profit margins and investment.

This is not a favorable scenario, so raising wages or passing on costs to the customer is not advisable, as it may jeopardize your company’s survival.

Factor 2: saving on supplies associated with software development for startups

One way to make savings in your startup is to focus your investments on the essentials to deliver better products at a lower cost. Some office services can be outsourced at desirable prices, which means internal savings on supplies and equipment.

Another cost-saving strategy is to develop a Minimum Viable Product (MVP). You have two options to create it without resorting to full development costs (Movistar, n.d.):

Lo-Fi MVP

It is a Minimum Viable Product developed with the initial functionalities of the business. To create a Lo-Fi MVP, formats that are simpler and require less investment are used:

  • Demonstrative, explanatory, or short videos.
  • An advertising campaign with a digital mock-up of the product.
  • A landing page where you validate the user’s interest in a specific service or the effectiveness of your communication strategies.

Hi-Fi MVP

This Minimum Viable Product includes a set of core functionalities and conveys a value proposition to your customer. As products, they are more complex, but they also allow you to evaluate the viability or not of software solutions in your startup.

Advantages of a software MVP

  • It helps you to test the perception of customers, users, or the public.
  • It allows you to collect product acceptance data and detect improvement areas.
  • It helps you evaluate your product interaction and how it satisfies the audience.
  • Opportunity to evaluate your value proposition and get feedback from real customers.

Incorporating the use of MVP software development is a way to save your startup money, avoiding high costs and risks. Major technologies such as Dropbox and Amazon were developed based on the MVP (da Silva, 2021).

Factor 3: software development for startups, outsourcing as a strategy

Software outsourcing is also an option to keep your company growing in times of crisis.

Reasons to choose to outsource software development for startups

  • Expand your teams with skilled, motivated, and productive professionals.
  • Deliver a project in a reduced timeframe or take advantage of a window of opportunity.
  • Have support from project ideation to final stages and maintenance.
  • Accelerate your development capabilities and specialized support.
  • Outsourcing the software development team, but have specialists close to your business culture (Nearshore IT Outsourcing).
Startups outsourcing

Benefits of outsourcing IT services and software development

— Quick access to quality resources through a specialized provider.

— Savings in processes and time for in-house contracting.

— Flexibility in contracting schemes.

— Scalability of professional teams according to the requirements of each specific project.

— Having experts for precisely the time your startup needs them.

— Greater productivity at a reduced cost, as you have outsourced high-level professionals focused on developing efficient solutions.

— Hiring IT services with cybersecurity solutions that are more up-to-date, complete, and effective than those available to your startup.

— Possibility of incorporating disruptive technologies: artificial intelligence, IoT, robotics, virtualization, blockchain, immediately and at a lower cost.

— Development of innovative, competitive solutions that will differentiate you in the market (Entrepreneurs, 2020).

Types of outsourcing and which areas to outsource

  • IT staffing to strengthen your teams and accelerate development projects.
  • Nearshoring, to offer you outsourcing services with culturally close teams.
  • Project outsourcing or teams dedicated to specific projects.
  • Multisourcing, with teams of different profiles, experience levels, and multidisciplinary (Guerrero, 2022).

Areas you can outsource in your startup

Business development services so that your startup is supported by professionals capable of presenting your business ideas effectively to potential investors.

— Web development and management of your social networks.

— Data protection, digital assets.

— Fintech or financial technology.

— Management of IT security services or legal services.

— Support, maintenance, and resolution of incidents and problems that may affect your employees, customers, or users (FIBK, 2020).

The crisis is also a time of opportunity for your startup

Software development for startups

In the first quarter of 2021 alone, more unicorn companies were created than in the whole of 2020. These are mainly disruptive technology and digital solutions startups, with valuations exceeding $1,000,000.

On the other hand, zebra companies seek to be more sustainable over time, maintain their turnover, face the day-to-day with realistic prospects and grow (Blanco, 2020). To face the crisis, companies rely on collaboration. They transfer processes, services, or the development of activities to specialized external companies. They are expanding their project teams by increasing their staff with professionals and technicians located inside or outside their workspaces.

Software development for startups: a bet for success

The economic situation indeed generates uncertainty, but there are also business opportunities that your startup should not miss.

Whether you opt for a profit and exponential growth strategy like a unicorn startup or sustainable growth like a zebra startup, outsourcing application development services is an alternative.

You can address the inflation crisis with software development for startups considering cost savings, MVP creation, outsourcing processes, people, or solution creation.

For any development requirements, contact us.

Bibliographical references:

Benedito, I. (2022). https://www.businessinsider.es/buena-idea-subir-salarios-aguantar-inflacion-desbocada-993045

Blanco, M. (2020). https://empresas.blogthinkbig.com/empresas-unicornio

Da Silva, D. (2021). https://www.zendesk.com.mx/blog/que-es-mvp

FIBK. (2020). https://www.fundacionbankinter.org/noticias/outsourcing-areas-que-puedes-externalizar-en-tu-startup-para-un-crecimiento-sostenible/?_adin=02021864894

Santillán, A. (2022). https://www.df.cl/internacional/economia/la-inflacion-interanual-en-estados-unidos-llega-a-9-1-y-supera-las