Startups are Cheap to Build, Expensive to Grow – Here’s Why - Software Product Development Blog | Zibtek
Startups are Cheap to Build, Expensive to Grow – Here’s Why- Zibtek blog

Startups are Cheap to Build, Expensive to Grow – Here’s Why

Building a startup is not a costly affair as many presume it to be. In fact, launching a startup can be fairly cheap. Luckily, there have been significant industry developments in this space that have been game-changers. There are lots of new tools that help in supporting startups. Some of the things that make building a startup relatively inexpensive are the following:


  1. Taking advantage of the wide array of open source tools instead of paying a developer.


  1. Use Amazon Web Services instead of finding and paying for your own datacenter


  1. Stick with modest, pay-per-click ad campaigns instead of something massive.


  1. Rely on standard SaaS products instead of getting something customized.


  1. Use app stores to distribute your product in an efficient way globally.


The things that are listed above obviously get rid of several line-items a new company would have had to consider years ago. These are all affordable, or even free, options that can get a startup running with very little capital expenditure.  In these different categories, consumers benefit from fierce competition that drives down prices further or results in solid products getting offered at no cost up-front. We’ve definitely seen this in the cloud computing sector.

Most of the cloud providers are gung-ho about creating more data centers and are highly competitive in battling to command more of the market. It is greatly helping the businesses as most of them are finding it easy to put a lot of their computing needs online for low costs. It is startling to see that the prices fell drastically. And this is going to continue for some more time.


Growth Tactics That Companies Use

Some reputable service providers like Microsoft are offering certain cloud computing services for free if you are a startup. They are doing this in an endeavor to turn you into a paying customer when you start to grow by building brand loyalty.

Counterintuitively, while lots of operating costs are falling, most startups are fundraising and spending a lot of capital. This is a mistake. Putting money unnecessarily on the front-end will put you in a difficult position later. For many industries, it is cheap to build the first version of the application that they are planning to make. But to gain traction, you need to be prepared to spend a lot more money.

In years past, it was not necessary for you to spend so much money in order to get a product to take off, but these days things have changed a lot. You now cannot achieve much if you are unwilling to pay. Growth is quite hard to get nowadays because of competition that is intense.

Reasons for the Rise in the Cost

There are only two main reasons why costs for growth are rising. One, because, you have to invest in the salary and compensation for the team who is working with you. Another reason might be because growth has now shifted to paid marketing where before they might have relied on something low-cost or free.

Since growth is becoming harder to get, most companies are turning to and counting on other traditional channels such as virality, SEO, organic traffic and are also willing to consider large-scale paid marketing programs. Gaining traction is very difficult, especially in today’s climate. It is crucial for you to note, however, that, if you can demonstrate sustained growth, you can find venture capitalists willing to partner with you. Companies that execute well have a better chance than others of succeeding in scale.

Because most startups are turning to paid acquisition to scale, we can observe the following trends.


No 1: Startups Are Spending More to Gain Traction

When there is too much focus on acquisition, it means startups need to have more resources on-hand. One round of fundraising may not be enough to help them in the long run to gain traction. When they pursue a new round of funding, it is quite often to finance large-scale, paid marketing.

It can be very beneficial for organizations as this money can enable them to buy new early growth using the methods of testing and verifying the campaigns to ensure that they work with the organic traffic and growth. As the company grows, subsequent rounds of fundraising provides more flexibility in pursuing paid acquisitions.  

Running a Startup Is Pretty Costly
Running a Startup Is Pretty Costly


No 2: Many Companies Turning to Paid Marketing Much Earlier

Most companies these days are leaning on paid marketing for growth much earlier. Semi-custom ad systems are common and readily accessible, even for fledgling companies.  You can observe many self-serve ads on newer platforms such as Quora and Snap.

The best part is most of the companies can now successfully develop paid marketing strategies using extremely low budgets (even under $100!) thanks to these adaptable self-serve options. And there is no shortage of growing channels to experiment with.


No 3: Companies Focusing on Referral Programs Instead of Virality

Channels based on viral content are not as successful as they used to be. This kind of dip is something that almost all channels suffer after a certain period. It is interesting to note that virtually all channels for viral content have hit their peak. It’s possible we will see increased popularity for some channels as messaging platforms become more sophisticated, but this isn’t enough to base a marketing strategy on.

Meanwhile, it is nice to note that most companies are using referral campaigns to grow their customer base. A great way to boost engagement and grow a company’s network is through smart referral programs. You’ll be connecting with people who are likely to want the product you are offering. If you have any doubts about the success of the referral strategy, here are some startups that have successfully used it:  Dropbox, Uber, and Airbnb.

In conclusion, it is essential for you not to underestimate the rising costs of gaining real traction in the market. While building a startup does not require you to spend money, to grow, you need to spend a lot of money towards paid acquisition. Contrary to popular belief, the startup is not the expensive part but growing to scale is

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