Tech audit 101. Uncovering invisible costs that impact tech startups ROI
Tech audit 101. Uncovering invisible costs that impact tech startups' ROI
For boards overseeing tech startups and SMEs, steering a company toward success requires more than just a keen eye for market trends and innovation. It means knowing your finances inside out, especially when developing technology. While visible expenses such as hardware, software, and personnel are fairly straightforward, hidden costs often lurk beneath the surface, quietly eroding ROI. Recognising and managing these invisible costs is essential for maintaining financial health and achieving your goals.
Technical debt and the risk
One of the main invisible costs in tech is technical debt. This refers to the future costs incurred when companies opt for quick, short-term solutions rather than more comprehensive, long-term ones while developing technology. While this may accelerate product launches and quickly meet short-term business needs, it often increases costs further down the line. Frequent system overhauls, software rewrites, and patchwork fixes to code can drain resources and slow down progress, impacting your productivity and profitability.
We’ve written a series of blogs to help you understand technical debt. Give them a quick read:
Attaining and retaining talent
Another hidden expense is employee turnover and the knowledge you lose when someone quits. High turnover rates, common in the competitive tech industry, come with substantial costs. Recruiting, onboarding, and training new employees requires time and money. Additionally, when experienced employees leave, they take valuable knowledge with them, which can lead to disruptions in ongoing projects and a loss of expertise. Boards need to consider strategies for retention and knowledge transfer to mitigate these costs.
Managing vendor relationships
Vendor management can also be another area of concern. While outsourcing and third-party services can be cost-effective, they can also include hidden expenses. These include the time and resources needed to manage vendor relationships, ensure contract compliance, and handle service interruptions or quality issues. It's vital that you have robust vendor management practices in place to reduce these risks and ensure that hidden costs don't overshadow the benefits of outsourcing.
Keeping your cyber secure
Cybersecurity risks and their financial implications are becoming more and more significant. Investing in cybersecurity measures is essential. The costs of breaches, data loss, and system downtime can be enormous and are often underestimated. Beyond the immediate financial impact, security incidents can risk your reputation, lead to regulatory fines, and result in a loss of customer trust. Investing in cybersecurity strategies and regular audits can help prevent these costly events.
The cost of complying with regulatory standards and industry best practices can reduce your ROI. Companies must continually adapt as regulations around data protection, privacy, and digital transactions evolve. This involves direct outlays on compliance tools and services and the internal costs of staying informed about regulatory changes and implementing necessary adjustments.
At Scryla, we partner with the best in the cybersecurity business so our clients can benefit from their expertise. Our clients can access the following partnerships at discounted rates:
Update to stay on top
The impact of inefficient processes and outdated technologies can’t be overlooked. Inefficiencies in workflows and legacy systems can lead to significant time wastage and reduced productivity. This can affect overall performance and profitability. Regularly reviewing and optimising processes and investing in up-to-date technology can help mitigate these hidden costs and improve operational efficiency.
At Scryla, we recognise the areas where tech startups and SMEs can improve productivity. That’s why we’ve developed KIRA - an AI-driven project management tool for tech startup and SME development teams. By improving user stories, KIRA is helping development teams improve productivity by 25%
Training and developing your team
Training and development represent another hidden cost area. While the benefits of a well-trained workforce are clear, the associated expenses aren't always immediately visible. These include direct costs such as course fees and training materials and the indirect costs of employees' time away from work. Nonetheless, continuous skill development is essential to staying competitive, retaining talent, and promoting innovation.
Forgotten subscriptions
In addition, software licensing and subscription models often come with hidden costs. What might initially seem like a cost-effective solution can grow with additional fees for upgrades, support, and added functionalities. It's important to conduct thorough due diligence and understand the total cost of ownership over the long term. Also, keep a check on how many subscriptions are live in your business. Regularly check whether they're still needed.
Be smarter with energy consumption
Finally, though often overlooked, energy consumption related to IT infrastructure can be a significant hidden cost. Data centres, servers, and other IT equipment use substantial amounts of energy, leading to high utility bills. Investing in energy-efficient technologies and practices can result in considerable savings.
Boards overseeing tech startups and SMEs must be vigilant and look beyond the obvious costs of technology investments to identify and manage the less visible expenses that can impact ROI. By understanding and addressing technical debt, employee turnover, vendor management, cybersecurity, compliance, inefficient processes, training, software licensing, and energy consumption, you can make more informed decisions. This approach will ensure that technology investments not only drive innovation but also contribute to sustainable financial success.
As Fractional CTOs, we work with tech startups and SMEs to assess finances, protect budgets and make sensible investments. Get in touch for more information.