Would You Leave the Cloud to Improve Sales Efficiency by 11%?
Tomasz TunguzVenture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Would You Leave the Cloud to Improve Sales Efficiency by 11%?
Last week, David Heinemeier Hansson explained why his company, Basecamp, is leaving the cloud. They will manage their own servers to reduce the $3m annual AWS bill by 60%. Setting aside the technical questions around such a migration for a paragraph or two, this move will improve Basecamp’s efficiency materially. For a hypothetical startup, a 60% reduction in infrastructure costs boosts sales efficiency by 11% & net income margin by at least 12%. That means reducing the payback period from 21 to 18 months. These simple calculations ignore the additional margin improvements arising from depreciating the servers which should add a few more percentage points to the bottom line. Basecamp’s 60% reduction in cloud COGS isn’t anomalous. A recent survey showed the typical company would halve its costs by managing its own servers. We are in an era where profitability (net income margin) & sales efficiency constitute two of the top three correlates to valuation. Reverting back to self-managed infrastructure might hold some appeal for companies focused on financial optimization rather than growth. I wouldn’t be surprised if private equity held software companies adopt this practice to generate extra income in the next few years to offset some of this era’s greater interest expenses on debt. That optimization comes at some cost: hiring a team to migrate the software & to manage the infrastructure. In addition, the cloud offers burst-ability, the potential to serve a significant surge in traffic. Downtime implies a loss of revenue, which isn’t factored into the math above. For many high-growth startups, the juicy 11% improvement in sales efficiency likely isn’t worth the squeeze. Inspecting & controlling cloud costs may be the more appealing path. But for slower growth businesses or those looking to optimize their efficiency, moving to self-hosted infrastructure may be worth considering. |
Key phrases
Older messages
Five Pillars of PLG with Carilu Dietrich
Wednesday, October 19, 2022
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Five Pillars of PLG with Carilu Dietrich Yesterday
Antifragility as a Competitive Advantage in 2022
Monday, October 17, 2022
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Antifragility as a Competitive Advantage in 2022 “
How Low Could Valuations Go?
Thursday, October 13, 2022
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. How Low Could Valuations Go? The public software
Office Hours with Carilu Dietrich - Marketing for Hypergrowth Companies
Monday, October 10, 2022
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Office Hours with Carilu Dietrich - Marketing for
Just How Troubled is the Bay Area Startup Scene?
Tuesday, October 4, 2022
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Just How Troubled is the Bay Area Startup Scene?
You Might Also Like
The problem with VC: Reason #384
Friday, April 26, 2024
We have brunch with HelixNano cofounder Carina Namih, Isomer enters secondaries market and the startups mitigating AI's impact on the climate. View in browser Notion flagship logo final Good
SaaSHub Weekly - Apr 25
Thursday, April 25, 2024
SaaSHub Weekly - Apr 25 Featured and useful products 12 Foot Ladder logo 12 Foot Ladder Prepend 12ft.io/ to the URL of any paywalled page, and we'll try our best to remove the paywall and get you
Editor’s Brief: The Robotics Renaissance
Thursday, April 25, 2024
Why we're entering into an automation supercycle. ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
Converso, Mood Board AI, For Future, Editor.do, and AI Chat
Thursday, April 25, 2024
Help solve humanity's existential risks with your talent/money/time BetaList BetaList Daily Win a $100 Amazon gift card? Fill out this one-question survey about domain names. Marc Converso AI
Partnering with Dropzone: Automating Security Operations with AI
Thursday, April 25, 2024
Tomasz Tunguz Venture Capitalist If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Partnering with Dropzone: Automating Security Operations with
if I were starting over today…
Thursday, April 25, 2024
Read time: 1 min, 20 sec A lot of people ask me: “Pat, what would you do if you were starting all over today?” Most of the time, I think they're looking for a quick fix. (hint: there's no such
Free ecomm coaching from multi-7-figure founders >
Thursday, April 25, 2024
Sign up for foundr+ to learn more > , Here at Foundr, we believe that taking initiative should ALWAYS be rewarded. That's why YOU, as a summit attendee, will get to join an exclusive 4-week
[SaaS Club] The Long Road to Building a Scalable Enterprise SaaS
Thursday, April 25, 2024
Hey Reader Let's connect on LinkedIn! Follow me to stay in touch! Here's a quick round up of what's been going on at SaaS Club: 🎧 Podcast SightCall: The Long Road to Building a Scalable
📂 Virality can be engineered even if it’s not inherent to the product
Thursday, April 25, 2024
Today's newsletter is proudly supported by Videodeck 🎉 One of the most common questions I've gotten in the last year is: "How do we get started with video marketing?" So I
My #1 regret in life
Thursday, April 25, 2024
This email is from THIS podcast - Spotify - iTunes HAPPY THURSDAY! I'm hosting a private office hour at 12pm CT on April 26th for people on this email list ONLY. If you wanna hang out and ask me