With talk of recession in the air, the corporate passion to reduce operating costs is rising once again. But businesses that turn first to payroll cuts might be missing the elephant on the balance sheet: IT infrastructure.
In business since 1999, Deft has helped clients face more than a few uncertain economic forecasts. It’s where we do our best work: poring over a company’s data and applications to find the right place to house each and every computing asset. It may not be the world’s most exciting party trick, but in an industry as competitive and quick to change as infrastructure, it helps keep our clients happy and loyal.
The biggest tech companies may be laying people off by the tens of thousands as they anticipate a wobble in the economy. We like to focus on smart companies. These companies are assessing all their recurring costs, including infrastructure charges that perhaps have grown quietly for years on end without anyone really asking why.
If you’re not sure what could be lurking in the shadows of your operating expenses — or if you just want an idea of what IT infrastructure should cost in a small or midsize business — keep reading.
What Basecamp found hiding in cloud infrastructure costs
Let’s consider Basecamp, one of Deft’s longest-term partners. The 37signals team, makers of the project management software and other products, realized it was paying a premium for computing services it was highly unlikely to use. While email product Hey had an initial burst in users, most of the company’s growth was steady and predictable. In October 2022, co-founder David Heinemeier Hansson, or DHH, announced the company was ending its hybrid model and leaving the cloud for owned, colocated servers managed by Deft.
The cloud was creating operational expenses, not savings, because, as DHH pointed out, the 37signals team was essentially renting its infrastructure and paying a premium as a result. Cloud sets your company up for growth by making compute power available on demand — great if you can’t predict where your business is going, but also expensive.
By switching to an owned model, 37signals is now forecasting operational savings of $7 million over the next five years. “In this environment, everyone is getting the squeeze. The economy is wobbling, start-ups are having trouble raising new funds — before you go laying off people, make sure your damn servers are straight,” DHH said on the company’s podcast. “Talk to someone like Deft and say ‘We’re currently spending $1 million a year on AWS, could we spend $200,000 instead?’”
Cut costs, but not at the expense of infrastructure — or people
We know as well as anyone that infrastructure must be rock solid for a business to make money, but the same is true of the staff. People get attached to people, not servers. OK, some people may get attached to servers at their favorite bar, but not the physical hardware in a data center.
While a single layoff can change the performance of a team and the perception of a company, a properly planned infrastructure migration can create huge savings without any blip in service. Most employees, and certainly most end users, will never know or care where a company’s data and applications are being delivered from. They just want to know they’ll be available and accessible when and where they need them.
For most companies, that’s equally possible whether you’re using public cloud or private colocation. There’s no need to compromise on quality to reduce IT infrastructure costs. You just have to make sure you have the right pieces in the right places.
Grow in the cloud and mature in a data center
Cloud is great at what it’s great at. When a company can’t predict traffic — or expects huge spikes at specific times — we often recommend the cloud. It can burst to accommodate moments of heavy use, without requiring an upfront investment in cabinets of servers. The same is true for clients that don’t have the cash reserves to sink into physical infrastructure, and companies that may be looking to sell in the near term, making owned servers unlikely to pay off over time.
For the rest of us, owning may be more cost-effective than renting. Much like real estate, if you can predict your needs several years into the future, you’ll often save money to make a long-term commitment. Unlike real estate, however, you don’t have to physically take care of your own hardware anymore.
The cloud promised workplaces untethered from any office, where resources would forever be available and be managed remotely. Data centers deliver exactly the same promise, with remote hands from a partner like Deft literally taking server management, well, off your hands.
It’s not just cost reduction — to trim operating costs, improve efficiency
Cost-cutting measures can’t just be about doing more with less. They need to be about doing the same, just better. Consider your infrastructure like insurance, or any other semi-invisible but necessary service. It pays to regularly reevaluate and revisit your infrastructure to ensure you’re getting what you need at the best price.
Infrastructure spending opens up opportunities that other line items don’t allow. Yes, people are the most visible asset, and thus layoffs are the most common lever for companies to pull when facing a downturn. But in our many years of experience, every company, without fail, is paying for infrastructure that contributes nothing to the overall success of the business. By rightsizing your infrastructure, you can cut operating costs without any drop in quality at all.
