VC-backed startups have begun slashing costs in (nearly) all areas amid economic uncertainty, according to a recent survey by fintech Ramp.
Startup spending is plummeting. Or is it just falling back to earth? (Getty Images)
As the economy cools and investors get stingier, startups have begun slashing costs. Layoffs are one glaring example — more than 70,000 tech workers have lost their jobs so far this year, according to layoffs.fyi. But startups are also quietly trimming budgets across the board, pulling back on everything from electronics to advertising.
Overall startup spending fell 9% between May and June, according to a recent report published by corporate credit card fintech Ramp, compared to a 25% uptick in startup spending during the same period last year. Electronics — equipment like laptops and other office tech — took the biggest hit, with a 32% drop in spending. Startups cut shipping costs by 27%, general merchandising costs by 16% and advertising by 15%.
When it comes to improving a startup’s bottomline, “layoffs are one way, but that's really surface-level,” explained Ramp’s Head of Savings Kimia Hamidi, a serial entrepreneur himself who joined Ramp in 2021 when it acquired his vendor contract startup called Buyer. “Every dollar counts more now … What are the non-obvious ways that you can save to avoid that death by a thousand cuts?”
The larger business community isn’t feeling the same heat. Companies of all sizes spent about 2% less overall in June than they did in May, Ramp found. Copmaring the second quarter to the first quarter, Electronics were the only area that saw a drop (-19%) among all businesses; overall spending increased significantly across areas like restaurants (36%), shipping (35%), lodging (33%), software (14%) and cloud computing (12%).
Two areas that startups didn’t pull back on? Lodging and restaurant costs. While these budgets may seem frivolous compared to payrolls and computers, Hamidi explained that the timing of the survey could help explain this finding.
“After a long time period of remote hiring, people are spread out,” he told The Org. “To build that motivation, and basically batten down the hatches, you really want to have some in-person time.” As Covid-19 restrictions continue to ease, some remote-first startups have jumped to host retreats gathering far–flung employees under one roof.
What’s next for startup spending? The economic prognosis isn’t great, and budgets could constrict further. As of a few weeks ago, we are technically in a recession. And though overall jobs numbers remain strong — the unemployment rate clocked in at just 3.5% in July — startup workers are also contending with inflation north of 9% and a limp VC funding environment.
“So much is being asked of [finance leaders] with processes that aren't in place. It's the double-edged sword of, there's a process that needs to be created, because you're a small company and you're expected to grow fast, but you also have to reduce costs,” Hamidi explained. “That balance is really important.”