Cloud credit belongs to balance sheet

April 30th, 2019

Reflex CapitalBlogCloud credit belongs to balance sheet

It’s an old saying, that proper tech startup owns only two kinds of hardware: laptops and coffee maker. Everything else must be in the cloud. Cloud is great, because you do not need capital investment nor people messing with the servers.

And better yet, cloud providers will compete to get your business. They’ll drown you in cloud services credit. It’s not uncommon, that you can get a hundred thousand dollars worth. That’s a lot of money saved, which is handy, especially at the beginning.

But of course, it’s not as simple as that. Cloud providers are presenting their model as “only pay for what you use”. Quite often it’s however “pay for what you forgot to turn off”. Even worse, when the cloud services are free, nobody is much bothered, that you have a unused ten-node Elasticsearch cluster for playing around with and the daily backups, which were supposed to be deleted after a month, are not in fact deleted and are stored forever. Cloud services are not cheap. The amazing flexibility you are getting costs something.

The problem obviously surfaces, when the credit runs out. Suddenly you go from zero to thousands of dollars cloud bill. In the best case scenario, you calculated with it in your projections presented to investors. Even then, you will probably need to adjust your roadmap and postpone business projects, because you need to clean up and optimize. In the not so best scenario, you did not calculate with it. And you are in trouble, because the runway you thought you had, which was supposed to get you to break-even, is suddenly too short and you have to raise some money quickly, otherwise you run out of cash. You don’t want to do that.

To avoid a situation like this, consider the credit as another source of capital. Put it on your balance sheet, alongside the money you raised or put into the company yourself. Post the cloud bill in your P&L statement and watch it closely, same as other cost. And clean up regularly.

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