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One decent server would be enough to run 99.5% of startups backends.
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We have two on site servers that we use. For various reasons (power cuts, internet outages, cleaners unplugging them) I’d say we have to intervene with them physically about once a month. It’s a total pain in the ass, especially when you don’t have _an_ it person sitting in the office to mind it. I’m in the Uk and our office is in Spain…

But it is significantly cheaper and faster

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You might want to look into colocating that server at a datacenter nearby. You can get a few U of rack space and the risk of power outages, internet outages, or cleaners unplugging the servers should go way down.
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Startups don't know how much hardware they need when they release to customers. The extreme flexibility of cloud makes a lot of sense for them.
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But they should; cloud wont magically make the architecture scale. A competent CTO should know the limits of the platform, its called "load testing" or "stress testing"; scalability is independent of the provider. Cloud gives you a nicer interface to add resources, granted; but that"s it.

As a hear-say anecdote, thats why some startups have db servers with hundreds of gb of ram and dozens of cpus to run a workload that could be served from a 5 year old laptop.

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