AWS Lambda enables the execution of serverless functions in the AWS cloud, but users may encounter cold starts, which occur when a new container instance is needed to run a function. These cold starts can lead to delays and increased costs as they require initialization time. To minimize cold starts and enhance performance, users can monitor performance metrics through CloudWatch or tools like Coralogix, utilize CloudWatch Events for periodic function invocation to keep functions warm, and manage shared data by loading it outside the main event handler function. Instrumentation tools like Gatling and AWS X-Ray can help measure function performance and identify cold start instances, while modules such as Lambda Warmer can maintain concurrency levels. By applying these strategies, users can reduce costs and improve the efficiency and scalability of their serverless applications.