How long does it take to be profitable? | Business of Software

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How long does it take to be profitable?

This is a guest post from Joca Torres. Joca is the director of product development and product management at Locaweb, Brazil’s leader in web hosting, cloud servers and SaaS applications like email marketing and online stores, serving more than 250,000 customers. His first startup experience was in the early 1990s when he founded and ran one of the first Brazilian ISPs. He has been working with internet related software ever since.

Joca is also the author of The Startup Guide: how startups and established companies can create and manage profitable web products. The book is in Portuguese, but Joca has been kind enough to translate a few sections of it for us. Joca also posted all of the book’s content on the “Guia da Startup” blog (in Portuguese).

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One question that everyone who starts a new venture has is how long it takes to start having results of this endeavor. As you can see in my previous posts from the numbers of my startup the path seems to be long. The interviews I did with other startups in order to include other startup cases in my book always show a history counted in years until the first positive financial results. Even in an established company such as Locaweb it takes a few months and sometimes even more than a year to reach profitability in the month after launching the product. Not to mention the time invested in product development. Therefore it is important to be prepared financially and emotionally for the journey.

There’s an interesting report entitled “Startup Genome Report” which was released in 2011. This report is an analysis with data from more than 650 web startups, made by students and professors from Berkeley and Stanford, with support from Steve Blank, the Sandbox Network and 10 startup accelerators around the world. It’s worth a look. It has lots of interesting information in this report.

This report divides the life cycle of a startup in 4 phases:

  • Discovery: the focus is to discover the web product that solves a problem and if anyone is interested in this solution. Average 5-7 months.
  • Validation: here the focus is to validate if there are people interested in the product in exchange for money or attention. Usually takes between 3-5 months.
  • Efficiency: this is the time to refine the business model and improve the efficiency of customer acquisition. More 5-6 months.
  • Scale: If all went well in the earlier stages, this is the time to step on the accelerator to make the startup grow. 7-9 are more months.

So until you reach the stage of scale it takes 13 to 18 months. Later in the report is presented a graph showing the time it takes to reach the scale stage depending on the number of founders:

This graph shows that it takes at least 20-30 months to reach the scale stage. If you’re not alone…

Thus, it appears that ContaCal is on time! :-)

Next steps

In my next post I intend to discuss the motivation to build a startup.

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