Why do you want to have a startup?

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 was kind enough to translate a few sections of it for us. Sadly, this is Joca’s last guest post in the series. Joca also posted all of the book’s content on the “Guia da Startup” blog (in Portuguese).

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During BoS 2011 Alexis Ohanian made me think a lot about the reasons that move people to build a software startup in his talk entitled “How to Make the World Suck Less Using Software“. Alexis’ talk kept coming to my mind when I wrote this post in March.

This post will be more philosophical than my previous posts. It will bring more questions than answers. The purpose of these questions is to help readers think about the real goals in having a startup. Building a business from scratch is very difficult and consumes time, energy and money, but can bring many rewards. The reward does not necessarily come in the form of money, so it is very important to put some thought on your motivation and goals before starting this journey.

Why create a startup?

A startup, like any project, requires considerable effort. When we invest some effort into a project we normally expect some reward that does not necessarily mean money.

Let’s leave aside the startup world and think about other endeavors. When we invest in a romantic relationship with someone, we know that this type of relationship has a good side but also has its tricky side. What rewards are we expecting from a romantic relationship? When we have a pet, with all the joy and love that the pet can bring, we know it also brings responsibility and commitment to care for this animal for years. What reward are we after? If a pet is already demanding, what about children? It’s commitment and responsibility for life, with very high cost, lots of worries, great chances to hear outrages, especially when they become teenagers. What is the expected reward when someone decides to have children?

Ok, I went a little too far in the example of the children since in this case there is an unconditional love that is impossible to explain, but I think I’ve achieved my goal to make it clear that not every project has a unique focus on money as a reward.

Growth startup vs lifestyle startup

Sometime ago Rafael Rosa, who worked with me at Locaweb, introduced me to the concept of lifestyle startup lifestyle as opposed to most commonly known concept of growth startup:

• Growth startup: are startups that have one main goal, accelerated growth so you can make founders, investors and shareholders substantially richer when the startup is acquired or goes through an IPO. When you are focused on accelerated revenue growth, or accelerated growth of number of users, all your actions are motivated by this goal, which has priority over all other issues, including customers, products, employees, suppliers, quality, etc. unless those issues help you achieve your growth. In this type of startup you normally hear questions like “how do we make this product sell more?” or “can we create a different product or add-on to collect some extra money from existing customers?” or “how do we double our user base in X months?”. In this kind of startup it’s common to find people who put money as priority.

Lifestyle startup: in this type of startup the revenue sustains the business and the lifestyle of its founders and employees. Revenue is like oxygen, you need it to live, but you don’t live for, you don’t live to get as much of it as possible. As soon as this issue (the company’s sustainability and sustainable lifestyle of founders and employees) is resolved, the company may have total focus on the customer, product, employees, suppliers, quality, etc. It is common to hear questions such as “how do we make a great product that solves real customer problems?” or “how can I improve this product so it solves the problem of more people?”. In this kind of startup it’s common to find people who put other people and their problems as a priority.

Note that the above concepts apply not only to startups but to any company.

Sometimes it can be difficult to identify what type of startup we’re dealing with, as both can produce products with excellent quality that solve the problems of many people.

You may be wondering “If the two types of startup can produce good products, great quality, isn’t it better to grow fast and get rich soon? I know this is going to be very tiring, but the reward is huge!”

I cannot answer that question because it is a personal choice. There is no better person than yourself to decide that. However, you need to remember that the chances of a successful growth startup tend to be small since there’s not much space for fast growth since this type of accelerated growth normally requires a lot of financial investment, which in turn will make you seek an outside investor.

It is also important to mention that the startups that achieve accelerated growth are rare. According to the Organization of Economic Development and Cooperation (OECD) publication, Entrepreneurship at a Glance 2011, less than one percent of companies with ten or more employees are gazelles – employers that have been in operation for no more than five years with ten or more employees that increase employment by 20 percent per year or more for three years. According to the same study companies that grow faster than the pace of gazelles (the super gazelles) are even more rare – so rare that it is very difficult to measure them statistically.

As we know that the number of employees is often directly linked to revenue growth, it is easy to conclude that the revenue super gazelles are also very rare, so rare that they don’t have statistical relevance. Except that they are absorbing all the media attention, precisely because they are exceptions.

On the other hand, a lifestyle startup has greater chances of succeeding since by having few customers it can already show positive results. A lifestyle startup can have evolving goals. Initially the startup goal is to pay its own bills. Then the next goal may be to add up to your monthly salary to help you buy a house or pay for your kids’ education. And so on. With a lifestyle startup it can grow at your own pace.

Nothing prevents you to start with a lifestyle startup and it grows up to the point where it catches attention of investors who will make you an investment proposal to turn your startup into a growth startup. At that point you can decide whether to continue with a lifestyle startup or want to get into the rhythm of accelerated growth. Again, this is a very personal choice and the only person able to answer is you.

What kind of doctor are you?

Let’s move the viewpoint from the startup founder to the customer, i.e., use your customer hat and think as a customer. What type of startup do you think would you, as the customer, prefer to solve your problems?

People who read my posts on my personal blog know that I like to make comparisons between business world and medical world:

• Leading is similar to being a doctor
• Software development, craftsmanship and how to choose a professional
• The Checklist Manifesto

So here goes another analogy using the medical world. Move again your point of view and suppose you are a patient who received the news that you have a certain issue that requires surgery. What doctor would you choose to do this surgery, one who’s primary purpose is to get rich with medical practice or one who is really passionate about medicine and about making other people’s life better? Again, sometimes it is difficult to identify the type of doctor we are talking to, but normally the way she describes your case and how it could be solved will give you hints on what type of doctor she is.

Tweet from the Dalai Lama

I follow the Dalai Lama on Twitter. He posts a daily message related to Buddhism. For those unfamiliar, Buddhism is a religion that is concerned about why people are not happy and how to help people to be happier. That’s how I explain Buddhism to my 6 year old daughter.

Back in March, in the same day I was writing this chapter of the Guia da Startup book that you are reading now in English he tweeted:

“Wealth may contribute to our happiness, but it’s not the most important factor; by itself wealth fails to bring us deep inner satisfaction.”

Quite in sync with the reflections that are necessary when we are thinking about our future projects, including starting a startup.

Ask yourself

Ask yourself some questions to be sure you really want to have a startup, and if you’re with the right motivation:

• Have you heard so much about startups that you don’t want to be left out of the trend?
• Or do you actually found problems of a group of people and with your knowledge you think you can solve them?
• What reward do you expect from your startup?
• If money is a solved question in your life, would you still want to solve this problem of a group of people?

Example of a non financial reward

To illustrate how we can have other kinds of reward other than money I’ll tell the story of a ContaCal user. ContaCal is a web product I created in 2011 during nights and weekends with no connection with my day job in order to experiment with building a startup using the most recent methodologies and best practices. ContaCal is a calorie counter system with a twist. Besides telling you the amount of calories you’ve ingested it also tells you the quality of these calories. If you want to read more about it, you can read my previous posts.

The quote below is from a lady over 70 years old who weighed more than 105 kg (231 lbs). She is a priest of an Afro-Brazilian religion named Candomblé, hence the name “Mother Shirley”. She suffers from coxarthrosis, a degenerative disease, which leads to the destruction of the hip joints, more specifically, the coxofemoral joint. Since she was overweight, she needed to loose 15 Kg (33 lbs) in order to be eligible to be submitted to surgery. She found ContaCal, signed up and started to use it. Below is her testimony:

“Dear friends, as you know and guided me very well, I’ve been doing the diet and counting my calories since June 2011. So far I’m 17 kg (37 lbs) thinner, eating 1,100 calories per day. Now the doctor said he will be able to perform the surgery on my coxarthrosis. Thank you for always encouraging me to go forward. God bless you.” – Mother Shirley.

She didn’t pay a penny because she used ContaCal prior to January, when I started billing, but the simple fact of knowing through testimonies like this that ContaCal is able to help people is a reward that, to me, outweighs the financial return.

Next steps

This is the last post of the Guia da Startup series. I was planning to be at BoS 2012 so we could talk in person about software and startups but unfortunately I won’t be able to be there. :-/

I’m pretty sure BoS 2012 will be fantastic and you’ll enjoy it a lot, so please don’t forget to tweet and post about it so the ones who were not able to be there like me can grab a bit of what’s rolling.

And feel free to contact me anytime via Twitter, my personal blog or email me.