San José, Costa Rica, since 1956
Doing Business

Want to launch an app startup in Costa Rica? Read this first

How many apps do you use regularly? As smart phones become accessible to everyone, app usage increases exponentially. Just consider the following:

  • Mobile apps account for 52% of all time spent on digital media.
  • The average time spent using apps rose by 21% from 2014 to 2015.
  • The estimated worldwide revenue produced by mobile apps increased from $35 billion last year to $45 billion in 2015, and is projected to reach $77 billion by 2017. (For more cool statistics, check this infographic).

No wonder so many people in the startup world are going app-crazy. Currently, 40% of the entrepreneurs enrolled in the chapter of the Founder Institute that we run here in San José are planning to start a business around a mobile app. From the stats we saw above and the success cases we hear about, what’s not to like about apps? They’re a few months of development away, there’s good technical talent in the country, and you can scale them (theoretically) outside of Costa Rica.

So where’s the catch? Why do so many fail to gain traction and become runaway successes like, say, Evernote?

It all comes back to the question at the beginning. How many apps do you really use on a regular basis? It turns out real estate on your little screen is more expensive than most hopeful entrepreneurs care to consider. Adding another app is not the problem (most of them are free anyway), but using another one is not something we do easily. This has nothing to do with technology, or even the “problem” that apps aim to solve.

Habits and decisions

The first reason has to do with habits, decision-making and how we solve problems. In entrepreneurs’ quest to be the next big thing, we take the mental shortcut that leads us to believe that because there’s a problem, people will use the app we build to solve it. Sounds rational, right? But when it comes to our decision-making and our habits, we are rarely rational. If you don’t trust me, take a look at how you make your own choices regarding saving and spending, exercising or eating healthy. It’s not that you don’t know or understand the rationale behind doing these things: it’s just that we are full of biases, mental shortcuts, assumptions and routines that keep us from making perfectly rational decisions.

Behavior hacking

Technology is not the barrier anymore. Finding a good developer, especially in Costa Rica, is not particularly difficult (assuming you can pay him or her, but that’s another matter). The next frontier is behavior hacking: understanding what makes people tick and using those insights to design products – in this case, apps – that not only cause people to download the thing, but also to engage people on a regular basis. The ultimate question is, how can you gain access to people’s daily routine and carve out a place for your product there? Facebook is not what it is today because we downloaded the app. It is what it is because we open it every damn day (sometimes more than we care to admit). Costa Rica has one of the highest active users per capita of Waze in the world, because we use it every day to deal with the fact that the streets have no name and traffic is a nightmare.

Demographics and imports

But not all is behavior and habits. There are also demographics, and this is something we often overlook, especially when “importing” ideas or business models from abroad. The process goes a little something like this:

  1. We see a brilliant app or website that seems to be a hit in another country, usually the United States.
  2. We notice that there’s nothing like that here in our country.
  3. We decide we are going to do “something similar” for the local market, which usually means making a few adaptations or to use the prevalent lingo: “tropicalize” it.

The problem with this logic is that it might overlook the demographic conditions in which the solution was conceived.

The “how many”

Let’s say you have an app that connects people who are too busy to run errands, or just don’t want to, with people willing to make a few bucks by doing them, a little like Task Rabbit does in the States. Now imagine that in a densely populated city like New York, Chicago, or Miami. Even if adoption rate is low, there are lots of people who could potentially use the app if you push it hard enough. Then you could expand to other adjacent cities with similar characteristics. That’s the volume argument: even a small market share of a large population could be enough to keep the app alive, which is not always the case in a small country with lower smartphone penetration such as Costa Rica.

The “how concentrated”

But there’s also the density argument. Say that in Costa Rica we might have 2 million potential users (according to our 40% smart phone penetration) that could rival the estimated highly populated cities in other markets. The problem is that our 2 million are probably spread out through a much wider territory. For two-sided market apps like Task Rabbit, Uber, and others of the sharing economy, this is vital, because with less population density, the chance of connecting a person in need with a person willing to provide the service in an acceptable geographic radius diminishes considerably. If I want a chore done in Alajuela but the guy willing to do it it’s in Cartago, then chances are, there won’t be a match.

What to do?

By focusing on behavior hacking alone you can increase your app’s chance of success considerably. If you also take into account the demographics of your market, you might find you need to do more tweaking to your import than you had initially thought, which might lead you to a truly innovative business model. Usually the best solutions are those that begin with the local problem, the local guy and a solution designed from scratch, as opposed to an adaptation.

There are three things you can do to overcome these challenges:

  1. Check for best practices: Although another company’s way of solving the problem might not be the right answer for the local market, it can get you thinking. If you think your concept is unique, trust me, chances are somebody else has done it, or at least a close variation of it some place in the world.
  1. See how people are currently solving that locally (albeit inefficiently): That gives you the insights into the thought process and habits of your future customers. Some solutions, even poor ones, are sometimes good enough. If people are not motivated to pay more in order to solve their problem more efficiently, your solution might not fly.
  1. Fail early and often: Don’t assume that if you build it, they will come. Test it as early as you can and make a habit of correcting continuously, especially in the early stages.

Read more “Doing Business columns” here

Randall Trejos works as a business developer, helping startups and medium-sized companies grow. He’s the co-director of the Founder Institute in Costa Rica and a strategy consultant at Grupo Impulso. You can follow his blog La Catapulta or contact him through LinkedIn. Stay tuned for the next edition of “Doing Business,” published twice-monthly.

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randalltrejos

Hi Kamisedo,

At the bottom of each article you can find some contact info. I’m always happy to meet people interested in entrepreneurship or investment.

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Kamisedo

I love this series. How can I meet the author? (I am a retired entrepreneur who wants to help my adopted home, Costa Rica).

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