Slums?

While not enjoying positive images (notably due to social conditions), economic studies has also described slums as operating at a high level of efficiency. With more than scarce resources, slums inhabitants manage to develop thriving economies despite odds stacked against them: low level of education and bad reputation.

Rocinha

While our situation as startup founders is as different as it can be, the economic point of view allows to draw some similarities.

Scarcity-led optimization

Although every company (doubly so in those time of economic crisis) works hard on optimizing their processes, costs and benefits, slums and startups have an additional incitant to do so: scarcity. With the amount of available resources at a very low, optimizing is not a matter of productivity: it is a matter of survival. While not perceived as positive, it often gives you the kick to make the right choices, often being not investing resources not only in non profitable activities, but for any but the most profitable (according to the informations at hands, of course) activity.

Resources

Talking about some development activities, I once said to a fellow FI founder “if you have some time or money” before being interrupted by his amused response :

“Aaah, Time and Money. The two things I do not have.”

When talking about resources and scarcity, most people directly think “money”. Don’t. The most scarce resource is not your money (even when your financial assets are limited, as are ours). It is your time. Actually, a lots of our (limited) expenses are done specifically for one reason: they make us gain time, most often than not by delegating activities that are not central to our business. You may have, let's say, the skills to do your accounting yourself. It would still be stupid to do so: each hour you pass doing accounting, you’re not making your business go forward.

There is enough things you cannot delegate. Be sure you delegate those you can.

Waste

 

A standard Waste Management Inc. front-loading...

In the slum/startup view, waste takes a larger, broader meaning. Waste of resource is any usage of resource that does not lead to a quick business advantage. This one we learned the hard way a couple of months ago. We were giving a report on our advancement to an advisor, talking about our progress in sales and development. His advice was quite clear, enounced like an evidence:

“The moment you have a product that people want to buy, you should concentrate all your resources on the selling activity. There is no point developing it further.”

As usual, this is not a principle to set in stone for everyone at every step. But it was valuable advice for us: at this specific time the activity that would drive our business further was no more the development. Of course, we’ll want to improve Sybil into a greater and greater product, but focusing on that point at the time would have been missing crucial opportunities.

And with the scarcity, we cannot risk it.

Organic growth

One last similarity I’ve found out: when gouvernement take interest in slums, they often try to regulate them, injecting money and procedures. This does not seems to work that well, as it is ignoring that those resources does not arrive on a greenfield, empty of activities, but on an existing system with its own momentum. Although useful and well meant, this injection may actually be very inefficient if it does not take into account the existing system, aiming to reinforce rather than replace it.

We’re big proponent of the bootstrap approach, or on a broader view to the good use of money - ours, but any funds we manage to raise also. We did recently has the opportunity to reach for some public funding from the Brussels Region and did so, but our first question is always:

“Let say money start to rain down. What would we do with it, and how much would we need now?”.

This allows you to leverage both the new money and your own system.

“If the objective is that slums should not remain trapped as slums forever, then they should be allowed to develop organically as small open economies, and not as models of development thrust from above” - The Slum Economy Revisited

By the way

To finish on a more personal note, I had the opportunity during my last holidays in Brazil to visit Rocinha, one of Rio’s most known slum, with a local guide working day to day with the slum people. This is an experience that drastically changed my view on slums. I would encourage you to do the same when given the opportunity. Far from the stereotype of poverty and violence, it’s a vibrant, thriving world that let a big impression on me.

Contact (in Rio): Marcelo Armstrong info@favelatour.com

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