5 tips for launching your startup in Latin America
My business partner and I looked at each other quizzically as we listened to the pitch from LinkedIn’s Dublin-based Latin America sales-rep. The sales-rep was clearly from the region, but her go-to-market strategy seemed prepped, cooked and served in sauces with a distinct North American flavor.
We asked, “Can we try the platform before we buy?”, to which we were told, “no.” “Can we negotiate a discounted rate to account for the assorted taxes that increase our costs?”, “No”. “Do you pay commissions to agencies that refer your products to their clients?”, “No, definitely not.”
To many North American businesses launching in Latin America, the region is very much an enigma.
On the surface, much of Latin America speaks the same language and shares a vast cultural heritage. Dig a little deeper and the nuances, often bordering on clichés, can be overwhelming: Mexican executives often know more about North America than South America. Chile is an advanced economy with a conservative business class. No-one understands Brazil and Brazil doesn’t understand anyone. Moving money in and out of countries is costly and painful. The region’s multiple trade blocks solve some but not all intra-regional trade issues. It is sometimes harder to do business between Latin American countries than it is to do business with Europe and North America.
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I’ve had a privileged position to observe what does and does not work when launching new products and services in Latin America.
I first worked closely with Google’s Latin America operations, and then helped Twitter launch across the region. I now run my own Ecuadorian based marketing agency focused on helping startups launch across Latin America.
That being said, I am extremely reluctant to call myself an expert, as the region is far too complicated to assert an absolute authority. I therefore modestly submit five observations which may require rewriting as new experiences uncover new insights. Those insights are:
Agencies can be your friends
When Google launched in Latin America it alienated a lot of agencies by trying to go over their heads and speak directly to the end clients.
Google burned a lot of bridges with agencies and its name is often spoken by agencies partners with the same disdain held for former lovers whose relationship ended in betrayal.
Twitter on the other hand launched its operations with a strong pro-agency strategy and grew far faster than anyone in the company anticipated. Agencies continue to exercise a lot of power in Latin America and guard their client relationships jealousy.
While there may be times when it makes sense to pitch directly to brands, my suggestion would be to try that only after have testing the waters with agencies or strategic partners and determining the potential for partnerships that can expedite growth.
Commissions are a normal part of the business culture
If you’re jumping in bed with agencies, understand that they will likely expect to be compensated for selling your product to their clients.
As clients turn to digital media, traditional agencies find their business models under threat. For an agency transitioning from offline to online marketing the ROI on a transparent CPM campaign is much less than the ROI achieved on a billboard or radio ad, so achieving share-of-wallet means offering agencies something in return other than performance.
You may be able to grow without commissions, but if you’re competing against similar products you’ll want to be aware how your competition is treating its partners.
Invest in relationships
According to a study by IMS and Comscore, Latin America has some of the highest social media and mobile usage rates in the world.
Despite this move to digital, in business old-style offline relationships matter a lot. Numerous studies have shown that, as opposed to their North American counterparts, Latin Americans tend to have stronger ties to their family networks and weaker ties to non-family networks. Earning trust therefore requires some effort.
Your second client visit will always be more productive than your first, small-talk is invited in most countries, and if you’re short of conversation you should always make an effort to compliment the local food and throw in a complaint about the traffic. Most importantly, spend time with the clients you want to sell to, and that investment will eventually pay off.
Understand how much it costs your client to purchase your product and adjust accordingly
Buying products and services from outside of one’s country can incur exorbitant fees.
In Ecuador, for example, to nationalize a purchase and make it deductible one must pay a five percent capital flight tax, 12 percent sales tax and 22 percent income tax, not to mention bank fees and currency conversion fees. Your product can therefore cost more than 39 percent of what your asking.
If you don’t have in-country billing, try to understand how much your client might have to pay to use your service and make adjustments accordingly. Google, for example, often doesn’t pay agencies a commission but does recognize the income tax as a deductible, and thus helps agencies lower the cost of purchasing their product.
Avoid the temptation to see Latin America as a homogenous entity
Because they speak different languages European countries are often afforded a level of nuance North American businesses don’t grant Latin American countries.
Though in theory they speak the same language, the Argentine and Guatemalan have little in common and are unlikely to be innately prepared to have success in each other’s business climates.
To grow across the region, each country’s operation needs to be optimized to the local business culture, and that means having staff that understand the local context. Having Brazil as your Latin American Hub because it is on the same continent makes as much since as managing Colombia from Bulgaria. Similarly, expecting a Miami cuban to slip in seamlessly to Chile is not necessarily setting the person up for success.
Doing business in Latin America is hard, but not impossible. For those willing to dig in Latin America offers 300 million consumers, many of whom are part of a new and burgeoning middle-class whose thirst for connection is so far unquenchable.
Though the landscape can be challenging, with the right partners, strategy, and mindset, the region offers a vast range of opportunity.
And by the way, no-one celebrates Cinco de Mayo. Not even Mexicans.
