Matthew Carpenter-Arévalo is a former Google and Twitter manager. He is currently the CEO of Céntrico Digital, a digital marketing agency, and CMO of Grupo Céntrico, an Ecuadorian conglomerate with internet-based assets in real estate, cars, insurance and human resource tools.
While there is no doubt that Latin America is experiencing its own wave of new tech. startups and entrepreneurial ventures, the challenges inherent in doing business here contrast starkly with the rolling hills of Silicon Valley.
For example, if the movie “The Social Network” was based on a Latin American Startup, at least a third of the film would have to document Marco Zuckerbergo waiting in line for an entire day trying to register his business.
Another scene would show him staring into the face of a less-than-empathetic bank employee who states, without a tinge of empathy, that no, he cannot process payments online and he’ll have to operate for a year before getting a corporate credit card, and opening that bank account will take a month, assuming he remembers to fill out the paperwork in blue ink and not black ink.
This, unfortunately, is the reality that faces many entrepreneurs in Latin America: our desire to use technology to create deep social change and disrupt traditional business models must overcome the barriers of lopsided markets, unequal connectivity, as well as inept or hostile government services.
For this reason, when I meet new entrepreneurs in Latin America, my instinct is often to extend an awkwardly long hug, because innovating here often means overcoming resilient systems that, consciously or not, are working against innovation.
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Despite these challenges innovating in Latin America can also be extremely rewarding because there is so much inefficiency begging to be disrupted. Whereas market demand may lag depending on internet penetration in each country, social demand remains high, as the demand increases for services that provide transparency in markets dominated by players who thrive on a lack of transparency.
In addition, some governments, despite their tendency to create rather than remove obstacles, have made connectivity a priority: Bolivia has invested heavily in satellite technology to help reduce costs and make the internet available more accessible across the country.
In March Ecuador, the country where I live, will inaugurate a 7,000 kilometer submarine cable that will vastly increase the country’s broadband capabilities.
Recent government action in Mexico seeks to break a telecom monopoly, thus providing the conditions for increased competition and lower costs to come online.
Based on my own experience as an entrepreneur in Latin America as well as learnings I have acquired as a keen observer of the Latin America tech. scene, I have come up with a list of suggestions for those who wish to take on the challenge of innovating in Latin America whilst increasing the potential for success.
B2B beats B2C
Consumer products are still a difficult sell in many countries in Latin America for a number of reasons. For some countries internet penetration continues to lag at around 50 percent, reducing the size of potential markets.
In others, online payment infrastructure is inexistent as lumbering banks are slow to meet pent-up demand for e-commerce. Throughout Latin America fear of fraud runs high, deterring people from making online purchases.
To combat these issues, many companies have found success by first focusing on a B2B offering and then rolling out B2C functionality once a firm business model has been put in place. Businesses looking for competitive advantages are often more willing than the general public to take chances on new technologies.
As such, creating a B2B model is a great way to achieve market validation, gain experience and acquire resources in order to create a platform by which to launch a B2C offering as conditions improve.
Lead generation before sales
The red-headed step-child of sales is lead generation, and when pushing consumers to commit to purchasing online is a challenge, lead generation is a less-sexy but still very viable business model.
Like anywhere, people in Latin America use the internet to research purchases. Startups that are able to develop the means by which to determine purchase intent from these users will find many traditional companies willing to pay for the service. The better one is at qualifying leads, the more margin one can charge.
Despite intra-regional trade having catalyzed the drive for many Spanish-American countries to seek independence from Spain, commerce between Latin American countries counties to be difficult, as barriers of entry in new markets can be high.
Nonetheless, the entrepreneur willing to think big and learn to navigate the cultural nuances of doing business across borders will likely be rewarded.
Ecuador, for example, is a market of 15 million people, but when combined with Colombia and Peru they make for a market of over 90 million people. Furthermore, finding experienced, connected and trustworthy local partners can erase much of the friction that comes from setting up operations in a neighbouring country.
Though I like my hoodie as much as the next guy, when I need to acquire a client I tend to play by the local rules and wear a jacket. In many Latin American countries trust continues to be a premium, which makes networking all the more essential.
Whereas many tech entrepreneurs may find inspiration in the culture that was born in Silicon Valley and has spread globally, presenting yourself as the next genius Zuckerberg or Larry Page might be personally gratifying. However, in many business circles, it will cause one to be considered a cultural anomaly.
Displaying competency, seriousness and acumen is a skill that needs to be acquired, and understanding the language and culture that dictates traditional business in Latin America is often essential for success.
Be an anthropologist
One of the consequences of Latin American countries being characterized by deep social fragmentation along class lines is that the use of technology differs within prominent social groups.
The privately-schooled university-educated tech entrepreneur is not necessarily going to understand what drives internet behaviour in middle and lower-income individuals, yet in countries like Ecuador, Bolivia and Peru, lower and middle income individuals are coming online the fastest.
To understand what drives these people’s online behaviour requires one to become a foreign anthropologist in her own country. The reward for such behaviour will be to spot opportunities long before other entrepreneurs awaken to the potential.
Bring people online
Many online businesses in Latin America fall into the trap of looking at their market size by comparing themselves to other online competitors.
The problem with such a mindset is that the greatest opportunity likely continues to lurk in offline behavior where people continue to transact in less transparent and less efficient means because they are unaware online alternatives exist.
The forward-looking entrepreneur will therefore focus less energy on gaining a larger piece of the existing small online pie and more on expanding the market potential by looking for means that can convert peoples’ offline habits into online ones. People come online for a variety of different reasons, and your business can be one of the reasons that brings people there.
Opportunities are created when incumbents are slow to acknowledge the changes that are occurring in markets as well as society overall. In most Latin American countries, mobile penetration already surpasses 100 percent, and internet penetration is growing at such a rate that, by 2020, more than 90 percent of Latin Americans will access the internet at least once a month.
Traditional businesses in Latin America are slow to grasp this change, meaning that now more than ever many markets are ripe for disruption. Success therefore will come to those who can find inspiration in the world of Zuckerberg, while also successfully navigating the world of Zuckerbergo.
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