By Nathan Lustig
When Startup Chile invited me to share my advice for new foreign entrepreneurs doing business in Latin America, it gave me an opportunity to synthesize the things I’ve learned over the past five years living and working in Latam. After coming to Startup Chile with a startup that did business in the US, teaching entrepreneurship at Chilean universities, starting a Latin American property business, starting my own ecommerce startups and meeting hundreds of entrepreneurs looking for investment via Magma Partners, I’d gotten a pretty good feel for the cultural differences between Latam and the US.
When I first got to Chile in 2010, I knew there were cultural differences, but I just worked under the impression that if I worked hard in the same way I did in the US, I’d be successful, like I had been in the US. Working hard helped, but there were many cultural misunderstandings that hampered my progress.
It may sound obvious, but each country has different cultural norms that you need to learn if you want to be successful. Here’s what I’ve learned over the past five years. Hopefully it’ll jump start your learning curve so you can be culturally proficient much faster than I was.
1. Learn Spanish (or Portuguese)
Don’t give your potential client or business partner another excuse to not to business with you. Most people in high level business positions across Latin America a decent amount of Spanish, but many don’t. And if you end up in meetings with multiple people, there’s a decent chance at least one person won’t understand what’s going on. And business meetings are hard enough when language isn’t an issue, not to mention when one party isn’t understanding what the other is saying. It may sound obvious, but if you want to be successful in Latin America, learn Spanish. Same goes for Brazil, but in Portuguese.
2. If Cloning, Adapt to the Local Market
Many entrepreneurs think that they can bring an already existing product to Latin America. Some have had success (Groupon, food delivery etc), but others have struggled or failed entirely. The successful startups adapted quickly to the local market and tweaked the model so that locals would be comfortable. Cloning isn’t copy paste in Latin America.
3. Latin America is not monolithic
Many people who don’t know much about Latin America see it as a monolithic place south of the border. Others think a bit harder and imagine a place with two cultures: Spanish speaking Latin America and Brazil. Both are wrong. The reality is that each Latin American country has its own traditions, cultural norms, history and business practices. Doing business in Chile is very different than doing business in Argentina and they share a massive border! Colombia and Venezuela are worlds apart business wise, but connected on the map. Many countries even use different words for the same thing, others use words differently, and others use different grammar entirely (I’m looking at you Argentina!), meaning that you likely have to create country specific websites with translations for each country.
latin america map no no si 2
4. Latin America Isn’t Silicon Valley (It’s not Madison, WI either).
Silicon Valley is a special place where venture capital flows freely, people share ideas and work on world changing projects. The United States is a special place, where business is competitive, generally straight forward and people are willing to take chances. Latin America is a conservative place and can’t be compared with Silicon Valley, much less the business climate in a smaller city in the middle of the United States.
5. Don’t Expect Silicon Valley Valuations
Exits are hard to come by in Latin America and when they happen they’re for small multiples. Venture capitalists have to invest at lower valuations to have any hope of making money under these conditions. There may be more exits for high multiples in the future, but investors won’t bet on them.
6. Hiring Employees: Conservatism
Most Latin American workers are generally conservative. It’s prestigious to work for a large, well know company. One of the first questions people ask you in Latin America when you first meet is “where do you work.” I remember people looking at me with pity when I said I worked at a startup. I could see the gears turning in their heads “oh man, he’s unemployed, poor Nathan.”
Many Latin Americans would prefer to earn less money at a prestigious company with a safe long term contract than to work at an uncertain startup were they might earn more money and get to work on more interesting problems.
7. Most Employees Don’t Understand Stock Options
Equity and stock options still aren’t popular forms of compensation in Latin America and many employees either don’t understand their value or prefer to make more money in cash rather than taking a risk with stock. In some countries like Chile where trust between employees and employers is very low, some employees even think that they’re getting screwed if the employer offers them something different and just reject a stock options offer out of hand.
8. It’s Hard to Raise Money
There aren’t many private VC firms in Latin America and very few seasoned angel investors. Most family offices don’t invest in startups or new businesses and when they do, they invest old school, running EBITA valuations and trying to get as much equity as they possibly can.
There’s a decent amount of government money floating around in countries like Chile, Peru, Colombia, Brazil and Mexico, but it usually comes with strings attached, sometimes with terrible terms and may not come from sources that will actually help you. The market is improving, but it’s hard.
Most US VCs have so much deal flow from the United States that they ignore Latin America startups and pass on investing in them unless they have a physical presence in the US.
9. Sales: People are Terrified of Getting Fired
Sales requires a different strategy than in the US. If you walk into a potential client’s office in the US with a new technology, offering to make (or save) the client $1000 per month if they buy your $500 a month product, many potential clients might take the risk for a month or two to try it out. They understood and valued the monetary benefit immediately. And they know if they miss out on a new product or services that works really well and ends up being used by the competition, it could lead to them getting a stern talking to from their boss or potentially even fired.
In Latin America, leading with a monetary benefit isn’t usually going to work. Businesses are generally conservative and many rule by fear. Many employees only want to keep their head down, earn a steady paycheck and make sure they continue to earn it next month and next year.
They take a massive risk if they buy your product and it doesn’t deliver the promised results or worse, causes a problem. In Latin America, it’s almost always best to lead with how low risk your product is, how the employee isn’t going to risk their job by trying, getting buy-in from other employees to spread the risk and then talking about the benefit once the potential customer is more relaxed.getting fired latam style
10. Exits are hard(er)
Large Latin American companies don’t acquire many startups, foreign ones can, but are spending less on Latin American startups compared to similar ones in other places. Big businesses aren’t scared of startups yet, so they don’t feel much urgency to buy up startups to kill off the competiton. Many large businesses are owned by families that have to take the cash out of their own pockets if they want to acquire a startup, whereas in the US, most companies acquire startups using VC money or public market money. And we all know that spending your own money is much harder than spending someone else’s!
11. Income Inequality is Massive and Incomes are Low
It’s really hard to build a B2C startup in Latam because most people don’t have much money. In Chile, Latin America’s richest country on a per capita basis, 85% of households earn less than $1250 per month and 50% earn less than $750. 50% of workers earn $400 per month, minimum wage. These households don’t have much money in absolute terms to spend on B2C startup products, so it’s really hard to build a business. Other countries are similar, but have a lower basis.
income per household chile 2011
12. Software hasn’t eaten Latin America yet
If software is eating the world, Latin America might be dessert. I’ve seen companies with hundreds of millions of dollars in sales using pen and paper to track inventory, excel to keep track of work orders and even typewriters to do some business! Many US technology products aren’t in Spanish or don’t fit local needs. This presents a massive opportunity for tech entrepreneurs.
13. B2B is where the money is
Most Latin American countries are not poor countries. Latin America is incredibly unequal. Large companies and their owners have massive amounts of money. Chile one of the highest rates of billionaires pre capita in the world and is home to many massive businesses. Many of these businesses still have large inefficients that need to be sorted out and provide large, potentially lucrative opportunities for entrepreneurs to solve.
14. Think About Operating with Latin American Costs, but with US Income
Latin America is home to some great tech talent, especially in Mexico, Colombia, Chile, Argentina, Venezuela and Brazil. Many can’t move to a startup hub because of visa issues and many other don’t want to for quality of life reasons. These talented engineers make up to 90% less than top engineers in the US.
Latin America also has thousands of native English speaking expats who might not speak Spanish (or Portuguese) fluently yet. Their only options are to work teaching English abroad for low pay and fight for the few English only jobs in the market. If you create a sales or customer support team of native English speakers you can create a massive competitive advantage.
15. Don’t Follow Cultural Hiring Biases
If you’re willing to hire the best person for the job, you have a big advantage over many traditional companies and can get great talent as many Latin American countries have classism, sexism or racism issues that don’t always lead to hiring the best talent.
16. Yes Can Mean Yes, No or Maybe. No Can Mean Yes, No or Maybe
It can be really hard to get a straight answer out of many people in Latin America. People don’t like to say no, but many times they’ll say no just to avoid doing work. See the handy chart for Chile.
chilean business response guide
17. Being Early is the Same as Being Wrong
It’s true in any market, but many services in the US aren’t ready for the Latin American market or the market isn’t ready for them.
18. Press Means Nothing
The Latin American tech press is starved for a good story. And there aren’t many startups. So many mediocre to bad startups get covered extensively in the press. Remind yourself that just getting covered doesn’t mean anything and the “superstar startups” that keep showing up may be hemorrhaging money.
19. Bureaucracy
Be ready. You’ll need to get proficient in the notary, dealing with government regulations and checking the boxes at the bank. Most banks won’t give you a bank account without long company history and there’s many arcane and illogical governmental rules.
opeing a business in chile vs usa
20. Connections Matter
Connections matter everywhere in the world, but they’re more important in Latin American than they are in the US. In Chile, there’s seven extremely wealthy families that control huge swathes of the economy. There’s another ~200 families that control another big chunk. If you’re not in these elite circles, you may not get access to the meetings you need to get a deal done. And if you do succeed in getting a meeting, your partners or clients may believe they deserve the lions share of the benefits. For example, if your service creates $100 of value and you’re not in the elite circles, the client might demand $97 of value and let you keep $3. When you have a partner in the elite circles, with the right last name, who went to the right high schools or church etc, you might get $50 and the company might take $50. And in extreme cases, you might even do better.
21. Avoid the Gringo Price
Make friends with at least one local or a foreigner who’s been in the country for long enough to understand the market. Verify pricing and other issues with them to make sure you’re not getting Gringo gouged.
22. Take My Money…Please!
It took me 2.5 months to get internet in my new office. It took one year to open a business bank account to deposit my money. It took five trips to the tax office to be able to sell legally. It took three trips to the tax office to verify my company’s business address with the government. I wanted to spend money with companies, but in many cases they make it extremely difficult, which is extremely frustrating. Be ready for it and learn to laugh it off, there’s not much you can do about it.
23. If customer service doesn’t give you satisfaction, hang up and call again
Hang up and call back until you find someone who can really help you. It might take 10 calls, but it’ll likely work eventually. I was shocked to find that this works, but it does nearly every time.
24. Propose solutions to problems
Most customer service reps, whether on the phone or in person, have a script. They don’t go off script. They don’t want to. They get paid to churn through people. If you let them follow the script, you’ll be in customer service hell. Many times, you can propose a solution and walk the rep through your solution and it will work. If you try this multiple times and get the same result, the reps are probably telling the truth. Do it nicely and you’ll have more success. I always say “y que pasa si…” which means “well what if we…” and go from there.
25. Don’t take no for an answer right away
The 25th and final piece of advice is related to points 16, 22, 23 and 24. If someone tells you that it can’t be done, make sure it really can’t be done before giving up. 90% of the time, it can be done, but with much more work for the business. If you accept the first story, you’ll never get anything done.
Conclusion
I hope my list has been helpful and I’m sure there are many more lessons that I didn’t list here. What have you learned that you would share with a foreigner new to doing business in Latin America?
NOTE CREDIT: http://www.nathanlustig.com/2016/05/19/advice-foreigners-running-startups-latam/
