Publish in Perspectives - Tuesday, May 28, 2013
From left to right: Juan Carlos Garcia, Rogelio de los Santos, Edrizio De La Cruz and Keith Schuman. (Photos: Wharton)
Experts
discuss the opportunities and challenges facing entrepreneurs in Latin America.
LATINVEX SPECIAL
Knowledge@Wharton
What
are the most promising opportunities emerging for young entrepreneurs in the
leading economies of Latin America? What challenges do entrepreneurs face in
their efforts to take advantage of such opportunities? At the Wharton Latin
America Conference 2013, a panel of four experienced entrepreneurs provided
some answers to these critical questions.
The
four entrepreneurs on the panel included:
When
Mexican entrepreneur Juan-Carlos Garcia attended the Wharton School in the late
1990s, most of his fellow students wound up going into banking and financial
services, while only a few became entrepreneurs either in the U.S. or his
native Latin America. And when Garcia founded his first start-up, there was no
venture capital funding in Mexico. “But now there is more structure,”
Garcia said. “And the environment is more entrepreneur-friendly.”
The
other members of the panel agreed that the entrepreneurial career path in Latin
America also has more cache than in the past, in part because of the wide range
of opportunities to leverage low-cost, but highly effective electronic
technologies such as the mobile web. De Los Santos, who has been a serial
entrepreneur over the past 20 years, agreed with Garcia that entrepreneurship
is becoming much more popular in the region. “There is a rising tide,” as the
perception grows that “becoming an entrepreneur is cool.”
Nevertheless,
De la Cruz cautioned that, by its very nature, “entrepreneurship involves
cultivating a product in the soil of extreme uncertainty.” You may not even
know where your money is coming from, or how many employees you’ll have, he
added. De la Cruz added that eager new entrepreneurs will have to spend the
first few years of their entrepreneurial lives entirely committed to their work
if they are to achieve financial freedom over the long term. “It is not like
being an ordinary CEO,” he said “When you are an entrepreneur, the work never
stops. You have to be absolutely addicted to what it is that you are doing.
This game will chew you up and spit you out. It is challenging but at the same
time, it is so rewarding.”
Garcia
agreed. “It takes a real toll on you, but it is highly rewarding, especially if
you are doing something you are passionate about now,” he said. “Right now, Mexico
and Latin America offer great opportunities, but choose something you are
passionate about.”
U.S.-born
Schuman, the only panel member who has established a Latin American start-up
outside his native country, said that “being an entrepreneur in Colombia is a
very arduous process. You are learning by failing. The risks of being an
entrepreneur in Latin America are greater than in the United States.” However,
he added, “There is tremendous opportunity…. It is really fascinating being in
Colombia. There is so much change taking place; it is very exciting.” His
company is one of five companies that have received government permits to mill,
roast and export Colombian coffee.
Whatever
the sector, the panel members agreed that entrepreneurs must be willing to
dedicate themselves to the work at hand. “There are lots of new initiatives in
start-ups,” said venture capitalist De Los Santos. Unfortunately, not all of
the entrepreneurs involved in them either “have experience in working on real
issues and not all of them are willing to sacrifice.” Added Garcia, “You don’t
need to raise a lot of money to call yourself an entrepreneur, but you have to
be fully invested in terms of your time”
THE
MULTIPLE USES OF TECHNOLOGY
Although
none of the entrepreneurs on the Wharton Latin America conference panel is
involved in producing computer software or hardware, their entrepreneurial
business models leverage the emergence of new technologies in the region,
especially the mobile web. Edrizio de la Cruz, co-founder of Grupo Regalii,
noted that as a child, he was exposed to the traditional cash-based behavior of
his family and local community in the Dominican Republic.
In
the Dominican Republic, 93% of the population now has mobile access, despite
the fact that 35% of the population are still “unbanked” – that is to say, have
no bank accounts of their own. “A lot of people there don’t trust banks.” In
such an environment, De La Cruz’s company, Regalli, offers customers the
opportunity to make purchases with a “mobile wallet” filled with an electronic
form of currency, without opening a conventional bank account. By the end of
2013, users will also be able to pre-pay their pharmacy bills via mobile
devices.
Mexican
e-commerce specialist Garcia said that he is also “high on mobile” as a sales
channel in Latin America. He pointed out that until recently, many
Mexicans had been unable to take advantage of electronic commerce because they
lacked the fixed phone lines that would allow them to enjoy dial up connections
to the Internet. Now “everyone has a smartphone,” and many people who could not
shop online in the past can access the mobile web, leapfrogging e-commerce via
the desktop personal computer or laptop PC. “At Walmart, we are growing at
triple digits over the mobile web,” he said.
More
broadly, Mexican venture capitalist De Los Santos said Latin American companies
need to reinvent themselves by using “entirely new solutions that open space
where there is no presence of that new technology.” Entrepreneurs can meet
those needs a range of new ways. For example, he cited the water heater sector,
a very traditional industry where solar technology is now making in-roads in
Latin America, thanks to entrepreneurs. Newly designed solar-powered heaters
are less expensive and have much shorter payback periods, he said, in a region
where many people still lack access to hot water. This illustrates that
entrepreneurs “don’t have to go to the high end applications or software
services” to solve problems in unconventional ways.”
CAUTIONARY
ADVICE
Manias
come and go, especially in the high-tech world, spawning a boom or bust cycle
of fundraising. During the late 1990s, when Garcia became an entrepreneur for
the first time, “it was really easy to raise funds; it was crazy. There was a
lot of money chasing very few ideas, and many of them were stupid.” A few years
later, “people didn’t want to know anything at all about the dot coms” that had
once been superstars. Nowadays, despite the fact that more and more young
people are discovering the pleasure and pain of entrepreneurship, “individual
investors are very selective” in their funding decisions because many investors
have been burned in the past, said venture capitalist De los Santos.
On
the other hand, “until you validate that your product works, don’t waste time
trying to raise capital for it,” advised De la Cruz. If you can prove that your
product works – and that it can satisfy the needs of potential customers,
you’ll attract the money you need, he argued. “It’s sort of like dating; you
don’t want to be chasing them,” he added. “You want them to be chasing you.”
For
his part, De los Santos cautioned against the attractive delusion that things
must be going well because everything looks fine on paper at the moment. “You
have to be careful about not tricking yourself” just because, for example, you
seem to have enough funding to succeed. “Don’t get tricked because ‘this is a
very nice scenario’ and ‘there are very good people behind it.’ That can be an
illusion.” However, he advised newcomers not to think too small when they
define their goals and strategies. “Test yourself,” he said. “Think big. Get
into the ring and start to swim and experiment.”
Garcia
agreed that entrepreneurs have to be willing to pursue ideas that seem foolish
to conventional thinkers. “People told me that this was never going to work in
Latin America,” he says of an earlier e-commerce start-up in Mexico. “They said
that customers wouldn’t buy online. I didn’t like the answer.” In truth, he
discovered, “Most Mexican customers are not all that different from American
customers. They all want better prices and better services.”
Although
entrepreneurs need to think big, they must be methodical about how they manage
their limited resources, panel members agreed. Garcia related that when he
began an earlier start-up in microfinance sector, “I didn’t do due diligence on
my partners, who were real estate developers, not financial guys.” On that
score, De la Cruz cautioned: “You want to be extremely methodical about the
people you choose as partners and investors, and the ecosystem you surround
yourself with.” Added Schuman, “You will burn through cash faster than you
expected.”
Looking
back at their past experiences, the panel members also advised entrepreneurs
not to be afraid of making the mistakes that come from thinking big. Schuman
said, “If you haven’t made any mistakes, you are probably doing something
wrong.” Reflecting on his own past errors, De los Santos said, “Big ideas smart
small. I would have allowed myself to think bigger. With big problems come big
rewards.”
Republished
with permission from http://www.knowledge.wharton.upenn.edu --
the online research and business analysis journal of
the Wharton School of the University of Pennsylvania.