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Starting and running an Internet company in Latin America looks easy, at least on the surface.
Just take the same basic rules that apply in the USA and Europe: The team matters; be sure to select an angel investor carefully for your start-up; leave your ego at home; make the most of rapid growth. And, as panelists noted at the conference discussion on "Starting an Internet Company in Latin America," the day has only 24 hours — in Latin America as elsewhere in the world. Quipped panelist Manolo Vega (HBS MBA '97), President and CEO of MultiKredits.com, a site that acts as an "agent" for its members' online activities, "There is no time. We also work very well while sleeping. We have some good ideas while sleeping – some bad ones, too."
The ability to work while sleeping aside, there are several unique skills needed by people who plan to get involved in Latin American start-ups, according to the panelists. In their discussion, the group shared a wealth of practicalities that all potential start-up firms need to face: among them, human resource constraints, a problematic infrastructure, and special management issues.
On the issue of human resources, panelist Diego Luzuriaga, Co-Founder and Managing Director of BtoBen.com, a business-to-business network, told the group that he'd had to toss aside all conventional notions of business to start his company.
He and nine partners have to deal with "dynamic complexity," he said. "We have to handle multiple projects simultaneously, with multiple languages. Managing growth is extremely challenging work." The work is even more challenging because it often requires a trade-off between quality and rapid growth, he acknowledged.
Luzuriaga also noted that young people in Latin America tend to start families very young, so it's complicated to find employees who are willing to take the leap into a venture that may or may not pan out.
Added Antonio Bonchristiano, CEO of Submarino.com, a Brazil-based e-tailer of books, music, videos and toys, "You can never wait until your offer is perfect. It has to be good enough, and you have to live with that. You have to make decisions before you've had time to analyze their full impact. You are going to make wrong decisions. So you must be flexible enough to change course, and adapt your business model as new technologies come up."
Untangling the infrastructure
Panelists said they have also found the Latin American infrastructure very trying at times. The region is fragmented, said Vega, and is best viewed as individual countries, since the number of transactions that go across borders is still "extremely low." Brazil is viewed as the most significant country for the Internet in Latin America, with an e-commerce market that grabs more than an 80 percent share in the region, Vega said.
Business people have to know how to deal with regulators in such an environment, said Daniel Canel, COO of Patagon.com, an online financial service provider. "You need approvals and need to offer explanations of the type of activities the company is trying to do. It becomes really messy dealing with this [regulatory] group that has little flexibility and little knowledge."
Bonchristiano also lamented the difficulties of not being able to outsource. Submarino has to maintain warehouses with physical goods, because wholesalers and distributors don't exist anywhere in Latin America.
"So we are forced to deal with vendors," he said, "which is good: You get a bigger piece [of the pie]. But we have 2,000 vendors; it's relatively unsophisticated to have all these people. And their companies don't have systems or the money to buy the systems." Internet service providers are also not up to par. Relying on the deficiencies of other companies inhibits the growth of his own company, he said.
Phone lines and computers are terrible in Brazil, observed Paulo Ferraz, Chairman of InvestShop.com, a Brazilian financial portal. "You don't get phone lines, and when you get them, they don't work or they're expensive, or Web-service companies don't design on time or correctly. They forget what their business is.
"In terms of infrastructure, you end up doing a lot of things that you would outsource in the USA, and this delays your growth a lot," Ferraz complained.
The Good News
Despite these troubles, there is great potential for the Internet in Latin America, panelists said. The traditional business environment is evolving, and Internet managers can draw entrepreneurial-minded people to their firms by offering them a lot of freedom to make decisions and run their own show, within the limits of the site. Attracting such individuals means offering them excellent compensation as well as stock options, said Bonchristiano.
"The new style is to be decentralized," he added. "Each country manager takes care of decisions with a minimum amount of coordination. There is room for a lot of entrepreneurial spirit in our company."
Added Vega, "There are a lot of inefficiencies everywhere you look in Latin America. But there are opportunities everywhere, too. One challenge is to convince the financial community that if something doesn't work elsewhere, maybe it could work in Latin America."
That prospect raised the question of business-model originality in Latin America: Is there any? After all, the business models that were represented in the conference looked identical to ones that reign elsewhere: financial services, customer-service sites and B2B. Bonchristiano responded, rhetorically, "What's the problem with copying?" Ferraz reminded the audience that when Citicorp merged with Travelers in 1998, amid much tumult, it was in effect copying a Latin America model of erasing arbitrary boundaries between financial services and insurance corporations.
"In Latin America, you can combine successful models, as we did with Multicredits," said Vega.
"If there is low-hanging fruit, why climb a tree?" he wondered aloud. "We are not reinventing the wheel. We are bringing the wheel to Latin America."
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The Investor Perspective Like starting an Internet company, structuring an Internet deal in Latin America is not radically different from what happens in the U.S. or Europe, according to panelists at the talk on "How to Structure an Internet Deal in Latin America." Potential investors want to see the usual suspects: first-mover advantage, a realistic exit strategy, a proven management team, a compelling business model and big market potential. Pinpointing a pre-existing distribution channel that is flawed will also help your case, said panelist Ignacio Cosentino, Vice President for Latin America of GE Capital-Equity Capital Group. "At the end of the day, it's more about the team and the vision," he told the audience, echoing the philosophy of savvy investors around the world. And since few people starting up a company in Latin America can point to previous Internet start-up experience, they need to impress investors with local experience in beginning any kind of business from scratch. A few variations do make Latin America unique, however. Time is moving quickly, and the year 2000 is tougher than 1999. "In 1999," said Octavio Pereira Lopes, a Partner in GP Investimentos, "it was easier for start-ups to get funding. Now, to differentiate yourself, you must make your execution better than anybody else." It's not enough, he said, to just copy an idea from the U.S. such as Priceline or Yahoo and try to import it to Latin America. "Most of the time, people come to us without a business plan," added Francisco de Narvaez, CEO of Next International, an incubator and venture capital firm. Taking the time to struggle through writing a conventional business plan is not an efficient use of resources, noted Lopes. "If a market segment is open, it's a waste of time writing 60 or 70 pages. Just go." As for market potential, panelists agreed, the business environment in Latin America can only get better. Devaluations of currency do not overly concern them as investors right now, they said. "Many of these companies don't even have revenues yet," said Cosentino, "so the impact of devaluation is not really bad." He added, "It can certainly slow the pace the company can reach a market, though." - Martha Lagace |