Reflecting on the role of Government in Latin America (and other Emerging World Regions)

As I mentioned in my prior blog, after my intense three week travels late last year across Latin America, I am convinced that the democratization process, enabling more and more Latin entrepreneurs to access the innovation revolution is irreversible.

However, governments across Latin America are slowly “getting” the importance of developing their innovation/entrepreneurial ecosystems as a matter of national interest to promote their economic development, national competitiveness and productivity as an engine of sustainable and equitable growth and prosperity.

Multiple actors need to work simultaneously to achieve positive impact on the ecosystem

Multiple actors need to work simultaneously to achieve positive impact on the ecosystem

Unfortunately, the minds of many in the region are still focused on large infrastructure projects, multi-billion dollar financings, debt swaps, etc. As governments approach the topics of innovation and entrepreneurship, their methods often, remain unchanged from such larger scale investments. As an extension of their past behavior, governments want to “control” the process and apply traditional metrics. As it happens, innovation and entrepreneurship is inherently chaotic, unmanageable and long term. These governments would be well served to focus on enabling policies, levelling the playing field, establishing the right incentives and getting out of the way, leaving the rest to Schumpeter, Smith and the Darwinian market forces. I often address these issues at my conferences as I try to be provocative to the government officials who might be in the audience. A summary of these key points follow below:

  • It is about incentives and NOT subsidies: the transformational effect of these innovation ecosystems will not happen by fiat; therefore, it will be necessary for governments to provide the right incentives to tempt the right sectors to take some risks that otherwise would be very “unreasonable.” The design of these incentives will need to be intelligently crafted to reach the right target audience and provide the desired outcomes. A point of caution is to recognize an invisible thin line that separates incentives from subsidies. Subsidies have a perverse impact in the development of these ecosystems, since they promote undesirable behaviors of clientelism and undue benefits.
  • It is about experiential diversity and not uniformity or standardization: Let a thousand flowers bloom, and let most die quickly, publicize the lessons learned, and capitalize on these lessons learned as positive, not negative, experiences. This approach will help to create a culture that failing is fine. Failing fast and forward even better!
    • It is about the right level and types of immigrants to increase the diversity of the “gene pool”: Start-Up Chile started right opening this program exclusively to foreigners. However, in later editions politicians gave-in to the public outcry of “giving money to strangers…” and opening it up to Chilean nationals. In the case of Start-Up Peru foreigners can only participate if they are able to join a Start-up formed by Peruvians. In either case, politicians struggle to welcome foreign entrepreneurs from Shanghai or Warsaw to enrich the diversity and richness of the national ecosystem gene pool.
    • It is about making it easy to operate in the legality and transparency of rule-of-law. Across Latin America in varying degrees, entrepreneurs operate their ventures at some level of informality (you can read more in a prior blogpost: http://carlosbaradello.com/2012/05/15/formal-informal-and-semi-formal-investing-in-early-stage-latin-american-ventures/ ). Why? Because these entrepreneurs are crooks and love to cheat their governments? NO! Instead, the answer is because the cost of compliance it is too high! This challenge presents one of the most fertile areas for public policies to resolve. Public policy reforms that would help include:
  1. Flexibilization of labor laws: Young, dynamic start-ups cannot commit for long-term employment due to their uncertain futures. Hence, the ability to hire-and-fire-at-will can incentivize the creation of employment without unbearable separation costs in the likely event of failure.
  2. Tax holiday for the first 3 to 5 years of operations of any new start-up: This simple law would make every start-up automatically in compliance for the first 3 to 5 years. This is an excellent opportunity to require, during this tax holiday period, a “compliance simulation” period. In other words, during the tax holiday period the Start-Up would need to meet all the filing requirements with the social security, corporate taxes, etc., and other fiscal obligations without any financial or legal consequences other than keep the tax holiday status. A sort of training wheels as you learn how to ride the bicycle.
  3. Simplification of venture creation and closure: The incorporation of a Start-Up and its possible dissolution (in the likely event of the failure, since most start-ups do fail), must be a simple procedure whose implementation should be measured in few days and few hundred dollars (or less). There is no justification for such processes to take months, be cumbersome requiring legal and tax experts, and cost thousands of dollars or more!
  4. Simple bankruptcy laws: Let’s face it. Most of start-ups go under (fail) well before they have any sign of success. Hence their founders and corporate officers should not be stained with the presumption of wrong because of their ventures failure, for years into the future!
  5. No Imputed taxation for stock options: Stock options are one of the better incentives and forms of compensation for start-ups. They align the interests of investors and founders with directors, executives and employees. Taxing an imputed value at the time of granting stock options makes this compensation instrument unviable. The requirement to pay income tax upfront on a presumed value of the option kills its intent as an incentive vehicle. Since, you will be paying taxes on a presume value that very seldom materializes as most ventures fail,
  • Find your niche in the global economy and leverage your uniqueness. What is unique about your city, region or country’s economy? How you can rally the society towards a national identity that can distinguish it globally? Each country needs to develop its “man-on-the-moon” vision and have its leadership articulate it as clearly as J.F. Kennedy did during his Man-to-the-Moon Speech at Rice University on September 12, 1962 — https://www.youtube.com/watch?v=TuW4oGKzVKc (in particular between 8’24” and 9’15”). This is a tall order but completely doable!
  • Do not waste your time by attempting to re-create Silicon Valley in your city, region or country. Silicon Valley happened because it happened. It is the result of over one century and a half of “accidents” from the Gold Rush to the accidental re-settlement of William Shockley (co-inventor of the transistor and Physic Nobel Prize winner) to the San Francisco Bay Area. Furthermore, the “Silicon Revolution” provided the region with an exceptionally virtuous cycle of value creation of over five decades of device miniaturization, lower costs, faster devices and lower energy consumption. This “Moore’s Law on Steroids” enabled the creation of an ecosystem of stakeholders who all benefitted from an ability to predict price/performance points years ahead to target specific applications and/or market sectors. This enabled multiple waves of innovations from integrated circuits, to PCs and software, to networks and the internet, to web applications and mobile, and so on. A formidable sequence of value creation hard to match!

On a weekly basis, delegations from the four corners of the world descend onto the Bay Area to learn its most treasured secrets, best practices, and recipes to recreate its success in their own locales. I call these visitors the “alchemists of the XXI century,” since they are searching for ways to enrich their countries or regions by transforming plentiful and inexpensive commodities – such as sand or silicon – into new sources of wealth.

It is not too difficult to identify a set of best practices that make Silicon Valley (or “The Valley” as it is often called) the premier innovation and entrepreneurship ecosystem in the world.

In fact, I anticipate that the fundamental lessons learned by our visitors to take back home center around three principles:

  1. Free circulation of people and ideas
  2. Circulation of capital
  3. Promotion of a risk-taking culture permeating all levels of society

Drilling deeper into each principle, we can identify specific areas of public policy reforms, cultural changes in society, and institutional adaptations that can together enable entrepreneurs to take risks, unleash creativity, and promote innovation across all sectors of society. However, it is in the specifics that the best-intentioned changes can result in failure.

In my travels, during conference Q&As, and when I welcome visitors to my office, I am often asked why it is so difficult to replicate Silicon Valley. I have concluded that recreating any semblance of The Valley in any other locale (regardless of its socioeconomic stage of development) is VERY DIFFICULT, if not impossible.

In fact, Silicon Valley probably could not have recreated itself today, even if we wanted. By many measures, Silicon Valley’s genesis was a fluke of nature. The Valley flourished by accidental twists and turns, without a master plan and without a blueprint from enlightened bureaucrats. Instead, The Valley was borne from the aligned self-interest of multiple stakeholders, a favorable geography and climate, and a series of fortunate historical circumstances.

While there is no “secret sauce” to recreate Silicon Valley in new geographies, countries can take pro-active steps to improve the odds of success by:

  1. Working to develop ALL ecosystem stakeholders simultaneously (not sequentially) to affect change;
  2. Planning and committing actions for a transformation that will take decades; and
  3. Managing expectations accordingly to sustain long-term support.

Initial progress will be painfully slow and early successes will need to be well-publicized and celebrated. Unfortunately, the transformation sought by emerging Latin American countries from commodity-based to knowledge and innovation-based economies will take longer than any presidential term to achieve. This transformation will take concerted and sustained effort by multiple stakeholders. Unfortunately, politicians tend to focus on the crisis of the day or the urgency of the moment. However, the initiatives I have discussed will require long-term commitment, over decades, to bear fruit.

A successful transformation will create a legacy of sustainable prosperity for future generations, but achieving it will require political, business and civil society leaders to think and commit to a lasting vision. Are they up for the challenge? 

Until my next posting – Carlos B.

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Farewell to my Mom: Nelida (Pupy) E. Bonetto de Baradello

Dear Reader,

While I had written a blog about my dad, I had never written one about my mom.  Today, I write this brief entry to let you know that my Mom passed tonight (Dec 23, 2014) battling multiple organ failure in the intensive care unit in Neuquén (Argentina).

Carlos and his  Mom during one of his last visits to Neuquen, Argentina.

Carlos and his Mom during one of his last visits to Neuquen, Argentina.

Farewell Letter — English version  (Version en Español abajo)

Dear Friends,

I have often pondered the unfairness in the Christian tradition of the role of women.  Throughout the last two millennia of Christianity, women have played a subsidiary role to a male domination, and Latin America has been a prime example.  Yet, when it comes to affection of her children, women have always had an unfair competitive advantage.  The Mother Mary of the Christmas we are about to celebrate, is held as a role model, a beacon of hope or a source of forgiveness.

Today, I just received the news of my mom’s passing and the emptiness is particularly acute as memories of my existence rush through my mind from childhood, adolescence and adulthood in her presence.

Now, I need to acknowledge her strong character and oversized will as a middle class woman who married my dad and her lifetime companion, by love, in spite of the economic differences.  My dad was haunted by the poverty of his youth, while my mom was the infinite source of hope and optimism.  It was my mom who had the vision that I could (and should) go to college and at every turn encouraged me to move on from scholarship to the next and from one job to the next advancement opportunity.  She did suffer immensely over the years our separation living overseas and enjoyed her visits as she could mother me just a bit more!  She was passionate, an extraordinary hard worker, with beyond human ability to sacrifice for the future of my younger brother, Juancho an older friend who integrated as an additional child, and I.

I will be always grateful because in spite our low middle class status and limited economic means, my mom made sure that we never felt poor; she planted in me the seed to think beyond the (very real) constraints of growing up in Villa Maria (Province of Córdoba, Argentina) and to think big.  She transformed me from a dreamer to envision the future, stretch reality just an inch of what it was possible and apply myself to reach it!  It’s difficult to talk about my mom without mentioning my dad as it was a journey that they made together.  In fact, my parents are now reunited almost to the day of their 68 wedding anniversary.

At each one of my departures from home, whether I was leaving for college 100 miles away or off to the other side of the world, each farewell brought tears to her that often I felt were unreasonable as we would meet again in few weeks or I would call her the next day.  Today it is my mom’s departure that has left me a gaping hole that cannot be filled and tears in my eyes.

Thank you for sharing this moment with me.

Until next time my friend, Merry Christmas and my best wishes in the New Year — Carlos B.

Carta de Despedida – Versión en Español

Querido Lector, Si bien he escrito un blog sobre mi papá nunca lo hice sobre mi mamá. Hoy escribo este breve post para compartir la triste noticia de su muerte que ocurrio anoche (23 de Dicciembre, 2014). Como resultado de una fractura a la cadera, fue necesario una intervension quirurgica. Su recuperacion se vio afectada debido a fallo multiorganico  en la unidad de terapia intensiva, en Neuquén (Argentina).

A todos mis amigos,

A menudo he pensado sobre la aparente injusticia del rol de la mujer en la tradición Cristiana. En los últimos dos milenios, la mujer ha jugado un rol subsidiario con respecto al hombre, fenómeno que se acentúa en América Latina. A pesar de ello, cuando se trata del afecto de sus hijos, las mujeres han gozado de una enorme ventaja comparativa. Esta ventaja nace de María, la madre del niño Jesús que celebramos esta semana en Navidad, fuente de esperanza y perdón.

Hoy al recibir la noticia de su muerte sentí una sensación de vacío, que se hizo particularmente aguda cuando una avalancha de recuerdos de mi niñez, adolescencia y vida adulta en su presencia acosó mi mente.

Ahora, necesito recordarla con su carácter fuerte y extraordinaria fuerza de voluntad. Una joven de clase media que se casó con mi papá, compañero de toda la vida, por amor a pesar de las diferencias económicas que los separaba. Mi padre nunca superó la pesadilla de su pobreza durante su niñez y juventud, pero mi mamá lo complementaba con una fuente incansable de esperanza y optimismo. Fue ella quien tuvo la visión que yo podía (y debía) ir a la universidad, y en cada oportunidad me alentaba a aceptar la próxima beca o el próximo ascenso que representaba oportunidades de progreso, aunque fuera lejos en otros continentes. Ella siempre sufrió enormemente tantos años de separación y disfrutaba sus visitas para “malcriarme” un poquito más!

Mujer apasionada, con una capacidad extraordinaria de trabajo y de sacrificarse más allá de las posibilidades humanas por el futuro de mi hermano más joven, un amigo de mi odolescencia (Juancho) que se unio al nucleo familiar como un hermano mayor y yo.

Yo siempre le tendré una inmensa gratitud porque a pesar de nuestras limitadas posibilidades económicas, ella aseguró de que nunca nos hayamos sentido pobres. Ella plantó en mi la semilla de pensar más allá de las limitaciones naturales de crecer durante la década de los 60’s en la Provincia de Córdoba (Villa Maria) en Argentina. Ella me transformó de soñador a desarrollar visiones del futuro, a estirar la realidad al límite de lo posible y dedicarme con disciplina a obtenerlos! Se me hace difícil hablar de mi mamá sin mencionar a mi papá, dado que fue su companero de viaje; juntos unidos por el amor, lucharon, hicieron enormes sacrificios y progresaron juntos. Hoy, ellos se reúnen nuevamente justamente  dos días después del que hubiera sido su 68 aniversario de matrimonio.

Cada una de mis partidas le trajo lagrimas a sus ojos, independientemente que mi destino haya sido para regresar a la universidad en Córdoba a 140 Kms de distancia, o por que regresaba a mi casa en California, o donde viviera en ese momento. A menudo me parecía exageradas sus demostraciones de afecto dado que nos volveríamos ver en semanas o meses o la llamaría al día siguiente. Hoy es su partida que me deja a mi lágrimas en mis ojos y un vacio que se agranda.

Gracias por compartir este momento. Hasta siempre amigo, Feliz Navidad y mis mejores deseos en el Ano Nuevo! — Carlos B.

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Reflecting on my recent “tour-the-force” across Latin America

From October 23 to November 15 of this year, I embarked on a whirlwind journey that brought me to Lima, Peru; Cordoba, Argentina; Sao Paulo and Rio de Janeiro, Brazil; Mexico City, Mexico; and Bogota, Colombia. I returned to San Francisco for two days, at which point I returned to Lima, Peru for three days to join the Global Entrepreneurship Week celebrations organized by Prof. Karen Weinberger Villarán, Director of Emprende UP and her team at Universidad del Pacifico, one of the leading business schools of Peru.

Global Entrepreneurship Week closing ceremony at Universidad del Pacifico, 12/14/2014.

Global Entrepreneurship Week closing ceremony at Universidad del Pacifico, 11/14/2014.

I was grateful for the opportunity to experience the vitality and progress of these unique Latin American ecosystems and am happy to report that innovation and entrepreneurship is alive and well across Latin America. In this blog, I would like to share my distilled view that resulted from over one dozen conferences delivered and hundreds of conversations with entrepreneurs of all ages and nationalities, university professors, business executives and government officials. I would also like to reflect on what I learned from dozens of pitches for for-profit ventures, social ventures, and innovation challenges. Here is a summary of my views for you my dear reader:

1. Most Latin American entrepreneurs have a tendency to think small. Their target market is their city or at most their immediate region. I’m unsure if this small thinking is due to their desire to remain in their comfort zones or if it’s due to their fear of the unknown. Very seldom on this trip did I hear a pitch that positioned a new Latin American-bred venture globally that sought international markets, technology partners or funding sources.

Creating a start-up it is a risky and challenging endeavor, which reminds me of a saying from my youth: “The difference between a difficult and an impossible job is that the difficult one takes lots of hard work… The impossible one takes just a bit of additional work!” Since envisioning/developing the new ventures that I met with suggests that Latin American entrepreneurs have embraced the idea of working hard, why not encourage these entrepreneurs to work a bit harder to become global players? The rewards can be enormously higher!

2. Most Latin American entrepreneurs do not “copy,” “plagiarize” or simply attempt to learn from other similar or comparable global ventures. This unwillingness to study the global competitive landscape limits the horizons of their ventures in their immediate locations and is possibly compounded by the discomfort of accessing information in foreign languages (English being the dominant one). Very seldom did I come across a competitive analysis, benchmarking or stakeholder studies that included global players.

Launching a start-up is not a classroom exercise, where budding entrepreneurs are penalized by plagiarizing, imitating or copying someone else’s work. While we must respect the trade secrets and intellectual property of our competitors, everything that is in the public domain is fair game. Hence, we must leverage, learn, avoid similar mistakes and be ready to explain how we will succeed where others have failed, or improve in our go-to-market strategy, pricing, internal processes or internal culture. Doing so can save months and/or hundreds of thousands of dollars.

3. Most Latin American entrepreneurs do not sufficiently leverage technology. Many pitches I heard were timid in the technologies that their start-ups used and simply started with a multi-lingual web site, an e-commerce platform, and a strong digital/social media presence. Furthermore, there are hosts of technology tools to increase the internal productivity of the team as well as those optimized to enhance the customer experience.

Technology is one of the great value creation points of leverage for new Latin American ventures. We must embrace its use and be aware of the constant disruptions it potentially brings to all human activities. It is in fact one of the greatest insurance policies for our venture to remain current and viable over time. Developing your own Intellectual Property (IP) and protecting this IP is an essential element of a Latin American entrepreneur’s value creation journey!

4. Most Latin American entrepreneurs fail to recognize that they cannot go at it alone. They are neither heroes nor saints willing to endure extraordinary sacrificies. Instead, Latin American entrepreneurs are bright, hard-working human beings that need ALL the help they can get. Therefore, it is essential that they share their vision with other like-minded individuals they trust, form coalitions and a broad network of supporters, and tap hard into their respective ecosystems. It is also important that these entrepreneurs align all the tangible and intangible resources they can get during the bootstrapping period.

Latin American entrepreneurs must recognize that is unlikely that someone will fund their PowerPoint (even in Silicon Valley is hard to get a PPT funded and Latin America is NOT Silicon Valley… yet!); investors funds teams (not individuals) and compelling solutions to large market pains. Therefore, Latin American entrepreneurs should get their pilot MVPs (minimum viable products) into the hands of their customers fast, get their feedback to their respective teams and iterate quickly until they get it right!

5. Most Latin American entrepreneurs are great “small” salespersons. They have developed great visions, identified compelling value propositions, built great teams, and demonstrated stratospheric levels of energy, passion, and commitment. All this is wonderful, but is of limited value if nobody knows it.

Latin American entrepreneurs must be the “salespersons-in-chief” of themselves and their ventures. They need to be almost obnoxious in their persistence. They cannot miss a future client, employee, investor, partner because these people are unaware of who they are and/or what they do! The world is their audience and entrepreneurs only have one shot to make a first great impression!

I finished my whirlwind trip with the conviction that the democratization process is well underway that is decreasing barriers to entry and enabling more Latin entrepreneurs than ever before to participate in the innovation revolution. This is irreversible. Governments across Latin America are slowly “getting it.” Unfortunately, often they want to “control” the process and apply the wrong metrics to a journey that is inherently chaotic, unmanageable and long term. These governments would be well served to focus on enabling policies, levelling the playing field, establishing the right incentives and simply getting out of the way… leaving the rest to Schumpeter’s creative destruction, Darwin’s survival of the fittest and Smith’s invisible hand!

Carlos Baradello during a keynote: Is Entrepreneurship a source of hope for a more equitable and sustainable  development in Latin America?

Carlos Baradello during a keynote: Is Entrepreneurship a source of hope for a more equitable and sustainable development in Latin America?

I am glad to be back writing after a one-year “sabbatical.” I hope to be back more frequently with my thoughts and continue the conversation with you my dear readers.

Until my next post – Carlos B.

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Is the Western World Testing the Limits of Incrementalism? An opportunity for foreign entrepreneurs from emerging countries

I have been reflecting on the consequences of incrementalism for a while and have come to recognize a disturbing pattern manifested in our western world across multiple aspects of our daily lives (not only in businesses, but in many aspects of everyday life). In fact, I have become convinced that incrementalism across developed countries opens a unique opportunity to entrepreneurs from the developing world.

This idea is captured by the boiling frog story. This well-known anecdote describes a frog slowly being boiled alive. The lesson is that if a frog is placed in boiling water, it will jump out and survive, but if it is placed in cold water that is slowly heated, it will not perceive the danger and will be cooked to death.

Companies and leaders try to make the most out of their strengths. At business school, we teach that companies, people, and even countries should focus on what they do best.  Certainly, the frog feels incrementally better as the cold water becomes a bit warmer. Likewise, businesses benefit from each incremental improvement of their products or services, while often the overall process could be harmful for the enterprise. Every strength, once at its limit, becomes a liability and after a while we become unable to see the consequences of the long sum of these incremental changes. Even in the rare case that the adverse consequences are seen, we might be unwilling to speak-up  against the dominant corporate orthodoxy (what I have called during my corporate career the “conspiracy of silence”).

Incrementing to the deadly cliff

Incrementing to the deadly cliff

Today, globalization and the lowering barriers to access (technology, markets, capital, etc.), are creating unique opportunities for foreign entrepreneurs; in particular in emerging countries. Since they are not invested in old/established paradigms, they are able to scale globally the opportunities they have developed for their local markets. However, these solutions become more compelling when the market needs of the developed and developing markets are in alignment. In these cases, innovations from emerging countries are not wed to the status quo (or as Machiavelli called “… the established order of things…”) but rather seek cost-effective/superior solutions to their market pains.

The consequences of incrementalism are being exacerbated, as time accelerates and side-effects happen faster and more frequently. Furthermore, the population growth is aggravating this trend, as we anticipate in about a dozen years we will share the planet with 8 billion people and moving quickly to 9 billion well before mid-century.

Some evidence with a few examples:

  • How did we get over a hundred chemicals in our processed food? One at a time! Each had a unique benefit making our food taste a little bit better, prolonging its shelf life a little bit longer, making its color a little bit more appealing, making its manufacturing a little bit cheaper, etc. I can almost imagine every corporate meeting when every decision was being made––in fact I have been in some of them.  And I can also remember how the meeting participants felt after each incremental improvement (in isolation) was fully justified. As the market responded positively, raises/bonuses/and stock options were distributed and each corporate executive felt pumped, paving the way for the next executive team seeking a larger reward by seeking the next incremental improvement. Unfortunately, the end result is that the initial tasty natural product became more a product of a chemistry lab than of nature, and sure enough decades later we discovered that, in the aggregate, these chemicals have had harmful effects on our lives. It made us more obese, raised our blood pressure, caused diabetes, or even created a dependency we previously didn’t have!
  • We now look back at the demise of Arthur Andersen, an auditing company that shined for integrity and ethical standards. However, tempted to emulate the revenues and margins of their consulting cousins, Arthur Anderson started to push the envelope and add creativity and imagination to what it was the “predictably dull” auditing activities. Every time, they were more aggressive in pushing the line enabling management to unleash their “innovative” practices for financial reward. Eventually, the ethical line was irreversibly crossed for the benefit of a few senior partners and the ruin of the entire firm.
  • Kodak was once the undisputed leader of film photography and was driven out of existence by incrementally improving film photography (does anyone remember “Aptiva”?) and ignoring digital photography.
  • Digital Equipment Corporation (“DEC”) was a revered start-up from Route 128 (remember when Boston’s Route 128 was in the same sentence as Silicon Valley?) and my former employer.  DEC was extraordinary successful in democratizing the access to computers by bringing the Mini (computer) out from the data center and into the department, in the cube next door. Yet, DEC was driven out of existence developing more and more powerful minis, in the process coining the term “Maxi-Minis” missing completely the PC market.

In the last four examples the frog is boiled to death!  And these successful enterprises disappeared.  It would be overly simplistic to point all reasons to incrementalism, but I would argue that it did play a significant role in their demise!

At this point I would be tempted to open the debate on how incrementalism is having a perverted effect on society at-large, and venture into the world of moral relativism and the globalization of superficiality[1].  However, I’ll resist the temptation, leave that for my coffee discussions with my close friends and family, and stick with the relevance of this post to the business world.

The relevancy of incrementalism as a theme for this blog-post is that its best antidote for enterprises incrementing themselves is innovation. And the likely consequence for those who fall victim of its lethal addiction is to become a “boiled frog”. Its end-result is corporate atrophy, carefully developed year after successful year yielding as end result its inability to perform a paradigm change.

Every business strength successfully utilized year after year,

 at its limit could become a liability to the entire enterprise…

Enter foreign entrepreneurs from emerging countries, who aspire to tackle the preeminent market opportunities of this era, including: providing better education for growing numbers of people, enabling participation in a knowledge/networked economy, increasing life expectancy by improving the effectiveness of and access to health care, and applying innovative green technologies to mitigate and prevent further global environmental degradation. These entrepreneurs are free to choose new solutions unconstrained by the dominant logic and unsettled in the psychological comfort zone of “on-the-job-retired” executives. This allows them to be maximally innovative in their selection of business models to enable the viral penetration. If proven successful these frugal innovations from emerging regions can also expand globally into the developed world!

JobsAt what point does incremental innovation becomes harmful? And at what point does that perilous comfort afforded by managing the “known” open up the flanks of established enterprises to attack by the young entrepreneurs from the fledging South who are willing to plunge into new disruptive paradigms?

In a future post, I will connect human centered design and design thinking as radical departures from incremental revenue maximization/cost minimization centered design.

Let me know what you think, especially if you disagree.

Until my next blog  – Carlos B.


[1] Nicolás, Adolfo, “Depth, Universality, and Learned Ministry: Challenges to Jesuit Higher Education Today.”  Remarks for “Networking Jesuit Higher Education: Shaping the Future for a Humane, Just, Sustainable Globe.”  Mexico City.  23 April 2010.  Available online: http://www.sjweb.info/documents/ansj/100423_Mexico%20City_Higher%20Education%20Today_ENG.pdf.

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Mining the Silicon Valley Mind — Part II: A Perspective for Foreign Entrepreneurs

The content of this blog-post was presented during the keynote titled “Success Favors the Prepared Mind”, I delivered last Friday (June 21, 2013) at the 2013 Endeavor Entrepreneur Summit, in San Francisco, California, USA.

What makes Silicon Valley[1] unique?  Does the Valley’s success lie in its geography or in the mindset of the people who live here? While many of my posts focus on the Valley as a model to learn best practices and emerging trends, today’s post picks up the historical perspective of an earlier post published exactly one year ago — on June 29 2012 (http://carlosbaradello.com/2012/06/29/mining-the-silicon-valley-mind-a-perspective/). In this post, I share the ten attributes, which emerged over the past century and a half, which help to explain this region’s dynamism. Today, I expand on a new perspective on the required characteristics of today’s arriving foreign entrepreneurs to be effective and seize the opportunities that Valley offers.

I don’t believe it is Silicon Valley’s water or air that makes its people more creative, innovative or entrepreneurial than others. Instead, I’d like to share my perspective that the Valley’s entrepreneurial mindset has been 165 years in the making. In fact, this mindset has roots in Northern California’s infamous Gold Rush in the mid-19th century.

The early West Coast of the United States was largely inaccessible to the rest of the world. It was a harsh continental landscape away from the established East Coast, vast oceans away from Asia and Europe, deserts and mountains away from its even closer neighbors in Latin America. As a result, Northern California remained sparsely populated and isolated from the rest of the world for a long time, and people did not consider it worth the trouble to “Go West.” However, all this changed when gold was discovered in 1848.

Sailing to Northern California at the start of the Gold Rush

Sailing to Northern California at the start of the Gold Rush

Northern California’s Gold Rush started in 1848. Among the first to hear news of gold were people in East Asia and South America, and many chose to immigrate. Interestingly, these migrants’ motivations were very different from that of migrants who had arrived from Europe to the American Northeast two centuries prior. While the Mayflower Pilgrims came to the New World seeking the political or religious freedoms denied to them in Europe, migrants to Northern California fundamentally sought economic rewards.

The personality profile of Gold Rush migrants consisted of two key attributes: (a) a natural self-selection of risk-takers willing to migrate over vast and harsh terrains, and (b) a no-nonsense desire for economic rewards. As a result, the region’s DNA was self-selecting: people who chose to “Go West” were overwhelmingly risk-taking, adaptive, flexible, tolerant of discomfort, and even ready to die in their pursuit of economic prosperity. Seen through another lens, these migrants in fact were quintessential entrepreneurs. These gold-seekers, called “forty-niners” (in reference to the year 1849, when immigrants arrived in large numbers), often faced substantial hardships on their journeys to get here. Once they arrived, they faced mining accidents, diseases, and in many cases, death.[2]

Today’s foreign entrepreneurs mimic certain characteristics of the gold rush migrants of the 1800s. Instant broadband communications keep foreign entrepreneurs connected to the Valley prior their arrival and keep them connected to home upon their arrival.

What is the mindset required for an entrepreneur to be World Class?

What is the mindset required for an entrepreneur to be World Class?

The unique characteristic of this rugged, dangerous and isolated terrain had an enormous influence on the early settlers of the “Wild West.” I have concluded that the key attributes of the Gold Rush mindset can be summarized with 10 key characteristics that capture the spirit of the early settlers. Interestingly, these characteristics are not in isolation. They have much in common with the enabling characteristics of the 21st century’s Silicon Valley mind.[3] Furthermore, I have added a third column to the original mindset table published one year ago. This column addresses the required characteristics of the foreign entrepreneurs today to fully benefit from Silicon Valley’s resources and opportunities.

Northern California Dreaming:

Key Enabling Mindsets in the Mid-19th Century & Now[4]

and what it means for Foreign Entrepreneurs arriving today to the San Francisco Bay Area

 

Gold Rush Settler-Entrepreneurs in the Mid-19th Century[5]

Current Silicon Valley Mindset[6]

Characteristics required by Foreign Entrepreneurs to take full advantage of Silicon Valley

1

An independent and individualist mindset evidenced by their willingness to defy the naysayers in their home countries.[7]Ecosystem: NatureCost of Risk: your life (and possibly your family) The same individualistic and independent mindset is an essential characteristic of entrepreneurs attracted to Silicon Valley today.[8]  Pragmatic, confident and prepared to deal with the unknown — Willingness to defy naysayers in your home country. Become fully aware of what is required to perform, and prepare fully before arrival.Required actions before arriving:

  • Lived the Valley experience before coming,
  • Improve English knowledge and learn the business lingo,
  • Network virtually like crazy.

Ecosystem: Innovation/Knowledge Economy

Cost of Risk: your time  (and possibly some savings and/or your investor funding)

Be yourself: real and pragmatic

2

Risk taking mentality and tolerance of failures the adversity was such that failing was often the norm and accepted, as leaving was not an option. A climate that rewards risk-taking and tolerates failure — no stigma is attached to failure.  Readiness to deal with rejection, proven wrong, learn fast, adapt quickly, be energized by adversity Recover quickly and no one remembers. Demonstrate ability to listen, by your “improved” answers incorporating feedback. If you persevere unchanged with your perspective, you better be right! Be ready to be humbled.Required characteristics:

  • Fast learner,
  • Unfazed by adversity,
  • Quick to react/adapt; flexible,
  • “Smart” persistence and perseverance.

You will be transformed from a big fish in a small pond to a very small fish in a very large ocean!

3

Diversity reinforced by opennesssettlers were heterogeneous, arriving from across the world to begin their lives anew. A high-quality and mobile work force — the Valley is a global magnet for talented engineers, scientists and entrepreneurs.  You are adding to the diversity, so be yourself! — Do not try to be what you are not. However, do play by the valley rules and business protocols. Everyone expects you to master pitching and networking, and play win-win at a hyper fast-pace.Required actions:

  • Willingness to compete with the best and hold your ground,
  • Master the ins and outs of your business/industry globally,
  • Master you pitch,
  • Design your one-pager.

4

 Friendliness with an open mind as a consequence of diversity and isolation. They were one of the few committed to do something really hard.  Open business environment — win-win exchanges of knowledge. Rapid circulation of ideas enabling free exchange of information and experiences.  Leave the non-disclosures and confidentiality agreements in your home country Your best insurance policy is your brilliance and speed. Share as much as it is reasonable. It is likely you are not alone or the first to think on what you think is “the great idea”. However, be aware: the Valley is paved with great ideas!Required characteristics:

  • The Valley is open for business 24/7/365, are you?
  • High energy and optimist,
  • Balance between thinker and doer,
  • A connector that is willing to share,
  • Seek win/win outcomes.

5

 Natural cluster formation in the mining sector — by necessity to specialize was to increase overall efficiencies. Distinctive features of Gold Rush towns included bankers, goldsmiths, miners and traders.  Collaborations among stakeholders — business, government and nonprofits develop a coherent infrastructure of information sharing.Specialized business infrastructure — Financial, Legal, Investors, Headhunters, Accounting, Consultants, etc. The most distinctive feature of the Valley’s ecosystem is its array of support services for new high-tech businesses, including over 30% concentration of US-based VCs and angel investors.  Partner, partner and partner You cannot make it alone. You need help from many. Make explicit decisions on your value creation proposition (your uniqueness) and leverage the rest from partners in win-win relationships. The name of the game is to create wealth…. And share it!Required actions:

  • Identify what is core to your business,
  • Identify key partnership,
  • Be able to develop win/win relationships with the supporting stakeholders. You need all the help you can get!

6

Trial and error consciousness — the problems encountered had to be resolved locally with practical results.  Knowledge intensity — pro new ideas for new products, services, markets, and business models. The Valley generates the highest flow rate of ideas about information technology globally.  Global grand vision and great execution You have already demonstrated in your home country. Do you have the right stuff to play in the global business Olympics?Required characteristics:

  • Know your stuff; you will not be able to fake it!
  • The things you do not know, admit and learn quickly.
  • Get plugged in to the key information avenues either by networking or reading the right web sites/blogs.

7

Passion for success it was more than economic success; Gold Rush settlers loved the chase!  Passion for success that is paired with a results-oriented meritocracy — Talent and skills are king.  Age, ethnicity and seniority do not dictate opportunity or level of responsibility. Passion for success — Your success depends on your

MIND + HEART + EXECUTION

Required characteristics:

  • No one cares about your family prestige or wealth (unless you are investing part of it in your venture). Your degrees were helpful to get the first meeting, the rest is up to you,
  • Demonstrate your passion and commitment for your venture,
  • Walk the talk!

8

Creation of wealth — not just money but creation of a community. Universities and research institutes that interact with industry — rich sources of well-trained, experienced scientists and engineers willing to transform their knowledge into entrepreneurial ventures.  To get from the community you will have to give to the community ­Your pressure to capture the window of opportunity is very real and your limited resources are omnipresent. Yet your success depends on others and the successes of others depend of you. You will be asking favors and you will be expected to return them.Required characteristics:

  • “T” type of individual: focused and deep in their core discipline yet broadly knowledgeable and able to reach across different disciplines,
  • Success will be measured financially, but how you get there is also important,
  • You are creating your track record, success or failure, how you conduct yourself is important.

9

Pitching as a way of life!each Gold Rush settler was his/her best salesperson. Pitching is the essential skill of an Entrepreneur[9] as he/she attempts to obtain the initial customers, employees, funding, etc.  Your Pitch is your currency — Like the early gold rush settlers you are the best sales person of YOU and YOUR VENTURE! Perfect Pitch = Content + Structure/Organization + DeliveryRequired actions:

  • Master the knowledge of your business
  • Develop dozens of capsules
  • Master its delivery under ALL circumstances.

10

Eternal Optimismovercoming the challenges was the only available option. Favorable rules of the game — pro-business formation.  You will participate in the most sophisticated ecosystem on the planet It depends on you to take full advantage of the resources and opportunities it offers!Required actions:

  • Meet, read, follow, and network with successful entrepreneurs,
  • Learn from leaders in your industry,
  • Form a support network with peers and friends,
  • Mentors could be an incredible asset, find them and use them!

Bonus

 An attractive place to settle with mild weather and abundant natural resources. Attracted initially by gold, but later most stayed.  High quality of life — a beautiful place to work, live and play.  The Bay Area is a great place, enjoy the ride and make it memorable! — Whether your venture succeeds or fails, this will be a memorable period of your life. Your start-up is important, but it does not define you fully as a person. On the contrary you define your venture, Therefore, enjoy the ride! By every criterion your stay in the Bay Area will be a period of personal and professional growth! Required actions:

  • Organize your start-up so you can manage it remotely. Your stay in the Bay Area might be longer than what you anticipated,
  • Your ventured takes center focus, but leave a bit of time for others,
  • It is a marathon interspersed with many sprints in-between, manage your time efficiently and leave space to “smell the flowers”

 

Every day, foreign entrepreneurs bring their ventures to Silicon Valley in their quest to scale them up globally. Their goal is to leverage the SV ecosystem’s advantages to catapult their ventures to stratospheric success. However most of them fail. Actually many fail because the nature of this endeavor is very Darwinian, but there have been many others that were never in the running because they were not properly prepared, or had misaligned expectations, or probably some of both. The objective of the table above is to bring into focus the evolution of the Silicon Valley mindset from its early gestation days to today and what it means for the arriving global “gold seekers” of the knowledge economy. In fact these ten characteristics will help the entrepreneurs not only in Silicon Valley, but anywhere. Furthermore, as these ten characteristics are embraced by many they will help to transform the local ecosystem in a more dynamic and effective. As a summary these 10 characteristics are:

  1. Prepare for the unknown
  2. Adapt quickly
  3. Be yourself!
  4. Openness brings rewards
  5. Partner, partner, partner
  6. Global grand vision
  7. Passion for success
  8. Give back to the community
  9. Your pitch is your currency
  10. Eternal optimism

Hundreds of ecosystems pursuing innovation and entrepreneurship are sprouting up throughout world, and each one is seeking to create its own color and texture, learning from one another and improving and adapting the Silicon Valley model to local characteristics, norms and codes. Most have wisely given up any effort to replicate Silicon Valley after recognizing that the Valley could not replicate itself even if it wanted, since the conditions that fostered its creation are impossible to replicate! Without a doubt, though, gears are in motion to create such a “Global Valley”. However, this will take probably decades — note that SV construction did not happen overnight – in the meantime globally minded entrepreneurs will seek to come to the Valley, as actors dream to go to Hollywood or athletes crave to participate in the Olympics.

What do you think? Do you agree or disagree? Let me know, especially if you disagree!

Until my next post. – Carlos B.


[1] In my posts I often use three terms, Silicon Valley (SV), the Valley, and the San Francisco Bay Area (SFBA) or simply the Bay Area interchangeably.
[2] Levy, Joann (1992). They saw the elephant: Women in the California Gold Rush. Archon:N.p., pp. xxii, 92
[3]  Adapted from The Silicon Valley Edge, Edited by Chong-Moon Lee, William F. Miller, M. Gong Hancock, and Henry S. Rowen, Stanford University Press, 2000.
[4] http://carlosbaradello.com/2012/06/29/mining-the-silicon-valley-mind-a-perspective/
[5] This is the personal perspective of the author.
[6] Adapted from The Silicon Valley Edge, Edited by Chong-Moon Lee, William F. Miller, M. Gong Hancock, and Henry S. Rowen, Stanford University Press, 2000.
[7] In 1861, the telegraph connected San Francisco to the East Coast enabling cross-continental businesses and news-share; however, it had to wait until 1869 when the railroad connecting both coasts was completed to trigger the physical integration process to the USA. Still, the ten attributes described in the table below were so deeply rooted that continued to evolve becoming a distinguishing characteristic of this region.
[8] This is not part of today’s 10 key enabling characteristics shown in reference 2.
[9] This is not part of today’s 10 key enabling characteristics shown in reference 2.
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Being an Entrepreneur in Argentina is the “Best Revenge”

As my plane reaches cruising altitude after taking off from Ezeiza (Buenos Aires’ international airport) for the long journey to Beijing via Frankfurt, I plunge into my laptop to capture some of my experiences during this journey that began ten days ago.

The world continues to cry for you, my dear Argentina, as we watch your determination to underdevelop yourself, and as Argentines hopelessly adjust to unavoidably lower “new normals.” Against this challenging backdrop, I would claim that being an entrepreneur in today’s Argentina is an Argentine’s best revenge. Why? Stay tuned…

I arrived to Argentina last week from Lima. I was invited to deliver a keynote and be part of a fireside chat during Wayra’s Demo Day. My periodic visits to Lima make me a witness of the fast transformation of Peru as a vibrant economy and its integration to the global concert of nations. Wayra, Telefonica’s corporate incubator, is making an effort across 12 countries (mostly across Latin America) to move the needle in the evolution of the entrepreneurial ecosystems within the countries where it operates. Wayra represents a kind of enlightened Corporate Social Responsibility with great multiples!

Alberto Yepes, Managing Director of Trident Capital,  Juan Francisco Rosas, Executive Director Wayra Peru  and Carlos Baradello during the Wayra Demo Day Fire- Side Chat, Lima, Peru. (May 22, 2013)

Alberto Yepes, Managing Director of Trident Capital,
Juan Francisco Rosas, Executive Director Wayra Peru
and Carlos Baradello during the Wayra Demo Day Fire-
Side Chat, Lima, Peru. (May 22, 2013)

In vast contrast from landing in Peru, landing in Argentina is like returning to the past. The country refuses to learn from history traversing similar failed paths and repeating parallel mistakes. Every week a new corruption scandal shifts the public discourse and the dinner table conversation from the prior week’s scandal now already forgotten. Argentina’s reality show exceeds any possible fiction, making the TV news program lead the ratings as the most entertaining, surpassing even a soccer game!

The institutional lies permeating every aspect of Argentine society has eroded the public trust requiring a bigger lie to cover the prior one. Its magical realism make the lyrics of Enrique Santos Discépolo’s 75 year old tango “Cambalache” more relevant today than even in the past!

 

Cambalache – Spanish Lyrics

 

 

Cambalache – English Lyrics

(by Google translate)

“Hoy resulta que es lo mismo
ser derecho que traidor,
ignorante, sabio o chorro,
generoso o estafador…
¡Todo es igual!
¡Nada es mejor!
Lo mismo un burro
que un gran profesor.
No hay aplazaos ni escalafón,
los ignorantes nos han igualado….
¡El que no afana es un gil!”
“Today it is the same
to be a traitor,
ignorant, wise or thief,
generous or swindler…
Everything is the same!
Nothing is better!
The same a donkey
as a great professor.
There are no failing grades or ranks,
we have been matched by the ignorant…
He who does not steal is a fool! “

While Argentina is preoccupied in its de-construction, Argentine entrepreneurs are hard at work constructing new dreams. This apparent contradiction is fueled by the quality of the country’s human capital.  Historically, Argentine professionals could use the escape valve to emigrate as they were welcomed in the USA or the European countries of their ancestors. However, the global crisis, has made that possibility largely unavailable.

Cristina Fernández de Kirchner, Argentina’s President surprise herself as well as to the Argentines with her leadership and policies.

Cristina Fernández de Kirchner, Argentina’s
President surprise herself as well as to the
Argentines with her leadership and policies.

Today, Argentine entrepreneurs are enabled to start their own ventures by the lower barriers to entry in certain technology sectors and facilitated by low opportunity costs. Young and confident, the country’s innovators and entrepreneurs are giving up very little to take the plunge and launch their new ventures. Corporate salaries are low (even lower when computed with the dollar blue, the free market floating rate) and careers are doubtful in enterprises that are afraid to plan for the uncertain medium term (forget about long-term planning). To conclude, Argentine business’ daily existence is driven by constant required trade-offs to assure its own immediate survival giving up any semblance of excellence.

Competent programmers, engineers and able business managers have made arrangements of continued support from family and friends for their personal survival and pursue the “next big thing.” Their quest to build their new venture is facilitated by (1) low barriers of entry, due to the democratization of technology, (2) their professional competence, enabled by what remains of a good educational system and (3) a global mindset, still a society constant since these Argentines are the product of immigrant parents or grandparents. Furthermore, they have grown up in an environment that has trained them in an environment that requires smart optimization of their limited resources and street smarts that require extreme flexibility, due to the country’s increasing unpredictability. In other words, Argentine entrepreneurs are well prepared to lead their start-ups. They are resilient, flexible, resourceful and adaptable to tackle the unknown global markets and optimize their venture development with very limited means.

These dreams are constructed often through a focus on foreign markets, where their ventures will unavoidably migrate. They will likely retain their product development team in country as long the cost arbitrage can justify the use of Argentine human capital. Their globally minded leadership will consider opportunities offered by programs like the now popular Start-up Chile, and similar programs offered by countries including Brazil, Portugal, Singapore and others in exchange for basing some aspects of their ventures to those locales.

Argentina’s entrepreneurs are today’s hope of the country to retain some relevance, and for the rest we will continue crying for you Argentina!

Until my next post – Carlos B.

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Reflecting on Corporate Entrepreneurship: Can Mid-Sized Latin American Firm Play Ball? Part II

In the last post (Part I), we reviewed six lessons from established companies that can sustain innovation and harvest its promises in terms of increased profitability and market growth. While these lessons apply to firms of all sizes, untapped growth opportunities are possible when applied to medium-sized Latin American firms.

This post (Part II) first considers how medium-sized Latin American firms can leverage the ongoing start-up revolution[1] happening across Latin America, to retain their vitality in the existing markets and/or enter new ones with new emerging technologies.

Second, this post considers those medium-sized firms across Latin America founded in the 1980s and 1990s that have reached annual revenues between US$5MM and $50MM. These firms are likely to have leadership teams with average ages in the 50s and 60s. Their founding coincides with the opening of Latin American economies following the so-called “Washington Consensus” and all that it implied: increased levels of deregulation, liberalization and privatization of state owned enterprises.  These firms face unique challenges today.  While they often benefited from market opacity and asymmetries of information, they now face growing transparency.  Ironically, free trade promoted by the Washington Consensus has led to the entry of new, global competitors.  For example, few have been spared from China’s ascendance as a fierce competitor and top trading partner across Latin America.

The Problem

Mid-sized firms in Latin America, despite their remarkable achievements in the face of adverse and hostile circumstances, face significant challenges today.  Their technologies are aging, their management would prefer to operate on auto-pilot, their competitive advantages are eroding, and their customer loyalty is wearing thin as customers demand next generation products and services to achieve the increased productivity promised by emerging technologies.

These firms devote their R&D budgets to making incremental improvements to their current offerings and supporting their legacy clients. As a result, these firms rarely have sufficient resources available for internal experimentation in disruptive technologies or considering new business models. This presents a great opportunity to leverage the ongoing start-up revolution happening across Latin America.

The real question is whether mid-sized Latin American firms can be successful at both (a) executing their current business models with existing products while simultaneously (b) inventing new and disruptive businesses to address the emerging needs of customers with new products/services based on new technologies?

These firms are unlikely to develop both activities within the same organizational structure. The first task is optimized to manage known knowledge, which requires executing and incrementally improving current operations in a known environment, a solid understanding of the customer base and well-understood technology/products. The second entails managing unknown-knowledge, which requires experimenting, dealing with extraordinary levels of uncertainty, learning fast and coping with failure and dead ends, and pivoting as many times as required.

Could the mid-sized firm incubate young Latin American ventures?

Could the mid-sized firm incubate young Latin American ventures?

How do we organize these firms so that new and innovative developments can take form simultaneously?  Large firms will often have their own venture capital arm (e.g., Intel Capital and Google Ventures) to make strategic bets in young start-ups through minority equity positions. These investments have a “double bottom line:” (i) it should make financial sense in terms of valuation and anticipated IRR and (ii) it should be a strategic fit for the firm.

This model could be easily adapted to the mid-sized Latin firms.  Instead of staking out minority equity share participation in new ventures, these firms can provide in-kind contributions.  These firms can act as “incubators” for selected local start-ups and offer them support in areas where the firm has underutilized capacity across its many functions including finance, accounting, marketing and legal. The hypothesis I’m asserting is that, given the right incentives, these firms could support and incubate a nascent start-up by leveraging its departments while simultaneously giving them access to new initial customers, access to pilots, access to technological infrastructure, and even new markets.

This is easier said than done! There are many barriers to implementing this model. Some of the restrictions are objective while others are cultural and subjective.  Managing these young start-ups being incubated within an established mid-sized firm will require adjusting its operating culture, performance metrics and priorities.

While this incubation poses objective management challenges, devising clear policies properly communicated and followed through could enhance the chances of achieving a successful outcome. However, some changes that do not fit prevailing Latin culture could be more problematic to implement. Several of the key changes are identified below:

ISSUE

CULTURAL

NORM

NOT YET ALIGNED WITH THE LATIN CULTURE

Minority vs. majority participation of the mid-sized firm in the young start-up Negotiating the best possible terms in terms of percentage ownership.  “The more the better.”The higher percentage of ownership increases the risk that the acquired start-up’s entrepreneurs/founders will transition from owner to employees. Taking a 15% to 25% ownership leaving the majority of the ownership and consequentially the majority of the potential upside in the hands of the founders/entrepreneurs. This does not preclude the larger firm acquiring the start-up at a later stage, once the products or services are proven and its market developed. However, by then most of the value created will be in the hands of the entrepreneurs as a reward for their innovations and risk capitalized.
Managing a minority stake Start-up is neglected with minimum value added contributions. Not tuned into the company operations and synergies exploited.“Since I don’t own it, it can’t be interesting” Leverage firm resources to the benefit of the start-up. View the company being incubated as part of the brilliant future of the mid-sized firm.
Managing the possible failure of the start-up being incubated Start-ups are riskier and present considerably higher probability of failure. Since failure is culturally unacceptable, maintain distance. Any failure will be attributed to the founders/entrepreneurs, labeling them as losers! Embrace failure as a learning opportunity. Realization that the risk of doing business-as-usual represents even a higher long-term risk.The future will happen and the incumbents will be seriously threatened.
If the start-up is successful, could it integrate retaining its dynamic youth? If the technology and/or the market pilot is successful, the mid-sized firm will attempt to harvest the benefits immediately creating resentment from the founding team and potential departures and know-how lost. Nurture the growth of the start-up new technology base to deliver a series of products/services. If new market access is provided due to the start-up, develop this new segment to become a dominant force. Speed and customer satisfaction is more important than the % of ownership.

The Mid-Sized Latin American Firm in the Global Marketplace

These firms do not operate in a vacuum.  In fact, mid-sized Latin American firms are being subjected to increased pressure to innovate and compete in the global marketplace. As technology cycles shorten, the arrival of global competitors accelerates and more attention is focused on BRIC countries (Brazil, Russia, India and China). The “B” from Brazil has had a spillover effect to Latin America. Today, the developed world struggles to reach an “unthinkable” 3% GDP growth while many Latin American countries are sporting growth well over 3% and as much as 6% per year.

Mid-sized Latin American firms need to insure the present by flawlessly executing their current lines of business. However, their futures will be assured only by their ability to perform limited experiments and accept controlled failures as the cost of doing business. The key will be for these firms to fail quickly and cheaply as they compete in the global marketplace! Can the start-ups sprouting across Latin America become engines of innovation and growth for these established mid-sized firms? Will the mid-sized firms adapt to selected start-ups and incubate them by sharing their knowledge, client base and infrastructure to pilot new technologies with their existing customer base and/or address a new market segment?

What do you think?

Until my next blog-post – Carlos B.


[1] LatAm Technology: The Startup Revolution, by Alternative Latin Investor. http://www.alternativelatininvestor.com/365/emerging-markets/latam-startups.html

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