2012 was without a doubt the year of tech in Latin America. Many journalists have written about as the new big opportunity, multiple investment funds have opened offices and local startups have shown that they’re actually real business that can grown, and well known foreign tech companies have opened offices in Latin America’s major cities. But what are the challenges if you’re thinking about expanding into the regions?
Over the past year, I’ve traveled all over LatAm opening offices for Welcu, being part of Geeks on a Plane and learned from other entrepreneurs and friends who’ve embarked on similar LatAm expansions as I have. Although each story is different, we’ve all come to the same conclusions: Expanding your startup in LatAm is difficult, but it’s worth it.
Say Hello to the World of Bureaucracy
You’re probably thinking about opening offices in Sao Paulo, México City, Buenos Aires, Bogotá or Santiago or maybe even all of them at the same time. You’ve probably taken a few trips to the region to get to know the cities, gotten drunk with a local friend or entrepreneur and loved each city. But prepare yourself to open up your wallet and spend some quality time with your lawyer and in government offices.
Legal fees: $3000-$15000 to begin legally doing business in each country
Incorporation Times: One to six months to finish the process of legally opening a business. Chile and Colombia are on the shorter ends, Argentina and Brazil take longer.
Paperwork: Prepare yourself to spend time in government offices and at notaries signing endless paperwork. Unlike in the US, there are few notaries and you must go to their office and wait in line to get documents legally notarized.
Conservative businesses: Established companies large and small will make you jump through hoops to work with them. They’ll ask for references, letters of recommendation and more to even begin the conversations.
Slow Payment: Unlike in the US where many companies are comfortable paying with a credit card, Latin American companies pay with invoices and take between 30 and 90 days to pay you. Sometimes even more.
Firing and employee isn’t easy: Prepare yourself to spend time in front of labor boards or face legal action from employees you fire.
Payment methods differ from country to country
You’ll have to pick your payment providers in each country. In my experience the best are MoIP in Brazil, Transbank in Chile, MercadoPago in Argentina, Paypal in México, PagosOnline in Colombia. And you’ll also need a local bank account in each country to actually accept payments, which means you have to register a business in each country. And your CTO will have to do different integrations for each country which means more development time and more potential failure points.
Although we all speak one of two languages (Spanish and Portugese), each country has completely different cultures and ways of doing business. You have to be open minded and sensitive to new experiences, new reactions and a new way of conducting yourself. If you don’t follow this advice and just act as you would in your home country and stay in your comfort zone, you likely won’t have much success and will rub many locals the wrong way.
For example, you’ll find out that Latin Americans have an incredibly hard time saying no. That sounds great, right? But it’s not. Instead of saying no when they’re not interested, they’ll lead you on for months with things like:
let’s find a way to do something together, let’s do business together, I love your proposal, let’s close the deal
but when you actually email them the contract or pull out the final documents for their signature, be prepared for silence or backpedaling. They might even completely ignore you if you run into them at a networking event! But don’t take it personally. That’s the culture. Not everyone’s like this, so seek out the people who know how to say no and who’s yes actually means yes. They exist, I promise!
Welcome to a conservative world
Latin America is the land of suit and tie, hostile to young entrepreneurs who are trying to change the world. Many executives will look down on you right off the bat. They’ll look at you funny and disregard your plans. Some even feel threatened that you might one day overtake them and put them out of business. But at the same time, they’d love their own company to be innovative, but just don’t know how. So how do you navigate conservative businesses and actually get deals done? In my experience follow these rules and you’ll have success:
A Local Partner is a Must: Someone who knows how the local business culture works and ideally has connections in your industry. And if all else fails, you’ll at least have a new friend who’ll help you as much as possible.
Dress as closely as possible to the people you meet with: Try to operate like the locals operate and make sure to show proper respect to the local customs and mores.
Experienced Attorneys: Hire local attorneys who have worked high tech startups. A good litmus test is to ask them to explain convertible debt. If they can explain it to you, they’ll likely have some experience in the startup world.
Get involved in the local startup community: Go to the events, tell people about your project, meet the local movers and shakers. It doesn’t matter if you’re a bigshot or even the king of the startup world in your city, but in another city or country, you’re a nobody. You don’t know anyone and they don’t know you. You must build your reputation, help the community, start from zero. If you follow just this one rule, you’ll do just fine. If you can’t understand this rule, you’ll have trouble on your hands.
Although it’s hard, it’s worth it
But wait, isn’t everything I’ve said discouraging you from coming to Latin America? No. Completely the opposite. Although there are difficulties, it’s worth it. You just have to be ready and willing to break down all of the barriers that stand in your way. Because if you do, the potential reward is enormous. Brazil and Mexico are huge, fast growing countries. Chile and Colombia are smaller, but fast growing, stable countries. Argentina has an entrepreneurial culture with people disposed to try new things, but there’s a ton to do.
I’d compare entering the Latin American market right now as if you got to America right after Christopher Colombus. There’s huge real problems awaiting solutions.
And if all else fails, you’ll have a great time!