Startup investments are on the rise in Latin America, and there’s now more capital available than ever before. A look into five-year investment trends in the region revealed that investors had closed deals worth $2.3 billion, according to the Latin American Venture Capital Association (LAVCA).
However, it’s worth noting that a majority of these investments take place in just two countrie, Brazil and Mexico. For most Latin American startups outside of these two countries, raising funds from VCs or angel investors has rarely been an option. In many cases, investments tend to come in the form of $50,000 to $100,000 grants or smaller loans. Outside of Brazil and Mexico, there are very few funds that can write a check in the $3 million to $5 million range.
And yet, despite the difficult fundraising environment, we’ve seen plenty of Latin American startups solving real problems succeed without million-dollar rounds of funding.
Startups in Latin America have to be extra scrappy to build their ventures, and many of these startups are proof that it can be quite advantageous to grow a business this way. Rather than raising outside funding to get a product off the ground, startups in Latin America have come up with their own strategies for success. And most of the time, it has been simply out of necessity.
Whether it’s bootstrapping, hiring only when necessary or focusing on revenue first, there are plenty of lessons U.S. entrepreneurs can learn from Latin American startups. Here are just a few of those lessons.
1. Focus on acquiring real, paying customers first.
Because there tends to be less later-stage funding available outside of the U.S, startups in regions like Latin America, whether they’re building products for the Latin American or U.S. market, must focus instead on generating revenue much earlier on to keep their companies alive.
When startups can’t depend on someone else’s cash, they keep their focus on customers rather than investors. This focus on real, sustainable growth forces a startup to build something that actually works and generates money. Operating costs are lower not because Latin American startups want to pay employees low salaries, but because they have to be in order to survive.
In Latin America, startups are rarely in a position to access large sums of money to put towards growth. At the same time, investors in Latin America are traditionally more risk-averse, therefore generating revenue is often the only way for startups to prove their concept or business model and raise VC funding. In sum, startups are much more likely to get them to write a check when, and only when, they’ve shown that they can make money for them.
U.S. startups often focus their efforts on hyper-growth rather than real, sustainable growth. This hyper-growth and traction are often the most important factors for investors and make sense for a certain subset of companies. But, many U.S. startups burn themselves out chasing unsustainable hyper-growth. Latin American startups are used to putting their own money on the line, rather than VC money, forcing them to truly listen to their customers. The benefit of focusing on customer retention, and not just high growth, is that it allows your company to be extremely tuned in to the problem you’re trying to solve -- and can even lead to discovering opportunities beyond what you had initially envisioned.
2. Adaptability is key when expanding into new markets
Many startups from the U.S. and Europe struggle to expand into new markets abroad. They usually raise funding to battle their way into a new country, one at a time, and then hit a number of roadblocks due to language barriers, cultural differences or poor attempts at adapting their products for the local market.
In Latin America, it’s necessary to take a multinational approach from Day One because each market in the region is so small. Latin American companies have an easier time crossing borders and operating internationally because it’s embedded in their DNA.
Related: 7 Steps to Winning New Customers
In Latin America, startups often become the dominant player in their home country and rarely face competition there once they start expanding. Consumer behaviors are much more uniform and, excluding Brazil, language is not a barrier to growth. The result is that it’s generally less challenging for startups to establish partnerships, localize their processes and adapt their products as they expand across the region.
Just as Latin American startups spend less money and resources on expansion, while still achieving the position of the dominant player as they go, U.S. startups too can replicate this approach. So long as your company understands the unique challenges of the location where you are expanding, repetitive processes can be optimized to produce consistent results for each new launch.
Speed and adaptability are key when expanding a startup into a new market. Economic uncertainty is a part of life in Latin America, however, companies that can quickly adapt to market changes are the ones who find the most success when replicating their operations.
3. Top talent is closer than you think.
In the U.S., competition for top talent can be cutthroat. More often than not, startups must offer a number of perks and an Instagram-worthy office to recruit the best workers. Not to mention, they must also offer an attractive salary to keep those workers around for more than six months.
In Latin America, on the other hand, the job scene tends to be more of an employer’s market, at least in the technology sector. Companies with a solid business model and an adequate cash flow have fewer issues finding talented technical workers at affordable rates. U.S. companies can take advantage and outsource development work (partially or wholly) to lower company costs.
Workers in Latin America still value a paycheck over office perks. The hourly rate to hire a top developer can range from $40 to $70 per hour in Latin America, compared to $80 to $150 per hour in the U.S. In recent years, this has attracted many Silicon Valley companies to set up offices in the region as well.
There is plenty of bilingual, top talent in Latin America what can work with U.S. companies in real-time, due to limited time zone restrictions. U.S. companies that take advantage of this will see reduced costs and the ability to scale faster.
4. There are plenty of ways to bootstrap an idea.
Latin American startups are known for adopting lean business models and coming up with innovative ways to launch and grow their companies as effectively as possible. And bootstrapping is usually a big part of this picture. Many of the most successful startups in the region have managed to conquer the Latin American market with minimal capital. So, what’s the secret?
Alegra, a Colombian startup that offers accounting and billing software solutions for small and medium-sized businesses, grew exponentially in the region and rejected many offers for investment because it was growing its customer base just fine without it.
Alegra pointed out that startups in Latin America need only to confirm that their business models meet two of the following three requirements. The first, that it is scalable. Can you grow your customer base month-to-month? Second, that it is replicable. Can you implement your product rapidly across new markets or countries with minimal adjustments to the initial model? And lastly, that it is repeatable. Can you generate revenue consistently and automatically from your customers without direct intervention?
Following these rules, Alegra bootstrapped its way into over 50,000 companies registered in 16 countries. And there are plenty of other startups like Alegra in Latin America. Todist, one of the top to-do list and task management apps, bootstrapped its way to over four million users, and Doist, the parent company of the app, is on track to do $10 million in revenue this year. The company's only outside money was an equity-free grant it received from accelerator program, Start-Up Chile.
U.S. companies are very focused on funding, and while investment always helps, they can probably bootstrap a bit longer and keep control over their startups. Plus, bootstrapping longer means startups can maintain focus on making a good product for customers, instead of making a product they think investors will want. So, instead of jumping in line to get big rounds of funding, your company might consider bootstrapping until your product is where it needs to be.
Solve real problems.
As a U.S. entrepreneur now living in Chile for the last six years, I’ve witnessed the differences between startup cultures in the U.S. and Latin America and a rise in global startups moving their offices here and applying similar strategies that Latin American startups have been using for years to drive their companies forward.
If you’re an entrepreneur in the U.S., I’d encourage you to study the approaches used by Latin American entrepreneurs. Consider the challenges of doing business in the region and how much more difficult it can be to scale a company with limited capital, resources and support. Most importantly, I’d encourage you to remember that there are amazing entrepreneurs building companies despite all of these challenges and that this type of scrappiness has incredible advantages. The unique strategies that have long been reserved for only the scrappiest startups typically located outside of Silicon Valley, can be implemented by your startup, too, regardless of your location.