A healthy capitalist ecosystem for startups is profitable, but Ecuador does not understand it.
Brilliant innovative ideas that scale too fast but die so comfortable at the same time. And it’s not entirely their fault.
It isn’t easy to talk about technology in Ecuador and not think that there is entrepreneurship involved. This country has one of the highest entrepreneurship rates in the entire continent; here, one in every three adults started entrepreneurship in the last five years.
There are industries where someone here starts a business, and which I would like to talk about, is with those who are connected, and its core is made with technology. Many people call them startups.
A startup is a young company founded by one or more entrepreneurs to develop a unique product or service and bring it to market.
A startup is not an ordinary business, is not a consulting or finance agency, and is not a hipster restaurant, fancy bar, or a new luxury hotel. A startup is a new company (1–10 years) growing year per year, making their KPI’s goals grow more every time with the same amount of human talent.
I have worked with startups in countries like Ecuador, Colombia, Perú, and United States. I have had the honor of sharing startup owners experiences and processes from other LATAM countries. And I am clear about many of the mechanisms applied in other countries, which either we do not have here or are years away from achieving.
Forced to think local
When we talk about creating a market of new clients and recurring clients, we realize that we have disadvantages that prevent us from seeking those from outside users in the country. In Ecuador, the fees to bring money are incredibly high; monetizing actions to make regular payments from abroad is extremely expensive about other countries. For a startup, it is better to create a savings base in another country than to do it here, the United States or Panama, for example. The foreign currency exit tax (we called it her ISD) is ridiculous; it is a fee you pay to get the money out of the country.
The fact of preventing us from being able to withdraw money and receive payments from abroad limits us in many cases, in the first instance, thanks to the usefulness of the business, to think about a local market, where the clients are the people of the neighborhood, the city or the central provinces.
In Ecuador, the figures for informal entrepreneurship are somewhat surprising, and it arises from this same narrative, in which we are forced to think locally. What about people with the right talent? They usually come out with their fantastic resume to the current market and realize that it is not what they expected and cannot contribute or meet their expectations. So they decide to start the same business that ten people already have in the same neighborhood. And they limit themselves, absurdly, such a necessary talent is limited, we don’t know what we don’t know, if someone doesn’t know the outside world or outside their neighborhood, how do they think it will be able to go out and create products for it.
We live in a country of uncertainties, insecurities, fears, where we still do not know if the socialist government wants to de-dollarize the country. Thinking about external economic factors, is the most responsible thing that a startup can do here. Making clients buy a product in this country is more complicated than buying it from a first-world country. If I owned Apple right now and I have the exclusive right to sell the iPhone 12 to my country, I know that I will have more sales in a small town in California than here. And that’s the macro reason why startups here can’t grow at the same level as out there; that’s how talented and good companies look for their opportunity when they leave. Those who stay are forced to survive, and not having all this expectation or experience, they force themselves to think locally.
Selling to the United States or Europe will always be the best business because they are excessively consumerist and compulsive buyers, so why not sell them? Because we are forced to think local.
The people is the key
I want to start with an unknown: The people in the country have unquestionable access to privileges and imminent exponential personal growth. Are they staying or leaving? Here my answer:
1. Those who stay: They are generally people who grew up mainly in impossible-to-pay schools, who have always lived in the classic New York-style neighborhood, and also who grew up in a private club practicing sports such as tennis or horse riding. These people are usually the managers of industries that have done well for a lifetime or corporations with decades of activity. It is challenging to tell someone in Ecuador with a strongly marked degree of stability to start a startup with all its disadvantages. Starting a startup brings many risks; when they already receive excellent profits, they give them cars every year and give them the best insurance for themselves and their families.
2. Those who leave: Those who knew that they would never receive the same payment for what they do or those who had to migrate for economic and family reasons. The talent out there will never return, sacrificing opportunity and progress to return to a country that only knows how to punish innovation. Ecuadorians like Orlando Espinoza, who is now with the world’s largest incubator Y Combinator or Elio Murillo from NASA, who helped successfully fulfill Perseverance and his arrival on Mars, confirming my theory that no one is going to stay in one place where they won’t let you fly.
On either side, people seek stability at a professional level; it makes you think that taking your product to the world is very complex developing in Ecuador, and they prefer to be conservative to the point of leaving behind the search for personal success by choosing happiness to your next generations (children, grandchildren, etc.)
The ecosystem is rotting every time you take away the capacity of a company. When there are fewer obstacles to development and innovation’s ability increases as the idea penetrates the market, that talent is the one that drives those ideas. Those ideas are the ones that motivate others to grow or improve. Called healthy competition, and it does not matter from which city it is made or with whom it is made; where evolution seems impossible, disruption is inevitable.
The perfect timing in the worse place
For a startup to be fluent, a touch of luck is necessary in the time and place where it operates. Many famous entrepreneurs believe that luck is a critical factor in the success of a business model. Just imagine Picker, a home delivery app made in Ecuador. Do you think that Picker App would have worked if its founder came up with this idea in 2005? The GPS we know today did not exist, and platforms such as iOS or Android could not have supported this development at a technical level. Or Paymentez, the startup that develops the largest credit card payment gateway for e-commerce in the country, they would never have been successful in the 90’s because there was no technology to handle online transactions; also, there was no many people with the capacity to have a credit card, and was impossible for someone to go an online store and make the purchase. Cases like these make us think that having an idea also requires a small stroke of luck to be successful, in which the government should contrast to help push it. Any entrepreneur in the world generally has to go through, but to start here is to go uphill. That makes us think about issues that do not exist in other countries, and here while you want to develop your idea, on the contrary, here they crush it, take it over or make it change so much that you lose focus.
In the course that I made at Stanford|Center of Development, they call this principle “Eyes on the big picture and the bugs” which means that a manager has to focus on zooming up and down the stack from the opportunities and threats that can make a product.
There are reasons that an entrepreneur gets out of hand. Not having a political decision on such arbitrary rules of the game stops the normality of a startup. Legal security, credit capacity, and clear directions are what make a place harmonious for anyone.
Shareholder culture
To correctly value a business, it is necessary to know if you have cash flow at present value since today’s sum of money is worth more than it is worth in the future, and this is something that any economist knows.
Having a productive ecosystem that is not listed on the stock exchange means that the seed capital to make the next great leap of the company has to be produced in another country. Globally in startups, it is widespread to see that base personnel can receive different types of compensation for time based on their loyalty, commitment, and efficiency in the first five years. Offering a company share package is not uncommon, which is a rare situation here.
The root problem of having a lousy culture regarding actions is due to the different vision one has in the short term. While in another country, the most significant objective of a startup after reach a million dollars in annual turnover is to seek the IPO. Here we still think that if the dollar will be an advantage and an absurd disadvantage. Anyone that celebrates the dollar is the one that knows the difference between Sucre and Dollar because we remove the management of monetary policy from a group of politicians and economic interest groups.
The number of investors betting on shares in technology companies is almost nil. They know that investing in an idea of solutions with servers in the cloud to provide security for products developed with artificial intelligence is less risky in the short term than investing in departments in Samborondón or hotel projects in the main cities. And the pressure that the entire context of the country emits makes people with money distrustful of how a real startup works, nobody invests in something that they do not know, and nobody knows what they do not know.
The value of a business today is the sum of money it will make tomorrow.
For my part, I hope that the ecosystem can improve and change, although I know how many years it will take. If you watch the People Is The Key block again, I’m group 2 for now.
