Argentina and Brazil GPB are the fastest growing in the world, people are earning more money and using internet a lot more, Google’s Eric Schmidt said in an interview in 2011 “…we see a very fast growth and, in fact, Brazil and Argentina are two countries that are having the fastest growth in the world, so we have plans to invest heavily in the country, perhaps even double that what we are doing now…”. So it seems like a smart strategy to go out and pitch to investors about your start up and get a couple of millions of dollars, that was exactly what our competitors did, we instead bootstrapped and yet we are growing faster.
There are several factors why bootstrapping is working well for us:
The most important one is that the speed of growth of a country is never as fast as the speed at which internet start up investors want to earn money. So it doesn’t matter how much money you have in the bank for your start up, people who don’t have internet access won’t go to buy a computer and pay a monthly internet plan just to use your start up service. Even worse, people that don’t have a bank account won’t go to get a credit card just to pay you online, and if they go, banks probably won’t give them a credit card because they are unregistered employees. Quoting again Eric Schmidt interview, “…what I notice is that ecommerce is not as advanced as in United States and Europe…”. All these issues are improving in Latin America but they take time and this allows us to have an advantage.
The second factor is unpredictability. Everybody knows that a business plan is not very useful for a startup, but when the government doesn’t have a business plan then things are even wilder. In Latin America, inflation, currency depreciation and periodic changes in rules and laws make it very hard to have mid-term or long-term plans about where and how you are going to invest your money. For example you must be very careful when you hire an employee because bureaucracy, taxes and employee protection laws can suddenly become a nightmare.
The third factor is a consequence of the previous two factors: Competition is low. This makes entry barriers low enough for guys with some computer skills and a couple of dollars.
This is how we took advantage of these factors:
Low Competition: We are engineers so we skipped the business plan, prototypes and investor interviews and went directly to market. With just 2000 dollars we were the first financial comparison engine in the market, this helped us enormously to position ourselves as the number one financial comparison engine in about a year by spending a lot of effort but very little cash in marketing, search engines and social networks. We keep this advantage by tweaking every day one or two small details on the web site and the business model.
Unpredictability: Bootstrapping forced us to keep everything small, efficient and flexible, this helped us to adapt very fast to any change. For example, we started comparing mobile phone plans knowing that a law will allow users to change between companies without losing their phone number, the law delayed two years more than expected, we stopped comparing mobile phones plans after 4 month. Another example was to stop the creation of a call center when employee protection laws and inflation made call centers less profitable.
Speed of growth: The steady but not exponentially fast growth allowed us to develop our company without the need of a big cash injection. As I said we started with just 2000 dollars and a shared server, if the growth in the first year would have been too fast we couldn’t have scaled.
As a final conclusion I can say that if you have a couple of dollars, patience and a lot of guts then I think this is a great time to bootstrap an internet company in Latin America.
Notice this article refers to startups for the Latin America market and not to Latin America startups for the global market.