Startups Find Fertile Ground For Explosive Growth In Latin America

Editor’s note: Maria Rocio Paniagua currently works as a project manager at Innku, one of the top mobile and web workshops in Mexico. She is very passionate about all things technology, entrepreneurship and innovation. Follow her on Twitter.

Mexico 15 years ago may not look very different from today if seen from the right angles. Most Mexicans used a single search engine (the now forgotten AltaVista); Windows was operating in most homes; and we were all excited for Nokia’s latest release: a lighter, smaller phone. Nowadays, the same social echelon owns personal computers, Apple and Google have taken over, and lines that go on for days can be seen outside Apple stores whenever a new product hits the shelves.

The playing field has changed for tech companies looking to enter Mexico and the rest of Latin America today. The market is much more specialized and segmented, which translates into new and interesting business opportunities. Also, small clusters are beginning to develop in most large cities where local and international startups compete and cooperate on a regular basis. This makes it easier for teams to learn from their own mistakes as well as from those made by others, hence iterating faster and reducing costs of trial and error approaches. Also, competition elevates the quality of products delivered to users, and keeps companies on their feet, continuously looking to improve their services and innovate.

This explains why the Latin American region is exploding with entrepreneurial ventures, particularly tech startups. At TechCrunch Disrupt this year, there were more than 50 Latin American startups, of which at least 17 were Mexican. VCs around the world are flocking to get a piece of the Latin American cake. So, what’s new? What’s different? What’s all the rage?

One of the first successful Latin American-bred companies was Mercado Libre, which entered Mexico before Google did and, conveniently, before the dot-com bubble burst. The company started to fulfill Marcos Galperin’s vision of a new market. His co-founder, Stelleo Tolda, and he met at Stanford while they were pursuing MBAs. They graduated in 1999 — when all the fuss and investment capital was funneling toward Internet ventures — and launched Mercado Libre in Argentina. But they launched with the vision of using the same model in other markets within the region.

Most of the capital they started with was American. They recognized an opportunity to develop e-commerce in their region with the concept of a democratic marketplace where people could buy and sell just by having Internet access (much like eBay). They found their chance in limitations: on the side of vendors, the small companies had nothing on the big, established ones since they lacked access to larger markets (like Mexico and Colombia).

At the beginning they endured several trial-and-error loops, trying out different ways to penetrate the market. Stelleo notes their use of online video marketing techniques (which they use to this day), being among the first to invest in that area. They were also among Google Latin America’s first clients (purchasing sponsored links), whom they contacted thanks to their Mountain View network.

The company is still well positioned and looking to grow. Forty percent of the region has a working Internet connection (rather than the 3 percent available when they started out). There is also more knowledge and sophistication where mobile and Internet tech is involved, which generates vertical niche opportunities.

Mercado Libre has made some changes to the platform to keep up with the pace of innovation. For instance, when they launched, their main concern was having a good site that loaded fast with images that weighed the bare minimum. There was no broadband, and most people accessed the Internet on home or work PCs. However, with the rise of mobile computing, the Mercado Libre platform is compatible with an array of mobile devices.

Mercado Libre expanded quickly. In less than a year the company had sites up and running in Argentina, Brazil, Mexico, Venezuela and Chile. Today they are in an addition eight countries within the LATAM region: Colombia, Costa Rica, the Dominican Republic, Ecuador, Panama, Peru, Portugal, and Uruguay. Their strategy was hiring local talent through their professional networks (mainly the Stanford GSB one). Their servers were in the U.S. and they used the same technology everywhere. However, the local component was crucial in the process of opening and taking over new markets.

Freelancer launched a Spanish-language version of its platform for affordable, flexible and professional labor. With a regional director, transactions in Mexican pesos, and Spanish-speaking support, Freelancer.mx is looking to become the platform through which Mexican (and eventually Latin American) entrepreneurs ignite their business workforce.

Sebastian Siseles, the regional director for Latin America, and Matt Barrie, founder and CEO, said they first analyzed specific regions and countries where they intended to launch to learn about the behaviors and preferences of potential users. They hired local teams with a deep understanding of their surroundings and relevant connections to the local clusters. Then they established regional sites that integrated with the global marketplace (Mexico, Argentina, Chile and Brazil are the countries on their radar) and set up localized features, such as currency transactions and language support.

They see the cost of entering these markets as an investment, and thus are spending substantial amounts of time and money ensuring that every Latin American startup cluster knows about Freelancer. The greatest challenge they face is exposing their platform to entrepreneurs and small businesses worldwide. To achieve this, they first need to substantially increase their user base and convince Mexican companies about the opportunities their platform offers. Expectations vary from country to country in Latin America, but the challenges are generally the same.

Crowdfunder is a platform that is trying to flip venture capital on its head and take it to the masses. Its model is similar to that of Kickstarter, but it gives funders a chance to acquire equity instead of products or prizes. The opportunity they saw was a Spanish-speaking market and a huge and expanding Internet culture, as well as an entrepreneurial ecosystem, macroeconomic stability (at 3.9 percent, Mexico is growing faster than Brazil and, unlike the U.S., a manageable debt for over a decade), and a huge pool of talent (Mexico graduates over 60,000 engineers every year).

Crowdfunder developed an enterprise within Mexico, rather than bringing people in from the outside to run it. This way it all fits perfectly with the Mexican business culture and more closely with the Latin American one. They’ve also formed strategic alliances with organizations that may benefit from the democratization of investments. However, they’re aware of potential difficulties caused by bureaucracy, legislation and lack of efficiency, all factors that may hinder operations during their first stages.

Pepe Villatoro, the Mexican CEO, pointed out that legal issues are the biggest challenge in the short term since new legislation is needed to make a model like theirs fully operational. They’re pushing changes in legislation and lighting up a global movement along the lines of the Jobs Act. For instance, they said they had looked into the Startup Exemption to try and find ways to tropicalize it and push it in the Mexican Congress. In the medium-term they’re looking at transforming the culture in order to acquire massive traction, an even bigger challenge. In the long term they want to unify processes and concepts in LATAM and the U.S.

Ultimately, they are looking to generate a movement through the democratization of investment and empowerment of startups, small businesses and potential investors. Hence, reducing inequality, fostering innovation, promoting local consumption, and the multiplication of community investments.

From Spain another platform has decided to rise to the challenge of taking over the Mexican and LATAM market. Minube is a platform (web + app) for social travelling that has developed a strong user base in Spain. Other European countries decided to start testing the waters on this side of the world a few months ago. The reasons behind it?

“Latin America and Mexico represent the future of the Internet era, even though these days their penetration rates are still small, they’ll soon see their Golden Age, growing at exponential rates,” said CEO and founder Raul Jimenez. This year alone mobile phones are expected to surpass the head count. Also, LATAM is the region with the most amassed growth in the world, and the travel category is the most relevant one in the area’s e-commerce niche (which is growing around 40 percent every year). Social media got a warm welcome and is now bursting in, with Brazil holding the second-largest Facebook user base and Mexico the fifth. All of which makes the area ready for a service like Minube.

Their market-entrance strategy is based on a high-quality product, backed by coders and designers. They decided to start the expansion to LATAM via Mexico and Brazil, so they’ve spent some time identifying potential users (passionate travels that engage in social media), handpicking them and catering to their needs. They also understand the value of local talent, so they’ve been looking for local professionals to join their ranks, just like they did in France and Italy.

Their approach is people first. They built and tested a scalable platform for the past four years, so the main investment entering new markets is made on specialists, human resources, sales teams, community managers and PR. The core of the project, says Raul, “is connecting and talking to users. We’ll get nowhere without a human connection to travelers.”

Like Crowdfunder and Freelancer, Minube has a long road, with challenges like evangelization of users. After gaining traction and shifting some of the travel culture, the company intends to implement its business model, which promises to cause even more disruption, with the launch of new marketing concepts. In the long run, they too expect to become the ultimate social travel platform in the area. However, they know this will be a long road, and with five years and a few European markets under their belt, they are approaching the LATAM challenge like one would approach an open book: eager to learn and solve real pains within the market.

The Latin American region as a whole, and Mexico in particular, is the land of small businesses and interesting challenges and opportunities to disrupt. International startups have noticed, taking the area by storm with big plans and goals to persuade entrepreneurs, company owners and individuals to try their platforms.

Latin America has been quietly growing and fostering technology and innovation for the past 15 years. Companies can now rely on more educated and complex networks of talent, capital and customers, as well as providers of other services. However, international startups entering these markets are facing some old and fascinating new challenges at the doorstep. The old sea lions still have a say and a few wise lessons to teach the young generations of vibrant entrepreneurs striving to take over. One thing is certain, the best is yet to come.