The Entrepreneurial Spirit in Latin America
Hernán Herrera and Daniel Brown are two Chilean entrepreneurs involved in the technology, real estate and education sectors. They have written several books about management, are active as educators and are well-known lecturers. Together, they founded the Institute for Entrepreneurial Development, through which they have promoted the creation of new businesses in Chile, Brazil, Argentina and Mexico. They also co-authored The Entrepreneur’s Guide and Re-invent Yourself, two books that were successfully published in Spain, the U.S. and Latin America, and created Emprenden.com, a portal that offers free information long-distance to more than 100,000 people who want to develop their entrepreneurial skills. Herrera and Brown talked to Universia-Knowledge@Wharton about their experiences working with entrepreneurs in Latin America.
Universia-Knowledge@Wharton: In Latin America, which countries are especially active when it comes to creating companies?
Hernán Herrera/Daniel Brown: We can’t say that a particular group of people are more or less entrepreneurial than another one. In fact, we believe that the entrepreneurial spirit is essential for human beings and that, like all seeds, its development basically depends on the characteristics of the soil. In this context, the question is very interesting but you have to see the conditions that each country provides so that its people take on an entrepreneurial attitude and have the skills and knowledge that are necessary for carrying out their goals.
Clearly, first of all, Brazil has the most powerful system of public and private networks for promoting new companies in all of Latin America. This point is almost anecdotal but it helps to underline the point: There are more than 20 publications specialized in new businesses, and they have large circulations.
Although Chile isn’t showing the same dynamism as it did during the 1990s, that country has learned the lesson of providing greater protection to emerging businesses. President Bachelet has created a package of measures aimed at the so-called ‘getting started again.’ They create conditions that enable those entrepreneurs who have been affected by some type of crisis to try to succeed again. This is particularly interesting, since the entrepreneur who has already taken risks and failed has a high probability of succeeding on a second or third attempt, thanks to the experience he or she has gained. In fact, Tom Peters, in his book, Re-imagine! says that failures are a form of capital that should not be thrown overboard.
In Mexico, the highest level of entrepreneurialism can be seen within universities, more than in the general public. A large number of careers, including such traditional and humanist careers as law, have professorships in entrepreneurialism. An especially interesting case is the Monterrey Institute of Technology and Higher Education, one of the most important universities in the entire continent. That institution has invested heavily in creating incubators for its students, and is imbuing all of its programs with the entrepreneurial spirit.
It would be a mistake not to clarify that those are merely the cases that appear most noteworthy to us at this time. However, we believe that all of Latin America is generating a strong wave for developing entrepreneurialism. Oddly, the few countries that remain behind in this respect because of political reasons are Cuba, Venezuela and, in part, Bolivia.
UK@W: What are the main problems that an entrepreneur faces when it is time to start up a business?
H.H./D.B.: We don’t think that the big problems are a shortage of capital, insufficient governmental support and things of that sort. The true entrepreneur understands that the limits and problems that affect his ability to create are what he brings to the process.
Generally speaking, entrepreneurial skill is associated with a spirit that is romantic, passionate, very ambitious and innovative. While that’s quite true, we nevertheless believe that this very fact paradoxically poses the greatest problems when it is time to put plans into practice.
The impact is on the problems and challenges that the entrepreneur feels he faces along the road; a lack of preparation, knowledge and development of skills. As we say frequently, people talk a lot about “come on, we can do it,” but it is more important to say “how we can” do it.
You may have a great desire to swim in the sea but if you don’t know how to swim and you just throw yourself in the water, two things can happen: Either you move forward with great difficulty, guided by your instincts, or you simply drown. Statistics show that the second possibility happens more often, not only among careless swimmers but also, unfortunately, in the business world.
Statistics show that more than 85% of all new companies close down before one year, which is disgraceful if we want to create an entrepreneurial culture. How can we solve this problem? By creating simple, continuous education programs. We also need to make it possible for entrepreneurs to run their own businesses for some time, which permits them to have real experiences before moving up to other projects.
UK@W: In which countries are there greater obstacles for creating a business? And of what sort are they?
H.H./D.B.: Cuba, Venezuela and Bolivia, to which we referred in the first question. Basically because of political reasons.
UK@W: What steps does an entrepreneur have to take from the time he or she gets the idea until the time when it is put into practice? Is there a trick for speeding up the process?
H.H./D.B.: The first step is to show in practice that the idea is viable. That means that you have to create a prototype of the business – an action plan that you carry out. The business model will be valid only if it produces sales in the volume and at the speed that you forecast. In this respect, you have to be as creative as possible; your tests must involve conditions that are as close to reality as possible. Some people will say, “For my business idea, it isn’t possible to create a prototype.” We think that is just an excuse. There is always a way to create a prototype and sell it.
In the United States, an entrepreneur wanted to build a spa that would provide hydrotherapy. It was hard for him to create a prototype in that area, but he could create a business model. So he invested in virtual models and rented space in a shopping center. His goal was to get 1,000 members to subscribe by asking them for a symbolic registration fee. The club needed at least 200 members to be profitable, and they knew that if they signed up 1,000 people, it was more likely that once the project was launched, only 500 people would pay their fee. If there hadn’t been 1,000 subscribers, the entrepreneur would have returned the fees to the people who had paid them. If it had more than 1,000 subscribers, it would be clear that all of its investments were justified. The principal was clear: An economy of resources, economy of efforts and the minimization of risks.
In that example, would it have been worth the trouble to go through every step and make all the investments, only to realize that the business plan would work? When a model is validated through a prototype, the costs of registration and financing and all the other costs that you need will be much easier to get. So you should never risk what you don’t have without having proved the validity of your business model.
UK@W: What sorts of new businesses offer the most opportunities in Latin America today?
H.H./D.B.: Without doubt, tourism and real estate are the sectors that will shine the most in coming years. There is a great deal of space for innovation, and a lot of capital is coming in to finance those projects. Except for a few exceptions, Latin America is a safe continent to travel in. It is rich in natural landscapes and cultures that are tremendously attractive for the Europeans and Asians who have just discovered them. In this sense, there is a lot that remains to be developed, a great deal of room for entrepreneurs to create new proposals. When it comes to real estate, this also involves the construction sector, where you can see hundreds of new companies contributing new technologies, materials, processes, designs, concepts and so forth.
UK@W: In your new book, Re-invent Yourself, which was just published in Spain, you defend the idea that creativity is the key to success. Can any company reinvent itself, or are there limits?
H.H./D.B.: Our concept of creativity is that it is a “method” for designing formulas that enable us to achieve our goals with as little funding, effort and risks as possible. For this reason, what we call innovation is the result of this creativity -- a more efficient formula than what we currently use. In that sense, there are no limits for reinventing yourself. As we say in the book, everything will depend on the proposals that you have and on how much you can utilize your awareness of the energy that is available.
We are convinced that the concept of “available energy,” which we develop in our book The Entrepreneur’s Guide, is fundamental for understanding and really practicing creativity. Ask yourself the following: How much value does 30 minutes of wind have? For most of us, no value at all. But the aeronautical industry will say wind is valuable if it is a tail wind, but it has negative value if it is a headwind. When it comes to generating electricity, wind also has value today, and most likely we will continue to find ways to use the [wind] energy that is there but we only have to learn how to channel. The thesis of Re-invent Yourself is to “discover the available energies that operate within you, within your organization, and in your environment. Then, channel those energies toward your intentions.”
UK@W: What are the prospects for Latin American firms that want to globalize their activities in Europe and the United States?
H.H./D.B.: We believe that except for some exceptions, the “average” Latin American company still has a long way to go in order to get established and be successful in Europe and the United States. Even though they have great potential for innovation and management, they need to change the way they view things, and turn over the map. It is one thing to sell online, using e-commerce, or to export. It is a totally different thing to establish operations in those countries. We think it is very unlikely, for example, that a Latin American retailer will launch an operation in Europe that is as successful as Zara, the Spanish retailer, has been throughout our continent [Latin America]. The real prospects are in alliances between already established players in global channels and local “talent” and business models that can feasibly be globalized.
UK@W: Do you believe that nationalist movements are helping or hurting the creation of new companies?
H.H./D.B.: Nationalist movements are irrelevant for the entrepreneur. Innovations move forward without having anyone asking for permits or visas. The globalization of small firms is already a fact that must make tax authorities and regulatory agencies in each country nervous, since those agencies are falling further and further behind. When it comes to social movements that promote nationalism, it is hard for them to succeed in their attempts to put a stop to cultural and commercial integration. What is a fact, however, is that commercial barriers obviously impose higher costs, which consumers wind up paying. However, like all artificial barriers, they will wind up falling down all by themselves.
UK@W: What are the main competitive advantages that Latin American companies with respect to their foreign competitors?
H.H./D.B.: To be frank, apart from knowledge of the market and its regulations, and psychological proximity to consumers and their idiosyncrasies, there aren’t a lot of other competitive advantages to point out. As we said in response to an earlier question, we believe that we are less and less citizens of a single country, and more and more citizens of the world. In that sense, in one of our own companies there are professionals who come from Argentina, Spain and Mexico. They are people whom we haven’t met in person but with whom we have a very close relationship. Clearly, their contributions make our company what it is. The question this leads to is, ‘What country is a company from?’ We believe that the only way anyone can respond to that question is to find out where we pay taxes