Time for a more holistic view on building startups in Latin America

This has been a pet peeve of mind for a number of years and I’ve worked building a cohesive company culture with all of the companies that I advise.  Work in this area, at least for me, has been incredibly challenging and I almost never advance as much as I’d like. Nonetheless, I do work on this with the founders of all of the companies in my portfolio.  With Tappsi, in part because it had grown so much already, I was able to run employee workshops as an input to the exercise with the founders in creating company values as well as a vision and mission statement.  With the other startups that I advise, the exercise may have been less extensive so far, but the focus was just as intense.  The key, in my mind, is to get these founders to understand how culture effects results and provide a type of launchpad for building a company culture that they themselves will have to reinforce by their actions (it won’t be effective otherwise).

I’ve found a certain attitude, particularly among investors and influencers in Latin America, whereby people who focus on “soft” areas such as company culture are somehow not “business-minded.” This paradigm is simply misguided and wrong within a space where getting creative and talented individuales to excel is the true driving force behind building big businesses.  Some of these investors are the same ones who still try to own a majority share of the startup they are investing in without understanding that they are shooting themselves in the foot by demotivating the founding team.  It’s simply another case of “practical” business people kidding themselves and not understanding how impractical their point of view really is.

Within Latin America, the investor and traditional business philosopy mindset is, for the most part, still living in the dark ages, particularly, when talking about technology startup businesses.  Big money in Latin America has, historically, been accustomed to setting the rules and moving large natural resource and construction projects through sheer financial muscle and having people follow their lead.  A subset of “startups”(especially, where economies of scale are key) may still succeed with this mindset, but this type of heavy-handedness kills true startups where innovation and individual and group creativity are the true drivers of success.

Some companies in the region do focus on developing a vibrant and coherent company culture.  However, my impression is that most entrepreneurs, investors and mentors fear focusing on this area for fear of being seen as “lightweights” or even unfocused.  I’m not saying that building a vibrant company culture is the panacea to all challenges that startups face. There is a risk of focusing too much on this area to the detriment of other areas particularly in the early, survival stage.   What I am saying is that this is obviously a vital component of building a startup and without this holistic view of the endeavor, investors and other influencers are doing a disservice to entrepreneurs in the region and, also, to themselves.

Nonetheless, the funny thing is that, in a business where human creativity is so key, ignoring the human element (e.g., “are our employees inspired?”, “are we clear about what our values are?”, etc.) is the least practical perspective.  In other words, “practical” business people in the region who focus exclusively on “hard-nosed” metrics such as sales/month or customer acquisition costs to the exclusion of these “soft” areas are neither practical nor do they have a complete understanding from where results come.

Latin America needs to have many more startups grow to become big businesses. There are a number of ecosystem challenges that need to be addressed in order to achieve this.  Nonetheless, one issue that can be remedied immediately is listening too much to those one-dimensional voices that don’t understand from where startup results are generated.  It’s from decisions about product, revenue model, growth strategies, but it also includes how founders lead their growing organizations and an important component of that is establishing a solid company culture.

A characteristic of these aforementioned one-dimensional voices is that they usually hold a one-size-fits-all paradigm. This can include things like, “forget about how startups work elsewhere” or “there is only one path to startup success.”  It’s all really a bunch of baloney. All businesses do adhere to some common realities such as the fact that they need to make money (even those businesses that are launched on the back of investment will, some day, need to do this) in order to survive.  Nonetheless, there are some differences in how this result is achieved depending on the industry you are in.

The startup world, at this point in history, has it’s own realities and some of these differ markedly from those of more traditional industries. This is at least the case in this point in time though this could be less true as time passes (and as new business environments mature).  Some startups do bear more resemblance to traditional businesses than others.  However, if the objective is to build this type of business (which is a subset of startups), then it should be stated as such without implying that this is THE way to build any startup.

While some industries (construction, mining, etc.) are characterized by financiers who reign supreme, the same dynamics don’t necessarily play out in more creative industries (e.g., film, tech-enabled startups, etc.).  It’s time to have a more nuanced conversation in Latin America about how to create big companies out of small startups and stop taking a cookie-cutter approach to business concepts that hold true in the, currently, dominant industries in the region.  It’s time for a more holistic understanding of what it takes to grow a successful startup, particularly, from supposed “hard-nosed” business people.  Once this, more thorough, understanding takes hold, these same people will understand that they are the least “practical” people in the room.

I’m sure that some who read this (these same “practical” business people in the region) will interpret this to mean that I’m saying that metrics such as Customer Acquisition Cost and others don’t matter.  Nothing could be further from the truth.  What I am saying is that I have observed a non-existent or cursory interest in helping local/regional startups understand the power of building a strong company culture: aligning a company’s collaborators around an inspiring vision of the future and agreeing and being true to a set of company values.  This post has two objectives: 1. raising the visibility and awareness in Latin America of such an important component of any plan to achieve startup growth and results.  2 trying to connect with others in the region, whom I’d love to meet, who have been doing great things in this area because of their (much deeper) understanding of from where startup results come.

I’m actually writing this post as I fly back from an event where I spoke to a good number of startup founders.  I spoke of some areas of startup development to which I feel they should pay attention. I didn’t have much time to delve too deeply into each topic, so when someone asked what I meant by company culture I could only give a quick explanation and decided to offer a longer version of this explanation here.

There are people such as Peter Thiel, Paul Graham and others with more direct experience building meaningful companies from startup roots. My experience, obviously, pales in comparison.  However, from this limited experience working within Silicon Valley startups, advising startup founders and listening to awesome Silicon Valley founders (directly and indirectly), I have been able to form an opinion about what company culture really is as well as it’s impact on results.  As the startup founders that I advise well know, this is a personal obsession I have when I want to discuss their companies.  I’ve come to understand that, unfortunately, this obsession is not shared the majority of the investors and others who have some role in influencing where startup founders focus their efforts.  As I mentioned, an objective of this post is bring more visibility to this important component of building a large and successful organization and, in turn, wittiness the creation of more large companies that grew from small startups.

What is company culture and how do you consciously make it work for you? 

Firstly, all startups possess a company culture; it’s just that most of the time, the founders are not cognizant of exactly what it is. When these startups are small, many of these cultures produce results because these companies are just trying to survive and that becomes a dominant part of the culture (explicit or not).  Nonetheless, as these companies start to grow beyond 8-10 people, it starts to become apparent that things aren’t “flowing” as automatically as in the past.  This is because not everyone has the same idea about where the company is going and not everyone values the same behaviors.

Strong company cultures, in my opinion, are built on the back of well-defined, explicitly values and a mutual understanding of that on which the company is focused. In the end, this is about people and has more to do with sociology than business.  Countries can build strong cultures, also, and a great example of this is the United States.  The US constitution and the Bill of Rights are incredibly well thought out documents which have inspired members (citizens) of that culture for centuries.  These same members have not only pledged their adherence to the values expressed in these documents, but have also given their lives.  Needless to say, these principles have inspired so many throughout the ages (some of these migrating from their “home” countries who didn’t share their values) to achieve some amazing things.

Continuing with the example of the United States, it’s important to understand how hard it is to build a culture. There are many instances in history and today where the United States does not live up to the values expressed in these documents.  Likewise, for companies, these must understand that, in many ways, the values and aspirations expressed are an ideal state toward which companies try to move.  This reality must be accepted and course corrections must be undertaken when human foibles and other lead individuals and groups astray.

When I’ve worked with startups on this aspect of their development, a lot has depended upon the specific stage of their development.  Obviously, earlier stage startups have a ton on their plate simply surviving.  At this stage, the effort that I ask them to put into company culture is much, much less than a startup at a later stage.  I usually take the following approach: